<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1999
1933 ACT FILE NO. 333-72341
1940 ACT FILE NO. 811-5482
- --------------------------------------------------------------------------------
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO.
AND
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
[X] AMENDMENT NO. 10
KEMPER HIGH INCOME TRUST
EXACT NAME OF REGISTRANT SPECIFIED IN CHARTER
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (NUMBER, STREET, CITY, STATE, ZIP CODE)
(312) 781-1121
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
PHILIP J. COLLORA
SCUDDER KEMPER INVESTMENTS, INC.
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
NAME AND ADDRESS (NUMBER, STREET, STATE, ZIP CODE) OF AGENT FOR SERVICE
COPIES TO:
<TABLE>
<S> <C>
ROBERT W. HELM, ESQ. THOMAS A. HALE, ESQ.
DECHERT PRICE & RHOADS SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
1775 EYE STREET, N.W. 333 WEST WACKER DRIVE
SUITE 1100 SUITE 2100
WASHINGTON, D.C. 20006-2401 CHICAGO, ILLINOIS 60606
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest (par
value $.01 per share).............. 8,003,074 shares $9.5625 $76,529,395 $21,275
- -------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) $22,182 previously paid. Estimated solely for the purpose of calculating
the registration fee in accordance with Rule 457(c) under the Securities
Act of 1933 on the basis of the average of the high and low sales prices
for the Fund's shares reported on the New York Stock Exchange on March 15,
1999.
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<PAGE> 2
KEMPER HIGH INCOME TRUST
CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- -------- ------- ----------------------
<C> <S> <C>
1. Outside Front Cover...................... Front Cover Page
2. Inside Front and Outside Back Cover
Page..................................... Front Cover Page
3. Fee Table and Synopsis................... Prospectus Summary; Fee Table
4. Financial Highlights..................... Financial Highlights
5. Plan of Distribution..................... Front Cover Page; Prospectus Summary; The
Offer; Dividends and Distributions:
Dividend Reinvestment and Cash Purchase
Plan
6. Selling Shareholders..................... Not Applicable
7. Use of Proceeds.......................... Prospectus Summary; Use of Proceeds
8. General Description of the Registrant.... Front Cover Page; Prospectus Summary;
Financial Highlights -- Portfolio
Characteristics and Composition; Trading
and Net Asset Value Information; The
Offer; Description of Shares of
Beneficial Interest; Investment
Objectives and Policies; Other Investment
Policies; Risk Factors and Special
Considerations
9. Management............................... Prospectus Summary; Management of the
Fund; Custodian, Transfer Agent, Dividend
Disbursing Agent and Registrar
10. Capital Stock, Long-Term Debt, and Other
Securities............................... Front Cover Page; Description of Shares
of Beneficial Interest; Information
Regarding Senior Securities; Dividends
and Distributions: Dividend Reinvestment
and Cash Purchase Plan; Federal Taxation
11. Defaults and Arrears on Senior
Securities............................... Not Applicable
12. Legal Proceedings........................ Not Applicable
13. Table of Contents of the Statement of
Additional Information................... Table of Contents of Statement of
Additional Information
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
- -------- ------- -----------------------------------------------
<C> <S> <C>
14. Cover Page............................... Cover Page
15. Table of Contents........................ Table of Contents
16. General Information and History.......... Not Applicable
17. Investment Objective and Policies........ Additional Information About Investments and
Investment Techniques; Investment Restrictions
18. Management............................... Management
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
- -------- ------- -----------------------------------------------
<C> <S> <C>
19. Control Persons and Principal Holders of
Securities............................... Ownership of Shares; Prospectus: Description of
Beneficial Shares
20. Investment Advisory and Other Services... Management; Prospectus: Management of the Fund;
Prospectus: Custodian, Transfer Agent, Dividend
Disbursing Agent and Registrar; Prospects:
Accountants
21. Brokerage Allocation and Other
Practices................................ Portfolio Transactions; Prospectus: Portfolio
Trading
22. Tax Status............................... Taxation
23. Financial Statements..................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 4
KEMPER HIGH INCOME TRUST
8,003,074 SHARES OF BENEFICIAL INTEREST
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES
Kemper High Income Trust (the "Fund") is issuing transferable rights
("Rights") to its shareholders. These Rights will allow you to subscribe for new
shares of beneficial interest of the Fund. For every three Rights that you
receive, you may buy one new Fund share. You will receive one Right for each
outstanding Fund share you own on March 23, 1999 (the "Record Date"). If you
receive less than three Rights in total, you will be entitled to buy one new
share. Also, shareholders on the Record Date may purchase shares not acquired by
other shareholders in this Rights offering (the "Offer" or the "Offering"),
subject to the limitations discussed in this prospectus.
