<PAGE> 1
As filed with the Securities and Exchange Commission
on May 1, 1998.
Securities Act File No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / x /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
SCUDDER SPAIN AND PORTUGAL FUND, INC.
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
(Address of Principal Executive Offices) (Zip Code)
800-349-4281
(Registrant's Area Code and Telephone Number)
communications, notices and orders to:
Bruce H. Goldfarb, Esq.
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154
with copies to:
Robert W. Helm, Esq. David A. Sturms, Esq.
Dechert Price & Rhoads Vedder, Price, Kaufman & Kammholz
1775 Eye Street, NW 222 North LaSalle Street
Washington, DC 20006 Chicago, IL 60601
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Approximate Date of Proposed Public Offering:
As soon as practicable after
this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) REGISTRATION FEE(2)
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Common Stock ($.01
par value)........... 21,500,000 Shares $18.125 $389,687,500 $118,088
====================================================================================================================
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(1) Estimated solely for purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, based on
the average of the high and low sales prices reported on the New York
Stock Exchange on April 29, 1998.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
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<CAPTION>
Item of Form N-14 Location in the Proxy Statement Prospectus
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PART A
1. Beginning of Registration Statement and Outside Front Cover Page
Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Prospectus Cover Page; Table of Contents
3. Fee Table, Synopsis Information, and Risk Factors Synopsis; Comparison of Investment Objectives,
Policies and Risk Factors
4. Information About the Transactions Synopsis - The Proposed Merger; Information about
the Merger; Additional Information about the Funds
5. Information About the Registrant Synopsis; Comparison of Investment Objectives,
Policies and Risk Factors; Additional Information
about the Funds
6. Information About the Company Being Acquired Synopsis; Comparison of Investment Objectives,
Policies and Risk Factors; Additional Information
about the Funds
7. Voting Information Notice of Meeting of Stockholders; Introduction;
Required Vote
8. Interest of Certain Persons and Experts Additional Information about the Funds
9. Additional Information Required for Reoffering by Persons (Not Applicable)
Deemed to be Underwriters
PART B Statement of Additional Information Caption
10. Cover Page Cover Page
11. Table of Contents Table of Contents
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<TABLE>
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12. Additional Information about the Registrant Comparison of Investment Objectives, Policies and
Risk Factors (in Part A); Additional Information
about the Funds (in Part A); Tax Considerations
13. Additional Information about the Company Being Acquired Comparison of Investment Objectives, Policies and
Risk Factors (in Part A); Additional Information
about the Funds (in Part A); Tax Considerations
14. Financial Statements Financial Statements
PART C
15 - 17 Information required to be included in Part C is
set forth under the appropriate Item, so numbered,
in Part C of this Registration Statement.
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PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
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SCUDDER SPAIN AND PORTUGAL FUND, INC.
345 Park Avenue
New York, New York 10154
_______, 1998
Dear Stockholder:
We are pleased to invite you to the Annual Meeting of
Stockholders (the "Meeting") of the Scudder Spain and Portugal Fund,
Inc., a Maryland corporation (the "Spain and Portugal Fund"). The
Meeting is scheduled to be held at ______ a.m., Eastern time, on July
23, 1998, at the offices of Scudder Kemper Investments, Inc. ("Scudder
Kemper"), 25th Floor, 345 Park Avenue (at 51st Street), New York, New
York 10154. Stockholders who are unable to attend this meeting are
strongly encouraged to vote by proxy, which is customary in corporate
meetings of this kind. A Proxy Statement/Prospectus regarding the
Meeting, a proxy card(s) for your vote at the meeting and an envelope -
postage prepaid - in which to return your proxy card are enclosed. At
the Meeting you will be asked to vote on three matters.
First, you will be asked to vote on a Merger Agreement and
Plan of Reorganization whereby The Growth Fund of Spain, Inc. (the
"Growth Fund of Spain") will be merged with and into the Spain and
Portugal Fund (each a "Fund", and collectively, the "Funds") in
accordance with the Maryland General Corporation Law. As a result of
the merger, the separate existence of the Growth Fund of Spain will
cease and the Spain and Portugal Fund will be the surviving
corporation, and each share of common stock of the Growth Fund of Spain
will be converted into an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of common stock of the Spain
and Portugal Fund, plus cash in lieu of any fractional shares, computed
based on the net asset value per share of each Fund. The currently
issued and outstanding shares of the Spain and Portugal Fund will
remain issued and outstanding. The investment objective and policies of
the Spain and Portugal Fund will continue unchanged if the merger is
consummated. Combined with this proposal will be a proposal to amend
the Articles of Incorporation of the Spain and Portugal Fund to permit
the merger to be approved by the affirmative vote of a majority of the
Spain and Portugal Fund's outstanding shares and to permit the Board of
Directors of the Fund to classify shares of the Fund in separate series
or classes. Under the current Articles of Incorporation, a merger of
the kind to be voted upon at the Meeting would require the affirmative
vote of two-thirds of the Spain and Portugal Fund's outstanding shares.
Approval of the amendment to the Articles of Incorporation and of the
merger will require the affirmative vote of a majority of the Fund's
outstanding shares of common stock.
Following consummation of the merger, it is proposed that
stockholders of the Spain and Portugal Fund, which will be the
surviving fund in the merger, will be offered a one-time right to
demand redemption of their shares in-kind at net asset value in
exchange for securities held by the Fund in its investment portfolio.
This in-kind redemption right would be subject to limitations on the
number of shares redeemed to preserve the tax-free status of the merger
and to attempt to position the redemptions to qualify as "sales or
exchanges" generally taxable at capital gains rates rather than being
treated as dividends taxable at ordinary income rates under applicable
tax law. Unless a stockholder elects otherwise, such redemption
proceeds would be invested in an open-end fund to be established and
managed by Scudder Kemper. Shares of this open-end fund would be
redeemable at net asset value subject to a redemption fee of up to 2%
on redemptions of shares made within one year of investment, although
stockholders would receive credit for the time they held their shares
of the Spain and Portugal Fund or the Growth Fund of Spain. Although
the Board of Directors of the Fund intends to use its best efforts to
complete the in-kind redemption offer, the offer is subject to
regulatory approval, and would be completed no earlier than the fourth
quarter of 1998.
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Second, you are being asked to vote for the election of eight
new Directors and two current Directors to serve on the Board of
Directors of the Spain and Portugal Fund. Election of these nominees
requires the affirmative vote of a majority of the votes of the Fund
cast at the Meeting, except with respect to the re-election of two
current Directors of the Spain and Portugal Fund, which requires a
plurality of the votes cast at the Meeting.
Third, you are being asked to ratify the action of the Board
of Directors in selecting Price Waterhouse LLP as the Fund's
independent accountants for the fiscal year ending September 30, 1998.
This action requires the affirmative vote of a majority of the votes of
the Fund cast at the Meeting.
THE BOARD OF DIRECTORS OF YOUR FUND BELIEVES THAT THE PROPOSED
MERGER IS IN THE BEST INTERESTS OF STOCKHOLDERS AND RECOMMENDS THAT YOU
READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR ALL PROPOSALS.
Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN AND
RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
If we do not receive your signed proxy card(s) after a reasonable
amount of time, you may receive a telephone call from our proxy
solicitor, Shareholder Communications Corporation, reminding you to
vote your shares.
Respectfully,
Daniel Pierce
Chairman of the Board of Directors
STOCKHOLDERS ARE URGED TO SIGN THE PROXY CARD(S) AND RETURN THE CARD(S)
IN THE POSTAGE-PAID ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR
VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR STOCKHOLDINGS.
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THE GROWTH FUND OF SPAIN, INC.
222 South Riverside Plaza
Chicago, Illinois 60606
_______, 1998
Dear Stockholder:
We are pleased to invite you to a Special Meeting of
Stockholders (the "Meeting") of The Growth Fund of Spain, Inc., a
Maryland corporation (the "Growth Fund of Spain"). The Meeting is
scheduled to be held at ______ a.m., Eastern time, on July 23, 1998, at
the offices of Scudder Kemper Investments, Inc. ("Scudder Kemper"),
25th Floor, 345 Park Avenue (at 51st Street), New York, New York 10154.
Stockholders who are unable to attend this meeting are strongly
encouraged to vote by proxy, which is customary in corporate meetings
of this kind. A Proxy Statement/Prospectus regarding the Meeting, a
proxy card(s) for your vote at the meeting and an envelope - postage
prepaid - in which to return your proxy card are enclosed.
At the Meeting, you will be asked to vote on a Merger
Agreement and Plan of Reorganization whereby the Growth Fund of Spain
will be merged with and into the Scudder Spain and Portugal Fund, Inc.
(the "Spain and Portugal Fund") (each a "Fund" and collectively, the
"Funds") in accordance with the Maryland General Corporation Law
("MGCL"). As a result of the merger, the separate existence of the
Growth Fund of Spain will cease and the Spain and Portugal Fund will be
the surviving corporation, and each share of common stock of the Growth
Fund of Spain will be converted into an equivalent dollar amount (to
the nearest one ten-thousandth of one cent) of full shares of common
stock of the Spain and Portugal Fund, plus cash in lieu of any
fractional shares, computed based on the net asset value per share of
each Fund. The currently issued and outstanding shares of the Spain and
Portugal Fund will remain issued and outstanding. The investment
objective and policies of the Spain and Portugal Fund will continue if
the merger is consummated. Like the Growth Fund of Spain, the Spain and
Portugal Fund is a closed-end investment company managed by Scudder
Kemper and registered under the Investment Company Act of 1940, as
amended. The investment objective of the Spain and Portugal Fund and
the Growth Fund of Spain is long-term capital appreciation. The Spain
and Portugal Fund seeks this objective by investing primarily in the
equity securities of Spanish and Portuguese companies.
Combined with the proposal to merge will be a proposal to
amend the charter of the Growth Fund of Spain to permit the merger to
be approved by the affirmative vote of two-thirds of all votes entitled
to be cast on the matter by stockholders of the Growth Fund of Spain.
In its charter, the Growth Fund of Spain has elected to be governed by
the business combination provisions of the MGCL, which presents
significant impediments to "business combinations" with "interested
stockholders," as those terms are defined in the MGCL. In addition to
the requirements of the business combination provisions of the MGCL,
the charter requires the affirmative vote of three-fourths of the
Growth Fund of Spain's outstanding shares for any merger or
consolidation into another corporation or entity. Consequently, the
proposal to amend the charter of the Growth Fund of Spain will provide
that the Growth Fund of Spain will no longer be governed by the
business combination provisions of the MGCL and will reduce from
three-fourths to two-thirds the number of outstanding shares necessary
to approve a merger. Approval of the amendment to the charter and of
the merger will require the affirmative vote of two-thirds of the
Fund's outstanding shares of common stock.
Following consummation of the merger, it is proposed that
stockholders of the Spain and Portugal Fund (including the former
stockholders of the Growth Fund of Spain) will be offered a one-time
right to demand redemption of their shares in-kind at net asset value
in exchange for securities held by the Fund in its investment
portfolio. This in-kind redemption right would be subject to
limitations on the number of shares redeemed to preserve the tax-free
status of the
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<PAGE> 9
merger and to attempt to position the redemptions to qualify as "sales
or exchanges" generally taxable at capital gains rates rather than
being treated as dividends taxable at ordinary income rates under
applicable tax law. Unless a stockholder elects otherwise, such
redemption proceeds would be invested in an open-end fund to be
established and managed by Scudder Kemper. Shares of this open-end fund
would be redeemable at net asset value subject to a redemption fee of
up to 2% on redemptions of shares made within one year of investment,
although stockholders would receive credit for the time they held their
shares of the Growth Fund of Spain or the Spain and Portugal Fund.
Although the Board of Directors of the Spain and Portugal Fund is
committed to the in-kind redemption offer, the offer is subject to
regulatory approval, and would be completed no earlier than the fourth
quarter of 1998.
If the merger is consummated prior to the Growth Fund of
Spain's annual meeting of stockholders scheduled for October 1998, a
proposal to convert the Fund to open-end status that is currently
scheduled to be voted on by stockholders at that meeting will not be
considered. This proposal was automatically triggered by a policy of
the Fund requiring that an open-ending proposal be presented to
stockholders if the Fund's shares have traded at a market price
discount for a specified period of time. If the merger is consummated,
the Spain and Portugal Fund will adopt a policy that would require it,
if certain conditions are met, to present one open-ending proposal to
its stockholders if the proposed in-kind redemption offer has not been
implemented or has been implemented with a pro rata reduction in the
amount of shares accepted for redemption.
In connection with the consideration of the merger, the
stockholders of the Spain and Portugal Fund are being asked to elect
the current Directors of the Growth Fund of Spain as additional members
of the Board of Directors of the Spain and Portugal Fund.
THE BOARD OF DIRECTORS OF YOUR FUND BELIEVES THAT THE PROPOSED
MERGER IS IN THE BEST INTERESTS OF STOCKHOLDERS AND RECOMMENDS THAT YOU
READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR THE PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN AND
RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
If we do not receive your signed proxy card(s) after a reasonable
amount of time, you may receive a telephone call from our proxy
solicitor, Shareholder Communications Corporation, reminding you to
vote your shares.
Respectfully,
Daniel Pierce
President
STOCKHOLDERS ARE URGED TO SIGN THE PROXY CARD(S) AND RETURN THE CARD(S)
IN THE POSTAGE-PAID ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR
VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR STOCKHOLDINGS.
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SCUDDER SPAIN AND PORTUGAL FUND, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of the Scudder Spain and Portugal Fund, Inc.:
Please take notice that the Annual Meeting of Stockholders
(the "Meeting") of the Scudder Spain and Portugal Fund, Inc., a Maryland
corporation ("Spain and Portugal Fund"), will be held at the offices of Scudder
Kemper Investments, Inc. ("Scudder Kemper"), 25th Floor, 345 Park Avenue (at
51st Street), New York, New York 10154, on July 23, 1998, at _____ a.m., Eastern
time, for the following purposes:
(1) A. To consider and vote upon the approval of amendments to the
Articles of Incorporation of the Spain and Portugal Fund to
permit the Merger (as defined below) and certain other
transactions to be approved by the affirmative vote of a
majority of the Spain and Portugal Fund's outstanding shares
of common stock and to permit the Board of Directors of the
Spain and Portugal Fund to classify shares of the Fund into
separate series or classes;
B. To consider and vote upon the approval of a merger of The
Growth Fund of Spain, Inc., a Maryland corporation (the
"Growth Fund of Spain") with and into the Spain and Portugal
Fund pursuant to a Merger Agreement and Plan of Reorganization
dated April 14, 1998, in accordance with the Maryland General
Corporation Law, whereupon the separate existence of the
Growth Fund of Spain will cease and the Spain and Portugal
Fund will be the surviving corporation, and each share of
common stock of the Growth Fund of Spain will be converted
into an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of common stock of
the Spain and Portugal Fund, plus cash in lieu of any
fractional shares, computed based on the net asset value per
share of each Fund (the "Merger");
(2) To elect Directors of the Spain and Portugal Fund;
(3) To ratify or reject the selection of Price Waterhouse LLP as
the Spain and Portugal Fund's independent accountants for the
fiscal year ending September 30, 1998.
If the Merger is not approved by the stockholders of the Spain
and Portugal Fund and the Growth Fund of Spain, only the current Directors of
the Spain and Portugal Fund standing for re-election will be voted upon. The
appointed proxies will vote on any other business as may properly come before
the Meeting or any adjournments thereof.
Holders of record of shares of common stock of the Spain and
Portugal Fund at the close of business on ___________, 1998 are entitled to vote
at the Meeting and at any postponements or adjournments thereof.
In the event that the necessary quorum to transact business or
the vote required to approve or reject any proposal is not obtained at the
Meeting, the persons named as proxies may propose one or more adjournments of
the Meeting in accordance with applicable law to permit further solicitation of
proxies. Any such adjournment will require the affirmative vote of the holders
of a majority of the Spain and Portugal Fund's shares present in person or by
proxy at the Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor and will vote
against any such adjournment those proxies to be voted against that proposal.
The enclosed proxy is being solicited on behalf of the Board
of Directors of the Spain and Portugal Fund.
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By Order of the Board of Directors,
Thomas F. McDonough, Secretary
________, 1998
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S)
MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM
AT THE MEETING. IF YOU CAN ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES IN
PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
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THE GROWTH FUND OF SPAIN, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of The Growth Fund of Spain, Inc.:
Please take notice that a Special Meeting of Stockholders (the
"Meeting") of The Growth Fund of Spain, Inc., a Maryland corporation (the
"Growth Fund of Spain"), will be held at the offices of Scudder Kemper
Investments, Inc. ("Scudder Kemper"), 25th Floor, 345 Park Avenue (at 51st
Street), New York, New York 10154, on July 23, 1998, at _____ a.m., Eastern
time, for the following purpose:
(1) A. To consider and vote upon the approval of amendments to the
Articles of Incorporation of the Growth Fund of Spain to
permit the Merger (as defined below) to be approved by the
affirmative vote of two-thirds of the Growth Fund of Spain's
outstanding shares of common stock and to provide that the
Growth Fund of Spain will no longer be governed by the
business combination provisions of the Maryland General
Corporation Law; and
B. To consider and vote upon the approval of a merger of the
Growth Fund of Spain with and into the Scudder Spain and
Portugal Fund, Inc., a Maryland corporation (the "Spain and
Portugal Fund"), pursuant to a Merger Agreement and Plan of
Reorganization dated April 14, 1998, in accordance with the
Maryland General Corporation Law, whereupon the separate
existence of the Growth Fund of Spain will cease and the Spain
and Portugal Fund will be the surviving corporation, and each
share of common stock of the Growth Fund of Spain will be
converted into an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of common stock of
the Spain and Portugal Fund, plus cash in lieu of any
fractional shares, computed based on the net asset value per
share of each Fund (the "Merger").
The appointed proxies will vote on any other business as may
properly come before the Meeting or any adjournments thereof.
The Merger must also be approved by the stockholders of the
Spain and Portugal Fund. Holders of record of shares of common stock of the
Growth Fund of Spain at the close of business on _____________, 1998 are
entitled to vote at the Meeting and at any postponements or adjournments
thereof.
In the event that the necessary quorum to transact business or
the vote required to approve or reject any proposal is not obtained at the
Meeting, the persons named as proxies may propose one or more adjournments of
the Meeting in accordance with applicable law to permit further solicitation of
proxies. Any such adjournment will require the affirmative vote of the holders
of a majority of the Growth Fund of Spain's shares present in person or by proxy
at the Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor and will vote
against any such adjournment those proxies to be voted against that proposal.
The enclosed proxy is being solicited on behalf of the Board
of Directors of the Growth Fund of Spain.
By Order of the Board of Directors,
Philip J. Collora, Secretary
________, 1998
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IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S)
MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM
AT THE MEETING. IF YOU CAN ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES IN
PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
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TABLE OF CONTENTS
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GENERAL.......................................................................................................... 19
PROPOSAL 1 (BOTH FUNDS): APPROVAL OF AMENDMENTS TO THE ARTICLES OF INCORPORATION AND THE MERGER AGREEMENT AND
PLAN OF REORGANIZATION........................................................................................... 22
A. AMENDMENT TO THE ARTICLES OF INCORPORATION OF THE FUNDS....................................................... 22
B. APPROVAL OF MERGER AGREEMENT AND PLAN OF REORGANIZATION PURSUANT TO WHICH THE GROWTH FUND OF SPAIN WILL BE
MERGED WITH AND INTO THE SPAIN AND PORTUGAL FUND.............................................................. 24
SYNOPSIS...................................................................................................... 25
EXPENSE TABLE................................................................................................. 31
FINANCIAL HIGHLIGHTS.......................................................................................... 33
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS................................................ 34
INFORMATION ABOUT THE MERGER.................................................................................. 45
ADDITIONAL INFORMATION ABOUT THE FUNDS........................................................................ 55
REQUIRED VOTE................................................................................................. 72
LEGAL PROCEEDINGS............................................................................................. 73
EXPERTS....................................................................................................... 73
PROPOSAL 2 (SPAIN AND PORTUGAL FUND STOCKHOLDERS ONLY): ELECTION OF DIRECTORS OF THE FUND....................... 74
PROPOSAL 3 (SPAIN AND PORTUGAL FUND STOCKHOLDERS ONLY): RATIFICATION OF INDEPENDENT ACCOUNTANTS................. 82
ADDITIONAL INFORMATION........................................................................................... 83
EXHIBIT A..................................................................................................... 85
APPENDIX A.................................................................................................... A-1
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION - DATED MAY 1, 1998
THE GROWTH FUND OF SPAIN, INC. ("GROWTH FUND OF SPAIN")
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
800-621-1048
TO BE MERGED WITH AND INTO
SCUDDER SPAIN AND PORTUGAL FUND, INC. ("SPAIN AND PORTUGAL FUND")
345 PARK AVENUE
NEW YORK, NEW YORK 10154
800-349-4281
PROXY STATEMENT
MEETINGS OF STOCKHOLDERS
TO BE HELD JULY 23, 1998
SCUDDER SPAIN AND PORTUGAL FUND, INC. PROSPECTUS
This Proxy Statement/Prospectus is being furnished to stockholders of
the Growth Fund of Spain and Spain and Portugal Fund (collectively the "Funds"
and each individually sometimes referred to as "the Fund" or "a Fund", as the
context requires) for use at the meeting of Stockholders of each Fund to be held
July 23, 1998 at __________ a.m., Eastern time, with respect to the Spain and
Portugal Fund, and at __________ a.m., Eastern time, with respect to the Growth
Fund of Spain, and at any and all postponements or adjournments thereof
(referred to herein collectively as the "Meeting"). The approximate mailing date
of this Proxy Statement/Prospectus is _______________, 1998.
At the Meeting, stockholders of the Funds will be asked to approve a
proposed merger of the Growth Fund of Spain with and into the Spain and Portugal
Fund, both Maryland corporations, pursuant to a Merger Agreement and Plan of
Reorganization dated April 14, 1998 (the "Plan"), in accordance with the
Maryland General Corporation Law whereby: (i) the separate existence of the
Growth Fund of Spain will cease; (ii) the Spain and Portugal Fund will be the
surviving corporation; (iii) each share of common stock of the Growth Fund of
Spain will be converted into an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of common stock of the Spain and
Portugal Fund, plus cash in lieu of any fractional shares, computed based on the
net asset value per share of each Fund on the Effective Date; and (iv) the
shares outstanding of the Spain and Portugal Fund as of the Effective Date will
remain issued and outstanding and in the same number (collectively, the
"Merger"). The number of Spain and Portugal Fund shares to be issued pursuant to
the Merger would be that number having an aggregate net asset value
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<PAGE> 16
equal to the aggregate net asset value of the net assets of the Growth Fund of
Spain transferred to the Spain and Portugal Fund pursuant to the Plan.
The terms and conditions of the Merger and related transactions are
more fully described in this Proxy Statement/Prospectus and in the Plan, a copy
of which is attached as Exhibit A. Following consummation of the Merger, it is
proposed that all stockholders of the Spain and Portugal Fund will be offered a
one-time right to demand redemption of their shares in-kind at net asset value
in exchange for securities held by the Spain and Portugal Fund in its investment
portfolio. The in-kind redemption right would be subject to limitations on the
number of shares redeemed to preserve the tax-free status of the Merger and to
attempt to position the redemptions to qualify as "sales or exchanges" generally
taxable at capital gains rates rather than being treated as dividends taxable at
ordinary income rates under applicable tax law.
For purposes of monitoring compliance with certain limitations imposed
for tax purposes on the proposed in-kind redemption offer, as described more
fully below, the Spain and Portugal Fund may elect to issue shares of common
stock to former Growth Fund of Spain stockholders that have been designated as a
separate series of shares of common stock of the Spain and Portugal Fund and
that would, until the in-kind redemption has been effected, trade pursuant to an
independent listing and market price on the New York Stock Exchange. Shares of
both series would have identical net asset value, voting and other rights and
privileges, and neither series would have a preference or priority over the
other upon the distribution of the assets of Spain and Portugal Fund or in
respect of the payment of interest or dividends.
In addition, the stockholders of the Spain and Portugal Fund are being
asked to consider an amendment to the Fund's Articles of Incorporation to reduce
the vote required to approve the merger, consolidation, share exchange or
transfer of assets of the Fund with or into another corporation or entity from
the affirmative vote of two-thirds of the Fund's outstanding shares to the
affirmative vote of a majority of the Fund's outstanding Shares and to permit
the Board of Directors of the Fund to classify shares of the Fund in separate
series or classes. The stockholders of the Growth Fund of Spain are being asked
to consider amendments to that Fund's Articles of Incorporation to permit the
Merger to be approved by the affirmative vote of two-thirds of the Fund's
outstanding shares and to provide that the Fund will no longer be governed by
the business combinations provisions of the Maryland General Corporation Law.
This Proxy Statement/Prospectus is also being supplied to the
stockholders of the Spain and Portugal Fund in connection with the consideration
of: (i) the election of eight new and two current Directors of the Spain and
Portugal Fund; and (ii) the ratification of the selection of Price Waterhouse
LLP as the independent auditors of the Spain and Portugal Fund for the fiscal
year ending September 30, 1998. The election of Directors, except with respect
to the election of the two current Directors of the Spain and Portugal Fund, is
contingent upon the approval of the Merger by the requisite vote of each Fund's
stockholders, and only the stockholders of the Spain and Portugal Fund are being
asked to vote on this matter. In order to limit ongoing expenses of the Spain
and Portugal Fund after the Merger and to enhance the efficiency of the
operations of the Board of Directors of the Spain and Portugal Fund, the
nominees who are current Directors of the Growth Fund of Spain have advised the
Spain and Portugal Fund that it is their current intention to serve on the Board
of Directors of the Spain and Portugal Fund only until such time as the proposed
in-kind redemption offer to stockholders of the Spain and Portugal Fund
following the Merger is completed, unless there is a pro rata reduction in the
percentage of shares accepted pursuant to such redemption offer or the
redemption offer is terminated, in which event the nominees may continue to
serve on the Board of Directors of the Spain and Portugal Fund to consider the
appropriateness of further action. This is intended to permit the current Board
of Directors of the Growth Fund of Spain to participate in oversight of the
implementation of the proposed in-kind redemption offer, including any procedure
utilized for reducing the number of shares accepted for redemption pro rata
according to the
- 16 -
<PAGE> 17
terms of the redemption offer, or until alternative action is taken in lieu of
such redemption offer. The current Directors of the Growth Fund of Spain elected
to the Board of Directors of the Spain and Portugal Fund will take their seats
on the Board of Directors of the Spain and Portugal Fund upon consummation of
the Merger.
This Proxy Statement/Prospectus serves as a prospectus for shares of
the Spain and Portugal Fund under the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the issuance of Spain and Portugal Fund
common shares in the Merger.
Assuming the stockholders of the Funds approve the Merger, the Funds
will jointly file articles of merger (the "Articles of Merger") with the State
Department of Assessments and Taxation of Maryland (the "Department"). The
Merger will become effective at such time as the Articles of Merger are accepted
for record by the Department or at such later time (not exceeding 30 days after
the Articles of Merger are accepted for record) as is specified in the Articles
of Merger (the "Effective Date"). As promptly as practicable after the Effective
Date, the registration of the Growth Fund of Spain under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), will be terminated.
This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about the Spain and Portugal
Fund and the Growth Fund of Spain that the stockholders of each Fund should know
before voting on the proposals described above. A Statement of Additional
Information dated _______, 1998 containing additional information about the
Merger and the parties thereto has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference into this Proxy
Statement/Prospectus. A copy of the Statement of Additional Information is
available upon request and without charge by writing to Scudder Investor
Services, Inc., Two International Place, Boston, MA 02110-4103, or by calling
(800) 225-2470. Financial statements for the Spain and Portugal Fund will be
provided upon request of the Statement of Additional Information to this Proxy
Statement/Prospectus. Stockholder inquiries regarding the Funds may be made by
calling (800) 225-2470. The information contained herein concerning the Spain
and Portugal Fund has been provided by, and is included herein, in reliance upon
the Spain and Portugal Fund. The information contained herein concerning the
Growth Fund of Spain has been provided by, and is included herein in reliance
upon, the Growth Fund of Spain.
Each Fund is a closed-end management investment company organized as a
Maryland corporation and registered under the Investment Company Act. The
investment objective of the Spain and Portugal Fund is to seek long-term capital
appreciation by investing primarily in equity securities of Spanish and
Portuguese companies. The investment objective of the Growth Fund of Spain is to
seek long-term capital appreciation by investing primarily in equity securities
of Spanish companies.
The shares of common stock of the Spain and Portugal Fund and the
Growth Fund of Spain are listed on the New York Stock Exchange (the "NYSE")
under the symbols "IBF" and "GSP", respectively. Subsequent to the Effective
Date, shares of common stock of the Spain and Portugal Fund will continue to be
listed on the NYSE under the symbol "IBF". Reports, proxy materials and other
information concerning each Fund may be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF
- 17 -
<PAGE> 18
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS ________, 1998
- 18 -
<PAGE> 19
GENERAL
This Proxy Statement/Prospectus is furnished to the stockholders of the
Funds in connection with the solicitation of proxies on behalf of the Boards of
Directors of the Spain and Portugal Fund and the Growth Fund of Spain,
respectively, for use at the Meeting. The mailing address for the Spain and
Portugal Fund is 345 Park Avenue, New York, New York 10154. The mailing address
for the Growth Fund of Spain is 222 South Riverside Plaza, Chicago, Illinois
60606.
This Proxy Statement/Prospectus, the Notice of Meeting to Stockholders
and the proxy card(s) are first being mailed to stockholders on or about
_______, 1998 or as soon as practicable thereafter. Any stockholder giving a
proxy has the power to revoke it by mail (addressed to the Secretary of the
respective Fund, c/o Scudder Kemper Investments, Inc., 345 Park Avenue, New
York, New York 10154), or in person at the Meeting, by executing a superseding
proxy or by submitting a notice of revocation to the respective Fund. All
properly executed proxies received in time for the Meeting will be voted as
specified in the proxy or, if no specification is made, in favor of each
proposal referred to in the Proxy Statement/Prospectus.
Stockholders of the Spain and Portugal Fund and the Growth Fund of
Spain will be asked to vote on the approval of the Merger and related amendments
to the Articles of Incorporation of each Fund ("Proposal 1"). Stockholders of
the Spain and Portugal Fund will be asked to vote on the election of Directors
("Proposal 2") and the ratification of independent auditors ("Proposal 3").
Stockholders of the Spain and Portugal Fund will not be asked to vote on
Proposal 2, except with respect to the election of the two current Directors of
the Spain and Portugal Fund, in the event Proposal 1 is not approved by the
requisite vote of each Fund's stockholders.
The presence at a meeting, in person or by proxy, of the holders of a
majority of the shares of common stock entitled to be cast of the Spain and
Portugal Fund and the Growth Fund of Spain, respectively, shall be necessary and
sufficient to constitute a quorum for the transaction of business by each Fund.
In the event that the necessary quorum to transact business or the vote required
to approve or reject any proposal is not obtained at the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting in
accordance with applicable law to permit further solicitation of proxies with
respect to any proposal which did not receive the vote necessary for its passage
or to obtain a quorum. With respect to those proposals on which action is taken
at the Meeting, such action will be effective irrespective of any adjournments
with respect to any other proposals. Any such adjournment will require the
affirmative vote of the holders of a majority of the respective Fund's shares
entitled to vote and present in person or by proxy at the Meeting. If a quorum
is present, but insufficient votes are cast to approve a proposal, the persons
named as proxies will vote in favor of such adjournment those proxies which they
are entitled to vote in favor and will vote against any such adjournment those
proxies to be voted against that proposal. For purposes of determining the
presence of a quorum for transacting business at the Meeting, abstentions and
broker "non-votes" will be treated as shares that are present but which have not
been voted. Broker non-votes are proxies received by the Funds from brokers or
nominees when the broker or nominee has neither received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter. Accordingly, stockholders are urged to forward
their voting instructions promptly.
With respect to the Spain and Portugal Fund, Proposal 1 requires the
affirmative vote of a majority of the outstanding shares of common stock of the
Fund. With respect to the Growth Fund of Spain, Proposal 1 requires the
affirmative vote of two-thirds of the outstanding shares of common stock of the
Fund. Proposal 2 and Proposal 3 each requires the affirmative vote of a majority
of the outstanding shares of common stock of the Spain and Portugal Fund cast at
the Meeting, except with respect to the re-election
- 19 -
<PAGE> 20
of two current Directors of the Spain and Portugal Fund, which requires a
plurality of the votes cast at the Meeting.
Abstentions and broker non-votes will have the effect of a "no" vote
for Proposal 1, which requires the approval of a specified percentage of the
outstanding shares of the respective Funds. Abstentions and broker non-votes
will not be counted in favor of, but will have no other effect on the vote for,
Proposal 2 and Proposal 3.
The following table summarizes these voting requirements:
<TABLE>
<CAPTION>
Vote Required for Approval
--------------------------
<S> <C>
Proposal 1 (Approval of Merger, With respect to the Spain and
including amendments to Articles Portugal Fund, a majority of the
of both Funds) - Spain and Fund's outstanding shares of common
Portugal Fund and Growth Fund of stock; with respect to the Growth
Spain Fund of Spain, two-thirds of the
Fund's outstanding shares of common
stock
Proposal 2 (Election of Election by a majority of the
Directors) - Spain and Portugal shares cast at the Meeting, except
Fund only with respect to the re-election of
two current Directors of the Spain
and Portugal Fund, which requires a
plurality of the votes cast at the
Meeting
Proposal 3 (Ratification of Approval by a majority of the
Accountants) - Spain and Portugal shares cast at the Meeting
Fund only
</TABLE>
Holders of record of the shares of common stock of the Spain and
Portugal Fund and the Growth Fund of Spain, respectively, at the close of
business on _________ , 1998 (the "Record Date"), as to any matter on which they
are entitled to vote, will be entitled to one vote per share on all matters
voted upon at the Meeting with respect to the applicable Fund. There were
6,511,154 shares of the Spain and Portugal Fund outstanding, and 16,530,293
shares of the Growth Fund of Spain outstanding, as of March 31, 1998.
The Spain and Portugal Fund and the Growth Fund of Spain provide
periodic reports to all of their stockholders which highlight relevant
information including investment results and a review of portfolio changes. You
may receive a copy of the most recent annual report for the Spain and Portugal
Fund or the Growth Fund of Spain and a copy of any more recent interim report,
without charge, by calling 800-225-2470 or writing the appropriate Fund, c/o
Scudder Kemper Investments, Inc., 345 Park Avenue, New York, New York 10154.
- 20 -
<PAGE> 21
The Boards of Directors of the Funds know of no business other than the
Proposals described above which will be presented for consideration at the
Meeting. If any other matter is properly presented, it is the intention of the
persons named in the enclosed proxy to vote on that matter in their discretion.
- 21 -
<PAGE> 22
PROPOSAL 1 (BOTH FUNDS): APPROVAL OF AMENDMENTS TO THE ARTICLES OF
INCORPORATION AND OF THE MERGER AGREEMENT AND PLAN OF REORGANIZATION
On April 14, 1998, the Boards of Directors of the Spain and Portugal
Fund and the Growth Fund of Spain, including a majority of the Directors of each
such Fund who are not "interested persons" of the respective Fund (as defined in
the Investment Company Act) (the "Non-interested Directors"), declared the
Merger advisable and approved entering into a Merger Agreement and Plan of
Reorganization dated as of April 14, 1998 (the "Plan") and recommended that the
Plan be approved by the stockholders of each Fund. The Board of Directors of the
Spain and Portugal Fund approved the Merger by a unanimous vote, and the Board
of Directors of The Growth Fund of Spain approved the merger by a vote of 6 to
2, with Messrs. Gregory L. Melville and Moritz A. Sell voting against the
merger. Messrs. Melville and Sell are employees of, and were nominated by,
Bankgesellschaft Berlin AG ("Bankgesellschaft Berlin"). See "Information about
the Merger -- History of the Growth Fund of Spain." Subject to its approval by
the stockholders of each Fund and certain other conditions, the Plan provides
for the merger of the Growth Fund of Spain with and into the Spain and Portugal
Fund, both Maryland corporations, pursuant to the Plan in accordance with the
Maryland General Corporation Law ("MGCL"), whereby: (i) the separate existence
of the Growth Fund of Spain will cease; (ii) the Spain and Portugal Fund will be
the surviving corporation; (iii) each share of common stock of the Growth Fund
of Spain will be converted into an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of common stock of the Spain and
Portugal Fund, plus cash in lieu of any fractional shares, computed based on the
net asset value per share of each Fund on the Effective Date; and (iv) the
shares outstanding of the Spain and Portugal Fund as of the Effective Date will
remain issued and outstanding and in the same number. The number of Spain and
Portugal Fund shares to be issued pursuant to the Merger would be that number
having an aggregate net asset value equal to the aggregate net asset value of
the net assets of the Growth Fund of Spain transferred to the Spain and Portugal
Fund in the Merger. After consummation of the Merger, the registration of the
Growth Fund of Spain under the Investment Company Act would be terminated.
As a consequence of the Merger, each stockholder of the Growth Fund of
Spain would become a stockholder of the Spain and Portugal Fund and would hold,
upon the Effective Date, that number of full shares of common stock of the Spain
and Portugal Fund, plus cash in lieu of fractional shares, having an aggregate
net asset value equal to the aggregate net asset value of such stockholder's
shares held in the Growth Fund of Spain as of the close of business on the
business day preceding the Effective Date. If the Merger is consummated, it is
expected that the current stockholders of the Spain and Portugal Fund will hold
a minority of the shares of the Spain and Portugal Fund immediately after the
Merger.
A copy of the Plan is attached to this Proxy Statement/Prospectus as
Exhibit A, and the description of the Plan in this Prospectus/Proxy Statement is
qualified in its entirety by reference to Exhibit A.
Proposal 1 consists of two parts: (A) amendments to the Articles of
Incorporation of each Fund; and (B) approval of a Merger Agreement and Plan of
Reorganization pursuant to which the Growth Fund of Spain will be merged with
and into the Spain and Portugal Fund.
A. AMENDMENTS TO THE ARTICLES OF INCORPORATION OF THE FUNDS
1. Scudder Spain and Portugal Fund
With respect to the Spain and Portugal Fund, approval of the Merger
first includes approval of an amendment to the Articles of Incorporation to
lower the necessary stockholder vote to approve a merger, consolidation, share
exchange or transfer of assets involving the Fund with or into another
corporation or entity, and to permit the Board of Directors of the Fund to
classify shares of the Fund in separate series or
- 22 -
<PAGE> 23
classes. The amendments to the Articles of Incorporation and approval of the
Merger require approval by the affirmative vote of a majority of the outstanding
shares of common stock of the Fund. If a majority of the outstanding shares of
common stock of the Fund is voted in favor of this Proposal 1, appropriate
Articles of Amendment (incorporating the amendment to the Articles of
Incorporation set forth below) will immediately be filed with the Department
while the Meeting is in progress so that the amendments will be effective with
respect to the Fund before the time at the Meeting when the Merger will be
considered and voted upon. Thus, approval of this Proposal 1 will allow the
approval of the Merger by the affirmative vote of a majority, rather than
two-thirds, of the outstanding shares of the Fund.
a. At a meeting of the Board of Directors of the Spain and Portugal Fund
held on April 14, 1998, the Fund's Board of Directors approved and recommended
to the stockholders the adoption of an amendment to the Fund's Article's of
Incorporation as follows in order to permit the Merger to be approved by the
affirmative vote of a majority of the outstanding shares of common stock of the
Fund:
The Articles of Incorporation of the Corporation are hereby amended by
adding the following provision to Article NINTH:
(5) Notwithstanding any provision of law requiring any action
to be taken or authorized by the affirmative vote of the holders of a
greater proportion of the votes of all classes or of any Class of stock
of the Corporation, a merger, consolidation, share exchange or transfer
of assets with or into another corporation or entity shall be effective
and valid if taken or authorized by the affirmative vote of a majority
of the total number of votes entitled to be cast thereon, except as
otherwise provided in these Articles of Incorporation.
b. At a meeting of the Board of Directors of the Spain and Portugal Fund
held on April 29, 1998, the Fund's Board of Directors approved and recommended
to the stockholders the adoption of an amendment to the Fund's Article's of
Incorporation as follows in order to permit the Board of Directors of the Fund
to classify shares of the Fund in separate series or classes:
The Articles of Incorporation of the Corporation are hereby amended by
adding the following provision to Article FIFTH:
(3) The Board of Directors is authorized, from time to time, to
classify or to reclassify, as the case may be, any unissued shares of the
Corporation, whether now or hereafter authorized, in separate series and
classes, or otherwise. The shares of said series and classes of stock shall have
such preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by the Board of
Directors. The Board of Directors is authorized to increase or decrease the
number of shares of any series or class, but the number of shares of any series
or class shall not be decreased by the Board of Directors below the number of
shares thereof then outstanding.
2. The Growth Fund of Spain
With respect to the Growth Fund of Spain, approval of the Merger first
includes an amendment to the Fund's Articles of Incorporation to remove the
Fund's election to be governed by the business combinations provision of the
MGCL and to lower the necessary stockholder vote to approve a merger to the
affirmative vote of two-thirds of the outstanding shares of common stock of the
Fund entitled to be cast on the matter. In its Articles of Incorporation, the
Growth Fund of Spain has elected to be governed by the
- 23 -
<PAGE> 24
business combination provisions of the MGCL, which presents significant
impediments to "business combinations" with "interested stockholders," as those
terms are defined in the MGCL. In relevant part, the business combination
provisions prohibit a corporation from engaging in a "business combination" with
an "interested stockholder" (or any affiliate of an "interested stockholder"),
which could include the transaction to be voted upon at the Meeting, for a
period of five years following the most recent date on which the "interested
stockholder" became an "interested stockholder". After the five-year period, any
"business combination" must be approved by the affirmative vote of at least: (1)
80 percent of all the votes entitled to be cast by outstanding shares of voting
stock of the corporation, voting together as a single group; and (2) two-thirds
of the votes entitled to be cast by holders of voting stock other than the
voting stock held by the interested stockholder who will (or whose affiliate
will) be a party to the business combination or by an affiliate or associate of
the interested stockholder, voting together as a single voting group. In
addition to the requirements of the business combination provisions of the MGCL,
the charter requires the affirmative vote of three-fourths of the Growth Fund of
Spain's outstanding shares for any merger or consolidation into another
corporation or entity. Consequently, the proposal to amend the charter of the
Growth Fund of Spain will provide that the Growth Fund of Spain will no longer
be governed by the business combination provisions of the MGCL and will reduce
from three-fourths to two-thirds the number of outstanding shares necessary to
approve a merger. Approval of these amendments to the Articles of Incorporation
requires the affirmative vote of two-thirds of all the votes entitled to be cast
by holders of the Fund's outstanding shares of common stock. If two-thirds of
all of the outstanding shares of common stock of the Fund are voted in favor of
this Proposal 1, Articles of Amendment (incorporating the amendments to the
Articles of Incorporation set forth in Exhibit C hereto) will immediately be
filed with the Department while the Meeting is in progress so that the amendment
will be effective with respect to the Fund before the Merger is considered and
voted upon. Thus, approval of this Proposal 1 will allow the approval of the
Merger by the affirmative vote of two-thirds, rather than three-fourths, of the
outstanding shares of the Fund.
At a meeting of the Board of Directors of the Growth Fund of Spain held
on April 14, 1998, the Fund's Board of Directors approved and recommended to the
stockholders the adoption of an amendment to the Fund's Article's of
Incorporation as follows in order to permit the Merger to be approved by the
affirmative vote of two-thirds of the outstanding shares of common stock of the
Fund:
That Article VII(a) of the Articles of Incorporation of the Fund should
be amended to insert the following new section (a):
(a) Notwithstanding any other provision of these Articles of
Incorporation, the types of transactions described in Paragraph (b) of
this Article shall require the affirmative vote or consent of the
holders of two-thirds of the outstanding shares of each class of stock
of the corporation normally entitled to vote in elections of Directors
voting for the purposes of this Article as separate classes. Such
affirmative vote or consent shall be in place of the vote or consent of
the stockholders of the corporation otherwise required by the MGCL, or
by the terms of any class or series of preferred stock, whether now or
hereafter authorized, or any agreement between the corporation and any
national securities exchange;
And that Article IX of the Articles of Incorporation of the Fund should
be amended by striking out Article IX, in its entirety.
B. APPROVAL OF MERGER AGREEMENT AND PLAN OF REORGANIZATION PURSUANT TO WHICH THE
GROWTH FUND OF SPAIN WILL BE MERGED WITH AND INTO THE SPAIN AND PORTUGAL FUND
- 24 -
<PAGE> 25
The Boards of Directors of the Spain and Portugal Fund and the Growth
Fund of Spain, including a majority of the Non-interested Directors of each
Fund, have approved the Merger and the Plan pursuant to which the Growth Fund of
Spain would be merged with and into the Spain and Portugal Fund. As part of the
Merger, each share of common stock of the Growth Fund of Spain will be converted
into an equivalent dollar amount (to the nearest one ten-thousandth of one cent)
of full shares of common stock of the Spain and Portugal Fund, plus cash in lieu
of any fractional shares, computed based on the net asset value per share of
each Fund last calculated prior to the Effective Date. As a result of the
Merger, each stockholder of the Growth Fund of Spain would become a stockholder
of the Spain and Portugal Fund and would hold, on the Effective Date, that
number of full shares of common stock of the Spain and Portugal Fund and cash
having an aggregate net asset value equal to the aggregate net asset value of
such stockholder's shares held in the Growth Fund of Spain as of the close of
business on the business day preceding the Effective Date. Stockholders of the
Growth Fund of Spain will receive cash in lieu of fractional shares of the Spain
and Portugal Fund. Because the net assets of the Growth Fund of Spain are
currently greater than the net assets of the Spain and Portugal Fund, it is
expected that, on the Effective Date, the current stockholders of the Spain and
Portugal Fund will hold a minority of the shares of common stock of the Spain
and Portugal Fund.
The following provides a more detailed discussion about the Merger,
each Fund and additional information that you may find helpful in deciding how
to vote on the Merger.
SYNOPSIS
The following includes a summary of certain information contained in
this Proxy Statement/Prospectus. This summary is qualified by reference to the
more complete information contained elsewhere in this Proxy Statement/Prospectus
and the Plan. Stockholders of the Funds should read this entire Proxy
Statement/Prospectus carefully.
The Proposed Merger and Proposed Redemption Offer. The Boards of
Directors of the Spain and Portugal Fund and the Growth Fund of Spain, including
a majority of the Non-interested Directors of each Fund, have approved the Plan
pursuant to which the Growth Fund of Spain would be merged with and into the
Spain and Portugal Fund. As part of the Merger, each share of common stock of
the Growth Fund of Spain will be converted into an equivalent dollar amount (to
the nearest one ten-thousandth of one cent) of full shares of common stock of
the Spain and Portugal Fund, plus cash in lieu of any fractional shares,
computed based on the net asset value per share of each Fund last calculated
prior to the Effective Date. As a result of the Merger, each stockholder of the
Growth Fund of Spain would become a stockholder of the Spain and Portugal Fund
and would hold, on the Effective Date, that number of full shares of common
stock of the Spain and Portugal Fund and cash having an aggregate net asset
value equal to the aggregate net asset value of such stockholder's shares held
in the Growth Fund of Spain as of the close of business on the business day
preceding the Effective Date. Stockholders of the Growth Fund of Spain will
receive cash in lieu of fractional shares of the Spain and Portugal Fund.
Following consummation of the Merger, it is proposed that all
stockholders of the Spain and Portugal Fund (including those who had been
stockholders of the Growth Fund of Spain prior to the Merger) will be offered a
one-time right to demand redemption of their shares in-kind at net asset value
in exchange for portfolio securities of the Spain and Portugal Fund (the
"Redemption Offer"). To preserve the tax-free nature of the Merger and to treat
the stockholders of both Funds equally, the percentage of shares which may be
redeemed pursuant to the Redemption Offer will be limited to 50% of the shares
currently held by stockholders of the Spain and Portugal Fund and 50% of the
shares of the Spain and Portugal Fund received by stockholders of the Growth
Fund of Spain in the Merger. If more than 50% of either group of shares are
tendered for redemption, the Spain and Portugal Fund will impose a pro rata
- 25 -
<PAGE> 26
reduction in the number of shares accepted for redemption from all tendering
stockholders necessary to satisfy each 50% limitation. In addition, if more than
75% of the shares of the Spain and Portugal Fund currently held by stockholders
of the Spain and Portugal Fund or received by stockholders of The Growth Fund of
Spain in the merger are tendered for redemption, the Spain and Portugal Fund
will terminate the Redemption Offer and its Board of Directors will consider
such other actions as may be in the best interests of stockholders. Unless a
stockholder elects otherwise, the redemption proceeds will automatically be
invested in an open-end fund to be established and managed by Scudder Kemper.
Shares of this new fund would be redeemable at net asset value subject to a
redemption fee of up to 2% on redemptions of shares made within one year of
investment, although stockholders would receive credit for the time they held
their shares of the Spain and Portugal Fund or the Growth Fund of Spain.
As of March 31, 1998, unrealized capital gains represented 44.9% of the
net asset value of the Spain and Portugal Fund and 50.7% of the net asset value
of the Growth Fund of Spain.
For the reasons set forth below under "Information about the Merger -
Reasons for the Merger," the Boards of Directors of the Growth Fund of Spain and
the Spain and Portugal Fund, including a majority of the Non-interested
Directors of each Fund, have concluded that the Merger is in the best interests
of each respective Fund and that the interests of existing stockholders of each
respective Fund will not be diluted as a result of the transactions contemplated
by the Plan. Accordingly, the Board of Directors of each Fund recommends
approval of the Merger. If the Merger is not approved, each Fund will continue
as a separate investment company, and the Board of Directors of each Fund will
consider such further alternatives as it determines to be in the best interests
of stockholders.
Both the Merger and the Redemption Offer are subject to the receipt of
regulatory approvals. These approvals have been requested, although there can be
no assurance when or if they will be obtained. Due to the estimated time
necessary to obtain a private letter ruling from the Internal Revenue Service
necessary to effect the Redemption Offer, it is anticipated that the Redemption
Offer will be initiated no earlier than the fourth quarter of 1998.
Form of Organization. The Spain and Portugal Fund is a non-diversified,
closed-end management investment company registered under the Investment Company
Act and was organized as a Maryland corporation in 1987. The Growth Fund of
Spain is a diversified, closed-end management investment company registered
under the Investment Company Act and was organized as a Maryland corporation in
1989. The management of the business and affairs of each Fund, including the
supervision of the duties performed by each Fund's investment manager, is the
responsibility of the Fund's Board of Directors.
Mandatory Open-Ending Provision. The Growth Fund of Spain is subject to
a policy which requires it to submit to its stockholders a proposal to convert
the Fund to open-end status at the annual meeting of stockholders after any year
when the shares of the Fund have traded at an average discount of more than 10%
to the Fund's net asset value during the last trading day in each week during
the period of 12 calendar weeks preceding December 31 in such year, and the Fund
has received written requests from the holders of 10% or more of the outstanding
shares of common stock requesting that such a proposal be submitted. Under the
Fund's Articles of Incorporation, the affirmative vote of three-fourths of the
Fund's outstanding shares of common stock would be necessary to approve any
open-ending proposal, although this provision can be amended by the affirmative
vote of two-thirds of the outstanding shares of common stock of the Fund. These
conditions have been triggered in the past, although insufficient shares were
voted to convert the Growth Fund of Spain to open-end status. These conditions
have been triggered in 1997, and an open-ending proposal is scheduled to be
presented at the next annual meeting of stockholders of the Growth Fund of
Spain, which has been deferred from May 1998 until October 1998. The Spain and
Portugal Fund was formerly subject to a similar policy but stockholders of the
Fund approved its repeal in
- 26 -
<PAGE> 27
1994. If the Merger is effected, stockholders of the Growth Fund of Spain will
become stockholders of Spain and Portugal Fund and therefore will no longer be
stockholders of a fund subject to such a policy, although, as noted below, the
Directors of the Spain and Portugal Fund are proposing to re-implement a policy
on presenting an open-ending proposal to stockholders under certain conditions,
to be effective in the event the Merger is consummated and (i) the Redemption
Offer has not been implemented, or (ii) has been implemented but a pro rata
reduction in the amount of shares accepted for redemption has been made.
The Articles of Incorporation of the Spain and Portugal Fund permit the
Fund to convert to open-end status upon the affirmative vote of two-thirds of
its shares, while the affirmative vote of three-fourths of the Growth Fund of
Spain's shares is required to convert the Growth Fund of Spain to open-end
status. The required vote with respect to the Growth Fund of Spain may be
lowered to the affirmative vote of two-thirds of its shares upon approval of
three-fourths of the total number of Directors then in office and to the
affirmative vote of two-thirds of its shares.
Composition of Board of Directors. In connection with the proposed
Merger, the Board of Directors of the Spain and Portugal Fund has nominated each
current Director of the Growth Fund of Spain for election to the Board of
Directors of the Spain and Portugal Fund. In addition, all of the Non-interested
Directors that are elected pursuant to Proposal 2 will be appointed to the
committee of the Board of Directors of the Spain and Portugal Fund that
nominates candidates for the Board of Directors of the Fund. This committee is
comprised entirely of Non-interested Directors. The Directors of the Growth Fund
of Spain who are elected to the Board of Directors of the Spain and Portugal
Fund will take their seats on the Board of Directors of the Spain and Portugal
Fund upon consummation of the Merger and have advised the Spain and Portugal
Fund that, in order to limit ongoing expenses of the Spain and Portugal Fund
after the Merger and to enhance the efficiency of the operations of the Board of
Directors of the Spain and Portugal Fund, it is their current intention to serve
on the Board of Directors of the Spain and Portugal Fund only until such time as
the Redemption Offer is completed, unless there is a pro-rata reduction in the
amount of shares accepted pursuant to the Redemption Offer, in which event the
Directors of the Growth Fund of Spain who are elected to the Board of Directors
of the Spain and Portugal Fund may continue to serve on the Board of Directors
of the Spain and Portugal Fund to consider the appropriateness of further
action.
Investment Objectives and Policies. Each Fund seeks long-term capital
appreciation as its objective. The Spain and Portugal Fund seeks its objective
by investing primarily in equity securities of Spanish and Portuguese companies
(as defined below under "Comparison of Investment Objectives, Policies and Risk
Factors"). The Growth Fund of Spain seeks its objective by investing primarily
in equity securities of Spanish companies. Under normal conditions, the Spain
and Portugal Fund invests at least 80% of its total assets in the equity
securities of Spanish and Portuguese issuers, while the Growth Fund of Spain
invests at least 65% of its total assets in the equity securities of Spanish
issuers. These objectives and policies are fundamental, and cannot be changed
without the approval of a majority of each Fund's outstanding voting securities.
Normally, any balance of the Spain and Portugal Fund's assets will be
invested in debt securities, consisting of notes and debentures of companies,
bank deposits, bills and bonds of governments or major governmental subdivisions
of the United States, Spain and Portugal, repurchase agreements with respect to
securities in which the Fund may invest or participation interests in bank
loans. The Fund's investment in debt securities and money market instruments
will be limited to obligations rated "A" or better by Moody's Investors Service,
Inc. ("Moody's") or Standard and Poor's Corporation ("S&P"), or if not rated,
will be in the judgment of Scudder Kemper of equivalent quality. Under normal
circumstances, the Fund may invest up to 15% of its total assets in unlisted
equity securities.
- 27 -
<PAGE> 28
As a fundamental policy, the Growth Fund of Spain may invest up to 35%
of its total assets in investment grade fixed income instruments, which are
defined to include securities rated in the four highest ratings categories by
S&P or Moody's, or, if such securities are not so rated, securities of
equivalent investment quality as determined by Scudder Kemper, and short-term
indebtedness or cash equivalents denominated in either Spanish Pesetas or U.S.
Dollars. The Fund is permitted to invest up to 25% of its total assets in
unlisted securities of Spanish companies and in securities that are not readily
marketable.
The preceding summary of the Funds' investment objectives and certain
policies should be considered in conjunction with the discussion below under
"Special Considerations and Risk Factors".
Fees and Expenses. The Spain and Portugal Fund retains as its
investment manager the investment management firm of Scudder Kemper Investments,
Inc. ("Scudder Kemper"), a Delaware corporation located at 345 Park Avenue, New
York, New York 10154, to manage its daily investment and business affairs
subject to the policies established by the Board of Directors of the Fund. The
management and administration fee payable under the current Investment Advisory,
Management and Administration Agreement for the Spain and Portugal Fund is equal
to an annual rate of 1.20% of the value of the Fund's average weekly net assets,
and is payable monthly. Scudder Kemper has agreed to an amendment to the
Investment Advisory, Management and Administration Agreement with the Spain and
Portugal Fund, effective upon consummation of the Merger, to reduce the fee
payable by the Spain and Portugal Fund for investment advisory, management and
administration services to a monthly fee, which, on an annual basis, is equal to
1.00% per annum of the value of the Fund's average weekly net assets with
respect to the first $400 million of net assets, declining to 0.95% per annum of
the value of the Fund's average weekly net assets thereafter, and to provide
that Scudder Kemper will pay for the travel expenses related to the attendance
at Board and committee meetings of all Directors, officers and executive
employees of the Spain and Portugal Fund who are affiliates of Scudder Kemper.
Scudder Kemper will continue to provide the same level of services to the Spain
and Portugal Fund after the Merger as it does currently under the Investment
Advisory, Management and Administration Agreement. In addition, Scudder Fund
Accounting Corporation will provide its services to the Spain and Portugal Fund
at no fee upon consummation of the Merger. Accordingly, the fees paid to Scudder
Kemper or its affiliates by the Spain and Portugal Fund after the consummation
of the Merger should be comparable to the fees paid by the Growth Fund of Spain
and the Spain and Portugal Fund together for such services currently, although
Scudder Kemper will retain that portion of the fee currently payable by Scudder
Kemper to BSN Gestion de Patrimonios, S.A., S.G.C. ("BSN") under the
sub-advisory agreement between Scudder Kemper and BSN with respect to the Growth
Fund of Spain.
As of March 31, 1998, the Spain and Portugal Fund had total net assets
of $128,745,129. Prior to December 31, 1997, the Spain and Portugal Fund had
separate investment management and administration contracts with Scudder,
Stevens & Clark, Inc., the predecessor of Scudder Kemper, pursuant to which the
Fund paid Scudder, Stevens & Clark, Inc. a fee, computed weekly and payable
monthly, of 1% of the Fund's weekly net assets for investment management
services and .20% of the Fund's weekly net assets for administrative services.
For the fiscal year ended September 30, 1997, the investment management fee and
administration fee payable by the Spain and Portugal Fund amounted to $940,480
and $188,095, respectively, for a total of $1,128,575. In addition, the Spain
and Portugal Fund retains Scudder Fund Accounting Corporation to determine the
Fund's net asset value and maintain the Fund's portfolio and general accounting
records. The Fund was charged $72,530 for such services for the fiscal year
ended September 1997. Scudder Fund Accounting Corporation will provide its
services to the Spain and Portugal Fund at no fee upon consummation of the
Merger.
For the fiscal year ended September 30, 1997, the Spain and Portugal
Fund's total expense ratio (total annual operating expenses as a percentage of
average net assets) was 1.74%, and is currently 1.75% based on an estimate of
operating expenses as of March 31, 1998.
- 28 -
<PAGE> 29
The Growth Fund of Spain also retains Scudder Kemper to manage its
daily investment and business affairs subject to the policies established by the
Board of Directors of the Fund. The management fee payable under the current
Investment Management Agreement for the Growth Fund of Spain is equal to an
annual rate of 1.00% of the Fund's average weekly net assets, payable monthly.
As of March 31, 1998, the Growth Fund of Spain had total net assets of
$389,176,039. Prior to December 31, 1997, the Growth Fund of Spain had a
Management Agreement with Zurich Kemper Investments, Inc., which was combined
with Scudder Stevens & Clark, Inc. on December 31, 1997 to form Scudder Kemper,
pursuant to which the Fund paid Zurich Kemper Investments, Inc. a fee, computed
weekly and payable monthly, of 1% of the Fund's weekly net assets for investment
management and administrative services. For the fiscal year ended November 30,
1997, the management fee amounted to $2,846,000.
Scudder Kemper retains the investment management services of BSN, Paseo
de la Castellano, 32-Planta 6, 28046, Madrid, Spain pursuant to a sub-advisory
agreement between Scudder Kemper and BSN. BSN is a wholly-owned subsidiary of
Banco Santander de Negocios, which is wholly owned by Banco Santander. Banco
Santander, together with its subsidiaries and associated companies, is engaged
principally in commercial and retail banking operations in Spain and other
countries. BSN provides investment advice, research and assistance to Scudder
Kemper with respect to the securities portfolio of the Growth Fund of Spain as
Scudder Kemper may from time to time reasonably request. For its services, BSN
receives from Scudder Kemper a monthly fee at the annual rate of .35% of the
Fund's average weekly net assets. For the fiscal year ended November 30, 1997,
the total subadvisory fee amounted to $996,000. Upon consummation of the Merger,
the sub-advisory agreement between Scudder Kemper and BSN with respect to the
Growth Fund of Spain will terminate.
For the fiscal year ended November 30, 1997, the Growth Fund of Spain's
total expense ratio (total annual operating expenses as a percentage of average
net assets) was 1.22%, and is currently 1.23% based on an estimate of operating
expenses as of March 31, 1998.
After giving effect to the proposed Merger the expense ratio of the
Spain and Portugal Fund is projected to be approximately 1.20%. After giving
effect to the Redemption Offer, assuming a redemption of shares of the Spain and
Portugal Fund equal to the maximum percentage permitted (50% of the outstanding
shares), the expense ratio of the Spain and Portugal Fund is projected to be
approximately 1.31%. Assuming a redemption of 30% of the outstanding shares of
the Spain and Portugal Fund, the expense ratio is projected to be approximately
1.25%. The actual expense ratios for the Spain and Portugal Fund for the current
and future fiscal years, if the Merger and Redemption Offer are consummated, may
be higher or lower than this projection, depending upon the Spain and Portugal
Fund's performance, general stock market and economic conditions, net asset
levels and other factors.
The current expenses of each Fund and pro forma expenses following both
the proposed Merger and the Redemption Offer are outlined below.
Unrealized Capital Gains. Although the Growth Fund of Spain will pay
its stockholders a cash distribution of all undistributed 1998 net investment
income and undistributed realized net capital gains, and the Spain and Portugal
Fund will pay its stockholders a cash distribution of substantially all
undistributed 1998 net investment income and undistributed realized net capital
gains prior to the Effective Date, each Fund will not attempt to realize or
distribute unrealized capital gains prior to the Effective Date. Accordingly, a
substantial portion of the net asset value of each Fund will consist of
unrealized capital gains. As of March 31, 1998, the Growth Fund of Spain had
approximately $197,280,315 of unrealized capital gains, representing
approximately 50.7% of its net asset value. As of that same date, the Spain and
Portugal Fund Spain had approximately $57,763,473 of unrealized capital gains,
representing approximately 44.9% of its net asset value.
- 29 -
<PAGE> 30
Federal Income Tax Consequences of the Merger. The Spain and Portugal
Fund will have received an opinion of Dechert Price & Rhoads, counsel to the
Spain and Portugal Fund, and the Growth Fund of Spain will have received an
opinion from Vedder, Price, Kaufman & Kammholz, counsel to the Growth Fund of
Spain, to the effect that the Merger will constitute a tax-free reorganization
within the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, no gain or loss will be recognized by the
Growth Fund of Spain, the Spain and Portugal Fund, or the stockholders of either
Fund as a result of the Merger, except with respect to the stockholders of the
Growth Fund of Spain who receive cash for a fractional share interest. Such
holders of the Growth Fund of Spain will be treated for federal income tax
purposes as if they received such fractional share interests, followed by the
receipt of cash in redemption of such interests. The holding period and the
aggregate tax basis of the Spain and Portugal Fund shares received by a Growth
Fund of Spain stockholder will be the same as the holding period and aggregate
tax basis of the shares of the Growth Fund of Spain previously held by such
stockholder. The holding period and the aggregate tax basis of the assets
received by the Spain and Portugal Fund in the Merger will be the same as the
holding period and the tax basis of such assets in the hands of the Growth Fund
of Spain immediately before the Merger. See "Information about the Merger - Tax
Considerations."
Discount from Net Asset Value. Shares of closed-end funds frequently
trade at a market price that is less than the value of the net assets
attributable thereto. The possibility that shares of the Spain and Portugal Fund
will trade at a discount from its net asset value is a risk separate and
distinct from the risk that the Fund's net asset value will decrease. Except for
limited periods of time, the Spain and Portugal Fund's shares have traded in the
market at a discount, and, as of March 31, 1998, traded at a market price
discount of 8.0%. Similarly, the Growth Fund of Spain shares have traded in the
market at a discount and, as of that same date traded at a market price discount
of 8.4%. The discount level of the Funds may be different at the time the Merger
is consummated. See "Additional Information about the Funds - Discount to Net
Asset Value".
Expenses of the Merger. In evaluating the proposed Merger, Scudder
Kemper has estimated the amount of additional expenses the Funds would incur,
including additional NYSE listing fees, SEC registration fees, legal and
accounting fees and increased proxy and distribution costs. The estimated total
expenses pertaining to the Merger are $1,500,000. Pursuant to the Plan, the
aggregate amount of estimated expenses of the Merger will be allocated equally
among the Funds and Scudder Kemper (including the SEC registration fees and the
fees for listing additional shares of the Spain and Portugal Fund on the NYSE).
Although the expenses of the Merger are expected to result in a reduction in net
asset value per Scudder Spain and Portugal Fund share of approximately $0.08,
and a reduction in net asset value per Growth Fund of Spain share of
approximately $0.03, as a result of the estimated expenses of the Merger (prior
to the implementation of any Redemption Offer). Scudder Kemper has advised the
Board of Directors of each Fund that it expects such costs will be recovered
within approximately 10.3 months after the Effective Date with respect to the
current shares of the Spain and Portugal Fund, and within approximately 65.1
months after the Effective Date with respect to the current shares of the Growth
Fund of Spain. Implementation of the Redemption Offer would result in increased
expense ratios for the Spain and Portugal Fund post-Merger and could further
delay the recovery period or prevent the recovery of such costs per share.
Expenses of the Redemption Offer. In connection with consideration of
the Redemption Offer following the consummation of the Merger, Scudder Kemper
estimates the amount of expenses the Spain and Portugal Fund would incur,
including SEC fees, legal and accounting fees, and transfer agency and custody
fees, in connection with the Redemption Offer are $300,000. The Spain and
Portugal Fund will bear these expenses.
- 30 -
<PAGE> 31
EXPENSE TABLE
<TABLE>
<CAPTION>
SPAIN AND GROWTH FUND OF PRO FORMA PRO FORMA PRO-FORMA
PORTUGAL FUND SPAIN POST-MERGER POST-50% POST-30%
REDEMPTION(1) REDEMPTION(2)
<S> <C> <C> <C> <C> <C>
STOCKHOLDER
TRANSACTION
EXPENSES
Sales Load (as a percentage of NONE NONE NONE NONE NONE
offering price)
Dividend Reinvestment Plan Fees NONE NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)(3)
Investment Management and 1.20% 1.00% 1.00% 1.00% 1.00%
Administration Fees
Interest Payment on Borrowed -- -- -- -- --
Funds
Other Expenses 0.55% 0.23% 0.20% 0.31% 0.25%
---- ---- ---- ---- ----
Total Annual Expenses 1.75% 1.23% 1.20% 1.31% 1.25%
</TABLE>
(1) Assumes redemption of 50% of the shares of the Spain and Portugal Fund
after the Merger, which is the maximum redemption currently proposed to
be permitted pursuant to the Redemption Offer.
(2) Assumes redemption of 30% of the shares of the Spain and Portugal Fund
after the Merger.
(3) The percentages in the above table expressing annual fund operating
expenses are based on an estimate of the Funds' operating expenses as
of March 31, 1998. "Other Expenses" include fees for stockholder
services, custody, legal and accounting services, printing costs, the
costs involved in communication with stockholders and the costs of
regulatory compliance, maintaining corporate existence and the listing
of the shares of common stock on the NYSE. These figures do not reflect
the expenses of the Merger or Redemption Offer.
Example. The following example is based on the level of total operating
expenses for each Fund listed in the table above, the total expenses relating to
a $1,000 investment, assuming a 5% annual return and reinvestment of all
dividends and distributions. Investors do not pay these expenses directly; they
are paid by the Funds before they distribute net investment income to
stockholders. This Example should not
- 31 -
<PAGE> 32
be considered a representation of future expenses, and actual expenses may be
greater or less than those shown. Federal regulations require the example to
assume a 5% annual return, but actual annual return will vary. The purpose of
this example is to help you understand the costs and expenses you may bear as an
investor.
<TABLE>
<CAPTION>
Spain and Portugal Growth Fund of Pro Forma Pro Forma Post-50% Pro Forma Post-
Fund Spain Post-Merger Redemption 30% Redemption
<S> <C> <C> <C> <C> <C>
1 Year $ 18 $ 13 $ 12 $ 13 $ 13
3 Years $ 55 $ 39 $ 38 $ 42 $ 40
5 Years $ 95 $ 68 $ 66 $ 72 $ 69
10 Years $206 $149 $145 $158 $151
</TABLE>
Performance. Set forth below is performance data for periods ended
March 31, 1998 based on each Fund's net asset value and market value. Past
performance is not a guarantee of future results, and it is not possible to
predict whether or how investment performance will be affected by the Merger.
<TABLE>
<CAPTION>
SPAIN AND PORTUGAL FUND GROWTH FUND OF SPAIN
----------------------- --------------------
CUMULATIVE AVERAGE ANNUAL CUMULATIVE AVERAGE ANNUAL
<S> <C> <C> <C> <C> <C>
NAV One Year 67.15% 67.15% 65.76% 65.76%
Three Year 182.95% 41.44% 154.43% 36.51%
Five Year 212.65% 25.61% 203.16% 24.84%
Since inception(1) 235.52% 12.94% 181.18% 13.57%
Market Value One Year 94.20% 94.20% 86.19% 86.19%
Three Year 236.72% 49.88% 208.10% 45.50%
Five Year 239.51% 27.69% 227.33% 26.77%
Since inception(1) 187.06% 11.18% 147.04% 11.77%
</TABLE>
- --------------------
(1) Spain and Portugal Fund commenced operations on April 20, 1988. Growth Fund
of Spain commenced operations on February 14, 1990.
- 32 -
<PAGE> 33
FINANCIAL HIGHLIGHTS
The tables below set forth certain specified information for a share of
the Spain and Portugal Fund's and Growth Fund of Spain's stock outstanding
through each period presented. This information is derived from financial and
accounting records of each Fund.
The information should be read in conjunction with the financial
statements and notes contained in each Fund's Annual Report which is available
from each respective Fund, by writing to Scudder Investor Services, Inc., Two
International Place, Boston, MA 02110-4103, or by calling (800) 225-2470.
Scudder Spain and Portugal Fund, Inc.
Financial Highlights
================================================================================
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD (a) AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS AND MARKET PRICE DATA.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Years Ended September 30,
March 31, 1998 ---------------------------------------------------------
Per Share Operating Performance (Unaudited) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................. $ 17.34 $ 11.54 $ 9.68 $ 9.01 $ 8.24 $ 7.27
--------- --------- --------- --------- --------- ---------
Net investment income (loss) ....................... (.04) .08 .09 .07 .07 .22
Net realized and unrealized gain (loss)
on investment transactions ...................... 5.15 5.99 1.84 .60 .70 1.15
--------- --------- --------- --------- --------- ---------
Total from investment operations ..................... 5.11 6.07 1.93 .67 .77 1.37
--------- --------- --------- --------- --------- ---------
Less distributions from:
Net investment income ........................... (.03) (.09) (.07) -- -- (.18)
Net realized gains on investment
transactions .................................. (2.65) (.18) -- -- -- (.22)
Capital charge in respect of issuance of shares.... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions .................................. (2.68) (.27) (.07) -- -- (.40)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ....................... $ 19.77 $ 17.34 $ 11.54 $ 9.68 $ 9.01 $ 8.24
========= ========= ========= ========= ========= =========
Market value, end of period .......................... $ 18.19 $ 14.50 $ 8.88 $ 7.56 $ 7.50 $ 7.75
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN
Per share market value(%) .......................... 49.00** 67.33 18.31 .84 (3.23) 31.69
Per share net asset value(%)(b) .................... 35.44** 53.89 20.19 7.44 9.35 20.38
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ............. 129 113 75 63 59 54
Ratio of operating expenses to average
net assets(%)..................................... 1.77* 1.74 1.92 1.99 2.02 2.38(d)
Ratio of net investment income (loss)
to average net assets(%) ......................... (.46)* .54 .83 .71 .77 2.87
Portfolio turnover rate (%) ........................ 70* 115 66 43 31 29
Average commission rate paid (c) ................... $ .0710 $ .0694 $ .0671 $ -- $ -- $ --
<CAPTION>
For the Period
April 20, 1988
(commencement
For the Years Ended September 30, of operations)
----------------------------------------------- to September 30,
Per Share Operating Performance 1992(e) 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 9.31 $ 8.80 $ 10.78 $ 8.75 $ 9.30
--------- --------- --------- --------- ---------
Net investment income (loss) ..................... .27 .27 .16 .23(f) .07
Net realized and unrealized gain (loss)
on investment transactions .................... (2.16) 1.26 (1.89) 2.05 (.44)
--------- --------- --------- --------- ---------
Total from investment operations ................... (1.89) 1.53 (1.73) 2.28 (.37)
--------- --------- --------- --------- ---------
Less distributions from:
Net investment income ......................... (.15) (.20) (.12) (.25) --
Net realized gains on investment
transactions ................................ -- (.82) (.13) -- --
Capital charge in respect of issuance of shares.. -- -- -- -- (.18)
--------- --------- --------- --------- ---------
Total distributions ................................ (.15) (1.02) (.25) (.25) (.18)
--------- --------- --------- --------- ---------
Net asset value, end of period ..................... $ 7.27 $ 9.31 $ 8.80 $ 10.78 $ 8.75
========= ========= ========= ========= =========
Market value, end of period ........................ $ 6.25 $ 8.00 $ 7.13 $ 15.00 $ 8.38
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN
Per share market value(%) ........................ (20.40) 27.73 (51.78) 84.44 (16.25)**
Per share net asset value(%)(b) .................. (20.43) 20.35 (17.13) 26.87 (5.91)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ........... 47 61 57 70 57
Ratio of operating expenses to average
net assets(%)................................... 2.45(g) 2.30(g) 2.18(g) 2.08(f)(g) 2.72*(g)
Ratio of net investment income (loss)
to average net assets(%) ....................... 3.05 2.96 1.53 2.32 1.83*
Portfolio turnover rate (%) ...................... 32 23 22 26 --*
</TABLE>
(a) Based on monthly average of shares outstanding during the period.
(b) Total investment returns reflect changes in net asset value per share
during each period and assume that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
(c) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after September 1, 1996.
(d) Ratio of operating expenses to average net assets excluding interest
expense was 2.31%.
(e) Scudder Kemper Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.)
became investment adviser of the Fund on April 1, 1992.
(f) Net of voluntary fee waiver.
(g) Excluding interest expense.
* Annualized
** Not Annualized
- --------------------------------------------------------------------------------
GROWTH FUND OF SPAIN, INC.
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGH EACH
PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS
AND MARKET PRICE DATA.
<TABLE>
<CAPTION>
Year ended November 30, February 14, 1990
------------------------------------------------------------------------- to
1997 1996 1995 1994 1993 1992 1991 November 30, 1990
- -------------------------------------------------------------------------------------------------------------- -----------------
Per share operating performance
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 15.67 13.33 12.40 10.67 8.99 11.08 10.71 11.12
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.24 0.36 0.37 0.32 0.40 .54 .37 .32
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain 4.15 2.69 1.01 1.41 1.28 (2.48) .36 (.73)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.39 3.05 1.38 1.73 1.68 (1.94) .73 (.41)
- ----------------------------------------------------------------------------------------------------------------------------------
Less dividends:
- ----------------------------------------------------------------------------------------------------------------------------------
Distribution from net
investment income 0.17 0.42 0.45 -- -- .15 .36 --
- ----------------------------------------------------------------------------------------------------------------------------------
Distribution from net
realized gain 0.83 0.29 -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.00 0.71 0.45 -- -- .15 .36 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 19.06 15.67 13.33 12.40 10.67 8.99 11.08 10.71
- ----------------------------------------------------------------------------------------------------------------------------------
Market value, end of year $ 17.00 12.50 10.88 10.00 9.63 7.50 9.875 8.375
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total return
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value 29.86% 24.12 11.62 16.21 18.69 (17.73) 7.06 (3.69)
- ----------------------------------------------------------------------------------------------------------------------------------
Based on market value 46.49% 22.38 13.83 3.90 28.33 (22.77) 23.06 (30.93)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses 1.22% 1.25 1.22 1.23 1.22 1.22 1.23 1.26
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.29% 2.46 2.89 2.57 3.97 4.98 3.32 3.46
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year
(in thousands) 315,059 263,935 227,997 213,972 184,884 156,179 192,986 186,638
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 29% 45 69 85 50 72 104 19
</TABLE>
- --------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years
ended November 30, 1997 and 1996 were $.0519 and $.0609, respectively.
- --------------------------------------------------------------------------------
NOTE:
Total return based on net asset value reflects changes in the Fund's net asset
value during the year. Total return based on market value reflects changes in
market value. Each figure includes reinvestment of dividends. These figures will
differ depending upon the level of any discount from or premium to net asset
value at which the Fund's shares trade during the year.
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COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
Organization. The Spain and Portugal Fund and the Growth Fund of Spain
are both closed-end management investment companies registered under the
Investment Company Act and organized as corporations under the laws of the State
of Maryland. Each Fund is managed by Scudder Kemper Investments, Inc. The shares
of common stock of each Fund are listed and trade on the NYSE under the symbols
"IBF" and "GSP", respectively. After the Merger, the Spain and Portugal Fund's
shares will continue to be traded on the NYSE under the symbol IBF, while the
Growth Fund of Spain's shares will be delisted. As described below under
"Additional Information about the Funds - Description of Securities to be
Issued", shares of common stock of the Spain and Portugal Fund issued to current
Growth Fund of Spain stockholders in connection with the Merger may be
designated as a separate series of common stock of the Spain and Portugal Fund
and would, until the Redemption Offer has been effected, trade pursuant to an
independent listing on the NYSE and at a price independent from that of the
currently listed shares of common stock of the Spain and Portugal Fund. The
shares of common stock of each Fund have equal non-cumulative voting rights and
equal rights with respect to dividends, assets and dissolution. Each Fund's
shares of common stock are fully paid and non-assessable and have no preemptive,
conversion or exchange rights. The principal investment risk of an investment in
either Fund is fluctuations in the market price of the Fund's shares. Portfolio
management, market conditions, investment policies, and other factors affect
such fluctuations. Although the investment objectives, policies and restrictions
of the Funds are similar, there are differences between them, as discussed
below. There can be no assurance that either Fund will achieve its stated
objective.
Investment Objectives. The principal investment objective of each Fund
is long-term capital appreciation.
Comparison of Policies and Restrictions. The Spain and Portugal Fund
seeks to achieve its investment objective through investment primarily in the
following equity securities: (i) securities traded principally on stock
exchanges in Spain or Portugal; (ii) securities of companies that derive 50% or
more of their total revenue from goods produced, sales made or services
performed in Spain or Portugal; (iii) securities (including American Depository
Receipts) of companies organized under the laws of Spain or Portugal, the
securities of which are publicly traded on recognized securities exchanges
outside Spain or Portugal; (iv) equity securities of Spanish or Portuguese
companies which are not listed or traded on a stock exchange; and (v) securities
of investment companies and trusts that invest principally in the foregoing. The
investment objective and the percentage limitation on investments set forth in
the next paragraph are fundamental policies that may not be changed without the
approval of a majority of the Spain and Portugal Fund's outstanding voting
securities. As used herein, a majority of the outstanding voting securities
means the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented, or (ii) more than 50% of the
outstanding shares.
It is the policy of the Spain and Portugal Fund normally to invest at
least 80% of its total assets in the equity securities described above. Normally
any balance of the Fund's assets will be invested in debt securities, consisting
of notes and debentures of companies, bank deposits, bills and bonds of
governments or major governmental subdivisions of the United States, Spain and
Portugal, repurchase agreements with respect to securities in which the Fund may
invest or participation interests in bank loans. The Fund's investments in debt
securities and money market instruments will be limited to obligations rated "A"
or better by Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"), or if not rated, will be, in the judgment of Scudder
Kemper, of equivalent quality.
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<PAGE> 35
There is no maximum limitation on the percentage of the Spain and
Portugal Fund's assets that may be invested at any one time in securities of
Spanish or Portuguese companies. There is no requirement that the Fund's assets
be invested in both Spain and Portugal at any one time.
The Growth Fund of Spain seeks to achieve its objective by investing
primarily in equity securities of Spanish companies. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in equity
securities of Spanish companies. The Fund is permitted to invest up to 25% of
its total assets in unlisted equity and debt securities, including convertible
debt securities, of Spanish companies and in other securities that are not
readily marketable. As of March 31, 1998, 1.1% of the Fund's total assets were
invested in unlisted equity and debt securities. Investment in such unlisted
equity securities and in Spanish equity securities that are not readily
marketable will be treated as investments in Spanish equity securities for
purposes of the Fund's fundamental policy of investing at least 65% of its total
assets in Spanish equity securities. The Fund may invest up to 35% of its total
assets in investment grade fixed income instruments as described below. As of
March 31, 1998, 1.1% of the Fund's total assets were invested in investment
grade fixed income instruments. These policies are fundamental and cannot be
changed without the approval of a majority of the Fund's outstanding voting
securities. The Fund's other investment policies are not fundamental and may be
changed by the Fund without stockholder approval, but the Fund will not change
its investment policies without contemporaneous notice to its stockholders. The
Fund is designed primarily for long-term investment and investors should not
consider it a trading vehicle.
During periods when, in Scudder Kemper's judgment, changes in market,
economic or political conditions warrant a defensive investment policy in Spain
or Portugal, the Spain and Portugal Fund may temporarily reduce its position in
equity securities and increase its position in debt securities or in money
market instruments having a maturity of not more than six months of banks,
companies or governmental issuers in Spain and Portugal and in the United
States. The Spain and Portugal Fund may also temporarily invest funds in such
money market instruments to the extent deemed necessary to meet dividend and
expense obligations. For temporary defensive purposes, e.g., during periods in
which changes in the Spanish securities markets, other economic conditions or
political conditions in Spain warrant, the Growth Fund of Spain may vary from
its investment objective and may invest, without limit, in high quality debt
instruments, such as U.S. and Spanish government securities. The Growth Fund of
Spain may also at any time invest funds in U.S. Dollar-denominated money market
instruments as reserves for expenses and dividend and other distributions to
stockholders.
While the Spain and Portugal Fund may invest up to 100% of its assets
in Portuguese securities, the Growth Fund of Spain may invest only up to 35% of
its assets in Portuguese securities. As of March 31, 1998, the Spain and
Portugal Fund had 58% of its assets invested in Spanish securities, and 42% of
its assets invested in Portuguese securities. As of that same date, the Growth
Fund of Spain had 100% of its assets invested in Spanish securities.
Diversification Status. The Growth Fund of Spain is classified as a
diversified company under the Investment Company Act. This means generally that
at least 75% of the Fund's total assets must be represented by cash, U.S.
government securities, securities of other investment companies, and securities
of other issuers provided that the Fund invests no more than 5% of its total
assets in any such other issuers and holds no more than 10% of the outstanding
voting securities of such other issuers. In contrast, the Spain and Portugal
Fund is classified as a non-diversified company under the Investment Company
Act, and is therefore not subject to the diversification requirements discussed
in the preceding sentence. Non-diversified status permits the Spain and Portugal
Fund greater investment flexibility and may present greater risks to investors
than an investment in a diversified company, because the Spain and Portugal
Fund's investment return may be dependent upon changes in the financial
condition or market assessments of a smaller number of securities.
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<PAGE> 36
Although the Spain and Portugal Fund is not subject to the Investment
Company Act's diversification requirements, it is subject to less restrictive
diversification requirements to qualify as a regulated investment company under
Subchapter M of the Code. Under the Code, to qualify as a regulated investment
company, the Fund generally must, among other things, diversify its holdings so
that, at the end of each quarter of its taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, U.S. government
securities, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of the Fund's total assets is invested in securities of any one
issuer, other than U.S. government securities.
Market Characteristics. The securities markets of Spain and Portugal
have substantially less volume than the securities markets of the United States
and securities of some companies in Spain and Portugal are less liquid and more
volatile than securities of comparable U.S. companies. Accordingly, these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. Brokerage commissions and other
transaction costs on securities exchanges in Spain and Portugal are generally
higher than in the United States. Portuguese securities settlements may in some
instances be subject to delays and related administrative uncertainties. It is
Scudder Kemper's view that the differences between the U.S. market on the one
hand and the Spanish and Portuguese markets on the other in terms of volatility,
liquidity and other factors will not materially adversely affect the management
of the Fund. See Appendix A for a discussion of the Spanish and Portuguese
securities markets.