The Rights are transferable and will be listed for trading on the New York
Stock Exchange ("NYSE") under the symbol "KHI.RT." The Fund's shares of
beneficial interest are listed, and the shares issued in this Offer will be
listed, on the NYSE under the symbol "KHI." On March 19, 1999, the last reported
net asset value per share of the Fund's shares was $8.83 and the last reported
sales price of a share on the NYSE was $9.38.
THE PURCHASE PRICE PER SHARE WILL BE $8.30 (THE "SUBSCRIPTION PRICE"). THIS
OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL 16, 1999, UNLESS
THE OFFER IS EXTENDED AS DESCRIBED IN THIS PROSPECTUS (THE "EXPIRATION DATE").
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Subscription Price.......................................... $8.30 $66,425,514
Sales Load.................................................. $0.31 $ 2,490,957
Proceeds to Fund............................................ $7.99 $63,934,557
</TABLE>
The Fund is a diversified, closed-end management investment company. The
Fund's primary investment objective is to seek the highest current income
obtainable consistent with reasonable risk as determined by the Fund's
investment manager (the "Manager"). As a secondary objective, the Fund seeks
capital gains where consistent with its primary investment objective. Scudder
Kemper Investments, Inc. serves as the Manager.
As a matter of fundamental policy, in normal circumstances, the Fund
invests at least 65% of its assets in securities that provide the potential to
result in high income for the Fund but which have speculative characteristics
such as lower credit quality, currency exchange risk, liquidity constraints
and/or risk associated with related options and hedging activities. Under normal
market conditions, the Fund invests primarily in high-yield, high risk
securities (commonly known as "junk bonds"). These securities have special risks
including greater market price volatility, an increased likelihood that payments
owed to the Fund will not be made, and possible difficulty in selling such
securities. These securities are more likely to be affected by negative
developments relating to their issuer or industry, and entail relatively greater
risk of loss of income and principal than investments in higher rated
securities. The Fund has the ability and intends to use leverage for investment
purposes. Leverage creates the opportunity for increased income and capital
gains for shareholders, but at the same time it creates special risks. SEE "RISK
FACTORS AND SPECIAL CONSIDERATIONS" ON PAGE 34 OF THIS PROSPECTUS FOR A MORE
COMPREHENSIVE DISCUSSION OF RISKS. An investment in the Fund is not appropriate
for all investors. No assurance can be given that the Fund will achieve its
investment objectives.
As a result of the Offer you may experience an immediate dilution, which
could be substantial, of the aggregate net asset value of your shares. This is
because the Subscription Price per share and/or the net proceeds to the Fund
from each new share sold may be less than the Fund's net asset value per share
on the Expiration Date, and the number of shares outstanding after the Offer is
likely to increase in a greater percentage than the increase in the size of the
Fund's assets. This dilution will disproportionately affect you if you do not
exercise your Rights in full. If you do not exercise your Rights you should
expect that you will, at the completion of the Offer, own a smaller proportional
interest in the Fund than would be the case if you exercised your Rights. The
Fund cannot state precisely the extent of any dilution at this time because the
Fund does not know what the net asset value per share will be when the Offer
expires or what proportion of the Rights will be exercised. See "RISK FACTORS
AND SPECIAL CONSIDERATIONS -- Dilution."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
In connection with this Offering, PaineWebber Incorporated (the "Dealer
Manager") may, but is not obligated to, effect transactions designed to keep the
market price of the Rights and the shares higher than they might otherwise be
without such trading. Such transactions may be effected on the NYSE or
elsewhere. Such stabilizing, if commenced, may be discontinued at any time.
There can be no assurance that such transactions, if effected, will be able to
keep the market price of the Rights and the shares higher than they might
otherwise be without such trading. Prior to the expiration of the Offer, the
Dealer Manager may offer shares of beneficial interest, including shares
acquired through purchasing and exercising the Rights, at prices it sets. The
Dealer Manager may realize profits or losses independent of any fees described
in this prospectus.
This prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read and retain it for future reference. A Statement of Additional Information
dated March 22, 1999 (the "SAI") containing additional information about the
Fund has been filed with the SEC and is incorporated by reference in its
entirety into this prospectus. A copy of the SAI, the table of contents of which
appears on page 46 of this prospectus, may be obtained without charge by
contacting the Fund at (800) 877-8759 ext. 113.
------------------------
PAINEWEBBER INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS MARCH 22, 1999
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights some information that is described more fully
elsewhere in this prospectus. It may not contain all of the information that is
important to you. To understand the Offer fully, you should read the entire
document carefully, including the risk factors.
PURPOSE OF THE OFFER
The Board of Trustees of the Fund has determined that it would be in the
best interests of the Fund and its existing shareholders to increase the assets
of the Fund so the Fund may be in a better position to take advantage of
investment opportunities and increase the diversification of its portfolio while
achieving other net benefits to the Fund.
In reaching its decision to approve the Offer, the Board of Trustees was
advised by the Manager that the availability of new funds would enable the Fund
to pursue attractive investments without selling portfolio securities. The
Manager believes, that, as a result of historically wide high yield premiums
over Treasuries in a strong and growing economy, there exists an opportunity for
the Fund to realize higher relative yields than have been available in many
years. In addition, the Board of Trustees considered that a rights offering
could result in more liquidity in the Fund's shares, would give shareholders the
opportunity to purchase shares of the Fund at a price below market value and/or
net asset value, and may increase the level of market interest in the Fund. The
Board of Trustees also believes that the transferability of the Rights may
attract new investors, broadening the Fund's shareholder base. The Board also
believes that this Offer may result in a nominal decrease in the Fund's
operating expense ratio because the Fund's fixed costs can be spread over a
larger asset base.
The Board of Trustees considered the impact of the Offer on the Fund's
ability to maintain, subject to market conditions, a relatively stable level of
distributions. Based on information about current market conditions and
available leverage opportunities provided by the Manager, the Board of Trustees
believes that the Offer will not result in a change in the Fund's current level
of dividends for the foreseeable future.
IMPORTANT TERMS OF THE OFFER
<TABLE>
<S> <C>
Total number of shares offered: 8,003,074
Number of transferable Rights issued to each
shareholder: One right for each whole share owned on the
Record Date
Subscription ratio: One share for every three Rights
Subscription price: $8.30 per share
</TABLE>
IMPORTANT DATES TO REMEMBER:
<TABLE>
<CAPTION>
EVENT DATE
- ----- -------------------
<S> <C>
Record Date............................................. March 23, 1999
Subscription Period..................................... March 23, 1999
to April 16, 1999*
Expiration Date......................................... April 16, 1999*
Subscription Certificates and Payment for Shares Due+... April 16, 1999*
Notice of Guaranteed Delivery Due+...................... April 16, 1999*
Payment for Guarantees of Delivery Due.................. April 21, 1999*
Confirmation Mailed to Participants..................... April 28, 1999*
</TABLE>
- ---------------
* Unless the Offer is extended.