Though foreign investment in the securities markets of Spain and
Portugal is permitted, certain controls and restrictions may apply in certain
circumstances. These controls may at times limit or preclude investment in
certain Spanish or Portuguese companies and may increase the cost and expenses
of the Fund. The right of foreign investors to repatriate both investment income
and capital from Spain and Portugal is recognized. Notwithstanding, such
repatriation is regulated, including in some cases certain notification
requirements. Although restrictions on foreign investment in Spain and Portugal
may in the future make it undesirable to invest in Spain and Portugal, Scudder
Kemper does not believe that any current repatriation controls would affect its
decision to invest in Spain and Portugal.
Companies in Spain and Portugal are subject to accounting, auditing and
financial standards and requirements which are not equivalent to those
applicable to U.S. companies. There is less government supervision and
regulation of Spanish and Portuguese securities exchanges, brokers and listed
companies than exists in the United States. In addition, there may be the
possibility of increased taxation, and political, economic or diplomatic
developments which could adversely affect assets held in Spain and Portugal.
There is also less publicly available information about Spanish and Portuguese
companies and governments compared to reports and ratings published about U.S.
companies and the U.S. Government.
See Appendix A for a discussion of Spanish and Portuguese market and
economic characteristics.
Currency Fluctuations. Each Fund normally invests principally in
securities denominated in Spanish Pesetas and, with respect to the Spain and
Portugal Fund, Portuguese Escudos. Accordingly, a change in the value of the
relevant currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of the Funds' assets denominated in that currency. Such
changes will also affect the Funds' income. In addition, although most of the
Funds' income will be received or realized in such currencies, the Funds could
be required to liquidate portfolio securities to make such distributions.
Similarly, if an exchange rate declines between the time the Funds incur
expenses in U.S. dollars and the time cash expenses are paid, the amount of
either currency required to be converted into U.S. dollars in order to pay
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of
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<PAGE> 37
such expenses at the time they were incurred. Each of the foreign currencies is
exchangeable into U.S. dollars, subject, in certain cases, to obtaining
necessary governmental consents. Each Fund may enter into transactions to hedge
foreign currency exchange rate risks. For additional information on the Spanish
and Portuguese economies, currency exchange rates and markets, see Appendix A.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention (or the failure to
intervene) by U.S. or foreign governments or central banks, by currency controls
or political developments in the United States or abroad. For example,
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in Spanish Pesetas or Portuguese Escudos. These
currencies in which the Funds' assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Funds.
Repurchase Agreements and Loan Participations. Each Fund may enter into
repurchase agreements. The Spain and Portugal Fund may enter into repurchase
agreements with respect to any securities in which it may invest and with
parties who meet creditworthiness standards approved by the Fund's Directors.
The Growth Fund of Spain may enter into repurchase agreements with respect to
its U.S. dollar-denominated debt securities, and limits the total amount of all
repurchase agreements having a maturity greater than seven days, plus the total
value of all securities held by the Fund which are not readily marketable, to
25% of total assets. As of March 31, 1998, all of the Spain and Portugal Fund's
assets were readily marketable. As if that same date 1.1% of the Growth Fund of
Spain's assets were not readily marketable.
Repurchase agreements are contracts under which the buyer of a security
simultaneously buys and commits to resell the security to the seller at an
agreed upon price and date. Under a repurchase agreement, the seller is required
to maintain the value of the securities subject to the repurchase agreement at
not less than their repurchase price. Scudder Kemper will monitor and mark to
market the value of such securities daily to assure that the value equals or
exceeds the repurchase price. Scudder Kemper also monitors the creditworthiness
of parties to repurchase agreements under the Directors' general supervision.
Repurchase agreements may involve risks in the event of default or insolvency of
the seller, including possible delays or restrictions on the Fund's ability to
dispose of the underlying securities.
The Spain and Portugal Fund may purchase fixed or floating rate loans
or participation interests in loans that have been made by one or more banks.
These investments will be, in Scudder Kemper's judgment, of a quality equivalent
to investments bearing an "A" rating by Moody's or S&P and may, in some
instances, be backed by an agreement with a lending bank to repurchase the loans
or by specific collateral. In assessing the investment quality of such loans or
participation interests, Scudder Kemper will take into account the strength of
any bank that agrees to repurchase the loan.
Participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. The Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the lender selling the participation interest and only upon
receipt by the lender of the payments from the borrower. In connection with
purchasing participation interests, the Fund will generally have no right to
enforce compliance by the borrower with the terms of the loan agreement with the
lender, nor any rights of set-off against the borrower, and the Fund may not
directly benefit from any collateral supporting the loan in which it has
purchased the participation interest. As a result, the Fund will assume the
credit risk of both the borrower and the lender that is selling the
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<PAGE> 38
participation interest. In the event of the insolvency of the lender selling a
participation interest, the Fund may be treated as a general creditor of the
lender and may not benefit from set-off between the lender and the borrower.
The Fund may have difficulty disposing of participation interests.
Because no readily available secondary trading market in such participation
interests typically exists, the Fund anticipates that these obligations could be
sold only to a limited number of institutional investors. This lack of liquidity
will have an adverse effect on the Fund's ability to dispose of participation
interests in response to a specific economic event, such as a deterioration of
the creditworthiness of the borrower. The lack of a liquid secondary market may
also make it more difficult to assign a value to participation interests for
purpose of valuing the Fund's portfolio and calculating its net asset value.
The Spain and Portugal Fund will normally invest less than 20% of its
total assets in repurchase agreements and participation interests. As of March
31, 1998, neither the Spain and Portugal Fund nor the Growth Fund of Spain was
invested in repurchase agreements or participation interests. While the Growth
Fund of Spain is permitted to invest up to 25% of its assets in debt securities,
it generally does not invest in loan participations.
Unlisted and Illiquid Securities. The Growth Fund of Spain is permitted
to invest up to 25% of its total assets in unlisted equity and debt securities
of Spanish companies and in securities that are not readily marketable. As of
March 31, 1998, 1.1% of the total assets of the Growth Fund of Spain were
invested in such unlisted equity and debt securities. The Spain and Portugal
fund may invest up to 15% of its total assets at the time of investment in
unlisted equity securities. As of March 31, 1998, 1.3% of the total assets of
the Spain and Portugal Fund were invested in such unlisted equity securities.
There is no requirement to register the sale of securities with a government
agency in Spain and there are no legal restrictions on resales of such
securities, either as to length of time such securities must be held or manner
of resale. However, there may be contractual restrictions on resale of such
securities. In addition, there is no existing trading market for the purchase
and sale of such securities and such securities may not be able to be sold
readily. Such securities are therefore unlike securities which are traded in the
open market and which can be expected to be sold immediately if the market is
adequate. The sale price of unlisted securities may be lower or higher than
Scudder Kemper's most recent estimate of their fair value. Generally, less
public information is available with respect to the issuers of such securities
than with respect to companies whose securities are traded on an exchange.
Unlisted securities are more likely to be issued by emerging, small or family
businesses and therefore subject to greater economic, business and market risks
than the listed securities of more well-established companies.
Currency Transactions and Derivatives. From time to time, each Fund may
engage in currency exchange transactions to attempt to manage exchange rate
risk. Foreign currency transactions and other derivative contracts have risks
associated with them, including possible default by the other party to the
transaction, illiquidity and, to the extent the Scudder Kemper's view as to
certain market movements is incorrect, the risk that the use of such instruments
could result in losses greater than if they had not been used. The Spain and
Portugal Fund will use currency transactions only for hedging and not
speculation. The Fund will conduct its currency exchange transactions either on
a spot, i.e., cash, basis at the rate prevailing in the currency exchange
market, or through forward contracts to purchase or sell currency. A forward
currency contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
The Fund's dealings in forward currency will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward currency with respect to specific receivables or
payables of the Fund generally arising in
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<PAGE> 39
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions denominated or quoted in the currency.
The Spain and Portugal Fund may not position hedge with respect to a
particular currency to an extent greater than the aggregate market value (at the
time of making such sale) of the securities held in its portfolio denominated or
quoted in or currently convertible into that particular currency. If the Fund
enters into a position hedging transaction, the Fund's custodian or subcustodian
will place cash or U.S. Government securities or other high grade liquid debt
securities in a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of the forward
contract. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account so that
the value of the account will equal the amount of the Fund's commitment with
respect to the forward contract.
The Spain and Portugal Fund may enter forward foreign currency
contracts in several circumstances. When the Fund enters into a contract for the
purchase or sale of securities denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of interest or dividend
payments, the Fund may desire to "lock-in" the U.S. dollar price of the security
or the U.S. dollar equivalent of such interest or dividend payment, as the case
may be. By entering into a forward contract for a fixed amount of dollars, for
the purchase or sale of the amount of foreign currency involved in the
underlying transactions, the Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
on which the security is purchased or sold, or on which the dividend payment is
declared, and the date on which such dividend or interest payment is to be
received.
At or before the maturity of a forward sale contract, the Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between the
Fund's entering into forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
purchase is less than the price of the currency it has agreed to sell. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Closing out forward purchase contracts involves similar
offsetting transactions.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved. The
use of forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, although forward currency
contracts limit risk of loss due to decline in the value of the hedged currency,
at the same time, they limit any potential gain that might result should the
value of the currency increase.
If devaluation in any currency is generally anticipated by Scudder
Kemper, the Spain and Portugal Fund may not be able to contract to sell currency
at a price above the devaluation level it anticipated.
The Spain and Portugal Fund will not enter forward contracts to
purchase or sell currency if as a result thereof more than 5% of the Fund's net
assets are at risk in closing all contracts.
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The Spain and Portugal Fund may enter into futures contracts on equity
and debt securities eligible for investment by the Fund, and on securities
indices. Financial futures contracts have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to the
extent Scudder Kemper's view as to certain market movements is incorrect, the
risk that the use of such contracts could result in losses greater than if they
had not been used. There may be an imperfect correlation between price movements
of futures contracts and price movements of the underlying securities, thereby
creating the possibility that losses may be greater than gains in the value of
the Fund's position. Although the use of futures contracts for hedging may tend
to minimize the risk of loss due to a decline in value of the hedged position,
potential gain which might result from an increase in value of such position may
also be limited. Finally, the daily variation margin requirement for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where exposure is limited to the cost of the initial
premium. The use of futures contracts is a highly specialized activity that
involves skills, techniques, and risks different from those associated with the
selection of the Fund's equity or debt investments. Losses resulting from the
use of futures contracts will result in a reduction of net asset value, and
possibly income, and such losses may be greater than if such contracts had not
been utilized. The Growth Fund of Spain generally does not enter into futures
contracts with respect to equity and debt securities or securities indices.
Warrants. The Spain and Portugal Fund may invest in warrants, which are
securities permitting, but not obligating, their holders to subscribe for other
securities or commodities. The Fund may invest in warrants for debt securities
or warrants for equity securities that are acquired as units with debt
instruments. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to purchase
and they do not represent any rights in the assets of the issuer. As a result,
an investment in warrants may be considered to be more speculative than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities or commodities
and a warrant ceases to have value if it is not exercised prior to its
expiration date. Consistent with the Fund's investment policies as described
above, the Fund may retain in its portfolio any securities received upon the
exercise of a warrant and may also retain in its portfolio any warrant acquired
as a unit with a debt instrument if the warrant begins to trade separately from
the related debt instrument. The Growth Fund of Spain generally does not invest
in warrants.
Portfolio Turnover Rate. The Spain and Portugal Fund and the Growth
Fund of Spain do not engage in the trading of securities for the purpose of
realizing short-term profits, but adjust their portfolio as they deem advisable
in view of prevailing or anticipated market conditions to accomplish the Funds'
investment objective. It is not anticipated that the annual portfolio turnover
rate of the Spain and Portugal Fund will exceed 150%. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses than a
lower rate, which expenses must be borne by the Fund and its stockholders. High
portfolio turnover may also result in the realization of substantial net
short-term capital gains and any distributions resulting from such gains will be
taxable at ordinary income rates for U.S. Federal income tax purposes. The Spain
and Portugal Fund's portfolio turnover rate for the fiscal years ended September
30, 1997 and 1996 was 115% and 66%, respectively. The Growth Fund of Spain's
portfolio turnover rate for the fiscal years ended November 30, 1997 and 1996
was 29% and 45%, respectively. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the average
monthly value of the Registrant's portfolio securities. For purposes of this
calculation, portfolio securities exclude purchases and sales of debt securities
having a maturity at the date of purchase of one year or less.
Borrowing. The Spain and Portugal Fund is authorized to borrow money
from banks for temporary or emergency purposes or for the clearance of
transactions in an aggregate amount not exceeding 10% of its total assets (not
including the amount borrowed). The Growth Fund of Spain intends to borrow only
to finance tender offers and share repurchases, and may also borrow for
temporary
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purposes in an amount not exceeding 5% of the value of its total assets.
Borrowing increases exposure to capital risk, and borrowed funds are subject to
interests costs that may offset or exceed the return earned on investment of the
amounts borrowed.
Fundamental Policies. Each Fund has "fundamental" investment policies
which may be changed only with stockholder approval, and "nonfundamental"
investment policies which may be changed only with the approval of the Fund's
Board of Directors. Following is a description of certain of the Funds' current
fundamental investment policies which are substantially similar:
Neither Fund may make investments for the purpose of exercising control
over, or management of, the issuer of any securities.
Neither Fund may purchase securities on margin, except such short-term
credits as may be necessary for the clearance of transactions.
Neither Fund may act as underwriter of securities, except to the extent
the Fund may be deemed to be an underwriter in connection with the sale of
portfolio securities. The Spain and Portugal Fund may enter into stand-by
commitments to purchase underwritten securities that are not subscribed from the
underwriters of such securities.
Neither Fund may buy or sell real estate or interest in real estate,
except that they may invest in securities issued by companies, including real
estate unit investment trusts, that invest in real estate or interests therein.
The Spain and Portugal Fund may invest in securities secured by real estate or
interests in real estate.
Neither Fund may buy or sell commodities or commodity contracts,
provided that transactions in foreign currencies and forward contracts (and,
with respect to the Growth Fund of Spain, stock index futures contracts and
options thereon) and are not considered by the Funds to be transactions in
commodities or commodities contracts.
Neither Fund may make loans, except to the extent that the purchase of
portfolio securities consistent with each Fund's investment objective and
policies or the acquisition of securities subject to repurchase agreement may be
deemed to be loans.
Certain of the Funds' fundamental policies differ in material ways, as
follows:
As discussed above under "Portfolio Diversification", the Spain and
Portugal Fund is classified as a non-diversified company under the Investment
Company Act, while the Growth Fund of Spain is classified as a diversified
company.
The Spain and Portugal Fund may not make short sales of securities,
maintain a short position or write put and call options. The Growth Fund of
Spain may make short sales if, after giving effect to such sale, the market
value of all securities sold short does not exceed 25% of the value of the
Fund's total assets, and has no fundamental policy on writing put or call
options.
The Spain and Portugal Fund may not issue senior securities, borrow
money or pledge its assets, except that the Fund may borrow on an unsecured
basis from banks for temporary or emergency purposes in amounts not exceeding
10% of its total assets (not including the amount borrowed). The Growth Fund of
Spain may borrow money or issue senior securities to finance the repurchase of
and/or tenders for its shares if, after such borrowing or issuance there is
asset coverage of at least 300% as defined in the
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<PAGE> 42
Investment Company Act, and may borrow for temporary purposes in an additional
amount not exceeding 5% of the value of the total assets of the Fund.
The Spain and Portugal Fund may not purchase any security if, as a
result, more than 25% of the Fund's total assets would then be invested in the
securities of any single issuer or in securities of issuers in any one industry
or group of industries. The Growth Fund of Spain has no comparable fundamental
restriction.
The Growth Fund of Spain may not pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings or in
connection with hedging and risk management strategies, may not invest in
interests in oil, gas, or other mineral exploration or development programs
(except that it may purchase and sell securities of companies which deal in oil,
gas or other mineral exploration or development programs), and may not invest in
securities of other investment companies (except as part of a merger,
consolidation or other acquisition) if more than 3% of the outstanding voting
stock of any such investment company would be held by the Fund, if more than 5%
of the total assets of the Fund would be invested in any such investment
company, or if the Fund would own, in the aggregate, securities of investment
companies representing more than 10% of its total assets. The Spain and Portugal
Fund has no comparable fundamental restrictions.
U.S. Federal Income Taxes. The following is a brief summary of certain
U.S. federal income tax issues that apply with respect to each Fund. Please see
the Statement of Additional Information applicable to each Fund for a more
detailed discussion of these topics. Stockholders should consult their own tax
advisors with regard to the federal tax consequences of the purchase, ownership
and disposition of shares of each Fund's shares, as well as tax consequences
arising under the laws of any state, foreign country, or other taxing
jurisdiction.
Each Fund intends to qualify each year and elect to be treated as a
regulated investment company (a "RIC") under Subchapter M of the Code. A RIC
generally is not subject to federal income tax on income and gains distributed
in a timely manner to its stockholders. Each Fund intends to make timely
distributions to avoid tax liability.
Dividends out of net ordinary income and distributions of net
short-term capital gains are generally taxable as ordinary income, whether
received in cash or reinvested in shares of the applicable Fund. It is unlikely
that dividends from net ordinary income will be eligible for the corporate
dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses), whether received in cash or
reinvested in additional shares of the applicable Fund, will generally be
taxable to stockholders at a maximum rate of 20% or 28%, depending upon the
applicable Fund's holding period in the assets whose sale gives rise to the
gain; these rates apply regardless of the length of time a stockholder has held
the applicable Fund shares. If a stockholder disposes of Fund shares held for
six months or less and during that period receives a distribution taxable to the
stockholder as long-term capital gain, any loss realized on the sale of such
Fund shares will be long-term loss to the extent of such distribution.
The amount of an income dividend or capital gains distribution declared
by each Fund during October, November or December of a year to stockholders of
record as of a specified date in such a month that is paid during January of the
following year will be deemed to be received by stockholders on December 31 of
the prior year.
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<PAGE> 43
A dividend or capital gains distribution with respect to shares of each
Fund held by a tax-deferred or qualified plan, such as an IRA, retirement plan
or corporate pension or profit sharing plan, will not be taxable to the plan.
Distribution from such plans will be taxable to individual participants under
applicable tax rules without regard to the character of the income earned by the
qualified plan.
Stockholders will be advised annually as to the federal tax status of
dividends and capital gains distributions made by the Fund for the preceding
year. Distributions by each Fund generally will be subject to state and local
taxes.
Certain stockholders are required by law to certify that their tax
identification number is correct and that they are not subject to back-up
withholding. In the absence of this certification, each Fund is required to
withhold taxes at the rate of 31% on dividends and capital gains distributions.
Amounts withheld may be credited against a stockholder's federal income tax.
Spanish Taxes. The following description of certain Spanish tax matters
represents the opinion of the Spain and Portugal Fund's Spanish counsel based
upon current law and interpretations thereof. No advance rulings have been
obtained from the Spanish tax authorities and an opinion of counsel is not
binding on the Spanish tax authorities. No assurance can be given that
applicable tax laws and interpretations thereof will not change in the future.
Neither the Fund nor the Fund's stockholders, solely by reason of being
stockholders of the Fund, will be treated as residents of Spain or as carrying
on a business in Spain. No Spanish tax, other than tax on dividends, interest,
and capital gains as discussed below, will be applicable to the Fund or the
Fund's stockholders, other than stockholders who are residents of Spain or who
are subject to tax in Spain for reasons other than their status as stockholders
of the Fund.
Under Spanish law, dividends and interest income paid by Spanish
resident entities to holders of shares or securities who are non-residents of
Spain are subject to income tax withheld at source at a rate of 25% on the gross
amount of the income. However, under the Convention for the Avoidance of Double
Taxation signed by Spain and the United States on February 22, 1990 (the
"Convention"), a holder of shares that is resident of the United States for
purposes of the Convention (and who does not have a fixed base in Spain from
which such holder performs or has performed independent personal services and
whose holding is not effectively connected with a permanent establishment in
Spain through which such holder carries on or has carried on a business) (a
"United States resident") who obtains dividends from a Spanish resident entity
generally is subject to the Convention's reduced rate of 15% of the gross amount
of income. If the United States resident is a corporation and owns at least 25%
of the voting stock of the Spanish resident entity, tax will be levied at a 10%
rate. Also under the Convention, a United States resident that receives interest
from a Spanish resident entity is subject to the Convention reduced rate of 10%
of the gross amount of income.
If the normal 25% rate is initially applied to a United States
resident, a refund for the amount withheld in excess of the Convention-reduced
rates can generally be obtained, subject to applicable procedures.
Under Spanish law, capital gains derived from the disposal of shares or
securities issued by Spanish resident entities are considered to be Spanish
sourced income subject to income tax at a 35% rate. However, by virtue of the
Convention, no Spanish tax would be levied on capital gains upon the disposal of
shares or securities issued by Spanish resident entities by a United States
resident, provided that such United States resident has not maintained a direct
or indirect holding of 25% or more of the share capital of the Spanish resident
entity during the twelve months preceding the disposition of the securities.
- 43 -
<PAGE> 44
Capital borrowed by the State of Spain or its autonomous entities is
deemed Public Debt under Spanish Law. Interest paid on Public Debt to
non-residents of Spain who are not acting through a permanent establishment in
Spain is generally exempt from taxation in Spain. In addition, capital gains
realized by non-residents not acting through a permanent establishment in Spain
on the sale or disposition of Public Debt is generally exempt from taxation in
Spain.
Under Spanish law, transfers of shares are exempt from the stamp duty,
value added tax, and transfer tax. However, the transfer tax exemption will not
apply and the transfer of shares will be subject to transfer tax when (i) at
least 50% of the total assets of the company whose shares are transferred
consist of real estate located in Spain, and (ii) as a result of the transfer,
the acquiror obtains a control position over the company.
Generally, the Spanish taxes described above will be imposed on, and
paid by, the Fund (and not its stockholders). Under U.S. tax law, the Fund may
be able to pass through to its stockholders a credit for such taxes.
Portuguese Taxes. The following description of certain Portuguese tax
matters represents the opinion of the Spain and Portugal Fund's Portuguese tax
counsel based upon current law and interpretations thereof. No advance ruling
has been obtained from the Portuguese tax authorities and an opinion of counsel
is not binding on the Portuguese tax authorities. No assurance can be given that
applicable tax laws and interpretation thereof will not change in the future.
Neither the Fund nor the Fund's stockholders, solely by reason of being
stockholders of the Fund, will be treated as residents of Portugal or as
carrying on a business in Portugal. No Portuguese tax other than those described
below, will apply to the Fund or its stockholders, other than stockholders who
are residents of Portugal or who are subject to tax in Portugal for reasons
other than their status as stockholders of the Fund.
The tax regime applicable to Portuguese income obtained by the Spain
and Portugal Fund is provided by (i) the Portuguese Corporate Income Tax Code;
(ii) the Portuguese Gift and Inheritance Tax Code; and (iii) the Treaty for the
avoidance of Double Taxation and Prevention of Fiscal Evasion signed by Portugal
and the United States on September 6, 1994 and in force since January 1996 (the
"Treaty").
Under Portuguese law, dividends paid by Portuguese entities to holders
of shares who are non-residents of Portugal are subject to income tax withheld
at the source at the general rate of 25% on the gross amount of income. In
addition a further withholding of substitute gift and inheritance tax at the
rate of 5% is levied. However, according to the provisions of the Portuguese
Statute of Fiscal Incentives, 50% of the gross income or dividends paid on
shares listed on the Lisbon Stock Exchange is exempt from withholding tax,
resulting in an effective tax rate of 12.5%. Further, under the Treaty, the rate
of withholding tax on dividends will not exceed 15%, and the rate of withholding
with respect to the substitute gift and inheritance tax on dividends distributed
to a United States resident will not exceed 5%.
However, if a United States resident for purposes of the Treaty owns
25% or more of the share capital of a Portuguese resident company, the rate
applicable under the Treaty is:
(a) for dividends paid until December 31, 1999, a rate of
10%;
(b) after December 31, 1999, the same rate applicable to
the dividends of a similar nature paid to residents
of European Union member States, provided that in no
event shall the applicable rate be lower than 5%.
- 44 -
<PAGE> 45
Interest payments to non-residents of Portugal are subject to a general
20% withholding tax rate. However, the Treaty provides a reduction to a 10% rate
for United States residents.
The limitation of Portuguese tax provided by the Treaty can be obtained
either through the refund system or through the reduction at the source, subject
to applicable procedures.
Capital gains derived by a corporate non-resident holder, such as the
Spain and Portugal Fund, from the disposal of shares or securities issued by
Portuguese resident entities are not subject to Portuguese capital gains tax
unless such gains are effectively connected with a permanent establishment in
Portugal. As noted above, neither the Fund nor the Fund's stockholders, solely
by reason of being stockholders of the Fund, will be treated either as residents
of Portugal or as carrying on a business in Portugal.
Interest paid on treasury securities issued by the Portuguese
government and designated as Public Debt Securities by the Ministry of Finance
and held by entities that do not have a residence, place of administration or
permanent establishment in Portugal is generally exempt from taxation in
Portugal. In addition, capital gains realized on the sale or disposition of such
Public Debt Securities by the Spain and Portugal Fund (as an entity that does
not have a residence, place of administration or permanent establishment in
Portugal) are generally exempt from Portuguese taxation.
Generally, the Portuguese taxes described above will be imposed upon,
and paid by the Fund (and not its stockholders). Under U.S. tax law, the Fund
may be able to pass through to its stockholders a credit for such taxes.
No Portuguese transfer or stamp tax shall be due upon the transfer of
portfolio securities, except for a 4% stamp duty on brokerage fees, bank
settlement fees and commissions, if any, paid on the transfer of securities.
Qualification for Spanish and Portuguese Treaty Benefits. The Spain and
Portugal Fund and the Growth Fund of Spain have qualified for treatment as a
"United States resident" under the Convention and, with respect to the Spain and
Portugal Fund, the Treaty.
INFORMATION ABOUT THE MERGER
General. Under the Plan, the Growth Fund of Spain will merge with and
into the Spain and Portugal Fund on the Effective Date. On the Effective Date,
the separate existence of the Growth Fund of Spain will cease and the Spain and
Portugal Fund will be the surviving corporation. The Growth Fund of Spain would
then be deregistered as an investment company under the Investment Company Act
and cease its separate existence under Maryland law, and its shares of common
stock would be removed from listing on the NYSE and withdrawn from registration
under the Securities Exchange Act of 1934, as amended (the "Securities Exchange
Act").
Each share of outstanding stock of the Growth Fund of Spain will be
converted into an equivalent dollar amount of full shares of stock of the Spain
and Portugal Fund plus cash in lieu of any fractional shares, computed based on
the net asset value per share of each Fund on the Effective Date. No sales
charge or fee of any kind will be charged to the Growth Fund of Spain
stockholders in connection with their receipt of Spain and Portugal Fund common
stock in the Merger.
Because the net assets of the Growth Fund of Spain are currently
greater than the net assets of the Spain and Portugal Fund, it is expected that
on the Effective Date, the current stockholders of the Spain and Portugal Fund
will hold a minority of the shares of common stock of the Spain and Portugal
Fund.
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<PAGE> 46
The Merger is expected to occur on _______, 1998, or on such later date
as the parties may agree in writing. Under Maryland law, stockholders of a
corporation whose shares are traded publicly on a national securities exchange,
such as the Funds' shares, are not entitled to demand the fair value of their
shares upon a merger; therefore, the common stockholders of the Funds will be
bound by the terms of the Merger. However, any common stockholder of either Fund
may sell his or her shares of common stock at any time on the NYSE.
The Plan may be terminated and the Merger abandoned, whether before or
after approval by the Funds' stockholders, at any time prior to the Effective
Date (i) by the mutual written consent of the Board of Directors of each Fund,
or (ii) by either Fund if the conditions to that Fund's obligations under the
Plan have not been satisfied or waived. If the Merger has not been consummated
by December 31, 1998, the Plan automatically terminates on that date, unless a
later date is mutually agreed upon by the Board of Directors of each Fund.
Reasons for the Merger. The proposed Merger was presented to the Board
of Directors of each Fund for consideration and approval at separate meetings of
each Board held on April 14, 1998. All of the Directors of each Fund were
present at the meeting in person or by telephone. For the reasons discussed
below, the Board of Directors of each Fund, including a majority of the
Non-interested Directors of each Fund, after consideration of the potential
benefits of the Merger to the stockholders of each Fund and the expenses
expected to be incurred by the each Fund in connection with the Merger, has
determined that the interests of the existing stockholders of its respective
Fund will not be diluted as a result of the proposed Merger, and that the
proposed Merger is in the best interests of its respective Fund. The Board of
Directors of the Spain and Portugal Fund approved the Merger by a unanimous
vote, and the Board of Directors of the Growth Fund of Spain approved the Merger
by a vote of 6 to 2, with Messrs. Gregory L. Melville and Moritz A. Sell voting
against the Merger.
Each Board of Directors has, over the years, discussed the significance
of the existence of the discount to net asset value at which each Fund's shares
have traded on the stock exchanges on which the Fund's have been listed and the
impact on stockholders of the discount. Each Board has discussed and considered
various alternative strategies to address the discount, including instituting
share repurchases, combining with other funds, converting to an open-end format,
or liquidating. The Directors of each Fund have, however, consistently concluded
that it was in the best interests of each Fund and its stockholders to maintain
the current closed-end format, because, in the view of the Boards and of Scudder
Kemper, the closed-end format is the most appropriate investment vehicle for
participating in the Spanish and Spanish and Portuguese equities markets,
respectively. In Scudder Kemper's view, many attractive equity investment
opportunities in Spain and Portugal have been and continue to be found in the
small-capitalization and less liquid sectors of those markets. This view is
reflected in the portfolios of the Funds, which contain significant positions in
smaller and lightly traded companies that might not be sufficiently liquid for
an open-end fund in the amounts currently held by the Funds. The Board of
Directors of each Fund believes that the long-term performance of each Fund
supports Scudder Kemper's view. Further, in light of the current amounts of
appreciated securities in each Fund's portfolio, conversion of the Funds to
open-end status, or the institution of a cash tender offer, could have adverse
tax consequences for those stockholders who remain invested in either Fund,
because the Funds would likely be forced to liquidate portfolio holdings, and
thereby realize significant gains, to meet redemptions or to make payments
pursuant to a cash tender offer. Any such gains would be distributable and
taxable to all stockholders of the respective Fund, not limited to those
stockholders leaving the Fund. Remaining stockholders would thus bear their
share of these taxable gains as well as any remaining unrealized gains in the
Fund's portfolio.
In connection with recent stockholders' consideration of new advisory
agreements for the Funds in the context of a transaction involving the
combination of Scudder, Stevens & Clark, Inc. and Zurich
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<PAGE> 47
Kemper Investments, Inc. to form Scudder Kemper, certain large stockholders of
each Fund expressed the view that the Funds should take steps to allow them to
realize net asset value on their investment. Scudder Kemper also communicated
with other stockholders of the Funds, who voiced their continued support for the
closed-end structure and opposed proposals to convert to open-end status or to
liquidate. Scudder Kemper believes that many of the larger stockholders of the
Funds who would prefer that the Fund convert to open-end status or liquidate are
tax-exempt entities or foreign entities not generally subject to U.S. tax.
However, much of the stockholder base of each Fund is comprised of individual
investors who are subject to U.S. tax, and who therefore would be potentially
subject to significant taxes on realized capital gains should the Funds be
forced to sell portfolio positions to fund redemptions or liquidation
distributions.
In the context of each Board's ongoing consideration of the impact of
the market price discount on each Fund and its stockholders, each Board
requested that Scudder Kemper evaluate possible alternatives that would address
these concerns. The Boards further requested that, in evaluating the possible
alternatives, Scudder Kemper take into consideration the interests of all
stockholders.
The alternatives available to the Funds, including the full range of
alternatives that has been reviewed in the past discussions of the discount
issue, were considered at meetings of each Board of Directors held in the fourth
quarter of 1997 and in January, February, March and April 1998, including
meetings at which representatives of Scudder Kemper were not present. After
consideration of these alternatives, Scudder Kemper proposed, and the Board of
Directors of each Fund approved, the course of action described below. The
Non-interested Directors of the Spain and Portugal Fund were assisted in their
consideration of this matter by Ropes & Gray, counsel to such Non-interested
Directors. Similarly, the Directors of the Growth Fund of Spain, all of whom are
Non-interested Directors, were assisted in their consideration of this matter by
Vedder, Price, Kaufman & Kammholz, counsel to the Growth Fund of Spain and to
the Growth Fund of Spain's Non-interested Directors. Both Funds were also
assisted in their consideration of this matter by Dechert Price & Rhoads,
counsel for the Spain and Portugal Fund. Dechert Price & Rhoads also assisted
Scudder Kemper in the development of its proposal for the Merger and Redemption
Offer.
The proposal consists of two discrete and severable steps. The first is
a combination of the Funds to create a single closed-end vehicle investing in
the equity securities of Spanish and Portuguese companies. The second is a
one-time in-kind Redemption Offer, to be made following consummation of the
Merger. After consummation of the Merger, it is proposed that stockholders of
the Spain and Portugal Fund will be offered the opportunity to demand redemption
of their shares in-kind at net asset value in exchange for portfolio securities
of the Spain and Portugal Fund. The Redemption Offer would be subject to
limitations and conditions to preserve the tax-free status of the Merger and to
attempt to position the redemptions to qualify as "sales or exchanges" taxable
at capital gains rates rather than being treated as dividends taxable at
ordinary income rates under applicable tax law. As a consequence of this
proposed structure of the Redemption Offer, only those stockholders who desire
to receive the net asset value of their investment in the Spain and Portugal
Fund would recognize capital gains at the time the Redemption Offer is effected;
the remaining stockholders of the Spain and Portugal Fund would not realize
capital gains as a consequence of the elections by redeeming stockholders. As a
consequence of the Merger, the Fund that survives following the Redemption Offer
should have sufficient assets to permit it to be a viable closed-end investment
company for the benefit of those stockholders who prefer the closed-end format.
IN THE JUDGMENT OF THE BOARD OF DIRECTORS OF EACH FUND, THE MERGER
FOLLOWED BY THE REDEMPTION OFFER SERVES THE BEST INTERESTS OF EACH FUND AND ITS
STOCKHOLDERS BECAUSE IT IS DESIGNED TO PERMIT A SIGNIFICANT AMOUNT OF THE MERGED
FUND'S SHARES TO BE REDEEMED (IN-KIND) AT NET ASSET VALUE WHILE MAINTAINING THE
FUND'S CLOSED-END FORMAT AND AVOIDING THE IMPOSITION OF A POTENTIALLY
SIGNIFICANT TAX LIABILITY ON THOSE STOCKHOLDERS WHO DO NOT PARTICIPATE IN THE
REDEMPTION OFFER. It is not
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<PAGE> 48
possible to predict what percentage of stockholders may elect to tender their
shares in response to the Redemption Offer and therefore it is not possible to
predict which, if any, of the limitations discussed above may be imposed on the
Redemption Offer.
In considering the merits of the Merger proposal, the Boards also
considered the larger potential asset size that could result from the
combination of the Funds, the proposed fee structure and the resulting economies
of scale. Based on data presented by Scudder Kemper, the Board of Directors of
each Fund believes that a combination of the Funds may result in operating
expenses that will be lower than the aggregate operating expenses of either Fund
currently, and following the Redemption Offer, lower than the operating expense
ratios that would be attained if the Funds had independently offered a
redemption right to stockholders and had not been merged. However, economies of
scale achieved as a result of the Merger may be reduced depending on the results
of the Redemption Offer. With respect to the Growth Fund of Spain, the operating
expense ratio of the Spain and Portugal Fund after the Merger and Redemption
Offer are effected may be higher than that Fund's current operating expenses.
The Boards also considered that a larger asset base could provide
benefits in portfolio management. After the Merger, the Spain and Portugal Fund
may be better able to diversify portfolio holdings and thereby mitigate risks,
while participating in more investment opportunities. In addition, a larger
asset size could result in a more liquid trading market for shares of the Spain
and Portugal Fund than either Fund currently enjoys, which might have a positive
impact on the discount at which each Fund's shares have tended to trade. The
ability of the Spain and Portugal Fund to realize these benefits after the
Merger will be affected by the results of the Redemption Offer. Further, the
Merger itself should focus the attention of a wider circle of securities
analysts on the Funds, and after the Merger, may facilitate securities analysts'
following of the Spain and Portugal Fund because the Merger may eliminate
confusion in the marketplace that results from two funds with the same objective
and similar policies managed by the same adviser.
There can be no guarantee that any of these potential beneficial
results will be realized, and the results of the Redemption Offer will bear
significantly on the asset size and expense ratios of the Spain and Portugal
Fund after the Merger. If the Redemption Offer is effected, the net asset level
of the Spain and Portugal Fund may be less than the current net asset level of
the Growth Fund of Spain.
The Board of Directors of each Fund, in declaring advisable and
recommending the proposed Merger, also considered the following:
(1) the capabilities and resources of Scudder Kemper and
its affiliates in the areas of investment management
and stockholder servicing;
(2) expense ratios and information regarding fees and
expenses of the Funds;
(3) the terms, conditions and costs of the Merger and
whether it would result in dilution of the interests
of each Fund and its existing stockholders;
(4) the compatibility of each Fund's portfolio
securities, investment objective, policies and
restrictions;
(5) the tax consequences to each Fund and its
stockholders in connection with the Merger; and
(6) the anticipated expenses of the Merger.
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<PAGE> 49
In reviewing issues relating to the structure of the Merger and
Redemption Offer and the selection of the surviving corporation in the Merger,
each Board considered information provided to them by Scudder Kemper concerning
the comparative performance records of the two Funds, public and market
perception of the two Funds, the relative size of the two Funds, the investment
policies, strategies and personnel Scudder Kemper intends to utilize in managing
the merged fund, and Scudder Kemper's recommendation that the Spain and Portugal
Fund be the surviving corporation. In evaluating the comparative fee and expense
structures of the two Funds, the Boards noted that Scudder Kemper was proposing
to reduce the investment advisory and administration fee for the Spain and
Portugal Fund to a level comparable to the fee charged to the Growth Fund of
Spain for these services, and to assume (1) the costs of providing accounting
services to the Spain and Portugal Fund, and (2) the expenses of its employees
incurred in attending Board meetings of the Fund. These changes would give the
Spain and Portugal Fund a fee and expense structure equivalent to that of the
Growth Fund of Spain. Finally, each Board considered the impact of a proposed
breakpoint in the investment advisory and administration fee for the Spain and
Portugal Fund, to be implemented in the event the Merger is consummated.
Each Board further considered Scudder Kemper's views as to the relative
attributes of a mandatory open-ending provision such as that currently
applicable to the Growth Fund of Spain and that had formerly been applicable to
the Spain and Portugal Fund, but was repealed by stockholders in 1994. The
Boards considered Scudder Kemper's contentions that such policies are not
generally in the best interests of stockholders because they (1) unwisely limit
the discretion of the Board of Directors to make recommendations and to take
action that may be in the best interests of stockholders at a particular point
in time, (2) potentially put the Board of Directors in the awkward,
time-consuming and costly position of having to oppose such proposals to fulfill
their duties to recommend actions that they believe are in the best interests of
stockholders, and (3) inhibit the ability of a fund's portfolio managers to make
investments in the less liquid sectors of the markets in which a fund may
invest, which sectors could provide access to greater investment values. Each
Board finally considered a proposed form of open-ending policy to be adopted by
the Spain and Portugal Fund that would be implemented if the Merger is
consummated and certain conditions are met. This policy is intended to give
stockholders the opportunity to consider the effectiveness of implementation of
the proposed Merger and Redemption Offer in addressing stockholder interests.
Based on the factors discussed above, the Board of Directors of each
Fund concluded that the expenses of the Merger are outweighed by the benefits
that are anticipated to be derived from the Merger.
Terms of the Proposed Redemption Offer. As presently conceived, the
terms of the Redemption Offer would be as follows:
1. After the Merger occurs, each stockholder would be
offered the opportunity to redeem in-kind all, but
not less than all, shares of the Spain and Portugal
Fund that he or she owns. For this purpose, each
stockholder would have to take into account any
shares owned directly or attributable to him or her
under Section 318 of the Code. Thus, if a mother and
a daughter each owned shares and one wanted to
redeem, both would have to request redemption of all
of her shares.
2. To preserve the federal income tax-free character of
the Merger, stockholders in the aggregate may not
redeem more than 50% of shares of the Spain and
Portugal Fund received in exchange for shares of the
Growth Fund of Spain ("Target Shares"). So as to
treat stockholders equally whether they were
previously stockholders of the Spain and Portugal
Fund or the Growth Fund of Spain, not
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<PAGE> 50
more than 50% of shares of the Spain and Portugal
Fund outstanding immediately prior to the Merger
could be redeemed ("Acquiring Shares").
3. If more than 50% of the Target Shares are tendered
for redemption or if more than 50% of the Acquiring
Shares are tendered for redemption, the Spain and
Portugal Fund would impose a pro rata reduction in
the number of shares accepted for redemption from all
tendering stockholders of the Spain and Portugal
Fund. The percentage reduction would be the greater
of the percentage necessary to reduce either the
Target Shares redeemed or Acquiring Shares redeemed
to 50%. Thus, if 60% of Target Shares and 70% of
Acquiring Shares are tendered for redemption, only
5/7ths of the shares tendered would be redeemed (that
is the greater of the proportionate reduction
necessary to achieve the 50% limit of the Target
Shares (1/6th) or the Acquiring Shares (2/7th)).
4. If more than 75% of the Target Shares or the
Acquiring Shares are tendered for redemption, the
Redemption Offer would be canceled and the Board of
Directors of the Spain and Portugal Fund would
consider other options to permit stockholders to
elect to realize net asset value, which possibly
could include conversion of the Spain and Portugal
Fund to open-end status, liquidation or a cash tender
offer, all of which alternatives could result in the
realization of capital gains by the Spain and
Portugal Fund and its stockholders. While the Board
of Directors of the Spain and Portugal Fund currently
anticipates that it would take such actions, there
can be no assurance that the Board of Directors of
the Spain and Portugal Fund, at that time, will
determine that any such alternative is in the best
interests of the Fund or its stockholders.
5. Securities selected to be distributed in-kind will be
distributed to stockholders after excluding: (a)
securities which, if distributed, would be required
to be registered under the Securities Act of 1933;
(b) securities issued by entities in countries which
(i) restrict or prohibit the holding of securities by
non-nationals other than through qualified investment
vehicles, such as the Funds, or (ii) permit transfers
of ownership of securities to be effected only by
transactions conducted on a local stock exchange; and
(c) certain portfolio assets (such as forward foreign
currency exchange contracts, futures and options
contracts, and repurchase agreements) that, although
they may be liquid and marketable, must be traded
through the marketplace or with the counterparty to
the transaction in order to effect a change in
beneficial ownership. Securities to be distributed to
stockholders through an in-kind redemption will be
further limited to securities which are traded on a
public securities market or for which quoted bid
prices are available. The Spain and Portugal Fund may
distribute cash in lieu of securities held in its
investment portfolio not amounting to round lots (or
which would not amount to round lots if included in
the in-kind distribution), fractional shares, and
accruals on such securities.
The limitations and terms discussed above are subject to change.
Unless a stockholder elects otherwise, the in-kind redemption proceeds
would be invested in an open-end fund to be established and managed by Scudder
Kemper. This open-end fund would likely have greater relative holdings in the
medium and large capitalization issuers to maintain required liquidity levels.
Shares of this open-end fund would be redeemable at net asset value subject to a
redemption fee of up to
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<PAGE> 51
2% on redemptions of shares made within one year of investment, although
stockholders would receive credit for the time they held their shares of either
of the Funds. Therefore, long-term stockholders of either Fund would not be
subject to a redemption fee. An election by a stockholder to retain the in-kind
distribution of the Spain and Portugal Fund's portfolio securities rather than
invest that distribution in the open-end fund may result in increased expenses
for that stockholder, including brokerage fees and expenses associated with
retaining or selling such securities, as well as applicable transfer fees and
taxes.
The Redemption Offer is subject to regulatory approval, including the
approval of an application for exemptive relief filed with the SEC and a ruling
request filed with the Internal Revenue Service. The Funds have requested such
approvals, although there can be no assurance when or if they will be obtained.
Because of the expected timing for the receipt of responses to these regulatory
requests, it is anticipated that the Redemption Offer will be initiated no
earlier than the fourth quarter of 1998.
It is not possible to predict what percentage of stockholders may elect
to tender their shares in response to the Redemption Offer and therefore it is
not possible to predict which, if any, of the limitations discussed above may be
imposed upon implementation of the Redemption Offer.
Terms of the Merger Agreement. The following is a summary of the
significant terms of the Plan. This summary is qualified in its entirety by
reference to the Plan, attached hereto as Exhibit A.
At the Effective Date, each share of common stock of the Growth Fund of
Spain will be converted into an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of Spain and Portugal Fund common
stock, plus cash in lieu of fractional shares, computed based on the net asset
value per share of each Fund at the Effective Date. The Spain and Portugal Fund
may elect to issue shares of common stock to former Growth Fund of Spain
stockholders that have been designated as a separate series of shares of common
stock of the Spain and Portugal Fund and that would, until the Redemption Offer
is completed, trade pursuant to an independent listing and market price on the
New York Stock Exchange. The net asset value per share of the Funds shall be
determined as of the Effective Date based on the procedures utilized by the
Spain and Portugal Fund for valuation of its assets in cooperation with the
Growth Fund of Spain. The net asset value per share of the Funds will not be
adjusted to take into account differences in unrealized gains and losses.
The value of the assets of the Growth Fund of Spain to be transferred
to the Spain and Portugal Fund will be determined by the Spain and Portugal Fund
pursuant to the procedures utilized by the Spain and Portugal Fund in valuing
its own assets and determining its own liabilities for purposes of the Merger.
Such valuation and determination shall be made by the Spain and Portugal Fund in
cooperation with the Growth Fund of Spain and shall be confirmed in writing by
the Spain and Portugal Fund to the Growth Fund of Spain. Based upon portfolio
analysis performed by Scudder Kemper, it is not presently anticipated that the
application of the Spain and Portugal Fund's valuation procedures to the Growth
Fund of Spain's portfolio securities will result in a significant difference
from the valuation that would result from the application of the Growth Fund of
Spain's valuation procedures to such securities. The net asset value per share
of Spain and Portugal Fund common stock shall be determined in accordance with
such procedures, and the Spain and Portugal Fund shall certify the computations
involved. The Spain and Portugal Fund shall issue to the stockholders of the
Growth Fund of Spain separate certificates or share deposit receipts for the
Spain and Portugal Fund common stock by delivering the certificates or share
deposit receipts representing shares of the Spain and Portugal Fund common stock
to State Street Bank and Trust Company, as the transfer agent and registrar for
Spain and Portugal Fund common stock. With respect to any Growth Fund of Spain
stockholder holding certificates representing shares of the common stock of the
Growth Fund of Spain as of the Effective Date, and subject to the Spain and
Portugal Fund being informed thereof in writing by the Growth Fund of Spain, the
Spain and Portugal Fund will not permit such
- 51 -
<PAGE> 52
stockholder to receive new certificates representing shares of the Spain and
Portugal Fund common stock, until such stockholder has surrendered his or her
outstanding certificates representing shares of the common stock of the Growth
Fund of Spain or, in the event of lost certificates, posted adequate bond. The
Growth Fund of Spain will request its stockholders to surrender their
outstanding certificates representing shares of the common stock of the Growth
Fund of Spain or post adequate bond therefor. Dividends payable to holders of
record of shares of the Spain and Portugal Fund as of any date after the
Effective Date and prior to the exchange of certificates by any stockholder of
the Growth Fund of Spain shall be paid to such stockholder, without interest;
however, such dividends shall not be paid unless and until such stockholder
surrenders his or her stock certificates of the Growth Fund of Spain for
exchange.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON
CONSUMMATION OF THE MERGER, COMMON STOCKHOLDERS OF THE GROWTH FUND OF SPAIN WILL
BE FURNISHED WITH INSTRUCTIONS FOR EXCHANGING THEIR STOCK CERTIFICATES FOR SPAIN
AND PORTUGAL FUND STOCK CERTIFICATES AND, IF APPLICABLE, CASH IN LIEU OF
FRACTIONAL SHARES.
No fractional shares of the Spain and Portugal Fund will be issued to
Growth Fund of Spain stockholders. In lieu thereof, the Spain and Portugal
Fund's transfer agent will aggregate all fractional shares of the Spain and
Portugal Fund and sell the resulting full shares on the NYSE at the current
market price for shares of the Spain and Portugal Fund for the account of all
holders of fractional interests, and each such holder will receive such holder's
pro rata share of the proceeds of such sale, without interest, upon surrender of
such holder's Growth Fund of Spain common stock certificates.
The Plan provides, among other things, that the Merger will not take
place without: (i) the requisite approval of the stockholders of the Spain and
Portugal Fund and the Growth Fund of Spain; (ii) approval by the SEC of an
exemptive application filed by the Spain and Portugal Fund and the Growth Fund
of Spain with respect to the Merger; and (iii) effectiveness of a Registration
Statement on Form N-14.
The Plan may be terminated at any time prior to the Effective Date by
mutual agreement of each Fund's Board of Directors or by either Fund if the
other has violated a condition of the Plan. The Plan will automatically
terminate after December 31, 1998 if the Merger has not been consummated, unless
such time is extended by mutual agreement of the Board of Directors of each
Fund.
The Plan may be amended, modified or supplemented by mutual agreement
of the Growth Fund of Spain and the Spain and Portugal Fund but no amendments
which would have the effect of changing the provisions for determining the
number of shares issued to the Growth Fund of Spain stockholders will be
permitted following the Meeting unless those stockholders consent to the
amendment.
Expenses of the Merger. In evaluating the proposed Merger, management
of the Funds estimated the amount of additional expenses the Funds would incur,
including additional NYSE listing fees, SEC registration fees, legal and
accounting fees and increased proxy and distribution costs. This cost is
estimated to be $1,500,000. The aggregate amount of estimated expenses of the
Merger will be allocated equally among the Funds and Scudder Kemper (including
the SEC registration fees and the fees for listing additional shares of the
Spain and Portugal Fund on the NYSE).
Tax Considerations. The Plan and Merger are conditioned upon the
receipt by the Funds of an opinion from Dechert Price & Rhoads, and receipt by
the Growth Fund of Spain of an opinion from Vedder, Price, Kaufman & Kammholz,
substantially to the effect that, based upon the facts, assumptions and
representations of the parties, for federal income tax purposes: (i) the Merger
will constitute a tax-free
- 52 -
<PAGE> 53
"reorganization" within the meaning of Section 368(a)(1) of the Code, and each
Fund will be "a party to a reorganization" within the meaning of Section 368(b)
of the Code; (ii) no gain or loss will be recognized by either Fund as a result
of the Merger or on the distribution of Spain and Portugal Fund common stock to
Growth Fund of Spain stockholders under Section 361(c)(1) of the Code; (iii) the
basis of the assets of the Growth Fund of Spain in the hands of the Spain and
Portugal Fund will be the same as the basis of such assets of the Growth Fund of
Spain immediately prior to the transfer; (iv) the holding period of the assets
of the Growth Fund of Spain in the hands of the Spain and Portugal Fund will
include the period during which such assets were held by the Growth Fund of
Spain; (v) no gain or loss will be recognized by the stockholders of the Growth
Fund of Spain upon the conversion of their Growth Fund of Spain shares into
Spain and Portugal Fund common stock except with respect to cash received in
lieu of fractional share interests; (vi) the basis of the Spain and Portugal
Fund shares received by the stockholders of the Growth Fund of Spain will be the
same as the basis of the shares of the Growth Fund of Spain exchanged therefor;
(vii) the holding period of the Spain and Portugal Fund shares received by the
stockholders of the Growth Fund of Spain will include the holding period during
which the shares of the Growth Fund of Spain exchanged therefor were held,
provided that at the time of the exchange the shares of the Growth Fund of Spain
were held as capital assets in the hands of the stockholders of the Growth Fund
of Spain; and (viii) cash received for fractional shares will generate gain (but
not loss) to stockholders receiving such cash.
While the Growth Fund of Spain is not aware of any adverse state or
local tax consequences of the proposed Merger, it has not requested any ruling
or opinion with respect to such consequences and stockholders may wish to
consult their own tax advisers with respect to such matters.
History of the Growth Fund of Spain's Discount. The Growth Fund of
Spain's shares have generally traded at a discount to their net asset value per
share since shortly after its commencement of operations. See "Additional
Information about the Fund - Description of Securities to be Issued. The Board
of Directors of the Growth Fund of Spain has considered a number of actions in
response to this discount. From December 1990 through October 31, 1997 the
Growth Fund of Spain engaged in a stock repurchase plan to attempt to narrow the
Fund's discount. In December 1997, the Growth Fund of Spain temporarily
suspended its stock repurchase program pending consideration of the Merger and
related matters.
During the past few years, the Growth Fund of Spain has received
several stockholder proposals expressing concern regarding the discount. The
Growth Fund of Spain's prospectus provides for a trigger mechanism that allows
the Fund's stockholders to request that the Fund be converted from a closed-end
to an open-end investment company with the affirmative vote of three-fourths of
the outstanding shares of common stock of the Fund. Specifically, the prospectus
provides that:
"Commencing with the fiscal year which begins on December 1,
1994, and in each fiscal year thereafter, if (i) shares of the
Fund's common stock (the "Common Stock") traded on the
principal securities exchange where listed at an average
discount from net asset value of more than 10% determined on
the basis of the discount as of the end of the last trading
day in each week during the period of 12 calendar weeks
preceding December 31 in such year, and (ii) during such year
the Fund received written requests from the holders of 10% or
more of the outstanding shares of Common Stock that a
proposal, as described below, be submitted to the Fund's
shareholders, the Fund will submit to its shareholders at the
next succeeding annual meeting of shareholders a proposal, to
the extent consistent with the 1940 Act, to amend the Fund's
Articles of Incorporation. Such amendment would provide that,
upon its
- 53 -
<PAGE> 54
adoption by the holders of three-fourths of the outstanding
shares of Common Stock, the Fund will convert from a
closed-end to an open-end investment company. The
three-fourths vote requirement is higher than the minimum vote
required under the 1940 Act and Maryland law."
At the Growth Fund of Spain's annual meeting of stockholders in 1996, a
proposal to convert the Fund to open-end status was presented pursuant to this
prospectus policy on open-ending. At that meeting, approximately 30.6% of the
Fund's outstanding shares voted in favor of converting to open-end status and,
therefore, the proposal was not approved by the required vote of 75% of the
Fund's outstanding shares.
In December 1995, the Growth Fund of Spain received by facsimile a
letter from a stockholder requesting that the Fund include a proposal in its
proxy statement in connection with its 1996 meeting of stockholders. As finally
revised, the proposal was to approve a resolution recommending that the Board
approve, and submit for stockholder approval, a fundamental policy requiring the
Fund to make offers to repurchase its shares at three month intervals pursuant
to Rule 23c-3 under the 1940 Act (the "Interval Fund Proposal"). Investment
companies that make such periodic repurchases are commonly referred to as
"interval funds."
At its January 17, 1996 meeting, the Board reviewed the Interval Fund
Proposal and determined to seek "no-action" relief under the proxy rules to
permit the Fund to omit the Interval Fund Proposal from its proxy statement. The
no-action letter was granted; however, the stockholder was permitted to revise
its proposal in such a manner that the Fund was required to include it in its
proxy statement. At the March 6, 1996 Growth Fund of Spain Board meeting, the
Board decided to recommend that stockholders vote against the Interval Fund
Proposal.
The Growth Fund of Spain's proxy statement included the Board's
recommendation against the Interval Fund Proposal and an explanation of the
Board's reasons for such recommendation. As noted above, the proxy statement
also included a Board proposal to open-end the Fund in accordance with a
provision in the Fund's prospectus. At the meeting of stockholders, the Interval
Fund Proposal was approved by the requisite number of shares (which was a
majority of the shares casting votes on the proposal), although only
approximately 27.4% of the outstanding shares voted in favor of the proposal.
Accordingly, the Board was obligated to consider whether to approve (and then to
submit to stockholders for their approval) a formal proposal to adopt the
interval fund structure in the form recommended by the Interval Fund Proposal.
At its July 24, 1996 meeting, the Board determined that operation of the Fund as
an interval fund would not be in the best interest of the Fund, and the Fund
issued a press release to that effect.
On October 10, 1997, the Growth Fund of Spain received a letter dated
October 7, 1997 from Bankgesellschaft Berlin requesting that the Fund's Audit
and Governance Committee nominate Gregory L. Melville and Moritz A. Sell as
candidates for the Board in connection with the December 3, 1997 special meeting
which included a proposal to elect two directors -- one to fill a vacancy in the
Board and the other to replace a director who intended to resign.
Bankgesellschaft Berlin stated that it believed that its nominees would be more
committed than management's nominees to reducing or eliminating the discount
from net asset valve of the Fund's shares of common stock. On October 14, 1997
the Secretary of the Fund sent a letter to Bankgesellschaft Berlin stating that
the Bank's proposed nominees will be presented to the Audit and Governance
Committee of the Fund for consideration at its next regularly scheduled meeting.
On November 3, 1997, Bankgesellschaft Berlin filed with the Commission
a preliminary proxy statement in opposition to the Fund to solicit support for
electing its nominees to the Board. On November 18, 1997, Bankgesellschaft
Berlin filed a definitive proxy statement with the Commission. On November
- 54 -
<PAGE> 55
24, 1997, the Board filed additional proxy solicitation material urging
stockholders to vote for management's nominees.
On December 2, 1997 the Board met and approved a press release
announcing that the Board had asked Scudder to "recommend various proposals to
enable the shareholders to elect to receive net asset value of the Fund's
holding" and that the Board will review the proposals and "intends to take
action that it determines is in the best interest of the Fund and its
shareholders." In addition, the press release (which was issued on December 3,
1997) announced that the Board would submit for stockholder consideration at the
Fund's 1998 annual meeting a proposal to convert the Fund to an open-end fund
pursuant to the prospectus policy discussed above. On December 3, 1997, the
special meeting was adjourned to December 11, 1997 to count votes with respect
to the contested election of directors and to solicit further proxies with
respect to the proposal to approve the new investment management and
sub-advisory agreements with SKI. On December 8, 1997, the Board met again and
issued a press release announcing that preliminary votes indicated that
Bankgesellschaft Berlin's nominees (Messrs. Gregory L. Melville and Moritz A.
Sell) received a sufficient number of votes to elect them to the Board and that
the Board "is committed to work diligently with the Bank's nominees in reducing
or eliminating the discount from net asset value, consistent with their platform
and the interests of the Fund and its shareholders." At the stockholders'
meeting held on December 11, 1997, Messrs. Melville and Sell were elected by
the affirmative vote of 52.4% of the outstanding shares of the Growth Fund of
Spain.
On April 14, 1998, the Board of Directors of the Growth Fund of Spain
approved the Merger by a vote of 6 to 2, with Messrs. Melville and Sell voting
against the Merger.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Description of Securities to be Issued. The authorized stock of the
Spain and Portugal Fund consists of 200,000,000 shares of common stock, U.S.
$0.01 par value. Shares of the Spain and Portugal Fund entitle their holders to
one vote per share. Holders of the Spain and Portugal Fund's common stock are
entitled to share equally in dividends authorized by the Fund's Board of
Directors payable to the holders of such common stock and in the net assets of
the Spain and Portugal Fund available for distribution to holders of such common
stock. Shares have noncumulative voting rights and no conversion, preemptive or
subscription rights, and are not redeemable. The outstanding shares of common
stock of the Spain and Portugal Fund are fully paid and nonassessable. In the
event of liquidation, each share of common stock is entitled to its proportion
of the Fund's assets after payment of debts and expenses. The Spain and Portugal
Fund holds stockholder meetings annually.
For purposes of monitoring compliance with the tax limitations in
connection with the Redemption Offer, the Spain and Portugal Fund may elect to
issue shares of common stock to former Growth Fund of Spain stockholders that
have been designated as separate series of shares of common stock of the Spain
and Portugal Fund and that would, until the Redemption Offer has been effected,
trade pursuant to an independent listing and market price on the NYSE. Shares of
both series would have identical net asset value, voting and other rights and
privileges, as described in the preceding paragraph, and neither series would
have a preference or priority over the other upon the distribution of the assets
of Spain and Portugal Fund or in respect of the payment of interest or
dividends.
The following table shows information about the Common Stock of each
Fund as of March 31, 1998.
- 55 -
<PAGE> 56
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Title of Class Amount Authorized Amount held by Fund or Amount Outstanding
-------------- ----------------- for its Own Account Exclusive of Amount
------------------- Shown Under (3)
---------------
<S> <C> <C> <C> <C>
SPAIN AND PORTUGAL Common Stock, $.01 200,000,000 None 6,511,154
FUND par value
GROWTH FUND OF Common Stock, $.01 50,000,000 1,479,000 16,530,293
SPAIN par value
</TABLE>
As of March 31, 1998, the shares of common stock of the Spain and
Portugal Fund and the Growth Fund of Spain, are listed and trade on the NYSE
under the symbols "IBF" and "GSP", respectively. As of March 31, 1998, the net
asset value of Spain and Portugal Fund common stock was $19.77, and the market
price per share was $18.188. As of that same date, the net asset value of Growth
Fund of Spain common stock was $23.54, and the market price per share was
$21.5625. If a separate series of shares of common stock of the Spain and
Portugal Fund is issued to stockholders of the Growth Fund of Spain in
connection with the merger, those shares will be listed on the NYSE and will
trade separately from the shares of common stock of the Spain and Portugal Fund
currently trading on the NYSE until such time as the Redemption Offer has been
effected. Although each series of shares of common stock would have the same net
asset value, it is not possible to determine whether such shares will trade at
the same market price.
PER SHARE DATA FOR SPAIN AND PORTUGAL FUND COMMON STOCK TRADED ON THE AMERICAN
STOCK EXCHANGE (PRIOR TO JULY 30, 1997) AND THE NYSE
<TABLE>
<CAPTION>
HIGH SALES NET ASSET PREMIUM LOW SALES NET ASSET PREMIUM
PERIOD PRICE VALUE (DISCOUNT) PRICE VALUE (DISCOUNT)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oct. 1 - Dec. 31, 1995....... $ 7.938 10.23 (22.4%) $ 7.125 $ 9.44 (24.5%)
Jan. 1 - March 31, 1996...... 8.625 10.81 (20.2%) 7.750 10.36 (25.2%)
Apr. 1 - June 30, 1996....... 9.000 11.02 (18.3%) 8.313 10.82 (23.2%)
July 1 - Sept. 30, 1996...... 9.000 11.59 (22.3%) 8.313 11.15 (25.4%)
Oct. 1 - Dec. 31, 1996....... 11.125 13.76 (19.1%) 8.875 11.59 (23.4%)
Jan. 1 - March 31, 1997...... 11.500 14.29 (19.5%) 10.500 14.04 (25.2%)
Apr. 1 - June 30, 1997....... 14.000 16.90 (17.2%) 10.750 13.81 (22.2%)
July 1 - Sept. 30, 1997...... 14.500 17.34 (16.4%) 12.313 15.75 (21.8%)
Oct. 1 - Dec. 31, 1997....... 15.813 17.28 (8.5%) 11.625 15.11 (23.1%)
Jan. 1 - March 31, 1998...... 18.500 20.00 (7.5%) 13.063 14.87 (12.2%)
</TABLE>
PER SHARE DATA FOR GROWTH FUND OF SPAIN COMMON STOCK TRADED ON THE NYSE
<TABLE>
<CAPTION>
HIGH SALES NET ASSET PREMIUM LOW SALES NET ASSET PREMIUM
PERIOD PRICE VALUE (DISCOUNT) PRICE VALUE (DISCOUNT)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dec. 1 - Feb. 27, 1996....... $11.875 $13.49 (12.0%) $10.250 $12.72 (19.4%)
March 1 - May 31, 1996....... 11.750 13.77 (14.7%) 10.625 13.22 (19.6%)
Apr. 1 - Aug. 31, 1996....... 12.125 14.30 (15.2%) 10.625 14.00 (24.1%)
Sept. 1 - Nov. 30, 1996...... 12.750 15.72 (18.9%) 11.125 13.92 (20.1%)
Dec. 1 - Feb. 28, 1997....... 13.625 16.04 (15.1%) 11.625 14.64 (20.6%)
March 1 - May 31, 1997....... 14.625 18.40 (20.5%) 12.000 14.93 (19.6%)
June 1 - Aug. 31, 1997....... 16.125 19.38 (16.8%) 13.875 17.52 (20.8%)
Sept. 1 - Nov. 30, 1997...... 17.000 19.06 (10.8%) 12.625 17.14 (26.3%)
Dec. 1 - Feb. 28, 1998....... 19.313 20.79 (7.1%) 15.813 17.97 (12.0%)
</TABLE>
- 56 -
<PAGE> 57
Capitalization. The following table shows on an unaudited basis the
capitalization of the Spain and Portugal Fund and the Growth Fund of Spain as of
March 31, 1998 and on a pro forma basis as of that same date giving effect to
the Merger,(1) and the subsequent Redemption Offer:
(In thousands, except per share values)
<TABLE>
<CAPTION>
SPAIN AND GROWTH FUND PRO FORMA PRO FORMA PRO FORMA PRO FORMA
PORTUGAL OF SPAIN ADJUSTMENTS FOR MERGER FOR 50% FOR 30%
FUND REDEMPTION(4) REDEMPTION(5)
<S> <C> <C> <C> <C> <C> <C>
Net Assets $128,745 $389,176 $(21,903) $496,018 $248,009 $347,213
Net Asset Value per share(2) $ 19.77 $ 23.54 -- $ 17.87 $ 17.87 $ 17.87
Shares outstanding(3) 6,511 16,530 4,717 27,758 13,879 19,430
</TABLE>
(1) Assumes the Merger had been consummated on March 31, 1998, and is for
information purposes only. No assurance can be given as to how many
shares of Spain and Portugal Fund common stock stockholders of the
Growth Fund of Spain will receive on the date the Merger takes place,
and the foregoing should not be relied upon to reflect the number of
shares of Spain and Portugal Fund common stock that actually will be
received on or after such date. Assumes distributions of ordinary
income and capital gains, and accrual of estimated Merger expenses of
$1,000,000.
(2) Net asset value per share after Merger-related expenses and
distribution of ordinary income and realized net capital gains.
(3) Assumes the issuance of 21,247,554 shares in exchange for the net
assets of the Growth Fund of Spain. The number of shares issued was
based on net asset value of each Fund, net of estimated Merger
expenses and distributions on March 31, 1998.
(4) Assumes redemption of 50% of the shares of the Spain and Portugal Fund
after the Merger, which is the maximum redemption currently proposed to
be permitted pursuant to the Redemption Offer.
(5) Assumes redemption of 30% of the shares of the Spain and Portugal Fund
after the Merger.
Dividends and Other Distributions. Each Fund intends to distribute
dividends from its net investment income and any net realized capital gains
after utilization of capital loss carryforwards, if any, annually to prevent
application of a federal excise tax. An additional distribution may be made if
necessary. Any dividends or capital gains distributions declared in October,
November or December with a record date in such a month and paid during the
following January will be treated by stockholders for federal income tax
purposes as if received on December 31 of the calendar year in which it is
declared. Dividends and distributions of each Fund are invested in additional
shares of the Fund at net asset value and credited to the stockholder's account
on the payment date or, at the stockholder's election, paid in cash.
If the Merger is approved by each Fund's stockholders, then as soon as
practicable before the Effective Date the Growth Fund of Spain Fund will pay its
stockholders a cash distribution of all undistributed 1998 net investment income
and undistributed realized net capital gains, and the Spain and Portugal Fund
will pay its stockholders a cash distribution of substantially all undistributed
1998 net investment income and undistributed realized net capital gains.
- 57 -
<PAGE> 58
Discount to Net Asset Value. Shares of closed-end investment companies,
such as the Funds, have frequently traded at a discount from net asset value.
This characteristic is a risk separate and distinct from the risk that the
Funds' net asset values may decrease, and may be greater for investors expecting
to sell their shares in a relatively short period. THE SHARES OF COMMON STOCK OF
THE FUNDS SHOULD THUS BE VIEWED AS BEING DESIGNED PRIMARILY FOR LONG-TERM
INVESTORS AND SHOULD NOT BE CONSIDERED A VEHICLE FOR TRADING PURPOSES.
During the period since the inception of the Funds, the common stock of
both Funds has generally traded at a discount to net asset value, and does so
currently. It is not possible to state whether shares of the Spain and Portugal
Fund will trade at a premium or discount to net asset value following the
Merger, or the extent of any such premium or discount. The Directors of both
Funds regularly consider the respective Fund's market price discount and the
effect of the discount on the Fund and its stockholders.
As discussed above under "Reasons for the Merger", the Board of
Directors of the Spain and Portugal Fund currently intends to offer the
stockholders of the Spain and Portugal Fund after the Merger the right to demand
a one-time redemption of their shares at net asset value in exchange for in-kind
securities of the Fund, subject to limitations to preserve the tax-free status
of the Merger and to attempt to position the redemptions to qualify as "sales or
exchanges" generally taxable at capital gains rates. Further, the Board of
Directors of the Spain and Portugal Fund has adopted a policy to be effective in
the event that the Merger is consummated and the Redemption Offer is not
implemented, or is implemented subject to a pro rata reduction in the number of
shares acquired for redemption, pursuant to which if certain conditions are met,
the Spain and Portugal Fund would submit an open-ending proposal to
stockholders.
Security Valuation. Spain and Portugal Fund portfolio securities which
are traded on U.S. or foreign stock exchanges are valued at the most recent sale
price reported on the exchange on which the security is traded most extensively.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq System, for which there have been sales, are valued at the most recent
sale price reported on such system. If there are no such sales, the value is the
most recent bid quotation. Securities which are not quoted on the Nasdaq System
but are traded in another over-the-counter market are valued at the most recent
sale price on such market. If no sale occurred, the security is then valued at
the mean between the most recent bid and asked quotations. If there are no such
bid and asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty
days are valued by pricing agents approved by the officers of the Fund, which
quotations reflect broker-dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
Options contracts on securities, currencies, futures and other
financial instruments traded on an exchange are valued at their most recent
sales price on such exchange or, if no sales occurred, the option is valued at
the calculated mean between the most recent bid quotation and the most recent
asked quotations. If there are no such bid and asked quotations, the value is
the most recent bid quotation in the case of purchased options and the most
recent asked quotation in the case of written options. Over-the-counter traded
options are valued at the most recent bid quotation in the case of purchased
options and the most recent asked quotations in the case of written options.
Futures contracts are valued at the most recent settlement price, and foreign
currency contracts are valued at the prevailing currency exchange rate.
- 58 -
<PAGE> 59
All other securities of the Spain and Portugal Fund are valued at their
fair value as determined in good faith by the Valuation Committee of the Board
of Directors. If a portfolio security cannot be valued in accordance with the
foregoing because a recent sale price, calculated mean quotation, bid quotation
or other quotation is not available on the date the securities are to be valued,
the security may be valued as previously determined by the foregoing rules for
up to ten consecutive trading days, after which fair market value will be
determined by the Valuation Committee. If, in the opinion of the Valuation
Committee, the value of an asset as determined in accordance with the foregoing
procedures does not represent the fair market value of the security, the
security will be valued at its fair value as determined in good faith by the
Valuation Committee.
Although the Growth Fund of Spain's valuation procedures are
substantially similar to the Spain and Portugal Fund's procedures, if a closing
price is not available for a Growth Fund of Spain portfolio security, the Growth
Fund of Spain values the security at the most recent bid price, whereas the
Spain and Portugal Fund values such securities at the mean between the most
recent bid and asked quotations.
For purposes of valuing assets in connection with the Merger, pursuant
to the Merger Agreement the assets of the Growth Fund of Spain will be valued
pursuant to the principles and procedures consistently utilized by the Spain and
Portugal Fund in valuing its own assets and determining its own liabilities.
Based upon portfolio analysis performed by Scudder Kemper, it is not presently
anticipated that the application of the Spain and Portugal Fund's valuation
procedures to the Growth Fund of Spain's portfolio securities will result in a
significant difference from the valuation that would result from the application
of the Growth Fund of Spain's valuation procedures to such securities.
Portfolio Transactions. To the maximum extent feasible, Scudder Kemper
places orders for portfolio transactions through Scudder Investor Services, Inc.
(the "Distributor") (a corporation registered as a broker/dealer and a
subsidiary of Scudder), which in turn places orders on behalf of the Fund with
issuers, underwriters or other brokers and dealers. The Distributor receives no
commissions, fees or other remuneration from the investment company for this
service. Allocation of portfolio transactions is supervised by Scudder Kemper.
Spain and Portugal Fund. The primary objective in placing orders for
the purchase and sale of securities for the Spain and Portugal Fund's portfolio
is to obtain best execution, taking into account such factors as price,
commission, size of order, difficulty of execution and skill required of the
broker. To the extent brokerage commissions are negotiated, Scudder Kemper is
authorized to pay higher commissions on brokerage transactions for the Fund to
brokers, other than affiliates of Scudder Kemper, in order to secure research,
subject to the primary consideration of obtaining the most favorable price and
efficient execution in the circumstances and subject to review by the Fund's
Board of Directors from time to time as to the extent and continuation of this
practice. The allocation of orders among brokers and the commission rates paid
are reviewed periodically by the Board of Directors.
Subject to best price and execution, orders will be placed with brokers
and dealers who supply research, market and statistical information ("research")
to the Fund and Scudder Kemper. The research may be used by Scudder Kemper in
advising other clients, and may or may not be of use to the Fund. Although
research from brokers and dealers may be useful to Scudder Kemper, it will be
only supplementary to its own efforts. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
affiliates of Scudder Kemper. In order for any of such affiliates to effect any
portfolio transaction for the Fund, the commissions, fees and other remuneration
received by it must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers in connection with comparable
transaction involving similar securities being purchased or sold on a securities
exchange during a comparable period of time. This standard allows affiliates of
Scudder Kemper
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to receive no more than the remuneration that would be expected to be received
by an unaffiliated broker in a commensurate arms-length transaction.
Furthermore, the Board of Directors of the Fund, including a majority of the
Directors who are not "interested" (within the meaning of the Investment Company
Act) Directors has adopted procedures which are reasonably designed to provide
that any commissions, fees or other remuneration paid to affiliates of Scudder
Kemper are consistent with the foregoing standard.
Brokerage transactions with affiliates of Scudder Kemper are also
subject to such fiduciary standards as may be imposed upon affiliates of Scudder
Kemper by applicable law. Absent receipt of appropriate exemptive orders from
the SEC, the Fund may not engage in securities transactions with affiliates of
Scudder Kemper acting as principal.
The Growth Fund of Spain. Scudder Kemper and BSN, the Growth Fund of
Spain's sub-adviser, in effecting purchases and sales of portfolio securities
for the account of a Fund, will implement the Fund's policy of seeking best
execution of orders. Scudder Kemper and BSN may be permitted to pay higher
brokerage commissions for research services as described below. Consistent with
this policy, orders for portfolio transactions are placed with broker-dealer
firms giving consideration to the quality, quantity and nature of each firm's
professional services, which include execution, financial responsibility,
responsiveness clearance procedures, wire service quotations and statistical and
other research seeking best execution of an order, brokerage is allocated on the
basis of all services provided to a fund and Scudder Kemper and its affiliates.
Subject to seeking best execution of an order, brokerage is allocated on the
basis of all services provided. Any research benefits derived are available for
all clients of Scudder Kemper or BSN, as the case may be, and their affiliates.
In selecting among firms believed to meet the criteria for handling a particular
transaction, Scudder Kemper or BSN may give consideration to those firms that
have sold or are selling shares of funds managed by Scudder Kemper or BSN and
their affiliates, as well as to those firms that provide market, statistical and
other research information to such funds and Scudder Kemper or BSN and their
affiliates, although Scudder Kemper or BSN is not authorized to pay higher
commissions to firms that provide such services.
For the fiscal years ended September 30, 1997, 1996 and 1995, the Spain
and Portugal Fund paid brokerage commissions of $672,579, $279,197 and $126,408,
respectively. For the fiscal years ended November 30, 1997, 1996 and 1995, the
Growth Fund of Spain paid brokerage commissions of $390,000, $642,000 and
$746,000, respectively.
For the fiscal years ended November 30, 1997, 1996 and 1995, the Growth
Fund of Spain paid BSN Sociedad de Valores y Bolsa, and affiliate of the Growth
Fund of Spain's sub-adviser, brokerage commission of $94,000, $251,000 and
$324,000, respectively. Transactions in which the Growth Fund of Spain used BSN
Sociedad de Valores y Bolsa as broker comprised 21.56% of the aggregate dollar
amount involving payment of commissions, and 24.1% of the aggregate brokerage
commissions paid by it during the fiscal year ended November 30, 1997.
During the fiscal year ended September 30, 1997, the Spain and Portugal
Fund acquired securities of Banco Santander de Negocios, a broker dealer
employed regularly by the Fund, and as of September 30, 1997 held securities of
Banco Santander de Negocios with a value of $5,775,487. During the fiscal year
ended November 30, 1997, the Growth Fund of Spain acquired securities of Banco
Exterior Internacional, a broker dealer employed regularly by the Fund, and as
of November 30, 1997 held securities of Banco Exterior Internacional with a
value of $4,875,000.
Dividend Reinvestment Plan. Each Fund operates a Dividend Reinvestment
Plan (a "DRIP") pursuant to which Fund dividends may be automatically reinvested
in Fund shares. Stockholders of the Growth Fund of Spain are automatically
enrolled in the DRIP, while stockholders of the Spain and
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Portugal Fund must elect to participate in the DRIP. Stockholders of the Spain
and Portugal Fund who wish to participate in the DRIP or obtain more information
about the DRIP should contact State Street Bank and Trust Company, P.O. Box
8209, Boston, MA 02266, 1-800-426-5523 (a "Plan Agent"). Stockholders who wish
to opt out of the Growth Fund of Spain's DRIP or obtain more information about
that DRIP should contact Kemper Service Company, P.O. Box 419066, Kansas City,
Missouri 64141, 1-800-294-4366, (a "Plan Agent"). Stockholders may withdraw from
the DRIP by providing written notice to the Plan Agent. If a stockholder
withdraws from a DRIP, he or she will receive without charge a stock certificate
issued for all full shares held in their DRIP account and a check for any
fractional share amounts based on market price. Alternatively, the Plan Agent
will arrange for the sale of all shares held in their DRIP account and will send
the stockholder the proceeds, less brokerage commissions and a service fee of
$2.50.
Under the DRIPs, if a Fund declares a dividend or capital gain
distribution payable either in cash or in stock of the Fund, and the market
price of shares on the valuation date equals or exceeds the net asset value per
share of the Fund, the Fund will issue new shares at net asset value. However,
neither Fund will issue new shares at a discount of more than 5% of the then
current market price. If the market price is lower than the Fund's net asset
value, or if dividends or capital gains distributions are payable only in cash,
then stockholders will receive shares purchased in the open market. Stockholders
participating in a DRIP will receive tax information annually for their personal
records and to assist in the preparation of Federal income tax returns. The
automatic reinvestment of dividends and capital gain distributions does not
relieve stockholders of any income tax which may be payable thereon.
Currently, there is no direct service fee or brokerage commission to
DRIP participants for reinvesting dividends, since the Plan Agent's fees are
payable by the Fund. However, whenever shares are purchased on the open market
through the DRIP, each DRIP participant pays a pro rata portion of the brokerage
commissions. Brokerage charges for purchasing shares through the DRIP are
expected to be less than the usual brokerage charges for individual
transactions, because the Plan Agent will purchase stock for all participants in
blocks, resulting in lower commissions for each individual participant.
Stockholders whose shares are held in the name of a broker or nominee should
contact the broker or nominee to determine whether and how they may participate
in the DRIP. Some brokers or nominees may not participate in the DRIP. The DRIP
may be terminated or amended by the Fund or, with respect to the Spain and
Portugal Fund, the Plan Agent. Participants will receive written notice at least
90 days before any amendment.
Differences in Corporate Governance Provisions. Although both Funds are
Maryland corporations and in many respects have similar charter and by-law
provisions, certain differences exist.
Open-Ending Proposals. Currently, the Growth Fund of Spain is subject
to a provision regarding the submission of proposals to convert the Fund to
open-end status, as follows:
Commencing with the fiscal year which begins on December 1, 1994, and
in each fiscal year thereafter, if (i) shares of the Growth Fund of Spain's
common stock traded on the principal securities exchange where listed at an
average discount from net asset value of more than 10%, determined on the basis
of the discount as of the end of the last trading day in each week during the
period of 12 calendar weeks proceeding December 31 in such year, and (ii) during
such year the Fund received written requests from the holders of 10% or more of
the outstanding shares of common stock that a proposal, as described below, be
submitted to the Fund stockholders, the Fund will submit to its stockholders at
the next succeeding annual meeting of stockholders a proposal, to the extent
consistent with the Investment Company Act, to amend the Fund's Articles of
Incorporation. Such amendment would provide that, upon its adoption by the
holders of three-fourths of the outstanding shares of common stock, the Fund
will
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<PAGE> 62
convert from a closed-end to an open-end investment company, although this
provision on conversion to open-end status can be amended by the affirmative
vote of two-thirds of the outstanding shares of common stock of the Fund. The
three-fourths vote requirement is higher than the minimum vote required under
the Investment Company Act and the MGCL.
These conditions have been triggered in the past, although insufficient
shares were voted to convert the Growth Fund of Spain to open-end status. These
conditions have been triggered in 1997, and an open-ending proposal is scheduled
to be presented at the next annual meeting of the Growth Fund of Spain
stockholders, which has been deferred from May 1998 until October 1998.
The Spain and Portugal Fund is not currently subject to any comparable
commitment. Accordingly, if the Merger is consummated, the Growth Fund of Spain
will cease to exist and there will be no open-ending proposal presented to the
stockholders of the Spain and Portugal Fund at the Spain and Portugal Fund's
next annual meeting of stockholders pursuant to a mandatory policy on
open-ending proposals. The Spain and Portugal Fund was formerly subject to a
similar policy, but stockholders of the Fund approved the repeal of that policy
in 1994. In connection with the Merger transaction, the Board of Directors of
the Spain and Portugal Fund has adopted a policy, effective upon consummation of
the Merger, that would, under certain circumstances, provide for the submission
of an open-ending proposal to stockholders to permit them to evaluate the
effectiveness of the implementation of the proposed Merger and Redemption Offer.
Scudder Kemper has informed the Board of Directors of each Fund that it
continues to believe that the closed-end format is appropriate for a fund
investing in the less liquid sectors of the Spanish and Portuguese equity
markets, where each Fund has made significant investments that have contributed
to its overall total return performance record. In addition, Scudder Kemper
believes that a policy requiring that a closed-end fund routinely and
mechanically submit open-ending proposals to its stockholders (1) unwisely
limits the discretion of the Board of Directors to make recommendations and to
take action that may be in the best interests of stockholders at a particular
point in time, (2) potentially puts the Board of Directors in the awkward,
time-consuming and costly position of having to oppose such proposals to fulfill
their duties to recommend actions that they believe are in the best interests of
stockholders, and (3) restricts the ability of a fund's portfolio managers to
make investments in the less liquid sectors of the markets in which the fund
would invest, which sectors could provide greater investment value. Scudder
Kemper does not, therefore, believe that a mandatory policy such as that
applicable to the Growth Fund of Spain (or such as that formerly applicable to
the Spain and Portugal Fund) is necessarily in the best interests of
stockholders of either Fund. However, to permit stockholders of the Spain and
Portugal Fund the opportunity to evaluate the effectiveness of implementation of
the proposed Merger and Redemption Offer in addressing stockholder interests,
and to reconsider the issue of what format may be most appropriate for the Fund
at a definite point in the future, the Directors of the Spain and Portugal Fund
have approved the following policy for the Fund, to be effective only in the
event the Merger is consummated and (i) if the Redemption Offer has not been
implemented, or (ii) if the Redemption Offer has been implemented but a pro rata
reduction in the amount of shares tendered for redemption has been made, as
follows:
If the shares of common stock of the Spain and Portugal Fund have
traded on the principal securities exchange where listed at an average
discount to the Fund's net asset value of more than 10%, determined on
the basis of the discount as of the end of the last trading day in each
week during the period of twelve calendar weeks following the six month
period beginning the earlier of (i) the public announcement that the
Redemption Offer cannot be effected, (ii) completion of the Redemption
Offer, if a pro rata reduction in the amount of shares accepted for
redemption has been made, or (iii) March 1, 1999, the Fund will submit
to its stockholders a proposal to amend the Fund's Articles of
Incorporation to
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<PAGE> 63
provide that, upon the adoption of such amendment by the affirmative
vote of two-thirds of the outstanding shares of common stock of the
Fund entitled to vote thereon, the Fund shall take the necessary steps
to convert to an open-end investment company, unless the Directors
shall have previously determined to recommend that the Fund be operated
as an interval fund; provided that, any implementation of the
Redemption Offer without a pro rata reduction in the amount of shares
accepted for redemption will negate any obligation under this policy to
submit a proposal to stockholders to convert the Fund to open-end
status or to proceed with such conversion, regardless of whether such
proposal has been approved by stockholders in the interim.