+ A shareholder exercising Rights must deliver either (i) a Subscription
Certificate and payment for shares or (ii) a Notice of Guaranteed Delivery by
the Expiration Date.
Shares of beneficial interest of the Fund are expected to trade on the NYSE
with due bills attached from March 19, 1999 through March 24, 1999. You are
encouraged to contact your broker, bank or financial adviser about your ability
to participate in the Offer if you anticipate purchase or sale activity during
such period.
2
<PAGE> 6
OVER-SUBSCRIPTION PRIVILEGE
Shareholders on the Record Date who fully exercise all of the Rights issued
to them are entitled to buy those shares that were not bought by other Rights
holders. If enough shares are available, all shareholder requests to buy shares
that were not bought by other holders will be honored in full. If these requests
for shares exceed the shares available, the available shares will be allocated
pro rata among those Record Date shareholders who over-subscribe based on the
number of Rights originally issued to them by the Fund.
METHOD OF EXERCISING RIGHTS
Except as described below, Subscription Certificates evidencing the Rights
will be sent to Record Date shareholders or their nominees (the "Subscription
Certificates"). If you wish to exercise your Rights, you may do so in the
following ways:
(1) Complete and sign the Subscription Certificate. Mail it in the envelope
provided or deliver the completed and signed Subscription Certificate with
payment in full to Boston EquiServe at the address indicated on the Subscription
Certificate. Your completed and signed Subscription Certificate and payment must
be received by the Expiration Date.
(2) Contact your broker, banker or trust company, which can arrange, on
your behalf, to guarantee delivery of payment and delivery of a properly
completed and executed Subscription Certificate pursuant to a notice of
guaranteed delivery ("Notice of Guaranteed Delivery") by the close of business
on the third business day after the Expiration Date of the Offer. A fee may be
charged for this service. The Notice of Guaranteed Delivery must be received on
or before the Expiration Date of the Offer.
SALE OF RIGHTS
The Rights are transferable until the Expiration Date of the Offer. The
Rights will be listed for trading on the NYSE. The Fund will use its best
efforts to ensure that an adequate trading market for the Rights will exist.
However, no assurance can be given that a market for the Rights will develop.
Trading in the Rights on the NYSE may be conducted until the close of trading on
the NYSE on the last business day prior to the Expiration Date of the Offer.
OFFERING FEES AND EXPENSES
The Fund has agreed to pay the Dealer Manager a fee for its financial
advisory, marketing and soliciting services equal to 3.75% of the aggregate
Subscription Price for shares issued pursuant to the Offer. The Dealer Manager
will pay a part of its fees to other broker-dealers that have assisted in
soliciting the exercise of Rights, as described in this prospectus. Other
Offering expenses incurred by the Fund are estimated at $500,000, which includes
up to $100,000 that may be paid to the Dealer Manager as partial reimbursement
for its expenses relating to the Offer.
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to shareholders whose record
addresses are outside the United States. Foreign shareholders will receive
written notice of the Offer, and their Rights will be held or transferred as set
forth in this prospectus.
USE OF PROCEEDS
The estimated net proceeds of the Offer are approximately $63,434,557. This
figure is based on the Subscription Price of $8.30 per share and assumes all
8,003,074 shares offered are sold and that Offering expenses estimated at
approximately $500,000 are paid. The Manager anticipates that the Fund will take
up to thirty days to invest these proceeds in accordance with the Fund's
investment objectives and policies under current market conditions. The proceeds
of the Offer will be held in U.S. Government securities and other high-quality,
short-term money market instruments until they are invested. While the proceeds
are invested in U.S. Government securities and other high-quality, short-term
money market instruments, the proceeds will not be invested in securities
consistent with the Fund's goal of high current income.
3
<PAGE> 7
FURTHER INFORMATION
Please direct all questions or inquiries relating to the Offer to the
Fund's information agent as follows:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
(800) 618-7826
Banks and Brokers should call:
(800) 877-8579 ext. 113
You may also contact your brokers or nominees for information.
INFORMATION REGARDING THE FUND
The Fund has been engaged in business as a diversified, closed-end
management investment company since 1988. The Fund's primary investment
objective is to seek through a professionally managed, diversified portfolio of
income-producing securities, the highest current income obtainable consistent
with reasonable risk as determined by the Manager. As a secondary objective, the
Fund seeks capital gains where consistent with its primary objective. The Fund
seeks to achieve its objectives by investing its assets in a broad range of
income-producing securities, such as U.S. corporate fixed income securities,
bonds and other obligations of the U.S. Government and foreign governments,
which may be denominated in foreign currencies, and other income-producing
securities. These securities may or may not be rated. Under normal market
conditions, the Fund invests primarily in lower grade fixed income securities.
The Fund may purchase and sell options on fixed income securities and on indices
based on fixed income securities. The Fund may also engage in interest rate,
foreign currency and other hedging transactions. Information regarding the
Fund's portfolio characteristics and composition as of February 28, 1999 is set
forth on page 9 of this prospectus.
INFORMATION REGARDING THE MANAGER
The Manager, including certain of its predecessors, has served as
investment manager to the Fund since the Fund's inception. The Manager is one of
the largest and most experienced investment management firms in the United
States. The Manager provides investment counsel for many individuals and
institutions, including insurance companies, endowments, industrial corporations
and financial and banking organizations.
The Fund pays the Manager a management fee equal on an annual basis to
0.85% of the Fund's average weekly net assets up to $250 million, and 0.75% of
such assets in excess of $250 million. Because the Manager's fee is based on the
average weekly net assets of the Fund, the Manager will benefit from an increase
in the Fund's assets resulting from the Offer. See "MANAGEMENT OF THE FUND".
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following summarizes some of the matters that you should consider
before investing in the Fund through this Offer.
Dilution. As a result of the Offer you may experience an immediate
dilution, which could be substantial, of the aggregate net asset value of your
shares. This is because the Subscription Price per share and/or the net proceeds
to the Fund from each new share sold may be less than the Fund's net asset value
per share on the Expiration Date, and the number of shares outstanding after the
Offer is likely to increase in a greater percentage than the increase in the
size of the Fund's assets. This dilution will disproportionately affect you if
you do not exercise your Rights in full. If you do not exercise your Rights you
should expect that you will, at the completion of the Offer, own a smaller
proportional interest in the Fund than would be the case if you exercised your
Rights. The Fund cannot state precisely the extent of any dilution at this time
because the Fund does not know what the net asset value per share will be when
the Offer expires or what proportion of the Rights will be exercised.
If you do not wish to exercise your Rights, you should consider selling
these Rights as set forth in this prospectus. The cash you receive from
transferring your Rights should serve as partial compensation for any
4
<PAGE> 8
possible dilution of your interest in the Fund. Therefore, if you do not intend
to exercise your Rights, you should sell your Rights. The Fund cannot give any
assurance, however, that a market for the Rights will develop or that the Rights
will have any value. For a more detailed discussion about dilution, please refer
to "RISK FACTORS AND SPECIAL CONSIDERATIONS -- Dilution."
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 to
those shares. The Fund's shares have traded in the market above, at and below
net asset value since the commencement of the Fund's operations.
"High-Yield," High Risk Investments. Some of the securities offering the
high current income sought by the Fund will be rated in the lower rating
categories of recognized rating agencies or will be unrated. The rating agencies
generally regard such securities as predominantly speculative with respect to
their capacity to pay interest and repay principal, and riskier than securities
in the higher rating categories. The values of such securities tend to be more
volatile and tend to reflect individual corporate developments to a greater
extent than higher rated securities, which react primarily to fluctuations in
the general level of interest rates. Additionally, such securities are
frequently subordinated to the prior payment of senior indebtedness and have a
higher risk for non-payment of interest or principal than higher grade
securities. In addition, the trading market for high-yield, high risk securities
is generally less liquid than the market for higher rated securities. As of
February 28, 1999, 96% of the market value of the Fund's total investments was
represented by fixed-income securities regarded by the rating agencies as below
investment grade (that is, rated Ba or lower by Moody's Investors Service, Inc.