If a proposal to convert the Fund to open-end status is presented to
stockholders, the Board of Directors of the Spain and Portugal will, consistent
with its fiduciary duties to the Fund and its stockholders, make a determination
at that time as to whether such a proposal is in the best interests of the
stockholders, and therefore whether to recommend that stockholders vote in favor
of the proposal.
Conversion of the Spain and Portugal Fund to an open-end investment
company would require an amendment to the Fund's Articles of Incorporation. The
amendment would have to be declared advisable by the Board of Directors prior to
its submission to stockholders. Such an amendment would require the affirmative
vote of the holders of at least two-thirds of the Fund's outstanding shares of
common stock entitled to be voted on the matter. Such a vote also would satisfy
a separate requirement in the Investment Company Act that the change be approved
by the stockholders. Stockholders of an open-end investment company may require
the company to redeem their shares of common stock at any time (except in
certain circumstances as authorized by or under the Investment Company Act) at
their net asset value, less such redemption charge, if any, as might be in
effect at the time of a redemption. If the Fund is converted to an open-end
investment company, it could be required to liquidate portfolio securities to
meet requests for redemption and the common stock no longer would be listed on a
stock exchange. Conversion to an open-end investment company also would require
changes in certain of the Fund's investment policies and restrictions, such as
those relating to the borrowing of money and the purchase of illiquid
securities.
Maryland Business Combinations Act. In its Articles of Incorporation,
the Growth Fund of Spain has elected to be governed by the business combination
provisions (the "Maryland Business Combination Act") of the MGCL, which under
certain specific circumstances prohibit for five years certain "business
combinations" between a Maryland corporation and any "interested stockholder"
(defined in the MGCL to include a beneficial owner of ten percent or more of the
voting power of the corporation's shares or an affiliate thereof) and, after the
five-year prohibition, require the approval of the business combination by two
supermajority votes. As a component of the Merger, the stockholders of the
Growth Fund of Spain are being asked to vote on an amendment to the Articles of
Incorporation of the Growth Fund of Spain deleting the provision whereby the
Growth Fund of Spain elects to be subject to the Maryland Business Combinations
Act. The Spain and Portugal Fund has not elected to be governed by the Maryland
Business Combinations Act. The Spain and Portugal Fund's Articles of
Incorporation contain a provision requiring a two-thirds stockholder vote for
certain transactions with a "Principal Stockholder," which is defined as any
corporation, person or other entity or any group that beneficially owns,
directly or indirectly, more than 5% of the Fund's outstanding common stock.
However, the Board of Directors may cause the Fund to "opt-out" of this
provision by authorizing, approving or ratifying the transaction.
Certain Other Voting Requirements. The Growth Fund of Spain's Articles
of Incorporation currently require a three-fourths stockholder vote to approve,
among other things, a conversion to open-end status or a merger, consolidation
or sale of substantially all of its assets with or to another company, and
liquidation. The Spain and Portugal Fund's Articles of Incorporation currently
require a two-thirds stockholder vote to approve a conversion to open-end
status. In addition, a two-thirds stockholder vote is
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<PAGE> 64
required to approve a merger, consolidation or sale of substantially all of its
assets with or to another company, and liquidation. As a component of the
Merger, the stockholders of the Growth Fund of Spain are being asked to vote on
an amendment to the Articles of Incorporation of the Growth Fund of Spain so
that a merger, consolidation or transfer of assets with or to another company
may be approved by two-thirds of the Fund's outstanding shares, and the
stockholders of the Spain and Portugal Fund are being asked to vote on an
amendment to the Articles of Incorporation of the Spain and Portugal Fund so
that a merger, consolidation or transfer of assets with or to another company
may be approved by a majority of the Fund's outstanding shares. Due to
differences in the provisions contained in each Fund's Articles of
Incorporation, the Growth Fund of Spain is unable to amend its Articles of
Incorporation to reduce the vote required to approve the Merger to a majority of
the outstanding shares of the Fund without obtaining a two-thirds stockholder
vote approving such amendment.
Removal of Directors. A Director of the Growth Fund of Spain may be
removed, with or without cause, by the affirmative vote of a majority of the
votes entitled to be cast for the election of Directors. The Spain and Portugal
Fund's Articles of Incorporation provide that a Director may be removed, for
cause only, by the affirmative vote of the holders of four-fifths of the votes
entitled to be cast for the election of Directors.
Meeting of Stockholders. A special meeting of stockholders of the
Growth Fund of Spain must be called by the Secretary of the Fund upon the
written requests of the holders of one-fourth of the shares of the Fund,
provided certain other conditions are met. A special meeting of stockholders of
the Spain and Portugal Fund must be called by the Secretary of the Fund upon the
written requests of the holders of one-half of the shares of the Fund, provided
certain other conditions are met.
The full text of the Spain and Portugal Fund's Articles of
Incorporation and By-Laws are on file with the Securities and Exchange
Commission and these documents, as may be amended from time to time, will govern
the Spain and Portugal Fund after the Merger.
Interest of Certain Persons. Scudder Kemper may be considered to have a
financial interest in the Merger, arising from the fact that the amount of its
management fee under the Investment Advisory, Management and Administration
Agreement between Scudder Kemper and the Spain and Portugal Fund will increase
as the amount of the Spain and Portugal Fund's assets increases, and the amount
of those assets will increase by virtue of the Merger. Because Scudder Kemper is
a leading global equity manager and maintains its own research staff, Scudder
Kemper has determined that it is not necessary to retain BSN to provide
investment advice with respect to the Spain and Portugal Fund's Spanish
investments after the Merger is consummated. Therefore, upon consummation of the
Merger, the sub-advisory agreement between Scudder Kemper and BSN with respect
to the Growth Fund of Spain will terminate and BSN will not be retained to
provide investment management services with respect to the Spain and Portugal
Fund. Under the existing sub-advisory agreement, Scudder Kemper has agreed to
pay BSN a monthly fee of 0.35% of the Growth Fund of Spain's average weekly net
assets in consideration of investment advice, research and assistance from BSN
with respect to the management of the securities portfolio of the Growth Fund of
Spain. Following the Merger, Scudder Kemper will retain the amount it had
previously paid to BSN pursuant to this sub-advisory agreement, although no fee
or expense of the Spain and Portugal Fund will increase as a result of the
termination of the sub-advisory agreement. Any increase in fees received by
Scudder Kemper attributable to the increased asset levels of the Spain and
Portugal Fund will be partially offset by the corresponding loss of the fees
Scudder Kemper currently receives under its Investment Management Agreement with
the Growth Fund of Spain, and as a result of Scudder Kemper's agreement to amend
the Investment Advisory, Management and Administration Agreement with the Spain
and Portugal Fund upon consummation of the Merger to reduce the monthly fee
payable thereunder from 1.20% per annum of average weekly net assets to 1.00%
per annum of the Spain and Portugal Fund's average weekly
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net assets with respect to the first $400 million of net assets, declining to
0.95% per annum of the value of the Fund's average weekly net assets thereafter.
See "Synopsis - Fees and Expenses." Scudder Fund Accounting Corporation
("SFAC"), a subsidiary of Scudder Kemper, computes net asset value and provides
fund accounting services for the Spain and Portugal Fund for an annual asset
based fee of 0.065% of weekly net assets on the first $50 million of net assets,
0.04% of weekly net assets for the next $850 million, and 0.020% of weekly net
assets for amounts over $1 billion of net assets, plus transaction and holding
fees. Scudder Service Corporation ("SSC"), also a subsidiary of Scudder Kemper,
acts as the shareholder servicing agent for the Spain and Portugal Fund at no
fee. SFAC and SSC will continue to provide fund accounting and shareholding
services to the Spain and Portugal Fund after the Merger, but for no fee.
Because Scudder Kemper receives fees based on the net asset levels of the Spain
and Portugal Fund and the Growth Fund of Spain, Scudder Kemper further has a
financial interest in each Fund's decision whether to engage in any transaction
with a potential to reduce assets under management, such as an open-ending, a
tender offer, or a liquidation. One member of the Board of Directors of the
Spain and Portugal Fund is an affiliated person of Scudder Kemper.
Bankgesellschaft Berlin is an affiliated person of each of the Growth
Fund of Spain and the Spain and Portugal Fund for purposes of the Investment
Company Act by virtue of its share ownership of each Fund. Bankgesellschaft
Berlin is a financial services holding company with subsidiaries engaged in the
investment banking, real estate, and commercial banking businesses. Two
employees of Bankgesellschaft Berlin serve on the Board of Directors of the
Growth Fund of Spain. Due to the significant share ownership of both Funds by
Bankgesellschaft Berlin, and the presence of two of its employees on the Board
of the Growth Fund of Spain, Bankgesellschaft Berlin may be subject to
restrictions imposed by the U.S. federal securities laws on its ability to
purchase additional shares of the Funds, or to sell its shares of the Funds.
Bankgesellschaft Berlin may also be deemed to be a "controlling person," and
therefore a presumptive underwriter of shares of the Spain and Portugal Fund it
receives in connection with the Merger.
Investment Manager. Scudder, Kemper Investments, Inc., 345 Park Avenue,
New York, New York 10154, is the investment manager to the Spain and Portugal
Fund pursuant to an Investment Advisory, Management and Administration Agreement
with the Spain and Portugal Fund, and is the investment manager to the Growth
Fund of Spain pursuant to an Investment Management Agreement with the Growth
Fund of Spain.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp., Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens & Clark, Inc.
("Scudder") and the representatives of the beneficial owners of the capital
stock of Scudder entered into a transaction agreement pursuant to which Zurich
would acquire a majority interest in Scudder, and ZKI would be combined with
Scudder (the "Transaction"). The Transaction was consummated on December 31,
1997, and on that date, Scudder changed its name to Scudder Kemper Investments,
Inc. As a result of the Transaction, Zurich owns approximately 70% of Scudder
Kemper, with the balance owned by Scudder Kemper officers and employees.
Consummation of the Transaction resulted in the "assignment" of the
Growth Fund of Spain's investment management agreement with ZKI, and the Spain
and Portugal Fund's investment management agreement with Scudder, thereby
causing the automatic termination of each agreement. Each Fund's current
investment management agreement with Scudder Kemper was approved by the Board of
Directors on August 6, 1997, with respect to the Spain and Portugal Fund, and
September 20, 1997, with respect to the Growth Fund of Spain. Each agreement, as
well as the sub-advisory agreement between Scudder Kemper and BSN with respect
to the Growth Fund of Spain, was then submitted to a vote of stockholders on
October 21, 1997 with respect to the Spain and Portugal Fund and December 3,
1997 with respect to
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the Growth Fund of Spain, and was approved by the stockholders of each Fund.
Each Fund's investment advisory agreement with Scudder Kemper is dated December
31, 1997.
Scudder Kemper, a Delaware corporation, manages each Fund's daily
investment and business affairs subject to the policies established by each
Fund's Board of Directors. The Directors have overall responsibility for the
management of the Funds under Maryland law.
Under each Fund's investment management agreement, Scudder Kemper
agrees to provide continuing investment management services for the Fund
consistent with the Fund's investment objective, policies and descriptions, and
applicable law, and determines what securities shall be purchased, held or sold,
subject to such polices and instructions as the Fund's Board of Directors shall
from time to time establish. In addition, Scudder Kemper provides each Fund with
significant administrative services necessary for the Fund's operation as a
closed-end investment company, including, but not limited to, preparing reports
and notices to Directors and stockholders, supervising and negotiating
agreements with Fund service providers, preparing and making filings with the
Securities and Exchange Commission and other regulatory organizations,
overseeing the tabulation of proxies, preparing and filing federal, state and
local tax returns, and keeping the Fund's books and records.
Prior to December 31, 1997, the Spain and Portugal Fund maintained a
separate administration agreement with Scudder.
Scudder Kemper bears the expenses of its duties arising under each
Fund's investment management agreement. In addition, Scudder Kemper pays the
compensation and expenses of all Directors, officers and executive employees of
each Fund affiliated with Scudder Kemper, or advisers thereto, and makes
available, without expense to each Fund, the services of such Directors,
officers and employees of Scudder Kemper as may duly be elected officers of the
Fund, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Fund's office space and facilities. With
respect to the Growth Fund of Spain, Scudder Kemper currently pays the travel
expenses related to the attendance at Board and committee meetings of all
Directors, officers, and executive employees of the Growth Fund of Spain who are
affiliates of Scudder Kemper.
Scudder Kemper has agreed to an amendment to the Investment Advisory,
Management and Administration Agreement with the Spain and Portugal Fund, to be
effective upon consummation of the Merger, to reduce the fee payable by the
Spain and Portugal Fund for investment advisory management and administration
services to a monthly fee, which, on an annual basis, is equal to 1.00% per
annum of the value of the Fund's average weekly net assets with respect to the
first $400 million of net assets, declining to 0.95% per annum of the value of
the Fund's average weekly net assets thereafter, and to provide that Scudder
Kemper will pay for the travel expenses related to the attendance at Board and
committee meetings of all Directors, officers and executive employees of the
Spain and Portugal Fund who are affiliates of Scudder Kemper. Scudder Kemper
will continue to provide the same level of services to the Spain and Portugal
Fund after the Merger as it does currently under the Investment Advisory,
Management and Administration Agreement. In addition, Scudder Fund Accounting
Corporation will provide its services to the Fund at no fee upon consummation of
the Merger. Accordingly, the fees paid to Scudder Kemper or its affiliates by
the Spain and Portugal Fund after the consummation of the Merger will be
comparable to the fees paid by the Growth Fund of Spain to Scudder Kemper or its
affiliates for such services currently.
For these services, the Spain and Portugal Fund pays Scudder Kemper a
monthly investment management fee which, on an annual basis, is equal to 1.00%
per annum of the value of the Fund's average weekly net assets. For the fiscal
years ended September 30, 1997, 1996 and 1995, the investment management fee
payable by the Spain and Portugal Fund to Scudder amounted to $940,480, $832,412
and $724,931, respectively. The Spain and Portugal fund also pays Scudder Kemper
a monthly administration services fee which, on an annual basis, is equal to
.20% per annum of the value of the Fund's average weekly net assets. For the
fiscal years ended September 30, 1997, 1996, and 1995, the administration
services fee payable by the Spain and Portugal Fund to Scudder amounted to
$188,095, $138,740, and $120,821.
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For these services, the Growth Fund of Spain pays Scudder Kemper a
monthly fee which, on an annual basis, is equal to 1.00% per annum of the value
of the Fund's average weekly net assets. For the fiscal years ended November 30,
1997, 1996 and 1995, the investment management fee payable to ZKI amounted to
$2,846,000, $2,374,000 and $2,139,000, respectively.
Under the investment management agreements, each Fund is responsible
for all of its other expenses, including: organization and certain offering
expenses of the Fund (including out-of-pocket expenses, but not including
overhead or employee costs of Scudder Kemper or of any one or more organizations
retained by the Fund or by Scudder Kemper as an advisor or consultant to the
Fund); fees payable to Scudder Kemper and to any advisor or consultants,
including an advisory board, if applicable, legal expenses, auditing and
accounting expenses; telephone, telex, facsimile, postage and other
communication expenses; taxes and governmental fees; stock exchange listing
fees; fees, dues and expenses incurred by the Fund in connection with membership
in investment company trade organizations; fees and expenses of the Fund's
custodian, subcustodians, transfer agents and registrars; payment for portfolio
pricing or valuation services to pricing agents, accountants, bankers and other
specialists, if any; expenses of preparing share certificates and other expenses
in connection with the issuance, offering, distribution, sale or underwriting of
securities issued by the Fund; expenses of registering or qualifying securities
of the Fund for sale; expenses relating to investor and public relations;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; brokerage commissions or other costs of acquiring
or disposing of any portfolio securities of the Fund; expenses of preparing and
distributing reports, notices and dividends to stockholders; costs of
stationery; costs of stockholders' and other meetings; litigation expenses; or
expenses relating to the Fund's dividend reinvestment and cash purchase plan
(except for brokerage expenses paid by participants in such plan).
The Spain and Portugal Fund's investment management agreement provides
that the Fund may use any name derived from "Scudder Kemper Investments, Inc."
only so long as the agreement or any extension, renewal or amendment thereof
remains in effect.
Each investment management agreement provides that neither Scudder
Kemper nor its officers, directors, employees or agents shall be liable for any
act or omission, error of judgment or mistake of law, or for any loss suffered
by the Fund, in connection with matters to which the agreement relates, except
by reason of willful misfeasance, bad faith or gross negligence on the part of
Scudder Kemper in the performance of its duties or by reason of reckless
disregard on the part of Scudder Kemper of its obligations and duties under the
agreement.
With respect to the Growth Fund of Spain, Scudder Kemper retains the
services of BSN, Paseo de la Castellana, 32-Planta 6, 28046 Madrid, Spain as a
sub-adviser. BSN is a wholly-owned subsidiary of Banco Santander de Negocios,
which is wholly owned by Banco Santander. Banco Santander, together with its
subsidiaries and associated companies, is engaged principally in commercial and
retail banking operations in Spain and other countries. BSN provides investment
advice, research and assistance to Scudder Kemper with respect to the securities
portfolio of the Growth Fund of Spain as Scudder Kemper may from time to time
reasonably request. For its services, BSN receives from Scudder Kemper a monthly
fee of 0.35% of the Fund's average weekly net assets. Upon consummation of the
Merger, the sub-advisory agreement between Scudder Kemper and BSN with respect
to the Growth Fund of Spain will terminate.
Scudder Kemper is a leading global investment manager with offices
throughout the United States and subsidiaries in London, Tokyo, Hong Kong,
Sydney, Toronto and Luxembourg. Scudder Kemper is one of the largest and most
experienced investment management organizations worldwide, managing more
- 67 -
<PAGE> 68
than $200 billion in assets globally for mutual fund investors, retirement and
pension plans, institutional and corporate clients, insurance companies, and
private family and individual accounts. It is one of the most experienced
investment counsel firms in the U.S. and one of the ten largest mutual fund
companies in the U.S. Scudder Kemper's predecessor was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953 Scudder introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985.
Scudder Kemper has a rich heritage of innovation, integrity, and
client-focused service. Headquartered in New York, Scudder Kemper offers a full
range of investment counsel and asset management capabilities, based on a
combination of proprietary research and disciplined, long-term investment
strategies. With its global investment resources and perspective, the firm seeks
opportunities in markets throughout the world to meet the needs of investors.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The names, addresses and principal occupations of the Directors of
Scudder Kemper are as follows: Lynn S. Birdsong, 345 Park Avenue, New York, New
York, Managing Director of Scudder Kemper; Cornelia M. Small, 345 Park Avenue,
New York, New York, Managing Director of Scudder Kemper; and Edmond D. Villani,
345 Park Avenue, New York, New York,, President and Chief Executive Officer of
Scudder Kemper; Lawrence W. Cheng, Mythenquai 2, Zurich, Switzerland, Chief
Investment Officer for Investments and Institution Asset Management and the
corporate functions of Securities and Real Estate for Zurich; Steven M.
Gluckstern, Mythenquai 2, Zurich, Switzerland, responsible for Reinsurance,
Structured Finance, Capital Market Products and Strategic Investments, and a
member of the Corporate Executive Board of Zurich; Rolf Hueppi, Mythenquai 2,
Zurich, Switzerland, Chairman of the Board and Chief Executive Officer of
Zurich; and Markus Rohrbasser, Mythenquai 2, Zurich, Switzerland, Chief
Financial Officer and member of the Corporate Executive Board of Zurich.
The Executive Committee members are Messrs. Birdsong, Cheng, Rohrbasser and
Villani (Chairman).
Portfolio Managers. If the Merger is consummated, it is anticipated
that Nicholas Bratt, Dennis H. Ferro and Joan R. Gregory will serve as
co-managers of the Spain and Portugal Fund. Nicholas Bratt is a Managing
Director of Scudder Kemper and directs Scudder Kemper's overall global equity
strategies. Mr. Bratt has been with Scudder Kemper since 1976. Dennis H. Ferro
has been primarily responsible for the day-to-day management of the Growth Fund
of Spain since 1994. Mr. Ferro has been a managing director of Zurich Investment
Management Limited since March 1994. From August 1988 to March 1994, Mr. Ferro
was President, Managing Director and Chief Investment Officer of an
international investment advisory firm. Joan R. Gregory has been primarily
responsible for the day-to-day management of the Spain and Portugal Fund since
1993. Ms. Gregory has been at Scudder Kemper since 1992, and has been involved
with investment in global and international stocks since 1989.
- 68 -
<PAGE> 69
Directors and Officers. Directors and Officers of the Growth Fund of Spain are
as follows:
<TABLE>
<CAPTION>
(1) (2) (3)
Name, Address and Age Position with Fund Principal Occupations During
--------------------- ------------------ Last Five Years
---------------
<S> <C> <C>
James E. Akins (71) Director Consultant on International, Political and
2904 Garfield Terrace, N.W. Economic Affairs; formerly, a career United States
Washington, D.C. Foreign Service Officer; Energy Adviser for the
White House; United States Ambassador to Saudi
Arabia, 1973-1976.
Arthur R. Gottschalk (73) Director Retired; formerly, President, Illinois
10642 Brookridge Drive Manufacturers Association; Trustee, Illinois
Frankfort, IL Masonic Medical Center; formerly, Illinois State
Senator; formerly, Vice President, The Reuben H.
Donnelley Corp.; formerly, attorney.
Frederick T. Kelsey (71) Director Retired; formerly, consultant to Goldman, Sachs &
4010 Arbor Lane Co.; formerly, President, Treasurer and Trustee of
Unit 102 Institutional Liquid Assets and its affiliated
Northfield, IL mutual funds; Trustee of the Benchmark Funds;
formerly, Trustee of the Pilot Funds.
Gregory L. Melville++ (41) Director Assistant Director, Bankgesellschaft Berlin AG;
Vice President, Salomon Brothers Inc., 1990 until
June 1995.
Fred B. Renwick (68) Director Professor of Finance, New York University, Stern
3 Hanover Square School of Business; Director; TIFF Industrial
New York, NY Program, Inc.; Director, The Wartburg Home
Foundation; Chairman, Investment Committee of
Morehouse College Board of Trustees; Chairman,
American Bible Society Investment Committee;
formerly, member of the Investment Committee of
Atlanta University Board of Trustees; formerly,
Director of Board of Pensions, Evangelical Lutheran
Church of America.
Moritz A. Sell++ (30) Director Market Strategist, Bankgesellschaft Berlin AG;
Analyst, Barclays de Zoete Wedd (investment bank),
October 1995 until May 1996; prior thereto,
Derivatives Trader, Canadian Imperial Bank of
Commerce.
John B. Tingleff (63) Director Retired; formerly, President Tingleff & Associates
2015 South Lake Shore Drive (management consulting firm); formerly, Senior
Harbor Springs, Michigan Vice President, Continental Illinois National Bank
& Trust Company.
</TABLE>
- 69 -
<PAGE> 70
<TABLE>
<CAPTION>
(1) (2) (3)
Name, Address and Age Position with Fund Principal Occupations During
--------------------- ------------------ Last Five Years
---------------
<S> <C> <C>
John G. Weithers (64) Director Retired; formerly, Chairman of the Board and Chief
311 Spring Lake Executive Officer, Chicago Stock Exchange;
Hindsdale, IL Director, Federal Life Insurance Company;
President of the Members of the Corporation and
Trustee, DePaul University.
Philip J. Collora++++ (51) Vice President, Senior Vice President, Scudder Kemper
Secretary and Treasurer
Mark S. Casady+ (37) Vice President Managing Director, Scudder Kemper
Jerard K. Hartman+ (65) Vice President Managing Director, Scudder Kemper
Thomas W. Littauer+++ (43) Vice President Managing Director, Scudder Kemper
Ann M. McCreary+ (41) Vice President Senior Vice President
Kathryn L. Quirk+ (44) Vice President Managing Director, Scudder Kemper
Steven H. Reynolds++++ (54) Vice President Managing Director, Scudder Kemper; formerly,
Senior Vice President and equity portfolio manager
for an unaffiliated investment adviser.
Joan R. Gregory+ (52) Vice President Vice President, Scudder Kemper
Linda J. Wondrack+++ (34) Vice President Senior Vice President, Scudder Kemper
John R. Hebble+++ (39) Assistant Treasurer Senior Vice President, Scudder Kemper
Maureen E. Kane+++ (36) Assistant Secretary Vice President, Scudder Kemper
Caroline Pearson+++ (35) Assistant Secretary Vice President, Scudder Kemper
Elizabeth C. Werth++++ (50) Assistant Secretary Vice President, Scudder Kemper;
Vice President Kemper Distributors Inc.
</TABLE>
+ 345 Park Avenue, New York, New York 10154
++ Alexanderplatz 2, D-10178 Berlin, Germany
+++ Two International Place, Boston, Massachusetts 02110
++++ 222 South Riverside Plaza, Chicago, Illinois 60606
* Mr. Pierce is considered by the Fund and its counsel to be an
"interested person" of the Fund and Scudder Kemper within the meaning
of the Investment Company Act.
- 70 -
<PAGE> 71
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Position Aggregate Compensation From Fund* Total Compensation from Fund
----------------- --------------------------------- and Fund Complex**
------------------
<S> <C> <C>
James E. Akins
Director $4,000 $106,000
Arthur R. Gottschalk
Director $4,100 $121,000
Frederick T. Kelsey,
Director $4,100 $111,300
Gregory L. Melville,
Director _____ _______
Fred B. Renwick,
Director $4,000 $106,300
Moritz A. Sell,
Director _____ _______
John B. Tingleff,
Director $4,000 $106,300
John G. Weithers,
Director $4,000 $106,300
</TABLE>
* Includes deferred fees and interest thereon pursuant to deferred compensation
agreements with the Fund. Deferred amounts accrue interest monthly at a rate
equal to the yield of Zurich Money Funds - Zurich Money Market Fund. Total
deferred fees and interest accrued for the fiscal year ended November 30, 1997
was $108,700 for Mr.
Gottschalk.
** Includes compensation for service on the Boards of 14 funds managed by
Scudder Kemper and its affiliates with 42 fund portfolios during calendar year
1997. Each Director, with the exception of Messrs. Melville and Sell, currently
serves as a board member of 15 funds managed by Scudder Kemper and its
affiliates with 50 fund portfolios. Aggregate compensation does not reflect
amounts paid by Scudder Kemper to the Directors for meetings in connection with
the combination of Scudder, Stevens, & Clark, Inc. and Zurich Kemper
Investments, Inc. Such amounts totaled $42,800, $40,100, $39,000, $42,900,
$42,900, and $42,900 for Messrs. Akins, Gottschalk, Kelsey, Renwick, Tingleff
and Weithers, respectively.
The preceding information is furnished with respect to the fiscal year
ended November 30, 1997. Directors do not receive any employee benefits such as
pension, retirement or health insurance.
Comparable information on the Directors and officers of the Spain and
Portugal Fund, including their experience, affiliations, and compensation, is
contained in this Prospectus/Proxy Statement under the heading "Proposal 2:
Election of Directors of the Fund."
Custodian. Brown Brothers Harriman & Co., 40 Water Street, New York, NY
10004, is the Spain and Portugal Fund's domestic custodian responsible for
custody of the Spain and Portugal Fund's assets held in the United States. Banco
Santander, Central Contable Electronica, Carretera de Barcelona
- 71 -
<PAGE> 72
Km. 11,700, P.O. Box 50760, 28022 Madrid, Spain, is the Spain and Portugal
Fund's Spanish custodian. Banco Esprito Santa y Comercial, Avenida Liberdade,
195, 1250 Lisbon, Portugal, is the Spain and Portugal Fund's Portuguese
custodian. Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania, Kansas
City, MO 64105, is the Growth Fund of Spain's domestic custodian responsible for
custody of the Growth Fund of Spain's assets held in the United States. Chase
Manhattan Bank, 4 Chase Metro Center, Brooklyn, NY, through its Madrid branch,
is the Growth Fund of Spain's Spanish custodian.
Transfer Agent and Registrar. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, acts as the Spain and Portugal
Fund's transfer agent and registrar. IFTC acts as the Growth Fund of Spain's
transfer agent and registrar.
Other Service Contracts. Scudder Fund Accounting Services Corporation,
Two International Place, Boston, Massachusetts 02110, a subsidiary of Scudder
Kemper, is responsible for determining the daily net asset value per share and
maintaining the portfolio and general accounting records of the Spain and
Portugal Fund, and is paid annual asset based fee of 0.065% of weekly net assets
on the first $50 million of net assets, 0.04% of weekly net assets for the next
$850 million, and 0.020% of weekly net assets for amounts over $1 billion of net
assets, plus transaction and holding fees for such services. Scudder Fund
Accounting Corporation is responsible for determining the daily net asset value
per share and maintaining the portfolio and general accounting records of the
Growth Fund of Spain, and provides such services at no fee. Pursuant to a
sub-contract with IFTC, Kemper Service Company, P.O. Box 419066, Kansas City, MO
64141, is the shareholder service agent of the Growth Fund of Spain, and
received a fee of $24,000 for such services for the Fund's fiscal year ended
November 30, 1997.
The Spain and Portugal Fund has selected Price Waterhouse LLP, 160
Federal Street, Boston, MA 02110, and the Growth Fund of Spain has selected
Ernst & Young LLP, 233 South Wacker Drive, Chicago, IL 60606, as the respective
Fund's independent accountants who will audit the Fund's financial statements.
Control Persons and Principal Holders of Securities. According to
filings made with the Securities and Exchange Commission, as of March 31, 1998,
1,817,300 and 960,600 shares, representing 11.0% and 5.81% of the outstanding
shares of the Growth Fund of Spain, were beneficially owned by Bankgesellschaft
Berlin AG, Alexanderplatz, 2 D-10178, Berlin, Germany, and FMR Corporation, 82
Devonshire Street, Boston Massachusetts, respectively. As of that same date,
627,350, 638,902 and 492,650 shares, representing 9.6%, 9.8% and 7.6% of the
outstanding shares of the Spain and Portugal Fund, respectively, were
beneficially owned by Bankgesellschaft Berlin AG, Deep Discount Advisors, Inc.,
One West Park Square, Suite 777, Asheville, NC, 28801, and Ron Olin Investment
Management Company, One West Pack Square, Suite 777, Asheville, NC 28801,
respectively. After the Effective Date of the Merger, Bankgesellschaft Berlin,
FMR Corporation, Discount Advisors, Inc., and Ron Olin Investment Management
Company will own 2,444,650; 960,600; 638,902 and 492,650 shares, or 8.8%, 3.5%,
2.3% and 1.8% of the outstanding shares of the Spain and Portugal Fund, based on
present holdings. A holder of 5% or more of the outstanding voting securities of
either Fund is an affiliated person of that Fund for purposes of the Investment
Company Act.
As of March 31, 1998 each Fund's Directors and officers as a group
beneficially owned less than 1% of the shares of common stock outstanding the
Fund.
As of March 31, 1998 neither Fund knows of any person who may be deemed
to control the Fund.
- 72 -
<PAGE> 73
REQUIRED VOTE
Approval of the Merger, which first includes an amendment to the
Articles of Incorporation of the Growth Fund of Spain to delete the election to
be governed by the Maryland Business Combinations Act and amendment to the
Articles of Incorporation of each Fund to lower the necessary stockholder vote
to two-thirds of all the votes entitled to be cast on the matter, and to permit
the Board of Directors of the Spain and Portugal Fund to classify shares of the
Fund into separate series or classes, all as more fully described above,
requires the affirmative vote of a majority of all the votes of the Spain and
Portugal Fund entitled to be cast on the matter by holders of the Spain and
Portugal Fund's outstanding shares of common stock, and two-thirds of all the
votes entitled to be cast on the matter by holders of the Growth Fund of Spain's
outstanding shares of common stock. Subject to such approval, the Merger is
currently scheduled to be consummated on 1998 but may be postponed by
mutual agreement of the Funds. The Board of Directors of each Fund recommends
that the stockholders of the Fund vote in favor of this Proposal 1.
LEGAL PROCEEDINGS
There are no material legal proceedings to which the Funds are a party.
LEGAL OPINIONS
Certain legal matters in connection with the Merger will be passed upon
for the Funds by Dechert Price & Rhoads, Washington, DC, and Vedder, Price,
Kaufman & Kammholz, Chicago, Illinois. Dechert Price & Rhoads will rely as to
certain matters of Maryland law on the opinion of Venable, Baetjer and Howard,
LLP, Baltimore, Maryland, and Vedder, Price, Kaufman & Kammholz will rely as to
certain matters of Maryland law on the opinion of Ballard Spahr Andrews &
Ingersoll, LLP, Baltimore, Maryland.
EXPERTS
The Spain and Portugal Fund has selected Price Waterhouse LLP, 160
Federal Street, Boston, MA 02110, as its independent accountants. Audited
financial statements, notes to the audited financial statements, and reports of
the independent accountants for the fiscal year of the Spain and Portugal Fund
ended September 30, 1997 are incorporated herein by reference.
The Growth Fund of Spain has selected Ernst & Young LLP, 233 South
Wacker Drive, Chicago, IL 60606, as its independent auditor. Audited financial
statements, notes to the audited financial statements, and reports of the
independent auditors for the fiscal year of the Growth Fund of Spain ended
November 30, 1997 are incorporated herein by reference.
- 73 -
<PAGE> 74
PROPOSAL 2 (SPAIN AND PORTUGAL FUND STOCKHOLDERS ONLY): ELECTION OF DIRECTORS OF
THE FUND
At the Meeting, ten individuals are nominated for election to the Board
of the Spain and Portugal Fund. For election of Directors at the Meeting, the
Board of Directors has approved the nomination of the following individuals:
Class I Directors: Arthur R. Gottschalk, Moritz A. Sell and John G. Weithers;
Class II Directors: James E. Akins, Gregory L. Melville and John B. Tingleff;
Class III Directors: Richard M. Hunt, Frederick T. Kelsey, Daniel Pierce and
Fred B. Renwick. All of the nominees, with the exception of Messrs. Pierce and
Hunt, are current Directors of the Growth Fund of Spain. If Proposal I is not
approved by the stockholders of both Funds, only Messrs. Pierce and Hunt, who
are nominees that currently serve as Directors of the Spain and Portugal Fund,
will be considered for election.
The current Directors of the Growth Fund of Spain elected to the Board
of Directors of the Spain and Portugal Fund will become Directors of the Spain
and Portugal Fund upon consummation of the Merger.
To limit ongoing expenses of the Spain and Portugal Fund after the
Merger and to enhance the efficiency of the operations of the Board of Directors
of the Spain and Portugal Fund, the nominees who are current Directors of the
Growth Fund of Spain have advised the Spain and Portugal Fund that it is their
current intention to serve on the Board of Directors of the Spain and Portugal
Fund only until such time as the Redemption Offer to stockholders of the Spain
and Portugal Fund following the Merger is completed, unless there is a pro-rata
reduction in the amount of shares accepted pursuant to such redemption offer, in
which event the nominees may continue to serve on the Board of Directors of the
Spain and Portugal Fund to consider the appropriateness of further action. This
is intended to permit the current Board of Directors of the Growth Fund of Spain
to participate in oversight of the implementation of the Redemption Offer,
including any procedure utilized for reducing the number of shares accepted for
redemption pro rata according to the terms of the Redemption Offer, or until
alternative action is taken in lieu of the Redemption Offer.
The persons named as proxies on the enclosed proxy card will vote for
the election of the nominees named above unless authority to vote for any or all
of the nominees is withheld in the proxy. The nominees, if elected, will take
office upon consummation of the Merger and their election and qualification is
contingent upon consummation of the Merger, except with respect to Messrs.
Pierce and Hunt, who are current Directors of the Fund and who shall take office
if elected regardless of whether the Merger is consummated. The term of each
person elected as a Board member will be from the date of the consummation of
the Merger until the next meeting of stockholders called for the purpose of
electing Board members of the class of which such person is a member and until
the election and qualification of a successor or until such Board member sooner
dies, resigns or is removed as provided in the organizational documents of the
Fund. If the Merger is not consummated, each current Board members of the Spain
and Portugal Fund will continue to serve on the Fund's Board of Directors in
accordance with applicable law and the Fund's Articles of Incorporation and
By-Laws.
Pursuant to the organizational documents of the Fund, the Board is
divided into three classes, each class having a term of three years. At the
annual meeting of stockholders in each year, the term of one class of Board
members expires. Accordingly, only those Board members in once class may be
changed in any one year, and it would require two years to change a majority of
the Board. This system of electing Board members may have the effect of
maintaining the continuity of management and, thus, make it more difficult for
the Fund's stockholders to change the majority of Board members. Pursuant to the
Fund's Articles of Incorporation, the number of Board members shall be
apportioned among the classes so as to
- 74 -
<PAGE> 75
maintain the classes as nearly equal in number as possible. The term of the
Class I, II and III Board members expires in the year 1999, 2000, and 1998,
respectively. Those current Class I and Class II Directors are not nominees at
the Meeting. Messrs. Martin and Perez Llorca are Class I Directors, and Mr.
Nolen is a Class II Director.
Each of the nominees has indicated that he is willing to serve as a
Director. If any or all of the nominees should become unavailable for election
due to events not now known or anticipated, the persons named as proxies will
vote for such other nominee or nominees as the Directors may recommend. The
following table sets forth certain information concerning the current Directors
and the nominees. Unless otherwise noted, each of the Directors and nominees has
engaged in the principal occupation listed in the following table for more than
five years, but not necessarily in the same capacity.
<TABLE>
<CAPTION>
Nominees not currently
Directors:
Principal Occupation or
Name (Age) Employment and Directorships
- ---------- ----------------------------
<S> <C>
James E. Akins (71) Consultant on International, Political and Economic Affairs; formerly, a
career United States Foreign Service Office; Energy Adviser for the White
House; United States Ambassador to Saudi Arabia (1973-76). Ambassador Akins
serves on the boards of 15 funds managed by Scudder Kemper with 50 fund
portfolios.
Arthur R. Gottschalk (73) Retired; formerly, President, Illinois Manufacturers Association; Trustee,
Illinois Masonic Medical Center; formerly, Illinois State Senator; formerly,
Vice President, The Reuben H. Donnelly Corp; attorney. Mr. Gottschalk
serves on the boards of an additional 15 funds managed by Scudder Kemper.
Mr. Gottschalk serves on the boards of 15 funds managed by Scudder Kemper
with 50 fund portfolios.
Frederick T. Kelsey (71) Retired; formerly, consultant to Goldman, Sachs & Co.; formerly, President,
Treasurer and Trustee of Institutional Liquid Assets and its affiliated
mutual funds; Trustee of the Benchmark Funds; formerly Trustee of the Pilot
Funds. Mr. Kelsey serves on the boards of serves on the boards of 15 funds
managed by Scudder Kemper with 50 fund portfolios..
Gregory L. Melville (41) Assistant Director, Bankgesellschaft Berlin AG; Vice President, Salomon
Brothers Inc., 1990 until June 1995.
Fred B. Renwick (68) Professor of Finance, New York University, Stern School of Business;
Director, TIFF Investment Program, Inc., Director, the Wartburg Home
Foundation; Chairman, Investment Committee of Morehouse College Board of
Trustees; Chairman, American Bible Society Investment Committee; formerly,
member of the Investment Committee of Atlanta University Board of Trustees;
formerly Director of Board of Pensions Evangelical Lutheran Church of
America. Professor Renwick serves
</TABLE>
- 75 -
<PAGE> 76
<TABLE>
<CAPTION>
Nominees not currently
Directors:
Principal Occupation or
Name (Age) Employment and Directorships
- ---------- ----------------------------
<S> <C>
on the boards of an additional 15 funds managed by Scudder Kemper. Mr. Renwick
serves on the boards of 15 funds managed by Scudder Kemper with 50 fund
portfolios.
Moritz A. Sell (30) Market Strategist, Bankgesellschaft Berlin AG; Analyst, Barclays de Zoete
Wedd (investment bank), October 1995 until May 1996; prior thereto,
Derivatives Trader, Canadian Imperial Bank of Commerce.
John B. Tingleff (63) Retired; formerly, President, Tingleff & Associates (management consulting
firm); formerly Senior Vice President, Continental Illinois National Bank &
Trust Company. Mr. Tingleff serves on the boards of an additional 15 funds
managed by Scudder Kemper. Mr. Tingleff serves on the boards of 15 funds
managed by Scudder Kemper with 50 fund portfolios.
John G. Weithers (64) Retired; formerly, Chairman of the Board and Chief Executive Officer,
Chicago Stock Exchange; Director, Federal Life Insurance Company; President
of the Members of the Corporation and Trustee, DePaul University. Mr.
Weithers serves on the boards of an additional 15 funds managed by Scudder
Kemper. Mr. Weithers serves on the boards of 15 funds managed by Scudder
Kemper with 50 fund portfolios.
Nominees currently holding
office as Director:
Daniel Pierce (64)*+ Chairman of the Board and Managing Director of Scudder Kemper Investments,
Inc.; Director, Fiduciary Trust Company (bank and trust company) and
Fiduciary Company Incorporated (bank and trust company). Mr. Pierce serves
on the boards of an additional 87 funds managed by Scudder Kemper. Mr.
Pierce first became a Director of the Fund in 1991. As of February 28,
1998, Mr. Pierce owned 7,414 shares of the Spain and Portugal Fund. Mr.
Pierce serves on the boards of 20 funds managed by Scudder Kemper with 57
fund portfolios.
Richard M. Hunt (71) University Marshal and Senior Lecturer, Harvard University; Vice Chairman,
American Council on Germany; Director, Council on the United States and
Italy; Life Trustee, American Field Service; and Partner, Elmhurst
Investment Trust (family investment firm). Mr. Hunt serves on the boards of
an additional 15 funds managed by Scudder Kemper. Mr. Hunt first became a
Director of the Fund in 1994. As of February 28, 1998, Mr. Hunt owned 3,500
shares of the Spain and Portugal Fund. Mr. Hunt serves on the boards of 4
funds managed by
</TABLE>
- 76 -
<PAGE> 77
<TABLE>
<S> <C>
Scudder Kemper with 9 fund portfolios.
</TABLE>
Required Vote. Election of each of the listed nominees for Director
requires the affirmative vote of a majority of the votes of the Fund cast at the
Meeting in person or by proxy, except with respect to the re-election of two
current Directors of the Spain and Portugal Fund, which requires a plurality of
the votes cast at the Meeting.. The Directors of the Fund recommend that the
stockholders vote in favor of each of the nominees listed in this Proposal 2.
Continuing Directors:
Class II - Director serving until 2000 Annual Meeting of Stockholders:
<TABLE>
<CAPTION>
Name (Age) Present Office with the Fund, if any; Year First Became a Shares
- ---------- Principal Occupation or Employment and Director Beneficially
Directorships in Publicly Held Companies -------- Owned as of
---------------------------------------- February 28,
1998
----
<S> <C> <C> <C>
Wilson Nolen (71)+ Consultant; Trustee, Cultural Institutions 1992 10,000
Retirement Fund, Inc., New York Botanical
Garden, Skowhegan School of Painting and
Sculpture; Director, Ecohealth, Inc.
(biotechnology company) (until 1996); and
Director, Chattem, Inc. (drug and chemical
company) (until 1993). Mr. Nolen serves on
the boards of 9 funds managed by Scudder
Kemper with 21 fund portfolios.
Class I - Directors Serving until 1999 Annual Meeting of Stockholders:
Rogerio C. S. Martins (69) Chairman of the Board, Atlas-Copco de 1987 None
Portugal (air compressor equipment); Director,
Credit Lyonnais Portugal; Adviser to the
Portuguese Minister of Economy. Until 1996,
Columnist, Publico (newspaper); Professor,
Institute Superior de Estudos Financeirose
Fiscals; Director, Ramalho Rosa (construction) and
Lusotur Sociedade Financeira de Turismo (tourism).
Jose Pedro Perez Llorca Attorney, Garcia Anoveros and Perez Llorca; 1992 None
President, Atlantic Association
</TABLE>
- 77 -
<PAGE> 78
<TABLE>
<S> <C>
(57) (international relations organization); and
Director, Foster Wheeler Spain and NCR
Spain; and Consultant, 3M Espana.
</TABLE>
- -----------------------
* Persons considered by the Fund and its counsel to be "interested persons"
(which as used in this proxy statement is as defined in the Investment
Company Act of 1940) of the Fund or of the Fund's investment manager,
Scudder Kemper Investments, Inc. Mr. Pierce is deemed to be interested a
person because of his affiliation with the Fund's investment manager.
+ Messrs. Pierce and Nolen are members of the Executive Committee of the
Fund.
(1) The information as to beneficial ownership is based on statements furnished
to the Fund by the Directors. Unless otherwise noted, beneficial ownership
is based on sole voting and investment power.
Executive Officers
In addition to Mr. Pierce, a Director who is also an officer of the Fund,
the following persons are Executive Officers of the Fund:
<TABLE>
<CAPTION>
Name (Age) Present Office with the Fund;
---------- Principal Occupation or Employment(1)
-------------------------------------
<S> <C>
Nicholas Bratt (50) President; Managing Director of Scudder Kemper
Investments, Inc.
Carol L. Franklin (45) Vice President, Managing Director of Scudder Kemper
Investments, Inc.
Paul J. Elmlinger (39) Vice President and Assistant Secretary; Managing
Director of Scudder Kemper Investments, Inc.
Joan R. Gregory (52) Vice President; Vice President of Scudder Kemper
Investments, Inc.
Jerard K. Hartman (65) Vice President; Managing Director of Scudder Kemper
Investments, Inc.
Thomas F. McDonough (51) Vice President, Secretary and Treasurer; Senior Vice
President of Scudder Kemper Investments, Inc.
Bruce H. Goldfarb (33) Vice President and Assistant Secretary; Vice President,
Scudder Kemper Investments, Inc.; previously associated
with the law firm of Cravath, Swaine & Moore.
Caroline Pearson (35) Assistant Secretary; Vice President, Scudder Kemper
Investments, Inc.; previously associated with the law
firm of Dechert Price & Rhoads.
</TABLE>
- 78 -
<PAGE> 79
<TABLE>
<S> <C>
John R. Hebble (39) Assistant Treasurer; Senior Vice President, Scudder
Kemper Investments, Inc.
</TABLE>
(1) Unless otherwise stated, all the Executive Officers have been associated
with Scudder Kemper for more than five years, although not necessarily in
the same capacity.
(2) The President, Treasurer and Secretary each hold office until his or her
successor has been duly elected and qualified, and all other officers hold
office in accordance with the By-Laws of the Fund.
Transactions with and Remuneration of Directors and Officers
The aggregate direct remuneration by the Fund of Directors not
affiliated with Scudder was $91,452, including expenses, during the fiscal year
ended September 30, 1997. Each such unaffiliated Director currently received
fees paid by the Fund of $750 per Directors' meeting attended and an annual
Director's fee of $6,000. Each Director also receives $250 per committee meeting
attended (other than the Audit Committee meetings and meetings held for the
purposes of considering arrangements between the Fund and Scudder Kemper or an
affiliate of Scudder Kemper, for which such Director receives a fee of $750).
Scudder Kemper supervises the Fund's investments, pays the compensation and
certain expenses of its personnel who serve as Directors and officers of the
Fund and receives a management fee for its services. Several of the Fund's
officers and Directors are also officers, directors, employees or stockholders
of Scudder Kemper and participate in the fees paid to that firm, although the
Fund makes no direct payments to them other than for reimbursement of travel
expenses in connection with the attendance of Directors' and committee meetings.
The following Compensation Table, provides in tabular form, the following data:
Column (1) All Directors of the Spain and Portugal Fund who receive compensation
from the Fund.
Column (2) Aggregate compensation received by a Director of the Spain and
Portugal Fund from the Fund.
Columns (3) and (4) Pension or retirement benefits accrued or proposed to be
paid by the Spain and Portugal Fund. The Fund does not pay its Directors such
benefits.
Column (5) Total compensation received by a Director from the Fund, plus
compensation received from all funds managed by Scudder Kemper for which a
Director serves. The total number of funds from which a Director receives such
compensation is also provided in column (5). In some cases, compensation
received by a Director for serving on the Board of a closed-end fund is greater
than the compensation received by a Director for serving on the Board of an
open-end fund.
Compensation Table
for the fiscal year ended September 30, 1997
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Annual Total Compensation
Position Compensation Retirement Benefits Benefits Upon From the Fund and
from the Fund Accrued as part of Retirement Fund Complex Paid to
Fund Expenses Director (calendar
year 1997)*
<S> <C> <C> <C> <C>
</TABLE>
- 79 -
<PAGE> 80
<TABLE>
<S> <C> <C> <C> <C>
Richard M. Hunt, $13,000 N/A N/A $ 26,471
Director (4 funds
with 9 Fund portfolios)
Jose Pedro Perez $ 9,600 N/A N/A $ 9,600
Llorca, (1 fund)
Director
Rogerio C.S. Martins, $11,350 N/A N/A $ 11,350
Director (1 fund)
Dr. Wilson Nolen, $13,250 N/A N/A $189,548
Director (9 funds
with 21 Fund portfolios)
</TABLE>
* Aggregate compensation does not reflect amounts paid by Scudder Kemper to the
Directors for meetings in connection with the combination of Scudder, Stevens &
Clark, Inc. and Zurich Kemper Investments, Inc. Such amounts totaled $3,700,
$1,500, $1,500 and $25,300 for Messrs. Hunt, Perez Llorca, Martins and Nolen
respectively.
Committees of the Board - Board Meetings. The Board of Directors of the Fund met
7 times during the fiscal year ended September 30, 1997. Each Director attended
at least 75% of the total number of meetings of the Board of Directors and of
all committees of the Board on which they served as regular members, except with
respect to Mr. Perez Llorca.
The Board of Directors, in addition to an Executive Committee, has an
Audit Committee, a Valuation Committee and a Committee on Independent Directors.
The Committee, a Valuation Committee and a Committee on Independent Directors.
The Executive and Valuation Committees consist of regular members, allowing
alternates.
Audit Committee. The Board has an Audit committee consisting of those
Directors who are not interested persons of the Fund or of Scudder Kemper
("Non-interested Directors") as defined in the Investment Company Act, which met
on January 15, 1998. the Audit Committee reviews with management and the
independent accountants for the Fund, among other things, the scope of the audit
and the controls of the Fund and its agents, reviews and approves in advance the
type of services to be rendered by independent accountant, recommends the
selection of independent accountants for the Fund to the Board and in general
considers and reports to the Board on matters regarding the Fund's accounting
and bookkeeping practices.
Committee on Independent Directors. The Board has a Committee on
Independent Directors consisting of the Non-interested Directors. The Committee
is charged with the duty of making all nominations for Non-interested Directors
and consideration of other related matters. Stockholders' recommendations as to
nominees received by management are referred to the Committee for its
consideration and action. The Committee met on March 18, 1998, to consider and
nominate the nominees set forth above who, upon election to the Board, would be
Non-interested Directors of the Fund. Those new Directors elected pursuant to
this Proposal 2 who are Non-interested Directors will, upon consummation of the
Merger, be appointed to serve on the Committee on Independent Directors.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a)
of the Securities Exchange Act of 1934 and Section 30(h) of the Investment
Company Act, as applied to a fund, requires the fund's officers and directors,
investment manager, affiliates of the investment manager, and persons who
beneficially own more than ten percent of a registered class of the fund's
outstanding securities ("Reporting
- 80 -
<PAGE> 81
Persons"), to file reports of ownership of the fund's securities and changes in
such ownership with the Securities and Exchange Commission (the "SEC") and the
New York Stock Exchange. Such persons are required by SEC regulations to furnish
the fund with copies of all such filings.
Based solely upon its review of the copies of such forms received by it
and written representations from certain Reporting persons that no year-end
reports were required for those persons, the Fund believes that during the
fiscal year ended September 30, 1997, its Reporting persons complied with all
applicable filing requirements.
- 81 -
<PAGE> 82
PROPOSAL 3 (SPAIN AND PORTUGAL FUND STOCKHOLDERS ONLY): RATIFICATION OF
INDEPENDENT ACCOUNTANTS
At a meeting held on April 14, 1998, the Board of Directors of the
Fund, including a majority of the Non-interested Directors, recommended to
stockholders the selection of Price Waterhouse LLP to act as independent
accountants for the Fund for the fiscal year ending September 30, 1998. Price
Waterhouse LLP are independent accountants and have advised the Fund that they
have no direct financial interest or material indirect financial interest in the
Fund. One or more representatives of Price Waterhouse LLP are expected to be
present at the Meeting and will have an opportunity to make a statement if they
so desire. Such representatives are expected to be available to respond to
appropriate questions posed by stockholders and management.
The Fund's financial statements for the fiscal year ended September 30,
1997 were audited by Price Waterhouse LLP.
Required Vote
Ratification of the selection of independent accountants requires the
affirmative vote of a majority of the votes cast at the Meeting in person or by
proxy. The Directors of the Fund recommend that stockholders ratify the
selection of Price Waterhouse LLP as independent accountants.
- 82 -
<PAGE> 83
ADDITIONAL INFORMATION
General. The cost of preparing, printing and mailing the enclosed
proxy, accompanying notice and proxy statement and all other costs incurred in
connection with the solicitation of proxies, including any additional
solicitation made by letter, telephone or telegraph, will be allocated equally
among the Funds and Scudder Kemper. In addition to solicitation by mail, certain
officers and representatives of the Funds, officers and employees of Scudder
Kemper and certain financial services firms and their representatives, who will
receive no extra compensation for their services, may solicit proxies by
telephone, telegram or personally.
Shareholder Communications Corporation ("SCC") has been engaged to
assist in the solicitation of proxies. As the Meeting date approaches, certain
stockholders of the Funds may receive a telephone call from a representative of
SCC if their vote has not yet been received. Authorization to permit SCC to
execute proxies may be obtained by telephonic or electronically transmitted
instructions from stockholders of the Funds. Proxies that are obtained
telephonically will be recorded in accordance with the procedures set forth
below. The Directors believe that these procedures are reasonably designed to
ensure that the identity of the stockholder casting the vote is accurately
determined and that the voting instructions of the stockholder are accurately
determined.
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask for each stockholder's full name, address,
social security or employer identification number, title (if the stockholder is
authorized to act on behalf of an entity, such as a corporation), and the number
of shares owned and to confirm that the stockholder has received the Proxy
Statement/Prospectus and card in the mail. If the information solicited agrees
with the information provided to SCC, then the SCC representative has the
responsibility to explain the process, read the proposals listed on the proxy
card, and ask for the stockholder's instructions on each proposal. The SCC
representative, although he or she is permitted to answer questions about the
process, is not permitted to recommend to the stockholder how to vote, other
than to read any recommendation set forth in the Proxy Statement/Prospectus. SCC
will record the stockholder's instructions on the card. Within 72 hours, the
stockholder will be sent a letter or mailgram to confirm his or her vote and
asking the stockholder to call SCC immediately if his or her instructions are
not correctly reflected in the confirmation.
If the stockholder wishes to participate in the Meeting, but does not
wish to give his or her proxy by telephone, the stockholder may still submit the
proxy card originally sent with the Proxy Statement/Prospectus or attend in
person. Should stockholders require additional information regarding the proxy
or replacement proxy cards, they may contact SCC toll-free at 1-800-733-8481,
ext. 476. Any proxy given by a stockholder, whether in writing or by telephone,
is revocable.
Voting Rights. For purposes of this Proxy Statement and Prospectus,
each share of common stock of the Funds is entitled to one vote. Under the MGCL,
stockholders of a corporation whose shares are traded publicly on a national
securities exchange, such as the Funds' shares are not entitled to demand the
fair value of their shares upon a merger; therefore, the common stockholders of
the Funds will not have dissenting stockholders appraisal rights and will be
bound by the terms of the Merger. However, any common stockholder of the Funds
may sell his or her shares of common stock at any time on the NYSE.
The Proxy Statement and Prospectus does not contain all of the
information set forth in the registration statements and the exhibits relating
thereto which the Funds have filed with the Commission, under the Securities Act
and the Investment Company Act, to which reference is hereby made.
- 83 -
<PAGE> 84
The Funds are subject to the informational requirements of the
Securities Exchange Act of 1934, and in accordance therewith they file reports
and other information with the Commission. Reports, proxy statements,
registration statements and other information filed by the Funds can be
inspected and copied at the public reference facilities of the Commission in
Washington, D.C. and at the New York Regional Office of the Commission at Seven
World Trade Center, New York, New York 10048. Copies of such materials also can
be obtained by mail from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Washington, D.C.
20594, at prescribed rates.
Proposals of Stockholders. Stockholders wishing to submit proposals for
inclusion in a proxy statement for a stockholder meeting subsequent to the
Meeting, if any, should send their written proposals to the Secretary of the
respective Fund, c/o Scudder Kemper Investments, Inc., 345 Park Avenue, New
York, NY 10154, within a reasonable time before the solicitation of proxies for
such meeting. The timely submission of a proposal does not guarantee its
inclusion. In addition, the Growth Fund of Spain recently amended its By-laws to
delay the annual meeting of stockholders of the Growth Fund of Spain to October
1998. Stockholders wishing to submit proposals for inclusion at the Growth Fund
of Spain's annual meeting, if held, should send their written proposals to the
Secretary of the Growth Fund of Spain, c/o Scudder Kemper Investments, Inc., 222
South Riverside Plaza, Chicago, Illinois, 60606, within a reasonable time before
solicitation of proxies for such meeting. The timely submission of a proposal
does not guarantee its inclusion.
Other Matters to Come Before the Meeting. The Board of Directors of
each Fund is not aware of any matters that will be presented for action at the
Meeting other than the matters set forth herein. Should any other matters
requiring a vote of stockholders arise, the proxy in the accompanying form will
confer upon the person or persons entitled to vote the shares represented by
such proxy the discretionary authority to vote the shares as to any such other
matters in their discretion in the interest of the respective Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Boards of Directors of Scudder Spain and Portugal Fund, Inc. and
The Growth Fund of Spain, Inc.
Thomas F. McDonough
Secretary, Scudder Spain and Portugal Fund, Inc.
Philip J. Collora
Secretary, The Growth Fund of Spain, Inc.
- 84 -
<PAGE> 85
EXHIBIT A
FORM OF
MERGER AGREEMENT AND PLAN OF REORGANIZATION
- 85 -
<PAGE> 86
MERGER AGREEMENT AND PLAN OF REORGANIZATION
AMONG
THE GROWTH FUND OF SPAIN, INC.,
SCUDDER SPAIN AND PORTUGAL FUND, INC.
AND
SCUDDER KEMPER INVESTMENTS, INC. (WITH RESPECT TO SECTION 9)
DATED AS OF APRIL 14, 1998
<PAGE> 87
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS............................................................................ 1
2. BASIC TRANSACTION...................................................................... 1
2.1 The Merger................................................................... 1
2.2 Actions at Closing........................................................... 2
2.3 Effect of Merger............................................................. 2
3. REPRESENTATIONS AND WARRANTIES OF THE GROWTH FUND OF SPAIN............................. 2
3.1 Organization................................................................. 2
3.2 Registrations and Qualifications............................................. 2
3.3 Regulatory Consents and Approvals............................................ 3
3.4 Noncontravention............................................................. 3
3.5 Financial Statements......................................................... 3
3.6 Annual Report................................................................ 4
3.7 Qualification, Corporate Power, Authorization of Transaction................. 4
3.8 Legal Compliance............................................................. 4
3.9 Material Contracts........................................................... 4
3.10 Undisclosed Liabilities..................................................... 4
3.11 Tax Filings................................................................. 5
3.12 Qualifications under Subchapter M........................................... 5
3.13 Form N-14 and Exemptive Application......................................... 5
3.14 Capitalization.............................................................. 6
3.15 Books and Records........................................................... 6
4. REPRESENTATIONS AND WARRANTIES OF THE SPAIN AND PORTUGAL FUND.......................... 6
4.1 Organization................................................................. 6
4.2 Registrations and Qualifications............................................. 7
4.3 Regulatory Consents and Approvals............................................ 7
4.4 Noncontravention............................................................. 7
4.5 Financial Statements......................................................... 7
4.6 Annual Report................................................................ 8
4.7 Qualification, Corporate Power, Authorization of Transaction................. 8
4.8 Legal Compliance............................................................. 8
4.9 Material Contracts........................................................... 8
4.10 Undisclosed Liabilities..................................................... 8
4.11 Tax Filings................................................................. 9
4.12 Qualification under Subchapter M............................................ 9
4.13 Form N-14 and Exemptive Application......................................... 9
4.14 Capitalization.............................................................. 10
</TABLE>
<PAGE> 88
<TABLE>
<S> <C>
4.15 Issuance of Stock........................................................... 10
4.16 Books and Records........................................................... 10
5. CONVERSION TO SPAIN AND PORTUGAL FUND COMMON STOCK..................................... 11
5.1 Conversion................................................................... 11
5.2 Computation of Net Asset Value............................................... 11
5.3 Issuance of Spain and Portugal Fund Common Stock............................. 11
5.4 Surrender of Growth Fund of Spain Stock Certificates......................... 11
6. COVENANTS OF THE PARTIES............................................................... 12
6.1 Stockholders' Meetings....................................................... 12
6.2 Operations in the Normal Course.............................................. 12
6.3 Articles of Merger........................................................... 13
6.4 Regulatory Filings........................................................... 13
6.5 Preservation of Assets....................................................... 13
6.6 Tax Matters.................................................................. 13
6.7 Stockholder List............................................................. 14
6.8 Delisting, Termination of Registration as an Investment Company............... 14
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SPAIN AND PORTUGAL FUND......................... 14
7.1 Approval of Merger........................................................... 14
7.2 Certificates and Statements by the Growth Fund of Spain...................... 15
7.3 Absence of Litigation........................................................ 15
7.4 Legal Opinions............................................................... 16
7.5 Auditor's Consent and Certification.......................................... 18
7.6 Liabilities.................................................................. 18
7.7 Effectiveness of N-14 Registration Statement................................. 18
7.8 Approval of Exemptive Application, Regulatory Filings........................ 18
7.9 Administrative Rulings, Proceedings.......................................... 19
7.10 Satisfaction of the Spain and Portugal Fund................................. 19
7.11 Dividends................................................................... 19
7.12 Custodian's Certificate...................................................... 19
7.13 Books and Records............................................................ 19
7.14 Compliance with Blue Sky Laws................................................ 19
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE GROWTH FUND OF SPAIN.................... 20
8.1 Approval of Merger........................................................... 20
8.2 Certificates and Statements by the Spain and Portugal Fund................... 20
8.3 Absence of Litigation........................................................ 21
8.4 Legal Opinions............................................................... 21
8.5 Auditor's Consent and Certification.......................................... 23
8.6 Effectiveness of N-14 Registration Statement................................. 24
8.7 Approval of Exemptive Application; Regulatory Filings........................ 24
8.8 Satisfaction of the Growth Fund of Spain..................................... 24
</TABLE>
<PAGE> 89
<TABLE>
<S> <C>
8.9 Dividends.................................................................... 24
8.10 Nomination of Directors of Growth Fund of Spain............................. 25
8.11 Amendment of the Spain and Portugal Fund's Investment Advisory, Management
and Administration Contract.............................................. 25
9. PAYMENT OF EXPENSES.................................................................... 26
9.1 Allocation................................................................... 26
9.2 Qualification of Investment Adviser.......................................... 26
10. COOPERATION FOLLOWING EFFECTIVE DATE.................................................. 26
11. INDEMNIFICATION....................................................................... 26
11.1 The Growth Fund of Spain.................................................... 26
11.2 The Spain and Portugal Fund................................................. 27
12. TERMINATION, POSTPONEMENT AND WAIVERS................................................. 27
12.1 Termination................................................................. 27
12.2 Waiver...................................................................... 27
12.3 Expiration of Representations and Warranties................................ 28
13. MISCELLANEOUS......................................................................... 28
13.1 Transfer Restriction........................................................ 28
13.2 Material Provisions......................................................... 29
13.3 Notices..................................................................... 29
13.4 Amendments.................................................................. 30
13.5 Headings.................................................................... 30
13.6 Counterparts................................................................ 30
13.7 Enforceability.............................................................. 30
13.8 Successor and Designs....................................................... 31
13.9 Governing Law............................................................... 31
</TABLE>
<PAGE> 90
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 14th day of April, 1998, by and among The Growth Fund of Spain, Inc.
(the "Target Fund" or the "Growth Fund of Spain"), a Maryland corporation and
registered investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), Scudder Spain and Portugal Fund, Inc. (the "Acquiring
Fund" or the "Spain and Portugal Fund"), a Maryland corporation and a registered
investment company under the 1940 Act, and Scudder Kemper Investments, Inc.,
investment adviser to the Parties (for purposes of Section 9 of the Agreement
only) (the "Investment Adviser"). The Spain and Portugal Fund and the Growth
Fund of Spain are collectively referred to herein as the "Parties."
This agreement contemplates a tax-free merger transaction which
qualifies for federal income tax purposes as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the Parties hereto agree as follows:
1. DEFINITIONS
Certain capitalized terms used in this Agreement are
specifically defined herein.
2. BASIC TRANSACTION
2.1 The Merger. On and subject to the terms and conditions of this
Agreement, the Target Fund will merge with and into the Acquiring Fund (the
"Merger") at the Effective Date (as defined in Section 2.3 below) in accordance
with the Maryland General Corporation Law ("MGCL"). The Spain and Portugal Fund
shall be the surviving investment company. The Growth Fund of Spain shall cease
to exist as a separate investment company and each share of the Growth Fund of
Spain will be converted into an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of Common Stock of the Spain and
Portugal Fund, with a par value of $0.01 per share, plus cash in lieu of any
fractional shares, computed based on the net asset value per share of each of
the Parties at 4:00 p.m. Eastern Time on the Business Day prior to the Effective
Date (the "Valuation Time"); the Effective Date and the Business Day prior to it
must each be a day on which the New York Stock Exchange is open for trading (a
"Business Day"), all upon and subject to the terms hereinafter set forth.
From and after the Effective Date, the Acquiring Company shall possess
all of the properties, assets, rights, privileges, powers and shall be subject
to all of the restrictions, liabilities, obligations, disabilities and duties of
the Growth Fund of Spain, all as provided under Maryland law.
<PAGE> 91
2.2 Actions at Closing. At the closing of the transactions contemplated
by this Agreement (the "Closing") on the date thereof (the "Closing Date"), (i)
the Growth Fund of Spain will deliver to the Spain and Portugal Fund the various
certificates and documents referred to in Article 7 below, (ii) the Spain and
Portugal Fund will deliver to the Growth Fund of Spain the various certificates
and documents referred to in Article 8 below, and (iii) the Growth Fund of Spain
and the Spain and Portugal Fund will file jointly with the State Department of
Assessments and Taxation of Maryland (the "Department") the Articles of Merger
in the form attached hereto as Exhibit A (the "Articles of Merger") and make all
other filings or recordings required by Maryland law in connection with the
Merger.
2.3 Effect of Merger. Subject to the requisite approvals of the
stockholders of the Parties, and to the other terms and conditions described
herein, the Merger shall become effective at such time as the Articles of Merger
are accepted for record by the Department or at such later time as is specified
in the Articles of Merger (the "Effective Date") and the separate corporate
existence of the Growth Fund of Spain shall cease. As promptly as practicable
after the Merger, the Growth Fund of Spain shall delist its shares from the New
York Stock Exchange ("NYSE") and its registration under the 1940 Act shall be
terminated. Any reporting responsibility of the Growth Fund of Spain is and
shall remain the responsibility of the Growth Fund of Spain up to and including
the Effective Date.
3. REPRESENTATIONS AND WARRANTIES OF THE GROWTH FUND OF SPAIN
The Growth Fund of Spain represents and warrants to the Spain and
Portugal Fund that the statements contained in this Article 3 are correct and
complete in all material respects as of the execution of this Agreement on the
date hereof.
The Growth Fund of Spain represents and warrants to, and agrees with
the Spain and Portugal Fund that:
3.1 Organization.
The Growth Fund of Spain is a corporation duly organized, validly
existing under the laws of the State of Maryland and is in good standing with
the Department, and has the power to own all of its assets and to carry on its
business as it is now being conducted and to carry out this Agreement.
3.2 Registrations and Qualifications.
The Growth Fund of Spain is duly registered under the 1940 Act as a
diversified, closed-end management investment company (File No. 811-05304), and
such registration has not been revoked or rescinded and is in full force and
effect. The Growth Fund of Spain has elected and qualified for the special tax
treatment afforded regulated investment companies ("RICs") under Sections
851-855 of the Code at all times since its inception. The Growth Fund of Spain
is
-2-
<PAGE> 92
qualified as a foreign association in every jurisdiction where required,
except to the extent that failure to so qualify would not have a material
adverse effect on the Growth Fund of Spain.
3.3 Regulatory Consents and Approvals.
No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Growth Fund of
Spain of the transactions contemplated herein, except such as have been obtained
or applied for under the Securities Act of 1933, as amended (the "1933 Act"),
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act and such as may be required by state securities laws.
3.4 Noncontravention.
The Growth Fund of Spain is not, and the execution, delivery and
performance of this Agreement by the Growth Fund of Spain will not result, in
violation of the laws of the State of Maryland or of the Articles of
Incorporation or the By-laws of the Growth Fund of Spain, or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Growth Fund of Spain is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Growth Fund of Spain will not
result in the acceleration of any obligation, or the imposition of any penalty,
under any agreement, indenture, instrument, contract, lease, judgment or decree
to which the Growth Fund of Spain is a party or by which it is bound.
3.5 Financial Statements.
The Spain and Portugal Fund has been furnished with a statement of
assets, liabilities and capital and a schedule of investments of the Growth Fund
of Spain, each as of November 30, 1997, said financial statements having been
examined by Ernst & Young LLP, independent public auditors. These financial
statements are in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") and present fairly, in all material
respects, the financial position of the Growth Fund of Spain as of such date in
accordance with GAAP, and there are no known contingent liabilities of the
Growth Fund of Spain required to be reflected on a balance sheet (including the
notes thereto) in accordance with GAAP as of such date not disclosed therein.
The Spain and Portugal Fund has been furnished with an unaudited
statement of assets, liabilities and capital and a schedule of investments of
the Growth Fund of Spain, each as of March 31, 1998. This financial statement is
in accordance with GAAP and presents fairly, in all material respects, the
financial position of the Growth Fund of Spain as of such date in accordance
with GAAP, and there are no known contingent liabilities of the Growth Fund of
Spain required to be reflected on a balance sheet (including the notes thereto)
in accordance with GAAP as of such date not disclosed therein.
-3-
<PAGE> 93
3.6 Annual Report.
The Spain and Portugal Fund has been furnished with the Growth Fund of
Spain's Annual Report to Stockholders for the year ended November 30, 1997.
3.7 Qualification, Corporate Power, Authorization of Transaction.
The Growth Fund of Spain has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Directors, and, subject to stockholder approval, this Agreement
constitutes a valid and binding contract enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights generally
and court decisions with respect thereto.
3.8 Legal Compliance.
No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending (in which service
of process has been received) or to its knowledge threatened against the Growth
Fund of Spain or any properties or assets held by it. The Growth Fund of Spain
knows of no facts which might form the basis for the institution of such
proceedings which would materially and adversely affect its business and is not
a party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
3.9 Material Contracts.
There are no material contracts outstanding to which the Growth Fund of
Spain is a party that have not been disclosed in the N-14 Registration Statement
or will not be otherwise disclosed to the Spain and Portugal Fund prior to the
Effective Date.
3.10 Undisclosed Liabilities.
Since November 30, 1997, there has not been any material adverse change
in the Growth Fund of Spain's financial condition, assets, liabilities or
business and the Growth Fund of Spain has no known liabilities of a material
amount, contingent or otherwise, other than those shown on the Growth Fund of
Spain's statements of assets, liabilities and capital referred to above, those
incurred in the ordinary course of its business as an investment company since
December 18, 1989, and those incurred in connection with the Merger. Prior to
the Effective Date, the Growth Fund of Spain will advise the Spain and Portugal
Fund in writing of all known liabilities, contingent or otherwise, whether or
not incurred in the ordinary course of business, existing or accrued. For
purposes of this subsection 3.10, a decline in net asset value per share of the
Growth Fund of Spain due to declines in market values of securities in the
Growth Fund of
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Spain's portfolio or the discharge of Growth Fund of Spain liabilities will not
constitute a material adverse change.
3.11 Tax Filings.
All federal and other tax returns and information reports of the Growth
Fund of Spain required by law to have been filed shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and,
to the best of the Growth Fund of Spain's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such returns.
All tax liabilities of the Growth Fund of Spain have been adequately provided
for on its books, and no tax deficiency or liability of the Growth Fund of Spain
has been asserted and no question with respect thereto has been raised by the
Internal Revenue Service or by any state or local tax authority for taxes in
excess of those already paid, up to and including the taxable year in which the
Effective Date occurs.
3.12 Qualification under Subchapter M.
For each taxable year of its operation (including the taxable year
ending on the Effective Date), the Growth Fund of Spain has met the requirements
of Subchapter M of the Code for qualification as a regulated investment company
and has elected to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will have distributed
substantially all of its investment company taxable income and net realized
capital gain (as defined in the Code) that has accrued through the Effective
Date.
3.13 Form N-14 and Exemptive Application.
The exemptive application to be filed with the Securities and Exchange
Commission (the "SEC") by the Parties regarding the Merger (the "Exemptive
Application") and the registration statement to be filed by the Spain and
Portugal Fund on Form N-14 relating to the Spain and Portugal Fund Common Stock
to be issued pursuant to this Agreement, and any supplement or amendment thereto
or to the documents therein (as amended, the "N-14 Registration Statement"), on
the effective date of the N-14 Registration Statement, at the time of the
stockholders' meetings referred to in Article 6 of this Agreement and at the
Effective Date, insofar as it relates to the Growth Fund of Spain (i) shall have
complied or will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and
(ii) did not or will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and the prospectus included therein did
not or will not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection shall only apply to
statements in or omissions from the N-14 Registration Statement made in reliance
upon and in conformity
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with information furnished by the Growth Fund of Spain for use in the N-14
Registration Statement.
3.14 Capitalization.
(a) All issued and outstanding shares of the Growth Fund of Spain (i)
have been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration requirements of
the 1933 Act and state securities laws, (ii) are, and on the Effective Date will
be, duly and validly issued and outstanding, fully paid and non-assessable, and
(iii) will be held at the time of the Closing by the persons and in the amounts
set forth in the records of the Transfer Agent as provided in Section 6.7. The
Growth Fund of Spain does not have outstanding any options, warrants, or other
rights to subscribe for or purchase any of the Growth Fund of Spain shares, nor
is there outstanding any security convertible into any of the Growth Fund of
Spain shares.
(b) The Growth Fund of Spain is authorized to issue 50,000,000 shares
of stock, par value $0.01 per share, all of which shares are classified as
Common Stock and each outstanding share of which is fully paid, non-assessable
and has full voting rights. All of the issued and outstanding Shares of the
Growth Fund of Spain were offered for sale and sold in conformity with all
applicable Federal and State Securities laws.
3.15 Books and Records.
The books and records of the Growth Fund of Spain made available to the
Spain and Portugal Fund are substantially true and correct and contain no
material misstatements or omissions with respect to the operations of the Growth
Fund of Spain.
4. REPRESENTATIONS AND WARRANTIES OF THE SPAIN AND PORTUGAL FUND
The Spain and Portugal Fund represents and warrants to the Growth Fund
of Spain that the statements contained in this Article 4 are correct and
complete in all material respects as of the execution of this Agreement on the
date hereof.
The Spain and Portugal Fund represents and warrants to, and agrees with
the Growth Fund of Spain that:
4.1 Organization.
The Spain and Portugal Fund is a corporation duly organized, validly
existing under the laws of the State of Maryland and is in good standing with
the Department, and has the power to own all of its assets and to carry on its
business as it is now being conducted and to carry out this Agreement.
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4.2 Registrations and Qualifications.
The Spain and Portugal Fund is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-06022)
and such registration has not been revoked or rescinded and is in full force and
effect. The Spain and Portugal Fund has elected and qualified for the special
tax treatment afforded RICs under Sections 851-855 of the Code at all times
since its inception. The Spain and Portugal Fund is qualified as a foreign
association in every jurisdiction where required, except to the extent that
failure to so qualify would not have a material adverse effect on the Spain and
Portugal Fund.
4.3 Regulatory Consents and Approvals.
No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Spain and
Portugal Fund of the transactions contemplated herein, except as such have been
obtained or applied for under the 1933 Act, the 1934 Act and the 1940 Act and
such as may be required by state securities laws.
4.4 Noncontravention.
The Spain and Portugal Fund is not, and the execution, delivery and
performance of this Agreement by the Spain and Portugal Fund will not result, in
violation of the laws of the State of Maryland or of the Articles of
Incorporation or the By-laws of the Spain and Portugal Fund, or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Spain and Portugal Fund is a party or by which it is bound, and the
execution, delivery and performance of this Agreement by the Spain and Portugal
Fund will not result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Spain and Portugal Fund is a party or by which
it is bound.
4.5 Financial Statements.
The Growth Fund of Spain has been furnished with a statement of assets,
liabilities and capital and a schedule of investments of the Spain and Portugal
Fund, each as of September 30, 1997, said financial statements having been
examined by Price Waterhouse LLP, independent public auditors. These financial
statements are in accordance with GAAP and present fairly, in all material
respects, the financial position of the Spain and Portugal Fund as of such date
in accordance with GAAP, and there are no known contingent liabilities of the
Spain and Portugal Fund required to be reflected on a balance sheet (including
the notes thereto) in accordance with GAAP as of such date not disclosed
therein.
The Growth Fund of Spain has been furnished with an unaudited statement
of assets, liabilities and capital and a schedule of investments of the Spain
and Portugal Fund, each as of March 31, 1998. This financial statement is in
accordance with GAAP and presents fairly, in all material respects the financial
position of the Spain and Portugal Fund as of such date in
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accordance with GAAP, and there are no known contingent liabilities of the Spain
and Portugal Fund required to be reflected on a balance sheet (including the
notes thereto) in accordance with GAAP as of such date not disclosed therein.
4.6 Annual Report.
The Growth Fund of Spain has been furnished with the Spain and Portugal
Fund's Annual Report to Stockholders for the year ended September 30, 1997.
4.7 Qualification, Corporate Power, Authorization of Transaction.
The Spain and Portugal Fund has full power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Directors, and, subject to stockholder approval, this Agreement
constitutes a valid and binding contract enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights generally
and court decisions with respect thereto.
4.8 Legal Compliance.
No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or to its
knowledge threatened against the Spain and Portugal Fund or any properties or
assets held by it. The Spain and Portugal Fund knows of no facts which might
form the basis for the institution of such proceedings which would materially
and adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated.
4.9 Material Contracts.
There are no material contracts outstanding to which the Spain and
Portugal Fund is a party that have not been disclosed in the N-14 Registration
Statement or will not be otherwise disclosed to the Growth Fund of Spain prior
to the Effective Date.
4.10 Undisclosed Liabilities.
Since September 30, 1997, there has not been any material adverse
change in the Spain and Portugal Fund's financial condition, assets,
liabilities, or business and the Spain and Portugal Fund has no known
liabilities of a material amount, contingent or otherwise, other than those
shown on the Spain and Portugal Fund's statements of assets, liabilities and
capital referred to above, those incurred in the ordinary course of its business
as an investment company since August 25, 1987 and those incurred in connection
with the Merger. Prior to the Effective Date, the Spain and Portugal Fund will
advise the Growth Fund of Spain in writing of all known
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liabilities, contingent or otherwise, whether or not incurred in the ordinary
course of business, existing or accrued. For purposes of this Section 4.10, a
decline in net asset value per share of the Spain and Portugal Fund due to
declines in market values of securities in the Spain and Portugal Fund's
portfolio or the discharge of the Spain and Portugal Fund liabilities will not
constitute a material adverse change.
4.11 Tax Filings.
All federal and other tax returns and information reports of the Spain
and Portugal Fund required by law to have been filed shall have been filed and
are or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and,
to the best of the Spain and Portugal Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to such
returns. All tax liabilities of the Spain and Portugal Fund have been adequately
provided for on its books, and no tax deficiency or liability of the Spain and
Portugal Fund has been asserted and no question with respect thereto has been
raised by the Internal Revenue Service or by any state or local tax authority
for taxes in excess of those already paid, up to and including the taxable year
in which the Effective Date occurs.
4.12 Qualification under Subchapter M.
For each taxable year of its operation, the Spain and Portugal Fund has
met the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of the
Code, and will have distributed substantially all of its investment company
taxable income and net realized capital gain (as defined in the Code) that has
accrued through the Effective Date.
4.13 Form N-14 and Exemptive Application.
The Exemptive Application, and the N-14 Registration Statement, on the
effective date of the N-14 Registration Statement, at the time of the
stockholders' meetings referred to in Section 6 of this Agreement and at the
Effective Date, insofar as it relates to the Spain and Portugal Fund (i) shall
have complied or will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
and (ii) did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; and the prospectus included therein
did not or will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall not
apply to statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by the Growth Fund of
Spain for use in the N-14 Registration Statement.
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4.14 Capitalization.
(a) All issued and outstanding shares of the Spain and Portugal Fund
(i) have been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration requirements of
the 1933 Act and state securities laws, (ii) are, and on the Effective Date will
be, duly and validly issued and outstanding, fully paid and non-assessable, and
(iii) will be held at the time of the Closing by the persons and in the amounts
set forth in the records of the Transfer Agent. The Spain and Portugal Fund does
not have outstanding any options, warrants, or other rights to subscribe for or
purchase any of the Spain and Portugal Fund shares, nor is there outstanding any
security convertible into any of the Spain and Portugal Fund shares.
(b) The Spain and Portugal Fund is authorized to issue 200,000,000
shares of stock, par value $0.01 per share, all of which shares are classified
as Common Stock and each outstanding share of which is fully paid,
non-assessable and has full voting rights. All of the issued and outstanding
shares of Common Stock of the Spain and Portugal Fund were offered for sale and
sold in conformity with all applicable Federal and state securities laws and the
shares to be issued pursuant to this Agreement will be in compliance with all
applicable federal and state securities laws.
4.15 Issuance of Stock.
(a) At or prior to the Effective Date, the Spain and Portugal Fund
Common Stock to be issued pursuant to this Agreement will be duly qualified for
offering to the public in all states of the United States in which the sale of
shares of Spain and Portugal Fund Common Stock presently are qualified, and
there are a sufficient number of such shares registered under the 1933 Act and
with each pertinent state securities commission to permit the issuance
contemplated by this Agreement.
(b) At or prior to the Effective Date, the Spain and Portugal Fund will
have obtained any and all regulatory, director and stockholder approvals
necessary to issue the Spain and Portugal Fund Common Stock.
4.16 Books and Records.
The books and records of the Spain and Portugal Fund made available to
the Growth Fund of Spain are substantially true and correct and contain no
material misstatements or omissions with respect to the operations of the Spain
and Portugal Fund.
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5. CONVERSION TO SPAIN AND PORTUGAL FUND COMMON STOCK
5.1 Conversion.
Subject to the requisite approval of the stockholders of the Parties,
and the other terms and conditions contained herein, at the Effective Date, each
share of Common Stock of the Growth Fund of Spain will be converted into an
equivalent dollar amount (to the nearest one ten-thousandth of one cent) of full
shares of Spain and Portugal Fund Common Stock, plus cash in lieu of fractional
shares, computed based on the net asset value per share of each of the Parties
at the Valuation Time.
5.2 Computation of Net Asset Value.
The net asset value per share of the Parties shall be determined as of
the Valuation Time, and no formula will be used to adjust the net asset value so
determined of either of the Parties to take into account differences in realized
and unrealized gains and losses. The value of the assets of the Growth Fund of
Spain to be transferred to the Spain and Portugal Fund shall be determined by
the Spain and Portugal Fund pursuant to the principles and procedures
consistently utilized by the Spain and Portugal Fund in valuing its own assets
and determining its own liabilities for purposes of the Merger. Such valuation
and determination shall be made by the Spain and Portugal Fund in cooperation
with the Growth Fund of Spain and shall be confirmed in writing by the Spain and
Portugal Fund to the Growth Fund of Spain. The net asset value per share of
Spain and Portugal Fund Common Stock shall be determined in accordance with such
procedures, and the Spain and Portugal Fund shall certify the computations
involved.
5.3 Issuance of Spain and Portugal Fund Common Stock.
(a) The Spain and Portugal Fund shall issue to the stockholders of the
Growth Fund of Spain separate certificates or share deposit receipts for the
Spain and Portugal Fund Common Stock by delivering the certificates or share
deposit receipts evidencing ownership of the Spain and Portugal Fund Common
Stock to State Street Bank and Trust Company, as the transfer agent and
registrar for Spain and Portugal Fund Common Stock.
(b) The Spain and Portugal Fund may elect to issue separate
certificates of share deposit receipts for the Spain and Portugal Fund that have
been designated as a separate series of shares of Spain and Portugal Fund and
that would trade pursuant to a separate listing on the New York Stock Exchange
but would otherwise have identical voting and other rights and privileges.
5.4 Surrender of Growth Fund of Spain Stock Certificates.
With respect to any Growth Fund of Spain stockholder holding
certificates representing shares of the Common Stock of the Growth Fund of Spain
as of the Effective Date, and subject to the Spain and Portugal Fund being
informed thereof in writing by the Growth Fund of Spain, the Spain and Portugal
Fund will not permit such stockholder to receive new certificates evidencing
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ownership of the Spain and Portugal Fund Common Stock, until such stockholder
has surrendered his or her outstanding certificates evidencing ownership of the
common Stock of the Growth Fund of Spain or, in the event of lost certificates,
posted adequate bond. The Growth Fund of Spain will request its stockholders to
surrender their outstanding certificates representing certificates of the Common
Stock of the Growth Fund of Spain or post adequate bond therefor. Dividends
payable to holders of record of shares of the Spain and Portugal Fund as of any
date after the Effective Date and prior to the exchange of certificates by any
stockholder of the Growth Fund of Spain shall be paid to such stockholder,
without interest; however, such dividends shall not be paid unless and until
such stockholder surrenders his or her stock certificates of the Growth Fund of
Spain for exchange. No fractional shares of the Spain and Portugal Fund will be
issued to Growth Fund of Spain stockholders. In lieu thereof, the Spain and
Portugal Fund's transfer agent, State Street Bank and Trust Company, will
aggregate all fractional shares of the Spain and Portugal Fund and sell the
resulting full shares on the New York Stock Exchange at the current market price
for shares of the Spain and Portugal Fund for the account of all holders of
fractional interests, and each such holder will receive such holder's pro rata
share of the proceeds of such sale, without interest, upon surrender of such
holder's Growth Fund of Spain Common Stock certificates.
6. COVENANTS OF THE PARTIES
6.1 Stockholders' Meetings.
(a) Each of the Parties shall hold a meeting of its respective
stockholders for the purpose of considering the Merger as described herein,
which meeting has been called by each Party for July 23, 1998, and any
amendments thereof.
(b) Each of the Parties agrees to mail to each of its respective
stockholders of record entitled to vote at the meeting of stockholders at which
action is to be considered regarding the Merger, in sufficient time to comply
with requirements as to notice thereof, a combined Proxy Statement and
Prospectus which complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act,
and the rules and regulations, respectively, thereunder.
6.2 Operations in the Normal Course.
Each Party covenants to operate its business in the ordinary course
between the date hereof and the Effective Date, it being understood that such
ordinary course of business will include (i) the declaration and payment of
customary dividends and other distributions and (ii) in the case of the Growth
Fund of Spain, preparing for its liquidation, dissolution and deregistration,
except that the distribution of dividends pursuant to Sections 7.11 and 8.9 of
this Agreement shall not be deemed to constitute a breach of the provisions of
this Section 6.2.
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6.3 Articles of Merger.
The Parties agree that, as soon as practicable after satisfaction of
all conditions to the Merger, they will jointly file executed Articles of Merger
with the Department and make all other filings or recordings required by
Maryland law in connection with the Merger.
6.4 Regulatory Filings.
(a) The Growth Fund of Spain undertakes that, if the Merger is
consummated, it will file, or cause its agents to file, an application pursuant
to Section 8(f) of the 1940 Act for an order declaring that the Growth Fund of
Spain has ceased to a registered investment company.
(b) The Spain and Portugal Fund will file the N-14 Registration
Statement with the SEC and will use its best efforts to ensure that the N-14
Registration Statement becomes effective as promptly as practicable. The Growth
Fund of Spain agrees to cooperate fully with the Spain and Portugal Fund, and
will furnish to the Spain and Portugal Fund the information relating to itself
to be set forth in the N-14 Registration Statement as required by the 1933 Act,
the 1934 Act, the 1940 Act, and the rules and regulations thereunder and the
state securities or blue sky laws.
(c) The Parties each agree to proceed as promptly as possible to cause
to be made the necessary filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Filing") if applicable, with respect to the
transactions contemplated by this Agreement and to ensure that the related
waiting period expires or is otherwise terminated at the earliest possible time.
6.5 Preservation of Assets.
The Spain and Portugal Fund agrees that it has no plan or intention to
sell or otherwise dispose of the assets of the Growth Fund of Spain to be
acquired in the Merger, except for dispositions made in the ordinary course of
business.
6.6 Tax Matters.
Each of the Parties agrees that by the Effective Date all of its
federal and other tax returns and reports required to be filed on or before such
date shall have been filed and all taxes shown as due on said returns either
have been paid or adequate liability reserves have been provided for the payment
of such taxes. In connection with this covenant, the Parties agree to cooperate
with each other in filing any tax return, amended return or claim for refund,
determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. The Spain and Portugal Fund agrees to retain for a period of ten (10)
years following the Effective Date all returns, schedules and work papers and
all material records or other documents relating to tax matters of the Growth
Fund of Spain for its final taxable year and for all prior taxable periods. Any
information obtained under this subsection shall be kept
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confidential except as otherwise may be necessary in connection with the filing
of returns or claims for refund or in conducting an audit or other proceeding.
After the Effective Date, the Spain and Portugal Fund shall prepare, or cause
its agents to prepare, any Federal, state or local tax returns, including any
Forms 1099, required to be filed by the Growth Fund of Spain with respect to its
final taxable years ending with the Effective Date and for any prior periods or
taxable years for which the due date for such return has not passed as of the
Effective Date and further shall cause such tax returns and Forms 1099 to be
duly filed with the appropriate taxing authorities. Notwithstanding the
aforementioned provisions of this subsection, any expenses incurred by the Spain
and Portugal Fund (other than for payment of taxes) in excess of any accrual for
such expenses by the Growth Fund of Spain in connection with the preparation and
filing of said tax returns and Forms 1099 after the Effective Date shall be
borne by the Spain and Portugal Fund.
6.7 Stockholder List.
Prior to the Effective Date, the Growth Fund of Spain shall have made
arrangements with its transfer agent to deliver to the Spain and Portugal Fund,
a list of the names and addresses of all of the stockholders of record of the
Growth Fund of Spain on the Effective Date and the number of shares of Common
Stock of the Growth Fund of Spain owned by each such stockholder, certified by
the Growth Fund of Spain's transfer agent or President to the best of their
knowledge and belief.
6.8 Delisting, Termination of Registration as an Investment
Company.
The Growth Fund of Spain agrees that the (i) delisting of the shares of
the Growth Fund of Spain with the NYSE and (ii) termination of its registration
as a regulated investment company will be effected in accordance with applicable
law as soon as practicable following the Effective Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SPAIN AND PORTUGAL FUND
The obligations of the Spain and Portugal Fund hereunder shall be
subject to the following conditions:
7.1 Approval of Merger.
This Agreement shall have been adopted, and an amendment to the Spain
and Portugal Fund's Articles of Incorporation permitting the Merger to be
approved by the affirmative vote of the holders of more than 50% of the shares
of Common Stock of the Spain and Portugal Fund issued and outstanding and
entitled to vote thereon shall have been approved, by the affirmative vote of
the holders of more than 50% of the shares of Common Stock of the Spain and
Portugal Fund issued and outstanding and entitled to vote thereon, and the
Growth Fund of Spain shall
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have delivered to the Spain and Portugal Fund a copy of the resolution approving
this Agreement adopted by its Board of Directors and stockholders, certified by
its secretary.
7.2 Certificates and Statements by the Growth Fund of Spain.
(a) The Growth Fund of Spain shall have furnished a statement of
assets, liabilities and capital, together with a schedule of investments with
their respective dates of acquisition and tax costs, certified on its behalf by
its President (or any Vice President) and its Treasurer, and a certificate
executed by both such officers, dated the Effective Date, certifying that there
has been no material adverse change in its financial position since March 31,
1998, other than changes in its portfolio securities since that date or changes
in the market value of its portfolio securities.
(b) The Growth Fund of Spain shall have furnished to the Spain and
Portugal Fund a certificate signed by its President (or any Vice President),
dated the Effective Date, certifying that as of the Effective Date all
representations and warranties made in this Agreement are true and correct in
all material respects as if made at and as of such date and each has complied
with all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to such dates.
(c) The Growth Fund of Spain shall have delivered to the Spain and
Portugal Fund a letter from Ernst & Young LLP, dated the Effective Date, stating
that such firm has performed a limited review of the Federal, state and local
income tax returns for the period ended November 30, 1997, and that based on
such limited review, nothing came to their attention which caused them to
believe that such returns did not properly reflect, in all material respects,
the Federal, state and local income taxes of the Growth Fund of Spain for the
period covered thereby; and that for the period from November 30, 1997 to and
including the Effective Date and for any taxable year ending upon its
dissolution, such firm has performed a limited review to ascertain the amount of
such applicable Federal, state and local taxes, and has determined that either
such amount has been paid or reserves established for payment of such taxes,
this review to be based on unaudited financial data; and that based on such
limited review, nothing has come to their attention which caused them to believe
that the taxes paid or reserves set aside for payment of such taxes were not
adequate in all material respects for the satisfaction of Federal, state and
local taxes for the period from November 30, 1997, to and including the
Effective Date and for any taxable year ending upon its dissolution or that the
Growth Fund of Spain would not continue to qualify as a RIC for Federal income
tax purposes.
7.3 Absence of Litigation.
There shall be no material litigation pending with respect to the
matters contemplated by this Agreement.
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7.4 Legal Opinions.
(a) The Spain and Portugal Fund shall have received an opinion of
Vedder, Price, Kaufman & Kammholz, as counsel to the Growth Fund of Spain, in
form and substance satisfactory to the Spain and Portugal Fund and dated the
Effective Date, to the effect that (i) the Growth Fund of Spain is a corporation
duly organized, validly existing under the laws of the State of Maryland and is
in good standing with the Department; (ii) the Agreement has been duly
authorized, executed and delivered by the Growth Fund of Spain, and, assuming
that the N-14 Registration Statement complies with the 1933 Act, 1934 Act and
the 1940 Act constitutes a valid and legally binding obligation of the Growth
Fund of Spain, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws pertaining to the enforcement of creditors' rights generally and by
equitable principles; (iii) to the best of such counsel's knowledge, no consent,
approval, authorization or order of any United States federal or Maryland state
court or governmental authority is required for the consummation by the Growth
Fund of Spain of the Merger, except such as may be required under the 1933 Act,
the 1934 Act, the 1940 Act, the published rules and regulations of the SEC
thereunder and under Maryland law and such as may be required by state
securities or blue sky laws; (iv) the descriptions in the N-14 Registration
Statement with respect to the Growth Fund of Spain, including but not limited to
the description of statutes, legal and governmental proceedings and contracts
and other documents with respect to the Growth Fund of Spain, are accurate and
fairly present the information required to be shown; (v) such counsel does not
know of any statutes, legal or governmental proceedings or contracts or other
documents with respect to the Growth Fund of Spain related to the Merger of a
character required to be described in the N-14 Registration Statement which are
not described therein or, if required to be filed, filed as required; (vi) the
execution and delivery of this Agreement does not, and the consummation of the
Merger will not, violate any material provision of the Articles of
Incorporation, as amended, the by-laws, as amended, or any agreement (known to
such counsel) to which the Growth Fund of Spain is a party or by which the
Growth Fund of Spain is bound, except insofar as the parties have agreed to
amend such provision as a condition precedent to the Merger; (vii) the Growth
Fund of Spain is not, to the knowledge of such counsel, required to qualify to
do business as a foreign corporation in any jurisdiction where it is not
currently so qualified or where the failure to so qualify would have a material
adverse effect on the Spain and Portugal Fund, the Growth Fund of Spain, or
either of their stockholders; (viii) to the best of such counsel's knowledge, no
material suit, action or legal or administrative proceeding is pending or
threatened against the Growth Fund of Spain; and (ix) all corporate actions
required to be taken by the Growth Fund of Spain to authorize this Agreement and
to effect the Merger have been duly authorized by all necessary corporate
actions on behalf of the Growth Fund of Spain. Such opinion shall also state
that (x) while such counsel cannot make any representation as to the accuracy or
completeness of statements of fact in the N-14 Registration Statement or any
amendment or supplement thereto with respect to the Growth Fund of Spain,
nothing has come to their attention that would lead them to believe that, on the
respective effective dates of the N-14 Registration Statement and any amendment
or supplement thereto with respect to the Growth Fund of Spain, (1) the N-14
Registration Statement or any amendment or supplement thereto contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading with respect to the Growth Fund of Spain, and (2) the prospectus
included in the N-14 Registration Statement contained any untrue statement
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of a material fact or omitted to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading with respect to the Growth Fund of Spain; and (xi) such
counsel need not express any opinion or belief as to the financial statements,
other financial data, statistical data or information relating to the Growth
Fund of Spain contained or incorporated by reference in the N-14 Registration
Statement. In giving the opinion set forth above, Vedder, Price, Kaufman &
Kammholz may state that it is relying on certificates of officers of the Growth
Fund of Spain with regard to matters of fact and certain certificates and
written statements of governmental officials with respect to the good standing
of the Growth Fund of Spain and on the opinion of Ballard Spahr Andrews &
Ingersoll, LLP as to matters of Maryland law.
(b) The Spain and Portugal Fund shall have received an opinion from
Dechert Price & Rhoads, as counsel to the Spain and Portugal Fund, dated the
Effective Date, to the effect that for Federal income tax purposes (i) the
Merger as provided in this Agreement will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Code and that the Spain and Portugal Fund
and the Growth Fund of Spain will each be deemed a "party" to a reorganization
within the meaning of Section 368(b) of the Code; (ii) in accordance with
Section 361(a) of the Code, no gain or loss will be recognized to the Growth
Fund of Spain as a result of the Merger or the distribution of Spain and
Portugal Fund Common Stock to Growth Fund of Spain stockholders under Section
361(c)(1) of the Code, except to the extent such stockholders are paid cash in
lieu of fractional shares of Spain and Portugal Fund in the Merger; (iii) under
Section 1032 of the Code, no gain or loss will be recognized to the Spain and
Portugal Fund as a result of the Merger; (iv) in accordance with Section
354(a)(1) of the Code, no gain or loss will be recognized to the stockholders of
the Growth Fund of Spain on the conversion of their shares into Spain and
Portugal Fund Common Stock; (v) in accordance with Section 362(b) of the Code,
the tax basis of the Growth Fund of Spain assets in the hands of the Spain and
Portugal Fund will be the same as the tax basis of such assets in the hands of
the Growth Fund of Spain prior to the consummation of the Merger; (vi) in
accordance with Section 358 of the Code, immediately after the Merger, the tax
basis of the Spain and Portugal Fund Common Stock received by the stockholders
of the Growth Fund of Spain in the Merger will be equal, in the aggregate, to
the tax basis of the shares of the Growth Fund of Spain converted pursuant to
the Merger; (vii) in accordance with Section 1223 of the Code, a stockholder's
holding period for the Spain and Portugal Fund Common Stock will be determined
by including the period for which he or she held the Common Stock of the Growth
Fund of Spain converted pursuant to the Merger, provided that such Growth Fund
of Spain shares were held as a capital asset; (viii) in accordance with Section
1223 of the Code, the Spain and Portugal Fund's holding period with respect to
the Growth Fund of Spain assets transferred will include the period for which
such assets were held by the Growth Fund of Spain; and (ix) the payment of cash
to the Growth Fund of Spain stockholders in lieu of fractional shares of the
Spain and Portugal Fund will be treated as though the fractional shares were
distributed as part of the Merger and then redeemed by the Spain and Portugal
Fund with
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the result that the Growth Fund of Spain stockholder will generally
have capital gains or losses to the extent the cash distribution differs from
such stockholder's basis allocable to the fractional shares.
7.5 Auditor's Consent and Certification.
The Spain and Portugal Fund shall have received from Ernst & Young LLP
a letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Effective Date, in form and
substance satisfactory to the Spain and Portugal Fund, to the effect that (i)
they are independent public auditors with respect to the Growth Fund of Spain
within the meaning of the 1933 Act and the applicable published rules and
regulations thereunder; and (ii) in their opinion, the financial statements and
supplementary information of the Growth Fund of Spain included or incorporated
by reference in the N-14 Registration Statement and reported on by them comply
as to form in all material respects with the applicable accounting requirements
of the 1933 Act and the published rules and regulations thereunder.
7.6 Liabilities.
The assets or liabilities of the Growth Fund of Spain to be transferred
to the Spain and Portugal Fund shall not include any assets or liabilities which
the Spain and Portugal Fund, by reason of limitations in its Registration
Statement or Articles of Incorporation, may not properly acquire or assume. The
Spain and Portugal Fund does not anticipate that there will be any such assets
or liabilities but the Spain and Portugal Fund will notify the Growth Fund of
Spain if any do exist and will reimburse the Growth Fund of Spain for any
reasonable transaction costs incurred by the Growth Fund of Spain for the
liquidation of such assets and liabilities.
7.7 Effectiveness of N-14 Registration Statement.
The N-14 Registration Statement shall have become effective under the
1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of the Spain and Portugal Fund, contemplated by
the SEC.
7.8 Approval of Exemptive Application; Regulatory Filings.
(a) The Exemptive Application shall have been approved and that the
Spain and Portugal Fund shall have received from the SEC such orders or
interpretations as Dechert Price & Rhoads, as counsel to the Spain and Portugal
Fund, deems reasonably necessary or desirable under the 1933 Act and the 1940
Act in connection with the Merger, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall be
in full force and effect.
(b) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
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7.9 Administrative Rulings, Proceedings.
The SEC shall not have issued an unfavorable advisory report under
Section 25(b) of the 1940 Act, nor instituted or threatened to institute any
proceeding seeking to enjoin consummation of the Merger under Section 25(c) of
the 1940 Act, no other legal, administrative or other proceeding shall be
instituted or threatened which would materially affect the financial condition
of the Growth Fund of Spain or would prohibit the Merger.
7.10 Satisfaction of the Spain and Portugal Fund.
All proceedings taken by the Growth Fund of Spain and its counsel in
connection with the Merger and all documents incidental thereto shall be
satisfactory in form and substance to the Spain and Portugal Fund.
7.11 Dividends.
Prior to the Effective Date, the Growth Fund of Spain shall have
declared and paid a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its stockholders
substantially all of its net investment company taxable income that has accrued
through the Effective Date, if any (computed without regard to any deduction of
dividends paid), and substantially all of its net capital gain, if any, realized
through the Effective Date.
7.12 Custodian's Certificate.
The Growth Fund of Spain's custodian shall have delivered to the Spain
and Portugal Fund a certificate identifying all of the assets of the Growth Fund
of Spain held or maintained by such custodian as of the Valuation Time.
7.13 Books and Records.
The Growth Fund of Spain's transfer agent shall have provided to the
Spain and Portugal Fund (i) the originals or true copies of all of the records
of the Growth Fund of Spain in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the
Growth Fund of Spain outstanding as of the Valuation Time, and (iii) the name
and address of each holder of record of any shares and the number of shares held
of record by each such shareholder.
7.14 Compliance with Blue Sky Laws.
All of the issued and outstanding shares of the Growth Fund of Spain
shall have been offered for sale and sold in conformity with all applicable
state securities or blue sky laws (including any applicable exemptions
therefrom) and, to the extent that any audit of the records of the Growth Fund
of Spain or its transfer agent by the Spain and Portugal Fund or its agents
shall
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have revealed otherwise, either (i) the Growth Fund of Spain shall have taken
all actions that in the opinion of the Spain and Portugal Fund or its counsel
are necessary to remedy any prior failure on the part of the Growth Fund of
Spain to have offered for sale and sold such shares in conformity with such laws
or (ii) the Growth Fund of Spain shall have furnished (or caused to be
furnished) surety, or deposited (or caused to be deposited) assets in escrow,
for the benefit of the Spain and Portugal Fund, to indemnify the Spain and
Portugal Fund against any expense, loss, claim, damage or liability whatsoever
that may be asserted to threatened by reason of such failure on the part of the
Spain and Portugal Fund to have offered and sold such shares in conformity with
such laws.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE GROWTH FUND OF
SPAIN
The obligations of the Growth Fund of Spain hereunder shall be subject
to the following conditions:
8.1 Approval of Merger.
This Agreement shall have been adopted, and an amendment to the Growth
Fund of Spain's Articles of Incorporation permitting the Merger to be approved
by the affirmative vote of the holders of 66 2/3% of the shares of Common Stock
of the Growth Fund of Spain issued and outstanding and entitled to vote thereon
shall have been approved, by the affirmative vote of the holders of 66 2/3%
percent of the shares of Common Stock of the Growth Fund of Spain issued and
outstanding and entitled to vote thereon; and that the Spain and Portugal Fund
shall have delivered to the Growth Fund of Spain a copy of the resolution
approving this Agreement adopted by its Board of Directors and stockholders,
certified by its secretary.
8.2 Certificates and Statements by the Spain and Portugal Fund.
(a) The Spain and Portugal Fund shall have furnished a statement of
assets, liabilities and capital, together with a schedule of investments with
their respective dates of acquisition and tax costs, certified on its behalf by
its President (or any Vice President) and its Treasurer, and a certificate
executed by both such officers, dated the Effective Date, certifying that there
has been no material adverse change in its financial position since March 31,
1998, other than changes in its portfolio securities since that date or changes
in the market value of its portfolio securities.
(b) The Spain and Portugal Fund shall have furnished to the Growth Fund
of Spain a certificate signed by its President (or any Vice President), dated
the Effective Date, certifying that as of the Effective Date all representations
and warranties made in this Agreement are true and correct in all material
respects as if made at and as of such date and each has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied at or prior to such dates.
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(c) The Spain and Portugal Fund shall have delivered to the Growth Fund
of Spain a letter from Price Waterhouse LLP, dated the Effective Date, stating
that such firm has performed a limited review of the Federal, state and local
income tax returns for the period ended September 30, 1997, and that based on
such limited review, nothing came to their attention which caused them to
believe that such returns did not properly reflect, in all material respects,
the Federal, state and local income taxes of the Spain and Portugal Fund for the
period covered thereby; and that for the period from September 30, 1997 to and
including the Effective Date, such firm has performed a limited review to
ascertain the amount of such applicable Federal, state and local taxes, and has
determined that either such amount has been paid or reserves established for
payment of such taxes, this review to be based on unaudited financial data; and
that based on such limited review, nothing has come to their attention which
caused them to believe that the taxes paid or reserves set aside for payment of
such taxes were not adequate in all material respects for the satisfaction of
Federal, state and local taxes for the period from September 30, 1997, to and
including the Effective Date or that the Spain and Portugal Fund would not
continue to qualify as a regulated investment company for Federal income tax
purposes.
8.3 Absence of Litigation.
There shall be no material litigation pending with respect to the
matters contemplated by this Agreement.
8.4 Legal Opinions.
(a) The Growth Fund of Spain shall have received an opinion of Dechert
Price & Rhoads, as counsel to the Spain and Portugal Fund, in form and substance
satisfactory to the Growth Fund of Spain and dated the Effective Date, to the
effect that (i) the Spain and Portugal Fund is a corporation duly organized,
validly existing under the laws of the State of Maryland and is in good standing
with the Department; (ii) the Agreement has been duly authorized, executed and
delivered by the Spain and Portugal Fund, and, assuming that the N-14
Registration Statement complies with the 1933 Act, 1934 Act and the 1940 Act,
constitutes a valid and legally binding obligation of the Spain and Portugal
Fund, enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
pertaining to the enforcement of creditors' rights generally and by equitable
principles; (iii) to the best of such counsel's knowledge, no consent, approval,
authorization or order of any United States federal or Maryland state court or
governmental authority is required for the consummation by the Spain and
Portugal Fund of the Merger, except such may be required under the 1933 Act, the
1934 Act, the 1940 Act and the published rules and regulations of the SEC
thereunder and under Maryland law and such as may be required under state
securities or blue sky laws; (iv) the N-14 Registration Statement has become
effective under the 1933 Act, no stop order suspending the effectiveness of the
N-14 Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the 1933 Act, and,
with respect to the Spain and Portugal Fund, the N-14 Registration Statement,
and each amendment or supplement thereto, as of their respective effective
dates, appear on their face to be
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appropriately responsive in all material respects to the requirements of the
1933 Act, the 1934 Act and the 1940 Act and the published rules and regulations
of the SEC thereunder; (v) the descriptions in the N-14 Registration Statement
with respect to the Spain and Portugal Fund, including, but not limited to, the
description of statutes, legal and governmental proceedings and contracts and
other documents with respect to the Spain and Portugal Fund, and other documents
with respect to the Spain and Portugal Fund are accurate and fairly present the
information required to be shown; (vi) such counsel does not know of any
statutes, legal or governmental proceedings or contracts with respect to the
Spain and Portugal Fund or other documents related to the Merger of a character
required to be described in the N-14 Registration Statement which are not
described therein or, if required to be filed, filed as required; (vii) the
execution and delivery of this Agreement does not, and the consummation of the
Merger will not, violate any material provision of the Articles of
Incorporation, as amended, the by-laws, as amended, or any agreement (known to
such counsel) to which the Spain and Portugal Fund is a party or by which the
Spain and Portugal Fund is bound, except insofar as the parties have agreed to
amend such provision as a condition precedent to the Merger; (viii) the Spain
and Portugal Fund is not, to the knowledge of such counsel, required to qualify
to do business as a foreign corporation in any jurisdiction where it is not
currently so qualified or where the failure to so qualify would have a material
adverse effect on the Spain and Portugal Fund, the Growth Fund of Spain, or
either of their stockholders; (ix) to the best of such counsel's knowledge, no
material suit, action or legal or administrative proceeding is pending or
threatened against the Spain and Portugal Fund; and (x) all corporate actions
required to be taken by the Spain and Portugal Fund to authorize this Agreement
and to effect the Merger have been duly authorized by all necessary corporate
actions on behalf of the Spain and Portugal Fund. Such opinion shall also state
that (x) while such counsel cannot make any representation as to the accuracy or
completeness of statements of fact in the N-14 Registration Statement or any
amendment or supplement thereto with respect to the Spain and Portugal Fund,
nothing has come to their attention that would lead them to believe that, on the
respective effective dates of the N-14 Registration Statement and any amendment
or supplement thereto, (1) the N-14 Registration Statement or any amendment or
supplement thereto contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading with respect to the Spain and Portugal
Fund; and (2) the prospectus included in the N-14 Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading with respect to the
Spain and Portugal Fund; and (y) such counsel need not express any opinion or
belief as to the financial statements, other financial data, statistical data or
information relating to the Spain and Portugal Fund contained or incorporated by
reference in the N-14 Registration Statement. In giving the opinion set forth
above, Dechert Price & Rhoads may state that it is relying on certificates of
officers of the Spain and Portugal Fund with regard to matters of fact and
certain certificates and written statements of governmental officials with
respect to the good standing of the Spain and Portugal Fund and on the opinion
of Venable, Baetjer & Howard, LLP as to matters of Maryland law.
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(b) The Growth Fund of Spain shall have received an opinion from
Vedder, Price, Kaufman & Kammholz and dated the Effective Date, to the effect
that for Federal income tax purposes (i) the Merger as provided in this
Agreement will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code and that the Spain and Portugal Fund and the Growth
Fund of Spain will each be deemed a "party" to a reorganization within the
meaning of Section 368(b) of the Code; (ii) in accordance with Section 361(a) of
the Code, no gain or loss will be recognized to the Growth Fund of Spain as a
result of the Merger or on the distribution of Spain and Portugal Fund Common
Stock to Growth Fund of Spain stockholders under Section 361(c)(1) of the Code,
except to the extent such stockholders are paid cash in lieu of fractional
shares of Spain and Portugal Fund in the Merger; (iii) under Section 1032 of the
Code, no gain or loss will be recognized to the Spain and Portugal Fund as a
result of the Merger; (iv) in accordance with Section 354(a)(1) of the Code, no
gain or loss will be recognized to the stockholders of the Growth Fund of Spain
on the conversion of their shares into Spain and Portugal Fund Common Stock; (v)
in accordance with Section 362(b) of the Code, the tax basis of the Growth Fund
of Spain assets in the hands of the Spain and Portugal Fund will be the same as
the tax basis of such assets in the hands of the Growth Fund of Spain prior to
the consummation of the Merger; (vi) in accordance with Section 358 of the Code,
immediately after the Merger, the tax basis of the Spain and Portugal Fund
Common Stock received by the stockholders of the Growth Fund of Spain in the
Merger will be equal, in the aggregate, to the tax basis of the shares of the
Growth Fund of Spain converted pursuant to the Merger; (vii) in accordance with
Section 1223 of the Code, a stockholder's holding period for the Spain and
Portugal Fund Common Stock will be determined by including the period for which
he or she held the Common Stock of the Growth Fund of Spain converted pursuant
to the Merger, provided, that such Growth Fund of Spain shares were held as a
capital asset; (viii) in accordance with Section 1223 of the Code, Spain and
Portugal Fund's holding period with respect to the Growth Fund of Spain assets
transferred will include the period for which such assets were held by the
Growth Fund of Spain; and (ix) the payment of cash to the Growth Fund of Spain
stockholders in lieu of fractional shares of the Spain and Portugal Fund will be
treated as though the fractional shares were distributed as part of the Merger
and then redeemed by the Spain and Portugal Fund with the result that the
Growth Fund of Spain stockholder will generally have capital gains or losses to
the extent the cash distribution differs from such stockholder's basis
allocable to the fractional shares.
8.5 Auditor's Consent and Certification.
The Growth Fund of Spain shall have received from Price Waterhouse LLP
a letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Effective Date, in form and
substance satisfactory to the Growth Fund of Spain, to the effect that (i) they
are independent public auditors with respect to the Spain and Portugal Fund
within the meaning of the 1933 Act and the applicable published rules and
regulations thereunder; and (ii) in their opinion, the financial statements and
supplementary information of the Spain and Portugal Fund incorporated by
reference in the N-14 Registration Statement and
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reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder.
8.6 Effectiveness of N-14 Registration Statement.
The N-14 Registration Statement shall have become effective under the
1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of the Growth Fund of Spain, contemplated by the
SEC.
8.7 Approval of Exemptive Application; Regulatory Filings.
(a) The Exemptive Application shall have been approved and the Growth
Fund of Spain shall have received from the SEC such orders or interpretations as
Vedder, Price, Kaufman & Kammholz, as counsel to the Growth Fund of Spain, deems
reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Merger, provided, that such counsel or counsel to the Spain
and Portugal Fund shall have requested such orders as promptly as practicable,
and all such orders shall be in full force and effect. Any applicable waiting
period under the HSR Act relating to the transactions contemplated hereby shall
have expired or been terminated.
(b) The SEC shall not have issued an unfavorable advisory report under
Section 25(b) of the 1940 Act, nor instituted or threatened to institute any
proceeding seeking to enjoin consummation of the Merger under Section 25(c) of
the 1940 Act, no other legal, administrative or other proceeding shall be
instituted or threatened which would materially affect the financial condition
of the Growth Fund of Spain or would prohibit the Merger.
(c) The Spain and Portugal Fund shall have received from any relevant
state securities administrator such order or orders as are reasonably necessary
or desirable under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable
state securities or blue sky laws in connection with the transactions
contemplated hereby, and that all such orders shall be in full force and effect.
8.8 Satisfaction of the Growth Fund of Spain.
That all proceedings taken by the Spain and Portugal Fund and its
counsel in connection with the Merger and all documents incidental thereto shall
be satisfactory in form and substance to the Growth Fund of Spain.
8.9 Dividends.
Prior to the Effective Date, the Spain and Portugal Fund shall have
declared and paid a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its stockholders
substantially all of its net investment company taxable income that has accrued
through the Effective Date, if any (computed without regard to any deduction of
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dividends paid), and substantially all of its net capital gain, if any, realized
through the Effective Date.
8.10 Nomination of Directors of Growth Fund of Spain
The Committee of Independent Directors of the Spain and Portugal Fund
shall have recommended, and the Board of Directors of the Spain and Portugal
Fund shall have approved, the nomination of the current Directors of the Growth
Fund of Spain for election to the Board of Directors of the Spain and Portugal
Fund at the Annual Meeting of Stockholders of the Spain and Portugal Fund
currently scheduled to be held July 23, 1998, and at any adjournments thereof,
provided that the Agreement shall have been adopted by the requisite vote of the
stockholders of the Spain and Portugal Fund and of the Growth Fund of Spain. The
current Directors of the Growth Fund of Spain elected to the Board of Directors
of the Spain and Portugal Fund shall take their seats on the Board of Directors
at the meeting of the Board of Directors of the Spain and Portugal Fund first
held after the Effective Date of the Merger. The nominees and their classes
shall be the following: Class I Directors (term to expire in 1999): Arthur R.
Gottschalk, Moritz A. Sell and John G. Weithers; Class II Directors (term to
expire in 2000): James E. Akins, Gregory L. Melville and John B. Tingleff; Class
III Directors (term to expire in 2001): Frederick T. Kelsey and Fred B. Renwick
(collectively, the "Nominees"). Provided further that in order to limit ongoing
expenses of the Spain and Portugal Fund and to enhance the efficiency of Board
operations, such Nominees have advised the Spain and Portugal Fund that it is
their current intention to serve on the Board of Directors of the Spain and
Portugal Fund only until such time as the proposed in-kind redemption offer to
stockholders of the Spain and Portugal Fund following the Merger is completed,
unless there is a pro-rata reduction in the amount of shares accepted pursuant
to such redemption offer, in which event the Nominees may continue to serve on
the Board of Directors to consider the appropriateness of further action. If any
Nominee is elected to the Board of Directors of the Spain and Portugal Fund, the
Committee of Independent Directors shall appoint each such Nominee who is not an
interested person of the Spain and Portugal Fund or Scudder Kemper Investments,
Inc. to serve on the Committee of Independent Directors.
8.11 Amendment of the Spain and Portugal Fund's Investment
Advisory, Management and Administration Contract
The Spain and Portugal Fund's Investment Advisory, Management and
Administration Contract with Scudder Kemper shall have been amended to provide
that the fee payable from the Spain and Portugal Fund to Scudder Kemper
thereunder shall be equal to an annual rate of 1.00% per annum of the value of
the Fund's average weekly net assets with respect to the first $400 million of
net assets, declining to 0.95% per annum of the value of the Fund's average
weekly net assets thereafter, and to provide that Scudder Kemper will pay for
the travel expenses related to the attendance at Board and committee meetings of
all Directors, officers and executive employees of the Spain and Portugal Fund
who are affiliates of Scudder Kemper.
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9. PAYMENT OF EXPENSES
9.1 Allocation.
All expenses incurred in connection with the Merger since January 1,
1998 shall be allocated equally among Scudder Kemper Investments, Inc., the
Spain and Portugal Fund, and the Growth Fund of Spain. Such expenses shall
include, but not be limited to, all costs related to the preparation and
distribution of the N-14 Registration Statement, the Exemptive Application, the
HSR Filing for the Parties, proxy solicitation expenses, SEC registration fees,
and NYSE listing fees. Neither of the Parties owes any broker's or finder's fees
in connection with the transactions provided for herein.
9.2 Qualification of Investment Adviser.
For purposes of this section, the Investment Adviser represents and
warrants to the Parties that it has full power and authority to enter into and
perform its obligations under this Section 9. The execution, delivery and
performance by it of this provision has been duly authorized by all necessary
action.
10. COOPERATION FOLLOWING EFFECTIVE DATE
In case at any time after the Effective Date any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party may reasonably request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification as described below). The Growth Fund of Spain
acknowledges and agrees that from and after the Effective Date, the Spain and
Portugal Fund shall be entitled to possession of all documents, books, records,
agreements and financial data of any sort pertaining to the Growth Fund of
Spain.
11. INDEMNIFICATION
11.1 The Growth Fund of Spain.
The Spain and Portugal Fund agrees to indemnify and hold harmless the
Growth Fund of Spain and each of the Growth Fund of Spain's directors and
officers from and against any and all losses, claims, damages, liabilities or
expenses (including, without limitation, the payment of reasonable legal fees
and reasonable costs of investigation) to which jointly and severally, the
Growth Fund of Spain or any of its directors or officers may become subject,
insofar as any such loss, claim, damage, liability or expense (or actions with
respect thereto) arises out of or is based on any breach by the Spain and
Portugal Fund of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
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11.2 The Spain and Portugal Fund.
The Growth Fund of Spain agrees to indemnify and hold harmless the
Spain and Portugal Fund and each of the Spain and Portugal Fund's directors and
officers from and against any and all losses, claims, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Spain and
Portugal Fund or any of its directors or officers may become subject, insofar as
any such loss, claim, damage, liability or expense (or actions with respect
thereto) arises out of or is based on any breach by the Growth Fund of Spain of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
12. TERMINATION, POSTPONEMENT AND WAIVERS
12.1 Termination.
(a) Notwithstanding anything to the contrary in this Agreement, this
Agreement may be terminated and the Merger abandoned at any time (whether before
or after adoption by the stockholders of each of the Parties) prior to the
Effective Date, or the Effective Date may be postponed, (i) by mutual agreement
of the Parties' Board of Directors; (ii) by the Board of Directors of the Spain
and Portugal Fund if any of obligations of the Growth Fund of Spain set forth in
this Agreement has not been fulfilled or waived by such Board or if the Growth
Fund of Spain has made a material and intentional misrepresentation herein or in
connection herewith; or (iii) by the Board of Directors of the Growth Fund of
Spain if any obligations of the Spain and Portugal Fund set forth in this
Agreement has not been fulfilled or waived by such Board or if the Spain and
Portugal Fund has made a material and intentional misrepresentation herein or in
connection herewith.
(b) If the transaction contemplated by this Agreement shall not have
been consummated by December 31, 1998, this Agreement automatically shall
terminate on that date, unless a later date is mutually agreed to by the Boards
of Directors of the Parties.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the Agreement shall become void and have no further effect,
and there shall not be any liability hereunder on the part of either of the
Parties or their respective directors or officers, except for any such material
breach or intentional misrepresentation, as to each of which all remedies at law
or in equity of the party adversely affected shall survive.
12.2 Waiver.
At any time prior to the Effective Date, any of the terms or conditions
of this Agreement may be waived by the Board of Directors of either the Growth
Fund of Spain or the Spain and Portugal Fund (whichever is entitled to the
benefit thereof), if, in the judgment of such Board after consultation with its
counsel, such action or waiver will not have a material adverse effect on
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<PAGE> 117
the benefits intended in this Agreement to the stockholders of their respective
fund, on behalf of which such action is taken.
12.3 Expiration of Representations and Warranties.
(a) The respective representations and warranties contained in Articles
3 and 4 of this Agreement shall expire with, and be terminated by, the
consummation of the Merger, and neither of the Parties nor any of their
officers, directors, agents or stockholders shall have any liability with
respect to such representations or warranties after the Effective Date. This
provision shall not protect any officer, director, agent or stockholder of the
Parties against any liability to the entity for which that officer, director,
agent or stockholder so acts or to its stockholders to which that officer,
director, agent or stockholder would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
(b) If any order or orders of the SEC with respect to this Agreement
shall be issued prior to the Effective Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of the
Parties to be acceptable, such terms and conditions shall be binding as if a
part of this Agreement without further vote or approval of the stockholders of
the Parties, unless such terms and conditions shall result in a change in the
method of computing the number of shares of Spain and Portugal Fund Common Stock
to be issued pursuant to this Agreement, in which event, unless such terms and
conditions shall have been included in the proxy solicitation materials
furnished to the stockholders of the Parties prior to the meetings at which the
Merger shall have been approved, this Agreement shall not be consummated and
shall terminate unless the Parties call special meetings of stockholders at
which such conditions so imposed shall be submitted for approval.
13. MISCELLANEOUS
13.1 Transfer Restriction.
Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Merger is, to its
knowledge, an affiliate of a party to the Merger pursuant to Rule 145(c), Spain
and Portugal Fund will cause to be affixed upon the certificate(s) issued to
such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO THE SCUDDER SPAIN AND PORTUGAL FUND, INC. (OR ITS STATUTORY
SUCCESSOR) OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF
1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
FUND, SUCH REGISTRATION IS NOT REQUIRED.
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<PAGE> 118
and, further, that stop transfer instructions will be issued to the Spain and
Portugal Fund's transfer agent with respect to such shares. The Growth Fund of
Spain will provide the Spain and Portugal Fund on the Effective Date with the
name of any Growth Fund of Spain stockholder who is to the respective knowledge
of the Growth Fund of Spain an affiliate of it on such date.
13.2 Material Provisions.
All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
13.3 Notices.
All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Growth Fund of Spain:
Philip J. Collora, Esq.
Vice President, Treasurer and Secretary
The Growth Fund of Spain, Inc.
222 South Riverside Plaza
Chicago, IL 60606
With a Copy to:
David A. Sturms, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, IL 60601
If to the Spain and Portugal Fund:
Bruce H. Goldfarb, Esq.
Vice President and Assistant Secretary
Scudder Spain and Portugal Fund
345 Park Avenue
New York, NY 10154
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<PAGE> 119
With a Copy to:
Robert W. Helm, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, D.C. 20006
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
13.4 Amendments.
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Growth Fund of Spain and the Spain and Portugal Fund; provided, however, that
following the meeting of the Growth Fund of Spain and Spain and Portugal Fund
stockholders to approve the Merger, no such amendment may have the effect of
changing the provisions for determining the number of the Spain and Portugal
Fund shares to be issued to the Growth Fund of Spain stockholders under this
Agreement to the detriment of such stockholders without their further approval.
13.5 Headings.
The Article headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
13.6 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.7 Enforceability.
Any term or provisions of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
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<PAGE> 120
13.8 Successors and Assigns.
This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the stockholders of the
Parties and their respective successors and assigns, any rights or remedies
under or by reason of this Agreement.
13.9 Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Maryland, without regard to its
principles of conflicts of law.
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<PAGE> 121
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed by its President or Vice President and its seal to be
affixed thereto and attested by its Secretary or Assistant Secretary.
SCUDDER SPAIN AND PORTUGAL FUND, INC.
By:___________________________________[SEAL]
Name:____________________________________
Attest: Title:___________________________________
THE GROWTH FUND OF SPAIN, INC.
By:____________________________________[SEAL]
Name:____________________________________
Attest: Title:____________________________________
SCUDDER KEMPER INVESTMENTS, INC.
(with respect to Section 9)
By:____________________________________[SEAL]
Name:____________________________________
Attest: Title:____________________________________
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<PAGE> 122
APPENDIX A
I. KINGDOM OF SPAIN
AREA AND POPULATION
The Kingdom of Spain ("Spain") includes 50 provinces, 47 of which are
situated on the mainland of the Iberian Peninsula, with the remaining three
being the Baleares Islands and the two provinces of the Canary Islands. In
addition, the cities of Ceuta and Melilla on the northern coast of Africa are
part of the Spanish territory. The total land area is 504,782 sq. km. As of mid
1997, the population was 39.3 million. The major cities are Madrid, Barcelona,
Valencia and Seville.
GOVERNMENT
Spain is a democratic, constitutional monarchy. In 1975, the current
monarch, Juan Carlos de Borbon, was proclaimed King of Spain. On December 6,
1978, a new Constitution was ratified by national referendum that provides for
the existence of political parties, universal suffrage, parliamentary elections
by secret and direct ballot every four years, and the existence of a Parliament
with two legislative chambers -- the Congress of Deputies, with 350 members and
the Senate with 248 members.
The Constitution defines the authority of the executive, legislative
and judicial powers. The King is commander-in-chief of the armed forces. He
names the Prime Minister, who is the head of Government, after consulting the
Congress of Deputies and Senate, and calls referenda to decide on major
political issues. The Prime Minister is empowered to dissolve parliament and
call elections and govern with the assistance of a Cabinet, which is
collectively responsible to the Congress of Deputies.
Members of the Congress of Deputies and the Senate serve four-year
terms, barring dissolution, and elect their own presidents. Although each house
can initiate legislation, the Congress of Deputies has the power of final
approval on all legislation.
The judicial system is headed by a Supreme Tribunal (Tribunal Supremo)
which is responsible for the final determination of all civil and criminal cases
brought on appeal from the lower courts. The lower courts consist of territorial
courts, provincial courts, regional courts, courts of the first instance and
municipal courts. There is also a Constitution Tribunal which has jurisdiction
to resolve matters affecting constitutional issues.
At the last election in March 1996, the conservative Partido Popular
(PP) narrowly defeated the socialist Partido Socialista Obrero Espanol (PSOE)
which had governed the country since 1982. However, the PP fell 20 seats short
of a parliamentary majority. After some 57 days of negotiations, two
conservative regional parties -- the Catalonian Convergencia i Unio (CiU), and
the Basque Nationalist Party (PNV) -- agreed to support the PP but not to enter
a coalition government. Jose Maria Aznar of the PP became the Prime minister.
INTERNATIONAL ORGANIZATIONS
Spain is a member of the United Nations, the International Monetary
Fund (IMF), the World Bank, the Organization for Economic Cooperation and
Development (OECD), the North Atlantic Treaty Organization (NATO), the World
Trade Organization (WTO) and the European Economic Community (EEC).
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THE ECONOMY
After accession to the European Union (EU) in 1985, foreign capital,
particularly direct investment, poured into Spain attracted by its low labor
costs relative to those in the core European countries. In the five years
through 1990, GDP in Spain grew at an average annual rate of 5.0%, compared with
an average of 3.3% for all of EU. Domestic demand surged, but since the
structural reforms needed to improve supply conditions were slow to take place,
bottlenecks arose and inflation began to surface. Spain became less competitive
and GDP slowed to a rate of 0.7% in 1991 and a decline of 1.2% in 1992. The
peseta came under speculative attack in the Exchange Rate Mechanism crises of
1992 and 1993. The peseta was devalued 15.6% against the dollar in 1992 and a
further 19.4% in 1993. With the resulting improvement in competitiveness, the
economy began to improve.
Among the structural reforms to the Spanish economy was a reduction in
state ownership of business. During the Socialist term in power, Seat, the car
producer was sold to Volkswagen in 1986 and Enasa (trucks) to Iveco, a division
of Fiat. Between 1989 and 1995, shares were floated in such profitable companies
as Repsol, Endesa, the electrical utility, Argentaria, the banking group, and
Telefonica. The state's share in these companies was reduced to 10%, 67%, 25%
and 20% respectively. Among the plans of the newly elected center-right
government is one in which they aim to sell off additional state shareholdings
worth more than three trillion pesetas ($23.4 billion) by the year 2000.
One of the most intractable structural problems in Spain is labor
regulation, which has resulted in an official unemployment rate, currently at
22%, or roughly double the EU average. To a large extent the high unemployment
rate is the result of rigid labor laws inherited from the Franco regime. Workers
with permanent job contracts are protected by generous dismissal payments while
new entrants have great difficulty in finding a new job because of the
reluctance of employers to take on additional staff because of the very same
generous dismissal payments. In spite of the introduction of fixed-term
contracts in 1984 and the reforms of 1996 that have reduced the cost of overtime
hours and encouraged part-time contracts, there had been no change in the legal
severance provisions which are still among the highest of the OECD. Justified
layoffs, for both collective and individual dismissals, require a minimum
severance payment ranging from 20 days' wages per year of seniority to a maximum
of 12 months. Unjustified dismissals carry with them 45 days' wages per year of
seniority to a maximum of 42 months, in addition to which the firm must pay up
to 60 days' retroactive wages during the appeals process.
GROSS DOMESTIC PRODUCT
Gross Domestic Product (GDP) in Spain was approximately $581 billion
dollars in 1996, ranking fifth among the fifteen nations in the European
Economic Community. In terms of per capita income, however, it ranked fourth
from the bottom, exceeding only Portugal, Greece and Turkey.
The following table sets forth selected economic data relating to Spain
for the indicated periods.
SELECTED ECONOMIC DATA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
GDP at current market prices
(billion pesetas) 59,105 60,953 64,789 69,761 73,572 77,786
% Change 7.6% 3.1% 6.3% 7.7% 5.5% 5.7%
GDP at 1990 prices
(billion pesetas) 51,635 51,016 52,098 53,546 54,708 56,672
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
% Change 0.7% -1.2% 2.1% 2.8% 2.2% 3.6%
CPI (1990=100) 112.2 117.3 122.9 128.6 133.2 135.80
% Change 5.9% 4.5% 4.8% 4.6% 3.6% 2.0%
Industrial Production 96.7 91.9 98.6 103.2 102.5 109.6%
% Change -2.5% -5.0% 7.3% 4.7% -0.7% 6.9%
Unemployment Rate 18.5% 22.8% 24.1% 22.9% 22.2% 21.3%
General Gov. Deficit/GDP -3.6% -6.8% -6.3% -6.6% 4.4% -3.0%
General Gov. Debt/GDP 48.3% 60.5% 63.0% 65.7% 69.6% 68.1%
Current Account (mil. US$) -21,287 -5,767 -6,817 1,158 1,756 n.a.
Current Account/GDP -3.7% -1.2% -1.4% 0.2% 0.3% n.a.
Population (millions) 39.0 39.1 39.2 39.2 39.3 39.3
Average Exchange Rate 102.38 127.26 133.96 124.69 126.66 146.41
GDP in US $ Billions $ 577.3 $ 479.0 $ 483.6 $ 559.5 $ 580.9 $531.30
GDP Per Capita $ 14,770 $12,234 $12,335 $14,247 $14,772 $13,675
</TABLE>
IMF, International Financial Statistics, April 1990. European Commission. 1977
Broad Economic Policy Guidelines, No. 64, 1997.
Spain produces a wide range of agricultural products, both for domestic
and export markets. Among them are rice, olive oil, wine, feed grains,
vegetables and citrus fruits. In addition, Spain produces an array of forestry
products, including wood for construction and furniture, cork, firewood and
resins. Spain has significant deposits of metals and minerals, including iron
ore, mercury, potash, uranium, tungsten, lead, zinc and pyrites. The main
industries of Spain include iron and steel, aluminum, motor vehicles, electronic
equipment and machinery, chemicals, metal products, coal mining and electricity
generation. Tourism is one of the largest components of the service sector and a
significant source of foreign exchange.
The following table shows the changes in the distribution of GDP by
type of activity between 1986 and 1996.
GROSS DOMESTIC PRODUCT BY TYPE OF ACTIVITY
<TABLE>
<CAPTION>
Percent Distribution
1986 1996
<S> <C> <C>
Agriculture, Hunting, Forestry, and
Fishing 5.6% 4.5%
Mining, Mfg & Gas 29.2% 27.5%
Construction 6.5% 7.1%
Services 53.2% 55.2%
Adjustments 5.6% 5.7%
100.0% 100.0%
</TABLE>
OECD Quarterly National Accounts, 1997:4P226
FOREIGN TRADE AND BALANCE OF PAYMENTS
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Since accession to EU in 1986, Spain's trade with other EU members has
increased significantly as can be seen in the following table.
GEOGRAPHIC BREAKDOWN OF TRADE
<TABLE>
<CAPTION>
EXPORTS IMPORTS
1986 1996 1986 1996
<S> <C> <C> <C> <C>
Millions of US$ 27,206 102,090 35,056 121,865
Millions of US$
European Union 16,998 72,471 18,731 80,737
Germany 3,192 14,836 5,288 18,038
France 4,879 20,534 4,113 21,748
Italy 2,168 8,929 2,564 11,625
United Kingdom 2,400 8,676 2,711 10,090
Portugal 941 8,783 455 3,573
Other EU 3,418 10,713 3,600 15,663
United States 2,517 4,297 3,445 7,720
Other 7,691 25,322 12,880 33,408
</TABLE>
IMF, Direction of Trade Statistics Yearbook, 1997.
Spain typically runs a deficit on the balance of trade and the balance
on income (interest and dividend payments). Services and transfers regularly
report surpluses. On the capital account, direct investment has declined from
the high level of 1992. Portfolio investment has tended to be volatile. The
overall balance, however, has improved and the Current Account as a percentage
of GDP has gone from negative 3.7% in 1992 to positive 0.3% in 1996.
<TABLE>
<CAPTION>
BALANCE OF PAYMENTS
(Millions US$)
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Trade Balance (30,420) (14,946) (14,833) (17,661) (14,912)
Balance on Services 12,529 11,107 14,712 17,941 20,012
Balance on Income (5,790) (3,573) (8,193) (3,852) (5,929)
Transfers Net 2,395 1,644 1,497 4,731 2,584
Current Account (21,287) (5,767) (6,817) 1,158 1,756
Direct Investment Net 11,084 5,492 5,528 2,483 1,767
Portfolio Investment Net 7,006 11,454 214 7,620 (942)
Equity Securities Net 3,503 5,727 107 3,810 (471)
Debt Securities Net 5,855 43,625 (21,254) 16,785 (742)
Other Investments Net (14,484) (55,124) 21,089 (30,778) 19,137
Capital Acct n.i.e. 3,484 2,918 2,612 6,287 6,365
Errors and Omissions (5,965) (1,680) (1,214) (6,160) (3,533)
Overall Balance (17,809) 4,808 50 (6,415) 24,278
</TABLE>
IFS January 1998:636
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<PAGE> 126
EXCHANGE RATES
The following table shows the exchange rate of the peseta relative to
the U.S. dollar at the end of each year and the average for the year. The
percent of depreciation or appreciation is also shown.
<TABLE>
<CAPTION>
Exchange Rates
End of Period Change Relative Change Relative
Average to US$ to US$
<S> <C> <C>
1986 132.40 140.05
1987 109.00 21.5% 123.48 13.4%
1988 113.45 -3.9% 116.49 6.0%
1989 109.72 3.4% 118.38 -1.6%
1990 96.91 13.2% 101.93 16.1%
1991 114.62 -15.6% 102.38 1.5%
1992 96.69 0.2% 103.91 -1.9%
1993 142.21 -19.4% 127.26 -19.6%
1994 131.74 8.0% 133.96 -5.0%
1995 121.41 8.5% 124.69 7.4%
1996 131.28 -7.5% 126.66 -1.6%
1997 151.70 -13.5% 146.41 -13.5%
IMF, International Financial Statistics, April 1998
</TABLE>
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<PAGE> 127
II. PORTUGUESE REPUBLIC
AREA AND POPULATION
The Portuguese Republic ("Portugal") is situated in Southwest Europe on
the western portion of the Iberian Peninsula, bounded on the north and east by
Spain and on the south and west by the Atlantic Ocean. The country also
comprises the Azores and Madeira Islands in the Atlantic Ocean. The total area
including the islands is 91,985 sq. Km. (35,515 sq. miles).
The population of Portugal, including the Azores and Madeira Islands,
was 9.8 million according to the 1991 census. The population is concentrated
along the Atlantic coast. Lisbon, the capital and largest city and seaport,
comprises some 1.9 million inhabitants and Porto, the second largest city and
seaport comprises 1.l million.
GOVERNMENT
Portugal is a republic governed under a constitution approved in 1976
and revised in 1982, 1989 and 1992. The President is elected to a 5-year term,
as head of state. The current president elected in January 1996 is Jorge
Sampaio. Parliament proposes the Prime Minister to the president who then makes
the appointment. The Prime Minister, who is the country's chief administrative
official, presides over a cabinet of ministers. The current Prime Minister is
Antonio Guterres.
Legislative power is vested in a unicameral parliament, the Assembly of
the Republic. Members of the Assembly are elected under a system of proportional
representation and serve 4-year terms. The Assembly had a total of 230 seats in
the early 1990s.
The judicial system is headed by the Supreme Court, which is made up of
a president and 29 judges. Below the Supreme Court are courts of appeal and
ordinary and special district courts. There is also a Constitutional court.
The leading political parties are the Socialist Part (PS), the Social
Democratic Party (PSD), the Social Democratic Centre Party (CDS/PP) and the
Communist Party (PCP) The socialist party won the October 1995 election, ending
10 years of government by the social democrats. Both of the main parties have
similar economic policies, with participation in European Monetary Union (EMU)
and fulfilling Maastricht criteria as the center piece of fiscal and monetary
policies.
INTERNATIONAL ORGANIZATIONS
Portugal is a member of the United Nations, the International Monetary
Fund (IMF), the World Bank, the Organization for Economic Cooperation and
Development (OECD), the North Atlantic Treaty Organization (NATO), the World
Trade Organization (WTO) and the European Economic Community (EEC).
THE ECONOMY
When Portugal joined the European Community (EC) in 1986, the economy
was in need of major restructuring. Inflation, unemployment and the public
sector deficit were high. Moreover the industry sector was antiquated and the
State was heavily involved in the economy. Protectionism, underdeveloped
financial markets and rigidity in labor markets characterized the economy.
Monetary policy was based on
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capital controls and credit ceilings. Financial institutions were sheltered from
foreign competition and the money market was poorly developed. The Central Bank,
which could not be considered independent, controlled liquidity through credit
ceilings imposed on the overwhelmingly public banking system. Exchange rate
policy was based on a crawling peg aimed at alleviating the chronic current
account deficit which, in 1982 peaked at 12% of GDP. Over the period from
1976-1985, the compound real effective exchange rate depreciation of the escudo
amounted to 40% while inflation was running at a rate of 20% annually.
After joining the EC, tax reforms were introduced which lowered
effective marginal rates, broadened the tax base and curtailed opportunities for
evasion. The value added to tax (VAT) was introduced between 1984 and 1986 and
the income tax was subject to a major reform in 1989. Institutional changes
strengthened Central Bank autonomy by cutting off the government's automatic
access to Banco De Portugal credit and making its statutes broadly aligned to
the requirements of the European Union Treaty. Portugal moved from a highly
regulated financial market to financial liberalization.
A far-reaching privatization program was started in 1989. In 1988,
public sector participation in the market economy accounted for close to 19% of
total value added, around 6.5% of employment and almost 15% of total investment.
State-owned enterprises were dominant in financial service, transport, energy,
communications, steel, cement brewing, shipbuilding, pulp and tobacco.
Initially, the program focused on the financial services sector. The stock
exchange was modernized and privatized.
On April 6, 1992, the escudo joined the Exchange Rate Mechanism (ERM)
in the wide fluctuation band (6%) thereby establishing exchange rate stability
as the cornerstone of its monetary policy. Remaining controls on capital
movements were abolished at the end of that year, ahead of the schedule
previously agreed with the EC.
Turmoil in the ERM in 1992 led to widening of bands to 15% in August
1993. The Central parity of the escudo had to be devalued twice during that
period. In spite of realignments, the new monetary policy based on exchange rate
stability as an intermediate objective has remained a cornerstone of economic
policy in Portugal. In March 1995 the central parity of the escudo within the
ERM was devalued by 3.5%, half the size of the devaluation of the Spanish
peseta. This realignment was not preceded by market pressure on the escudo, but
was aimed at limiting losses in competitiveness relative to partner countries.
Since joining the EEC, Portuguese output increased significantly in the
period from 1986-1990, rising on average at 5% a year compared with an average
of 1.6% in the previous five-year period. The rate of inflation, which had been
close to 30% in 1984, was brought down to about 12% in 1990. Output was affected
adversely by the oil shock of 1979-80 and the recession of 1993, but began to
pick up in 1994 and has subsequently continued to grow in each year. Inflation
continued to abate and in 1996 the CPI rose only 3.2% and is reported to have
been 1.9% in 1997. At the same time, the balance of payments has remained strong
and the overall general government deficit fell from above 6% of GDP in 1993 to
3.2% in 1996 and to 2.45% in 1997.
GROSS NATIONAL PRODUCT
In 1996, GDP amounted to approximately $107 billion. The European
Commission has stated that, measured in purchasing power parity, Portuguese GDP
per capita rose from 50% of the European Union (EU) average in 1985 to about 70%
in 1996.
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The following table sets forth selected economic data relating to
Portugal for the indicated periods:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
GDP at current market
prices (billion escudo) 12,427.3 13,451.8 14,499.9 15,590.7 16,524.2
% Change 12.7% 8.2% 7.8% 7.5% 6.0%
GDP at 1993 prices
(billion escudo) n.a. 13,451.70 13,705.50 13,978.80 14,400.40
% Change 1.8% 0.3% 1.9% 2.0% 3.0%
CPI (1990=100) 121.3 129.6 135.9 141.5 146.0
% Change 8.9% 6.8% 4.9% 4.1% 3.2%
Industrial Production 99.5 95.9 94.8 99.4 100.8
% Change -1.9% -3.6% -1.1% 4.9% 1.4%
Unemployment Rate 4.2% 5.7% 7.0% 7.3% 7.3%
General Gov. Deficit/GDP -3.6% -6.9% -5.8% -5.1% -4.0%
General Gov. Debt/GDP 60.7% 64.3% 66.7% 66.4% 65.6%
Current Account (mil. US$) -184 233 -1,891 -721 -2,657
Current Account/GDP -0.1% 0.1% -1.1% -0.5% -1.7%
Population (millions) 9.83 9.84 9.84 9.85 9.87
Average Exchange Rate 135.00 160.80 165.99 151.11 154.24
GDP in US $ Billions $ 92.1 $ 83.7 $ 87.4 $ 103.2 $ 107.1
GDP Per Capita $ 9,362 $ 8,502 $ 8,877 $ 10,478 $ 10,859
</TABLE>
*GDP at constant 1993 prices not available for 1992. The % changes for 1992 and
1993 are taken from OECD, Economic Outlook, December 1997. The % changes for
1994-6 are computed from the figures shown in the preceding line.
Sources: OECD, Quarterly National Account, No. 4, 1997 and Economic Outlook,
December 1997; IMF, International Financial Statistics, April 1998; European
Commission, 1977 Broad Economic Policy Guidelines, No. 64, 1997.
While the importance of agriculture in the economy has declined since
accession to the EU, approximately 11% of the labor force is still engaged in
agriculture, having declined from over 20% in 1986. Only Greece among EU members
has a higher proportion of the population currently employed in agriculture.
Approximately 34% of Portugal's total land area is covered by forest. The
country is the world's largest producer and exporter of cork and cork products
and is an increasingly important supplier of wood pulp. Portugal has substantial
reserves of copper ore, iron ore, pyrites and uranium.
The manufacturing sector accounted for about 24% of GDP and employed
about 23% of the labor force in 1993, the latest year for which data are
available. The principal manufacturing industries include metal products,
textiles, chemicals and allied products, wood pulp and cork and base metallurgy.
The construction sector employs approximately 8% of the labor force.
Tertiary production includes retail and wholesale trade, utilities,
finance, transportation and communication, and services. Trade and services have
been the fastest growing sectors of the economy. The growth in tourism is
reflected in the trade sector which includes hotels and restaurants.
A-8
<PAGE> 130
The following table shows how employment by industry has changed since
accession to the EU in 1986.
<TABLE>
<CAPTION>
CIVILIAN EMPLOYMENT BY SECTOR
1986 1995
(Thous) % of Total (Thous) % of Total
<S> <C> <C> <C> <C>
Agriculture 890.3 21.9% 477.5 11.4%
Mining 27.2 0.7% 16.8 0.4%
Manufacturing 995.3 24.5% 971.9 23.2%
Construction 332.1 8.2% 340.3 8.1%
Electricity, gas and water 31.9 0.8% 34.6 0.8%
Transport and communication 174 4.3% 183.1 4.4%
Trade 598.6 14.7% 819.2 19.5%
Banking, insurance, real estate 127 3.1% 137.4 3.3%
Personal services. 887 21.8% 1213.7 28.9%
Total 4063.4 4194.5
</TABLE>
OECD, Economic Survey Portugal 1998:111
EXTERNAL TRADE AND BALANCE OF PAYMENTS
Since accession to EU in 1986, Portugal's trade with other EU members
has increased significantly as illustrated in the following table:
<TABLE>
<CAPTION>
GEOGRAPHIC BREAKDOWN OF TRADE
EXPORTS IMPORTS
1986 1996 1986 1996
<S> <C> <C> <C> <C>
(Bil escudos) 1,055 3,678 1,399 5,265
Percent of Total
European Union 68.3 79.9 58.9 75.6
Germany 14.7 21.2 14.4 15.5
France 15.2 14.1 10.0 11.1
Italy 3.9 3.7 7.9 8.3
United Kingdom 14.2 10.8 7.5 6.7
Spain 6.9 14.2 11.0 22.4
Other EU 13.3 16.0 8.2 11.6
United States 7.0 4.6 7.0 3.2
Other OECD countries 13.8 5.1 12.5 5.6
Non OECD countries 10.9 10.4 21.6 15.6
</TABLE>
OECD, Economic Survey Portugal 1998:115
Portugal typically runs a deficit on the balance of trade which is
offset, in part, by tourism receipts and unilateral transfers. Tourism receipts
are expected to increase sharply with Expo 98, which runs from May 22 through
September 30, 1998. Transfers include emigrant remittances and, in recent years,
transfers from EU. The overall balance of payments is shown in the following
table:
A-9
<PAGE> 131
<TABLE>
<CAPTION>
BALANCE OF PAYMENTS
(Millions US$)
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Trade Balance (9,387) (8,050) (8,321) (8,910) (9,340) (9,766)
Balance on Services 765 1,365 1,269 1,613 1,375 1,204
Balance on Income 611 219 (565) (21) (352) (245)
Transfers Net 7,826 6,699 5,421 7,132 6,827 6,712
Current Account (184) 233 (2,196) (144) (1,491) (2,093)
Direct Investment Net 1,186 1,387 983 (3) (57) 71
Portfolio Investment Net (3,064) 1,827 478 (1,083) 1,746 1,133
Equity Securities Net 561 411 496 (338) 958 1,776
Debt Securities Net (3,625) 1,416 (18) (745) (2,704) (643)
Other Investments Net 928 (6,246) (409) 4,110 6,553 2,750
Errors and Omissions 978 (48) (287) (3,181) (2,813) (2,267)
Overall Balance (156) (2,848) (1,430) (300) 445 (407)
</TABLE>
IMF, International
Financial Statistics,
January 1998
EXCHANGE RATES
The following table shows the exchange rate of the escudo relative to
the US dollar at the end of each year and the average for the year. The percent
of depreciation or appreciation is also shown.
VALUE OF ESCUDO RELATIVE TO US$
<TABLE>
<CAPTION>
End of Period Change Relative to US$ Average Change Relative to US$
<S> <C> <C> <C> <C>
1986 146.12 149.59
1987 129.87 12.5% 140.88 6.2%
1988 146.37 -11.3% 143.95 -2.1%
1989 149.84 -2.3% 157.46 -8.6%
1990 133.60 12.2% 142.56 10.5%
1991 134.18 -0.4% 144.48 -1.3%
1992 146.76 -8.6% 135.00 7.0%
1993 176.81 -17.0% 160.80 -16.0%
1994 159.09 11.1% 165.99 -3.1%
1995 149.41 6.5% 151.11 9.9%
1996 156.39 -4.5% 154.24 -2.0%
1997 183.33 -14.7% 175.31 -12.0%
IMF, International Financial Statistics
</TABLE>
A-10
<PAGE> 132
III. SPANISH AND PORTUGUESE MARKET INFORMATION
THE SPANISH SECURITIES MARKETS
In 1998 the Securities Market Act (known by its Spanish acronym as LVM)
established the framework for the operation of the securities markets in Spain.
The securities markets, and all market participants are supervised by the
National Securities Market Commission ("Comision National de Mercado de Valores"
or "CNMV"), an independent public entity, and the key institution of the Spanish
securities markets. Each of the four Spanish stock exchanges is managed by a
managing company ("Sociedad Rectora"), a private limited liability company
formed and owned by the authorized dealers and broker-dealers ("sociedades de
valores" and "agencias de valores") that are members of the relevant stock
exchange. Each managing company is in turn an equal member of another company,
the "Stock Exchange Company" ("Sociedad de Bolsas"), the main function of which
is to oversee the Automated Quotation System, which is the computerized system
through which trading in equity securities on the Spanish stock exchanges takes
place primarily.
Shares (equity securities), government securities, bonds, treasury bills
and other financial instruments are traded on the exchanges. All transactions
must be effected through an official dealer or broker-dealer member of the
relevant stock exchange. Brokerage commissions are freely fixed by the dealers
and broker-dealers. However, they are overseen by the CNMV, and have to be
publicly published and may not exceed the maximum rates established by the
Spanish Government.
In order for securities to be listed for trading on any exchange, the
authorization of the relevant exchange is required. Additionally, trading on the
Automated Quotation System requires previous listing on at least two Spanish
stock exchanges, and authorization of the CNMV with a favorable report of the
Stock Exchange Company. Spanish legislation establishes rules for the exchanges
with respect to listing and disclosure requirements, including examinations of
financial statements.
Equity Markets. Securities are traded on the four exchanges via the
Automated Quotation System ("AQS"), which presently exists in conjunction with
the traditional oral trading on the floor of the exchange. AQS accounts for
almost 90% of all trades. The principal feature of the AQS is the computerized
matching of buy and sell orders at the time of entry of the order. Each order is
executed as soon as a matching order is entered, but can be modified or canceled
until executed.
In a pre-opening session held from 9:00 a.m. to 10:00 a.m. each trading
day, an opening price is established for each security traded on the AQS based
on orders placed at that time. The computerized trading hours are from 10:00
a.m. to 5:00 p.m. (except for some less liquid securities which trade only at
12:00 p.m. and 4:00 p.m.) during which time the trading price of a security is
permitted to vary up to 15% (or 20% with the authorization of the Stock Exchange
Company) of the previous trading day's closing price. If the quoted price
exceeds this limits, trading in the security is suspended until the next trading
day.
Between 5:00 p.m. and 8:00 p.m, trades may occur outside the
computerized system without prior authorization of the Stock Exchange Company,
at a price within the range of 5% above the higher of the average price and
closing price for the day and 5% below the lower of the average price and
closing price for the day, if there are no outstanding bids or offers, as the
case may be, on the system matching or bettering the terms of the proposed
off-system transaction, and if the trade involves more than Ptas. 50 million and
more than 20% of the average daily trading volume of the stock during the
preceding three months. In certain cases, at any time before 8:00 p.m., trades
may take place (with the prior authorization of the Stock Exchange Company) at
any price.
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<PAGE> 133
The Madrid exchange is the fourth most active in turnover terms in the
European Union after London, Frankfurt and Paris. Based on market
capitalization, the Madrid exchange, valued at $235.1 billion at the end of
1997, ranked twelfth among the exchanges of the world. Market capitalization and
trading value for the past five years are given below:
<TABLE>
<CAPTION>
MADRID STOCK EXCHANGE
No. of Cos. Mkt Cap Trading Mkt Cap Trading
Listed
ECU Billions US $ Billions
<S> <C> <C> <C> <C> <C>
1992 400 80.3 64.6 61.9 49.8
1993 379 125.5 99.9 107.1 85.2
1994 378 122.5 132.1 103.1 111.1
1995 366 137.9 120.9 105.4 92.4
1996 361 190.2 182.5 150.0 143.9
1997 388 266.6 376.3 235.1 331.8
</TABLE>
Bolsa de Madrid, Key Figures, January 1998
The most traded shares are shown below:
<TABLE>
<CAPTION>
MOST TRADED SHARES IN 1997
Company Sector Trading Volume No. Shares
(Million)
ECU Mil US$ Mil
<S> <C> <C> <C> <C>
Telefonica Communications 24,205 19,089 3,138
Endesa Utilities 13,648 10,763 2,526
Repsol Petroleum 11,288 8,902 918
BBV Banking 8,385 6,613 1,140
Iberdrola Utilities 8,186 6,456 2,337
B. Santander Banking 7,599 5,993 969
Argentaria Banking 4,602 3,629 300
B. Popular Banking 4,035 3,182 249
BCH Banking 3,127 2,466 630
Banesto Banking 2,300 1,814 834
</TABLE>
Bolsa de Madrid, Key Figures, January 1998
Stock Indexes. The main stock price indexes are the Madrid General
Index, the Total Index and the Ibex-35. The Madrid General Index reflects the
increase or decrease in share prices and is corrected for dividends and capital
increases. It has been published since December 1940 and as of 1986 the base has
been December 31, 1985=100. The Total Index measures the overall profitability
of shares based on the price performance, capital increases and dividends
reinvested. It is an indicator of total return. The index is based on December
31, 1985=100. The Ibex-35 index, made up of the 35 most liquid shares that trade
on the continuous market, acts as the underlying asset for the trading of
futures and options on indexes. The index is not corrected for dividends and the
base is December 31, 1989=3000. It has been called Ibex-35 since January 1991;
prior to that time it was known as Fiex. The following table shows the three
A-12
<PAGE> 134
indexes for the period 1987-1997 (except with respect to the Madrid Total Index,
with respect to which 1997 figures are not available).
<TABLE>
<CAPTION>
MADRID STOCK PRICE INDEXES (END OF YEAR)
Madrid General Percent Chg Madrid Total Percent Chg. Ibex-35 Percent Chg.
Index(1) Index(1) Index(2)
<S> <C> <C> <C> <C> <C> <C>
1987 227.2 242.8 2,407.1
1988 274.4 20.8% 302.8 24.7% 2,727.5 13.3%
1989 296.6 8.1% 336.8 11.2% 3,000.0 10.0%
1990 223.3 -24.7% 260.9 -22.5% 2,248.8 -25.0%
1991 246.2 10.3% 299.9 14.9% 2,603.3 15.8%
1992 214.3 -13.0% 277.8 -7.4% 2,344.6 -9.9%
1993 332.8 55.3% 433.0 55.9% 3,615.2 54.2%
1994 285.0 -14.4% 393.0 -9.2% 3,087.6 -14.6%
1995 320.1 12.3% 454.7 15.7% 3,630.8 17.6%
1996 444.8 39.0% 649.8 42.9% 5,154.8 42.0%
1997 632.5 42.2% 7,255.3 40.7%
</TABLE>
- -----------------------------------
(1) 12/21/85=100
(2) 12/31/89=3000
Bolsa de Madrid, Fact Book 1997
As of March 20, 1998, the Madrid General Index was 859.08 up 34.4% from
the end of 1997 and the Ibex 35 was 9797.1, up 35% over the same time period.
New Listing of Equity Securities. In order to be eligible for listing on
any of the Spanish stock exchanges, companies are required to meet certain
requirements, including the following:
(i) General requirements:
- The company must comply with all the rules and regulations
to which it is subject; including its own memorandum and
articles of association.
- The annual company accounts, and if applicable, the
consolidated group accounts, must be audited. However,
exceptions to this requirement may be granted in certain
cases.
- The securities must be freely transferable.
- The securities must be registered in book-entry form
("anotaciones en cuenta").
(ii) Specific requirements for shares:
- The company must have a minimum share capital of Pesestas
200 million.
- The company must have enough profits (after tax) to
distribute a dividend of at least 6% of the paid up share
capital in the previous two years or in three
non-consecutive years of the previous five (although no
actual distribution is required). However, exceptions to
this requirement may be granted in certain cases.
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<PAGE> 135
- There must be at least 100 shareholders owning individual
interests in the company of less than 25% of its share
capital.
Debt Market. The debt instruments principally traded in the Spanish
markets are treasury letters of credit ("Letras del Tesoro"), treasury
promissory notes ("Pagares del Tesoro"), and state bonds and debt instruments
("Bonos y obligaciones del Estado"), a mixture of short, medium and long-term
instruments.
These public debt securities, and also those issued by Autonomous
Communities (i.e., territorial political sub-divisions of the Spanish State) and
local authorities, are primarily traded in the Public Debt Market ("Mercado de
Deuda Publica en Anotaciones") which operates through a book-entry system run by
the Bank of Spain. The Bank of Spain is empowered to supervise and control the
Public Debt Market, Public debt represented by book entry can also be traded on
the Spanish stock exchanges.
The "AIAF" fixed-yield wholesale securities market is an organized but
unofficial wholesale market of securities. This market is sponsored by a private
entity ("AIAF"), governed by its own supervisory body in accordance with its
rules, and under the supervision of the CNMV. Several fixed-yield securities
which could also trade on the Spanish stock exchanges trade on this market.
The capitalization of fixed-income securities has been gradually
declining while trading has risen sharply. The explanation lies in the fact that
as of 1993 the book-entry debt of the State and regional governments has been
traded via the Bolsa de Madrid's electronic system, however capitalization of
this debt is not included in that of public sector securities on the Bolsa.
Trading and capitalization of fixed-income securities is shown below.
<TABLE>
<CAPTION>
Fixed-Income Securities
Mkt Cap Trading
(Bil. Ptas.) (Bil. US$) (Bil. Ptas.) (Bil. US$)
<S> <C> <C> <C> <C>
1992 4,332 42.3 922 9.0
1993 4,371 34.3 1,758 13.8
1994 3,832 28.6 4,488 33.5
1995 3,532 28.3 4,274 34.3
1996 3,334 26.3 9,540 75.3
</TABLE>
Bolsa de Madrid, Fact Book 1997
Futures and Options Market. The futures and options markets are
organized by the holding company Mercado Espanol de Futuros Financieros (MEFF).
MEFF's subsidiary, MEFF Renta Variable, based in Madrid, manages the trading of
options and futures on the Ibex-35 stock index and individual options on certain
shares. MEFF Renta Fija, based in Barcelona, manages the trading of futures and
options on interest rates.
SPANISH FOREIGN EXCHANGE CONTROL
Official buying and selling rates for major trading and certain other
specified currencies are fixed daily by the Bank of Spain in consultation with
the banks authorized to conduct foreign exchange business. Purchases and sales
by bank transfers of foreign currencies are centralized at the Bank of Spain,
which publishes the rates at which it settles transactions.
A-14
<PAGE> 136
Foreign investors may freely invest in shares of Spanish companies and
need only obtain prior verification or authorization from the Ministry of
Economy in certain cases. Foreign non-European Union governments, state-owned
entities and state-controlled entities are required to obtain specific consent
from the relevant Spanish authorities to make capital investments in Spain.
Payments and collections derived from foreign investments in Spain are
liberalized, but certain formalities have to be fulfilled and specific
information must be supplied, in certain cases, to the Spanish exchange control
authorities. Generally payments must be channeled through licensed credit
entities.
SPANISH PUBLIC FINANCE, STATE REVENUE AND TAXATION
Each year, the Ministry of Economy and Finance, in collaboration with
other Government Ministries, prepares the State Budget and summary budgets for
autonomous public agencies and the social security system. After submission to
the Council of Ministers, the budget is presented for approval to parliament. If
the budget is not finally approved by January 1 of each year, the budget of the
previous year is automatically extended.
Spain has a fairy complex tax system with a wide range of direct and
indirect taxes applicable to both individuals and businesses. The majority of
Spanish taxes are imposed by the State, although certain taxes are levied by
local governments. Certain Autonomous Communities, namely the Basque Country and
Navarra, have a particular tax system adopted by their respective local
legislative bodies within the framework of the State tax system.
THE SPANISH MONETARY AND BANKING SYSTEM
Government regulation of the Spanish banking industry is administered
by the Bank of Spain, a public law entity which operates as the Spanish
autonomous central bank. In addition, it has the ability to function as a
private bank. Except in its performance of public functions, the Bank of Spain's
relations with third parties are governed by general private law and its actions
and omissions subject to the civil and commercial codes.
Among other responsibilities, the Bank of Spain is responsible for
determining and executing monetary policy with the primary goal of attaining
price stability (while the Bank of Spain's monetary policy must support the
general financial policy of the government, it is not subject to instructions
from the Government or the Ministry of Economy and Finance), maintaining,
administering and managing foreign exchange and precious metal reserves in order
to execute the rate of exchange policy formulated by the Government, promoting
stability, good performance and operation of the financial payment systems,
issuing Spanish currency, rendering treasury services to the Spanish Treasury
and to the Autonomous Communities, and rendering services related to public debt
of the State and the Autonomous Communities.
In addition, the Bank of Spain exercises general supervisory control
over all Spanish credit institutions and is entrusted with certain supervisory
powers over Spanish banks, subject to rules and regulations issued by the
Ministry of Economy and Finance. The "Fondos de Garantia de Depositos", which
operate under the guidance of the Bank of Spain, guarantee bank and savings bank
deposits up to EURO 15,000 per depositor. The minimum covered amount for all
European Union member banks will be increased to EURO 20,000 after December 31,
1999.
A-15
<PAGE> 137
SPANISH CREDIT ENTITIES
The commercial banking sector in Spain is dominated by four Spanish
banking groups, which, based on statistics of the Spanish Banking Association,
accounted for approximately 68.5% of total deposits at commercial banks at
December 31, 1996.
Spanish savings banks also represent an important source of competition
for retail deposits, mortgage loans and other retail banking products and
services. Since 1988, Spanish savings banks, which have traditionally been
regional institutions, have been permitted to open branches and offices through
Spain. The savings banks are divided into "Cajas de Ahorro", which are partially
controlled by local governments, and "Cajas Rurales", which specialize in the
agricultural sector.
Law 3/1994, of April 14, 1994 conforms Spanish law to the European
Unions' Second Banking Coordination Directive (89-646) (the "Second Banking
Directive") by providing that any financial institution incorporated in and
authorized to conduct business in another member state of the European Union
will be permitted to conduct business in Spain either through branches in Spain
or on a cross-border basis following certain procedures.
Likewise, the European Union's Investment Services Directive. No.
93/22/CE took effect on December 31, 1995. Although Spain has not yet
implemented this Directive, it could affect financial services in Spain by
permitting any brokerage house incorporated and authorized to operate in the
European Union to offer its services in Spain.
THE PORTUGUESE SECURITIES MARKETS
Background and Development. The Portuguese securities markets
officially opened at the turn of the century with the establishment of the
Oporto Stock Exchange and the Lisbon Stock Exchange (the "Stock Exchanges"). The
Stock Exchanges were closed in 1974 and were reopened in the late 1970s, but it
was not until 1987, when the Portuguese Government passed additional laws
designed to stimulate the capital markets, that activity on the Stock Exchanges
increased substantially. The 1987 legislation consisted mainly of tax
incentives, the relaxation of listing and issuing requirements and a reduction
in limitations on foreign investment.
A series of legislative measures designed to reform the Stock Exchanges
was implemented in July 1991, including the transfer of their ownership from the
Portuguese Government to the brokers and dealers acting on the Stock Exchanges.
In addition, the 1991 legislation (i) established an independent regulatory
authority over the securities market, the Comissao do Mercado de Valores
Mobiliarios (the "CMVM"), to supervise the securities markets, (ii) established
a framework for the regulation of trading practices, tender offers and insider
trading, (iii) required members of the Stock Exchanges to be corporate entities,
(iv) required companies listed on the Stock Exchanges to file annual audited
financial statements and to publish semi-annual financial information, (v)
established a framework for integrating quotations on the Stock Exchanges by
computer, and (vi) provided for the transfer of shares by book-entry.
Equity securities are currently listed only on the Lisbon Stock
Exchange. The Lisbon Stock Exchange is regulated by the Ministry of Finance and
the CMVM. Shares were traded on the Oporto Stock Exchange until May 1994, when
it was closed in preparation for the introduction of the trading of derivative
securities. Trading on the Oporto Stock Exchange is now limited to derivative
instruments.
The official market index of the Lisbon Stock Exchange, published since
February 1991 (the "BVL General Index"), is a weighted average price of shares
listed on the Official Market of the Lisbon
A-16
<PAGE> 138
Stock Exchange. The exact number of companies in the index's portfolio may
change each day because of new admissions, exclusions, suspensions and the
absence of quotations. Since January 1993, the Lisbon Stock Exchange has
calculated a sub-index of the 30 most frequently traded shares listed on the
Official Market, which includes the Ordinary Shares, and their market
capitalization (the "BVL 30"). Two Portuguese banks, Banco Totta & Acores, S.A.
and Banco Portugues do Atlantico, S.A., also calculate stock market indices.
Regulation of the Exchanges. Each of the two Portuguese stock exchanges
(Lisbon Stock Exchange and Oporto Stock Exchange) is managed by a managing
company ("Associacao de Bolsa"), a private limited liability association formed
and owned by the authorized dealers and brokers ("sociedades financeiras de
corretagem" and "sociedades de corretagem") that are members of the relevant
stock exchange.
The securities markets, and all market participants are supervised by
the Securities Market Commission ("Comissao do Mercado de Valores Mobiliarios"),
an independent public entity.
Shares (equity securities), government securities, bonds, treasury
bills, and other financial instruments are traded on the Lisbon Stock Exchange.
Trading in the Oporto Stock Exchange is now limited to derivative products.
Market Activity. The market capitalization of all securities traded on
the LSE at the end of 1997 was 14,388,729 million escudos or $78,487 million. Of
this total bonds accounted for $38,798 million or 49.4%; stocks, $39,065 million
or 49.8% and other securities, such as participation bonds, investment trust
units and rights, $624 million or 0.8%. The LSE is one of the smaller stock
markets among the developed markets. In terms of the Morgan Stanley Capital
International list of developed markets, Portugal ranked 21 out of 23 in market
capitalization at the end of 1997. Only the Austria and New Zealand stock
markets had smaller capitalizations.
A-17
<PAGE> 139
The following table shows the market capitalization of securities on
the LSE in the various markets as of the end of 1997.
<TABLE>
<CAPTION>
Mil Esc. Mil. US$ % Distribution
<S> <C> <C> <C>
Official Market 13,667,609 74,554 95.0%
Bonds 6,558,200 35,773
Stocks 7,007,975 38,227
Other* 101,434 553
Second Market 597,954 3,262 4.2%
Bonds 553,528 3,019
Stocks 44,426 242
Market without
Quotations 123,167 672 0.9%
Bonds 996 5
Stocks 109,268 596
Other 12,903 70
Subtotal 14,388,728 78,487 100.0%
Addendum:
Bonds 7,112,723 38,798 49.4%
Stocks 7,161,669 39,065 49.8%
Other 114,337 624 0.8%
14,388,729 78,487 100.0%
</TABLE>
* Participation bonds, Investment Trust Units and Rights of bonds,
warrants and shares.
Bolsa De Valores De Lisboa: Nota Informative 1997
Trading in 1997 of all securities amounted to 6,450,409 million escudos
or $36,794 million. Approximately 90% of the trades took place on the Official
Market. Trading in stocks accounted for 63.7% of all trades.