("Moody's") or BB or lower by Standard & Poor's ("S&P")) or unrated securities
of comparable quality.
Risk of Leverage. Leverage creates the opportunity for greater total
returns, but at the same time involves certain risks. Leverage increases the
volatility and exaggerates increases or decreases in the net asset value of the
Fund. If the investment performance of the proceeds of any leverage fails to
cover the interest or dividends payable on such capital, the value of the Fund's
shares may decrease more quickly than would otherwise be the case and dividends
thereon will be reduced or eliminated. This is the speculative effect of
leverage.
At the date of this prospectus, the Fund intends, but is not committed, to
add incremental leverage after the date of this prospectus. Inability to
increase, or delays in increasing, the Fund's leverage could, depending on
market conditions, adversely affect the Fund's earnings, distributions and net
asset value.
Dividends and Distributions. Based on current market condition information
provided by the Manager, the Board of Trustees believes that the Offer will not
result in a change in the Fund's current level of dividends per share for the
foreseeable future. However, there can be no assurance that the Fund will be
able to maintain its current level of dividends per share, and the Board of
Trustees may, in its sole discretion, change the Fund's current dividend policy
or its current level of dividends per share in response to market or other
conditions.
Year 2000. Like other registered investment companies and financial
business organizations worldwide, the Fund could be adversely affected if
computer systems on which the Fund relies, which primarily include those used by
the Manager, its affiliates or other service providers, are unable to correctly
process date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 (Y2K) Issue. Failure to successfully address the
Y2K Issue could result in interruptions to and other material adverse effects on
the Fund's business and operations. The Manager has commenced a review of the
Y2K Issue as it may affect the Fund and is taking steps it believes are
reasonably designed to address the Y2K Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Y2K Issue will not have any adverse effect on the companies
whose securities are held by the Fund or on global markets or economies
generally.
YOU SHOULD CAREFULLY CONSIDER YOUR ABILITY TO ASSUME THE FOREGOING RISKS
BEFORE MAKING AN INVESTMENT IN THE FUND. AN INVESTMENT IN SHARES OF THE FUND IS
NOT APPROPRIATE FOR ALL INVESTORS.
5
<PAGE> 9
FEE TABLE
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Sales Load (as a percentage of the Subscription Price)(1)... 3.75%
-----
Dividend Reinvestment and Cash Purchase Plan Fees(2)........ None
-----
Annual Expenses (as a percentage of average weekly net
assets attributable to shares of beneficial interest)(3)
Management Fees(4).......................................... 0.84%
-----
Interest Payments on Borrowed Funds(5)...................... 0.43%
-----
Other Expenses.............................................. 0.32%
-----
Total Annual Expenses....................................... 1.59%
=====
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
--------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return throughout the
periods................................................. $53 $86 $121 $219
</TABLE>
- ---------------
(1) The Fund has agreed to pay the Dealer Manager a fee for its financial
advisory, marketing and soliciting services equal to 3.75% of the aggregate
Subscription Price for shares issued pursuant to the Offer. The Dealer
Manager will reallow to broker-dealers included in the selling group to be
formed and managed by the Dealer Manager selling fees equal to 2.50% of the
Subscription Price for each share issued pursuant to the Offer as result of
their sales efforts. In addition, the Dealer Manager will reallow to other
broker-dealers that have executed and delivered a soliciting dealer
agreement and have solicited the exercise of rights solicitation fees equal
to 0.50% of the subscription price per share for each share issued pursuant
to the Offer as a result of their selling efforts subject to certain
limitations. See "THE OFFER -- Distribution Arrangements." The Fund may
incur offering expenses estimated at $500,000, which includes up to $100,000
that may be paid to the Dealer Manager as partial reimbursement for its
expenses relating to the Offer. These fees and expenses will be borne by the
Fund and indirectly by all of the Fund's shareholders, including those
shareholders who do not exercise their Rights.