A-18
<PAGE> 140
The following table shows the value of trading on the three main
markets in 1997 and for both normal and special sessions.
<TABLE>
<CAPTION>
LISBON STOCK EXCHANGE: VALUE OF TRADING IN 1997
Mil Esc. Mil. US$ %Distribution
NORMAL SESSIONS
<S> <C> <C> <C>
Official Market 5,812,687 33,156 90.1%
Bonds 2,175,717 12,411
Stocks 3,598,606 20,527
Other* 38,364 219
Second Market 128,363 732 2.0%
Bonds 102,061 582
Stocks 26,302 150
Market without
Quotations 68,410 390 1.1%
Bonds 2,131 12
Stocks 45,727 261
Other 20,552 117
Subtotal 6,009,459 34,279 93.2%
SPECIAL SESSIONS
Stocks 440,949 2,515 6.8%
Grand Total 6,450,408 36,794
Addendum:
Bonds 2,279,909 13,005 35.3%
Stocks 4,111,584 23,453 63.7%
Other 58,916 336 0.9%
6,450,409 36,794 100.0%
</TABLE>
* Participation bonds, Investment Trust Units and Rights of bonds,
warrants and shares.
Bolsa De Valores De Lisboa: Nota Informative 1997
Stocks. Both market capitalizations and trading values of stocks have
grown rapidly in recent years. The following table showing recent history of the
growth of capitalization and trading value of stocks includes the dramatic rise
in trading that took place in 1997
<TABLE>
<CAPTION>
LISBON STOCK EXCHANGE
No. Market Capitalization Trading Value
Of Cos.
(bil escudos) (bil US $) (bil escudos) (bil US $)
<S> <C> <C> <C> <C> <C>
1987 143 1,150.3 8.9 213.9 1.5
1988 171 1,052.3 7.2 163.4 1.1
1989 182 1,588.4 10.6 300.4 1.9
1990 181 1,257.2 9.4 240.4 1.7
1991 180 1,284.3 9.6 406.2 2.8
1992 191 1,353.6 9.2 467.3 3.5
1993 183 2,193.0 12.4 780.3 4.9
1994 195 2,586.8 16.3 874.6 5.3
1995 169 2,743.1 18.4 634.1 4.2
1996 170 3,828.4 24.5 1,102.6 7.1
1997* 159 7,161.7 39.1 3,670.6 20.9
</TABLE>
* Data are for Normal Sessions. In 1997 trading value, including Special
Session, was 4,11.6 bil escudos or $23.5 bil.
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<PAGE> 141
Lisbon Stock Exchange
Stock Price Indexes. The BVL (Bolsa de Valores de Lisboa) Index has
been the official market index of the LSE since February 18, 1991. It has a base
of 1000 at January 5, 1988 and includes all listed shares on the LSE official
market. The exact number of companies in the index can change daily as a result
of admissions, exclusions, suspensions and the absence of quotations. On January
11, 1993, the LSE began to calculate the BVL 30. This index, based on January 4,
1993=1000, includes the shares of 30 companies listed on the main market and is
weighted by their market capitalization and liquidity. These indexes are shown
below in the following table:
STOCK PRICE INDEXES
BVL General Index (January 5, 1988=1000)
<TABLE>
<CAPTION>
High Date Low Date Close Pct. Chg.
<S> <C> <C> <C> <C> <C> <C>
1988 1,145.10 8-Jan 670.70 21-Oct 722.85
1989 1,141.59 24-Oct 691.11 22-Jun 951.91 31.7%
1990 953.76 4-Jan 627.57 5-Dec 638.30 -32.9%
1991 747.69 18-Mar 605.66 16-Jan 623.63 -2.3%
1992 651.63 11-May 541.60 20-Oct 553.71 -11.2%
1993 848.54 31-Dec 537.20 13-Jan 848.54 53.2%
1994 999.46 18-Feb 801.57 20-Jun 919.95 8.4%
1995 933.32 12-May 842.31 22-Nov 877.69 -4.6%
1996 1,163.54 31-Dec 877.17 2-Jan 1,163.54 32.6%
1997 1,922.72 31-Dec 1,163.47 2-Jan 1,922.72 65.2%
BVL 30 Index (January 4, 1993=1000)
High Date Low Date Close
1993 1565.16 31-Dec 980.14 13-Jan 1565.16
1994 1863.53 18-Feb 1447.56 20-Jun 1699.54 8.6%
1995 1740.05 12-May 1529.44 22-Nov 1605.30 -5.5%
1996 2165.92 30-Dec 1602.81 2-Jan 2164.50 34.8%
1997 3781.31 29-Dec 2165.57 2-Jan 3757.27 73.6%
Lisbon Stock Exchange.
</TABLE>
Stock prices began to rise sharply in 1997 when it became likely that
Portugal might be included in the early admittance to EMU. The rise has
continued and on March 26, the day after the European Commission recommended
Portugal's inclusion in EMU, the BVL 30 was 5556.77 or 47.9% above the close of
1997.
The Oporto Stock Exchange has recently launched the PSI-20 which is
made up of the 20 most representative Portuguese official market issues. It aims
to serve a reliable benchmark for the national equity market and to facilitate
the introduction of derivatives based on a single indicator for the equity
market.
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<PAGE> 142
Most Actively Traded Stock. The ten most actively traded stocks on the
official market in 1997 are shown below. These ten stocks accounted for 73% of
trading on the official market.
<TABLE>
<CAPTION>
No of Shares Value of Trading
(Millions) (Mil Esc.) (Mil. US$)
<S> <C> <C> <C>
Portugal Telecom 100 692,198 3,948
EDP-Nominativas 140 446,148 2,545
BCP Nom. e Porta. Reg 95 312,992 1,785
CIMPOR-Cim.Port.SGPS-Nom 69 285,910 1,631
Telecel-Com.Pessoais-Nom 17 240,688 1,373
Banco Espirito Santao (BESCL)Nom Port.Reg 38 161,935 924
Sonae Invest.-SGPS 23 150,396 858
Banco Portugues de Investimentos (BPI) 37 124,434 710
Banco Totta & Acores (BTA)-Nom.Port.Reg. 40 122,265 697
Jeronimo Martins & Filho-SGPS 9 91,630 523
Total of above 567 2,628,596 14,994
Grand Total 1,001 3,598,606 20,527
Percent of Grand Total 56.6% 73.0% 73.0%
</TABLE>
Bolsa De Valores De Lisboa: Nota Informative 1997
Price-to-earnings and price-to-book ratios and dividend yields of
Portuguese stocks in the Internal Finance Corporation's Global Indexes are as
follows:
<TABLE>
<CAPTION>
PORTUGAL: IFC GLOBAL INDEX
P/E Ratio P/BV Ratio Dividend Yield %
<S> <C> <C> <C>
1987 22.6 5.4 1.3
1988 18.0 3.7 1.3
1989 19.0 3.4 1.9
1990 11.8 1.7 2.7
1991 10.9 1.3 3.7
1992 9.0 1.0 4.7
1993 18.0 1.7 2.9
1994 20.3 1.8 3.2
1995 14.8 1.4 3.3
1996 18.1 1.7 2.3
1997
</TABLE>
IFC: Emerging Markets Data Base, and
Morgan Stanley Capital International,
December 1997.
Equity Market Trading. Listed securities for both exchanges are divided
into three sections. The "Market With Official Quotations" section allows for
the listing of bonds, shares and other securities which meet certain specific
requirements established by the Securities Market Commission, the most important
of which being a significantly diversified shareholding. The "Second Market"
section and the "Market
A-21
<PAGE> 143
Without Official Quotation" section include the securities of issuers that do
not satisfy the requirements for listing on the Market with Official Quotations.
Prior to 1991, all shares were traded by an open-outcry procedure;
prices were fixed once or twice a day at the market-clearing price for all bids
and offers tendered. The Official Market, created in July 1991, is a nationwide
market in which most Portuguese securities having the greatest market
capitalization are listed.
In September 1991, the Continuous Trading System, designed to provide
automatic execution of orders and continuous trading through Tradis, a
computerized trading system, was introduced. As of December 31, 1995, all of the
77 equity securities listed on the "Market With Official Quotations" were traded
through the Continuous Trading System. All other securities continue to trade by
the traditional open-outcry procedure, but it is currently planned that they
will be gradually introduced to the Continuous Trading System.
The Continuous Trading System linked the Stock Exchanges prior to the
closure of the Oporto Stock Exchange. The principal feature of the Continuous
Trading System is the computerized matching of buy and sell orders based, first,
on matching sales price and, second, on the time of entry of the order. Each
order is executed as soon as a matching order is entered, but can be modified or
canceled up to execution.
From 9:00 a.m. to 10:00 a.m. on each trading day (from Monday to Friday
excluding public holidays), an opening market clearing price is established for
each security on the Continuous Trading System based on the bids and offers
outstanding.
On any trading day, such opening price may not change more than 30%
from the most recent closing price. If a security has not traded within the
immediately preceding four trading days, the opening price will be fixed by the
market without restriction. Computer matched trading then proceeds on the
Continuous Trading System from 10:00 a.m. until 4:00 p.m. During such time, each
price may not change more than 5% from the prior executed price without a
temporary suspension to reset the market-clearing price.
At present, there are no official market makers or independent
specialists in the Continuous Trading System and therefore orders to buy or sell
in excess of corresponding orders to sell or buy will not be executed.
Only selected brokers and dealers may effect stock exchange
transactions. The market is served by 12 dealers, who may buy and sell for their
own accounts and eight brokers. All trades on the Lisbon Stock Exchange,
including through the Continuous Trading System, must be placed through a
brokerage or a dealer firm. Stock prices are quoted directly in Escudos per
share. Any trading of stock listed on the Continuous Trading System that takes
place off-the-market (i.e., those shares that are not traded during the 10:00
a.m. to 4:00 p.m. trading hours referred to above) must be cleared through
financial institutions.
Pursuant to Portuguese law, dividends are paid to shareholders of
record as of the date established for payment. In order to effect such payment
by means of Portugal's book-entry clearance and settlement system, under current
practice, trading of Shares will be suspended for the four business days
preceding any such dividend payment date.
Clearing and Settlement. One of the most important aspects of the
reform of the Portuguese securities market has been the creation of the Central
de Valores Mobiliarios (the "CVM"), the Portuguese
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<PAGE> 144
central securities depositary, the creation of the Sistema de Liquidcao de
Ambito Nacional (the "National Clearing and Settlement System"). Both
organizations are owned and managed by Interbolsa, a non-profit organization
owned by the Stock Exchange Associations of Lisbon and Oporto. The CVM provides
a system for the registration and control of securities, including custody of
certificates of securities and registration of book-entry securities.
The National Clearing and Settlement System is currently the most
commonly used clearing and settlement system in Portugal. Under this system, the
broker inputs trade information on Tradis, the nationwide computerized trading
system. The custodian bank accepts the trade, at the latest, one day after the
date of the trade, becoming the legal party to the transaction until it settles.
At the end of the third day after the trade, the electronic book-entry for the
transfer of the securities takes place in the books of the Bank of Portugal (the
"Central Bank"). This physical settlement is provisional until financial
settlement takes place on the morning of the fourth day after the trade. The net
amount due to or from each participant's account with the Central Bank is posted
to the closing balance of the previous day. Under Portuguese law, physical and
financial settlement of a trade of a security must take place before any further
transaction with respect to such security may be effected. Accordingly, short
selling is not permitted.
Listing of Equity Securities. In order to be eligible for listing on
the Lisbon Stock Exchange --Market with Official Quotations, companies are
required to meet certain requirements.
General Requirements:
- the company must comply with all the rules and regulations to
which it is subject, including its own memorandum and articles
of incorporation;
- the company's annual accounts for the three years preceding
the listing must have been published;
- the company must have at least two years of activity;
- the securities must be freely transferable, and
- the listing must include all the securities of the same kind.
Specific requirements for shares.
- the expected market capitalization must be at least Escudos
500 million;
- 25% of the shares must be held by the public; and
- the company must have an adequate financial and economic
position.
PORTUGUESE EXCHANGE RATES, EXCHANGE CONTROL AND OTHER POLICIES AFFECTING
SECURITY HOLDERS
Official buying and selling rates for major trading and certain other
specified currencies are fixed daily by the Bank of Portugal in consultation
with the banks authorized to conduct foreign exchange business.
Since January 1, 1993, there have been no exchange controls imposed on
the Escudo by the Portuguese Government. In connection with certain currency
transactions, some formal requirements must be fulfilled and specific
information must be supplied, in certain cases, to the Bank of Portugal.
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<PAGE> 145
Foreign investors may freely invest in shares of Portuguese companies
and need no prior verification or authorization with the Portuguese authorities.
In certain cases, information reporting to the supervisory authorities is
required. Some non-European Union regulated entities, such as banks, financial
companies and insurance companies, need prior authorization from the Portuguese
authorities to operate in Portugal.
As Portuguese regulations conform with EU's second Banking Coordination
Directive (86/646) and the Investment Services Directive, N(degree)93/22/CE, any
financial institution incorporated in and authorized to conduct business in
another member state of the EU will be permitted to conduct business in
Portugal.
Monetary and Banking System. Portuguese banking and monetary policy is
administered by the Bank of Portugal, a public law entity that operates as
Portugal's autonomous central bank. Except in its performance of public
functions, the Bank of Portugal's relations with third parties is governed by
private law and its actions are subject to the civil and commercial law codes.
Among other responsibilities, the Bank of Portugal is responsible for
determining and executing monetary policy with the main purpose of attaining
price stability (not being subject to instruction from the Government),
maintaining, administering and managing foreign exchange and precious metal
reserves of Portugal, promoting stability, good performance and operation of the
financial payment system, issuing Portuguese currency, rendering treasury
services to the Portuguese treasury and rendering services related to public
debt to the State.
In addition, the Bank of Portugal exercises, general supervisory
control over all Portuguese credit institutions (including Banks) and financial
companies and may issue regulations concerning financial activities.
A-24
<PAGE> 146
IV. SPAIN AND PORTUGAL AND THE EUROPEAN MONETARY UNION
Both Spain and Portugal signed the Accession Treaty to the European
Economic Community (EEC) in 1985 and became full members on January 1, 1986. EEC
membership has provided a framework to facilitate the implementation of
structural reforms needed to modernize their economies and provide for European
integration. In 1989, the government of Spain took the Peseta into the European
Monetary System (EMS) and in 1992, the government of Portugal took the escudo
into the EMS. Structural reforms and progress in both countries on reducing
inflation and their government deficits have meant that their admission to the
European Monetary Union (EMU) at its start on January 1, 1999 has become
increasingly likely.
On February 25, 1998, the government of Portugal submitted figures to
the European Commission showing that Portugal complies with the criteria for
joining EMU. The government stated that its budget deficit fell to a low of
2.45% of GDP in 1997, down from 5.8% in 1996. It also announced inflation of
1.9% and a public debt of 62% of GDP. At the same time the Spanish government
submitted figures showing that its public deficit was 2.6% of GDP, down from
4.6% in 1996 and 7.3% in 1993. Public debt, although above the objective of 60%
of GDP, had come down from 70.1% to 68.3%. Inflation was reported to have been
just over 2% in 1997, down from 4.3% in 1996.
The following tables show how interest rates in Spain and Portugal have
converged to core EU rates.
NOMINAL SHORT-TERM INTEREST RATES
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Belgium 9.4% 8.2% 5.7% 4.7% 3.2% 3.4%
Germany 9.5% 7.2% 5.3% 4.5% 3.3% 3.3%
France 10.4% 8.6% 5.9% 6.6% 3.9% 3.5%
Netherlands 9.4% 6.9% 5.2% 4.4% 3.0% 3.3%
PORTUGAL 16.2% 13.3% 11.1% 9.8% 7.4% 5.7%
SPAIN 13.3% 11.7% 8.0% 9.4% 7.5% 5.4%
</TABLE>
NOMINAL LONG-TERM INTEREST RATES
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Belgium 8.6% 7.2% 7.8% 7.5% 6.3% 5.6%
Germany 8.0% 6.4% 6.9% 6.8% 6.1% 5.5%
France 8.6% 6.7% 7.3% 7.5% 6.5% 5.7%
Netherlands 7.1% 6.3% 6.9% 6.9% 6.5% 5.8%
PORTUGAL 15.4% 9.5% 10.4% 11.5% 8.6% 6.4%
SPAIN 12.2% 10.1% 10.1% 11.3% 8.2% 5.8%
</TABLE>
European Commission: Annual Economic Report for 1997:290, 292
OECD: Main Economic Indicators, Feb, 1998:43
A-25
<PAGE> 147
The following tables show government deficits and gross debt as a
percent of Gross Domestic Product.
GENERAL GOVERNMENT DEFICIT AS A PERCENT OF GDP
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Belgium -7.2% -7.4% -5.1% -4.1% -3.4% -2.7%
Germany -3.3% -2.8% -2.4% -3.5% -4.0% 3.0%
France -4.1% -5.6% -5.6% -4.8% -4.1% -3.0%
Netherlands -3.9% -3.2% -3.4% -4.0% -2.4% -2.3%
PORTUGAL -3.6% -6.9% -5.8% -5.1% -4.0% -2.9%
SPAIN -3.6% -6.8% -6.3% -6.6% -4.4% -3.0%
</TABLE>
European Commission: 1997 Broad Economic Policy Guidelines:214
GENERAL GOVERNMENT CONSOLIDATED GROSS DEBT AS PERCENT OF GDP
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Belgium 130.6 136.8 134.8 133.5 130.0 126.7
Germany 44.1 48.2 50.4 58.1 60.7 61.8
France 39.6 45.6 48.4 52.8 56.2 57.9
Netherlands 79.6 80.5 77.3 79.6 78.5 76.2
PORTUGAL 60.7 64.3 66.7 66.4 65.6 62.0
SPAIN 48.3 60.5 63.0 65.7 70.1 68.3
</TABLE>
European Commission: 1997 Broad Economic Policy Guidelines:214
On March 25, 1998, the European Commission reported that all 11
candidates, including Spain and Portugal, seeking admission to EMU had met the
Maastricht convergence criteria and the European Monetary Institute concurred,
although it stressed the challenges that lie ahead. It will not, however, be
known definitely whether either Spain or Portugal will join EMU until May 1-3,
1998 when the EU heads of government and Finance Ministers will decide the
actual membership, announce ERM central rates used to fix bilateral conversion
rates under EMU and nominate the head of the European Central Bank (ECB).
Whether or not the two countries join EMU, there are likely to be
periods of uncertainty and confusion. There would be disappointment if they do
not join, and recognition of potential risks if they do. The loss of an
independent monetary policy under EMU may complicate government policy if
economic trends in all of the countries are not synchronized. Spain and
Portugal, countries that have had periods of high inflation, may be particularly
vulnerable.
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<PAGE> 148
PART B
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
SUBJECT TO COMPLETION DATED MAY 1, 1998
SCUDDER SPAIN AND PORTUGAL FUND, INC.
Statement of Additional Information
___ __, 1998
<TABLE>
<CAPTION>
<S> <C>
Merger of The Growth Fund of Spain, Inc., With and into Scudder Spain and Portugal Fund,
222 South Riverside Plaza Inc., 345 Park Avenue
Chicago, Illinois 60606 New York, New York 10154
</TABLE>
This Statement of Additional Information is available to the stockholders of The
Growth Fund of Spain, Inc. (the "Growth Fund of Spain") in connection with a
proposed transaction whereby The Growth Fund of Spain will be merged with and
into the Scudder Spain and Portugal Fund, Inc. (the "Spain and Portugal Fund")
in accordance with the General Corporation Law of the State of Maryland.
This Statement of Additional Information of the Spain and Portugal Fund consists
of this cover page, the information contained herein, and the following
documents, each of which has been filed electronically and is incorporated by
reference herein:
(1) Annual Report for the Spain and Portugal Fund for the fiscal year ended
September 30, 1997, including audited financial statements, notes to
the audited financial statements, and report of the independent
auditors.
(2) Annual Report for the Growth Fund of Spain for the fiscal year ended
November 30, 1997, including audited financial statements, notes to
the audited financial statements, and report of the independent
auditors.
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement dated _________ __, 1998 relating to the Merger may be obtained by
writing to either Fund c/o Scudder Kemper Investments, Inc., 345 Park Avenue,
New York, NY 10154 or by calling Scudder Investor Services at (800) 854-8525.
This Statement of Additional Information should be read in conjunction with the
Prospectus/Proxy Statement.
1
<PAGE> 149
TABLE OF CONTENTS
TAX CONSIDERATIONS ..............................................
FINANCIAL STATEMENTS ............................................
2
<PAGE> 150
TAX CONSIDERATIONS
Set forth below is a discussion of certain U.S. federal income tax
issues concerning each Fund and the purchase, ownership, and disposition of each
Fund's shares. This discussion does not purport to be complete or to deal with
all aspects of federal income taxation that may be relevant to stockholders in
light of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
Tax Status of the Fund. Each Fund intends to be taxed as a regulated
investment company under Subchapter M of the Code. Accordingly, each Fund must,
among other things, (a) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to certain securities
loans, and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities or currencies; and (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
value of each Fund's total assets is represented by cash and cash items, U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of each Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies).
As a regulated investment company, each Fund generally is not subject
to U.S. federal income tax on income and gains that it distributes to
stockholders, if at least 90% of each Fund's investment company taxable income
(which includes, among other items, dividends, interest and the excess of any
net short-term capital gains over net long-term capital losses) for the taxable
year is distributed. Each Fund intends to distribute substantially all of such
income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, each Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, each Fund intends to make distributions in accordance with the
calendar year distribution requirement.
A distribution will be treated as paid on December 31 of a calendar
year if it is declared by the applicable Fund in October, November or December
of that year with a record date in such a month and paid by the applicable Fund
during January of the following year. Such distributions will be taxable to
stockholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
Market Discount. If a Fund purchases a debt security at a price lower
than the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
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<PAGE> 151
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
Original Issue Discount. Certain debt securities acquired by a Fund may
be treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by a Fund, original issue discount that accrues on a debt security in a
given year generally is treated for federal income tax purposes as interest and,
therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by a Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
Options, Futures and Forward Contracts. Any regulated futures contracts
and certain options (namely, nonequity options and dealer equity options) in
which a Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by a Fund at the end
of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by a
Fund may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by such Fund, and
losses realized by such Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that such Fund may make with respect
to its straddle positions may also affect the amount, character and timing of
the recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to the Fund are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
stockholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to stockholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Constructive Sales. Recently enacted rules may affect the timing and
character of gain if a Fund engages in transactions that reduce or eliminate its
risk of loss with respect to appreciated financial positions. If a Fund enters
into certain transactions in property while holding substantially identical
4
<PAGE> 152
property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code.
Currency Fluctuations - Section 988 Gains or Losses. Gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Fund accrues income or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of some investments,
including debt securities and certain forward contracts denominated in a foreign
currency, gains or losses attributable to fluctuations in the value of the
foreign currency between the acquisition and disposition of the position also
are treated as ordinary gain or loss. These gains and losses, referred to under
the Code as "section 988" gains or losses, increase or decrease the amount of
such Fund's investment company taxable income available to be distributed to its
stockholders as ordinary income. If section 988 losses exceed other investment
company taxable income during a taxable year, the Fund would not be able to make
any ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as a return of capital to stockholders,
rather than as an ordinary dividend, reducing each stockholder's basis in his or
her Fund shares.
Passive Foreign Investment Companies. Each Fund may invest in shares of
foreign corporations that may be classified under the Code as passive foreign
investment companies ("PFICs"). In general, a foreign corporation is classified
as a PFIC if at least one-half of its assets constitute investment-type assets,
or 75% or more of its gross income is investment-type income. If a Fund receives
a so-called "excess distribution" with respect to PFIC stock, the Fund itself
may be subject to a tax on a portion of the excess distribution, whether or not
the corresponding income is distributed by the Fund to stockholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Fund held the PFIC shares. The Fund
will itself be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, the Fund would be required to include in its gross income its
share of the earnings of a PFIC on a current basis, regardless of whether
distributions were received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election would involve
marking to market the Fund's PFIC shares at the end of each taxable year, with
the result that unrealized gains would be treated as though they were realized
and reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of Fund shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
Distributions. Distributions of investment company taxable income are
taxable to a U.S. stockholder as ordinary income, whether paid in cash or
shares. Dividends paid by the Fund to a corporate stockholder, to the extent
such dividends are attributable to dividends received by a Fund from U.S.
corporations, may, subject to limitation, be eligible for the dividends received
deduction. However, the alternative minimum tax applicable to corporations may
reduce the value of the dividends received deduction.
5
<PAGE> 153
The excess of net long-term capital gains over the short-term capital
losses realized and distributed by the Fund, whether paid in cash or reinvested
in Fund shares, will generally be taxable to stockholders as either "20% Rate
Gain" or "28% Rate Gain," depending upon the applicable Fund's holding period
for the assets sold. "20% Rate Gains" arise from sales of assets held by the
Fund for more than 18 months and are subject to a maximum tax rate of 20%; "28%
Rate Gains" arise from sales of assets held by the Fund for more than one year
but no more than 18 months and are subject to a maximum tax rate of 28%. Net
capital gains from assets held for one year or less will be taxed as ordinary
income. Distributions will be subject to these capital gains rates regardless of
how long a stockholder has held Fund shares.
Stockholders will be notified annually as to the U.S. federal tax
status of distributions, and stockholders receiving distributions in the form of
newly issued shares will receive a report as to the net asset value of the
shares received.
If the net asset value of shares is reduced below a stockholder's cost
as a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the stockholder.
If a Fund retains its net capital gains in any taxable year, the Fund
may elect to treat such amounts as having been distributed to stockholders. As a
result, stockholders would be subject to tax on undistributed capital gain,
would be able to claim their proportionate share of the federal income taxes
paid by the Fund on such gain as a credit against their own federal income tax
liabilities, and would be entitled to an increase in the basis of their Fund
shares.
Dispositions of Fund Shares. Upon a redemption, sale or exchange of
shares of a Fund, a stockholder will realize a taxable gain or loss depending
upon his or her basis in the shares. A gain or loss will be treated as capital
gain or loss if the shares are capital assets in the stockholder's hands, and
the rate of tax will depend upon the stockholder's holding period for the
shares. Any loss realized on a redemption, sale or exchange will be disallowed
to the extent the shares disposed of are replaced (including through
reinvestment of dividends) within a period of 61 days, beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case the basis of
the shares acquired will be adjusted to reflect the disallowed loss. If a
stockholder holds Fund shares for six months or less and during that period
receives a distribution taxable to the stockholder as long-term capital gain,
any loss realized on the sale of such shares during such six-month period would
be a long-term capital loss to the extent of such distribution.
If, within 90 days after purchasing Fund shares with a sales charge, a
stockholder exchanges the shares and acquires new shares at a reduced (or
without any) sales charge pursuant to a right acquired with the original shares,
then the stockholder may not take the original sales charge into account in
determining the stockholder's gain or loss on the disposition of the shares.
Gain or loss will generally be determined by excluding all or a portion of the
sales charge from the stockholder's tax basis in the exchanged shares, and the
amount excluded will be treated as an amount paid for the new shares.
Backup Withholding. Each Fund generally will be required to withhold
federal income tax at a rate of 31% ("backup withholding") from dividends paid,
capital gain distributions, and redemption proceeds to stockholders if (1) the
stockholder fails to furnish the applicable Fund with the stockholder's correct
taxpayer identification number or social security number, (2) the IRS notifies
the stockholder or the Fund that the stockholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the stockholder fails to certify
that he or
6
<PAGE> 154
she is not subject to backup withholding. Any amounts withheld may be credited
against the stockholder's federal income tax liability.
Other Tax Issues. Distributions may be subject to additional state,
local and foreign taxes, depending on each stockholder's particular situation.
Non-U.S. stockholders may be subject to U.S. tax rules that differ significantly
from those summarized above, including the likelihood that ordinary income
dividends to them would be subject to withholding of U.S. tax at a rate of 30%
(or a lower treaty rate, if applicable).
Portfolio debt securities with remaining maturities greater than sixty
days are valued by pricing agents approved by the officers of the Fund, which
quotations reflect broker-dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost. All other securities are valued
at their fair value as determined in good faith by the Valuation Committee of
the Board of Directors.
FINANCIAL STATEMENTS
The Spain and Portugal Fund's Annual Report for the fiscal year ended
September 30, 1997 and the Growth Fund of Spain's Annual Report for the fiscal
year ended November 30, 1997, each including audited financial statements, notes
to the financial statements and report of the independent auditors, are
incorporated by reference herein. The Funds will furnish a copy of the Annual
Reports without charge by calling 800-349-4281 from within the United States or
01-617-295-3079 from outside the United States.
PRO FORMA FINANCIAL STATEMENTS
The following tables set forth the unaudited pro forma condensed
balance sheet and unaudited pro forma condensed income statement of the Funds as
of and for the period ending March 31, 1998 and as adjusted to give effect to
the Merger.
7
<PAGE> 155
PRO FORMA FINANCIAL INFORMATION
PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING
ACQUIRING ACQUIRED FUND
FUND FUND PRO FORMA (AS
(ACTUAL) (ACTUAL) ADJUSTMENTS ADJUSTED)
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Investments, at value...................... $127,034,603 $385,811,911 $512,846,514
Cash and foreign currency, at value........ 1,753,513 3,116,172 4,869,685
Other assets less liabilities.............. (42,987) 247,956 (21,903,196)(1) (21,698,227)
Net assets................................. $128,745,129 $389,176,039 (21,903,196)(1) $496,017,972
Shares Outstanding......................... 6,511,154 16,530,293 4,717,261 (2) 27,758,708
Net asset value per share:................. $19.77 $23.54 $17.87
</TABLE>
- ----------
(1) See note (1) to Pro Forma Capitalization table contained in the Fund's Joint
Proxy Statement-Prospectus as to time of the Merger. Assumes distributions
of ordinary income and capital gains, and accrual of estimated Merger
related expenses of $1,000,000.
(2) See note (3) to Pro Forma Capitalization table contained in the Fund's Joint
Proxy Statement-Prospectus. Based on the issuance of 21,247,554 additional
Acquiring Fund Shares and the cancellation of 16,530,293 Acquired Fund
Shares.
<PAGE> 156
PRO FORMA CONDENSED INCOME STATEMENT
FOR THE 12 MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA ACQUIRING
FUND FUND ADJUSTMENTS FUND
(ACTUAL) (ACTUAL) (2) (AS ADJUSTED)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Investment Income:
Dividend income.............................. $2,045,740 $ 6,385,118 $ -- $ 8,430,858
Interest income.............................. 39,431 481,468 -- 520,899
---------- ---------- -------- -----------
Total Investment Income............. 2,085,171 6,866,586 -- 8,951,757
Expenses
Management and Administrative fees....... 1,264,645 3,074,697 (214,852) 4,124,490
All other expenses....................... 578,805 717,241 (465,148) 830,898
---------- ---------- -------- -----------
Total expenses...................... 1,843,450 3,791,938 (680,000) 4,955,388
---------- ---------- -------- -----------
Net investment income (loss).................. 241,721 3,074,648 680,000 3,996,369
---------- ---------- -------- -----------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from investments
and foreign currency related transactions.. 21,754,432 24,229,610 -- 45,984,042
Net unrealized appreciation (depreciation)
of investments and foreign currency
related transactions...................... 32,694,762 132,297,051 -- 164,991,813
---------- ----------- -------- ------------
Net increase in net assets from operations..... $54,690,915 $159,601,309 $ 680,000 $214,972,224
========== =========== ======== ============
</TABLE>
- ----------
(1) The Acquiring Fund commenced operations on April 20, 1988. The Acquired Fund
commenced operations on February 14, 1990.
(2) Represents estimated reduction in operating expenses, including management
and adminstrative fees, directors' fees, stockholder services, audit, legal,
custodian, stock exchange and report printing.
<PAGE> 157
SCUDDER SPAIN AND PORTUGAL FUND AND THE GROWTH FUND OF SPAIN
COMBINING INVESTMENT PORTFOLIOS
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
SCUDDER
SPAIN AND THE GROWTH
PORTUGAL FUND OF
FUND SPAIN COMBINED
SHARES SHARES SHARES
<S> <C> <C> <C>
MONEY MARKET INSTRUMENT - 0.8%
ESP 656,542,562 ESP 656,542,562
COMMON STOCKS 99.2%
PORTUGAL 10.4%
CONSUMER DISCRETIONARY 0.5%
26,445 26,445
47,000 47,000
CONSUMER STAPLES 1.1%
126,250 126,250
6,950 6,950
COMMUNICATIONS 1.6%
158,300 158,300
FINANCIAL 4.0%
146,300 146,300
146,300 146,300
66,630 66,630
113,200 113,200
81,330 81,330
84,000 84,000
48,000 48,000
52,500 52,500
MEDIA 0.0%
20,000 20,000
CONSTRUCTION 1.7%
70,500 70,500
91,060 91,060
76,200 76,200
177,620 177,620
32,500 32,500
TRANSPORTATION 0.5%
53,000 53,000
UTILITIES 1.0%
207,290 207,290
10,000 10,000
SPAIN 88.8%
CONSUMER DISCRETIONARY 2.5%
60,849 60,849
</TABLE>
<TABLE>
<CAPTION>
SCUDDER
SPAIN AND THE GROWTH
PORTUGAL FUND OF COMBINED
FUND SPAIN MARKET
MARKET VALUE($) MARKET VALUE($) VALUE($)
<S> <C> <C> <C>
Banco Exterior Internacional, 5.27%, 4/98 4,181,400 4,181,400
-------------------------------------------
0 4,181,400 4,181,400
-------------------------------------------
Modelo Continente-SGPS,S.A. 2,066,439 2,066,439
Lusotur-Sociedade Financeira de Turismo 725,292 725,292
-------------------------------------------
2,791,731 0 2,791,731
-------------------------------------------
Jeronimo Martins SA 5,194,019 5,194,019
Jeronimo Martins SA Warrants(expire 9/15/03) 337,682 337,682
-------------------------------------------
5,531,701 0 5,531,701
-------------------------------------------
Portugal Telecom SA 8,235,613 8,235,613
-------------------------------------------
8,235,613 0 8,235,613
-------------------------------------------
Banco Comercial Portugues 4,724,713 4,724,713
Banco Comercial Portugues Rights 468,347 468,347
Banco Espirito Santo 3,079,020 3,079,020
Banco Pinto & Sotto Mayor, SA 2,809,823 2,809,823
Banco Portugues do Investimento 3,129,068 3,129,068
Banco Totta e Acores 3,114,233 3,114,233
Espirito Santo Financial Holdings (ADR) 1,257,000 1,257,000
Cia. de Seguros Mundial Confiance, SA 1,698,244 1,698,244
-------------------------------------------
20,280,448 0 20,280,448
-------------------------------------------
TVI Televisao Independente 25,350 25,350
-------------------------------------------
25,350 0 25,350
-------------------------------------------
Cimentos de Portugal SA 2,484,906 2,484,906
Corticeira Amorim SPGS 1,394,634 1,394,634
Semapa Cement SA 2,333,688 2,333,688
Engil-SGPS 2,062,775 2,062,775
Mota e Companhia, SA 660,813 660,813
-------------------------------------------
8,936,816 0 8,936,816
-------------------------------------------
Brisa-Auto Estradas de Portugal SA 2,421,178 2,421,178
-------------------------------------------
2,421,178 0 2,421,178
-------------------------------------------
Electricidade de Portugal 4,811,405 4,811,405
Electricidade de Portugal (ADR) 467,500 467,500
-------------------------------------------
5,278,905 0 5,278,905
-------------------------------------------
Adolfo Dominguez SA 2,066,819 2,066,819
</TABLE>
<PAGE> 158
<TABLE>
<CAPTION>
SCUDDER
SPAIN AND THE GROWTH
PORTUGAL FUND OF
FUND SPAIN COMBINED
SHARES SHARES SHARES
<S> <C> <C> <C>
27,500 50,000 77,500
76,450 76,450
51,600 51,600
120 120
35,000 35,000
CONSUMER STAPLES 3.5%
67,000 15,000 82,000
590,000 590,000
16,300 16,300
60,000 60,000
COMMUNICATIONS 10.6%
525,000 525,000
190,900 850,000 1,040,900
FINANCIAL 29.6%
70,800 70,800
205,000 205,000
147,300 985,000 1,132,300
145,040 375,000 520,040
145,040 375,000 520,040
22,238 22,238
20,000 20,000
49,900 207,751 257,651
138,300 138,300
220,000 220,000
SERVICE INDUSTRIES 1.2%
57,708 402,415 460,123
ENERGY 4.4%
89,030 350,000 439,030
METALS & MINERALS 6.2%
13,600 65,000 78,600
42,329 42,329
20,000 20,000
273,355 273,355
UTILITIES 20.5%
122,443 122,443
1,075,000 1,075,000
51,944 51,944
306,190 1,000,000 1,306,190
319,184 319,184
37,370 220,000 257,370
</TABLE>
<TABLE>
<CAPTION>
SCUDDER
SPAIN AND THE GROWTH
PORTUGAL FUND OF COMBINED
FUND SPAIN MARKET
MARKET VALUE($) MARKET VALUE($) VALUE($)
<S> <C> <C> <C>
Aldeasa SA 974,382 1,770,531 2,744,913
Centros Comerciales Continente SA 1,807,478 1,807,478
Cortefiel SA 1,241,333 1,241,333
Sonae Imobiliaria SA 1,762 1,762
Tele Pizza SA 5,152,307 5,152,307
--------------------------------------------
11,244,081 1,770,531 13,014,612
--------------------------------------------
Baron de Ley SA 1,671,584 372,576 2,044,160
Centros Commerciales Pryca 10,897,048 10,897,048
Tabacalera SA 1,830,270 1,830,270
Vidrala, S.A. 2,942,394 2,942,394
--------------------------------------------
3,501,854 14,212,018 17,713,872
--------------------------------------------
Autopistas Concesionaria (ACESA) 8,693,437 8,693,437
Compania Telefonica Nacional de Espana SA 8,418,481 37,461,389 45,879,870
--------------------------------------------
8,418,481 46,154,826 54,573,307
--------------------------------------------
Alba 9,581,887 9,581,887
Argentaria 16,972,901 16,972,901
Banco Bilbao Vizcaya 6,918,181 46,234,118 53,152,299
Banco Central Espanol 4,649,192 12,013,183 16,662,375
Banco Central Espanol Rights 114,612 296,150 410,762
Banco de Andalucia 5,183,650 5,183,650
Banco Pastor, S.A. 2,406,140 2,406,140
Banco Popular Espanol 4,846,266 20,045,395 24,891,661
Banco Santander SA 6,892,085 6,892,085
Bankinter 15,552,654 15,552,654
--------------------------------------------
23,420,336 128,286,078 151,706,414
--------------------------------------------
Prosegur Cia de Seguridad SA 742,864 5,177,074 5,919,938
--------------------------------------------
742,864 5,177,074 5,919,938
--------------------------------------------
Repsol SA 4,544,547 17,854,982 22,399,529
--------------------------------------------
4,544,547 17,854,982 22,399,529
--------------------------------------------
Acerinox SA 2,236,044 10,668,089 12,904,133
Azkoyen 6,146,554 6,146,554
Azkoyen Nuevas 2,904,181 2,904,181
Zardoya Otis 9,871,177 9,871,177
--------------------------------------------
2,236,044 29,590,001 31,826,045
--------------------------------------------
Cantabrico 5,988,996 5,988,996
Compania Sevillana de Electricidad 12,665,987 12,665,987
Electricas Reunidas de Zaragoza 2,348,835 2,348,835
Empresa Nacional de Electricidad SA 7,365,965 24,042,289 31,408,254
Fuerzas Electricas de Cataluna 3,313,505 3,313,505
Gas Natural SDG, SA 2,333,839 13,591,058 15,924,897
</TABLE>
<PAGE> 159
<TABLE>
<CAPTION>
SCUDDER
SPAIN AND THE GROWTH
PORTUGAL FUND OF
FUND SPAIN COMBINED
SHARES SHARES SHARES
<S> <C> <C> <C>
57,000 57,000
45,000 1,200,000 1,245,000
134,500 625,000 759,500
CONSTRUCTION 10.3%
21,500 21,500
53,600 376,132 429,732
27,650 27,650
47,500 47,500
69,197 69,197
445,709 445,709
</TABLE>
<TABLE>
<CAPTION>
SCUDDER
SPAIN AND THE GROWTH
PORTUGAL FUND OF COMBINED
FUND SPAIN MARKET
MARKET VALUE($) MARKET VALUE($) VALUE($)
<S> <C> <C> <C>
Gas y Electricidad (GESA) 4,610,388 4,610,388
Iberdrola SA 683,947 18,227,558 18,911,505
Union Electrica Fenosa SA 1,778,534 8,259,561 10,038,095
-------------------------------------------
12,162,285 93,048,177 105,210,462
-------------------------------------------
Abengoa SA 1,918,175 1,918,175
Fomento de Construcciones y Contratas 2,835,075 19,882,786 22,717,861
Grupo Acciona 5,564,691 5,564,691
Inmobiliaria Metropolitana Vasco Central 2,858,803 2,858,803
OCP Construcciones SA 2,509,119 2,509,119
Vallehermoso 17,230,544 17,230,544
-------------------------------------------
7,262,369 45,536,824 52,799,193
-------------------------------------------
TOTAL PORTFOLIO - 100.0% 127,034,603 385,811,911 512,846,514
-------------------------------------------
</TABLE>
<PAGE> 160
PART C
OTHER INFORMATION
Item 15. Indemnification
A policy of insurance covering Scudder Kemper Investments, Inc., its
affiliates, and all of the registered investment companies advised by
Scudder Kemper Investments, Inc. insures the Registrant's directors and
officers and others against liability arising by reason of an alleged
breach of duty caused by any negligent act, error or accidental
omission in the scope of their duties.
Article Eleventh of the Registrant's Articles of Incorporation states
as follows:
ELEVENTH: Indemnification of Directors and Officers
A director or officer of the Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director of officer, except to the extent such
exemption for liability or limitation thereof is not permitted by law
(including the Investment Company Act of 1940) as currently in effect
or as the same may hereafter be amended.
No amendment, modification or repeal of this Article Eleventh
shall adversely affect any right or protection of a director or officer
that exists at the time of such amendment, modification or repeal at
the time of such amendment, modification or repeal.
Article IX of Registrant's By-Laws states as follows:
INDEMNIFICATION AND INSURANCE
Section 1. Indemnification of Officer, Directors, Employees
and Agents.
The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"). by reason of the fact
that he is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgment, fines and amounts paid
in settlement actually and reasonably incurred by him in connection
with such Proceeding to the maximum extent permitted by the laws of the
State of Maryland. Notwithstanding the foregoing, the following
provisions shall apply with respect to indemnification of the
Corporation's Directors, officers, and, except as may otherwise be
provided by an agreement, investment adviser (as defined in the
Investment Company Act of 1940, as amended) and principal underwriter:
I. Whether or not there is an adjudication of liability
in such Proceeding, the Corporation shall not
indemnify any such person for any liability arising
by reason of such person's willful misfeasance, bad
faith,
8
<PAGE> 161
gross negligence or reckless disregard of the duties
involved in the conduct of his office or under any
contract or agreement with the Corporation
("disabling conduct").
II. The Corporation shall not indemnify any such person
unless:
A. the court or other body before which the
Proceeding was brought (i) dismisses the proceeding
for insufficiency of evidence of any disabling
conduct, or (ii) reaches a final decision on the
merits that such person was not liable by reason of
disabling conduct; or
B. absent such a decision, a reasonable determination
is made, based upon a review of the facts, by (i) the
vote of a majority of a quorum of the Directors of
the Corporation who are neither interested persons of
the Corporation as defined in the Investment Company
Act of 1940, as amended, nor parties to the
proceeding, or (ii) if such quorum is not obtainable,
or even if obtainable, if a majority of a quorum of
Directors described in paragraph (b)(2)(i) above, so
directs, by independent legal counsel in a written
opinion, that such person was not liable by reason of
disabling conduct.
III. Expenses (including attorneys' fees) incurred in
defending a Proceeding involving any such person will
be paid by the Corporation in advance of the final
disposition thereof upon an undertaking by such
person to repay such expenses (unless it is
ultimately determined that he is entitled to
indemnification), if:
A. such person shall provide adequate security for
his undertaking;
B. the Corporation shall be insured against losses
arising by reason of such advance; or
C. a majority of a quorum of the Directors of the
Corporation who are neither interested persons of the
Corporation as defined in the Investment Company Act
of 1940, as amended, nor parties to the Proceeding,
or independent legal counsel in a written opinion,
shall determine, based on a review of readily
available facts, that there is reason to believe that
such person will be found entitled to
indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Act") may be permitted to directors, officers and controlling
persons of the Registrant by the Registrant pursuant to the Fund's Articles of
Incorporation, its By-Laws or otherwise, the Registrant is aware that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and, therefore, is unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by directors,
officers or controlling persons of the Registrant in connection with the
successful defense of any act, suit or proceeding) is asserted by such
directors, officers or controlling persons in connection with shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent,
9
<PAGE> 162
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issues.
Item 16. Exhibits
1. Articles of Incorporation of the Registrant, dated
August 25, 1997, as amended November 28, 1989 and
July 23, 1997. Filed herewith.
2. By-laws of the Registrant dated November 10, 1988,
as amended, January 12, 1995, October 30, 1996 and
September 26, 1997. Filed herewith.
3. Not Applicable.
4. Form of Merger Agreement and Plan of Reorganization.
Filed herewith.
5. Not Applicable.
6. Investment Advisory, Management and Administration
Agreement between the Registrant and Scudder Kemper
Investments, Inc., dated December 31, 1997. Filed
herewith.
7. Not Applicable.
8. Not Applicable.
9.(a)(1) Custodian Agreement between the Registrant and
Brown Brothers Harriman & Co., dated March 14, 1996,
as amended. Filed herewith.
(a)(2) Amendment to the Custodian Agreement dated September
29, 1997. Filed herewith.
(a)(3) Fee schedule for Exhibit 9(a)(1). Filed herewith.
(b)(1) Master Subcustodian Agreement between Brown Brothers
Harriman & Co. and Banco Esprito Santa y Comercial,
Lisbon, Portugal, dated April 26, 1989. Filed
herewith.
(b)(2) Amendment to the Master Subcustodian agreement dated
February 23, 1994. Filed herewith.
(c)(1) Foreign Custody Agreement between Brown Brothers
Harriman & Co. and Banco Santander, Madrid, Spain,
dated December 14, 1988. Filed herewith.
10. Not Applicable
11. (a) Opinion and Consent of Dechert Price & Rhoads. To be
filed by pre-effective amendment to this Registration
Statement.
10
<PAGE> 163
(b) Consent of Vedder, Price, Kaufman & Kammholz. To be
filed by pre-effective amendment to this Registration
Statement.
(c) Opinion and consent of Venable, Baetjer and Howard,
LLP. To be filed by pre-effective amendment to this
Registration Statement.
(d) Opinion and consent of Ballard Spahr Andrews &
Ingersoll, LLP. To be filed by pre-effective
amendment to this Registration Statement.
(e) Consent of Ropes & Gray. To be filed by pre-effective
amendment to this Registration Statement.
12. (a) Opinion and Consent of Dechert Price & Rhoads
with respect to tax matters. To be filed by
pre-effective amendment to this Registration
Statement.
(b) Opinion and Consent of Vedder, Price, Kaufman &
Kammholz, P.C. with respect to tax matters. To be
filed by pre-effective amendment to this Registration
Statement.
13. (a)(1) Registrar, Transfer Agency and Service
Agreement between the Registrant and State Street
Bank and Trust Company, dated April 12, 1988. Filed
herewith.
(a)(2) Fee schedule for Registrar, Transfer Agency, and
Service Agreement. Filed herewith.
(b) Fund Accounting Services Agreement between the
Registrant and Scudder Fund Accounting Corporation
dated December 21, 1995. Filed herewith.
(c) Shareholder Servicing Agreement between the
Registrant and Scudder Services Corporation dated
June 16, 1994. Filed herewith.
14. (a) Consent of Ernst & Young LLP. Filed herewith.
(b) Consent of Price Waterhouse LLP. Filed herewith.
(c) Consent of nominees for Board of Directors of the
Registrant. Filed herewith.
15. Not Applicable
16. Powers of Attorney. Filed herewith.
17. (a) Form of proxy card for the Registrant.
Filed herewith.
(b) Form of proxy card for Growth Fund of Spain.
Filed herewith.
Item 17. Undertakings
(1) The Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus
which is a part of this registration statement by any person
or party who is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act [17 CFR 230.145c], the
reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
11
<PAGE> 164
(2) The Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide
offering of them.
12
<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the day
of April 29, 1998.
Scudder Spain and Portugal Fund, Inc.
By: *
_______________________________________
Nicholas Bratt, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chairman of the Board and Director
Daniel Pierce April 29, 1998
* Director
Wilson Nolen April 29, 1998
* Director
Richard M. Hunt April 29, 1998
* Director
Rogerio C.S. Martins April 29, 1998
* Director
Jose Pedro Perez Llorca April 29, 1998
* President (Principal Executive Officer)
Nicholas Bratt April 29, 1998
* Vice President, Treasurer and
Thomas F. McDonough Secretary (Principal Financial Officer) April 29, 1998
</TABLE>
*By: /s/ Thomas F. McDonough April 29, 1998
---------------------------------
Thomas F. McDonough**
**Attorney-in-fact pursuant to powers of attorney contained herein.
13
<PAGE> 166
EXHIBIT LIST
Exhibits included in the Registration Statement of the Scudder Spain and
Portugal Fund, Inc. on Form N-14 is filed with the Securities and Exchange
Commission on May 1, 1998.
<PAGE> 167
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
1 Articles of Incorporation of the Registrant, dated
August 25, 1997, amended November 28, 1989 and
July 23, 1997.
2 By-laws of the Registrant dated November 10, 1988, as
amended, January 12, 1995, October 30, 1996 and
September 26, 1997.
4 Form of Merger Agreement and Plan of Reorganization.
6 Investment Advisory, Management and Administration
Agreement between the Registrant and Scudder Kemper
Investments, Inc., dated December 31, 1997.
9(a)(1) Custodian Agreement between the Registrant and Brown
Brothers Harriman & Co., dated March 14, 1996, as
amended.
9(a)(2) Amendment to the Custodian Agreement dated September
29, 1997.
9(a)(3) Fee schedule for Exhibit 9(a)(1).
9(b)(1) Master Subcustodian Agreement between Brown Brothers
Harriman & Co. and Banco Esprito Santa y Comercial,
Lisbon, Portugal, dated April 26, 1989.
9(b)(2) Amendment to the Master Subcustodian agreement dated
February 23, 1994.
9(c)(1) Foreign Custody Agreement between Brown Brothers
Harriman & Co. and Banco Santander, Madrid, Spain,
dated December 14, 1988.
13(a)(1) Registrar, Transfer Agency and Service Agreement
between the Registrant and State Street Bank and Trust
Company, dated April 12, 1988.
13(a)(2) Fee schedule for Registrar, Transfer Agency, and
Service Agreement.
13(b) Fund Accounting Services Agreement between the
Registrant and Scudder Fund Accounting Corporation
dated December 21, 1995.
13(c) Shareholder Servicing Agreement between the Registrant
and Scudder Services Corporation dated June 16, 1994.
14(a) Consent of Ernst & Young LLP.
14(b) Consent of Price Waterhouse LLP.
14(c) Consent of nominees for Board of Directors.
16 Powers of Attorney.
17(a) Form of proxy card for the Registrant.
17(b) Form of proxy card for Growth Fund of Spain.
</TABLE>
<PAGE> 1
Exhibit 1
ARTICLES OF INCORPORATION
OF
THE FIRST IBERIAN FUND, INC.
FIRST: I, Judith L. Levy, whose post office address is 1730 Pennsylvania
Ave., N.W. Washington, D.C. 20006, being at least 18 years of age, do, under and
by virtue of the General Laws of the State of Maryland authorizing the formation
of corporations, associate myself as incorporator with the intention of forming
a corporation.
SECOND: The name of the corporation is THE FIRST IBERIAN FUND, INC. (the
"Corporation").
THIRD: Corporate Purposes.
(a) The purposes for which the Corporation is formed are to act as a
closed-end, diversified management investment company registered as such with
the Securities and Exchange Commission pursuant to the Investment Company Act of
1940, and to exercise and enjoy all of the powers, rights and privileges granted
to or conferred upon corporations by the General Laws of the State of Maryland
now or hereafter in force, including:
(1) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its fund in cash, and to
purchase, subscribe for or otherwise acquire, hold for investment
or otherwise, to trade and deal in, write, sell, assign,
negotiate, transfer, exchange, lend, pledge or otherwise dispose
of or turn to account or realize upon, securities (which term
<PAGE> 2
"securities" shall for the purposes of these Articles of
Incorporation, without limitation of the generality thereof, be
deemed to include any stocks, shares, bonds, debentures, bills,
notes, mortgages or other obligations or evidences of
indebtedness, and any options, certificates, receipts, warrants,
futures contracts or other instruments representing rights to
receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interest therein or in any
property or assets; and any negotiable or non-negotiable
instruments and money market instruments, including bank
certificates of deposit, finance paper, commercial paper,
bankers' acceptances and all kinds of repurchase or reverse
repurchase agreements) created or issued by any United States or
foreign issuer (which term "issuer" shall, for the purposes of
these Articles of Incorporation, without limiting the generality
thereof, be deemed to include any persons, firms, associations,
partnerships, corporations, trusts, syndicates, combinations,
organizations, governments or subdivisions, agencies or
instrumentalities of any government); and to exercise, as owner
or holder of any securities, all rights, powers and privileges in
respect
-2-
<PAGE> 3
thereof; and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value
of any and all such securities.
(2) To acquire all or any part of the goodwill, rights, property and
business of any person, firm, association or corporation
heretofore or hereafter engaged in any business similar to any
business which the Corporation has the power to conduct, and to
hold, utilize, enjoy and in any manner dispose of the whole or
any part of the rights, property and business so acquired, and to
assume in connection therewith any liabilities of any such
person, firm, association or corporation.
(3) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which
may seem capable of being used for any of the purposes of the
Corporation; and to use, exercise, develop, grant licenses in
respect of, sell and otherwise turn to account, the same.
(4) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such
terms and conditions, for such purposes and for such amount or
kind of consideration (including without limitation
-3-
<PAGE> 4
thereto, securities) now or hereafter permitted by the laws of
the State of Maryland, by the Investment Company Act of 1940 and
by these Articles of Incorporation, as its Board of Directors may
determine.
(5) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of
the stockholders of the Corporation) shares of its capital stock
in any manner and to the extent now or hereafter permitted by the
laws of the State of Maryland, by the Investment Company Act of
1940 and by these Articles of Incorporation.
(6) To conduct and carry on its business, or any part thereof, to
have one or more offices, and to exercise any or all of its
corporate powers and rights, in the State of Maryland and in any
other states, territories, districts and dependencies of the
United States and in any foreign countries, without restriction
or limit as to extent.
(7) To exercise and enjoy, in Maryland and in any other states,
territories, districts and United States dependencies and in
foreign countries, all of the powers, rights and privileges
granted to, or conferred upon, corporations by the General Laws
of the State of Maryland now or hereafter in
-4-
<PAGE> 5
force, and the enumeration of the foregoing powers shall not be
deemed to exclude any powers, rights or privileges so granted or
conferred.
(8) In general to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary,
suitable or proper for the accomplishment of such purposes or for
the attainment of any object or the furtherance of any power
hereinbefore set forth, either alone or in association with
others, to do every other act or thing incidental or appurtenant
to or growing out of or connected with its business or purposes,
objects or powers, and, subject to the foregoing, to have and
exercise all the powers, rights and privileges conferred upon
corporations by the laws of the State of Maryland as in force
from time to time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by
-5-
<PAGE> 6
the laws of the State of Maryland, nor shall the expression of one thing be
deemed to exclude another though it be of like nature, not expressed; provided
however, that the Corporation shall not have power to carry on within the State
of Maryland any business whatsoever the carrying on of which would preclude it
from being classified as an ordinary business corporation under the laws of said
State; nor shall it carry on any business, or exercise any powers, in any other
state, territory, district or country except to the extent that the same may
lawfully be carried on or exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power:
(1) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose (by sale or otherwise) of any
property, real or personal, and any interest therein.
(2) To borrow money and, in this connection, issue notes or other
evidence of indebtedness.
(3) Subject to any applicable provisions of law, to buy, hold, sell
and otherwise deal in and with foreign exchange, including the
purchase and sale of futures contracts.
FOURTH: Address and Resident Agent.
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202-3242.
-6-
<PAGE> 7
The name and address of the resident agent of the Corporation in the State of
Maryland is The Corporation Trust Incorporated, a corporation of the State of
Maryland, whose post office address is 32 South Street, Baltimore, Maryland
21202-3242.
FIFTH:
(1) The total number of shares of stock which the Corporation shall
have authority to issue is TWO HUNDRED MILLION (200,000,000)
shares of Common Shares of the par value of ONE CENT ($0.01) each
and of the aggregate par value of TWO MILLION DOLLARS
($2,000,000). Stockholders shall not have preemptive rights to
acquire any share of the Corporation's stock. Voting power in the
election of directors and for all other purposes shall be vested
exclusively in the holders of common stock.
(2) At all meetings of stockholders, ,each stockholder of the
Corporation shall be entitled to one vote for each share of stock
standing in his name on the books of the Corporation on the date
fixed in accordance with the Bylaws for determination of
stockholders entitled to vote at such meeting. Any fractional
share shall carry proportionately all the rights of a whole
share, including the right to vote and the right to receive
dividends and distributions.
-7-
<PAGE> 8
SIXTH: Board of Directors.
The number of directors of the Corporation shall be not less than
three, and the names of those persons who shall act as directors until the first
annual meeting and until their successors are elected and qualified are Eugene
S. Stark, Michael J. Downey and Deborah A. Docs. Commencing with the first
Annual Meeting of Stockholders and thereafter, whenever there shall first be at
least three directors, the directors shall be divided into three classes, as
nearly equal in number as possible, with respect to the time for which they
shall severally hold office. Directors of Class I first chosen shall hold office
for one year or until the first annual election following their election;
directors of Class II first chosen shall hold office for two years or until the
second annual election following their election; and directors of Class III
first chosen shall hold office for three years or until the third annual
election following their election; and, in each case, until their successors are
duly elected and qualify. At each future annual meeting of the stockholders, the
successors to the Class of directors whose term shall expire at that time shall
be elected to hold office for a term of three years, so that the term of office
for one Class of directors shall expire in each year. Each director elected
shall hold office until his successor shall be elected and shall qualify.
Newly created directorships resulting from any increase in the
authorized number of directors or any vacancies on the
-8-
<PAGE> 9
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office, or other cause shall be filled by a
majority vote of the stockholders or the directors then in office. A director so
chosen by the stockholders shall hold office for the balance of the term then
remaining. A director so chosen by the remaining directors shall hold office
until the next annual meeting of stockholders, at which time the stockholders
shall elect a director to hold office for the balance of the term then
remaining. No decrease in the number of directors constituting the Board of
Directors shall affect the tenure of office of any director.
Any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and then only by the affirmative vote of
the holders of at least 80% of the combined voting power of all classes of
shares of capital stock entitled to vote in the election of directors.
SEVENTH: Management of the Affairs of the Corporation.
(a) All corporate powers and authority of the Corporation (except
as at the time otherwise provided by statute, by these Articles of
Incorporation or by the Bylaws) shall be vested in and exercised by the Board of
Directors.
(b) The Board of Directors shall have the power to adopt, alter or
repeal the Bylaws of the Corporation except to the extent that the Bylaws
otherwise provide.
(c) The Board of Directors shall have power from time to time to
determine whether and to what extent, and at what
-9-
<PAGE> 10
times and places and under what conditions and regulations, the accounts and
books of the Corporation (other than the stock ledger) or any of them shall be
open to the inspection of stockholders; and no stockholder shall have any right
to inspect any account, book or document of the Corporation except to the extent
permitted by statute or the Bylaws.
(d) The Board of Directors shall have the power to determine, as
provided herein, or if provision is not made herein, in accordance with
generally accepted accounting principles, what constitutes net income, total
assets and the net asset value of the shares of Common Stock of the Corporation.
(e) The Board of Directors shall have the power to distribute
dividends from funds legally available therefor in such amounts, if any,
and in such manner and to the stockholders of record as of such date, as the
Board of Directors may determine.
EIGHTH: CHANGE OF STRUCTURE.
Notwithstanding any other provision of these Articles of
Incorporation, the conversion of the Corporation from a "closed-end company" to
an "open-end company," as those terms are defined in Sections 5(a)(2) and
5(a)(1), respectively, of the Investment Company Act of 1940, shall require the
affirmative vote or consent of the holders of sixty-six and two-thirds percent
(66-2/3%) of the outstanding shares of each class of stock of the Corporation
normally entitled to vote in elections of directors voting for the purposes of
this Article as separate
- 10 -
<PAGE> 11
classes. Such affirmative vote or consent shall be in addition to the vote or
consent of the holders of the stock of the Corporation otherwise required by law
or by the terms of any class or series of stock, whether now or hereafter
authorized, or any agreement between the Corporation and any national securities
exchange.
NINTH: CERTAIN TRANSACTIONS.
(1) Notwithstanding any other provision of these Articles of
Incorporation, and subject to the exceptions provided in Paragraph (4) of this
Article, the types of transactions described in Paragraph (3) of this Article
shall require the affirmative vote or consent of the holders of sixty-six and
two-thirds percent (66-2/3%) of the outstanding shares of each class of stock
of the Corporation normally entitled to vote in elections of directors voting
for the purposes of this Article as separate classes, when a Principal
Stockholder (as defined in Paragraph (2) of this Article) is a party to the
transaction. Such affirmative vote or consent shall be in addition to the vote
or consent of the holders of the stock of the Corporation otherwise required by
law or by the terms of any class or series of stock, whether now or hereafter
authorized, or any agreement between the Corporation and any national securities
exchange.
(2) The term "Principal Stockholder" shall mean any corporation,
person or other entity or any group within the meaning of Rule 13d-5 of the
Securities Exchange Act of 1934, which is the beneficial owner, directly or
indirectly, of more
- 11 -
<PAGE> 12
than five percent (5%) of the outstanding shares of any class of stock of the
Corporation and shall include any affiliate or associate, as such terms are
defined in clause (ii) below, of a Principal Stockholder. For the purposes of
this Article, in addition to the shares of stock which a corporation, person or
other entity beneficially owns directly, (a) any corporation, person or other
entity shall be deemed to be beneficial owner of any shares of stock of the
Corporation (i) which it has the right to acquire pursuant to any agreement or
upon exercise of conversion rights or warrants, or otherwise or (ii) which are
beneficially owned, directly or indirectly (including shares deemed owned
through application of clause (i) above), by any other corporation, person or
entity with which it or its "affiliate" or "associate" (as defined below) has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of stock of the Corporation, or which is its
"affiliate" or "associate" as those terms are defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934 and (b)
the outstanding shares of any class of stock of the Corporation shall not
include shares deemed owned through application of Clause (i) above.
(3) This Article shall apply to the following transactions:
(i) The merger or consolidation of the Corporation with or into any
Principal Stockholder.
-12-
<PAGE> 13
(ii) The issuance of any securities of the Corporation to any
Principal Stockholder for cash.
(iii) The sale, lease or exchange of all or any substantial part of
the assets of the Corporation to any Principal Stockholder
(except assets having an aggregate fair market value of less than
$1,000,000, aggregating for the purpose of such computation all
assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
(iv) The sale, lease or exchange to the Corporation in exchange for
securities of the Corporation of any assets of any Principal
Shareholder (except assets having an aggregate fair market value
of less than $1,000,000, aggregating for the purposes of such
computation all assets sold, leased or exchanged in any series of
similar transactions within a twelve-month period).
(4) The provisions of this Article shall not be applicable to any of
the transactions described in Paragraph (3) of this Article if the Board of
Directors authorizes, approves or ratifies the transaction by the affirmative
vote of a majority of directors including a majority of disinterested directors.
-13-
<PAGE> 14
(5) The Board of Directors shall have the power and duty to determine
for the purposes of this Article on the basis of information known to the
Corporation, whether (i) a corporation, person or entity or group within the
meaning of Rule 13d-5 of the Securities Exchange Act of 1934, beneficially owns
more than five percent (5%) of the outstanding shares of any class of stock of
the Corporation, (ii) a corporation, person or entity is an "affiliate" or
"associate" (as defined above) of another and (iii) the assets being acquired or
leased to or by the Corporation, or any subsidiary thereof, constitute a
substantial part of the assets of the Corporation and have an aggregate fair
market value of less than $1,000,000. Any such determination shall be conclusive
and binding for all purposes of this Article.
TENTH: Right to Amend.
(1) Except as provided in Paragraph 2 of this Article, from time to
time any of the provisions of these Articles of Incorporation may be amended,
altered or repealed upon the affirmative vote of the holders of a majority of
the shares of Common Stock.
(2) Notwithstanding any other provision of these Articles of
Incorporation, no amendment to these Articles of Incorporation of the
Corporation shall amend, alter, change or repeal any of the provisions of
Articles SIXTH, EIGHTH, NINTH and TENTH unless the amendment effecting such
amendment, alteration, change or repeal shall receive the affirmative vote or
consent of
- 14 -
<PAGE> 15
sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of each
class of stock of the Corporation normally entitled to vote in elections of
directors, voting for the purposes of this Article as separate classes. Such
affirmative vote or consent shall be in addition to the vote or consent of the
holders of the stock of the Corporation otherwise required by law or by the
terms of any class or series of stock, whether now or hereafter authorized, or
any agreement between the Corporation and any national securities exchange.
IN WITNESS WHEREOF, the undersigned incorporator of The First Iberian
Fund, Inc. who executed the foregoing Articles of Incorporation hereby
acknowledges the same to be her act and further acknowledges that to the best of
her knowledge, information and belief, the matters and facts set forth therein
are true in all material respects under the penalties of perjury.
Dated this 25th day of August, 1987.
/s/ Judith L. Levy
------------------
Judith L. Levy
WITNESS:
/s/ B. Anne Maxfield
- ---------------------------
:
District of Columbia : S.S.
:
-15-
<PAGE> 16
This is to certify on this 25th day of August, 1987, before me, the
subscriber, a Notary Public of the District of Columbia, personally appeared
Judith L. Levy and acknowledged the foregoing Articles of Incorporation to be
her act.
Witness my hand and Notarial Seal the day and year last above written.
/s/ B. Anne Maxfield
--------------------
NOTARY PUBLIC
My Commission Expires August 31, 1990
- 16 -
<PAGE> 17
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
THE FIRST IBERIAN FUND, INC.
THE FIRST IBERIAN FUND, INC., a Maryland corporation having its principal
office in New York, New York (the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation are hereby amended
by inserting the following new Article ELEVENTH:
ELEVENTH: Indemnification of Directors and Officers
A director or officer of the Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director or officer, except to the
extent such exemption from liability or limitation thereof is not
permitted by law (including the Investment Company Act of 1940)
as currently in effect or as the same may hereafter be amended.
No amendment, modification or repeal of this Article
Eleventh shall adversely affect any right or protection of a
director or officer that exists at the time of such amendment,
modification or repeal.
<PAGE> 18
SECOND: The Board of Directors of the Corporation, at a duly convened
meeting, adopted a resolution declaring that said amendment was advisable and
directing that it be submitted for action thereon at the annual meeting of the
stockholders of the Corporation to be held on April 17, 1989.
THIRD: Notice setting forth a summary of the changes to be effected by said
amendment and stating that a purpose of the meeting of the stockholders would be
to take action thereon was given as required by law to all stockholders entitled
to vote thereon. The amendment of the Articles of Incorporation as hereinabove
set forth was approved by the stockholders of the Corporation by the affirmative
vote of a majority of all the votes entitled to be cast thereon at the annual
voting of stockholders.
FOURTH: The amendment to the Articles of Incorporation of the Corporation
as hereinabove set forth has been duly declared to be advisable by the Board of
Directors and approved by the stockholders of the Corporation.
-2-
<PAGE> 19
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
The undersigned, Vice President of THE FIRST IBERIAN FUND, INC., who
executed on behalf of said corporation the foregoing amendment to the Articles
of Incorporation of which this certificate is made a party, hereby acknowledges
in the name and on behalf of said corporation, the foregoing amendment to the
Articles of Incorporation to be the corporate act of said corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
/s/ Robert F. Gunia
------------------
Robert F. Gunia
Sworn to before me on this
28th day of November, 1989
/s/ Anita L. Jennings
-----------------------
Notary Public
ANITA L. JENNINGS
Notary Public, State of New York
No. 022E4815288
Certified in Queens County
Commission Expires May 31, 1990
<PAGE> 20
IN WITNESS WHEREOF, THE FIRST IBERIAN FUND, INC. has caused these presents
to be signed in its name and on its behalf by its Vice President and attested by
its Assistant Secretary on November 27, 1989.
By /s/ Robert F. Gunia
--------------------------
Robert F. Gunia, Vice President
Attest: /s/ Deborah A. Docs
------------------------
Deborah A. Docs
Assistant Secretary
<PAGE> 21
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
THE FIRST IBERIAN FUND, INC.
THE FIRST IBERIAN FUND, INC., a Maryland corporation having its principal
office in New York, New York (the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation are hereby amended
by inserting the following new Article SECOND:
SECOND: The name of the corporation is SCUDDER SPAIN AND
PORTUGAL FUND, INC. (The "Corporation").
SECOND: The Board of Directors of the Corporation, at a duly convened
meeting, adopted a resolution declaring that said amendment was advisable and
directing that it be submitted for action thereon at the annual meeting of the
stockholders of the Corporation to be held on July 23, 1997.
THIRD: Notice setting forth a summary of the changes to be effected by said
amendment and stating that a purpose of the meeting of the stockholders would be
to take action thereon was given as required by law to all stockholders entitled
to vote thereon. The amendment of the Articles of Incorporation as hereinabove
set forth was approved by the stockholders of the Corporation by the affirmative
vote of a majority of all the votes entitled to be cast thereon at the annual
voting of stockholders.
FOURTH: The amendment to the Articles of Incorporation of the Corporation
as hereinabove set forth has been duly declared to be advisable by the Board of
Directors and approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, SCUDDER SPAIN AND PORTUGAL FUND, INC. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Vice President and Secretary on July 23, 1997.
By: /s/ Nicholas Bratt
------------------
Nicholas Bratt
President
Attest: /s/ Thomas F. McDonough
--------------------------
Thomas F. McDonough
Vice President and Secretary
<PAGE> 1
EXHIBIT 2
BY LAWS
OF
THE FIRST IBERIAN FUND, INC.
(A MARYLAND CORPORATION)
as of November 10, 1988
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL.......................... 1
1. Name...................................... 1
2. Principal Offices......................... 1
3. Seal...................................... 1
ARTICLE II. STOCKHOLDERS....................................... 1
1. Place of Meeting.......................... 1
2. Annual Meetings........................... 2
3. Special Meetings.......................... 2
4. Notice of Meetings........................ 3
5. Quorum and Adjournment of Meetings........ 4
6. Voting and Inspectors..................... 4
7. Stockholders Entitled to Vote............. 5
8. Validity of Proxies and Ballots........... 6
9. Conduct of Stockholders' Meetings......... 7
10. Action Without Meeting.................... 7
11. Notices Requiring Election of Directors... 8
12. Distribution of Financial Statements...... 8
ARTICLE III. BOARD OF DIRECTORS................................. 8
1. Powers.................................... 8
2. Number of Directors....................... 9
3. Election and Tenure of Directors.......... 9
4. Vacancies and Newly Created Directorships 9
5. Removal................................... 10
6. Place of Meeting.......................... 11
7. Annual and Regular Meetings............... 11
8. Special Meetings.......................... 12
9. Waiver of Notice.......................... 12
10. Quorum and Voting......................... 12
11. Action Without a Meeting.................. 13
12. Compensation of Directors................. 13
13. Voting on Contracts....................... 13
ARTICLE IV. COMMITTEES.......................................... 14
1. Organization.............................. 14
2. Proceedings and Quorum.................... 14
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V. OFFICERS........................................... 15
1. General................................... 15
2. Election, Tenure and Qualifications....... 15
3. Removal and Resignation................... 16
4. President................................. 16
5. Vice President............................ 17
6. Treasurer and Assistant Treasurers........ 17
7. Secretary and Assistant Secretaries....... 18
8. Subordinate Officers...................... 18
9. Remuneration.............................. 19
10. Surety Bonds.............................. 19
ARTICLE VI. CAPITAL STOCK...................................... 20
1. Certificates of Stock..................... 20
2. Transfer of Shares........................ 20
3. Registered Holder......................... 21
4. Stock Ledgers............................. 21
5. Transfer Agents and Registrars............ 21
6. Fixing of Record Date..................... 22
7. Lost, Stolen or Destroyed Certificates.... 23
8. Payments Prior to Calls................... 23
ARTICLE VII. FISCAL YEAR AND ACCOUNTANT......................... 23
1. Fiscal Year............................... 23
2. Accountant................................ 24
ARTICLE VIII. CUSTODY OF SECURITIES.............................. 24
1. Employment of a Custodian ................ 24
2. Termination of Custodian Agreement........ 25
ARTICLE IX. INDEMNIFICATION.................................... 25
1. Indemnification of Officers, Directors,
Employees and Agents................... 25
ARTICLE X. AMENDMENTS......................................... 28
1. General................................... 28
ARTICLE XI. MISCELLANEOUS...................................... 29
1. Waiver of Notice.......................... 29
2. Gender.................................... 29
</TABLE>
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<PAGE> 4
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
Section 1. Name. The name of the Corporation is The First Iberian Fund,
Inc.
Section 2. Principal Offices. The principal office of the Corporation
in the State of Maryland shall be located in Baltimore, Maryland. The
Corporation may, in addition, establish and maintain such other offices and
places of business as the Board of Directors may, from time to time, determine.
Section 3. Seal. The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of its
incorporation, and the word "Maryland." The form of the seal shall be subject to
alteration by the Board of Directors and the seal may be used by causing it or a
facsimile to be impressed or affixed or printed or otherwise reproduced. Any
officer or Director of the Corporation shall have authority to affix the
corporate seal of the Corporation to any document requiring the same.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the
<PAGE> 5
Corporation in the State of Maryland or at such other place within the United
States as may, from time to time, be designated by the Board of Directors and
stated in the notice of such meeting.
Section 2. Annual Meetings. Annual Meetings of stockholders shall be
held as required and for the purposes prescribed by the Investment Company Act
of 1940 and the laws of the State of Maryland. Such annual meetings shall be
held in the month of April of each year on such date and at such hour as may
from time to time be designated by the Board of Directors and stated in the
notice of such meeting, for the transaction of such business as may properly be
brought before the meeting.
Section 3. Special Meetings. Special meeting of stockholders may be
called at any time by the President or a majority of the Board of Directors and
shall be held at such time and place as may be stated in the notice of the
meeting.
Special meeting of the stockholders shall be called by the Secretary
upon receipt of the written request of the holders of shares entitled to not
less than 25% of all the votes entitled to be cast at such meeting, provided
that (1) such request shall state the purposes of such meeting and the matters
proposed to be acted on, and (2) the stockholders requesting such meeting shall
have paid to the Corporation the reasonably estimated cost of preparing and
mailing the notice thereof, which the Secretary
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shall determine and specify to such stockholders. No special meeting shall be
called upon the request of stockholders to consider any matter which is
substantially the same as a matter voted upon at any special meeting of the
stockholders held during the preceding 12 months, unless requested by the
holders of a majority of all shares entitled to be voted at such meeting.
Section 4. Notice of Meetings. The Secretary shall cause written or
printed notice of the place, date and hour, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, to be given,
not less than 10 and not more than 90 days before the date of the meeting, to
each stockholder entitled to vote at, or entitled to notice of, such meeting by
leaving the same with such stockholder or at such stockholder's residence or
usual place of business or by mailing it, postage prepaid, and addressed to such
stockholder at his address as it appears on the records of the Corporation at
the time of such mailing. If mailed, notice shall be deemed to be given when
deposited in the United States mail addressed to the stockholder as aforesaid.
Notice of any stockholders' meeting need not be given to any stockholder who
shall sign a written waiver of such notice either before or after the time of
such meeting, which waiver shall be filed with the records of such meeting, or
to any stockholder who is present at such meeting in person or by proxy. Notice
of adjournment of a stockholders' meeting to another time or place need not be
given if such time
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<PAGE> 7
and place are announced at the meeting. Irregularities in the notice of any
meeting to, or the non-receipt of any such notice by, any of the stockholders
shall not invalidate any action otherwise properly taken by or at any such
meeting.
Section 5. Quorum and Adjournment of Meetings. The presence at any
stockholders' meeting, in person or by proxy, of stockholders entitled to cast a
majority of the votes entitled to be cast shall be necessary and sufficient to
constitute a quorum for the transaction of business. In the absence of a quorum,
the holders of a majority of shares entitled to vote at the meeting and present
in person or by proxy, or, if no stockholder entitled to vote is present in
person or by proxy, any officer present entitled to preside or act as Secretary
of such meeting may adjourn the meeting without determining the date of the new
meeting or, from time to time, without further notice to a date not more than
120 days after the original record date. Any business that might have been
transacted at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
Section 6. Voting and Inspectors. At each stockholders' meeting, each
stockholder entitled to vote thereat shall be entitled to one vote for each
share of stock of the Corporation validly issued and outstanding and standing in
his name on the books of the Corporation on the record date fixed in
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<PAGE> 8
accordance with Section 6 of Article VI hereof (and each stockholder of record
holding fractional shares, if any, shall have proportionate voting rights),
either in person or by proxy appointed by instrument in writing subscribed by
such stockholder or his duly authorized attorney. Except as otherwise
specifically provided in the Articles of Incorporation or these Bylaws or as
required by provisions of the Investment Company Act of 1940, as amended, from
time to time, all matters shall be decided by a vote of the majority of the
votes validly cast at a meeting at which a quorum is present. The vote upon any
question shall be by ballot whenever requested by a person entitled to vote,
but, unless such a request is made, voting may be conducted in any way approved
by the meeting.
At any election of Directors, the Chairman of the meeting may, and
upon the request of the holders of 10% of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall first subscribe an
oath or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall, after the election, make a certificate of the result of the vote
taken. No candidate for the office of Director shall be appointed such
Inspector.
Section 7. Stockholders Entitled to Vote. If the Board of Directors
sets a record date for the determination of
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<PAGE> 9
stockholders entitled to notice of or to vote at any stockholders' meeting in
accordance with Section 6 of Article VI hereof, each stockholder of the
Corporation shall be entitled to vote, in person or by proxy, each share of
stock standing in his name on the books of the Corporation on such record date.
If no record date has been fixed, the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be the later of the close of business on the day on which notice of the meeting
is mailed or the thirtieth day before the meeting, or, if notice is waived by
all stockholders, at the close of business on the tenth day next preceding the
day on which the meeting is held.
Section 8. Validity of Proxies and Ballots. The right to vote by proxy
shall exist only if the instrument authorizing such proxy to act shall have been
signed by the stockholder or by his duly authorized attorney. The Corporation
may execute a form of proxy under the hand of a duly authorized officer. Unless
a proxy provides otherwise, it shall not be valid more than eleven months after
its date. At every meeting of the stockholders, all proxies shall be received
and taken in charge of and all ballots shall be received and canvassed by the
Secretary of the Corporation or the person acting as Secretary of the meeting
before being voted, who shall decide all questions touching the qualification of
voters, the validity of the proxies and the acceptance or rejection of votes,
unless inspectors of election
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<PAGE> 10
shall have been appointed by the Chairman of the meeting in which event such
inspectors of election shall decide all such questions. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by one
of them unless at or prior to exercise of such proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise.
Section 9. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the President, or if he is not present,
by a Vice President, or if none of them is present, by a Chairman to be elected
at the meeting. The secretary of the Corporation, if present, shall act as a
Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor the Assistant Secretary is present,
then the meeting shall elect its Secretary.
Section 10. Action Without Meeting. Any action to be taken by
stockholders may be taken without a meeting if (1) all stockholders entitled to
vote on the matter consent to the action in writing, (2) all stockholders
entitled to notice of the meeting but not entitled to vote at it, sign a written
waiver of any right to dissent and (3) said consents and waivers are filed
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<PAGE> 11
with the records of the meetings of stockholders. Such consent shall be treated
for all purposes as a vote at the meeting.
Section 11. Notices Required For Election of Directors. No person
shall be elected or reelected a Director of the Corporation at a meeting of
stockholders unless, not less than seven days before the date appointed for such
meeting, notice executed by a stockholder qualified to vote at such meeting has
been given to the Corporation to propose that person for election or reelection
(the "Notice of Intention") together with a notice executed by that person of
his willingness to be elected or reelected (the "Notice of Willingness").
Section 12. Distribution of Financial Statements. A copy of the
Corporation's audited financial statements shall be sent to each stockholder at
least 21 days prior to an annual meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. Except as otherwise provided by law, by the
Articles of Incorporation or by these Bylaws, the business and affairs of the
Corporation shall be managed under the direction of, and all the powers of the
Corporation shall be exercised by or under authority of, its Board of Directors.
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<PAGE> 12
Section 2. Number of Directors. The Board of Directors shall consist
of not fewer than three nor more than fourteen Directors, as specified by a
resolution of a majority of the entire Board of Directors. The Board of
Directors may elect, but shall not be required to elect, a Chairman of the
Board. Directors need not be stockholders.
Section 3. Election and Tenure of Directors. Commencing with the first
Annual Meeting of Stockholders and thereafter, whenever there shall first be at
least three Directors, the Directors shall be divided into three classes, as
nearly equal in number as possible, with the term of office of the first class
to expire at the first Annual Meeting of Stockholders, the term of office of the
second class to expire at the second Annual Meeting of Stockholders, the term of
office of the third class to expire at the third Annual Meeting of Stockholders.
At each Annual Meeting of Stockholders beginning at the first Annual Meeting,
successors to the class of Directors whose term expires at that Annual Meeting
shall be elected for a three year term. The provisions of Article SIXTH of the
Articles of Incorporation will govern herein.
Section 4. Vacancies and Newly Created Directorships. If any vacancies
shall occur in the Board of Directors (i) by reason of death, resignation,
removal or otherwise, the remaining Directors shall continue to act, and such
vacancies (if not
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<PAGE> 13
previously filled by the stockholders) may be filled by a majority of the
remaining Directors, although less than a quorum, and (ii) by reason of an
increase in the authorized number of Directors, such vacancies (if not
previously filled by the stockholders) may be filled only by a majority vote of
the entire Board of Directors; provided, however, that immediately after filling
any such vacancy, at least two-thirds (2/3) of the Directors then holding office
shall have been elected to such office by the stockholders of the Corporation.
In the event that at any time, other than the time preceding the first annual
stockholders' meeting, less than a majority of the Directors of the Corporation
holding office at that time were elected by the stockholders, a meeting of the
stockholders shall be held promptly and in any event within 60 days for the
purpose of electing Directors to fill any existing vacancies in the Board of
Directors unless the Securities and Exchange Commission shall by order extend
such period.
Section 5. Removal. At any meeting of stockholders duly called and at
which a quorum is present, the stockholders may, by the affirmative vote of the
holders of at least 80% of the combined voting power of all classes of shares of
capital stock entitled to vote in the Election of Directors remove any Director
or Directors from office, but only for cause, and may elect a successor or
successors to fill any resulting vacancies for the unexpired terms of the
removed Directors.
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<PAGE> 14
Section 6. Place of Meeting. The Directors may hold their meetings,
have one or more offices, and keep the books of the Corporation, outside the
State of Maryland, and within or without the United States of America, at any
office or offices of the Corporation or at any other place as they may from time
to time by resolution determine, or in the case of meetings, as they may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
Section 7. Annual and Regular Meetings. The annual meeting of the
Board of Directors for choosing officers and transacting other proper business
shall be held immediately after the annual stockholders' meeting at the place of
such meeting or at such other time and place as the Board may determine. The
Board of Directors, from time to time, may provide by resolution for the holding
of regular meetings and fix their time and place as the Board of Directors may
determine. Notice of such annual and regular meetings need not be in writing,
provided that notice of any change in the time or place of such meetings shall
be communicated promptly to each Director not present at the meeting at which
such change was made, in the manner provided in Section 8 of this Article III
for notice of special meetings. Except with regard to matters for which the vote
of directors cast in person is expressly required by law, members of the Board
of Directors or any committee designated thereby may participate in
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<PAGE> 15
a meeting of such Board or committee and in any action taken therein by means of
a conference telephone or similar communications equipment that allows all
persons participating in the meeting to hear each other at the same time.
Section 8. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place and for any purpose when called by
the President, the Secretary or two or more of the Directors. Notice of special
meetings, stating the time and place, shall be communicated to each Director
personally by telephone or transmitted to him by telegraph, telefax, telex,
cable or wireless at least one day before the meeting.
Section 9. Waiver of Notice. No notice of any meeting of the Board of
Directors or a committee of the Board need be given to any Director who is
present at the meeting or who waives notice of such meeting in writing (which
waiver shall be filed with the records of such meeting), either before or after
the time of the meeting.
Section 10. Quorum and Voting. At all meetings of the Board of
Directors, the presence of a majority of the number of Directors then in office
shall constitute a quorum for the transaction of business. In the absence of a
quorum, a majority of the Directors present may adjourn the meeting, from time
to time, until a quorum shall be present. The action of a majority
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<PAGE> 16
of the Directors present at a meeting at which a quorum is present shall be the
action of the Board of Directors, unless the concurrence of a greater proportion
is required for such action by law, by the Articles of Incorporation or by these
Bylaws.
Section 11. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent to such action is signed by
all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or
committee.
Section 12. Compensation of Directors. Directors shall be entitled to
receive such compensation from the Corporation for their services as may, from
time to time, be determined by resolution of the Board of Directors.
Section 13. Voting on Contracts. No Director shall vote on any
contract or arrangement or other proposal in which he has a material interest.
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ARTICLE IV
COMMITTEES
Section 1. Organization. By resolution adopted by the Board of
Directors, the Board may designate one or more committees, including an
Executive Committee, each composed of two or more Directors. The Chairman of
such committees shall be elected by the Board of Directors. The Board of
Directors shall have the power at any time to change the members of such
committees and to fill vacancies in the committees. The Board may delegate to
these committees any of its powers, except the power to authorize the issuance
of stock, declare a dividend or distribution on stock, recommend to stockholders
any action requiring stockholder approval, amend these Bylaws or approve any
merger or share exchange which does not require stockholder approval.
Section 2. Proceedings and Quorum. At all Committee meetings, the
presence of one-third of the number of committee members shall constitute a
quorum for the transaction of business. The action of a majority of the
committee members present when a quorum is present shall be the action of the
Committee. In the event any member of any committee is absent from any meeting,
the members thereof present at the meeting, whether or not they constitute a
quorum, may appoint a member of the Board of Directors to act in the place of
such absent member.
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ARTICLE V
OFFICERS
Section 1. General. The officers of the Corporation shall be a
President (who shall be a Director), a Secretary and a Treasurer, and may
include one or more Vice Presidents, Assistant Secretaries or Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 8 of this Article. Any two of the aforesaid offices,
except those of a President and Vice President, may be held by the same person.
Section 2. Election. Tenure and Qualifications. The officers of the
Corporation, except those appointed as provided in Section 8 of this Article V,
shall be elected by the Board of Directors at its first meeting or such meetings
as shall be held prior to its first annual meeting, and thereafter annually at
its annual meeting. If any officers are not chosen at any annual meeting, such
officers may be chosen at any subsequent regular or special meeting of the
Board. Except as otherwise provided in this Article V, each officer chosen by
the Board of Directors shall hold office until the next annual meeting of the
Board of Directors and until his successor shall have been elected and
qualified. Any person may hold one or more offices of the Corporation except the
offices of President and Vice President.
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Section 3. Removal and Resignation. Whenever in the judgment of the
Board of Directors the best interest of the Corporation will be served thereby,
any officer may be removed from office by the vote of a majority of the members
of the Board of Directors given at a regular meeting or any special meeting
called for such purpose. Any officer may resign his office at any time by
delivering a written resignation to the Board of Directors, the President, the
Secretary or any Assistant Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 4. President. The President shall be the chief executive
officer of the Corporation and he shall preside at all stockholders' meetings.
Subject to the supervision of the Board of Directors, he shall have general
charge of the business, affairs and property of the Corporation and general
supervision over its officers, employees and agents. Except as the Board of
Directors may otherwise order, he may sign in the name and on behalf of the
Corporation all deeds, bonds, contracts or agreements. He shall exercise such
other powers and perform such other duties as, from time to time, may be
assigned to him by the Board of Directors.
Section 5. Vice President. The Board of Directors may, from time to
time, elect one or more Vice Presidents who shall have such powers and perform
such duties as, from time to
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time, may be assigned to them by the Board of Directors or the President. At the
request or in the absence or disability of the President, the Vice President
(or, if there are two or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) may perform all the duties of the President
and, when so acting, shall have all the powers of and be subject to all the
restriction upon the President.
Section 6. Treasurer and Assistant Treasurers. The Treasurer shall be
the principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. He shall render to the
Board of Directors, whenever directed by the Board, an account of the financial
condition of the Corporation and of all his transactions as Treasurer; and as
soon as possible after the close of each fiscal year he shall make and submit to
the Board of Directors a like report for such fiscal year. He shall perform all
acts incidental to the Office of Treasurer, subject to the control of the Board
of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as
the Treasurer or the Board of Directors may assign,
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and, in the absence of the Treasurer, he may perform all the duties of the
Treasurer.
Section 7. Secretary and Assistant Secretaries. The Secretary shall
attend to the giving and serving of all notices of the Corporation and shall
record all proceedings of the meetings of the stockholders and Directors in
books to be kept for that purpose. He shall keep in safe custody the seal of the
Corporation, and shall have charge of the records of the Corporation, including
the stock books and such other books and papers as the Board of Directors may
direct and such books, reports, certificates and other documents required by law
to be kept, all of which shall at all reasonable times be open to inspection by
any Director. He shall perform such other duties as appertain to his office or
as may be required by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as
the Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
Section 8. Subordinate Officers. The Board of Directors, from time to
time, may appoint such other officers or agents as it may deem advisable, each
of whom shall have such title, hold office for such period, have such authority
and
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<PAGE> 22
perform such duties as the Board of Directors may determine. The Board of
Directors, from time to time, may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 9. Remuneration. The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 8 of this Article V.
Section 10. Surety Bonds. The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his hands.
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ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. The interest of each stockholder of
the Corporation shall be evidenced by certificates for shares of stock in such
form as the Board of Directors may, from time to time, prescribe. No certificate
shall be valid unless it is signed by the President or a Vice President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer of the Corporation and sealed with its seal, or bears the
facsimile signatures of such officers and a facsimile of such seal.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same number of shares of
the same class, duly endorsed or accompanied by proper instruments of assignment
and transfer, with such proof of the authenticity of the signature as the
Corporation or its agent may reasonably require. The shares of stock of the
Corporation may be freely transferred, and all transfers and documents relating
to or affecting the title of any shares of stock of the Corporation will be
registered without payment of any fee by the stockholder, and the Board of
Directors may, from time to time,
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adopt rules and regulations with reference to the method of transfer of the
shares of stock of the Corporation.
Section 3. Registered Holder. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
whether or not it shall have express or other notice thereof, except as
expressly provided by statute.
Section 4. Stock Ledgers. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 5. Transfer Agents and Registrars. The Board of Directors may,
from time to time, appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not
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<PAGE> 25
be valid unless so countersigned. If the same person shall be both transfer
agent and registrar, only one countersignature by such person shall be required.
Section 6. Fixing of Record Date. The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or to be allotted
any other rights or for the purpose of any other lawful action, provided that
(1) such record date shall not exceed 90 days preceding the date on which the
particular action requiring such determination will be taken; (2) the transfer
books shall remain open regardless of the fixing of a record date; (3) in the
case of a meeting of stockholders, the record date shall be at least 10 days
before the date of the meeting; and (4) in the event a dividend or other
distribution is declared, the record date for stockholders entitled to a
dividend or distribution shall be at least 10 days after the date on which the
dividend is declared (declaration date).
Section 7. Lost, Stolen or Destroyed Certificates. Before issuing a
new certificate for stock of the Corporation alleged to have been lost, stolen
or destroyed, the Board of Directors or any officer authorized by the Board may,
in its
-22-
<PAGE> 26
discretion, require the owner of the lost, stolen or destroyed certificate (or
his legal representative) to give the Corporation a bond or other indemnity, in
such form and in such amount as the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the Board or any such
officer, sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 8. Payments Prior to Calls. Any amounts paid up by a
stockholder in advance of calls on any share may carry interest but will not
entitle the stockholder to participate in respect of such amount in any
dividend.
ARTICLE VII
FISCAL YEAR AND ACCOUNTANT
Section 1. Fiscal Year. The fiscal year of the corporation shall,
unless otherwise ordered by the Board of Directors, begin on October 1 and end
on September 30 in each year.
Section 2. Accountant. The Corporation shall employ an independent
public accountant or a firm of independent public accountants as its Accountants
to examine the accounts of the
-23-
<PAGE> 27
Corporation and to sign and certify financial statements filed by the
Corporation. The employment of the Accountant shall be conditioned upon the
right of the Corporation to terminate the employment forthwith without any
penalty by vote of a majority of the outstanding voting securities at any
stockholders' meeting called for that purpose.
ARTICLE VIII
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Corporation shall place and
at all times maintain in the custody of a Custodian (including any sub-custodian
for the Custodian) all funds, securities and similar investment owned by the
Corporation. The Custodian (and any sub-custodian) shall be a bank or trust
company of good standing having a capital, surplus and undivided profits
aggregating not less than fifty million dollars ($50,000,000) or such other
financial institution as shall be permitted by rule or order of the United
States Securities and Exchange Commission. The Custodian shall be appointed from
time to time by the Board of Directors, which shall fix its remuneration.
Section 2. Termination of Custodian Agreement. Upon termination of the
agreement for services with the Custodian or inability of the Custodian to
continue to serve, the Board of
-24-
<PAGE> 28
Directors shall promptly appoint a successor Custodian, but in the event that no
successor Custodian can be found who has the required qualifications and is
willing to serve, the Board of Directors shall call as promptly as possible a
special meeting of the stockholders to determine whether the Corporation shall
function without a Custodian or shall be liquidated.
ARTICLE IX
INDEMNIFICATION
Section 1. Indemnification of Officers, Directors, Employees and
Agents. The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgment, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such Proceeding to
the maximum extent permitted by the laws of the State of Maryland.
Notwithstanding the foregoing, the following provisions shall apply with respect
to indemnification of the Corporation's Directors, officers, and,
-25-
<PAGE> 29
except as may otherwise be provided by an agreement, investment adviser (as
defined in the Investment Company Act of 1940, as amended) and principal
underwriter:
I. Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such
person for any liability arising by reason of such person's
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office or under any contract or agreement with the
Corporation ("disabling conduct").
II. The Corporation shall not indemnify any such person unless:
A. the court or other body before which the Proceeding was
brought (i) dismisses the Proceeding for insufficiency of evidence of any
disabling conduct, or (ii) reaches a final decision on the merits that such
person was not liable by reason of disabling conduct; or
B. absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (i) the vote of a majority of a
quorum of the Directors of the
-26-
<PAGE> 30
Corporation who are neither interested persons of the Corporation as defined in
the Investment Company Act of 1940, as amended, nor parties to the Proceeding,
or (ii) if such quorum is not obtainable, or even if obtainable, if a majority
of a quorum of Directors described in paragraph (b) (2) (i) above so directs, by
independent legal counsel in a written opinion, that such person was not liable
by reason of disabling conduct.
III. Expenses (including attorneys' fees) incurred in defending a
Proceeding involving any such person will be paid by the
Corporation in advance of the final disposition thereof upon
an undertaking by such person to repay such expenses (unless
it is ultimately determined that he is entitled to
indemnification), if:
A. such person shall provide adequate security for his
undertaking;
B. the Corporation shall be insured against losses arising
by reason of such advance; or
C. a majority of a quorum of the Directors of the
Corporation who are neither interested persons of the Corporation as defined in
the Investment Company Act of 1940, as amended, nor parties to the Proceeding,
or independent legal
-27-
<PAGE> 31
counsel in a written opinion, shall determine, based on a review of readily
available facts, that there is reason to believe that such person will be found
entitled to indemnification.
ARTICLE X
AMENDMENTS
Section 1. General. All Bylaws of the Corporation, whether adopted by
the Board of Directors or the stockholders, shall be subject to amendment,
alteration or repeal in a manner not inconsistent with the Articles of
Incorporation, and new Bylaws, not inconsistent with such Articles, may be made
by the vote of a majority of either: (1) the holders of record of the
outstanding shares of stock of the Corporation entitled to vote, at any annual
or special meeting, the notice or waiver of notice of which shall have specified
or summarized the proposed amendment, alteration, repeal or new Bylaw; or (2)
the Directors, at any regular or special meeting the notice or waiver which
shall have specified or summarized the amendment, alteration, repeal or new
Bylaw.
ARTICLE XI
MISCELLANEOUS
Section 1. Waiver of Notice. Whenever by statute, the provisions of
the Articles of Incorporation or these Bylaws, the
-28-
<PAGE> 32
stockholders or the Board of Directors are authorized to take any action at any
meting after notice, such notice may be waived, in writing, before or after the
holding of the meeting, by the person or persons entitled to such notice, or, in
the case of a stockholder, by his attorney thereunto authorized.
Section 2. Gender. All pronouns used in these Bylaws shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
-29-
<PAGE> 33
The First Iberian Fund, Inc.
Amendment to the By-Laws
On January 12, 1995, the Board of Directors of the Fund adopted the
following resolution amending the By-Laws of the Fund.
RESOLVED, that pursuant to the provision of Article X, Section 10.1 of
the Fund's By-Laws, Article II, Section 2.2 shall be amended to read as
follows (additions are underlined, deletions are [struckout]):
Section 2 . Annual Meetings. Such annual meetings shall be
held in the month of [April] July of each year on such date
and at such hour as may from time to time be designated by the
Board of Directors and stated in the notice of such meeting,
for the transaction of such business as may properly be
brought before the meeting.
<PAGE> 34
THE FIRST IBERIAN FUND, INC.
Amendment to By-Laws
Approved October 30, 1996
RESOLVED, that, pursuant to the provision of Section 10.1 of the Fund's By-Laws,
the second paragraph of Section 2.3, and Section 4.1 of the Fund's By-Laws are
hereby amended to read as follows (additions underlined, deletions [struck
out]):
Section 2.3 Special Meetings. Special meeting of the stockholders shall be
called by the Secretary upon receipt of the written request of the holders of
shares entitled to not than [25%] 50% of all the votes entitled to be cast at
such meeting, provided that (1) such request shall state the purposes of such
meeting and the matters proposed to be acted on, and (2) the stockholders
requesting such meeting shall have paid to the Corporation the reasonable
estimated cost of preparing and mailing the notice thereof, which the Secretary
shall determine and specify to such stockholders. No special meeting shall be
called upon the request of stockholders to consider any matter which is
substantially the same as a matter voted upon at any special meeting of the
stockholders held during the preceding 12 months, unless requested by the
holders of a majority of all shares entitled to be voted at such meeting; and
Section 4.1 Organization. By resolution adopted by the
Board of Directors, the Board may designate one or more committees, including an
Executive Committee, each composed of two or more Directors. The Chairman of
such committees shall be elected by the Board of Directors. Each member of a
committee shall be a Director and shall hold office in accordance with the
By-Laws of the Fund. The Board of Directors shall have the power at any time to
change the members of such committees and to fill vacancies in the committees.
The Board may delegate to these committees any of its powers, except the power
to authorize the issuance of stock, declare a dividend or distribution on stock,
recommend to stockholders any action requiring stockholder approval, amend these
By-Laws, or approve any merger or share exchange which does not require
stockholder approval. If the Board of Directors has given general authorization
for the issuance of stock providing for or establishing a method or procedure
for determining the maximum number of shares to be issued, a committee of the
Board, in accordance with that general authorization or any stock option or
other plan or program adopted by the Board, may authorize or fix the terms of
stock subject to classification or reclassification and the terms on which any
stock may be
<PAGE> 35
issued including all terms and conditions required or permitted to be
established or authorized by the Board of Directors under Section 3.2 of these
By-Laws.
<PAGE> 36
Scudder Spain and Portugal Fund, Inc.
Amendment to the By-Laws
On September 26, 1997, the Board of Directors of the Fund adopted the
following resolutions amending the By-Laws of the Fund.
RESOLVED, that pursuant to the provision of Article X, Section 1 of
the Fund's By-Laws, the first sentence of Article IV, Section 1 of the
By-Laws shall be amended to read as follows (additions are underline,
and deletions are [struckout]):
By resolution adopted by the Board of Directors, the Board may
designate one or more committees, including an Executive Committee,
each composed of one [two] or more Directors; and
FURTHER RESOLVED, that pursuant to the provision of Article X, Section
1 of the Fund's By-Laws, Article 1, Section 1 of the By-Laws shall be
amended to read as follows (additions are underline, deletions are
[struckout]):
Section 1. Name. The name of the Corporation is [The First Iberian
Fund, Inc.] Scudder Spain and Portugal Fund, Inc.
<PAGE> 1
EXHIBIT 4
FORM OF
MERGER AGREEMENT AND PLAN OF REORGANIZATION
<PAGE> 2
MERGER AGREEMENT AND PLAN OF REORGANIZATION
AMONG
THE GROWTH FUND OF SPAIN, INC.,
SCUDDER SPAIN AND PORTUGAL FUND, INC.
AND
SCUDDER KEMPER INVESTMENTS, INC. (WITH RESPECT TO SECTION 9)
DATED AS OF APRIL 14, 1998
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS............................................................................ 1
2. BASIC TRANSACTION...................................................................... 1
2.1 The Merger................................................................... 1
2.2 Actions at Closing........................................................... 2
2.3 Effect of Merger............................................................. 2
3. REPRESENTATIONS AND WARRANTIES OF THE GROWTH FUND OF SPAIN............................. 2
3.1 Organization................................................................. 2
3.2 Registrations and Qualifications............................................. 2
3.3 Regulatory Consents and Approvals............................................ 3
3.4 Noncontravention............................................................. 3
3.5 Financial Statements......................................................... 3
3.6 Annual Report................................................................ 4
3.7 Qualification, Corporate Power, Authorization of Transaction................. 4
3.8 Legal Compliance............................................................. 4
3.9 Material Contracts........................................................... 4
3.10 Undisclosed Liabilities..................................................... 4
3.11 Tax Filings................................................................. 5
3.12 Qualifications under Subchapter M........................................... 5
3.13 Form N-14 and Exemptive Application......................................... 5
3.14 Capitalization.............................................................. 6
3.15 Books and Records........................................................... 6
4. REPRESENTATIONS AND WARRANTIES OF THE SPAIN AND PORTUGAL FUND.......................... 6
4.1 Organization................................................................. 6
4.2 Registrations and Qualifications............................................. 7
4.3 Regulatory Consents and Approvals............................................ 7
4.4 Noncontravention............................................................. 7
4.5 Financial Statements......................................................... 7
4.6 Annual Report................................................................ 8
4.7 Qualification, Corporate Power, Authorization of Transaction................. 8
4.8 Legal Compliance............................................................. 8
4.9 Material Contracts........................................................... 8
4.10 Undisclosed Liabilities..................................................... 8
4.11 Tax Filings................................................................. 9
4.12 Qualification under Subchapter M............................................ 9
4.13 Form N-14 and Exemptive Application......................................... 9
4.14 Capitalization.............................................................. 10
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
4.15 Issuance of Stock........................................................... 10
4.16 Books and Records........................................................... 10
5. CONVERSION TO SPAIN AND PORTUGAL FUND COMMON STOCK..................................... 11
5.1 Conversion................................................................... 11
5.2 Computation of Net Asset Value............................................... 11
5.3 Issuance of Spain and Portugal Fund Common Stock............................. 11
5.4 Surrender of Growth Fund of Spain Stock Certificates......................... 11
6. COVENANTS OF THE PARTIES............................................................... 12
6.1 Stockholders' Meetings....................................................... 12
6.2 Operations in the Normal Course.............................................. 12
6.3 Articles of Merger........................................................... 13
6.4 Regulatory Filings........................................................... 13
6.5 Preservation of Assets....................................................... 13
6.6 Tax Matters.................................................................. 13
6.7 Stockholder List............................................................. 14
6.8 Delisting, Termination of Registration as an Investment Company............... 14
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SPAIN AND PORTUGAL FUND......................... 14
7.1 Approval of Merger........................................................... 14
7.2 Certificates and Statements by the Growth Fund of Spain...................... 15
7.3 Absence of Litigation........................................................ 15
7.4 Legal Opinions............................................................... 16
7.5 Auditor's Consent and Certification.......................................... 18
7.6 Liabilities.................................................................. 18
7.7 Effectiveness of N-14 Registration Statement................................. 18
7.8 Approval of Exemptive Application, Regulatory Filings........................ 18
7.9 Administrative Rulings, Proceedings.......................................... 19
7.10 Satisfaction of the Spain and Portugal Fund................................. 19
7.11 Dividends................................................................... 19
7.12 Custodian's Certificate...................................................... 19
7.13 Books and Records............................................................ 19
7.14 Compliance with Blue Sky Laws................................................ 19
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE GROWTH FUND OF SPAIN.................... 20
8.1 Approval of Merger........................................................... 20
8.2 Certificates and Statements by the Spain and Portugal Fund................... 20
8.3 Absence of Litigation........................................................ 21
8.4 Legal Opinions............................................................... 21
8.5 Auditor's Consent and Certification.......................................... 23
8.6 Effectiveness of N-14 Registration Statement................................. 24
8.7 Approval of Exemptive Application; Regulatory Filings........................ 24
8.8 Satisfaction of the Growth Fund of Spain..................................... 24
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
8.9 Dividends.................................................................... 24
8.10 Nomination of Directors of Growth Fund of Spain............................. 25
8.11 Amendment of the Spain and Portugal Fund's Investment Advisory, Management
and Administration Contract.............................................. 25
9. PAYMENT OF EXPENSES.................................................................... 26
9.1 Allocation................................................................... 26
9.2 Qualification of Investment Adviser.......................................... 26
10. COOPERATION FOLLOWING EFFECTIVE DATE.................................................. 26
11. INDEMNIFICATION....................................................................... 26
11.1 The Growth Fund of Spain.................................................... 26
11.2 The Spain and Portugal Fund................................................. 27
12. TERMINATION, POSTPONEMENT AND WAIVERS................................................. 27
12.1 Termination................................................................. 27
12.2 Waiver...................................................................... 27
12.3 Expiration of Representations and Warranties................................ 28
13. MISCELLANEOUS......................................................................... 28
13.1 Transfer Restriction........................................................ 28
13.2 Material Provisions......................................................... 29
13.3 Notices..................................................................... 29
13.4 Amendments.................................................................. 30
13.5 Headings.................................................................... 30
13.6 Counterparts................................................................ 30
13.7 Enforceability.............................................................. 30
13.8 Successor and Designs....................................................... 31
13.9 Governing Law............................................................... 31
</TABLE>
<PAGE> 6
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 14th day of April, 1998, by and among The Growth Fund of Spain, Inc.
(the "Target Fund" or the "Growth Fund of Spain"), a Maryland corporation and
registered investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), Scudder Spain and Portugal Fund, Inc. (the "Acquiring
Fund" or the "Spain and Portugal Fund"), a Maryland corporation and a registered
investment company under the 1940 Act, and Scudder Kemper Investments, Inc.,
investment adviser to the Parties (for purposes of Section 9 of the Agreement
only) (the "Investment Adviser"). The Spain and Portugal Fund and the Growth
Fund of Spain are collectively referred to herein as the "Parties."
This agreement contemplates a tax-free merger transaction which
qualifies for federal income tax purposes as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the Parties hereto agree as follows:
1. DEFINITIONS
Certain capitalized terms used in this Agreement are
specifically defined herein.
2. BASIC TRANSACTION
2.1 The Merger. On and subject to the terms and conditions of this
Agreement, the Target Fund will merge with and into the Acquiring Fund (the
"Merger") at the Effective Date (as defined in Section 2.3 below) in accordance
with the Maryland General Corporation Law ("MGCL"). The Spain and Portugal Fund
shall be the surviving investment company. The Growth Fund of Spain shall cease
to exist as a separate investment company and each share of the Growth Fund of
Spain will be converted into an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of Common Stock of the Spain and
Portugal Fund, with a par value of $0.01 per share, plus cash in lieu of any
fractional shares, computed based on the net asset value per share of each of
the Parties at 4:00 p.m. Eastern Time on the Business Day prior to the Effective
Date (the "Valuation Time"); the Effective Date and the Business Day prior to it
must each be a day on which the New York Stock Exchange is open for trading (a
"Business Day"), all upon and subject to the terms hereinafter set forth.
From and after the Effective Date, the Acquiring Company shall possess
all of the properties, assets, rights, privileges, powers and shall be subject
to all of the restrictions, liabilities, obligations, disabilities and duties of
the Growth Fund of Spain, all as provided under Maryland law.
<PAGE> 7
2.2 Actions at Closing. At the closing of the transactions contemplated
by this Agreement (the "Closing") on the date thereof (the "Closing Date"), (i)
the Growth Fund of Spain will deliver to the Spain and Portugal Fund the various
certificates and documents referred to in Article 7 below, (ii) the Spain and
Portugal Fund will deliver to the Growth Fund of Spain the various certificates
and documents referred to in Article 8 below, and (iii) the Growth Fund of Spain
and the Spain and Portugal Fund will file jointly with the State Department of
Assessments and Taxation of Maryland (the "Department") the Articles of Merger
in the form attached hereto as Exhibit A (the "Articles of Merger") and make all
other filings or recordings required by Maryland law in connection with the
Merger.
2.3 Effect of Merger. Subject to the requisite approvals of the
stockholders of the Parties, and to the other terms and conditions described
herein, the Merger shall become effective at such time as the Articles of Merger
are accepted for record by the Department or at such later time as is specified
in the Articles of Merger (the "Effective Date") and the separate corporate
existence of the Growth Fund of Spain shall cease. As promptly as practicable
after the Merger, the Growth Fund of Spain shall delist its shares from the New
York Stock Exchange ("NYSE") and its registration under the 1940 Act shall be
terminated. Any reporting responsibility of the Growth Fund of Spain is and
shall remain the responsibility of the Growth Fund of Spain up to and including
the Effective Date.
3. REPRESENTATIONS AND WARRANTIES OF THE GROWTH FUND OF SPAIN
The Growth Fund of Spain represents and warrants to the Spain and
Portugal Fund that the statements contained in this Article 3 are correct and
complete in all material respects as of the execution of this Agreement on the
date hereof.
The Growth Fund of Spain represents and warrants to, and agrees with
the Spain and Portugal Fund that:
3.1 Organization.
The Growth Fund of Spain is a corporation duly organized, validly
existing under the laws of the State of Maryland and is in good standing with
the Department, and has the power to own all of its assets and to carry on its
business as it is now being conducted and to carry out this Agreement.
3.2 Registrations and Qualifications.
The Growth Fund of Spain is duly registered under the 1940 Act as a
diversified, closed-end management investment company (File No. 811-05304), and
such registration has not been revoked or rescinded and is in full force and
effect. The Growth Fund of Spain has elected and qualified for the special tax
treatment afforded regulated investment companies ("RICs") under Sections
851-855 of the Code at all times since its inception. The Growth Fund of Spain
is
-2-
<PAGE> 8
qualified as a foreign association in every jurisdiction where required,
except to the extent that failure to so qualify would not have a material
adverse effect on the Growth Fund of Spain.
3.3 Regulatory Consents and Approvals.
No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Growth Fund of
Spain of the transactions contemplated herein, except such as have been obtained
or applied for under the Securities Act of 1933, as amended (the "1933 Act"),
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act and such as may be required by state securities laws.
3.4 Noncontravention.
The Growth Fund of Spain is not, and the execution, delivery and
performance of this Agreement by the Growth Fund of Spain will not result, in
violation of the laws of the State of Maryland or of the Articles of
Incorporation or the By-laws of the Growth Fund of Spain, or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Growth Fund of Spain is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Growth Fund of Spain will not
result in the acceleration of any obligation, or the imposition of any penalty,
under any agreement, indenture, instrument, contract, lease, judgment or decree
to which the Growth Fund of Spain is a party or by which it is bound.
3.5 Financial Statements.
The Spain and Portugal Fund has been furnished with a statement of
assets, liabilities and capital and a schedule of investments of the Growth Fund
of Spain, each as of November 30, 1997, said financial statements having been
examined by Ernst & Young LLP, independent public auditors. These financial
statements are in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") and present fairly, in all material
respects, the financial position of the Growth Fund of Spain as of such date in
accordance with GAAP, and there are no known contingent liabilities of the
Growth Fund of Spain required to be reflected on a balance sheet (including the
notes thereto) in accordance with GAAP as of such date not disclosed therein.
The Spain and Portugal Fund has been furnished with an unaudited
statement of assets, liabilities and capital and a schedule of investments of
the Growth Fund of Spain, each as of March 31, 1998. This financial statement is
in accordance with GAAP and presents fairly, in all material respects, the
financial position of the Growth Fund of Spain as of such date in accordance
with GAAP, and there are no known contingent liabilities of the Growth Fund of
Spain required to be reflected on a balance sheet (including the notes thereto)
in accordance with GAAP as of such date not disclosed therein.
-3-
<PAGE> 9
3.6 Annual Report.
The Spain and Portugal Fund has been furnished with the Growth Fund of
Spain's Annual Report to Stockholders for the year ended November 30, 1997.
3.7 Qualification, Corporate Power, Authorization of Transaction.
The Growth Fund of Spain has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Directors, and, subject to stockholder approval, this Agreement
constitutes a valid and binding contract enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights generally
and court decisions with respect thereto.
3.8 Legal Compliance.
No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending (in which service
of process has been received) or to its knowledge threatened against the Growth
Fund of Spain or any properties or assets held by it. The Growth Fund of Spain
knows of no facts which might form the basis for the institution of such
proceedings which would materially and adversely affect its business and is not
a party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
3.9 Material Contracts.
There are no material contracts outstanding to which the Growth Fund of
Spain is a party that have not been disclosed in the N-14 Registration Statement
or will not be otherwise disclosed to the Spain and Portugal Fund prior to the
Effective Date.
3.10 Undisclosed Liabilities.
Since November 30, 1997, there has not been any material adverse change
in the Growth Fund of Spain's financial condition, assets, liabilities or
business and the Growth Fund of Spain has no known liabilities of a material
amount, contingent or otherwise, other than those shown on the Growth Fund of
Spain's statements of assets, liabilities and capital referred to above, those
incurred in the ordinary course of its business as an investment company since
December 18, 1989, and those incurred in connection with the Merger. Prior to
the Effective Date, the Growth Fund of Spain will advise the Spain and Portugal
Fund in writing of all known liabilities, contingent or otherwise, whether or
not incurred in the ordinary course of business, existing or accrued. For
purposes of this subsection 3.10, a decline in net asset value per share of the
Growth Fund of Spain due to declines in market values of securities in the
Growth Fund of
-4-
<PAGE> 10
Spain's portfolio or the discharge of Growth Fund of Spain liabilities will not
constitute a material adverse change.
3.11 Tax Filings.
All federal and other tax returns and information reports of the Growth
Fund of Spain required by law to have been filed shall have been filed and are
or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and,
to the best of the Growth Fund of Spain's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such returns.
All tax liabilities of the Growth Fund of Spain have been adequately provided
for on its books, and no tax deficiency or liability of the Growth Fund of Spain
has been asserted and no question with respect thereto has been raised by the
Internal Revenue Service or by any state or local tax authority for taxes in
excess of those already paid, up to and including the taxable year in which the
Effective Date occurs.
3.12 Qualification under Subchapter M.
For each taxable year of its operation (including the taxable year
ending on the Effective Date), the Growth Fund of Spain has met the requirements
of Subchapter M of the Code for qualification as a regulated investment company
and has elected to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will have distributed
substantially all of its investment company taxable income and net realized
capital gain (as defined in the Code) that has accrued through the Effective
Date.
3.13 Form N-14 and Exemptive Application.
The exemptive application to be filed with the Securities and Exchange
Commission (the "SEC") by the Parties regarding the Merger (the "Exemptive
Application") and the registration statement to be filed by the Spain and
Portugal Fund on Form N-14 relating to the Spain and Portugal Fund Common Stock
to be issued pursuant to this Agreement, and any supplement or amendment thereto
or to the documents therein (as amended, the "N-14 Registration Statement"), on
the effective date of the N-14 Registration Statement, at the time of the
stockholders' meetings referred to in Article 6 of this Agreement and at the
Effective Date, insofar as it relates to the Growth Fund of Spain (i) shall have
complied or will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and
(ii) did not or will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and the prospectus included therein did
not or will not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection shall only apply to
statements in or omissions from the N-14 Registration Statement made in reliance
upon and in conformity
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with information furnished by the Growth Fund of Spain for use in the N-14
Registration Statement.
3.14 Capitalization.
(a) All issued and outstanding shares of the Growth Fund of Spain (i)
have been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration requirements of
the 1933 Act and state securities laws, (ii) are, and on the Effective Date will
be, duly and validly issued and outstanding, fully paid and non-assessable, and
(iii) will be held at the time of the Closing by the persons and in the amounts
set forth in the records of the Transfer Agent as provided in Section 6.7. The
Growth Fund of Spain does not have outstanding any options, warrants, or other
rights to subscribe for or purchase any of the Growth Fund of Spain shares, nor
is there outstanding any security convertible into any of the Growth Fund of
Spain shares.
(b) The Growth Fund of Spain is authorized to issue 50,000,000 shares
of stock, par value $0.01 per share, all of which shares are classified as
Common Stock and each outstanding share of which is fully paid, non-assessable
and has full voting rights. All of the issued and outstanding Shares of the
Growth Fund of Spain were offered for sale and sold in conformity with all
applicable Federal and State Securities laws.
3.15 Books and Records.
The books and records of the Growth Fund of Spain made available to the
Spain and Portugal Fund are substantially true and correct and contain no
material misstatements or omissions with respect to the operations of the Growth
Fund of Spain.
4. REPRESENTATIONS AND WARRANTIES OF THE SPAIN AND PORTUGAL FUND
The Spain and Portugal Fund represents and warrants to the Growth Fund
of Spain that the statements contained in this Article 4 are correct and
complete in all material respects as of the execution of this Agreement on the
date hereof.
The Spain and Portugal Fund represents and warrants to, and agrees with
the Growth Fund of Spain that:
4.1 Organization.
The Spain and Portugal Fund is a corporation duly organized, validly
existing under the laws of the State of Maryland and is in good standing with
the Department, and has the power to own all of its assets and to carry on its
business as it is now being conducted and to carry out this Agreement.
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4.2 Registrations and Qualifications.
The Spain and Portugal Fund is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-06022)
and such registration has not been revoked or rescinded and is in full force and
effect. The Spain and Portugal Fund has elected and qualified for the special
tax treatment afforded RICs under Sections 851-855 of the Code at all times
since its inception. The Spain and Portugal Fund is qualified as a foreign
association in every jurisdiction where required, except to the extent that
failure to so qualify would not have a material adverse effect on the Spain and
Portugal Fund.
4.3 Regulatory Consents and Approvals.
No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Spain and
Portugal Fund of the transactions contemplated herein, except as such have been
obtained or applied for under the 1933 Act, the 1934 Act and the 1940 Act and
such as may be required by state securities laws.
4.4 Noncontravention.
The Spain and Portugal Fund is not, and the execution, delivery and
performance of this Agreement by the Spain and Portugal Fund will not result, in
violation of the laws of the State of Maryland or of the Articles of
Incorporation or the By-laws of the Spain and Portugal Fund, or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Spain and Portugal Fund is a party or by which it is bound, and the
execution, delivery and performance of this Agreement by the Spain and Portugal
Fund will not result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Spain and Portugal Fund is a party or by which
it is bound.
4.5 Financial Statements.
The Growth Fund of Spain has been furnished with a statement of assets,
liabilities and capital and a schedule of investments of the Spain and Portugal
Fund, each as of September 30, 1997, said financial statements having been
examined by Price Waterhouse LLP, independent public auditors. These financial
statements are in accordance with GAAP and present fairly, in all material
respects, the financial position of the Spain and Portugal Fund as of such date
in accordance with GAAP, and there are no known contingent liabilities of the
Spain and Portugal Fund required to be reflected on a balance sheet (including
the notes thereto) in accordance with GAAP as of such date not disclosed
therein.
The Growth Fund of Spain has been furnished with an unaudited statement
of assets, liabilities and capital and a schedule of investments of the Spain
and Portugal Fund, each as of March 31, 1998. This financial statement is in
accordance with GAAP and presents fairly, in all material respects the financial
position of the Spain and Portugal Fund as of such date in
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accordance with GAAP, and there are no known contingent liabilities of the Spain
and Portugal Fund required to be reflected on a balance sheet (including the
notes thereto) in accordance with GAAP as of such date not disclosed therein.
4.6 Annual Report.
The Growth Fund of Spain has been furnished with the Spain and Portugal
Fund's Annual Report to Stockholders for the year ended September 30, 1997.
4.7 Qualification, Corporate Power, Authorization of Transaction.
The Spain and Portugal Fund has full power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Directors, and, subject to stockholder approval, this Agreement
constitutes a valid and binding contract enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights generally
and court decisions with respect thereto.
4.8 Legal Compliance.
No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or to its
knowledge threatened against the Spain and Portugal Fund or any properties or
assets held by it. The Spain and Portugal Fund knows of no facts which might
form the basis for the institution of such proceedings which would materially
and adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated.
4.9 Material Contracts.
There are no material contracts outstanding to which the Spain and
Portugal Fund is a party that have not been disclosed in the N-14 Registration
Statement or will not be otherwise disclosed to the Growth Fund of Spain prior
to the Effective Date.
4.10 Undisclosed Liabilities.
Since September 30, 1997, there has not been any material adverse
change in the Spain and Portugal Fund's financial condition, assets,
liabilities, or business and the Spain and Portugal Fund has no known
liabilities of a material amount, contingent or otherwise, other than those
shown on the Spain and Portugal Fund's statements of assets, liabilities and
capital referred to above, those incurred in the ordinary course of its business
as an investment company since August 25, 1987 and those incurred in connection
with the Merger. Prior to the Effective Date, the Spain and Portugal Fund will
advise the Growth Fund of Spain in writing of all known
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<PAGE> 14
liabilities, contingent or otherwise, whether or not incurred in the ordinary
course of business, existing or accrued. For purposes of this Section 4.10, a
decline in net asset value per share of the Spain and Portugal Fund due to
declines in market values of securities in the Spain and Portugal Fund's
portfolio or the discharge of the Spain and Portugal Fund liabilities will not
constitute a material adverse change.
4.11 Tax Filings.
All federal and other tax returns and information reports of the Spain
and Portugal Fund required by law to have been filed shall have been filed and
are or will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof, and,
to the best of the Spain and Portugal Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to such
returns. All tax liabilities of the Spain and Portugal Fund have been adequately
provided for on its books, and no tax deficiency or liability of the Spain and
Portugal Fund has been asserted and no question with respect thereto has been
raised by the Internal Revenue Service or by any state or local tax authority
for taxes in excess of those already paid, up to and including the taxable year
in which the Effective Date occurs.
4.12 Qualification under Subchapter M.
For each taxable year of its operation, the Spain and Portugal Fund has
met the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of the
Code, and will have distributed substantially all of its investment company
taxable income and net realized capital gain (as defined in the Code) that has
accrued through the Effective Date.
4.13 Form N-14 and Exemptive Application.
The Exemptive Application, and the N-14 Registration Statement, on the
effective date of the N-14 Registration Statement, at the time of the
stockholders' meetings referred to in Section 6 of this Agreement and at the
Effective Date, insofar as it relates to the Spain and Portugal Fund (i) shall
have complied or will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
and (ii) did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; and the prospectus included therein
did not or will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall not
apply to statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by the Growth Fund of
Spain for use in the N-14 Registration Statement.
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<PAGE> 15
4.14 Capitalization.
(a) All issued and outstanding shares of the Spain and Portugal Fund
(i) have been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration requirements of
the 1933 Act and state securities laws, (ii) are, and on the Effective Date will
be, duly and validly issued and outstanding, fully paid and non-assessable, and
(iii) will be held at the time of the Closing by the persons and in the amounts
set forth in the records of the Transfer Agent. The Spain and Portugal Fund does
not have outstanding any options, warrants, or other rights to subscribe for or
purchase any of the Spain and Portugal Fund shares, nor is there outstanding any
security convertible into any of the Spain and Portugal Fund shares.
(b) The Spain and Portugal Fund is authorized to issue 200,000,000
shares of stock, par value $0.01 per share, all of which shares are classified
as Common Stock and each outstanding share of which is fully paid,
non-assessable and has full voting rights. All of the issued and outstanding
shares of Common Stock of the Spain and Portugal Fund were offered for sale and
sold in conformity with all applicable Federal and state securities laws and the
shares to be issued pursuant to this Agreement will be in compliance with all
applicable federal and state securities laws.
4.15 Issuance of Stock.
(a) At or prior to the Effective Date, the Spain and Portugal Fund
Common Stock to be issued pursuant to this Agreement will be duly qualified for
offering to the public in all states of the United States in which the sale of
shares of Spain and Portugal Fund Common Stock presently are qualified, and
there are a sufficient number of such shares registered under the 1933 Act and
with each pertinent state securities commission to permit the issuance
contemplated by this Agreement.
(b) At or prior to the Effective Date, the Spain and Portugal Fund will
have obtained any and all regulatory, director and stockholder approvals
necessary to issue the Spain and Portugal Fund Common Stock.
4.16 Books and Records.
The books and records of the Spain and Portugal Fund made available to
the Growth Fund of Spain are substantially true and correct and contain no
material misstatements or omissions with respect to the operations of the Spain
and Portugal Fund.
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<PAGE> 16
5. CONVERSION TO SPAIN AND PORTUGAL FUND COMMON STOCK
5.1 Conversion.
Subject to the requisite approval of the stockholders of the Parties,
and the other terms and conditions contained herein, at the Effective Date, each
share of Common Stock of the Growth Fund of Spain will be converted into an
equivalent dollar amount (to the nearest one ten-thousandth of one cent) of full
shares of Spain and Portugal Fund Common Stock, plus cash in lieu of fractional
shares, computed based on the net asset value per share of each of the Parties
at the Valuation Time.
5.2 Computation of Net Asset Value.
The net asset value per share of the Parties shall be determined as of
the Valuation Time, and no formula will be used to adjust the net asset value so
determined of either of the Parties to take into account differences in realized
and unrealized gains and losses. The value of the assets of the Growth Fund of
Spain to be transferred to the Spain and Portugal Fund shall be determined by
the Spain and Portugal Fund pursuant to the principles and procedures
consistently utilized by the Spain and Portugal Fund in valuing its own assets
and determining its own liabilities for purposes of the Merger. Such valuation
and determination shall be made by the Spain and Portugal Fund in cooperation
with the Growth Fund of Spain and shall be confirmed in writing by the Spain and
Portugal Fund to the Growth Fund of Spain. The net asset value per share of
Spain and Portugal Fund Common Stock shall be determined in accordance with such
procedures, and the Spain and Portugal Fund shall certify the computations
involved.
5.3 Issuance of Spain and Portugal Fund Common Stock.
(a) The Spain and Portugal Fund shall issue to the stockholders of the
Growth Fund of Spain separate certificates or share deposit receipts for the
Spain and Portugal Fund Common Stock by delivering the certificates or share
deposit receipts evidencing ownership of the Spain and Portugal Fund Common
Stock to State Street Bank and Trust Company, as the transfer agent and
registrar for Spain and Portugal Fund Common Stock.
(b) The Spain and Portugal Fund may elect to issue separate
certificates of share deposit receipts for the Spain and Portugal Fund that have
been designated as a separate series of shares of Spain and Portugal Fund and
that would trade pursuant to a separate listing on the New York Stock Exchange
but would otherwise have identical voting and other rights and privileges.
5.4 Surrender of Growth Fund of Spain Stock Certificates.
With respect to any Growth Fund of Spain stockholder holding
certificates representing shares of the Common Stock of the Growth Fund of Spain
as of the Effective Date, and subject to the Spain and Portugal Fund being
informed thereof in writing by the Growth Fund of Spain, the Spain and Portugal
Fund will not permit such stockholder to receive new certificates evidencing
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<PAGE> 17
ownership of the Spain and Portugal Fund Common Stock, until such stockholder
has surrendered his or her outstanding certificates evidencing ownership of the
common Stock of the Growth Fund of Spain or, in the event of lost certificates,
posted adequate bond. The Growth Fund of Spain will request its stockholders to
surrender their outstanding certificates representing certificates of the Common
Stock of the Growth Fund of Spain or post adequate bond therefor. Dividends
payable to holders of record of shares of the Spain and Portugal Fund as of any
date after the Effective Date and prior to the exchange of certificates by any
stockholder of the Growth Fund of Spain shall be paid to such stockholder,
without interest; however, such dividends shall not be paid unless and until
such stockholder surrenders his or her stock certificates of the Growth Fund of
Spain for exchange. No fractional shares of the Spain and Portugal Fund will be
issued to Growth Fund of Spain stockholders. In lieu thereof, the Spain and
Portugal Fund's transfer agent, State Street Bank and Trust Company, will
aggregate all fractional shares of the Spain and Portugal Fund and sell the
resulting full shares on the New York Stock Exchange at the current market price
for shares of the Spain and Portugal Fund for the account of all holders of
fractional interests, and each such holder will receive such holder's pro rata
share of the proceeds of such sale, without interest, upon surrender of such
holder's Growth Fund of Spain Common Stock certificates.
6. COVENANTS OF THE PARTIES
6.1 Stockholders' Meetings.
(a) Each of the Parties shall hold a meeting of its respective
stockholders for the purpose of considering the Merger as described herein,
which meeting has been called by each Party for July 23, 1998, and any
amendments thereof.
(b) Each of the Parties agrees to mail to each of its respective
stockholders of record entitled to vote at the meeting of stockholders at which
action is to be considered regarding the Merger, in sufficient time to comply
with requirements as to notice thereof, a combined Proxy Statement and
Prospectus which complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act,
and the rules and regulations, respectively, thereunder.
6.2 Operations in the Normal Course.
Each Party covenants to operate its business in the ordinary course
between the date hereof and the Effective Date, it being understood that such
ordinary course of business will include (i) the declaration and payment of
customary dividends and other distributions and (ii) in the case of the Growth
Fund of Spain, preparing for its liquidation, dissolution and deregistration,
except that the distribution of dividends pursuant to Sections 7.11 and 8.9 of
this Agreement shall not be deemed to constitute a breach of the provisions of
this Section 6.2.
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<PAGE> 18
6.3 Articles of Merger.
The Parties agree that, as soon as practicable after satisfaction of
all conditions to the Merger, they will jointly file executed Articles of Merger
with the Department and make all other filings or recordings required by
Maryland law in connection with the Merger.
6.4 Regulatory Filings.
(a) The Growth Fund of Spain undertakes that, if the Merger is
consummated, it will file, or cause its agents to file, an application pursuant
to Section 8(f) of the 1940 Act for an order declaring that the Growth Fund of
Spain has ceased to a registered investment company.
(b) The Spain and Portugal Fund will file the N-14 Registration
Statement with the SEC and will use its best efforts to ensure that the N-14
Registration Statement becomes effective as promptly as practicable. The Growth
Fund of Spain agrees to cooperate fully with the Spain and Portugal Fund, and
will furnish to the Spain and Portugal Fund the information relating to itself
to be set forth in the N-14 Registration Statement as required by the 1933 Act,
the 1934 Act, the 1940 Act, and the rules and regulations thereunder and the
state securities or blue sky laws.
(c) The Parties each agree to proceed as promptly as possible to cause
to be made the necessary filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Filing") if applicable, with respect to the
transactions contemplated by this Agreement and to ensure that the related
waiting period expires or is otherwise terminated at the earliest possible time.
6.5 Preservation of Assets.
The Spain and Portugal Fund agrees that it has no plan or intention to
sell or otherwise dispose of the assets of the Growth Fund of Spain to be
acquired in the Merger, except for dispositions made in the ordinary course of
business.
6.6 Tax Matters.
Each of the Parties agrees that by the Effective Date all of its
federal and other tax returns and reports required to be filed on or before such
date shall have been filed and all taxes shown as due on said returns either
have been paid or adequate liability reserves have been provided for the payment
of such taxes. In connection with this covenant, the Parties agree to cooperate
with each other in filing any tax return, amended return or claim for refund,
determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. The Spain and Portugal Fund agrees to retain for a period of ten (10)
years following the Effective Date all returns, schedules and work papers and
all material records or other documents relating to tax matters of the Growth
Fund of Spain for its final taxable year and for all prior taxable periods. Any
information obtained under this subsection shall be kept
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<PAGE> 19
confidential except as otherwise may be necessary in connection with the filing
of returns or claims for refund or in conducting an audit or other proceeding.
After the Effective Date, the Spain and Portugal Fund shall prepare, or cause
its agents to prepare, any Federal, state or local tax returns, including any
Forms 1099, required to be filed by the Growth Fund of Spain with respect to its
final taxable years ending with the Effective Date and for any prior periods or
taxable years for which the due date for such return has not passed as of the
Effective Date and further shall cause such tax returns and Forms 1099 to be
duly filed with the appropriate taxing authorities. Notwithstanding the
aforementioned provisions of this subsection, any expenses incurred by the Spain
and Portugal Fund (other than for payment of taxes) in excess of any accrual for
such expenses by the Growth Fund of Spain in connection with the preparation and
filing of said tax returns and Forms 1099 after the Effective Date shall be
borne by the Spain and Portugal Fund.
6.7 Stockholder List.
Prior to the Effective Date, the Growth Fund of Spain shall have made
arrangements with its transfer agent to deliver to the Spain and Portugal Fund,
a list of the names and addresses of all of the stockholders of record of the
Growth Fund of Spain on the Effective Date and the number of shares of Common
Stock of the Growth Fund of Spain owned by each such stockholder, certified by
the Growth Fund of Spain's transfer agent or President to the best of their
knowledge and belief.
6.8 Delisting, Termination of Registration as an Investment
Company.
The Growth Fund of Spain agrees that the (i) delisting of the shares of
the Growth Fund of Spain with the NYSE and (ii) termination of its registration
as a regulated investment company will be effected in accordance with applicable
law as soon as practicable following the Effective Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SPAIN AND PORTUGAL FUND
The obligations of the Spain and Portugal Fund hereunder shall be
subject to the following conditions:
7.1 Approval of Merger.
This Agreement shall have been adopted, and an amendment to the Spain
and Portugal Fund's Articles of Incorporation permitting the Merger to be
approved by the affirmative vote of the holders of more than 50% of the shares
of Common Stock of the Spain and Portugal Fund issued and outstanding and
entitled to vote thereon shall have been approved, by the affirmative vote of
the holders of more than 50% of the shares of Common Stock of the Spain and
Portugal Fund issued and outstanding and entitled to vote thereon, and the
Growth Fund of Spain shall
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<PAGE> 20
have delivered to the Spain and Portugal Fund a copy of the resolution approving
this Agreement adopted by its Board of Directors and stockholders, certified by
its secretary.
7.2 Certificates and Statements by the Growth Fund of Spain.
(a) The Growth Fund of Spain shall have furnished a statement of
assets, liabilities and capital, together with a schedule of investments with
their respective dates of acquisition and tax costs, certified on its behalf by
its President (or any Vice President) and its Treasurer, and a certificate
executed by both such officers, dated the Effective Date, certifying that there
has been no material adverse change in its financial position since March 31,
1998, other than changes in its portfolio securities since that date or changes
in the market value of its portfolio securities.
(b) The Growth Fund of Spain shall have furnished to the Spain and
Portugal Fund a certificate signed by its President (or any Vice President),
dated the Effective Date, certifying that as of the Effective Date all
representations and warranties made in this Agreement are true and correct in
all material respects as if made at and as of such date and each has complied
with all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to such dates.
(c) The Growth Fund of Spain shall have delivered to the Spain and
Portugal Fund a letter from Ernst & Young LLP, dated the Effective Date, stating
that such firm has performed a limited review of the Federal, state and local
income tax returns for the period ended November 30, 1997, and that based on
such limited review, nothing came to their attention which caused them to
believe that such returns did not properly reflect, in all material respects,
the Federal, state and local income taxes of the Growth Fund of Spain for the
period covered thereby; and that for the period from November 30, 1997 to and
including the Effective Date and for any taxable year ending upon its
dissolution, such firm has performed a limited review to ascertain the amount of
such applicable Federal, state and local taxes, and has determined that either
such amount has been paid or reserves established for payment of such taxes,
this review to be based on unaudited financial data; and that based on such
limited review, nothing has come to their attention which caused them to believe
that the taxes paid or reserves set aside for payment of such taxes were not
adequate in all material respects for the satisfaction of Federal, state and
local taxes for the period from November 30, 1997, to and including the
Effective Date and for any taxable year ending upon its dissolution or that the
Growth Fund of Spain would not continue to qualify as a RIC for Federal income
tax purposes.
7.3 Absence of Litigation.
There shall be no material litigation pending with respect to the
matters contemplated by this Agreement.
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7.4 Legal Opinions.
(a) The Spain and Portugal Fund shall have received an opinion of
Vedder, Price, Kaufman & Kammholz, as counsel to the Growth Fund of Spain, in
form and substance satisfactory to the Spain and Portugal Fund and dated the
Effective Date, to the effect that (i) the Growth Fund of Spain is a corporation
duly organized, validly existing under the laws of the State of Maryland and is
in good standing with the Department; (ii) the Agreement has been duly
authorized, executed and delivered by the Growth Fund of Spain, and, assuming
that the N-14 Registration Statement complies with the 1933 Act, 1934 Act and
the 1940 Act constitutes a valid and legally binding obligation of the Growth
Fund of Spain, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws pertaining to the enforcement of creditors' rights generally and by
equitable principles; (iii) to the best of such counsel's knowledge, no consent,
approval, authorization or order of any United States federal or Maryland state
court or governmental authority is required for the consummation by the Growth
Fund of Spain of the Merger, except such as may be required under the 1933 Act,
the 1934 Act, the 1940 Act, the published rules and regulations of the SEC
thereunder and under Maryland law and such as may be required by state
securities or blue sky laws; (iv) the descriptions in the N-14 Registration
Statement with respect to the Growth Fund of Spain, including but not limited to
the description of statutes, legal and governmental proceedings and contracts
and other documents with respect to the Growth Fund of Spain, are accurate and
fairly present the information required to be shown; (v) such counsel does not
know of any statutes, legal or governmental proceedings or contracts or other
documents with respect to the Growth Fund of Spain related to the Merger of a
character required to be described in the N-14 Registration Statement which are
not described therein or, if required to be filed, filed as required; (vi) the
execution and delivery of this Agreement does not, and the consummation of the
Merger will not, violate any material provision of the Articles of
Incorporation, as amended, the by-laws, as amended, or any agreement (known to
such counsel) to which the Growth Fund of Spain is a party or by which the
Growth Fund of Spain is bound, except insofar as the parties have agreed to
amend such provision as a condition precedent to the Merger; (vii) the Growth
Fund of Spain is not, to the knowledge of such counsel, required to qualify to
do business as a foreign corporation in any jurisdiction where it is not
currently so qualified or where the failure to so qualify would have a material
adverse effect on the Spain and Portugal Fund, the Growth Fund of Spain, or
either of their stockholders; (viii) to the best of such counsel's knowledge, no
material suit, action or legal or administrative proceeding is pending or
threatened against the Growth Fund of Spain; and (ix) all corporate actions
required to be taken by the Growth Fund of Spain to authorize this Agreement and
to effect the Merger have been duly authorized by all necessary corporate
actions on behalf of the Growth Fund of Spain. Such opinion shall also state
that (x) while such counsel cannot make any representation as to the accuracy or
completeness of statements of fact in the N-14 Registration Statement or any
amendment or supplement thereto with respect to the Growth Fund of Spain,
nothing has come to their attention that would lead them to believe that, on the
respective effective dates of the N-14 Registration Statement and any amendment
or supplement thereto with respect to the Growth Fund of Spain, (1) the N-14
Registration Statement or any amendment or supplement thereto contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading with respect to the Growth Fund of Spain, and (2) the prospectus
included in the N-14 Registration Statement contained any untrue statement
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<PAGE> 22
of a material fact or omitted to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading with respect to the Growth Fund of Spain; and (xi) such
counsel need not express any opinion or belief as to the financial statements,
other financial data, statistical data or information relating to the Growth
Fund of Spain contained or incorporated by reference in the N-14 Registration
Statement. In giving the opinion set forth above, Vedder, Price, Kaufman &
Kammholz may state that it is relying on certificates of officers of the Growth
Fund of Spain with regard to matters of fact and certain certificates and
written statements of governmental officials with respect to the good standing
of the Growth Fund of Spain and on the opinion of Ballard Spahr Andrews &
Ingersoll, LLP as to matters of Maryland law.
(b) The Spain and Portugal Fund shall have received an opinion from
Dechert Price & Rhoads, as counsel to the Spain and Portugal Fund, dated the
Effective Date, to the effect that for Federal income tax purposes (i) the
Merger as provided in this Agreement will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Code and that the Spain and Portugal Fund
and the Growth Fund of Spain will each be deemed a "party" to a reorganization
within the meaning of Section 368(b) of the Code; (ii) in accordance with
Section 361(a) of the Code, no gain or loss will be recognized to the Growth
Fund of Spain as a result of the Merger or the distribution of Spain and
Portugal Fund Common Stock to Growth Fund of Spain stockholders under Section
361(c)(1) of the Code, except to the extent such stockholders are paid cash in
lieu of fractional shares of Spain and Portugal Fund in the Merger; (iii) under
Section 1032 of the Code, no gain or loss will be recognized to the Spain and
Portugal Fund as a result of the Merger; (iv) in accordance with Section
354(a)(1) of the Code, no gain or loss will be recognized to the stockholders of
the Growth Fund of Spain on the conversion of their shares into Spain and
Portugal Fund Common Stock; (v) in accordance with Section 362(b) of the Code,
the tax basis of the Growth Fund of Spain assets in the hands of the Spain and
Portugal Fund will be the same as the tax basis of such assets in the hands of
the Growth Fund of Spain prior to the consummation of the Merger; (vi) in
accordance with Section 358 of the Code, immediately after the Merger, the tax
basis of the Spain and Portugal Fund Common Stock received by the stockholders
of the Growth Fund of Spain in the Merger will be equal, in the aggregate, to
the tax basis of the shares of the Growth Fund of Spain converted pursuant to
the Merger; (vii) in accordance with Section 1223 of the Code, a stockholder's
holding period for the Spain and Portugal Fund Common Stock will be determined
by including the period for which he or she held the Common Stock of the Growth
Fund of Spain converted pursuant to the Merger, provided that such Growth Fund
of Spain shares were held as a capital asset; (viii) in accordance with Section
1223 of the Code, the Spain and Portugal Fund's holding period with respect to
the Growth Fund of Spain assets transferred will include the period for which
such assets were held by the Growth Fund of Spain; and (ix) the payment of cash
to the Growth Fund of Spain stockholders in lieu of fractional shares of the
Spain and Portugal Fund will be treated as though the fractional shares were
distributed as part of the Merger and then redeemed by the Spain and Portugal
Fund with
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the result that the Growth Fund of Spain stockholder will generally
have capital gains or losses to the extent the cash distribution differs from
such stockholder's basis allocable to the fractional shares.
7.5 Auditor's Consent and Certification.
The Spain and Portugal Fund shall have received from Ernst & Young LLP
a letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Effective Date, in form and
substance satisfactory to the Spain and Portugal Fund, to the effect that (i)
they are independent public auditors with respect to the Growth Fund of Spain
within the meaning of the 1933 Act and the applicable published rules and
regulations thereunder; and (ii) in their opinion, the financial statements and
supplementary information of the Growth Fund of Spain included or incorporated
by reference in the N-14 Registration Statement and reported on by them comply
as to form in all material respects with the applicable accounting requirements
of the 1933 Act and the published rules and regulations thereunder.
7.6 Liabilities.
The assets or liabilities of the Growth Fund of Spain to be transferred
to the Spain and Portugal Fund shall not include any assets or liabilities which
the Spain and Portugal Fund, by reason of limitations in its Registration
Statement or Articles of Incorporation, may not properly acquire or assume. The
Spain and Portugal Fund does not anticipate that there will be any such assets
or liabilities but the Spain and Portugal Fund will notify the Growth Fund of
Spain if any do exist and will reimburse the Growth Fund of Spain for any
reasonable transaction costs incurred by the Growth Fund of Spain for the
liquidation of such assets and liabilities.
7.7 Effectiveness of N-14 Registration Statement.
The N-14 Registration Statement shall have become effective under the
1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of the Spain and Portugal Fund, contemplated by
the SEC.
7.8 Approval of Exemptive Application; Regulatory Filings.
(a) The Exemptive Application shall have been approved and that the
Spain and Portugal Fund shall have received from the SEC such orders or
interpretations as Dechert Price & Rhoads, as counsel to the Spain and Portugal
Fund, deems reasonably necessary or desirable under the 1933 Act and the 1940
Act in connection with the Merger, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall be
in full force and effect.
(b) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
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7.9 Administrative Rulings, Proceedings.
The SEC shall not have issued an unfavorable advisory report under
Section 25(b) of the 1940 Act, nor instituted or threatened to institute any
proceeding seeking to enjoin consummation of the Merger under Section 25(c) of
the 1940 Act, no other legal, administrative or other proceeding shall be
instituted or threatened which would materially affect the financial condition
of the Growth Fund of Spain or would prohibit the Merger.
7.10 Satisfaction of the Spain and Portugal Fund.
All proceedings taken by the Growth Fund of Spain and its counsel in
connection with the Merger and all documents incidental thereto shall be
satisfactory in form and substance to the Spain and Portugal Fund.
7.11 Dividends.
Prior to the Effective Date, the Growth Fund of Spain shall have
declared and paid a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its stockholders
substantially all of its net investment company taxable income that has accrued
through the Effective Date, if any (computed without regard to any deduction of
dividends paid), and substantially all of its net capital gain, if any, realized
through the Effective Date.
7.12 Custodian's Certificate.
The Growth Fund of Spain's custodian shall have delivered to the Spain
and Portugal Fund a certificate identifying all of the assets of the Growth Fund
of Spain held or maintained by such custodian as of the Valuation Time.
7.13 Books and Records.
The Growth Fund of Spain's transfer agent shall have provided to the
Spain and Portugal Fund (i) the originals or true copies of all of the records
of the Growth Fund of Spain in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the
Growth Fund of Spain outstanding as of the Valuation Time, and (iii) the name
and address of each holder of record of any shares and the number of shares held
of record by each such shareholder.
7.14 Compliance with Blue Sky Laws.
All of the issued and outstanding shares of the Growth Fund of Spain
shall have been offered for sale and sold in conformity with all applicable
state securities or blue sky laws (including any applicable exemptions
therefrom) and, to the extent that any audit of the records of the Growth Fund
of Spain or its transfer agent by the Spain and Portugal Fund or its agents
shall
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have revealed otherwise, either (i) the Growth Fund of Spain shall have taken
all actions that in the opinion of the Spain and Portugal Fund or its counsel
are necessary to remedy any prior failure on the part of the Growth Fund of
Spain to have offered for sale and sold such shares in conformity with such laws
or (ii) the Growth Fund of Spain shall have furnished (or caused to be
furnished) surety, or deposited (or caused to be deposited) assets in escrow,
for the benefit of the Spain and Portugal Fund, to indemnify the Spain and
Portugal Fund against any expense, loss, claim, damage or liability whatsoever
that may be asserted to threatened by reason of such failure on the part of the
Spain and Portugal Fund to have offered and sold such shares in conformity with
such laws.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE GROWTH FUND OF
SPAIN
The obligations of the Growth Fund of Spain hereunder shall be subject
to the following conditions:
8.1 Approval of Merger.
This Agreement shall have been adopted, and an amendment to the Growth
Fund of Spain's Articles of Incorporation permitting the Merger to be approved
by the affirmative vote of the holders of 66 2/3% of the shares of Common Stock
of the Growth Fund of Spain issued and outstanding and entitled to vote thereon
shall have been approved, by the affirmative vote of the holders of 66 2/3%
percent of the shares of Common Stock of the Growth Fund of Spain issued and
outstanding and entitled to vote thereon; and that the Spain and Portugal Fund
shall have delivered to the Growth Fund of Spain a copy of the resolution
approving this Agreement adopted by its Board of Directors and stockholders,
certified by its secretary.
8.2 Certificates and Statements by the Spain and Portugal Fund.
(a) The Spain and Portugal Fund shall have furnished a statement of
assets, liabilities and capital, together with a schedule of investments with
their respective dates of acquisition and tax costs, certified on its behalf by
its President (or any Vice President) and its Treasurer, and a certificate
executed by both such officers, dated the Effective Date, certifying that there
has been no material adverse change in its financial position since March 31,
1998, other than changes in its portfolio securities since that date or changes
in the market value of its portfolio securities.
(b) The Spain and Portugal Fund shall have furnished to the Growth Fund
of Spain a certificate signed by its President (or any Vice President), dated
the Effective Date, certifying that as of the Effective Date all representations
and warranties made in this Agreement are true and correct in all material
respects as if made at and as of such date and each has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied at or prior to such dates.
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<PAGE> 26
(c) The Spain and Portugal Fund shall have delivered to the Growth Fund
of Spain a letter from Price Waterhouse LLP, dated the Effective Date, stating
that such firm has performed a limited review of the Federal, state and local
income tax returns for the period ended September 30, 1997, and that based on
such limited review, nothing came to their attention which caused them to
believe that such returns did not properly reflect, in all material respects,
the Federal, state and local income taxes of the Spain and Portugal Fund for the
period covered thereby; and that for the period from September 30, 1997 to and
including the Effective Date, such firm has performed a limited review to
ascertain the amount of such applicable Federal, state and local taxes, and has
determined that either such amount has been paid or reserves established for
payment of such taxes, this review to be based on unaudited financial data; and
that based on such limited review, nothing has come to their attention which
caused them to believe that the taxes paid or reserves set aside for payment of
such taxes were not adequate in all material respects for the satisfaction of
Federal, state and local taxes for the period from September 30, 1997, to and
including the Effective Date or that the Spain and Portugal Fund would not
continue to qualify as a regulated investment company for Federal income tax
purposes.
8.3 Absence of Litigation.
There shall be no material litigation pending with respect to the
matters contemplated by this Agreement.
8.4 Legal Opinions.
(a) The Growth Fund of Spain shall have received an opinion of Dechert
Price & Rhoads, as counsel to the Spain and Portugal Fund, in form and substance
satisfactory to the Growth Fund of Spain and dated the Effective Date, to the
effect that (i) the Spain and Portugal Fund is a corporation duly organized,
validly existing under the laws of the State of Maryland and is in good standing
with the Department; (ii) the Agreement has been duly authorized, executed and
delivered by the Spain and Portugal Fund, and, assuming that the N-14
Registration Statement complies with the 1933 Act, 1934 Act and the 1940 Act,
constitutes a valid and legally binding obligation of the Spain and Portugal
Fund, enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
pertaining to the enforcement of creditors' rights generally and by equitable
principles; (iii) to the best of such counsel's knowledge, no consent, approval,
authorization or order of any United States federal or Maryland state court or
governmental authority is required for the consummation by the Spain and
Portugal Fund of the Merger, except such may be required under the 1933 Act, the
1934 Act, the 1940 Act and the published rules and regulations of the SEC
thereunder and under Maryland law and such as may be required under state
securities or blue sky laws; (iv) the N-14 Registration Statement has become
effective under the 1933 Act, no stop order suspending the effectiveness of the
N-14 Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the 1933 Act, and,
with respect to the Spain and Portugal Fund, the N-14 Registration Statement,
and each amendment or supplement thereto, as of their respective effective
dates, appear on their face to be
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<PAGE> 27
appropriately responsive in all material respects to the requirements of the
1933 Act, the 1934 Act and the 1940 Act and the published rules and regulations
of the SEC thereunder; (v) the descriptions in the N-14 Registration Statement
with respect to the Spain and Portugal Fund, including, but not limited to, the
description of statutes, legal and governmental proceedings and contracts and
other documents with respect to the Spain and Portugal Fund, and other documents
with respect to the Spain and Portugal Fund are accurate and fairly present the
information required to be shown; (vi) such counsel does not know of any
statutes, legal or governmental proceedings or contracts with respect to the
Spain and Portugal Fund or other documents related to the Merger of a character
required to be described in the N-14 Registration Statement which are not
described therein or, if required to be filed, filed as required; (vii) the
execution and delivery of this Agreement does not, and the consummation of the
Merger will not, violate any material provision of the Articles of
Incorporation, as amended, the by-laws, as amended, or any agreement (known to
such counsel) to which the Spain and Portugal Fund is a party or by which the
Spain and Portugal Fund is bound, except insofar as the parties have agreed to
amend such provision as a condition precedent to the Merger; (viii) the Spain
and Portugal Fund is not, to the knowledge of such counsel, required to qualify
to do business as a foreign corporation in any jurisdiction where it is not
currently so qualified or where the failure to so qualify would have a material
adverse effect on the Spain and Portugal Fund, the Growth Fund of Spain, or
either of their stockholders; (ix) to the best of such counsel's knowledge, no
material suit, action or legal or administrative proceeding is pending or
threatened against the Spain and Portugal Fund; and (x) all corporate actions
required to be taken by the Spain and Portugal Fund to authorize this Agreement
and to effect the Merger have been duly authorized by all necessary corporate
actions on behalf of the Spain and Portugal Fund. Such opinion shall also state
that (x) while such counsel cannot make any representation as to the accuracy or
completeness of statements of fact in the N-14 Registration Statement or any
amendment or supplement thereto with respect to the Spain and Portugal Fund,
nothing has come to their attention that would lead them to believe that, on the
respective effective dates of the N-14 Registration Statement and any amendment
or supplement thereto, (1) the N-14 Registration Statement or any amendment or
supplement thereto contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading with respect to the Spain and Portugal
Fund; and (2) the prospectus included in the N-14 Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading with respect to the
Spain and Portugal Fund; and (y) such counsel need not express any opinion or
belief as to the financial statements, other financial data, statistical data or
information relating to the Spain and Portugal Fund contained or incorporated by
reference in the N-14 Registration Statement. In giving the opinion set forth
above, Dechert Price & Rhoads may state that it is relying on certificates of
officers of the Spain and Portugal Fund with regard to matters of fact and
certain certificates and written statements of governmental officials with
respect to the good standing of the Spain and Portugal Fund and on the opinion
of Venable, Baetjer & Howard, LLP as to matters of Maryland law.
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<PAGE> 28
(b) The Growth Fund of Spain shall have received an opinion from
Vedder, Price, Kaufman & Kammholz and dated the Effective Date, to the effect
that for Federal income tax purposes (i) the Merger as provided in this
Agreement will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code and that the Spain and Portugal Fund and the Growth
Fund of Spain will each be deemed a "party" to a reorganization within the
meaning of Section 368(b) of the Code; (ii) in accordance with Section 361(a) of
the Code, no gain or loss will be recognized to the Growth Fund of Spain as a
result of the Merger or on the distribution of Spain and Portugal Fund Common
Stock to Growth Fund of Spain stockholders under Section 361(c)(1) of the Code,
except to the extent such stockholders are paid cash in lieu of fractional
shares of Spain and Portugal Fund in the Merger; (iii) under Section 1032 of the
Code, no gain or loss will be recognized to the Spain and Portugal Fund as a
result of the Merger; (iv) in accordance with Section 354(a)(1) of the Code, no
gain or loss will be recognized to the stockholders of the Growth Fund of Spain
on the conversion of their shares into Spain and Portugal Fund Common Stock; (v)
in accordance with Section 362(b) of the Code, the tax basis of the Growth Fund
of Spain assets in the hands of the Spain and Portugal Fund will be the same as
the tax basis of such assets in the hands of the Growth Fund of Spain prior to
the consummation of the Merger; (vi) in accordance with Section 358 of the Code,
immediately after the Merger, the tax basis of the Spain and Portugal Fund
Common Stock received by the stockholders of the Growth Fund of Spain in the
Merger will be equal, in the aggregate, to the tax basis of the shares of the
Growth Fund of Spain converted pursuant to the Merger; (vii) in accordance with
Section 1223 of the Code, a stockholder's holding period for the Spain and
Portugal Fund Common Stock will be determined by including the period for which
he or she held the Common Stock of the Growth Fund of Spain converted pursuant
to the Merger, provided, that such Growth Fund of Spain shares were held as a
capital asset; (viii) in accordance with Section 1223 of the Code, Spain and
Portugal Fund's holding period with respect to the Growth Fund of Spain assets
transferred will include the period for which such assets were held by the
Growth Fund of Spain; and (ix) the payment of cash to the Growth Fund of Spain
stockholders in lieu of fractional shares of the Spain and Portugal Fund will be
treated as though the fractional shares were distributed as part of the Merger
and then redeemed by the Spain and Portugal Fund with the result that the
Growth Fund of Spain stockholder will generally have capital gains or losses to
the extent the cash distribution differs from such stockholder's basis
allocable to the fractional shares.
8.5 Auditor's Consent and Certification.
The Growth Fund of Spain shall have received from Price Waterhouse LLP
a letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Effective Date, in form and
substance satisfactory to the Growth Fund of Spain, to the effect that (i) they
are independent public auditors with respect to the Spain and Portugal Fund
within the meaning of the 1933 Act and the applicable published rules and
regulations thereunder; and (ii) in their opinion, the financial statements and
supplementary information of the Spain and Portugal Fund incorporated by
reference in the N-14 Registration Statement and
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<PAGE> 29
reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder.
8.6 Effectiveness of N-14 Registration Statement.
The N-14 Registration Statement shall have become effective under the
1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of the Growth Fund of Spain, contemplated by the
SEC.
8.7 Approval of Exemptive Application; Regulatory Filings.
(a) The Exemptive Application shall have been approved and the Growth
Fund of Spain shall have received from the SEC such orders or interpretations as
Vedder, Price, Kaufman & Kammholz, as counsel to the Growth Fund of Spain, deems
reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Merger, provided, that such counsel or counsel to the Spain
and Portugal Fund shall have requested such orders as promptly as practicable,
and all such orders shall be in full force and effect. Any applicable waiting
period under the HSR Act relating to the transactions contemplated hereby shall
have expired or been terminated.
(b) The SEC shall not have issued an unfavorable advisory report under
Section 25(b) of the 1940 Act, nor instituted or threatened to institute any
proceeding seeking to enjoin consummation of the Merger under Section 25(c) of
the 1940 Act, no other legal, administrative or other proceeding shall be
instituted or threatened which would materially affect the financial condition
of the Growth Fund of Spain or would prohibit the Merger.
(c) The Spain and Portugal Fund shall have received from any relevant
state securities administrator such order or orders as are reasonably necessary
or desirable under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable
state securities or blue sky laws in connection with the transactions
contemplated hereby, and that all such orders shall be in full force and effect.
8.8 Satisfaction of the Growth Fund of Spain.
That all proceedings taken by the Spain and Portugal Fund and its
counsel in connection with the Merger and all documents incidental thereto shall
be satisfactory in form and substance to the Growth Fund of Spain.
8.9 Dividends.
Prior to the Effective Date, the Spain and Portugal Fund shall have
declared and paid a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its stockholders
substantially all of its net investment company taxable income that has accrued
through the Effective Date, if any (computed without regard to any deduction of
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dividends paid), and substantially all of its net capital gain, if any, realized
through the Effective Date.
8.10 Nomination of Directors of Growth Fund of Spain
The Committee of Independent Directors of the Spain and Portugal Fund
shall have recommended, and the Board of Directors of the Spain and Portugal
Fund shall have approved, the nomination of the current Directors of the Growth
Fund of Spain for election to the Board of Directors of the Spain and Portugal
Fund at the Annual Meeting of Stockholders of the Spain and Portugal Fund
currently scheduled to be held July 23, 1998, and at any adjournments thereof,
provided that the Agreement shall have been adopted by the requisite vote of the
stockholders of the Spain and Portugal Fund and of the Growth Fund of Spain. The
current Directors of the Growth Fund of Spain elected to the Board of Directors
of the Spain and Portugal Fund shall take their seats on the Board of Directors
at the meeting of the Board of Directors of the Spain and Portugal Fund first
held after the Effective Date of the Merger. The nominees and their classes
shall be the following: Class I Directors (term to expire in 1999): Arthur R.
Gottschalk, Moritz A. Sell and John G. Weithers; Class II Directors (term to
expire in 2000): James E. Akins, Gregory L. Melville and John B. Tingleff; Class
III Directors (term to expire in 2001): Frederick T. Kelsey and Fred B. Renwick
(collectively, the "Nominees"). Provided further that in order to limit ongoing
expenses of the Spain and Portugal Fund and to enhance the efficiency of Board
operations, such Nominees have advised the Spain and Portugal Fund that it is
their current intention to serve on the Board of Directors of the Spain and
Portugal Fund only until such time as the proposed in-kind redemption offer to
stockholders of the Spain and Portugal Fund following the Merger is completed,
unless there is a pro-rata reduction in the amount of shares accepted pursuant
to such redemption offer, in which event the Nominees may continue to serve on
the Board of Directors to consider the appropriateness of further action. If any
Nominee is elected to the Board of Directors of the Spain and Portugal Fund, the
Committee of Independent Directors shall appoint each such Nominee who is not an
interested person of the Spain and Portugal Fund or Scudder Kemper Investments,
Inc. to serve on the Committee of Independent Directors.
8.11 Amendment of the Spain and Portugal Fund's Investment
Advisory, Management and Administration Contract
The Spain and Portugal Fund's Investment Advisory, Management and
Administration Contract with Scudder Kemper shall have been amended to provide
that the fee payable from the Spain and Portugal Fund to Scudder Kemper
thereunder shall be equal to an annual rate of 1.00% per annum of the value of
the Fund's average weekly net assets with respect to the first $400 million of
net assets, declining to 0.95% per annum of the value of the Fund's average
weekly net assets thereafter, and to provide that Scudder Kemper will pay for
the travel expenses related to the attendance at Board and committee meetings of
all Directors, officers and executive employees of the Spain and Portugal Fund
who are affiliates of Scudder Kemper.
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<PAGE> 31
9. PAYMENT OF EXPENSES
9.1 Allocation.
All expenses incurred in connection with the Merger since January 1,
1998 shall be allocated equally among Scudder Kemper Investments, Inc., the
Spain and Portugal Fund, and the Growth Fund of Spain. Such expenses shall
include, but not be limited to, all costs related to the preparation and
distribution of the N-14 Registration Statement, the Exemptive Application, the
HSR Filing for the Parties, proxy solicitation expenses, SEC registration fees,
and NYSE listing fees. Neither of the Parties owes any broker's or finder's fees
in connection with the transactions provided for herein.
9.2 Qualification of Investment Adviser.
For purposes of this section, the Investment Adviser represents and
warrants to the Parties that it has full power and authority to enter into and
perform its obligations under this Section 9. The execution, delivery and
performance by it of this provision has been duly authorized by all necessary
action.
10. COOPERATION FOLLOWING EFFECTIVE DATE
In case at any time after the Effective Date any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party may reasonably request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification as described below). The Growth Fund of Spain
acknowledges and agrees that from and after the Effective Date, the Spain and
Portugal Fund shall be entitled to possession of all documents, books, records,
agreements and financial data of any sort pertaining to the Growth Fund of
Spain.
11. INDEMNIFICATION
11.1 The Growth Fund of Spain.
The Spain and Portugal Fund agrees to indemnify and hold harmless the
Growth Fund of Spain and each of the Growth Fund of Spain's directors and
officers from and against any and all losses, claims, damages, liabilities or
expenses (including, without limitation, the payment of reasonable legal fees
and reasonable costs of investigation) to which jointly and severally, the
Growth Fund of Spain or any of its directors or officers may become subject,
insofar as any such loss, claim, damage, liability or expense (or actions with
respect thereto) arises out of or is based on any breach by the Spain and
Portugal Fund of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
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11.2 The Spain and Portugal Fund.
The Growth Fund of Spain agrees to indemnify and hold harmless the
Spain and Portugal Fund and each of the Spain and Portugal Fund's directors and
officers from and against any and all losses, claims, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Spain and
Portugal Fund or any of its directors or officers may become subject, insofar as
any such loss, claim, damage, liability or expense (or actions with respect
thereto) arises out of or is based on any breach by the Growth Fund of Spain of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
12. TERMINATION, POSTPONEMENT AND WAIVERS
12.1 Termination.
(a) Notwithstanding anything to the contrary in this Agreement, this
Agreement may be terminated and the Merger abandoned at any time (whether before
or after adoption by the stockholders of each of the Parties) prior to the
Effective Date, or the Effective Date may be postponed, (i) by mutual agreement
of the Parties' Board of Directors; (ii) by the Board of Directors of the Spain
and Portugal Fund if any of obligations of the Growth Fund of Spain set forth in
this Agreement has not been fulfilled or waived by such Board or if the Growth
Fund of Spain has made a material and intentional misrepresentation herein or in
connection herewith; or (iii) by the Board of Directors of the Growth Fund of
Spain if any obligations of the Spain and Portugal Fund set forth in this
Agreement has not been fulfilled or waived by such Board or if the Spain and
Portugal Fund has made a material and intentional misrepresentation herein or in
connection herewith.
(b) If the transaction contemplated by this Agreement shall not have
been consummated by December 31, 1998, this Agreement automatically shall
terminate on that date, unless a later date is mutually agreed to by the Boards
of Directors of the Parties.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the Agreement shall become void and have no further effect,
and there shall not be any liability hereunder on the part of either of the
Parties or their respective directors or officers, except for any such material
breach or intentional misrepresentation, as to each of which all remedies at law
or in equity of the party adversely affected shall survive.
12.2 Waiver.
At any time prior to the Effective Date, any of the terms or conditions
of this Agreement may be waived by the Board of Directors of either the Growth
Fund of Spain or the Spain and Portugal Fund (whichever is entitled to the
benefit thereof), if, in the judgment of such Board after consultation with its
counsel, such action or waiver will not have a material adverse effect on
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<PAGE> 33
the benefits intended in this Agreement to the stockholders of their respective
fund, on behalf of which such action is taken.
12.3 Expiration of Representations and Warranties.
(a) The respective representations and warranties contained in Articles
3 and 4 of this Agreement shall expire with, and be terminated by, the
consummation of the Merger, and neither of the Parties nor any of their
officers, directors, agents or stockholders shall have any liability with
respect to such representations or warranties after the Effective Date. This
provision shall not protect any officer, director, agent or stockholder of the
Parties against any liability to the entity for which that officer, director,
agent or stockholder so acts or to its stockholders to which that officer,
director, agent or stockholder would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
(b) If any order or orders of the SEC with respect to this Agreement
shall be issued prior to the Effective Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of the
Parties to be acceptable, such terms and conditions shall be binding as if a
part of this Agreement without further vote or approval of the stockholders of
the Parties, unless such terms and conditions shall result in a change in the
method of computing the number of shares of Spain and Portugal Fund Common Stock
to be issued pursuant to this Agreement, in which event, unless such terms and
conditions shall have been included in the proxy solicitation materials
furnished to the stockholders of the Parties prior to the meetings at which the
Merger shall have been approved, this Agreement shall not be consummated and
shall terminate unless the Parties call special meetings of stockholders at
which such conditions so imposed shall be submitted for approval.
13. MISCELLANEOUS
13.1 Transfer Restriction.
Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Merger is, to its
knowledge, an affiliate of a party to the Merger pursuant to Rule 145(c), Spain
and Portugal Fund will cause to be affixed upon the certificate(s) issued to
such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO THE SCUDDER SPAIN AND PORTUGAL FUND, INC. (OR ITS STATUTORY
SUCCESSOR) OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF
1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
FUND, SUCH REGISTRATION IS NOT REQUIRED.
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<PAGE> 34
and, further, that stop transfer instructions will be issued to the Spain and
Portugal Fund's transfer agent with respect to such shares. The Growth Fund of
Spain will provide the Spain and Portugal Fund on the Effective Date with the
name of any Growth Fund of Spain stockholder who is to the respective knowledge
of the Growth Fund of Spain an affiliate of it on such date.
13.2 Material Provisions.
All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
13.3 Notices.
All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Growth Fund of Spain:
Philip J. Collora, Esq.
Vice President, Treasurer and Secretary
The Growth Fund of Spain, Inc.
222 South Riverside Plaza
Chicago, IL 60606
With a Copy to:
David A. Sturms, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, IL 60601
If to the Spain and Portugal Fund:
Bruce H. Goldfarb, Esq.
Vice President and Assistant Secretary
Scudder Spain and Portugal Fund
345 Park Avenue
New York, NY 10154
-29-
<PAGE> 35
With a Copy to:
Robert W. Helm, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, D.C. 20006
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
13.4 Amendments.
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Growth Fund of Spain and the Spain and Portugal Fund; provided, however, that
following the meeting of the Growth Fund of Spain and Spain and Portugal Fund
stockholders to approve the Merger, no such amendment may have the effect of
changing the provisions for determining the number of the Spain and Portugal
Fund shares to be issued to the Growth Fund of Spain stockholders under this
Agreement to the detriment of such stockholders without their further approval.
13.5 Headings.
The Article headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
13.6 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.7 Enforceability.
Any term or provisions of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
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<PAGE> 36
13.8 Successors and Assigns.
This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the stockholders of the
Parties and their respective successors and assigns, any rights or remedies
under or by reason of this Agreement.
13.9 Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Maryland, without regard to its
principles of conflicts of law.
-31-
<PAGE> 37
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed by its President or Vice President and its seal to be
affixed thereto and attested by its Secretary or Assistant Secretary.
SCUDDER SPAIN AND PORTUGAL FUND, INC.
By:___________________________________[SEAL]
Name:____________________________________
Attest: Title:___________________________________
THE GROWTH FUND OF SPAIN, INC.
By:____________________________________[SEAL]
Name:____________________________________
Attest: Title:____________________________________
SCUDDER KEMPER INVESTMENTS, INC.
(with respect to Section 9)
By:____________________________________[SEAL]
Name:____________________________________
Attest: Title:____________________________________
-32-
<PAGE> 1
EXHIBIT 6
INVESTMENT ADVISORY,
MANAGEMENT AND ADMINISTRATION AGREEMENT
AGREEMENT, dated and effective as of December 31, 1997 between
SCUDDER SPAIN AND PORTUGAL FUND, INC., a Maryland corporation (herein referred
to as the "Fund"), and SCUDDER KEMPER INVESTMENTS, INC., a Delaware corporation
(herein referred to as the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is agreed by
the parties as follows:
1. The Manager hereby undertakes and agrees, upon the terms
and conditions herein set forth, (i) to make investment decisions for the Fund,
to prepare and make available to the Fund research and statistical data in
connection therewith and to supervise the acquisition and disposition of
securities by the Fund, including the selection of brokers or dealers to carry
out the transactions, all in accordance with the Fund's investment objectives
and policies and in accordance with guidelines and directions from the Fund's
Board of Directors; (ii) to assist the Fund as it may reasonably request in the
conduct of the Fund's business, subject to the direction and control of the
Fund's Board of Directors; (iii) to maintain or cause to be maintained for the
Fund all books, records, reports and any other information required under the
Investment Company Act of 1940, as amended, (the "1940 Act") to the extent that
such books, records and reports and other information are not maintained or
furnished by the custodian or other agents of the Fund; (iv) to furnish at the
Manager's expense for the use of the Fund such office space and facilities as
the Fund may require for its reasonable needs in the City of New York and to
furnish at the Manager's expense clerical services in the United States related
to research, statistical and investment work; (v) to render to the Fund
administrative services such as preparing reports to and meeting materials for
the Fund's Board of Directors and reports and notices to stockholders, preparing
and making filings with the Securities and Exchange Commission (the "SEC") and
other regulatory and self-regulatory organizations, including preliminary and
definitive proxy materials and post-effective amendments to the Fund's
registration statement on Form N-2 under the Securities Act of 1933, as amended,
and 1940 Act, as amended from time to time, providing assistance in certain
accounting and tax matters and investor and public relations, monitoring the
valuation of portfolio securities, assisting in the calculation of net asset
value and calculation and payment of distributions to stockholders, and
overseeing arrangements with the Fund's custodian, including the maintenance of
books and records of the Fund; and (vi) to pay the reasonable salaries, fees and
expenses of such of the Fund's officers and employees (including the Fund's
shares of payroll taxes) and any fees and expenses of such of the Fund's
directors as are directors, officers or employees of the Manager; provided,
however, that the Fund, and not the Manager, shall bear travel expenses (or an
appropriate portion thereof) of directors and officers of the Fund who are
directors, officers or employees of the Manager to the extent that such expenses
relate to attendance at meetings of the Board of Directors of the Fund or any
committees thereof or advisers thereto. The Manager shall bear all expenses
arising out of its duties hereunder but shall not be responsible for any
expenses of the Fund other than those specifically allocated to the Manager in
this paragraph 1 and shall not be responsible for any expenses assumed by the
administrator of the Fund pursuant to the Administration Agreement. In
<PAGE> 2
particular, but without limiting the generality of the foregoing, the Manager
shall not be responsible, except to the extent of the reasonable compensation of
such of the Fund's employees as are directors, officers or employees of the
Manager whose services may be involved, for the following expenses of the Fund:
organization and certain offering expenses of the Fund (including out-of-pocket
expenses, but not including overhead or employee costs of the Manager or of any
one or more organizations retained by the Fund or by the Manager as an advisor
or consultant to the Fund); fees payable to the Manager and to any advisor or
consultants, including an advisory board, if applicable; legal expenses;
auditing and accounting expenses; telephone, telex, facsimile, postage and other
communication expenses; taxes and governmental fees; stock exchange listing
fees; fees, dues and expenses incurred by the Fund in connection with membership
in investment company trade organizations; fees and expenses of the Fund's
custodians, subcustodians, transfer agents and registrars; payment for portfolio
pricing or valuation services to pricing agents, accountants, bankers and other
specialists, if any; expenses of preparing share certificates and other expenses
in connection with the issuance, offering, distribution, sale or underwriting of
securities issued by the Fund; expenses of registering or qualifying securities
of the Fund for sale; expenses relating to investor and public relations;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; brokerage commissions or other costs of acquiring
or disposing of any portfolio securities of the Fund; expenses of preparing and
distributing reports, notices and dividends to stockholders; costs of
stationery; costs of stockholders' and other meetings; litigation expenses; or
expenses relating to the Fund's dividend reinvestment and cash purchase plan
(except for brokerage expenses paid by participants in such plan).
2. As exclusive licensee of the rights to use and sublicense
the use of the "Scudder" and "Scudder Kemper Investments, Inc."/"Scudder,
Stevens & Clark" trademarks (together, the "Scudder Marks"), the Manager hereby
grants the Fund a nonexclusive right and sublicense to use (i) the "Scudder"
name and mark as part of the Fund's name (the "Fund Name"), and (ii) the Scudder
Marks in connection with the Fund's investment products and services, in each
case only for so long as this Agreement, any other investment management
agreement between the Fund and the Manager (or any organization which shall have
succeeded to the Manager's business as investment manager (the "Manager's
Successor")), or any extension, renewal or amendment hereof or thereof remains
in effect, and only for so long as the Manager is a licensee of the Scudder
Marks, provided, however, that the Manager agrees to use its best efforts to
maintain its license to use and sublicense the Scudder Marks. The Fund agrees
that it shall have no right to sublicense or assign rights to use the Scudder
Marks, shall acquire no interest in the Scudder Marks other than the rights
granted herein, that all of the Fund's uses of the Scudder Marks shall inure to
the benefit of Scudder Trust Company as owner and licensor of the Scudder Marks
(the "Trademark Owner"), and that the Fund shall not challenge the validity of
the Scudder Marks or the Trademark Owner's ownership thereof. The Fund further
agrees that all services and products it offers in connection with the Scudder
Marks shall meet commercially reasonable standards of quality, as may be
determined by the Manager or the Trademark Owner from time to time, provided
that the Manager acknowledges that the services and products the Fund rendered
during the one-year period preceding the date of this Agreement are acceptable.
At your reasonable request, the Fund shall cooperate with the Manager and the
Trademark Owner and shall execute and deliver any and all documents necessary to
maintain and protect (including but not limited to in connection with any
trademark infringement action) the Scudder Marks and/or enter
2
<PAGE> 3
the Fund as a registered user thereof. At such time as this Agreement or any
other investment management agreement shall no longer be in effect between the
Manager (or the Manager's Successor) and the Fund, or the Manager no longer is a
licensee of the Scudder Marks, the Fund shall (to the extent that, and as soon
as, it lawfully can) cease to use the Fund Name or any other name indicating
that it is advised by, managed by or otherwise connected with the Manager (or
the Manager's Successor) or the Trademark Owner. In no event shall the Fund use
the Scudder Marks or any other name or mark confusingly similar thereto
(including, but not limited to, any name or mark that includes the name
"Scudder") if this Agreement or any other investment advisory agreement between
the Manager (or the Manager's Successor) and the Fund is terminated.
3. The Fund agrees to pay to the Manager in United States
dollars, as full compensation for the services to be rendered and expenses to be
borne by the Manager hereunder, a monthly fee which, on an annual basis, is
equal to 1.00% per annum of the value of the Fund's average weekly net assets.
Each payment of a monthly fee to the Manager shall be made within the ten days
next following the day as of which such payment is so computed. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
The value of the net assets of the Fund shall be determined
pursuant to the applicable provisions of the Articles of Incorporation and
By-laws of the Fund, as amended from time to time.
4. The Manager agrees that it will not make a short sale of
any capital stock of the Fund or purchase any share of the capital stock of the
Fund otherwise than for investment.
5. In executing transactions for the Fund and selecting
brokers or dealers, the Manager shall use its best efforts to seek the best
overall terms available. In assessing the best overall terms available for any
Fund transaction, the Manager shall consider on a continuing basis all factors
it deems relevant, including, but not limited to, breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of any commission for
the specific transaction. In selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms available, the
Manager may consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which the Manager or an affiliate exercises
investment discretion.
6. Nothing herein shall be construed as prohibiting the
Manager from providing investment advisory services to, or entering into
investment advisory agreements with, other clients (including other registered
investment companies), including clients which may invest in securities of
Spanish or Portuguese issuers, or from utilizing (in providing such services)
information furnished to the Manager by advisors and consultants to the Fund and
others; nor shall anything herein be construed as constituting the Manager as an
agent of the Fund.
Whenever the Fund and one or more other accounts or investment
companies advised by the Manager have available funds for investment,
investments suitable and appropriate for each shall be
3
<PAGE> 4
allocated in accordance with procedures believed by the Manager to be equitable
to each entity. Similarly, opportunities to sell securities shall be allocated
in a manner believed by the Manager to be equitable. The Fund recognizes that in
some cases this procedure may adversely affect the size of the position that may
be acquired or disposed of for the Fund. In addition, the Fund acknowledges that
the persons employed by the Manager to assist in the performance of the
Manager's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right of the
Manager or any affiliate of the Manager to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
7. The Manager may rely on information reasonably believed by
it to be accurate and reliable. Neither the Manager nor its officers, directors,
employees or agents shall be subject to any liability for any act or omission,
error of judgment or mistake of law, or for any loss suffered by the Fund, in
the course of, connected with or arising out of any services to be rendered
hereunder, except by reason of willful misfeasance, bad faith, or gross
negligence on the part of the Manager in the performance of its duties or by
reason of reckless disregard on the part of the Manager of its obligations and
duties under this Agreement. Any person, even though also employed by the
Manager, who may be or become an employee of the Fund and paid by the Fund shall
be deemed, when acting within the scope of his employment by the Fund, to be
acting in such employment solely for the Fund and not as an employee or agent of
the Manager.
8. This Agreement shall remain in effect until the date which
is one year from the day and year first written above, and shall continue in
effect thereafter, but only so long as such continuance is specifically approved
at least annually by the affirmative vote of (i) a majority of the members of
the Fund's Board of Directors who are not parties to this Agreement or
interested persons of any party to this Agreement, or of any entity regularly
furnishing investment advisory services with respect to the Fund pursuant to an
agreement with any party to this Agreement, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) a majority of the Fund's
Board of Directors or the holders of a majority of the outstanding voting
securities of the Fund. This Agreement may nevertheless be terminated at any
time without penalty, on 60 days' written notice, by the Fund's Board of
Directors, by vote of holders of a majority of the outstanding voting securities
of the Fund, or by the Manager.
This Agreement shall automatically be terminated in the event
of its assignment, provided that an assignment to a corporate successor to all
or substantially all of the Manager's business or to a wholly-owned subsidiary
of such corporate successor which does not result in a change of actual control
or management of the Manager's business shall not be deemed to be an assignment
for the purposes of this Agreement. Any notice to the Fund or the Manager shall
be deemed given when received by the addressee.
9. This Agreement may not be transferred, assigned, sold or in
any manner hypothecated or pledged by either party hereto, except as permitted
under the 1940 Act or rules and regulations adopted thereunder. It may be
amended by mutual agreement, but only after authorization of such amendment by
the affirmative vote of (i) the holders of a majority of the outstanding voting
securities of the Fund, and (ii) a majority of the members of the Fund's Board
of Directors who are not parties to this Agreement or interested persons of any
party to this Agreement, or of any entity regularly furnishing
4
<PAGE> 5
investment advisory services with respect to the Fund pursuant to an agreement
with any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval.
10. This Agreement shall be construed in accordance with the
laws of the State of New York, without giving effect to the conflicts of laws
principles thereof, provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act. As used herein, the terms "interested
person," "assignment," and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act.
11. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
12. This Agreement supersedes all prior investment advisory,
management, and/or administration agreements in effect between the Fund and the
Manager.
IN WITNESS WHEREOF, the parties have executed this Agreement
by their officers thereunto duly authorized as of the day and year first written
above.
SCUDDER SPAIN AND PORTUGAL FUND, INC.
By: _________________________
President
SCUDDER KEMPER INVESTMENTS, INC.
By: _________________________
5
<PAGE> 1
EXHIBIT 9(a)(1)
CUSTODIAN AGREEMENT
Dated as of
March 14, 1996
Between
THE FIRST IBERIAN FUND, INC.
and
BROWN BROTHERS HARRIMAN & CO.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
APPOINTMENT OF CUSTODIAN
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
2.1. Safekeeping........................................................... 1
2.2. Manner of Holding Securities.......................................... 2
2.3. Registered Name; Nominee.............................................. 2
2.4. Purchases by the Fund................................................. 2
2.5. Exchanges of Securities............................................... 3
2.6. Sales of Securities................................................... 4
2.7. Depositary Receipts................................................... 4
2.8. Exercise of Rights; Tender Offers..................................... 5
2.9. Stock Dividends, Rights, Etc. ........................................ 5
2.10. Options............................................................... 5
2.11. Futures and Forward Contracts......................................... 6
2.12. Borrowings............................................................ 6
2.13. Bank Accounts......................................................... 7
2.14. Interest-Bearing Deposits............................................. 7
2.15. Foreign Exchange Transactions......................................... 8
2.16. Securities Loans...................................................... 9
2.17. Collections........................................................... 9
2.18. Dividends, Distributions and
Redemptions........................................................ 9
2.19. Proxies; Communications Relating to
Portfolio Securities............................................... 10
2.20. Bills................................................................. 10
2.21. Nondiscretionary Details.............................................. 11
2.22. Deposit of Fund Assets in Securities
Systems............................................................ 11
2.23. Other Transfers....................................................... 12
2.24. Establishment of Segregated Accounts.................................. 12
2.25. Custodian Advances.................................................... 13
i
<PAGE> 3
TABLE OF CONTENTS
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
3.1. Proper Instructions and Special
Instructions....................................................... 13
3.2. Authorized Persons.................................................... 14
3.3 Persons Having Access to Assets of the Fund........................... 15
3.4. Actions of Custodian Based on Proper
Instructions and Special Instructions.............................. 15
ARTICLE IV
SUBCUSTODIANS
4.1. Domestic Subcustodians................................................ 15
4.2. Foreign Subcustodians and Interim
Subcustodians...................................................... 16
4.3. Termination of a Subcustodian......................................... 17
4.4. Agents................................................................ 18
ARTICLE V
STANDARD OF CARE; INDEMNIFICATION
5.1. Standard of Care...................................................... 18
5.2. Liability of Custodian for Actions of
Other Persons...................................................... 19
5.3. Indemnification....................................................... 20
5.4. Investment Limitations................................................ 21
5.5. Fund's Right to Proceed............................................... 22
ARTICLE VI
RECORDS
6.1. Preparation of Reports................................................ 22
6.2. Custodian's Books and Records......................................... 22
6.3. Opinion of Fund's Independent Certified
Public Accountants................................................. 23
6.4. Reports of Custodian's Independent
Certified Public Accountants....................................... 23
6.5. Calculation of Net Asset Value........................................ 24
6.6. Information Regarding Foreign
Subcustodians and Foreign Depositories............................. 26
ii
<PAGE> 4
TABLE OF CONTENTS
ARTICLE VII
CUSTODIAN FEES
ARTICLE VIII
TERMINATION
ARTICLE IX
MISCELLANEOUS
9.1. Execution of Documents................................................ 28
9.2. Entire Agreement...................................................... 28
9.3. Waivers and Amendments................................................ 28
9.4. Captions.............................................................. 29
9.5. Governing Law......................................................... 29
9.6. Notices............................................................... 29
9.7. Successors and Assigns................................................ 29
9.8. Counterparts.......................................................... 29
9.9. Representative Capacity; Nonrecourse
Obligations........................................................ 29
Appendix A Procedures Relating to Custodian's Security Interest
Appendix B Subcustodians, Foreign Countries, and Foreign Depositories
Appendix C Sources of Price Quotations
iii
<PAGE> 5
Form of Custodian Agreement
CUSTODIAN AGREEMENT dated as of March 14, 1996, between The First
Iberian Fund, Inc. (the "Fund"), a Maryland corporation, and Brown Brothers
Harriman & Co. (the "Custodian"), a New York limited partnership.
In consideration of the mutual covenants and agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
The Fund hereby employs and appoints the Custodian as a custodian for
the term of and subject to the provisions of this Agreement. The Fund agrees to
deliver to the Custodian all securities, cash and other assets owned by it, and
all payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Fund from time to time, and
the cash consideration received by it for such new or treasury shares of capital
stock of the Fund as may be issued or sold from time to time.
The Custodian shall not be under any duty or obligation to require the
Fund to deliver to it any securities, cash or other assets owned by the Fund and
shall have no responsibility or liability for or on account of securities, cash
or other assets not so delivered. The Fund will deposit with the Custodian
copies of the Articles of Incorporation and By-Laws (or comparable documents) of
the Fund and all amendments thereto, and copies of such votes and other
proceedings of the Fund as may be necessary for or convenient to the Custodian
in the performance of its duties.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
The Custodian shall have and perform, or cause to be performed in
accordance with this Agreement, the powers and duties set forth in this Article
II. Pursuant to and in accordance with Article IV, the Custodian may appoint one
or more Subcustodians (as that term is defined in Article IV) to exercise the
powers and perform the duties of the Custodian set forth in this Article II and,
except as the context shall otherwise require, references to the Custodian in
this Article II shall include any Subcustodian so appointed.
2.1. Safekeeping. The Custodian shall keep safely the cash, securities
and other assets of the Fund that have been delivered
<PAGE> 6
to the Custodian and from time to time shall accept delivery of cash, securities
and other assets for safekeeping.
2.2. Manner of Holding Securities. (a) The Custodian shall hold
securities of the Fund (i) by physical possession of the share certificates or
other instruments representing such securities in registered or bearer form, or
the broker's receipts or confirmations for forward contracts, futures contracts,
options and similar contracts and securities, or (ii) in book-entry form by a
Securities System (as that term is defined in section 2.22) or (iii) by a
Foreign Depository (as that term is defined in section 4.2(a)).
(b) The Custodian shall identify securities and other assets held by
it hereunder as being held for the account of the Fund and shall require each
Subcustodian to identify securities and other assets held by such Subcustodian
as being held for the account of the Custodian for the Fund (or, if authorized
by Special Instructions, for customers of the Custodian) or for the account of
another Subcustodian for the Fund (or, if authorized by Special Instructions,
for customers of such Subcustodian); provided that if assets are held for the
account of the Custodian or a Subcustodian for customers of the Custodian or
such Subcustodian, the records of the Custodian shall at all times indicate the
Fund and other customers of the Custodian for which such assets are held in such
account and their respective interests therein.
2.3. Registered Name; Nominee. (a) The Custodian shall hold registered
securities and other assets of the Fund (i) in the name of the Custodian
(including any Subcustodian), the Fund, a Securities System, a Foreign
Depository or any nominee of any such person or (ii) in street certificate form,
so-called, and in any case with or without any indication of fiduciary capacity,
provided that such securities and other assets of the Fund are held in an
account of the Custodian containing only assets of the Fund or only assets held
as fiduciary or custodian for customers.
(b) Except with respect to securities or other assets which under
local custom and practice generally accepted by Institutional Clients are held
in the investor's name, the Custodian shall not hold registered securities or
other assets in the name of the Fund, and shall require each Subcustodian not to
hold registered securities or other assets in the name of the Fund, unless the
Custodian or such Subcustodian promptly notifies the Fund that such registered
securities are being held in the Fund's name and causes the Securities System,
Foreign Depository, issuer or other relevant person to direct all correspondence
and payments to the address of the Custodian or such Subcustodian, as the case
may be.
2.4. Purchases by the Fund. Upon receipt of Proper Instructions (as
that term is defined in section 3.1(a)) and insofar as funds are available for
the purpose (or as funds are otherwise
2
<PAGE> 7
provided by the Custodian at its discretion pursuant to section 2.25), the
Custodian shall pay for and receive securities or other assets purchased for the
account of the Fund, payment being made only upon receipt of the securities or
other assets (a) by the Custodian, or (b) by credit to an account which the
Custodian may have with a Securities System, clearing corporation of a national
securities exchange, Foreign Depository or other financial institution approved
by the Fund. Notwithstanding the foregoing, upon receipt of Proper Instructions:
(i) in the case of repurchase agreements entered into by the Fund in a
transaction involving a Securities System or a Foreign Depository, the Custodian
may release funds to the Securities System or Foreign Depository prior to the
receipt of advice from the Securities System or Foreign Depository that the
securities underlying such repurchase agreement have been transferred by book
entry into the Account (as defined in section 2.22) of the Custodian maintained
with such Securities System or similar account with a Foreign Depository,
provided that the instructions of the Custodian to the Securities System or
Foreign Depository require that the Securities System or Foreign Depository, as
the case may be, may make payment of such funds to the other party to the
repurchase agreement only upon transfer by book-entry of the securities
underlying the repurchase agreement into the Account, (ii) in the case of
futures and forward contracts, options and similar securities, foreign currency
purchased from third parties, time deposits, foreign currency call account
deposits, and other bank deposits, and transactions pursuant to sections 2.10,
2.11, 2.13, 2.14 and 2.15, the Custodian may make payment therefor prior to
delivery of the contract, currency, option or security without receiving an
instrument evidencing said contract, currency, option, security or deposit, and
(iii) in the case of the purchase of securities or other assets the settlement
of which occurs outside the United States of America, the Custodian may make
payment therefor and receive delivery thereof in accordance with local custom
and practice generally accepted by Institutional Clients (as defined below) in
the country in which settlement occurs, provided that in every case the
Custodian shall be subject to the standard of care set forth in Article V and to
any Special Instructions given in accordance with section 3.1(b). Except in the
cases provided for in the immediately preceding sentence, in any case where
payment for purchase of securities or other assets for the account of the Fund
is made by the Custodian in advance of receipt of the securities or other assets
so purchased in the absence of Proper Instructions to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities or other
assets to the same extent as if the securities or other assets had been received
by the Custodian. For purposes of this Agreement, "Institutional Clients" means
U.S. registered investment companies, or major, U.S.-based commercial banks,
insurance companies, pension funds or substantially similar financial
institutions which, as a substantial part of their business operations, purchase
or sell securities and make use of custodial services.
2.5. Exchanges of Securities. Upon receipt of Proper Instructions, the
Custodian shall exchange securities held by it for
3
<PAGE> 8
the account of the Fund for other securities in connection with any
reorganization, recapitalization, split-up of shares, change of par value,
conversion or other event, and to deposit any such securities in accordance with
the terms of any reorganization or protective plan. Without Proper Instructions,
the Custodian may surrender securities in temporary form for definitive
securities, may surrender securities for transfer into a name or nominee name as
permitted in section 2.3, and may surrender securities for a different number of
certificates or instruments representing the same number of shares or same
principal amount of indebtedness, provided that the securities to be issued are
to be delivered to the Custodian.
2.6. Sales of Securities. Upon receipt of Proper Instructions, the
Custodian shall make delivery of securities or other assets which have been sold
for the account of the Fund, but only against payment therefor (a) in cash, by a
certified check, bank cashier's check, bank credit, or bank wire transfer, or
(b) by credit to the account of the Custodian with a Securities System, clearing
corporation of a national securities exchange, Foreign Depository or other
financial institution approved by the Fund by Proper Instructions. However, (i)
in the case of delivery of physical certificates or instruments representing
securities, the Custodian may make delivery to the broker acting as agent for
the buyer of the securities, against receipt therefor, for examination in
accordance with "street delivery" custom, provided that the Custodian shall have
taken reasonable steps to ensure prompt collection of the payment for, or the
return of, such securities by the broker or its clearing agent and (ii) in the
case of the sale of securities or other assets the settlement of which occurs
outside the United States of America, such securities shall be delivered and
paid for in accordance with local custom and practice generally accepted by
Institutional Clients in the country in which settlement occurs, provided that
in every case the Custodian shall be subject to the standard of care set forth
in Article V and to any Special Instructions given in accordance with section
3.1(b). Except in the cases provided for in the immediately preceding sentence,
in any case where delivery of securities or other assets for the account of the
Fund is made by the Custodian in advance of receipt of payment for the
securities or other assets so sold in the absence of Proper Instructions to so
deliver in advance, the Custodian shall be absolutely liable to the Fund for
such payment to the same extent as if such payment had been received by the
Custodian.
2.7. Depositary Receipts. Upon receipt of Proper Instructions, the
Custodian shall surrender securities to the depositary used by an issuer of
American Depositary Receipts, European Depositary Receipts, Global Depositary
Receipts, International Depositary Receipts and other types of Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the Custodian that the depositary has
acknowledged receipt of instructions to issue ADRs with respect to such
securities in the name of the Custodian, or a nominee
4
<PAGE> 9
of the Custodian, for delivery to the Custodian in Boston, Massachusetts, or at
such other place as the Custodian may from time to time designate.
Upon receipt of Proper Instructions, the Custodian shall surrender
ADRs to the issuer thereof against a written receipt therefor adequately
describing the ADRs surrendered and written evidence satisfactory to the
Custodian that the issuer of the ADRs has acknowledged receipt of instructions
to cause its depositary to deliver the securities underlying such ADRs to the
Custodian.
2.8. Exercise of Rights; Tender Offers. Upon receipt of Proper
Instructions, the Custodian shall (a) deliver to the issuer or trustee thereof,
or to the agent of either, warrants, puts, calls, futures contracts, options,
rights or similar securities for the purpose of being exercised or sold,
provided that the new securities and cash, if any, acquired by such action are
to be delivered to the Custodian, and (b) deposit securities upon invitations
for tenders of securities, provided that the consideration is to be paid or
delivered or the tendered securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the Custodian
shall take all necessary action, unless otherwise directed to the contrary by
Proper Instructions, to comply with the terms of all mandatory or compulsory
exchanges, calls, tenders, redemptions or similar rights of security ownership
of which the Custodian receives notice or otherwise becomes aware, and shall
promptly notify the Fund of any such action in writing by facsimile transmission
or in such other manner as the Fund and the Custodian may agree in writing.
2.9. Stock Dividends, Rights, Etc. The Custodian shall receive and
collect all stock dividends, rights and other items of like nature and shall
deal with the same as it would other deposited assets or as directed in Proper
Instructions.
2.10. Options and Swaps. Upon receipt of Proper Instructions or
instructions from a third party properly given under any Procedural Agreement,
the Custodian shall (a) receive and retain confirmations or other documents (to
the extent confirmations or other documents are provided to the Custodian)
evidencing the purchase, sale or writing of an option or swap of any type on or
in respect of a security, securities index, currency or similar form of property
by the Fund; (b) deposit and maintain in a segregated account, either physically
or by book-entry in a Securities System or Foreign Depository or with a broker,
dealer or other party designated by the Fund, securities, cash or other assets
in connection with options transactions or swap agreements entered into by the
Fund; (c) transfer securities, cash or other assets to a Securities System,
Foreign Depository, broker, dealer or other party or organization, as margin
(including variation margin) or other security for the Fund's obligations in
respect of an option or swap; and (d) pay, release and/or transfer such
securities, cash or other assets only in accordance with a notice or other
communication evidencing the expira-
5
<PAGE> 10
tion, termination, exercise of any such option or default under any such option
or swap furnished by The Options Clearing Corporation, the securities or options
exchange on which such option is traded, or such other organization, party,
broker or dealer as may be responsible for handling such options or swap
transactions or have authority to give such notice or communication under a
Procedural Agreement. Subject to the standard of care set forth in Article V
(and to its safekeeping duties set forth in section 2.1), the Custodian shall
not be responsible for the sufficiency of assets held in any segregated account
established and maintained in accordance with Proper Instructions or
instructions from a third party properly given under any Procedural Agreement or
for the performance by the Fund or any third party of its obligations under any
Procedural Agreement. For purposes of this Agreement, a "Procedural Agreement"
is a procedural agreement relating to options, swaps (including caps, floors and
similar arrangements), futures contracts, forward contracts or borrowings by the
Fund to which the Fund, the Custodian and a third party are parties.
2.11. Futures and Forward Contracts. Upon receipt of Proper
Instructions or instructions from a third party properly given under any
Procedural Agreement, the Custodian shall (a) receive and retain confirmations
or other documents (to the extent confirmations or other documents are provided
to the Custodian) evidencing the purchase or sale of a futures contract or an
option on a futures contract by the Fund or the entry into a forward contract by
the Fund; (b) deposit and maintain in a segregated account, either physically or
by book entry in a Securities System or Foreign Depository, for the benefit of
any futures commission merchant, or pay to such futures commission merchant,
securities, cash or other assets designated by the Fund as initial, maintenance
or variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written, purchased or sold by the Fund or any forward
contracts entered into, in accordance with the provisions of any Procedural
Agreement designed to comply with the rules of the Commodity Futures Trading
Commission and/or any contract market, or any similar organization or
organizations on which such contracts or options are traded; and (c) pay,
release and/or transfer securities, cash or other assets into or out of such
margin accounts only in accordance with any such agreements or rules. Subject to
the standard of care set forth in Article V, the Custodian shall not be
responsible for the sufficiency of assets held in any such margin account
established and maintained in accordance with Proper Instructions or
instructions from a third party properly given under any Procedural Agreement or
for the performance by the Fund or any third party of its obligations under any
Procedural Agreement.
2.12. Borrowings. Upon receipt of Proper Instructions or instructions
from a third party properly given under any Procedural Agreement, the Custodian
shall deliver securities of the Fund to lenders or their agents, or otherwise
establish a segregated account
6
<PAGE> 11
as agreed to by the Fund and the Custodian, as collateral for borrowings
effected by the Fund, but only against receipt of the amounts borrowed (or to
adjust the amount of such collateral in accordance with the Procedural
Agreement), provided that if such collateral is held in book-entry form by a
Securities System or Foreign Depository, such collateral may be transferred by
book-entry to such lender or its agent against receipt by the Custodian of an
undertaking by such lender to pay such borrowed money to or upon the order of
the Fund on the next business day following such transfer of collateral.
2.13. Bank Accounts. The Custodian shall open and operate one or more
accounts in the name of the Fund on the Custodian's books subject only to draft
or order by the Custodian. All funds received by the Custodian from or for the
account of the Fund shall be deposited in said account(s). The responsibilities
of the Custodian to the Fund for deposits accepted on the Custodian's books
shall be that of a U.S. bank for a similar deposit.
Upon receipt of Proper Instructions, the Custodian may open and
operate additional accounts in such other banks or trust companies, including
any Subcustodian, as may be designated by the Fund in such instructions (any
such bank or trust company other than the Custodian so designated by the Fund
being referred to hereafter as a "Banking Institution"), provided that any such
account shall be in the name of the Custodian for the account of the Fund (or,
if authorized by Special Instructions, for the account of the Custodian's
customers generally) and subject only to the Custodian's draft or order;
provided that if assets are held in such an account for the account of the
Custodian's customers generally, the records of the Custodian shall at all times
indicate the Fund and other customers for which such assets are held in such
account and their respective interests therein. Such accounts may be opened with
Banking Institutions in the United States and in other countries and may be
denominated in U.S. Dollars or such other currencies as the Fund may determine.
So long as the Custodian exercises reasonable care and diligence in executing
Proper Instructions, the Custodian shall have no responsibility for the failure
of any Banking Institution to make payment from such an account upon demand.
2.14. Interest-Bearing Deposits. The Custodian shall place
interest-bearing fixed term and call deposits with such banks and in such
amounts as the Fund may authorize pursuant to Proper Instructions. Such deposits
may be placed with the Custodian or with Subcustodians or other Banking
Institutions as the Fund may determine. Deposits may be denominated in U.S.
Dollars or other currencies, as the Fund may determine, and need not be
evidenced by the issuance or delivery of a certificate to the Custodian,
provided that the Custodian shall include in its records with respect to the
assets of the Fund, appropriate notation as to the amount and currency of each
such deposit, the accepting Banking Institution and all other appropriate
details, and shall retain such forms of advice or receipt
7
<PAGE> 12
evidencing such deposits as may be forwarded to the Custodian by the Banking
Institution in question. The responsibility of the Custodian for such deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit. With respect to interest-bearing deposits other than those accepted on
the Custodian's books, (a) the Custodian shall be responsible for the collection
of income as set forth in section 2.17, and (b) so long as the Custodian
exercises reasonable care and diligence in executing Proper Instructions, the
Custodian shall have no responsibility for the failure of any Banking
Institution to make payment in accordance with the terms of such an account.
Upon receipt of Proper Instructions, the Custodian shall take such reasonable
steps as the Fund deems necessary or appropriate to cause such deposits to be
insured to the maximum extent possible by the Federal Deposit Insurance
Corporation and any other applicable deposit insurers.
2.15. Foreign Exchange Transactions. (a) Upon receipt of Proper
Instructions, the Custodian shall settle foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future delivery on behalf
and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may direct pursuant to Proper Instructions. The
Custodian shall be responsible for the transmission of cash and instructions to
and from the currency broker or Banking Institution with which the contract or
option is made, the safekeeping of all certificates and other documents and
agreements received by the Custodian evidencing or relating to such foreign
exchange transactions and the maintenance of proper records as set forth in
section 6.2. In connection with such transactions, upon receipt of Proper
Instructions, the Custodian shall be authorized to make free outgoing payments
of cash in the form of U.S. Dollars or foreign currency without receiving
confirmation of a foreign exchange contract or option or confirmation that the
countervalue currency completing the foreign exchange contract has been
delivered or that the option has been delivered or received. The Custodian shall
have no authority to select third party foreign exchange dealers and, so long as
the Custodian exercises reasonable care and diligence in executing Proper
Instructions, shall have no responsibility for the failure of any such dealer to
settle any such contract or option in accordance with its terms. The Fund shall
reimburse the Custodian for any interest charges or reasonable out-of-pocket
expenses incurred by the Custodian resulting from the failure or delay of third
party foreign exchange dealers to deliver foreign exchange, other than interest
charges and expenses occasioned by or resulting from the negligence, misfeasance
or misconduct of the Custodian.
(b) The Custodian shall not be obligated to enter into foreign exchange
transactions as principal. However, if the Custodian has made available to the
Fund its services as principal in foreign exchange transactions, upon receipt of
Proper Instructions, the Custodian shall enter into foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
on behalf of and for the account of the Fund with the Custodian as prin-
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<PAGE> 13
cipal. The responsibility of the Custodian with respect to foreign exchange
contracts and options executed with the Custodian as principal shall be that of
a U.S. bank with respect to a similar contract or option.
2.16. Securities Loans. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund, in connection with loans of
securities by the Fund, to the borrower thereof in accordance with the terms of
a written securities lending agreement to which the Fund is a party or which is
otherwise approved by the Fund.
2.17. Collections. The Custodian shall promptly collect, receive and
deposit in the account or accounts referred to in section 2.13 all income,
payments of principal and other payments with respect to the securities and
other assets held hereunder, promptly endorse and deliver any instruments
required to effect such collections and in connection therewith deliver the
certificates or other instruments representing securities to the issuer thereof
or its agent when securities are called, redeemed, retired or otherwise become
payable; provided that the payment is to be made in such form and manner and at
such time, which may be after delivery by the Custodian of the instrument
representing the security, as is in accordance with the terms of the instrument
representing the security, such Proper Instructions as the Custodian may
receive, governmental regulations, the rules of the Securities System or Foreign
Depository in which such security is held or, with respect to securities
referred to in clause (iii) of the second sentence of section 2.4, in accordance
with local custom and practice generally accepted by Institutional Clients in
the market where payment or delivery occurs, but in all events subject to the
standard of care set forth in Article V. The Custodian shall promptly execute
ownership and other certificates and affidavits for all federal, state and
foreign tax purposes in connection with receipt of income or other payments with
respect to securities or other assets of the Fund or in connection with transfer
of securities or other assets. Pursuant to Proper Instructions, the Custodian
shall take such other actions, which may involve an investment decision, as the
Fund may request with respect to the collection or receipt of funds or the
transfer of securities. Except in the cases provided for in the first sentence
of this section, in any case where delivery of securities for the account of the
Fund is made by the Custodian in advance of receipt of payment with respect to
such securities in the absence of Proper Instructions to so deliver in advance,
the Custodian shall be absolutely liable to the Fund for such payment to the
same extent as if such payment had been received by the Custodian. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and the Custodian may agree in writing if any amount
payable with respect to securities or other assets of the Fund is not received
by the Custodian when due.
2.18. Dividends, Distributions and Redemptions. Upon receipt of Proper
Instructions, or upon receipt of instructions from
9
<PAGE> 14
the Fund's shareholder servicing agent or agent with comparable duties (the
"Shareholder Servicing Agent") (given by such person or persons and in such
manner on behalf of the Shareholder Servicing Agent as the Fund shall have
authorized by Proper Instructions), the Custodian shall release funds or
securities, insofar as available, to the Shareholder Servicing Agent or as such
Shareholder Servicing Agent shall otherwise instruct (a) for the payment of
dividends or other distributions to Fund shareholders or (b) for payment to the
Fund shareholders who have delivered to such Shareholder Servicing Agent a
request for repurchase or redemption of their shares of capital stock of the
Fund.
2.19. Proxies; Communications Relating to Portfolio Securities. The
Custodian shall, as promptly as is appropriate under the circumstances, deliver
or mail to the Fund all forms of proxies and all notices of meetings and any
other notices, announcements or information (including, without limitation,
information relating to pendency of calls and maturities of securities and
expirations of rights in connection therewith, notices of exercise of call and
put options written by the Fund, and notices of the maturity of futures
contracts (and options thereon) purchased or sold by the Fund) affecting or
relating to securities owned by the Fund that are received by the Custodian.
Upon receipt of Proper Instructions, the Custodian shall execute and deliver or
cause its nominee to execute and deliver such proxies or other authorizations as
may be required. Neither the Custodian nor its nominees shall vote upon any of
such securities or execute any proxy to vote thereon or give any consent or take
any other action with respect to securities or other assets of the Fund (except
as otherwise herein provided) unless ordered to do so by Proper Instructions.
The Custodian shall notify the Fund on or before ex-date (or if later
within 24 hours after receipt by the Custodian of the notice of such corporate
action) of all corporate actions affecting portfolio securities of the Fund
received by the Custodian from the issuers of the securities involved, from
third parties proposing a corporate action, from subcustodians, or from commonly
utilized sources (including proprietary sources) providing corporate action
information, a list of which will be provided by the Custodian to the Fund from
time to time upon request. Information as to corporate actions shall include
information as to dividends, distributions, stock splits, stock dividends,
rights offerings, conversions, exchanges, tender offers, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
ex-, record and pay dates and the amounts or other terms thereof. If the Fund
desires to take action with respect to any corporate action, the Fund shall
notify the Custodian within such period as will give the Custodian (including
any Subcustodian) a sufficient amount of time to take such action.
2.20. Bills. Upon receipt of Proper Instructions, the Custodian shall
pay or cause to be paid, insofar as funds are
10
<PAGE> 15
available for the purpose, bills, statements, or other obligations of the Fund
(including but not limited to interest charges, taxes, advisory fees,
compensation to Fund officers and employees, and other operating expenses of the
Fund).
2.21. Nondiscretionary Details. Without the necessity of express
authorization from the Fund, the Custodian shall (a) attend to all
nondiscretionary details in connection with the sale, exchange, substitution,
purchase, transfer or other dealings with securities, cash or other assets of
the Fund held by the Custodian except as otherwise directed from time to time by
the Board of Directors of the Fund, and (b) make payments to itself or others
for minor expenses of handling securities or other assets and for other similar
items relating to the Custodian's duties under this Agreement, provided that all
such payments shall be accounted for to the Fund.
2.22. Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by the Fund in (a) The Depository Trust
Company, (b) the Participants Trust Company, (c) any book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31
CFR Part 350, or the book-entry regulations of federal agencies substantially in
the form of Subpart O, or (d) any other domestic clearing agency registered with
the Securities and Exchange Commission (the "SEC") under Section 17A of the
Securities Exchange Act of 1934, as amended, which acts as a securities
depository and whose use the Fund has previously approved by Special
Instructions (as that term is defined in section 3.1(b)) (each of the foregoing
being referred to in this Agreement as a "Securities System"). Utilization of a
Securities System shall be in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following provisions:
(i) The Custodian may deposit and/or maintain securities held
hereunder in a Securities System, provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian, or otherwise for
customers;
(ii) The records of the Custodian with respect to securities of
the Fund which are maintained in a securities System shall identify by
book entry those securities belonging to the Fund;
(iii) The Custodian shall pay for securities purchased for the
account of the Fund only upon (A) receipt of advice from the
Securities System that such securities have been transferred to the
Account, and (B) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account of the
Fund. The Custodian shall transfer securities sold for the account of
the Fund only upon (1) receipt of advice from the
11
<PAGE> 16
Securities System that such securities have been transferred to the
Account, and (B) the making of an entry on the records of the Custodian
to reflect such payment and transfer for the account of the Fund. The
Custodian shall transfer securities sold for the account of the Fund
only upon (1) receipt of advice from the Securities System that payment
for such securities has been transferred to the Account, and (2) the
making of an entry on the records of the Custodian to reflect such
transfer and payment for the account of the Fund. Copies of all advices
from the Securities System of transfers of securities for the account
of the Fund shall identify the Fund, be maintained for the Fund by the
Custodian and be provided to the Fund at its request. The Custodian
shall furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and shall
furnish to the Fund copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of the Fund
on the next business day;
(iv) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System; and the Custodian shall
send to the Fund such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to
time; and
(v) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any such Securities System on behalf of the Fund
as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of the Fund that had been
maintained with such Securities System.
2.23. Other Transfers. The Custodian shall deliver securities, cash,
and other assets of the Fund to a Subcustodian as necessary to effect
transactions authorized by Proper Instructions. Upon receipt of Proper
Instructions in writing in advance, the Custodian shall make such other
disposition of securities, cash or other assets of the Fund in a manner other
than or for purposes other than as enumerated in this Agreement, provided that
such written Proper Instructions relating to such disposition shall include a
statement of the purpose for which the delivery is to be made, the amount of
funds and/or securities to be delivered and the name of the person or persons to
whom delivery is to be made.
2.24. Establishment of Segregated Accounts. Upon receipt of Proper
Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other assets of the
Fund, including securities maintained by the Custodian in a Securities System,
said account to be maintained (a) for the purposes set forth in sections 2.10,
2.11, 2.12 and 2.15; (b) for the purposes of compliance by the Fund with the
procedures required by Release No. 10666 under the Investment Company Act of
1940, as amended (the "1940 Act"), or any subsequent release or releases of the
SEC relating to the maintenance of segregated accounts
12
<PAGE> 17
by registered investment companies; or (c) for such other purposes as set forth,
from time to time, in Special Instructions.
2.25. Custodian Advances. (a) In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its discretion without further Proper
Instructions, provide an advance ("Advance") to the Fund in an amount sufficient
to allow the completion of the transaction by reason of which such payment or
transfer of funds is to be made. In addition, in the event the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund as to which it is subsequently determined that the Fund has
overdrawn its cash account with the Custodian as of the close of business on the
date of such payment or transfer, said overdraft shall constitute an Advance.
Any Advance shall be payable on demand by the Custodian, unless otherwise agreed
by the Fund and the Custodian, and shall accrue interest from the date of the
Advance to the date of payment by the Fund at a rate agreed upon in writing from
time to time by the Custodian and the Fund. It is understood that any
transaction in respect of which the Custodian shall have made an Advance,
including but not limited to a foreign exchange contract or other transaction in
respect of which the Custodian is not acting as a principal, is for the account
of and at the risk of the Fund, and not, by reason of such Advance, deemed to be
a transaction undertaken by the Custodian for its own account and risk. The
Custodian and the Fund acknowledge that the purpose of Advances is to finance
temporarily the purchase or sale of securities for prompt delivery or to meet
redemptions or emergency expenses or cash needs that are not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in writing
(an "Notice of Advance") of any Advance by facsimile transmission or in such
other manner as the Fund and the Custodian may agree in writing. At the request
of the Custodian, the Fund shall pledge, assign and grant to the Custodian a
security interest in certain specified securities of the Fund, as security for
Advances provided to the Fund, under the terms and conditions set forth in
Appendix A attached hereto.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
3.1. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used in this Agreement, the term "Proper
Instructions" shall mean: (i) a tested telex from the Fund or the Fund's
investment manager or adviser, or a written request, direction, instruction or
certification (which may be given by facsimile transmission) signed or initialed
on behalf of the Fund by, one or more Authorized Persons (as that term is
defined in section 3.2); (ii) a telephonic or other oral communication by one or
13
<PAGE> 18
more Authorized Persons; or (iii) a communication (other than facsimile
transmission) effected directly between electro-mechanical or electronic devices
or systems (including, without limitation, computers) by the Fund or the Fund's
investment manager or adviser or by one or more Authorized Persons on behalf of
the Fund; provided that communications of the types described in clauses (ii)
and (iii) above purporting to be given by an Authorized Person shall be
considered Proper Instructions only if the Custodian reasonably believes such
communications to have been given by an Authorized Person with respect to the
transaction involved. Instructions given in the form of Proper Instructions
under clause (i) shall be deemed to be Proper Instructions if they are
reasonably believed by the Custodian to be genuine. Proper Instructions in the
form of oral communications shall be confirmed by the Fund in the manner set
forth in clauses (i) or (iii) above, but the lack of such confirmation shall in
no way affect any action taken by the Custodian in reliance upon such oral
instructions prior to the Custodian's receipt of such confirmation. The Fund,
the Custodian and any investment manager or adviser of the Fund each is hereby
authorized to record any telephonic or other oral communications between the
Custodian and any such person. Proper Instructions may relate to specific
transactions or to types or classes of transactions, provided that Proper
Instructions may take the form of standing instructions only if they are in
writing.
(b) Special Instructions. As used in this Agreement, the term "Special
Instructions" shall mean Proper Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of the Fund or any other
person designated by the Treasurer of the Fund in writing, which
countersignature or confirmation shall be (i) included on the instrument
containing the Proper Instructions or on a separate instrument relating thereto,
and (ii) delivered by hand, facsimile transmission, mail or courier service or
in such other manner as the Fund and the Custodian agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
3.2. Authorized Persons. Concurrently with the execution of this
Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian a certificate, duly certified by the Secretary or
Assistant Secretary of the Fund, setting forth: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Proper
Instructions or any other notice, request, direction, instruction, certificate
or instrument on behalf of the Fund (each an "Authorized Person"); and (b) the
names, titles and signatures of those persons authorized to issue Special
Instructions. Such certificate may be accepted and relied upon by the Custodian
as conclusive evidence of the facts set forth therein and
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<PAGE> 19
shall be considered to be in full force and effect until delivery to the
Custodian of a similar certificate to the contrary. Upon delivery of a
certificate which deletes the name(s) of a person previously authorized to give
Proper Instructions or to issue Special Instructions, such persons shall no
longer be considered an Authorized Person or authorized to issue Special
Instructions.
3.3. Persons Having Access to Assets of the Fund. Notwithstanding
anything to the contrary in this Agreement, the Custodian shall not deliver any
assets of the Fund held by the Custodian to or for the account of any Authorized
Person, director, officer, employee or agent of the Fund, provided that nothing
in this section 3.3 shall prohibit (a) any Authorized Person from giving Proper
Instructions, or any person authorized to issue Special Instructions from
issuing Special Instructions, provided such action does not result in delivery
of or access to assets of the Fund prohibited by this section 3.3; or (b) the
Fund's independent certified public accountants from examining or reviewing the
assets of the Fund held by the Custodian. The Fund shall provide a list of such
persons to the Custodian, and the Custodian shall be entitled to rely upon such
list and any modifications thereto that are provided to the Custodian from time
to time by the Fund.
3.4. Actions of Custodian Based on Proper Instructions and Special
Instructions. So long as and to the extent that the Custodian acts in accordance
with Proper Instructions or Special Instructions, as the case may be, and the
terms of this Agreement, the Custodian shall not be responsible for the title,
validity or genuineness of any property, or evidence of title thereof, received
or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
The Custodian may, from time to time, in accordance with the relevant
provisions of this Article IV, appoint one or more Domestic Subcustodians,
Foreign Subcustodians and Interim Subcustodians (as such terms are defined
below) to act on behalf of the Fund. For purposes of this Agreement, all duly
appointed Domestic Subcustodians, Foreign Subcustodians and Interim
Subcustodians are referred to collectively as "Subcustodians."
4.1. Domestic Subcustodians. The Custodian may, at any time and from
time to time, at its own expense, appoint any bank as defined in section 2(a)(5)
of the 1940 Act meeting the requirements of a custodian under section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act on behalf of the
Fund as a subcustodian for purposes of holding cash, securities and other assets
of the Fund and performing other functions of the Custodian within the United
States (a "Domestic Subcustodian"), provided that the Custodian shall notify the
Fund in writing of the identity and qualifications of any
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<PAGE> 20
proposed Domestic Subcustodian at least 30 days prior to appointment of such
Domestic Subcustodian, and the Fund may, in its sole discretion, by written
notice to the Custodian executed by an Authorized Person disapprove of the
appointment of such Domestic Subcustodian. If following notice by the Custodian
to the Fund regarding appointment of a Domestic Subcustodian and the expiration
of 30 days after the date of such notice, the Fund shall have failed to notify
the Custodian of its disapproval thereof, the Custodian may, in its discretion,
appoint such proposed Domestic Subcustodian as its subcustodian.
4.2. Foreign Subcustodians and Interim Subcustodians.
(a) Foreign Subcustodians. The Custodian may, at any time and from
time to time, at its own expense, appoint: (i) any bank, trust company or other
entity meeting the requirements of an "eligible foreign custodian" under section
17(f) of the 1940 Act and the rules and regulations thereunder or exempted
therefrom by order of the SEC, or (ii) any bank as defined in section 2(a)(5) of
the 1940 Act meeting the requirements of a custodian under section 17(f) of the
1940 Act and the rules and regulations thereunder to act on behalf of the Fund
as a subcustodian for purposes of holding cash, securities and other assets of
the Fund and performing other functions of the Custodian in countries other than
the United States of America (a "Foreign Subcustodian"); provided that prior to
the appointment of any Foreign Subcustodian, the Custodian shall have obtained
written confirmation of the approval of the Board of Directors of the Fund
(which approval may be withheld in the sole discretion of such Board of
Directors) with respect to (A) the identity and qualifications of any proposed
Foreign Subcustodian, (B) the country or countries in which, and the securities
depositories or clearing agencies (meeting the requirements of an "eligible
foreign custodian" under section 17(f) of the 1940 Act and the rules and
regulations thereunder or exempted therefrom by order of the SEC) through which,
any proposed Foreign Subcustodian is authorized to hold Securities, cash and
other assets of the Fund (each a "Foreign Depository") and (C) the form and
terms of the subcustodian agreement to be entered into between such proposed
Foreign Subcustodian and the Custodian. In addition, the Custodian may utilize
directly any Foreign Depository, provided the Board of Trustees shall have
approved in writing the use of such Foreign Depository by the Custodian. Each
such duly approved Foreign Subcustodian and the countries where and the Foreign
Depositories through which it may hold securities and other assets of the Fund
and the Foreign Depositories that the Custodian may utilize shall be listed in
Appendix B, as it may be amended from time to time in accordance with the
provisions of section 9.3. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be held
in a country in which no Foreign Subcustodian is authorized to act, in order
that there shall be sufficient time for the Custodian to effect the appropriate
arrangements with a proposed Foreign Subcustodian, including obtaining approval
as provided in this section 4.2(a). The Custodian shall not agree to any
material amendment to any subcustodian agreement entered
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<PAGE> 21
into with a Foreign Subcustodian, or agree to permit any material changes
thereunder, or waive any material rights under such agreement, except upon prior
approval pursuant to Special Instructions. The Custodian shall promptly provide
the Fund with notice of any such amendment, change, or waiver, whether or not
material, including a copy of any such amendment. For purposes of this
subsection, a material amendment, change or waiver means an amendment, change or
waiver that may reasonably be expected to have an adverse effect on the Fund in
any material way, including but not limited to the Fund's or the Board's
obligations under the 1940 Act, including Rule 17f-5 thereunder.
(b) Interim Subcustodians. In the event that the Fund shall invest in
a security or other asset to be held in a country in which no Foreign
Subcustodian is authorized to act (whether because the Custodian has not
appointed a Foreign Subcustodian in such country and entered into a subcustodian
agreement with it or because the Board of Directors of the Fund has not approved
the Foreign Subcustodian appointed by the Custodian in such country and the
related subcustodian agreement), the Custodian shall promptly notify the Fund in
writing by facsimile transmission or in such other manner as the Fund and
Custodian shall agree in writing that no Foreign Subcustodian is approved in
such country and the Custodian shall, upon receipt of Special Instructions,
appoint any person designated by the Fund in such Special Instructions to hold
such security or other asset. Any person appointed as a Subcustodian pursuant to
this section 4.2(b) is hereinafter referred to herein as an "Interim
Subcustodian." Each Interim Custodian and the securities or assets of the Fund
that it is authorized to hold shall be set forth in Appendix B.
In the absence of such Special Instructions, such security or other
asset shall be held by such agent as the Custodian may appoint unless and until
the Fund shall instruct the Custodian to move the security or other asset into
the possession of the Custodian or a Subcustodian.
4.3. Termination of a Subcustodian. The Custodian shall (a) cause each
Domestic Subcustodian and Foreign Subcustodian to, and (b) use its best efforts
to cause each Interim Subcustodian to, perform all of its obligations in
accordance with the terms and conditions of the subcustodian agreement between
the Custodian and such Subcustodian. In the event that the Custodian is unable
to cause such Subcustodian to fully perform its obligations thereunder, the
Custodian shall forthwith, upon the receipt of Special Instructions, exercise
its best efforts to recover any Losses (as hereinafter defined) incurred by the
Fund because of such failure to perform from such Subcustodian under the
applicable subcustodian agreement and, if necessary or desirable, terminate such
subcustodian and appoint a replacement Subcustodian in accordance with the
provisions of this Agreement. In addition to the foregoing, the Custodian (i)
may, at any time in its discretion, upon written notification to the Fund,
terminate any Domestic Subcustodian, Foreign Subcustodian or Interim
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<PAGE> 22
Subcustodian, and (ii) shall, upon receipt of Special Instructions, terminate
any Subcustodian with respect to the Fund, in each case in accordance with the
termination provisions of the applicable subcustodian agreement.
4.4. Agents. The Custodian may at any time or times in its discretion
appoint (and may at any time remove) any other bank, trust company, securities
depository or clearing agency that is itself qualified to act as a custodian
under the 1940 Act and the rules and regulations thereunder, as its agent (an
"Agent") to carry out such of the provisions of this Agreement as the Custodian
may from time to time direct, provided that the appointment of one or more
Agents (other than an agent appointed to the second paragraph of section 4.2(b))
shall not relieve the Custodian of its responsibilities under this Agreement.
Without limiting the foregoing, the Custodian shall be responsible for any
notices, documents or other information, or any securities, cash or other assets
of the Fund, received by any Agent on behalf of the Custodian or the Fund as if
the Custodian had received such items itself.
ARTICLE V
STANDARD OF CARE; INDEMNIFICATION
5.1. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all Losses suffered or incurred
by the Fund resulting from the failure of the Custodian to exercise such
reasonable care and diligence. For purposes of this Agreement, "Losses" means
any losses, damages, and expenses.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, securities depository or securities
system utilized by any such Subcustodian or the Custodian, or any nominee of the
Custodian or any Subcustodian, is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction; or (ii) any act
of God or war or action of any de facto or de jure government or other similar
circumstance beyond the control of the Custodian, unless, in each case, such
delay or nonperformance is caused by the negligence, misfeasance or misconduct
of such person.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any Losses to the Fund (i) the Custodian shall, and shall
cause any applicable Domestic Subcustodian
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<PAGE> 23
or Foreign Subcustodian to, and (ii) the Custodian shall use its best efforts to
cause any applicable Interim Subcustodian to, use all commercially reasonable
efforts and take all reasonable steps under the circumstances to mitigate the
effects of such event and to avoid continuing harm to the Fund.
(d) Advice of Counsel. The Custodian shall be entitled to receive and
act upon advice of counsel on all matters. The Custodian shall be without
liability for any action reasonably taken or omitted in good faith pursuant to
the advice of (i) counsel for the Fund, or (ii) at the expense of the Custodian,
such other counsel as the Fund may agree to, such agreement not to be
unreasonably withheld or delayed; provided that with respect to the performance
of any action or omission of any action upon such advice, the Custodian shall be
required to conform to the standard of care set forth in section 5.1(a).
(e) Expenses. In addition to the liability of the Custodian under this
Article V, the Custodian shall be liable to the Fund for all reasonable costs
and expenses incurred by the Fund in connection with any claim by the Fund
against the Custodian arising from the obligations of the Custodian hereunder
including, without limitation, all reasonable attorneys' fees and expenses
incurred by the Fund in asserting any such claim, and all reasonable expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim, provided that the Fund has recovered from
the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability
in respect of any Losses suffered by the Fund, insofar as such Losses arise from
the performance of the Custodian's duties hereunder by reason of the Custodian's
reliance upon records that were maintained for the Fund by entities other than
the Custodian prior to the Custodian's employment hereunder.
(g) Reliance on Certifications. The Secretary or an Assistant
Secretary of the Fund shall certify to the Custodian the names and signatures of
the officers of the Fund, the name and address of the Shareholder Servicing
Agent, and any instructions or directions to the Custodian by the Fund's Board
of Directors or shareholders. Any such certificate may be accepted and relied
upon by the Custodian as conclusive evidence of the facts set forth therein and
may be considered in full force and effect until receipt of a similar
certificate to the contrary.
5.2. Liability of Custodian for Actions of Other Persons.
(a) Domestic Subcustodians, Foreign Subcustodians and Agents. The
Custodian shall be liable for the actions or omissions of any Domestic
Subcustodian, Foreign Subcustodian or Agent (other than an agent appointed
pursuant to section 4.2(b)) to the same extent as if such action or omission
were performed by the Custodian itself pursuant to this Agreement. In the event
of any Losses suffered or
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<PAGE> 24
incurred by the Fund caused by or resulting from the actions or omissions of any
Domestic Subcustodian, Foreign Subcustodian or Agent (other than an agent
appointed pursuant to section 4.2(b)) for which the Custodian would be directly
liable if such actions or omissions were those of the Custodian, the Custodian
shall promptly reimburse the Fund in the amount of any such Losses.
(b) Interim Subcustodians. Notwithstanding the provisions of section
5.1 to the contrary, the Custodian shall not be liable to the Fund for any
Losses suffered or incurred by the Fund resulting from the actions or omissions
of an Interim Subcustodian or an agent appointed pursuant to section 4.2(b)
unless such Losses are caused by, or result from, the negligence, misfeasance or
misconduct of the Custodian; provided that in the event of any Losses (whether
or not caused by or resulting from the negligence, misfeasance or misconduct of
the Custodian), the Custodian shall take all reasonable steps to enforce such
rights as it may have against such Interim Subcustodian or agent to protect the
interests of the Fund.
(c) Securities Systems and Foreign Depositories. Notwithstanding the
provisions of section 5.1 to the contrary, the Custodian shall not be liable to
the Fund for any Losses suffered or incurred by the Fund resulting from the use
by the Custodian or any Subcustodian of a Securities System or Foreign
Depository, unless such Losses are caused by, or result from, the negligence,
misfeasance or misconduct of the Custodian; provided that in the event of any
such Losses, the Custodian shall take all reasonable steps to enforce such
rights as it may have against the Securities System or Foreign Depository, as
the case may be, to protect the interests of the Fund.
(d) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under this section 5.2,
provided that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Custodian.
5.3. Indemnification.
(a) Indemnification Obligations. Subject to the limitations set forth
in this Agreement, the Fund agrees to indemnify and hold harmless the Custodian
and its nominees for all Losses suffered or incurred by the Custodian or its
nominee (including Losses suffered under the Custodian's indemnity obligations
to Subcustodians) caused by or arising from actions taken by the Custodian in
the performance of its duties and obligations under this Agreement, provided
that such indemnity shall not apply to Losses occasioned by or resulting from
the negligence, misfeasance or misconduct of the Custodian or any Subcustodian,
Securities System, Foreign Depository or their respective nominees. In addition,
the Fund agrees to indemnify the Custodian against any liability incurred by
reason of taxes assessed to the Custodian, any Subcustodian, any Securities
System, any Foreign Depository, and their respective nominees, or
20
<PAGE> 25
other Losses incurred by such persons, resulting from the fact that securities
and other property of the Fund are registered in the name of such persons,
provided that in no event shall such indemnification be applicable to income,
franchise or similar taxes which may be imposed or assessed against such
persons.
(b) Notice of Litigation, Right to Prosecute, etc. The Fund shall not
be liable for indemnification under this section 5.3 unless the person seeking
indemnification shall have notified the Fund in writing (i) within such time
after the assertion of any claim as is sufficient for such person to determine
that it will seek indemnification from the Fund in respect of such claim or (ii)
promptly after the commencement of any litigation or proceeding brought against
such person, in respect of which indemnity may be sought; provided that in the
case of clause (i) of this section 5.3(b) the Fund shall not be liable for such
indemnification to the extent the Fund is disadvantaged by any such delay in
notification. With respect to claims in such litigation or proceedings for which
indemnity by the Fund may be sought and subject to applicable law and the ruling
of any court of competent jurisdiction, the Fund shall be entitled to
participate in any such litigation or proceeding and, after written notice from
the Fund to the person seeking indemnification, the Fund may assume the defense
of such litigation or proceeding with counsel of its choice at its own expense
in respect of that portion of the litigation for which the Fund may be subject
to an indemnification obligation, provided that such person shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Fund has not acknowledged in writing its
obligation to indemnify such person with respect to such litigation or
proceeding. If the Fund is not permitted to participate in or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, such person shall reasonably prosecute such litigation
or proceeding. A person seeking indemnification hereunder shall not consent to
the entry of any judgment or enter into any settlement of any such litigation or
proceeding without providing the Fund with adequate notice of any such
settlement or judgment and without the Fund's prior written consent, which
consent shall not be unreasonably withheld or delayed. All persons seeking
indemnification hereunder shall submit written evidence to the Fund with respect
to any cost or expense for which they are seeking indemnification in such form
and detail as the Fund may reasonably request.
5.4. Investment Limitations. If the Custodian has otherwise complied
with the terms and conditions of this Agreement in performing its duties
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund, and the Fund agrees to indemnify the Custodian and its
nominees, for any Losses suffered or incurred by the Custodian and its nominees
arising out of any violation of any investment or other limitation to which the
Fund is subject.
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5.5. Fund's Right to Proceed. Notwithstanding anything to the contrary
contained herein, the Fund shall have, at its election upon reasonable notice to
the Custodian, the right to enforce, to the extent permitted by any applicable
agreement and applicable law, the Custodian's rights against any Subcustodian,
Securities System, Foreign Depository or other person for Losses caused the Fund
by such Subcustodian, Securities System, Foreign Depository or other person, and
shall be entitled to enforce the rights of the Custodian with respect to any
claim against such Subcustodian, Securities System, Foreign Depository or other
person which the Custodian may have as a consequence of any such Losses, if and
to the extent that the Fund has not been made whole for such Losses. If the
Custodian makes the Fund whole for such Losses, the Custodian shall retain the
ability to enforce its rights directly against such Subcustodian, Securities
System, Foreign Depository or other person. Upon the Fund's election to enforce
any rights of the Custodian under this section 5.5, the Fund shall reasonably
prosecute all actions and proceedings directly relating to the rights of the
Custodian in respect of the Losses incurred by the Fund; provided that, so long
as the Fund has acknowledged in writing its obligation to indemnify the
Custodian under section 5.3 hereof with respect to such claim, the Fund shall
retain the right to settle, compromise and/or terminate any action or proceeding
in respect of the Losses incurred by the Fund without the Custodian's consent;
and provided further that if the Fund has not made an acknowledgment of its
obligation to indemnify the Custodian, the Fund shall not settle, compromise or
terminate any such action or proceeding without the written consent of the
Custodian, which consent shall not be unreasonably withheld or delayed. The
Custodian agrees to cooperate with the Fund and take all actions reasonably
requested by the Fund in connection with the Fund's enforcement of any rights of
the Custodian. The Fund agrees to reimburse the Custodian for all reasonable
out-of-pocket expenses incurred by the Custodian in connection with the
fulfillment of its obligations under this section 5.5, provided that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
ARTICLE VI
RECORDS
6.1. Preparation of Reports. The Custodian shall, as reasonably
requested by the Fund, assist generally in the preparation of reports to Fund
shareholders, regulatory authorities and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall render statements,
including interim monthly and complete quarterly financial statements, or copies
thereof, from time to time as reasonably requested by Proper Instructions.
6.2. Custodian's Books and Records. The Custodian shall maintain
complete and accurate records with respect to securities and
22
<PAGE> 27
other assets held for the account of the Fund as required by the rules and
regulations of the SEC applicable to investment companies registered under the
1940 Act, including: (a) journals or other records of original entry containing
a detailed and itemized daily record of all receipts and deliveries of
securities (including certificate and transaction identification numbers, if
any), and all receipts and disbursements of cash; (b) ledgers or other records
reflecting (i) securities in physical possession, (ii) securities in transfer,
(iii) securities borrowed, loaned or collateralizing obligations of the Fund,
(iv) monies borrowed and monies loaned (together with a record of the collateral
therefor and substitutions of collateral), and (v) dividends and interest
received; and (c) cancelled checks and bank records related thereto. The
Custodian shall keep such other books and records of the Fund as the Fund shall
reasonably request. All such books and records maintained by the Custodian shall
be maintained in a form acceptable to the Fund and in compliance with the rules
and regulations of the SEC (including, but not limited to, books and records
required to be maintained under Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder), and any other applicable
Federal, State and foreign tax laws and administrative regulations. All such
records will be the property of the Fund and in the event of termination of this
Agreement shall be delivered to the successor custodian.
All books and records maintained by the Custodian pursuant to this
Agreement and any insurance policies and fidelity or similar bonds maintained by
the Custodian shall be made available for inspection and audit at reasonable
times by officers of, attorneys for, and auditors employed by, the Fund and the
Custodian shall promptly provide the Fund with copies of all reports of its
independent auditors regarding the Custodian's controls and procedures.
6.3. Opinion of Fund's Independent Certified Public Accountants. The
Custodian shall take all reasonable action as the Fund may request to obtain
from year to year favorable opinions from the Fund's independent certified
public accountants with respect to the Custodian's activities hereunder in
connection with the preparation of any periodic reports to or filings with the
SEC and with respect to any other requirements of the SEC.
6.4. Reports of Custodian's Independent Certified Public Accountants.
At the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may
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reasonably be required by the Fund and as may reasonably be obtained by the
Custodian.
6.5. Calculation of Net Asset Value. The Custodian shall compute and
determine the net asset value per share of capital stock of the Fund as of the
close of regular business on the New York Stock Exchange on each day on which
such Exchange is open, unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with (a) the
provisions of the By-Laws of the Fund and Articles of Incorporation, as they may
from time to time be amended and delivered to the Custodian, (b) the votes of
the Board of Directors of the Fund at the time in force and applicable, as they
may from time to time be delivered to the Custodian, and (c) Proper
Instructions. On each day that the Custodian shall compute the net asset value
per share of the Fund, the Custodian shall provide the Fund with written reports
which permit the Fund to verify that portfolio transactions have been recorded
in accordance with the Fund's instructions.
In computing the net asset value, the Custodian may rely upon any
information furnished by Proper Instructions, including without limitation any
information (i) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account kept by the Custodian, (ii) as
to the existence, status and proper treatment of reserves, if any, authorized by
the Fund, (iii) as to the sources of quotations to be used in computing the net
asset value, including those listed in Appendix C hereto, (iv) as to the fair
value to be assigned to any securities or other assets for which price
quotations are not readily available, and (v) as to the sources of information
with respect to "corporate actions" affecting portfolio securities of the Fund,
including those listed in Appendix C. (Information as to "corporate actions"
shall include information as to dividends, distributions, stock splits, stock
dividends, rights offerings, conversions, exchanges, recapitalizations, mergers,
redemptions, calls, maturity dates and similar transactions, including the
ex-and record dates and the amounts or other terms thereof.)
In like manner, the Custodian shall compute and determine the net
asset value as of such other times as the Board of Directors of the Fund, or any
valuation committee thereof, from time to time may reasonably request.
The Custodian shall be held to the standard of care set forth in
Article V with respect to the performance of its responsibilities under this
Article VI. The parties hereto acknowledge, however, that the Custodian's
causing an error or delay in the determination of net asset value may, but does
not in and of itself, constitute negligence, gross negligence or reckless or
willful misconduct. The Custodian's liability for any such negligence, gross
negligence or reckless or willful misconduct which results in an error in
determination of such net asset value shall be limited to the direct,
out-of-pocket loss the Fund, shareholder or former shareholder
24
<PAGE> 29
shall actually incur, measured by the difference between the actual and the
erroneously computed net asset value, and any expenses incurred by the Fund in
connection with correcting the records of the Fund affected by such error
(including charges made by the Fund's registrar and transfer agent for making
such corrections), communicating with shareholders or former shareholders of the
Fund affected by such error or responding to or defending against any inquiry or
proceeding with respect to such error made or initiated by the SEC or other
regulatory or self-regulatory body.
Without limiting the foregoing, the Custodian shall not be held
accountable or liable to the Fund, any shareholder or former shareholder thereof
or any other person for any delays or Losses any of them may suffer or incur
resulting from (A) the Custodian's failure to receive timely and suitable
notification concerning quotations or corporate actions relating to or affecting
securities of the Fund or (B) any errors in the computation of the net asset
value based upon or arising out of quotations or information as to corporate
actions if received by the Custodian either (1) from a source which the
Custodian was authorized pursuant to the second paragraph of this section 6.5 to
rely upon, or (2) from a source which in the Custodian's reasonable judgment was
as reliable a source for such quotations or information as the sources
authorized pursuant to that paragraph. Nevertheless, the Custodian will use its
best judgment in determining whether to verify through other sources any
information it has received as to quotations or corporate actions if the
Custodian has reason to believe that any such information might be incorrect.
In the event of any error or delay in the determination of such net
asset value for which the Custodian may be liable, the Fund and the Custodian
will consult and make good faith efforts to reach agreement on what actions
should be taken in order to mitigate any Losses suffered by the Fund or its
present or former shareholders, in order that the Custodian's exposure to
liability shall be reduced to the extent possible after taking into account all
relevant factors and alternatives. Such actions might include the Fund or the
Custodian taking reasonable steps to collect from any shareholder or former
shareholder who has received any overpayment upon redemption of shares such
overpaid amount or to collect from any shareholder who has underpaid upon a
purchase of shares the amount of such underpayment or to reduce the number of
shares issued to such shareholder. It is understood that in attempting to reach
agreement on the actions to be taken or the amount of the loss which should
appropriately be borne by the Custodian, the Fund and the Custodian will
consider such relevant factors as the amount of the loss involved, the Fund's
desire to avoid loss of shareholder good will, the fact that other persons or
entities could have reasonably expected to have detected the error sooner than
the time it was actually discovered, the appropriateness of limiting or
eliminating the benefit which shareholders or former shareholders might have
obtained by reason of the error, and the possibility that other parties
providing services to the Fund might be induced to absorb a portion of the loss
incurred.
25
<PAGE> 30
Upon written notice from the Fund to the Custodian, the Custodian's
responsibilities under this Section 6.5 shall terminate, but this Agreement
shall otherwise continue in full force and effect. Upon such termination, the
fee schedule provided for under Article VII hereof shall be adjusted by the
parties in such manner as they may agree, and the Custodian will transfer such
of the Fund's books and records, and provide such other reasonable cooperation,
as the Fund may request in connection with the transfer of such
responsibilities.
6.6. Information Regarding Foreign Subcustodians and Foreign
Depositories. (a) The Custodian shall use reasonable efforts to assist the Fund
in obtaining the following with respect to any country in which any assets of
the Fund are held or proposed to be held:
(1) information concerning whether, and to what extent,
applicable foreign law would restrict the access afforded the Fund's
independent public accountants to books and records kept by a foreign
custodian or foreign securities depository used, or proposed to be
used, in that country;
(2) information concerning whether, and to what extent,
applicable foreign law would restrict the Fund's ability to recover
its assets in the event of the bankruptcy of a foreign custodian or
foreign securities depository used, or proposed to be used, in that
country;
(3) information concerning whether, and to what extent,
applicable foreign law would restrict the Fund's ability to recover
assets that are lost while under the control of a foreign custodian or
foreign securities depository used, or proposed to be used, in that
country;
(4) information concerning the likelihood of expropriation,
nationalization, freezes or confiscation of the Fund's assets in that
country;
(5) information concerning whether difficulties in converting the
Fund's cash and cash equivalents held in that country into U.S.
Dollars are reasonably foreseeable, including without limitation as a
result of applicable foreign currency exchange regulations;
(6) information concerning the financial strength, general
reputation and standing and ability to perform custodial services of
each foreign custodian or foreign securities depository used, or
proposed to be used, in that country;
(7) information concerning whether each foreign custodian or
foreign securities depository used, or proposed to be used, in that
country would provide a level of safeguards for maintaining
26
<PAGE> 31
the Fund's assets not materially different from that provided by
the Custodian in maintaining the Fund's securities in the United
States;
(8) information concerning whether each foreign custodian or
foreign securities depository used, or proposed to be used, in that
country has offices in the United States in order to facilitate the
assertion of jurisdiction over and enforcement of judgments against
such custodian or depository;
(9) as to each foreign securities depository used, or proposed to
be used, in that country information concerning the number of
participants in, and operating history of, such depository; and
(10) such other information as may be requested by the Fund to
ensure compliance with Rule 17f-5 under the 1940 Act.
(b) During the term of this Agreement, the Custodian shall use
reasonable efforts to provide the Fund with prompt notice of any material
changes in the facts or circumstances upon which any of the foregoing
information or statements were based.
(c) Upon request of the Fund, the Custodian shall deliver to the Fund
a certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; and (ii) the countries in which and the Foreign
Depositories through which each such Foreign Subcustodian or the Custodian is
then holding cash, securities and other assets of the Fund.
ARTICLE VII
CUSTODIAN FEES
The Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the Custodian and
the Fund. Such fee, together with all amounts for which the Custodian is to be
reimbursed in accordance with the following sentence, shall be billed to the
Fund in such a manner as to permit payment either by a direct cash payment to
the Custodian or by placing Fund portfolio transactions with the Custodian
resulting in an agreed-upon amount of commissions being paid to the Custodian
within an agreed-upon period of time. The Custodian shall be entitled to receive
reimbursement from the Fund on demand for its cash disbursements and expenses
(including cash disbursements and expenses of any Subcustodian or Agent for
which the Custodian has reimbursed such Subcustodian or Agent) permitted by this
Agreement, but excluding salaries and usual overhead expenses, upon receipt by
the Fund of reasonable evidence thereof.
27
<PAGE> 32
ARTICLE VIII
TERMINATION
This Agreement shall continue in full force and effect until
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid, to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing. In the event of
termination, the Custodian shall be entitled to receive prior to delivery of the
securities, cash and other assets held by it all accrued fees and unreimbursed
expenses the payment of which is contemplated by Article VII, upon receipt by
the Fund of a statement setting forth such fees and expenses.
In the event of the appointment of a successor custodian, it is agreed
that the cash, securities and other assets owned by the Fund and held by the
Custodian or any Subcustodian or Agent shall be delivered to the successor
custodian, and the Custodian agrees to cooperate with the Fund in execution of
documents and performance of other actions necessary or desirable in order to
substitute the successor custodian for the Custodian under this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1. Execution of Documents. Upon request, the Fund shall deliver to
the Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement.
9.2. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof.
9.3. Waivers and Amendments. No provision of this Agreement may be
amended or terminated except by a statement in writing signed by the party
against which enforcement of the amendment or termination is sought, provided
that Appendix B listing the Foreign Subcustodians and Foreign Depositories
approved by the Fund and Appendix C listing quotation and information sources
may be amended from time to time to add or delete one or more of such entities
or sources by delivery to the Custodian of a revised Appendix B or C executed by
an Authorized Person, such amendment to take effect immediately upon execution
of the revised Appendix B or C by the Custodian.
In connection with the operation of this Agreement, the Custodian and
the Fund may agree in writing from time to time on such provisions
interpretative of or in addition to the provisions of this
28
<PAGE> 33
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
9.4. Captions. The section headings in this Agreement are for the
convenience of the parties and in no way alter, amend, limit or restrict the
contractual obligations of the parties set forth in this Agreement.
9.5. Governing Law. This instrument shall be governed by and construed
in accordance with the laws of the State of New York.
9.6. Notices. Notices and other writings delivered or mailed postage
prepaid to the Fund addressed to the Fund at 345 Park Avenue, New York, NY 10154
or to such other address as the Fund may have designated to the Custodian in
writing, or to the Custodian at 40 Water Street, Boston, Massachusetts 02109,
Attention: Manager, Securities Department, or to such other address as the
Custodian may have designated to the Fund in writing, shall be deemed to have
been properly delivered or given hereunder to the respective addressee.
9.7. Successors and Assigns. This Agreement shall be binding on and
shall inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that neither party hereto may assign this
Agreement or any of its rights hereunder without the prior written consent of
the other party.
9.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties.
9.9. Representative Capacity; Nonrecourse Obligations. The Custodian
agrees that any claims by it against the Fund under this Agreement may be
satisfied only from the assets of the Fund; that the person executing this
Agreement has executed it on behalf of the Fund and not individually, and that
the obligations of the Fund arising out of this Agreement are not binding upon
such person or the Fund's shareholders individually but are binding only upon
the assets and property of the Fund; and that no shareholders, directors or
officers of the Fund may be held personally liable or responsible for any
obligations of the Fund arising out of this Agreement.
29
<PAGE> 34
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and behalf on the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
per pro /s/ Stockley P. Towles
--------------------------
Name: Stockley P. Towles
Title: Partner
THE FIRST IBERIAN FUND, INC.
By: /s/ Nicholas Bratt
-------------------------
Name: Nicholas Bratt
Title: President
30
<PAGE> 35
APPENDIX A TO THE
CUSTODIAN AGREEMENT BETWEEN
THE FIRST IBERIAN FUND, INC. AND
BROWN BROTHERS HARRIMAN & CO.
DATED AS OF March 14, 1996
PROCEDURES RELATING TO CUSTODIAN'S SECURITY INTEREST
As security for any Advances (as defined in the Custodian Agreement)
of the Fund, the Fund shall pledge, assign and grant to the Custodian a security
interest in Collateral (as hereinafter defined), under the terms, circumstances
and conditions set forth in this Appendix A.
Section 1. Defined Terms. As used in this Appendix A the following
terms shall have the following respective meanings:
(a) "Business Day" shall mean any day that is not a Saturday, a Sunday
or a day on which the Custodian is closed for business.
(b) "Collateral" shall mean those securities having a fair market
value (as determined in accordance with the procedures set forth in the
prospectus for the Fund) equal to the aggregate of all Advance Obligations of
the Fund that are (i) identified in any Pledge Certificate executed on behalf of
the Fund or (ii) designated by the Custodian for the Fund pursuant to Section 3
of this Appendix A. Such securities shall consist of marketable securities held
by the Custodian on behalf of the Fund or, if no such marketable securities are
held by the Custodian on behalf of the Fund, such other securities designated by
the Fund in the applicable Pledge Certificate or by the Custodian pursuant to
Section 3 of this Appendix A.
(c) "Advance Obligations" shall mean the amount of any outstanding
Advance(s) provided by the Custodian to the Fund together with all accrued
interest thereon.
(d) "Pledge Certificate" shall mean a Pledge Certificate in the form
attached as Exhibit 1 to this Appendix A, executed by a duly authorized officer
of the Fund and delivered by the Fund to the Custodian by facsimile transmission
or in such other manner as the Fund and the Custodian may agree in writing.
(e) "Release Certificate" shall mean a Release Certificate in the form
attached as Exhibit 2 to this Appendix A, executed by a duly authorized officer
of the Custodian and delivered by the Custodian to the Fund by facsimile
transmission or in such other manner as the Fund and the Custodian may agree in
writing.
31
<PAGE> 36
(f) "Written Notice" shall mean a written notice executed by a duly
authorized officer of the party delivering the notice and delivered by facsimile
transmission or in such other manner as the Fund and the Custodian shall agree
in writing.
Section 2. Pledge of Collateral. To the extent that any Advance
Obligations of the Fund are not satisfied by the close of business on the first
Business Day following the Business Day on which the Fund receives a Written
Notice requesting security for such Advance Obligation and stating the amount of
such Advance Obligation, the Fund shall pledge, assign and grant to the
Custodian a first priority security interest in Collateral specified by the Fund
by delivering to the Custodian a Pledge Certificate executed by the Fund
describing such Collateral. Such Written Notice may, in the discretion of the
Custodian, be included within or accompany the Notice of Advance (as defined in
the Custodian Agreement) relating to the applicable Advance Obligation.
Section 3. Failure to Pledge Collateral. In the event that the Fund
shall fail (a) to pay the Advance Obligation described in such Written Notice,
(b) to deliver to the Custodian a Pledge Certificate pursuant to Section 2, or
(c) to identify substitute securities pursuant to Section 6 upon the sale or
maturity of any securities identified as Collateral, the Custodian may, by
Written Notice to the Fund, specify Collateral which shall secure the applicable
Advance Obligation. The Fund hereby pledges, assigns and grants to the Custodian
a first priority security interest in any and all Collateral specified in such
Written Notice; provided that such pledge, assignment and grant of security
shall be deemed to be effective only upon receipt by the Fund of such Written
Notice, and provided further that if the Custodian specifies Collateral in which
a first priority security interest has already been granted, the security
interest pledged, assigned and granted hereunder shall be a security interest
that is not a first priority security interest.
Section 4. Delivery of Additional Collateral. If at any time the
Custodian shall notify the Fund by Written Notice that the fair market value of
the Collateral securing any Advance Obligation is less than the amount of such
Advance Obligation, the Fund shall deliver to the Custodian, within one Business
Day following the Fund's receipt of such Written Notice, an additional Pledge
Certificate describing additional Collateral. If the Fund shall fail to deliver
such additional Pledge Certificate, the Custodian may specify Collateral which
shall secure the unsecured amount of the applicable Advance Obligation in
accordance with Section 3 of this Appendix A.
Section 5. Release of Collateral. Upon payment by the Fund of any
Advance Obligation secured by the pledge of Collateral, the Custodian shall
promptly deliver to the Fund a Release
32
<PAGE> 37
Certificate pursuant to which the Custodian shall release Collateral from the
lien under the applicable Pledge Certificate or Written Notice pursuant to
Section 3 having a fair market value equal to the amount paid by the Fund on
account of such Advance Obligation. In addition, if at any time the Fund shall
notify the Custodian by Written Notice that the Fund desires that specified
Collateral be released and (a) that the fair market value of the Collateral
securing any Advance Obligation exceeds the amount of such Advance Obligation,
or (b) that the Fund has delivered a Pledge Certificate pursuant to Section 6
substituting Collateral in respect of such Advance Obligation, the Custodian
shall deliver to the Fund, within one Business Day following the Custodian's
receipt of such Written Notice, a Release Certificate relating to the Collateral
specified in such Written Notice.
Section 6. Substitution of Collateral. The Fund may substitute
securities for any securities identified as Collateral by delivery to the
Custodian of a Pledge Certificate executed by the Fund, indicating the
securities pledged as Collateral.
Section 7. Security for Fund Advance Obligations. The pledge of
Collateral by the Fund shall secure only Advance Obligations of the Fund. In no
event shall the pledge of Collateral by the Fund be deemed or considered to be
security for any other types of obligations of the Fund to the Custodian or for
the Advance Obligations or other types of obligations of any other fund.
Section 8. Custodian's Remedies. Upon (a) the Fund's failure to pay
any Advance Obligation of the Fund within thirty days after receipt by the Fund
of a Written Notice demanding security therefor, and (b) one Business Day's
prior Written Notice to the Fund, the Custodian may elect to enforce its
security interest in the Collateral securing such Advance Obligation, by taking
title to (at the then prevailing fair market value), or selling in a
commercially reasonable manner, so much of the Collateral as shall be required
to pay such Advance Obligation in full. Notwithstanding the provisions of any
applicable law, including, without limitation, the Uniform Commercial Code, the
remedy set forth in the preceding sentence shall be the only right or remedy to
which the Custodian is entitled with respect to the pledge and security interest
granted pursuant to any Pledge Certificate or Section 3. Without limiting the
foregoing, the Custodian hereby waives and relinquishes all contractual and
common law rights of set-off to which it may now or hereafter be or become
entitled with respect to any obligations of the Fund to the Custodian arising
under this Appendix A to the Custodian Agreement.
33
<PAGE> 38
IN WITNESS WHEREOF, each of the parties has caused this Appendix A to
be executed in its name and behalf on the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
per pro /s/ Stockley P. Towles
--------------------------
Name: Stockley P. Towles
Title: Partner
THE FIRST IBERIAN FUND, INC.
By: /s/ Nicholas Bratt
-------------------------
Name: Nicholas Bratt
Title: President
34
<PAGE> 39
EXHIBIT 1
TO
Appendix A
PLEDGE CERTIFICATE
This Pledge Certificate is delivered pursuant to the Custodian
Agreement dated as of _____________________ (the "Agreement"), between
_____________________ (the "Fund") and Brown Brothers Harriman & Co. (the
"Custodian"). Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Agreement. Pursuant to [Section 2 or
Section 4] of Appendix A attached to the Agreement, the Fund hereby pledges,
assigns and grants to the Custodian a first priority security interest in the
securities listed on Schedule A attached to this Pledge Certificate
(collectively, the "Pledged Securities"). Upon delivery of this Pledge
Certificate, the Pledged Securities shall constitute Collateral, and shall
secure all Advance Obligations of the Fund described in that certain Written
Notice dated___________ , 19____ , delivered by the Custodian to the Fund. The
pledge, assignment and grant of security in the Pledged Securities hereunder
shall be subject in all respects to the terms and conditions of the Agreement,
including, without limitation, Sections 7 and 8 of Appendix A attached hereto.
IN WITNESS WHEREOF, the Fund has caused this Pledge Certificate to be
executed in its name, on behalf of the Fund this ____ day of ________, 19__.
By: _____________________
Name: _____________________
Title: _____________________
35
<PAGE> 40
SCHEDULE A
TO
PLEDGE CERTIFICATE
Type of Certificate/CUSIP Number of
Issuer Security Numbers Shares
36
<PAGE> 41
EXHIBIT 2
TO
Appendix A
RELEASE CERTIFICATE
This Release Certificate is delivered pursuant to the Custodian
Agreement dated as of _________, 199_ (the "Agreement"), between
_______________________ (the "Fund") and Brown Brothers Harriman & Co. (the
"Custodian"). Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Agreement. Pursuant to Section 5 of
Appendix A attached to the Agreement, the Custodian hereby releases the
securities listed on Schedule A attached to this Release Certificate from the
lien under the [Pledge Certificate dated __________, 19 or the Written Notice
delivered pursuant to Section 3 of Appendix A dated ___________, 19 ].
IN WITNESS WHEREOF, the Custodian has caused this Release Certificate
to be executed in its name and on its behalf this ____ day of 19__.
Brown Brothers Harriman & Co.
By: _____________________
Name: _____________________
Title: _____________________
37
<PAGE> 42
SCHEDULE A
TO
RELEASE CERTIFICATE
Type of Certificate/CUSIP Number of
Issuer Security Numbers Shares
- ------ -------- ----------------- ---------
<PAGE> 1
EXHIBIT 9 (a)(2)
AMENDMENT TO THE
CUSTODIAN AGREEMENT
AMENDMENT entered into as of this 29th day of September, 1997 to the
Custodian Agreement among SCUDDER SPAIN AND PORTUGAL FUND, INC. (the "Fund") and
BROWN BROTHERS HARRIMAN & CO. (the "Custodian") dated as of March 14, 1996 (the
"Agreement").
In consideration of the mutual covenants herein contained, the Fund and the
Custodian agree that the Agreement is hereby amended as follows:
1. The first paragraph of Section 2.13, Bank Accounts, is replaced in its
entirety with the following:
"The Custodian shall open and operate one or more accounts on the
Custodian's books, in the name of the Fund, subject only to draft or order by
the Custodian, and to hold in such account or accounts all deposits denominated
in U.S. and foreign currency, received for the account of the Fund, other than
deposits with Banking Institutions held in accordance with the last paragraph of
this Section 2.13. The responsibilities of the Custodian to the Fund for
deposits accepted on the Custodian's books and denominated in U.S. currency
shall be that of a U.S. bank for a similar deposit. The obligation of the
Custodian for any deposit denominated in any foreign currency shall have the
benefit of and be subject to the provisions of the last paragraph of Section
5.1(b) hereof, and accordingly in the event and to the extent the Custodian
shall be unable to make payment in currency in which a certain deposit is
denominated due to an act of God, sovereign event or other factor beyond its
control, the Custodian's obligation to pay the Fund in respect of such foreign
currency obligation shall be deferred or relieved until and to the extent the
Custodian is able to make payment in such currency and accordingly shall not be
payable on demand in U.S. currency.
<PAGE> 2
2. Section 2.14, Interest-Bearing Deposits, is amended by the addition of
the following paragraph at the end of the present Section:
"The obligation of the Custodian for any interest-bearing deposit
denominated in any foreign currency shall have the benefit of and be subject to
the provisions of the last paragraph of Section 5.1(b) hereof, and accordingly
in the event and to the extent the Custodian shall be unable to make payment in
the currency in which a certain deposit is denominated due to an act of God,
sovereign event or other factor or event beyond its control, the Custodian's
obligation to pay the Fund in respect of such foreign currency obligation shall
be deferred or relieved until and to the extent the Custodian is able to make
payment in such currency and accordingly shall not be payable on demand in U.S.
currency."
Except as amended above, all the provisions of the Agreement as heretofore
in effect shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
/s/ Nicholas Bratt
- -----------------------------------------
Name: Nicholas Bratt
Title: President
BROWN BROTHERS HARRIMAN & CO.
/s/ Stokley P. Towles
- -----------------------------------------
Name: Stokley P. Towles
Title: Partner
<PAGE> 1
EXHIBIT 9(a)(3)
BROWN BROTHERS HARRIMAN & CO.
EXHIBIT H
Brown Brothers Harriman & Co.
Global Custody Fee Proposal
on behalf of
Scudder Kemper Investments Inc.
January, 1998
<TABLE>
<CAPTION>
Market Asset Charge (basis points) Trade Instruction Charge (USD)
- ------ --------------------------- -----------------------------
<S> <C> <C>
Argentina 25 b.p. $75
Australia 5 b.p. $60
Austria 6 b.p. $80
Bahrain 40 b.p. $150
Bangladesh 45 b.p. $150
Belgium 6 b.p. $60
Botswana 60 b.p. $175
Brazil (including 25 b.p. $50
Administration, excluding
The Brazil Fund, Inc.)
Canada 3 b.p. $25
Chile 35 b.p. $75
China 35 b.p. $60
Colombia 60 b.p. $100
Czech Republic 35 b.p. $75
Denmark 5 b.p. $80
Euroclear 3 b.p. $35
Ecuador 50 b.p. $125
Egypt 40 b.p. $175
Finland 8 b.p. $60
France 5 b.p. $60
Germany 3.5 b.p. $35
Ghana 60 b.p. $175
Greece 5O b.p. $150
Hong Kong 6 b.p. $60
Hungary 45 b.p. $175
India 40 b.p. $125
Indonesia 15 b.p. $75
Ireland 6 b.p. $60
</TABLE>
<PAGE> 2
BROWN BROTHERS HARRIMAN & CO.
<TABLE>
<CAPTION>
Market Asset Charge (basis points) Trade Instruction Charge (USD)
- ------ --------------------------- -----------------------------
<S> <C> <C>
Israel 30 b.p. $150
Italy 6 b.p. $50
Japan 3 b.p. $25
Jordan 5O b.p. $175
Kenya 60 b.p. $175
Korea 16 b.p. $50
The Korea Fund, Inc. 14.5 b.p. $50
Lebanon 40 b.p. $150
Malaysia 8 b.p. $50
Mauritius 40 b.p. $150
Mexico 12 b.p. $50
Morocco 40 b.p. $150
Namibia 40 b.p. $150
Netherlands 6 b.p. $35
New Zealand 6 b.p. $45
Norway 6 b.p. $60
Oman 40 b.p. $150
Pakistan 40 b.p. $125
Peru 5O b.p. $150
Philippines 18 b.p. $100
Poland 50 b.p. $100
Portugal 20 b.p. $100
Russia 65 b.p. $250
Singapore 6 b.p. $75
Slovakia 35 b.p. $75
South Africa 10 b.p. $50
Spain 8 b.p. $60
Sri Lanka 20 b.p. $75
Swaziland 60 b.p. $175
Sweden 6 b.p. $60
Switzerland 5 b.p. $75
Taiwan 25 b.p. $75
Thailand 12 b.p. $50
Turkey 35 b.p. $75
United Kingdom 3 b.p. $35
</TABLE>
<PAGE> 3
BROWN BROTHERS HARRIMAN & CO.
<TABLE>
<CAPTION>
Market Asset Charge (basis points) Trade Instruction Charge (USD)
- ------ --------------------------- -----------------------------
<S> <C> <C>
Uruguay 50 b.p. $150
Venezuela 35 b.p. $125
Zambia 60 b.p. $175
Zimbabwe 60 b.p. $175
United States .8 b.p. on first $100 million $8.00
.5 b.p. on all next $400 million
.3 b.p. on all above $500 million
</TABLE>
Other Transaction Fees
<TABLE>
<S> <C>
DTC, FBE, PTC $ 8.00
Affirmation Charge $ 1.00
U.S. Physical Securities $25.00
Short-Term Instruments
(time deposits, BA, CP, CD, repos) $25.00
Maturities $15.00
Third Party FX $35.00
Derivatives (futures, options, hedges,
swaps) $35.00
Incoming/Outgoing wires $10.00
Security Instruction Corrections
/Cancellations/Repair $15.00
Check Processing $10.00
Euroclear Deposit/Withdrawal $75.00
</TABLE>
Annual Account Minimum: $10,000
Subcustodian Out-of-Pocket Expenses
Subcustodian out-of-pocket expenses are statutory taxes or other charges
mandated in the local market which are passed on without markup to the Funds.
The level of out-of-pocket expenses depends on the geographic composition of the
Fund and trading activity. Subcustodian out-of-pocket expenses reimbursable to
BBH&Co. will be added to each monthly invoice. Subcustodian out-of-pocket
expenses may be revised from time to time.
Brown Brothers Harriman & Co. Out-of-Pocket Expenses
BBH&Co. out-of-pocket expenses including but not limited to extraordinary
telecommunications expenses, audit reporting, legal fees including sophisticated
investor letter processing, postage including overnight and courier, shipping
insurance, duplication charges, forms and supplies, proxy charges, consolidation
and reorganization charges, fractional share liquidation charges, and customized
reporting and programming would be additional. The cost of obtaining market
quotations and local administration charges if arranged through BBH&Co. would be
for the account of the Fund.
<PAGE> 4
BROWN BROTHERS HARRIMAN & CO.
OPPORTUNITIES FOR ADDITIONAL SAVINGS
Relationship Discount:
- A 10 percent reduction will be applied against the asset based
custody fee on assets between $10 billion and $15 billion.
- A 15 percent reduction will be applied against the asset based
custody fee on assets in excess of $15 billion.
NOTES
Fees for additional markets will be negotiated prior to investment and based
upon local market conditions at time of investment.
This schedule assumes that trade instructions will be sent in properly formatted
SWIFT or ISITC protocol, or another mutually agreed upon automated means. A $25
manual trade instruction charge will be incurred six months from the effective
date of this schedule. BBH&Co. has a readily available economic solution to
trade communication and messaging. We agree to lead project management of an
automation effort for Scudder.
<PAGE> 1
EXHIBIT 9(b)(1)
MASTER SUBCUSTODIAN AGREEMENT
AGREEMENT dated as of April 26, l989, between Brown Brothers Harriman &
Co., a limited partnership organized under the laws of the State of New York
(the "Custodian"), and Banco Espirito Santo E Comercial de Lisboa (the
"Subcustodian").
W I T N E S S E T H :
WHEREAS, the Custodian has entered into certain custodian agreements
and may in the future enter into additional custodian Agreements with certain of
its customers, including investment companies subject to the U. S. Investment
Company Act of 1940, as amended (the "Act"), whereby foreign securities (as
defined in Rule 17f-5 under the Act), cash and cash equivalents will be held
outside the United States;
WHEREAS, the Custodian desires to utilize subcustodians for the purpose
of holding foreign securities, cash and cash equivalents outside the United
States; and
WHEREAS, the Subcustodian is willing to enter into an agreement whereby
it may, from time to time, be appointed as a subcustodian for certain of the
Custodian's customers (each such customer shall hereinafter be referred to as a
"Customer");
NOW, THEREFORE, the Custodian and Subcustodian hereby agree as follows:
1. Upon the terms and conditions set forth in this Agreement, and
subject in each case to acceptance by the
-1-
<PAGE> 2
Subcustodian, the Subcustodian may from time to time be appointed as a
subcustodian for a Customer by the Custodian delivering to the Subcustodian a
letter advising the Subcustodian of the new Customer and that the Customer has
authorized the Subcustodian to act in such capacity.
2. The Custodian may from time to time deposit foreign securities, cash
or cash equivalents with the Subcustodian. The Subcustodian shall not be
responsible for any property of the Customer not delivered to the Subcustodian.
3. The Subcustodian shall hold and dispose of the securities held by or
deposited with the Subcustodian as follows:
(a) The Subcustodian shall hold pursuant to the provisions
hereof in a separate account or in separate accounts, segregated on its books at
all times from the assets of the Subcustodian, the Custodian and any other
persons, firms or corporations, all securities received by it for the account of
the Custodian as custodian for the Customer. All such securities shall be held
or disposed of by the Subcustodian for, and subject at all times to the
instructions of, the Custodian pursuant to the terms of this Agreement.
The Subcustodian shall maintain adequate records identifying the
securities as being held by it in favor of the Custodian for the Customer. In
connection therewith, the ownership of the securities shall be clearly recorded
on the Subcustodian's books as being held on behalf of the Custodian's Customers
and not for
-2-
<PAGE> 3
the Subcustodian's or the Custodian's own interest and, to the extent securities
are physically held by the Subcustodian, such. securities shall also be
physically segregated from the assets of the Subcustodian, the Custodian and the
Subcustodian's other customers.
Securities shall be held in the following forms: (i) securities issued
only in bearer form shall be held in bearer form; (ii) securities issued only in
registered form shall be registered in the name of the Subcustodian, the
Custodian or the Customer which is the beneficial owner thereof, or in the name
of a nominee thereof, and (iii) securities issued in both bearer and registered
form which are freely interchangeable without penalty shall be held in bearer
form if received in such form or shall be registered in the manner contemplated
in clause (ii) if received by the Subcustodian in registered form, unless
alternate instructions are furnished by the Custodian.
(b) Upon receipt of instructions from the Custodian, the Subcustodian
shall release or deliver, or cause to be released or delivered, securities owned
by the Customer only for the following purposes:
(i) Upon sale of securities for the account of the Customer
against receipt of payment therefor by the Subcustodian in cash, or by
certified or cashier's check, or bank credit, provided, that the
Subcustodian may accept payment and make delivery
-3-
<PAGE> 4
of securities in accordance with the rules of approved securities
depositories and clearing agencies or in accordance with governmental
regulations or generally accepted trade practice in the applicable
local market;
(ii) to the issuer thereof or its agent when securities are
called, redeemed, retired or otherwise become payable, provided that
the cash is to be delivered to the Subcustodian;
(iii) for exchange for a different number of securities or
certificates representing the same aggregate face amount or number of
units, for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any deposit
agreement, including surrender or receipt of underlying securities in
connection with the issuance or cancellation of American, International
or other form of Depository Receipts; provided that, in any such case,
the new securities and cash, if any, are to be delivered to the
Subcustodian;
(iv) in the case of warrants, rights or
-4-
<PAGE> 5
similar securities, the surrender thereof in connection with the
exercise of such warrants, rights or similar securities; provided that,
in any such case, the new securities are to be delivered to the
Subcustodian. However, if no instructions are received by the
Subcustodian prior to the date of expiration of any warrant, right or
similar security, the Subcustodian shall sell such security for the
account of the Customer;
(v) the delivery of securities to the designated depository or
other receiving agent in the case of tender offers or similar offers to
purchase which are received in writing. The Subcustodian shall have
full responsibility for transmitting to the Custodian any such offers
received by it. Thereafter, the Custodian, if it desires to respond to
such offer, shall have full responsibility for providing the
Subcustodian with all necessary instructions in timely enough fashion
for the Subcustodian to act thereon prior to any expiration time for
such offer;
(vi) upon receipt from the Custodian of instructions directing
disposition of securities in a manner other than or for purposes other
than the manners and purposes enumerated in the foregoing
-5-
<PAGE> 6
five items; provided, however, that the disposition pursuant to this
item (6) shall be made by the Subcustodian only upon receipt of
instructions from the Custodian specifying the amount of such
securities to be delivered, the purpose for which the delivery is to be
made, and the name of the person or persons to whom such delivery is to
be made.
4. The Subcustodian shall hold and dispose of cash and cash equivalents
(collectively hereafter referred to as "cash") hereafter held by or deposited
with the Subcustodian as follows:
(a) The Subcustodian shall open and maintain on its books a separate
account or accounts in the name of the Custodian as custodian for the Customer,
subject only to draft or orders by the Subcustodian acting pursuant to the terms
of this Agreement. The Subcustodian shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it for the account of the
Custodian as custodian for the Customer and shall maintain adequate records
identifying such cash as being held by it in favor of the Custodian for the
Customer and not for the Subcustodian's or the Custodian's own interest or for
any other customer of the Subcustodian.
(b) Upon receipt of instructions from the Custodian, the Subcustodian
shall make payments of cash for the account of the Customer from such cash only
for the following purposes:
-6-
<PAGE> 7
(i) upon the purchase of securities for the account of the
Customer but only against the delivery of such securities to the
Subcustodian, provided that the Subcustodian may make payment for and
accept delivery of securities in accordance with the rules of approved
securities depositories and clearing agencies or in accordance with
governmental regulations or generally accepted trade practice in the
applicable local market;
(ii) in connection with the subscription, conversion,
exchange, tender or surrender of securities owned by the Customer as
set forth in Section 3(b) hereof; and
(iii) for deposit with the Custodian or with such other
banking institutions as may from time to time be approved by the
Customer.
5. All instructions shall be by tested telex from the Custodian or in
writing executed by the Custodian, and the Subcustodian shall not be required to
act on instructions otherwise communicated; provided, however, that the
Subcustodian may in its discretion act on the basis of instructions received via
non-tested telex telecommunications facilities, including by telephone, if the
Subcustodian reasonably believes such instructions to have been dispatched by
the Custodian. Either party may electronically record any instructions given by
-7-
<PAGE> 8
telephone and any other telephone discussions relating to this Agreement or its
performance. Instructions by telephone shall be confirmed by tested telex as
promptly as possible, and the Subcustodian may require that the instructions
received via other non-tested telex telecommunications facilities be
authenticated. Instructions may be communicated by electro-mechanical or
electronic devices or systems, in addition to tested telex or telephone,
provided the Custodian and Subcustodian agree to the use of such device or
system. The Subcustodian shall be protected in acting upon any instruction,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed. The
Subcustodian may receive and accept a certificate signed by a partner of the
Custodian as conclusive evidence of the authority of any person to act on behalf
of the Custodian, and such certificate may be considered as in full force and
effect until receipt by the Subcustodian of written notice to the contrary.
6. Unless and until the Subcustodian receives instructions from the
Custodian to the contrary, the Subcustodian shall:
(a) Present for payment all coupons and other income items
held by it for the account of the Custodian as custodian for the Customer which
call for payment upon presentation and hold the cash received by it upon such
payment for the account of the Custodian as custodian for the Customer, and give
notice to the Custodian of collection thereof;
-8-
<PAGE> 9
(b) Collect interest and cash dividends, with notice to the
Custodian, for the account of the Custodian as custodian for the Customer;
(c) Collect and hold for the account of the Custodian as
custodian for the Customer hereunder all stock dividends, rights and similar
securities issued with respect to any securities held by it hereunder and give
notice to the Custodian of collection thereof;
(d) Surrender interim receipts or temporary securities for
definitive securities; and
(e) Not exercise any voting rights in respect of securities
held by the Subcustodian pursuant to this Agreement unless specifically
instructed to do so.
7. (a) The Subcustodian shall execute on behalf of the Custodian, in
the Customer's name, any declarations, affidavits or certificates of ownership
which may be necessary or useful from time to time for the Subcustodian to
perform any of its obligations arising under this Agreement. Without limiting
the foregoing, the Subcustodian shall execute all necessary declarations or
certificates of ownership under any local tax laws or regulations at the time in
effect and shall prepare and file any reports, returns or other documents as
shall be necessary in order to establish that a Customer is not subject to
withholding or similar taxes in respect of securities held by the Subcustodian
and shall reclaim such taxes as may have been withheld in respect of such
securities and which are subject to being reclaimed.
-9-
<PAGE> 10
(b) The Subcustodian if required by applicable law or
regulation is authorized from time to time to disclose the identity of a
Customer to the issuer of securities of which such Customer is the beneficial
owner, or to the agents of such issuer, upon request without further consent
from the Custodian or such Customer.
8. The Subcustodian shall notify the Custodian by tested telex (or by
other electro-mechanical or electronic devices or systems if the Custodian and
the Subcustodian have agreed as permitted pursuant to Section 5 above) of rights
offerings, exchange offers, tender offers, recapitalizations, consolidations,
amalgamations and any other corporate action proposed by the issuers of the
securities held by the Subcustodian hereunder, which may require action and
shall request instructions from the Custodian. The notification shall include
the name of the issuer concerned, the last date on which the instructions must
be received by the Subcustodian, the date on which the action must be taken and
the number of shares or principal amount of securities affected by such action
held for the Custodian's Customers. In the event of no such instruction being
received by the Subcustodian, the Subcustodian shall endeavor to sell the
entitlements.
The Subcustodian shall promptly transmit to the Custodian all other
reports, proxies and notices it receives in respect of securities held by it
hereunder by air mail, tested telex or other
-10-
<PAGE> 11
electro-mechanical or electronic devices or systems which may reasonably be
expected to be received by the Custodian in sufficient time for the Custodian to
take such actions or give such instructions to the Subcustodian as may be
necessary or contemplated by such reports, proxies or notices.
9. The Subcustodian may, from time to time, appoint (and may at any
time remove) any bank, trust company or securities clearing agency as its agent
for purposes of acquiring or disposing of securities or carrying out such
provisions of this Agreement as the Subcustodian may, from time to time, direct;
provided that the Subcustodian shall be fully liable to the Custodian for the
acts and omissions of such agents to the same extent as if the acts and
omissions of the agents were the acts and omissions of the Subcustodian.
10. On each business day following a day on which there is a cash or
securities transaction involving the account of the Custodian as custodian for
the Customer, the Subcustodian shall dispatch to the Custodian cash and
securities advice(s). The Subcustodian shall furnish the Custodian at the end of
every month with a statement of the cash and securities held by the Subcustodian
and any Authorized Depositories. Such statements shall be sent by air mail,
telecommunications facilities or comparable means to the Custodian within 15
days after the end of each such month.
The Custodian shall be sent such other statements and reports
-11-
<PAGE> 12
as the Custodian may request with respect to the safekeeping of the Customer's
assets.
The Subcustodian shall deliver annually to the Custodian and more
frequently if requested by the Custodian, a certificate dated the date of
delivery, certifying that the Subcustodian has, since the date of this Agreement
or the preceding such certificate, complied with the terms and conditions of
this Agreement and that the Subcustodian's representations and warranties in
Section 14 of this Agreement continue to be true and correct.
11. Upon request, the Custodian shall deliver, or shall request the
Customer to deliver, to the Subcustodian such proxies, powers-of-attorney or
other instruments as may be necessary or desirable in connection with the
performance by the Subcustodian of its obligations under this Agreement.
12. The Subcustodian will provide access to its records to the
independent public accountants for the Custodian and Customer, or the
Subcustodian will provide confirmation of the contents of such records as they
pertain to the account of the Custodian or the Customer, as the Custodian or the
Customer may request, having always in mind the ethic laws of banking strict
secrecy.
13. Beneficial ownership of the securities and cash of any Customer
held by the Subcustodian pursuant to this Agreement shall be freely
transferrable without the payment of money or value other than for safe custody
or administration, and shall not be subject to any right, charge, security
interest, lien or claim of
-12-
<PAGE> 13
any kind in favor of the Subcustodian, or any creditor of the Subcustodian,
including a receiver or trustee in bankruptcy, except to the extent of the
Subcustodian's right of compensation or reimbursement with regard to safe
custody or administration. Subcustodian shall provide Custodian with timely
notice of any attempt by any party to assert any such claim against the assets
of any Customer.
The Subcustodian shall maintain adequate insurance with respect to the
assets of the Customers held pursuant to this Agreement in the event of loss.
14. The Subcustodian acknowledges that under U. S. regulatory
requirements, the Subcustodian must be a regulated entity and must have a
certain minimum shareholders' equity in order to be used by the Custodian to
provide the services contemplated in this Agreement to certain of the Customers.
The Subcustodian represents and warrants that it (i) is a banking institution or
trust company incorporated or organized under the laws of Portugal, (ii) is
regulated as a banking institution or trust company by the Central Bank of
Portugal, which is an agency of the Government of Portugal, and (iii) is a
public institution with equity in excess of Two Hundred Million U. S. Dollars
(U.S.$200,000,000) as of the close of its fiscal year most recently completed
prior to the execution of this Agreement, or the equivalent thereof in
Portuguese escudos determined at current rates, and since such date has and
shall continue to have during
-13-
<PAGE> 14
the period this Agreement is in effect shareholders equity in excess of Two
Hundred Million U. S. Dollars (U.S.$200,000,000), or the equivalent thereof in
Portuguese escudos determined at current rates. The Subcustodian will
immediately notify the Custodian in writing or by tested telex of any
development or occurrence (and the circumstances related thereto) which has
rendered or could render the Subcustodian unable to make the foregoing
representation and warranty at any date. Upon such notification, the Custodian
shall have the right to terminate this Agreement immediately without prior
notice to the Subcustodian.
15. The Subcustodian shall be responsible for complying with all
provisions of the law of Portugal, or any other law, applicable to the
Subcustodian in connection with its duties hereunder, including but not limited
to the payment of all transfer or similar taxes and compliance with any currency
restrictions and securities laws.
16. So long as and to the extent that it is in the exercise of
reasonable care, the Subcustodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received by
it or delivered by it pursuant to this Agreement. The Subcustodian shall not be
liable for any action taken or omitted in good faith upon any notice, request,
certificate or other instrument reasonably believed by it to be genuine and to
be signed by the proper party or parties, provided that insofar as instructions
with respect to securities or cash
-14-
<PAGE> 15
are concerned, the Subcustodian acts upon instructions given in the manner
required by Section 5. The Subcustodian shall be obligated to exercise
reasonable care and diligence in carrying out the provisions of this Agreement,
and shall be liable for its own negligent acts or negligent failures to act and
for the negligent acts or negligent failures to act of its officers, employees
or persons controlled by or other persons for whose acts the Subcustodian is
responsible. The Subcustodian shall reimburse, indemnify and hold the Custodian
and the Customer harmless from any and all liability, loss, claim, damage, cost
and expense which shall occur as a result of the failure of the Subcustodian, or
any such officer, employee or person to exercise such reasonable care and
diligence or as a result of such negligent acts or negligent failures to act.
Notwithstanding the foregoing, the Subcustodian shall not hereby be
required to take any action which is in contravention of the law of Portugal or
any other applicable law. Furthermore, the Subcustodian shall not be liable for
(i) any violation by the Customer of any limitation applicable to its powers to
make expenditures, to invest in or pledge securities or to borrow which does not
involve action by the Subcustodian or (ii) any violation by the Customer of any
limitation applicable to its powers to make investments, to invest in or pledge
securities or to borrow which involves action by the Subcustodian, provided that
such action was authorized in accordance with the provisions of this Agreement.
-15-
<PAGE> 16
If at any time any securities held by the Subcustodian pursuant to this
Agreement shall be registered in the name of the Subcustodian or a nominee
thereof, the Custodian agrees to reimburse, indemnify and hold harmless the
Subcustodian and its nominee from all liability, loss, claim, damage, cost and
expense to the extent incurred by reason of the registration of such securities
in such name.
The Subcustodian shall be entitled to and may act upon advice of
counsel (who may be counsel for the Customer) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
17. As compensation for the services rendered pursuant to this
Agreement, the Custodian shall pay the Subcustodian a fee determined on such
basis as may be agreed upon from time to time between the Custodian and the
Subcustodian. The Subcustodian shall be responsible for the custodial fees of
all Authorized Depositories. The Custodian shall reimburse the Subcustodian for
any reasonable out-of-pocket expenses incurred by the Subcustodian in connection
with its obligations hereunder (including miscellaneous non-custodial fees and
reasonable out-of-pocket expenses of Authorized Depositories and agents).
18. This Agreement may be terminated at any time by the Custodian or
the Subcustodian by giving written notice to the other party at least 75 days
prior to the date on which such termination is to become effective. Such
termination shall, inter
-16-
<PAGE> 17
alia, constitute a revocation of the Subcustodian's authority to act on behalf
of all Customers (including all authority granted to the Subcustodian under any
power-of-attorney executed in connection with this Agreement). In the event of
termination, the Subcustodian will deliver any securities or other assets held
by it or any Authorized Depositories to the Custodian or to such successor
subcustodian as the Custodian shall instruct, delivery to be made in a manner to
be mutually agreed upon by the parties hereto or in the failure of such
agreement in a reasonable manner. Further in the event of termination, the
Subcustodian shall be entitled to receive from the Custodian all accrued fees
and unreimbursed expenses the payment of which is contemplated by Section 17
hereof upon receipt by the Custodian of a final statement setting forth such
fees and expenses.
19. Except as the parties shall from time to time otherwise agree, all
instructions, notices, reports and other communications contemplated by this
Agreement shall be dispatched as follows:
If to the Custodian:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attention: Manager-Securities Department
Telex No.: WUD 940709
If to the Subcustodian:
20. This Agreement constitutes the entire understanding and agreement
of the parties hereto, and neither this Agreement nor
-17-
<PAGE> 18
any provision hereof may be amended, changed, waived, discharged or terminated
except by a statement in writing signed by the party against which enforcement
of the amendment, change, waiver, discharge or termination is sought. Without
limiting the generality of the foregoing, the Subcustodian's rules and
conditions regarding bank accounts or custody accounts shall not apply except as
attached as an appendix to this Agreement.
21. This Agreement shall be binding upon and shall inure to the benefit
of the Custodian and the Subcustodian and their successors and assignees,
provided that neither the Custodian nor the Subcustodian may assign this
Agreement without the prior written consent of the other party, it being
understood, however, that this prohibition on assignment shall not prejudice the
rights of any Customer to enforce any of the provisions of this Agreement or any
other rights it may have at law or equity by reason of it being the beneficial
owner of any securities or cash held by the Subcustodian or by any Authorized
Depository.
22. This Agreement shall be construed in accordance with and governed
by the substantive laws (but without application of the law governing conflict
of law questions) of Portugal.
23. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument. This Agreement shall become effective when one or more
counterparts have been signed and delivered by each of the parties.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
/s/ BROWN BROTHERS HARRIMAN & CO.
- -----------------------------
By /s/ per pro /s/
-------------------------- --------------------------
By /s/
-------------------------------
-19-
<PAGE> 1
EXHIBIT 9(b)(2)
AMENDMENT TO THE MASTER SUBCUSTODIAN AGREEMENT
Amendment made as of February, 23rd 1994 (the "Amendment"), between
Banco Espirito Santo e Comercial de Lisboa (the "Subcustodian") and Brown
Brothers Harriman & Co. (the "Custodian") to the Master Subcustodian Agreement
dated April 26, 1989, between the Subcustodian and the Custodian (as heretofore
amended) the "Master Subcustodian Agreement".
In consideration of the mutual convenants and agreements herein
contained, the Subcustodian and the Custodian agree that the Master Subcustodian
Agreement is hereby amended as follows:
1. Section 3's introduction and Section 3(a) are amended to read in
their entirety as follows:
"3. The Subcustodian shall hold and dispose of securities held by or
deposited with the Subcustodian as follows:
(a) The Subcustodian shall (i) open and maintain on its books
a separate account or accounts in the name of the Custodian or a nominee of the
Custodian as custodian for a single Customer or as custodian for more than one
or all Customers generally, provided that any such account(s) shall contain only
securities held by the Subcustodian as a fiduciary or custodian for a Customer
or Customers (and accordingly shall not contain assets of the Subcustodian or
the Custodian); and (ii) open and maintain with Authorized Depositories an
account or accounts in its name, provided that any such account(s) shall contain
only securities held by the Subcustodian as a fiduciary or custodian for one or
more Customers or for its clients generally (and accordingly shall not contain
assets of the Subcustodian or the Custodian). All such securities shall be held
and disposed of by the Subcustodian for, and subject at all times to the
instructions of, the Custodian pursuant to the terms of this Agreement.
The Subcustodian shall maintain adequate records which identify the
securities as being held by it in favor of the Custodian for a Customer or for
more than one or all Customers
-1-
<PAGE> 2
generally (whether such securities are held directly by the Subcustodian or by
an Authorized Depository) and in connection therewith shall clearly record such
securities on the Subcustodian's books as being held on behalf of the
Custodian's Customers and not for the Subcustodian's or the Custodian's own
interest. To the extent securities are physically held by the Subcustodian, such
securities shall be physically segregated from the assets of the Subcustodian
and the Custodian and, to the extent feasible, from the assets of the
Subcustodian's other clients.
Securities which are eligible for deposit in an Authorized Depository
may be maintained with the Authorized Depository in an account or accounts for
one or more Customers and/or the Subcustodian's clients as described above.
Securities which are not deposited in an Authorized Depository shall be held in
the following forms: (i) securities issued only in bearer form shall be held in
bearer form, (ii) securities issued only in registered form shall be registered
in the name of the Subcustodian, the Custodian or the Customer which is the
beneficial owner thereof, or in the name of a nominee thereof, and (iii)
securities issued in both bearer and registered form which are freely
interchangeable without penalty shall be held in bearer form if received in such
form or shall be registered in the manner contemplated in clause (ii) if
received by the Subcustodian in registered form, unless alternate instructions
are furnished by the Custodian".
2. Section 4's introduction and Section 4(a) are amended to read in
their entirety as follows:
"4. The Subcustodian shall hold and dispose of cash and cash
equivalents (collectively referred to as "cash") hereafter held by or deposited
with the Subcustodian as follows:
(a) The Subcustodian shall (i) open and maintain on its books, as the
Custodian shall instruct, (x) an account or accounts in the name of the
Custodian or a nominee of the Custodian and/or (y) one or more accounts each of
which shall be in the name of the Custodian or a nominee of the Custodian as
custodian for a single named Customer and shall contain only cash held by the
Subcustodian as a fiduciary or custodian for such Customer; and (ii) open and
maintain with Authorized Depositories (x) an account or accounts in its name
and/or (y) one or more accounts each of which shall be in the name of the
Subcustodian as a custodian for a single
-2-
<PAGE> 3
named Customer and shall contain only cash held by the Subcustodian as a
fiduciary or custodian for such Customer. Each such account shall be subject to
draft or order by the Subcustodian acting pursuant to the instructions of the
Custodian under the terms of this Agreement. The Subcustodian shall maintain
adequate records which identify the amount of cash held for the Custodian or
each named Customer in each such account."
Except as amended above, all the provisions of the Master Subcustodian
Agreement as heretofore in effect shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
Banco Espirito Santo e Comercial Brown Brothers Harriman & Co.
de Lisboa
/s/J. Andre per pro /s/
- ---------------------------- -----------------------
(signature)
Julio Andre, General Manager
- ----------------------------
(name/title)
-3-
<PAGE> 1
EXHIBIT 9(c)(1)
FOREIGN CUSTODY AGREEMENT
AGREEMENT entered into this 14th day of December 1988, between Banco de
Santander (the "Foreign Custodian"), located at Madrid and Brown Brothers
Harriman & Co, a Limited Partnership organized under the laws of the State of
New York (the "Custodian").
1. APPOINTMENT AS FOREIGN CUSTODIAN
Brown Brothers Harriman & Co as agent for its clients (in such agency
capacity being hereinafter referred to as the "Custodian") hereby appoints the
Foreign Custodian to act as a custodian to hold securities (the "Securities")
and funds (the "Cash") belonging to clients of the Custodian (singly a "Client"
and collectively the "Clients") either in its possession or in the possession of
a securities depository or clearing agency as hereafter authorized and the
Foreign Custodian hereby accepts such appointment as Foreign Custodian. The
Foreign Custodian shall establish and maintain on its books one or more custody
accounts for the Custodian as agent for its Clients (singly a "Custody Account"
and collectively the "Custody Accounts") and shall hold exclusively therein
Securities of the Clients. The Foreign Custodian shall also establish and
maintain on its books one or more deposit accounts for the Custodian as agent
for its Clients (singly a "Deposit Account" and collectively the "Deposit
Accounts") and shall hold exclusively therein the Cash of the Clients. All
Securities held or received by the Foreign Custodian or by a Foreign Securities
System (as defined in Section 2(A) (ii) hereof) pursuant to the terms of this
Agreement shall be credited to the Custody Accounts and all Cash held or
received by the Foreign Custodian shall be credited to the Deposit Accounts.
2. RESPONSIBILITIES OF THE FOREIGN CUSTODIAN
The responsibilities of the Foreign Custodian shall include the
following:
(A) Safekeeping of Securities
(i) The Securities in the Custody Accounts and the Cash in the
Deposit Accounts shall be identified in the records of the Foreign
Custodian as being held for the account of the Custodian as agent for
its Clients. The Custodian shall indemnify and hold the Foreign
Custodian and its nominee harmless from liability as the holder of
record. To the extent that the Securities are physically held in the
Custody Accounts, the Securities shall be physically segregated from
the general assets of the Foreign Custodian, the assets of the Foreign
Custodian's other customers and any assets being held for the account
of Brown Brothers in its individual capacity.
(ii) The Foreign Custodian may, with the written approval of
the Custodian, maintain Securities with the Euro-clear System and any
other securities depository or clearing agency which is incorporated or
organized under the laws of a country other than the United States of
America (a
<PAGE> 2
"Foreign Securities System"); provided that such Foreign Securities
System is supervised or regulated by a government agency or regulatory
authority in such country and operates (a) the central system for the
handling of securities or equivalent book-entry securities in such
country or (b) a transnational system for the central handling of
securities or equivalent book-entry securities. Securities maintained
in a Foreign Securities System may be registered in the name of the
Foreign Custodian, such Foreign Securities System or its nominee;
provided that the Securities are listed in the records of the Foreign
Custodian as being held by it, such Foreign Securities System or the
nominee of such Foreign Securities System as custodian for the
Custodian's Clients and in the records of such Foreign Securities
System as being held by it or its nominee as custodian for the Foreign
Custodian's clients. Securities maintained in a Foreign Securities
System shall be covered by adequate insurance. The Foreign Custodian
shall not maintain Securities with any Foreign Securities System unless
it reasonably believes that Securities maintained with such Foreign
Securities System will not be or become subject to any right, charge,
security interest, lien or claim of any kind in favor of such Foreign
Securities System or its creditors, including a receiver or trustee in
bankruptcy, except for a claim of payment for the safe custody or
administration of the Securities.
(B) Acceptance of Securities
The Foreign Custodian shall accept delivery of all Securities
for the account of the Custodian as agent for Clients except any
Security as to which it has notice of any defect in title or any
encumbrance affecting such Security or (ii) the fact that such Security
is forged or fraudulent or cannot be freely transferred or delivered
without encumbrance in any relevant market. The Foreign Custodian will
not accept any form of receipt instead of Securities unless
specifically instructed otherwise pursuant to Instructions from the
Custodian.
(C) Custody Accounts Transactions
The Foreign Custodian shall transfer, exchange or deliver
Securities only as follows:
(i) upon the sale of Securities and receipt of payment
therefor in accordance with Instructions from the Custodian; provided
that the Foreign Custodian may accept payment and make delivery of
Securities in accordance with the customs prevailing in the market or
among securities dealers; or
(ii) in exchange for or upon conversion into other Securities
or Cash pursuant to a plan of merger, consolidation, reorganization,
recapitalization or readjustment; or
(iii) upon conversion of Securities pursuant to these terms
into other Securities; or
<PAGE> 3
(iv) upon the exercise of subscription, purchase or other
similar rights represented by Securities; or
(v) as otherwise required pursuant to this Agreement; or
(vi) as otherwise directed pursuant to Instructions from the
Custodian.
(D) Deposit Accounts Payments
The Foreign Custodian shall make payments of Cash from a Deposit
Account only as follows:
(i) for the purchase of Securities pursuant to Instructions
from the Custodian; or
(ii) for the payment of usual and customary taxes, fees or
expenses incurred by the Foreign Custodian in connection with the sale,
purchase, conversion, exchange or surrender of Securities pursuant to
Instructions from the Custodian or their registration in the name of
the Foreign Custodian or that of its nominee; or
(iii) as otherwise directed pursuant to Instructions from the
Custodian.
(E) Duties of the Foreign Custodian
Unless the Foreign Custodian receives contrary Instructions from the
Custodian, it will do the following:
(i) take such steps as may be necessary to secure or otherwise
prevent the loss of rights attached or otherwise relating to
Securities;
(ii) promptly notify the Custodian upon receiving notices,
reports or proxies or otherwise becoming aware of corporate actions
affecting Securities (including, but not limited to, calls for
redemption, mergers, consolidations, reorganizations,
recapitalizations, tender offers, rights offerings, exchange
subscriptions and other offerings);
(iii) collect dividend, interest and other income payments
made and stock dividends, rights and similar Securities paid or issued
with respect to Securities and collect and hold all such payments in
the Deposit Accounts and all such stock dividends, rights and similar
Securities in the Custody Accounts;
(iv) present for payment Securities that are called, redeemed,
or retired or otherwise become payable and all coupons and other income
items that call for payment upon presentation, notify the Custodian of
any amounts payable, but not received, and hold Cash received in the
Deposit Accounts;
<PAGE> 4
(v) execute such ownership and other certificates as may be
required to obtain payment in respect of Securities;
(vi) exchange interim receipts or temporary Securities in the
Custody Accounts for definitive Securities;
(vii) execute and deliver in accordance with Instructions from
the Custodian all proxies, consents, authorizations and other
instruments pursuant to which the authority of a Client as owner of any
Security may be exercised; and
(viii) take such other actions as the Custodian may request
pursuant to Instructions, including the enforcement on behalf of the
Custodian of any rights which the Foreign Custodian may have against a
Foreign Securities System or any other third party.
(F) Reporting
On the date of any transaction in a Custody Account or a Deposit
Account, the Foreign Custodian will report to the Custodian by telex the
location, transfer and holdings of, and any payment with respect to, the
Securities. In addition, the Foreign Custodian will provide the Custodian with
monthly reports and advices in such format and by such means as may be mutually
agreed upon from time to time. The Foreign Custodian, in addition, will notify
the Custodian immediately in the event that any Cash or Security is lost, stolen
or destroyed, if any Security proves to be forged, fraudulent or invalid, if the
issuer thereof is nationalized or such Security is expropriated or seized by or
pursuant to the authority of any government or governmental authority (including
any court or tribunal), if for any reason such Security cannot be freely
transferred or delivered without encumbrance in any relevant market or if any
right, charge, security interest, lien or claim is asserted by any party against
any Security or Cash or against one or more of the Custody Accounts or Deposit
Accounts.
(G) Inspection and Auditing
To the extent consistent with applicable law and regulations, the
Foreign Custodian shall provide confirmation to the Bank of the contents of the
records maintained pursuant to this Agreement. The Foreign Custodian will
furnish Brown Brothers Harriman with any reports of the Foreign Custodian's
external auditors in connection with the Foreign Custodian's system of internal
accounting controls as they relate to the Foreign Custodian's responsibilities
under this Agreement and any similar reports received by the Foreign Custodian
from any Foreign Securities System.
<PAGE> 5
(H) Liability
The Foreign Custodian shall use reasonable care in the performance of
its duties under this Agreement and shall exercise the same degree of care with
respect to the Securities and Cash as it would with respect to its own
Securities and property and that of its clients. The Foreign Custodian agrees to
indemnify the Custodian and the Clients against, and to hold them harmless from,
any loss or liability (including, but not limited to, attorney's fees and
expenses) incurred by the Custodian or any client with respect to any Security
or Cash or any Custody Account or Deposit Account by reason of the negligence
(whether through action or inaction), fraud or willful misconduct of the Foreign
Custodian or any of its officers or employees.
3. REPRESENTATIONS AND WARRANTIES OF THE FOREIGN CUSTODIAN
The Foreign Custodian hereby represents and warrants to the Custodian
that:
(A) The Securities and Cash are not, and will not become, subject to
any right, charge, security interest, lien or claim of any kind in favor of the
Foreign Custodian or its creditors, including a receiver or trustee in
bankruptcy, except for a claim of payment for the safe custody or administration
of the Securities or for funds advanced on behalf of a Client by the Foreign
Custodian;
(B) Beneficial ownership of the Securities is, and will remain, freely
transferable without the payment of money or value other than for safe custody
and administration or for funds advanced on behalf of a Client by the Foreign
Custodian;
(C) The Foreign Custodian does not have, and will not have, any
ownership interest in any Custody Account or Deposit Account or in any
Securities or Cash contained therein and is holding the Securities and Cash for
the exclusive benefit of the Clients and not for Brown Brothers in its
individual capacity;
(D) The Foreign Custodian (i) is a banking institution or trust company
incorporated or organized under the law of a country other than the United
States, (ii) is regulated as such by the government of such country or by an
agency of such government and (iii) has shareholder's equity in excess of U.S.
$200,000,000 or its equivalent in the currency of such country; and
(E) The Foreign Custodian will immediately notify the Custodian of any
development or event (and the circumstances relating thereto) which could render
the Foreign Custodian unable to make any of the foregoing representations and
warranties.
<PAGE> 6
4. INSTRUCTIONS
The term "Instructions" as used in this Agreement means instructions
from Authorized Persons of the Custodian received by the Foreign Custodian
including, without limitation, instructions given telephone, facsimile
transmission, telegram, teletype, cablegram or other teleprocess or electronic
instruction system which the Foreign Custodian believes in good faith to have
been given by the Custodian or which are transmitted with proper testing or
authentication pursuant to terms and conditions specified in writing by the
Custodian. The term "Authorized Persons" as used herein means individuals whose
names are communicated in writing to the Foreign Custodian from time to time as
being authorized by the Custodian to give Instructions to the Foreign Custodian.
Unless otherwise provided, all Instructions and the designation of all
Authorized Persons shall continue in full force and effect until notice of their
cancellation has been received by the Foreign Custodian. The Foreign Custodian
shall safeguard any testkeys, identification codes or other security devices
with which the Custodian provides it.
5. FEES AND EXPENSES
The Custodian agrees promptly to pay the Foreign Custodian on behalf of
the Clients such compensation, including reimbursement of reasonable expenses,
as may be mutually agreed upon from time to time between the Foreign Custodian
and the Custodian.
6. TERMINATION
(A) This Agreement may be terminated by either party upon sixty days'
prior written notice to the other party.
(B) The Custodian may terminate this Agreement at any time by notice to
the Foreign Custodian effective immediately, if;
(i) The Foreign Custodian shall fail in any material respect
to perform its obligations hereunder; or
(ii) The Foreign Custodian shall be adjudged bankrupt or
insolvent, or there shall be commenced against it a case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect or the Foreign Custodian shall make an assignment for the
benefit of its creditors, consent to the appointment of a receiver or
other similar official for all or any substantial part of its property,
admit in writing its inability to pay its debts as they mature or take
any corporate action in furtherance of any of the foregoing; or
(iii) any change in government or any applicable law, rule or
regulation or any change therein or in the interpretation or
administration thereof shall have or may reasonably be expected to have
an adverse effect on the Custodian or any Client with respect to any
Securities or Cash or this Agreement or the services to be provided
hereunder; or
<PAGE> 7
(iv) there shall occur a substantial change in the ownership,
or a material adverse change in the condition, of the Foreign Custodian
or in its ability to fulfill its responsibilities under this Agreement;
or
(v) the Foreign Custodian shall no longer be in compliance
with the representations and warranties set forth in Section 3 (D)
hereof.
(C) Upon termination of this Agreement the Foreign Custodian shall
forthwith deliver the Securities and Cash in accordance with Instructions from
the Custodian.
7. MISCELLANEOUS
(A) This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto, their successors and assigns and may not be assigned by
either party without the prior written consent of the other party.
(B) This Agreement may only be amended by an instrument in writing
signed by both parties hereto.
(C) Any notice or other communication given pursuant to this Agreement
shall be sent to the appropriate party at the address listed on the signature
page hereof.
(D) To the extent inconsistent with this Agreement, any rules or
conditions of the Foreign Custodian regarding accounts generally or custody
accounts specifically shall be superseded by the terms of this Agreement and
shall not apply.
(E) This agreement will be construed in accordance with Spanish Law;
provided that this provision shall not limit the right of the Custodian to
commence any proceeding in any other court having jurisdiction under applicable
law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first above written.
BANCO DE SANTANDER S. A. BROWN BROTHERS HARRIMAN & CO
/s/ Nicolas Fernandez /s/ Douglas A. Donahue Jr.
By Nicolas Fernandez Douglas A. Donahue Jr.
Title: Manager Title: Senior Manager
Banco de Santander Brown Brothers Harriman & Co
Paseo de la Castellana, 75 40 Water Street
28046 Madrid 75 Boston, Ma 02109
Spain USA
<PAGE> 1
EXHIBIT 13(a)(1)
REGISTRAR,
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE FIRST IBERIAN FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment; Duties of the Bank........1
Article 2 Fees and Expenses...............................3
Article 3 Representations and Warranties of the Bank......4
Article 4 Representations and Warranties of the Fund......4
Article 5 Indemnification.................................5
Article 6 Covenants of the Fund and the Bank..............8
Article 7 Termination of Agreement........................9
Article 8 Assignment.....................................10
Article 9 Amendment......................................10
Article 10 Massachusetts Law to Apply.....................10
Article 11 Merger of Agreement............................11
<PAGE> 3
REGISTRAR, TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 12th day of April, 1988, by and between THE
FIRST IBERIAN FUND, INC., a Maryland corporation, having its principal office
and place of business at One Seaport Plaza, New York, New York 10292, (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its registrar,
transfer agent, dividend disbursing agent and agent in connection with certain
other activities and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints the Bank to act as, and the Bank agrees to
act as registrar, transfer agent for the Fund's authorized and issued shares of
its common stock ("Shares"), dividend disbursing agent and agent in connection
with any dividend reinvestment as set out in the prospectus of the Fund,
corresponding to the date of this Agreement.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
<PAGE> 4
(i) issue and record the appropriate number of Shares as
authorized and hold such Shares in the appropriate Shareholder
account;
(ii) effect transfers of Shares by the registered owners thereof
upon receipt of appropriate documentation;
(iii) prepare and transmit payments for dividends and distributions
declared by the Fund; and
(iv) act as agent for Shareholders pursuant to the dividend
reinvestment and cash purchase plan as amended from time to
time in accordance with the terms of the agreement to be
entered into between the Shareholders and the Bank in
substantially the form attached as Exhibit A hereto.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), the Bank shall: (i) perform all of the customary services
of a registrar, transfer agent, dividend disbursing agent and agent of the
dividend reinvestment and cash purchase plan as described in Article 1
consistent with those requirements in effect as at the date of this Agreement.
The detailed definition, frequency, limitations and associated costs (if any)
set out in the attached fee schedule, include but not limited to: maintaining
all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
receiving and tabulating proxies and mailing Shareholder reports to current
Shareholders, withholding taxes on
-2-
<PAGE> 5
U.S. resident and non-resident alien accounts where applicable, preparing and
filing U.S. Treasury Department Forms 1099 and other appropriate forms required
with respect to dividends and distributions by federal authorities for all
registered Shareholders, preparing and mailing confirmation forms and statements
of account to Shareholders and providing Shareholder account information.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this Agreement, the
Fund agrees to pay the Bank an annual maintenance fee as set out in the initial
fee schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by the Bank at the request or with the consent of
the Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within
five days following the mailing of the respective billing notice. Postage and
the cost of materials for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to the Bank by the Fund
at least seven (7) days prior to the mailing date of such materials.
-3-
<PAGE> 6
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and in good standing under
the laws of the Commonwealth of Massachusetts, and is duly registered as a
transfer agent under 17A(c) of the Securities Exchange Act of 1934, as amended.
3.02 It is duly qualified to carry on its business in the Commonwealth
of Massachusetts.
3.03 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is a closed-end, diversified investment company registered
under the Investment Company Act of 1940.
-4-
<PAGE> 7
4.05 A registration statement under the Securities Act of 1933 is
currently effective and appropriate state securities law filings have been made
with respect to all Shares of the Fund being offered for sale; information to
the contrary will result in immediate notification to the Bank.
4.06 It shall make all required filings under federal and state
securities laws.
Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records and documents which (i) are received by the Bank or its
agents or subcontractors and furnished to it by or on behalf of the Fund, and
(ii) have been prepared and/or maintained by the Fund or any other person or
-5-
<PAGE> 8
firm on behalf of the Fund. Such other person or firm shall include any former
transfer agent or former registrar, or co-transfer agent or co-registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund's representative.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
5.02 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Bank as a result of the Bank's lack of good faith,
negligence or willful misconduct.
5.03 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The Bank,
its agents and subcontractors shall be protected and indemnified in acting upon
any paper or document
-6-
<PAGE> 9
furnished by or on behalf of the Fund, reasonably believed to be genuine and to
have been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by telephone, in person, machine readable input, telex, CRT data
entry or other similar means authorized by the Fund, and shall not be held to
have notice of any change of authority of any person, until receipt of written
notice thereof from the Fund. The Bank, its agents and subcontractors shall also
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of the
officers of the Fund, and the proper countersignature of any former transfer
agent or former registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the
-7-
<PAGE> 10
other, the party seeking indemnification shall promptly notify the other party
of such assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to indemnify
shall have the option to participate with the party seeking indemnification in
the defense of such claim. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which the other party
may be required to indemnify it except with the other party's prior written
consent.
Article 6 Covenants of the Fund and the Bank
6.01 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund and
all amendments thereto.
6.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 The Bank shall keep records relating to the Services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules
-8-
<PAGE> 11
thereunder, the Bank agrees that all such records prepared or maintained by the
Bank relating to the services to be performed by the Bank hereunder are the
property of the Fund and will be preserved, maintained and made available in
accordance with such Section and Rules, and will be surrendered promptly to the
Fund on and in accordance with its request.
6.04 The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other persons
except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, the Bank reserves the right to charge for any other
reasonable
-9-
<PAGE> 12
expenses associated with such termination and/or a charge equivalent to the
average of three (3) month's fees.
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(l) of the Securities Exchange Act of
1934 ("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered as a transfer
agent pursuant to Section 17A(c)(l) or (iii) a BFDS affiliate; provided,
however, that the Bank shall be as fully responsible to the Fund for the acts
and omissions of any subcontractor as it is for its own acts and omissions.
Article 9 Amendment
9.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
-10-
<PAGE> 13
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
THE FIRST IBERIAN FUND, INC.
BY: /s/ Robert F. Gunia
----------------------------
ATTEST:
/s/
- ----------------------
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Patricia A. Noonan
--------------------------------
Vice President
ATTEST:
/s/
- ----------------------
Assistant Secretary
-11-
<PAGE> 1
Exhibit 13(a)(2)
STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT and REGISTRAR SERVICES
FEE AGREEMENT
for all
SCUDDER, STEVENS & CLARK, INC.
CLOSED-END FUNDS
ONGOING TRANSFER AGENT FEES
- ---------------------------
$6.75 per shareholder account, per fund, per annum. Includes the
issuance and registration of the first 5,000 credit certificates per fund in a
calendar year. Excess credits beyond 5,000 per fund to be billed at $1.25 each
within a calendar year.
For each dividend reinvestment per participant $.75
For each optional cash infusion $.75
ACCOUNT MAINTENANCE SERVICES
- ----------------------------
- - Establishing new accounts
- - Preparation and mailing of W-9 solicitation to new accounts without T.I.N.s
- - Address changes
- - Processing T.I.N. changes
- - Processing routine and non-routine transfers of ownership
- - Issuance of credit certificates (see limits)
- - Posting debit and credit transactions
- - Providing a daily transfer journal of ownership changes
- - Responding to written shareholder communications
- - Responding to shareholder telephone inquiries; toll-free number
- - Placing and releasing stop transfers
- - Replacing lost certificates
- - Registration of credit certificates (see limits)
<PAGE> 2
Fee Agreement
Page 2
DIVIDEND DISBURSEMENT SERVICES
- ------------------------------
- - Generate and mail dividend checks with one enclosure
- - Replace lost dividend checks
- - Processing of backup withholding and remittance
- - Processing of non-resident alien withholding and remittance.
- - Preparation and filing of Federal Tax Forms 1099 and 1042
- - Preparation and filing of State Tax information as directed
DIVIDEND REINVESTMENT SERVICES PROVIDED
- ---------------------------------------
- - Processing optional cash investments and acknowledging same
- - The reinvestment of dividend proceeds for participants
- - Participant withdrawal or sell requests
- - Preparation, mailing of monthly reinvestment statements
ANNUAL MEETINGS SERVICES
- ------------------------
Coordination of mailing of proxies, proxy statement, annual report and
- - business reply envelope (all out-of-pocket expenses, including printing of
proxy cards, postage, and envelope costs will be billed as incurred)
- - Providing one set of labels of banks, brokers and nominees for broker
search
- - Providing an Annual Meeting Record Date list
- - Tabulation of returned proxies
- - Daily reporting of tabulation results
- - Interface support during solicitation effort
- - Providing one inspector of Election at Annual Meeting (out-of-pocket travel
expenses billed as cost as incurred)
- - Providing an Annual Meeting Final Voted list
<PAGE> 3
Fee Agreement
Page 3
ADDRESSING AND MAILING SERVICES
- -------------------------------
- - Preparation for the mailing of three (3) quarterly reports
- - Addressing and mailing dividend reinvestment brochures to new shareholders
on a monthly basis, or as agreed
INFORMATIONAL SERVICES PROVIDED
- -------------------------------
- - One complete statistical report per calendar year
- Shareholders by state
- Shareholders by classification code
- Shareholders by share grouping
TERMS OF FEE AGREEMENT
- ----------------------
- - Length of Fee Agreement is two years from execution
- - Minimum $1,000. per month, per fund
- - Escalation Clause - The per account annual fee in upon renewal shall be
equal to the current fee increased by the lesser of (I) 6% or, (ii) the
percentage increase in the U.S. Department of Labor nation index of "Cost
of Services Less Rent" for the period at renewal. Fees will be increased at
this rate every two years thereafter.
MISCELLANEOUS
- -------------
- - All mail list accounts will be maintained at a flat rate of $3,00 per
account, per annum.
- - All out-of-pocket expenses such as postage, stationery, etc. will be billed
as incurred.
- - Escheatment services.
ADDITIONAL SERVICES
- -------------------
- - Services over and over this Fee Schedule will be invoiced in accordance
with our current Schedule of Services or priced by appraisal.
<PAGE> 4
STATE STREET BANK AND TRUST COMPANY
STOCK TRANSFER AGENT FEE AGREEMENT
FOR
SCUDDER, STEVENS & CLARK, INC.
CLOSED-END FUNDS
FEE AGREEMENT EFFECTIVE DATES: FROM; 4/1/96 - 4/1/97
- ------------------------------
LENGTH OF FEE AGREEMENT: One Year
- ------------------------
REQUIRED SIGNATURES:
- --------------------
- ------------------------------------------- -------------------------
State Street Bank and Trust Company Date
Name: Charles V. Rossi
Title: Vice President
- ------------------------------------------- -------------------------
Scudder, Stevens & Clark, Inc. Date
Name:
Title:
<PAGE> 5
PORTUGAL
Associacao para a Prestacao de Servicos as Bolsa de Valores (Interbolsa)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Head Office: Rua Pinheiro Manso, 471
4100 Porto
Portugal
Ownership: Lisbon Stock Exchange Association 50%
Oporto Stock Exchange Association 50%
Supervisory Body: Comissao de Mercado de Valores Mobilarios (CMVM)
Eligible Securities: Book entry securities and fungible certificates
Participants: There are 56 participants, the majority of which are brokers,
dealers, and banks.
Operating History: Interbolsa began activities in 1991
but was not legally constituted until April
1993. This association was established to
run the central securities depository
(Central de Valores Mobiliarios), run the
nationwide clearing and settlement system,
and run the nationwide trading system
(TRADIS).
Value of Securities
Under Custody: PTE 12,790,560,000,000 (approximately USD 82,467 million)
Financials: Total Assets: PTE 6,300,000,000 (USD 41 million) as of 12/31/96
Auditors: Deloitte & Touche
Insurance: PTE 1 billion policy covers risks related to the use of computers
and network communications, staff infidelity, forgery and/or
physical loss, and fraud.
General Comments: Securities are immobilized, and all government debt issued after
1991 is dematerialized. Interbolsa has automated communication
with the Lisbon Stock Exchange and market participants.
Physical shares may be held outside
Interbolsa, but it is required to register
securities in certificate form if they are:
to be traded in the Stock Exchange, result
from the exercise of rights in issues
already registered, or if they are to be
converted into book entry shares. Functions
performed are transfer, trade matching,
clearance and settlement, registration,
safekeeping/book entry, and income
collection/distribution.
</TABLE>
<PAGE> 6
PORTUGAL
Page 2
I. The Subcustodian
----------------
<TABLE>
<CAPTION>
<S> <C>
G. Financial Strength and
Reputation:
Insurance Provisions: The subcustodian has confirmed that BESCL's
Bankers Blanket Bond insures: forgery, loss on
premises, employee dishonesty, robbery, electronic
communications, and Eurocheque coverage. The
amount of coverage is PTE 500 million per incident
with a PTE 13 million deductible.
U. S. Branches: There is one branch office in New York.
Asset Ranking
(as of year end, 1996): BESCL is ranked 5th in Portugal and 240th in the
world in terms of total assets.
S&P Long-Term
Rating
(as of June 13, 1997): A-
S&P Short-Term
Rating
(as of June 13, 1997): A-1
II. The Subcustodian Agreement
--------------------------
A. Agreement: Master subcustodian agreement dated April 26,
1989 and amended February 23, 1994, copies of
which are enclosed.
III. Country Information
-------------------
A. Regulation of the
Subcustodian: BESCL is regulated under the laws of Portugal by
Banco de Portugal.
</TABLE>
<PAGE> 7
PORTUGAL
Page 3
<TABLE>
<CAPTION>
<S> <C>
III. Country Information (continued)
------------------------------
B. Deposit Insurance: Financial institutions are excluded from the
guarantee fund.
C. Foreign Law
Considerations:
Access to books The bank may provide either access to books and
and records: records or information reflecting the contents thereof.
Recovery of assets There are no restrictions on the recovery of assets in
upon bankruptcy: the event of bankruptcy.
Recovery of assets There are no restrictions on the recovery of lost
upon loss: assets.
Likelihood of Expropriation or any similar event is considered
expropriation: unlikely.
Convertibility There is no difficulty in the conversion of assets.
of assets:
</TABLE>
<PAGE> 1
Exhibit 13(B)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 21st day of December, 1995 between The First
Iberian Fund Inc. (the "Fund"), a registered closed-end management investment
company with its principal place of business in New York, New York and Scudder
Fund Accounting Corporation, with its principal place of business in Boston,
Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Fund has need for certain accounting services which FUND ACCOUNTING
is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement as
the Fund's fund accounting agent, and as such FUND ACCOUNTING shall:
a. Maintain and preserve all accounts, books, financial records and other
documents as are required of the Fund under Section 31 of the
Investment Company Act of 1940 (the "1940 Act") and Rules 3 Ia- 1, 3
la-2 and 3 la-3 thereunder, applicable federal and state laws and any
other law or administrative rules or procedures which may be
applicable to the Fund, other than those accounts, books and financial
records required to be maintained by the Fund's custodian or transfer
agent and/or books and records maintained by all other service
providers necessary for the Fund to conduct its business as a
registered closed-end management investment company. All such books
and records shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and shall be
surrendered promptly upon request of, duly authorized officers of the
Fund. All such books and records shall at all times during regular
business hours be open for inspection, upon request of duly authorized
officers of the Fund, by employees or agents of the Fund and employees
and agents of the Securities and Exchange Commission.
b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's net
asset value and net income.
c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the Fund
or by any regulatory body with jurisdiction over the Fund. e. Compute
the Fund's net asset value per share, and, if applicable, its public
offering price and/or its daily dividend rates and money market
yields, in accordance with Section 3 of the Agreement and notify the
Fund and such other persons as the Fund may reasonably request of the
net asset value per share, the public offering price and/or its daily
dividend rates and money market yields.
<PAGE> 2
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Directors of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Directors of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use
in advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Fund's net asset value, including net
income, in a manner consistent with the specific provisions of the
Registration Statement. Such computation shall be made as of the time
or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Fund's books of account and making the necessary
computations FUND ACCOUNTING shall be entitled to receive, and may rely
upon, information furnished it by means of Proper Instructions,
including but not muted to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Fund;
b. The source of quotations to be used -for such securities as may
not be available through FUND ACCOUNTiNG's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public offering
price and such other computations as may be necessary;
e. Transactions in portfolio securities; f. Transactions in capital
shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Directors.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Fund and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
2
<PAGE> 3
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Directors. The Fund
shall cause oral instructions to be confirmed in writing. Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices as from tune to time agreed to
by an authorized officer of the Fund and FUND ACCOUNTING.
The Fund agrees to furnish to the appropriate person(s) within FUND
ACCOUNTING a copy of the Registration Statement as in effect from time
to time. FUND ACCOUNTING may conclusively rely on the Fund's most
recently delivered Registration Statement for all purposes under this
Agreement and shall not be liable to the Fund in acting in reliance
thereon.
Section 6. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgement or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund or its shareholders to which FUND
ACCOUNTING would otherwise be subject by reason of willful misfeasance,
bad faith or negligence in the performance of its duties, or by reason
of its reckless disregard of its obligations and duties hereunder.
The Fund agrees to indemnify and hold harmless FUND ACCOUNTING and its
employees, agents and nominees from all taxes, charges, expenses,
assessments, claims and liabilities (including reasonable attorneys'
fees) incurred or assessed against them in connection with the
performance of this Agreement, except such as may arise from their own
negligent action, negligent failure to act or willful misconduct. The
foregoing notwithstanding, FUND ACCOUNTING will in no event be liable
for any loss resulting from the acts, omissions, lack of financial
responsibility, or failure to perform the obligations of any person or
organization designated by the Fund to be the authorized agent of the
Fund as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Fund's records arising from fire, flood, Acts of God, military power,
war, insurrection or nuclear fission, fusion or radioactivity shall be
limited to the use of FUND ACCOUNTING's best efforts to recover the
Fund's records determined to be lost, missing or destroyed.
3
<PAGE> 4
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time upon in
writing by the two parties.FUND ACCOUNTING shall be entitled to recover
its reasonable telephone, courier or delivery service, and all other
reasonable out-of-pocket, expenses as incurred, including, without
limitation, reasonable attorneys' fees and reasonable fees for pricing
services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designed
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund: The First Iberian Fund, Inc.
345 Park Avenue
NewYork, NY 10154
Attn: President, Secretary or Treasurer
4
<PAGE> 5
Section 11. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Directors.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
[SEAL] THE FIRST IBERIAN FUND, INC.
By /s/ Nicholas Bratt
President
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
By /s/ Pamela A. McGrath
Vice President
5
<PAGE> 1
Exhibit 13(c)
SHAREHOLDER SERVICING AGREEMENT
AGREEMENT (the "Agreement") made as of June 16, 1994, between THE FIRST
IBERIAN FUND INC., a Maryland corporation, having its principal place of
business at 345 Park Avenue, New York, New York 10154 (the "Fund") and SCUDDER
SERVICE CORPORATION ("Service Corporation"), a Massachusetts corporation having
its principal place of business at Two International Place, Boston,
Massachusetts 02110.
WHEREAS, the Fund has determined that it is in the best interests of the
Fund to establish a toll-free "800" number and to provide personnel to respond
to certain inquiries regarding the Fund (as more fully described below, the
"Service"); and
WHEREAS, Service Corporation will initiate and provide the Service on
behalf of the Fund;
NOW, THEREFORE, it is agreed as follows:
1. The Fund hereby employs Service Corporation to provide, and Service
Corporation hereby agrees to provide, the Service. In accordance with procedures
established from time to time, Service Corporation agrees that the Service
consists of responding to telephone inquiries from shareholders and others about
the Fund and providing certain information via an audio response system.
2. For the performance by Service Corporation pursuant to this Agreement,
the Fund agrees to pay a fee and reimburse Service Corporation for reasonable
out-of-pocket expenses and advances as set out in the fee schedule attached
hereto and made a part hereof. Such fee schedule may be amended from time to
time subject to the approval of a majority of the Directors of the Fund who are
not "interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund.
3. In addition to the fee paid under Section 2 above, the Fund agrees to
reimburse Service Corporation for reasonable out-of-pocket expenses or advances
incurred by Service Corporation for the items set out in the fee schedule agreed
to by both parties in writing. Such out-of-pocket expenses shall include, but
shall not be limited to, the Fund's allocable portion of (i) the initial
start-up costs of setting up the Service; (ii) the usage costs charged by the
telephone company for maintaining the Service; and (iii) telephone and postage
costs incurred in connection with providing the Service. In addition, any other
expenses incurred by Service Corporation at the request or with the consent of
the Fund will be reimbursed by the Fund.
4. The Fund agrees to pay all fees and reimbursable expenses promptly, the
terms, method and procedures for which are detailed on the fee schedule agreed
to by both parties in writing.
<PAGE> 2
5. Nothing herein shall be construed as prohibiting Service Corporation
from providing shareholder services for, or entering into shareholder servicing
agreements with, other clients (including other registered investment
companies), nor shall anything herein be construed as constituting Service
Corporation an agent of the Fund.
6. To the extent that Service Corporation acts in good faith and without
gross negligence or willful misconduct, Service Corporation shall not be
responsible for, and the Fund shall indemnify and hold Service Corporation
harmless from and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of and attributable to all
actions of Service Corporation, its directors, officers and employees taken
pursuant to this Agreement. Service Corporation shall indemnify and hold the
Fund harmless from and against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or attributable
to the lack of good faith, gross negligence or willful misconduct of Service
Corporation, its directors, officers and employees in the performance of Service
Corporation's obligations under this Agreement.
7. This Agreement shall become effective as of the date first above
written, and shall remain in full force and effect until terminated. This
Agreement may be terminated by either party upon sixty (60) days' written notice
to the other. Should the Fund exercise its right to terminate, Service
Corporation reserves the right to charge reasonable expenses associated with
such termination.
8. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party.
9. This Agreement may be executed by the parties hereto in any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same agreement.
10. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts, provided, however, that nothing herein shall be
construed as being inconsistent with the 1940 Act.
2
<PAGE> 3
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their officers or directors, as appropriate, hereunto duly authorized all as of
the day and year first above written.
THE FIRST IBERIAN FUND INC.
BY: /s/ Nicholas Bratt
----------------------------
Nicholas Bratt, President
SCUDDER SERVICE CORPORATION
By: /s/ Daniel Pierce
---------------------------
Daniel Pierce, President
3
<PAGE> 4
SCUDDER SERVICE CORPORATION
FEE INFORMATION FOR SERVICES PROVIDED UNDER
SHAREHOLDER SERVICING AGREEMENT
Service fee for the Fund
$1,250 per month, for a total annual cost of $15,000
Other fees
$2,571.43 Pro Rata Start-up Costs: Includes the pro rata costs of a one-time
charge to add a new "800" number to the existing Megacom service, costs for
updating the existing software and script recording, and additional system ports
to connect the telephone lines to the audio response system.
Out-of-pocket expenses shall be reimbursed by the Fund to Scudder Service
Corporation or paid directly by the Fund. Such expenses shall include but not be
limited to:
Telephone
Postage, overnight service or similar service
Stationery and envelopes
Data circuits
Lease and maintenance of audio response system
Recording devices and related materials
Expenses incurred at the specific direction of the fund
Payment
The above will be billed within the first five (5) business days of each month
and will be paid by wire within five (5) business days of receipt.
The First Iberian Fund, Inc. Scudder Service Corporation
By: /s/ Nicholas Bratt By: /s/ Daniel Pierce
------------------ ------------------
Dated: June 16, 1994 Dated: June 16, 1994
4
<PAGE> 5
ATTACHMENT A
SHAREHOLDER SERVICING AGREEMENT
LIST OF FUNDS
SCUDDER NEW ASIA FUND, INC.
SCUDDER NEW EUROPE FUND, INC.
THE ARGENTINA FUND, INC.
THE BRAZIL FUND, INC.
THE FIRST IBERIAN FUND, INC.
THE KOREA FUND, INC.
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
SCUDDER WORLD INCOME OPPORTUNITIES FUND, INC.
5
<PAGE> 1
Exhibit 14(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Other Service
Contracts" and "Experts" in the Registration Statement (Form N-14) and related
Proxy/Prospectus of Scudder Spain and Portugal Fund, Inc., and to the
incorporation by reference therein of our report dated January 20, 1998 with
respect to the financial statements of The Growth Fund of Spain, Inc., filed
with the Securities and Exchange Commission in this initial filing under the
Securities Act of 1933.
ERNST & YOUNG LLP
Chicago, Illinois
April 30, 1998
<PAGE> 1
Exhibit 14(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus (the Proxy/Prospectus) and the Statement of Additional Information
constituting part of this Registration Statement on Form N-14 (the Registration
Statement) of our report dated November 12, 1997, relating to the financial
statements and financial highlights appearing in the September 30, 1997 Annual
Report to Shareholders of Scudder Spain and Portugal Fund, Inc.
We further consent to the reference to us under the heading "Experts" in the
Proxy/Prospectus.
Price Waterhouse LLP
Boston, Massachusetts
April 30, 1998
<PAGE> 1
Exhibit 14(c)
Consents
<PAGE> 2
SIGNATURES
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned, a
nominee for Director of the Scudder Spain and Portugal Fund, Inc., (the "Fund")
hereby consents to being named in this Registration Statement on Form N-14 of
the Fund.
By /s/ James E. Akins
-----------------------------------------
James E. Akins
<PAGE> 3
SIGNATURES
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned, a
nominee for Director of the Scudder Spain and Portugal Fund, Inc., (the "Fund")
hereby consents to being named in this Registration Statement on Form N-14 of
the Fund.
By /s/ Arthur R. Gottschalk
-----------------------------------------
Arthur R. Gottschalk
<PAGE> 4
SIGNATURES
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned, a
nominee for Director of the Scudder Spain and Portugal Fund, Inc., (the "Fund")
hereby consents to being named in this Registration Statement on Form N-14 of
the Fund.
By /s/ Frederick T. Kelsey
-----------------------------------------
Frederick T. Kelsey
<PAGE> 5
SIGNATURES
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned, a
nominee for Director of the Scudder Spain and Portugal Fund, Inc., (the "Fund")
hereby consents to being named in this Registration Statement on Form N-14 of
the Fund.
By /s/ Gregory L. Melville
-----------------------------------------
Gregory L. Melville
<PAGE> 6
SIGNATURES
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned, a
nominee for Director of the Scudder Spain and Portugal Fund, Inc., (the "Fund")
hereby consents to being named in this Registration Statement on Form N-14 of
the Fund.
By /s/ Fred B. Renwick
-----------------------------------------
Fred B. Renwick
<PAGE> 7
SIGNATURES
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned, a
nominee for Director of the Scudder Spain and Portugal Fund, Inc., (the "Fund")
hereby consents to being named in this Registration Statement on Form N-14 of
the Fund.
By /s/ Moritz A. Sell
-----------------------------------------
Moritz A. Sell
<PAGE> 8
SIGNATURES
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned, a
nominee for Director of the Scudder Spain and Portugal Fund, Inc., (the "Fund")
hereby consents to being named in this Registration Statement on Form N-14 of
the Fund.
By /s/ John B. Tingleff
-----------------------------------------
John B. Tingleff
<PAGE> 9
SIGNATURES
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned, a
nominee for Director of the Scudder Spain and Portugal Fund, Inc., (the "Fund")
hereby consents to being named in this Registration Statement on Form N-14 of
the Fund.
By /s/ John G. Weithers
-----------------------------------------
John G. Weithers
<PAGE> 1
Exhibit 16
Powers of Attorney
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York and the State of New York on the 22nd
day of April, 1998.
SCUDDER SPAIN AND PORTUGAL FUND, INC.
By /s/ Richard M. Hunt
-----------------------------------------
Richard Hunt
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. By so signing, the undersigned in his
capacity as director or officer, or both, as the case may be, of the Registrant,
does hereby appoint Daniel Pierce, Kathryn L. Quirk and Thomas F. McDonough and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
/s/ Richard M. Hunt
- ------------------------------- Director April 22, 1998
Richard M. Hunt
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York and the State of New York on the 22nd
day of April, 1998.
SCUDDER SPAIN AND PORTUGAL FUND, INC.
By /s/ Wilson Nolen
-----------------------------------------
Wilson Nolen
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. By so signing, the undersigned in his
capacity as director or officer, or both, as the case may be, of the Registrant,
does hereby appoint Daniel Pierce, Kathryn L. Quirk and Thomas F. McDonough and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
/s/ Wilson Nolen
- ----------------------------- Director April 22, 1998
Wilson Nolen
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York and the State of New York on the 22nd
day of April, 1998.
SCUDDER SPAIN AND PORTUGAL FUND, INC.
By /s/ Nicholas Bratt
-----------------------------------------
Nicholas Bratt
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. By so signing, the undersigned in his
capacity as director or officer, or both, as the case may be, of the Registrant,
does hereby appoint Daniel Pierce, Kathryn L. Quirk and Thomas F. McDonough and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
/s/ Nicholas Bratt
- ------------------------------ Director April 22, 1998
Nicholas Bratt
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York and the State of New York on the 22nd
day of April, 1998.
SCUDDER SPAIN AND PORTUGAL FUND, INC.
By /s/ Jose Pedro Perez Llorca
-----------------------------------------
Jose Pedro Perez Llorca
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. By so signing, the undersigned in his
capacity as director or officer, or both, as the case may be, of the Registrant,
does hereby appoint Daniel Pierce, Kathryn L. Quirk and Thomas F. McDonough and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
/s/ Jose Pedro Perez Llorca
- --------------------------------- Director April 22, 1998
Jose Pedro Perez Llorca
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York and the State of New York on the 22nd
day of April, 1998.
SCUDDER SPAIN AND PORTUGAL FUND, INC.
By /s/ Rogerio C.S. Martins
-----------------------------------------
Rogerio C.S. Martins
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. By so signing, the undersigned in his
capacity as director or officer, or both, as the case may be, of the Registrant,
does hereby appoint Daniel Pierce, Kathryn L. Quirk and Thomas F. McDonough and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
Rogerio C.S. Martins
- -------------------------------- Director April 22, 1998
Rogerio C.S. Martins
<PAGE> 7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York and the State of New York on the 22nd
day of April, 1998.
SCUDDER SPAIN AND PORTUGAL FUND, INC.
By /s/ Daniel Pierce
-----------------------------------------
Daniel Pierce
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. By so signing, the undersigned in his
capacity as director or officer, or both, as the case may be, of the Registrant,
does hereby appoint Nicholas Bratt, Kathryn L. Quirk and Thomas F. McDonough and
each of them, severally, or if more than one acts, a majority of them, his true
and lawful attorney and agent to execute in his name, place and stead (in such
capacity) any and all amendments to the Registration Statement and any
post-effective amendments thereto and all instruments necessary or desirable in
connection therewith, to attest the seal of the Registrant thereon and to file
the same with the Securities and Exchange Commission. Each of said attorneys and
agents shall have power to act with or without the other and have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
SIGNATURE TITLE DATE
/s/ Daniel Pierce
- -------------------------------- Director April 22, 1998
Daniel Pierce
<PAGE> 1
Exhibit 17(a)
SCUDDER SPAIN AND PORTUGAL FUND, INC.
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- JULY 23, 1998
The undersigned hereby appoints __________, Daniel Pierce and Wilson
Nolen and each of them, as the proxies for the undersigned, with the power of
substitution in each of them, to vote all shares of Scudder Spain and Portugal
Fund, Inc. (the "Fund" or the "Spain and Portugal Fund") which the undersigned
is entitled to vote at the Annual Meeting of Stockholders of the Fund to be held
at the offices of Scudder Kemper Investments, Inc. ("Scudder Kemper") 25th
Floor, 345 Park Avenue (at 51st Street), New York, New York 10154, on July 23,
1998 at _____ a.m., eastern time, and at any postponements or adjournments
thereof and otherwise to represent the undersigned at the meeting with all
powers possessed by the shares signed if personally present at the meeting. The
undersigned hereby acknowledges receipt of notice of the meeting and the
accompanying proxy statement and revokes any proxy heretofore given.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED, THE UNDERSIGNED'S
VOTE WILL BE CAST FOR EACH NUMBERED ITEM LISTED BELOW. THE BOARD OF DIRECTORS OF
YOUR FUND, INCLUDING A MAJORITY OF THOSE WHO ARE NOT AFFILIATED WITH THE FUND OR
SCUDDER KEMPER, RECOMMENDS THAT YOU VOTE FOR EACH ITEM.
1. A. To approve amendments to the Articles of Incorporation of the Spain and
Portugal Fund to permit mergers and certain other transactions to be
approved by the affirmative vote of a majority of the outstanding
shares of common stock of the Spain and Portugal Fund.
B. To approve amendments to the Articles of Incorporation of the Spain and
Portugal Fund to permit the Board of Directors of the Fund to classify
shares of the Fund into separate series or classes.
C. To approve a merger of The Growth Fund of Spain, Inc. with and into the
Spain and Portugal Fund pursuant to a Merger Agreement and Plan of
Reorganization dated April 14, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To elect the following persons as Directors of the Spain and Portugal
Fund.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary). for all nominees listed
below.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE FOLLOWING LIST.)
James E. Akins Daniel Pierce
Arthur R. Gottschalk Fred B. Renwick
Richard M. Hunt Moritz A. Sell
Frederick T. Kelsey John B. Tingleff
Gregory L. Melville John G. Weithers
If the merger is not approved by the stockholders of the Spain and
Portugal Fund and the Growth Fund of Spain, only Messrs. Hunt and Pierce,
current directors of the Spain and Portugal Fund, will be voted upon.
<PAGE> 2
3. To ratify the selection of Price Waterhouse LLP as the Spain and
Portugal Fund's independent accountants for the fiscal year ending
September 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued and to be signed on reverse side)
<PAGE> 3
SCUDDER SPAIN AND PORTUGAL FUND, INC.
The proxies are authorized to vote in their discretion on any other
business which may properly come before the meeting and any adjournments
thereof. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR APPROVAL OF EACH PROPOSAL. Please sign exactly as name appears
on this card. When account is joint tenants, all should sign. When signing as
administrator, trustee or guardian, please give title. If a corporation or
partnership, sign in entity's name and by authorized person.
x____________________________
_____________________________
_____________________________
x____________________________
_____________________________
_____________________________
Dated:_______________________
____________________, 1998
PLEASE SIGN AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
NO POSTAGE IS REQUIRED
<PAGE> 1
Exhibit 17(b)
THE GROWTH FUND OF SPAIN, INC.
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS -- JULY 23, 1998
The undersigned stockholder of The Growth Fund of Spain, Inc., a
Maryland Corporation (the "Fund") hereby appoints Arthur R. Gottschalk and
__________, and each of them, as the proxies for the undersigned with the power
of substitution in each of them, to attend the Special Meeting of Stockholders
of the Fund to be held at the offices of Scudder Kemper Investments, Inc.
("Scudder Kemper"), 25th Floor, 345 Park Avenue (at 51st Street), New York, New
York 10154, on July 23, 1998 at _____ a.m., eastern time, and at any
postponement or adjournments thereof, and to vote all shares of the Fund which
the undersigned is entitled to vote at the meeting and otherwise to represent
the undersigned at the meeting with all powers possessed by the shares signed if
personally present at the meeting. The undersigned hereby acknowledges receipt
of notice of the meeting and of the accompanying proxy statement and revokes any
proxy heretofore given.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED, THE UNDERSIGNED'S
VOTE WILL BE CAST FOR EACH NUMBERED ITEM LISTED BELOW. THE BOARD OF DIRECTORS OF
YOUR FUND, INCLUDING A MAJORITY OF THOSE WHO ARE NOT AFFILIATED WITH THE FUND OR
SCUDDER KEMPER, RECOMMENDS THAT YOU VOTE FOR EACH ITEM.
1. (A) To approve amendments to the Articles of Incorporation of the
Growth Fund of Spain to permit mergers to be approved by the
affirmative vote of two-thirds of the Growth Fund of Spain's
outstanding shares of common stock and to provide that the Fund will no
longer be governed by the business combinations provisions of the
Maryland General Corporations Law and (B) to approve a merger of the
Growth Fund of Spain with and into Scudder Spain and Portugal Fund,
Inc. pursuant to a Merger Agreement and Plan of Reorganization dated
April 14, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued and to be signed on reverse side)
<PAGE> 2
THE GROWTH FUND OF SPAIN, INC.
The proxies are authorized to vote in their discretion on any other
business which may properly come before the meeting and any adjournments
thereof. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR APPROVAL OF EACH PROPOSAL. Please sign exactly as name appears
on this card. When account is joint tenants, all should sign. When signing as
administrator, trustee or guardian, please give title. If a corporation or
partnership, sign in entity's name and by authorized person.
x____________________________
_____________________________
_____________________________
x____________________________
_____________________________
_____________________________
Dated:_______________________
____________________, 1998
PLEASE SIGN AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
NO POSTAGE IS REQUIRED