(2) The Fund, its transfer agent and dividend dispensing agent or its delegate
("Agent") impose no fee for participation in the Dividend Reinvestment and
Cash Purchase Plan ("Plan"). However, a $2.50 fee is imposed for withdrawal
from participation in the Plan and Plan participants making voluntary cash
investments will be charged a $.75 service fee for each such investment. In
addition, each participant in the Plan will pay a pro rata share of
brokerage commissions incurred in connection with open-market purchases of
Fund shares under the Plan.
(3) Amounts are based on estimated amounts for the Fund's current fiscal year
after giving effect to anticipated net proceeds of the Offer, assuming that
all of the Rights are exercised and that the Fund incurs the estimated
$500,000 offering expenses.
(4) The Fund pays the Manager an annualized fee, calculated and paid monthly, in
the amount of 0.85% of the Fund's average weekly net assets up to $250
million, and 0.75% of such assets in excess of $250 million.
(5) At the date of this prospectus, the Fund intends but is not committed, to
add incremental leverage after the date of this prospectus. See "INVESTMENT
OBJECTIVES AND POLICIES -- Borrowing and Other Senior Securities." Assuming
borrowing of 33 1/3% of total assets (including amount borrowed) at an
interest rate of 5.50%, which is based on market rates at the date of this
prospectus, the estimated annual operating expenses would be:
<TABLE>
<S> <C>
Management Fees...................................... .84%
Interest Payments on Borrowed Funds.................. 2.79%
Other Expenses....................................... .30%
Total Annual Expenses................................ 3.93%
</TABLE>
6
<PAGE> 10
With these changes in annual expenses, the amounts in the example would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$76 $153 $232 $437
</TABLE>
THE FOREGOING FEE TABLE AND EXAMPLE ARE INTENDED TO ASSIST INVESTORS IN
UNDERSTANDING THE COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND WILL BEAR
DIRECTLY OR INDIRECTLY.
The Example set forth above assumes reinvestment of all dividends and
distributions at net asset value, payment of a 3.75% sales load and an annual
expense ratio of 1.59%. The table above and the assumption in the Example of a
5% annual return are required by SEC regulations applicable to all management
investment companies. THE EXAMPLE SHOULD NOT BE CONSIDERED AS A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN. ACTUAL EXPENSES OR ANNUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE
EXAMPLE. In addition, while the Example assumes reinvestment of all dividends
and distributions at net asset value, participants in the Fund's Dividend
Reinvestment Plan may receive shares purchased or issued at a price or value
different from net asset value. See "DIVIDEND AND DISTRIBUTIONS: DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN."
7
<PAGE> 11
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share of
beneficial interest of the Fund outstanding throughout each period presented.
The financial highlights for each period presented have been audited by Ernst &
Young LLP, the Fund's independent accountants, whose unqualified report is
included in the Fund's November 30, 1998 Annual Report and is incorporated by
reference in the Statement of Additional Information ("SAI"). The financial
highlights should be read in conjunction with the financial statements and notes
thereto included in the Fund's November 30, 1998 Annual Report, which is
available without charge by calling the Fund at (800) 349-4281.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
--------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year............ $ 9.44 $ 9.20 $ 8.73 $ 8.33 $ 9.45 $ 8.70 $ 8.28
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... $ .92 $ .91 $ .91 $ .91 $ .88 $ .99 $ .94
-------- -------- -------- -------- -------- -------- --------
Net realized and unrealized gain (loss)....... $ (.52) $ .23 $ .46 $ .39 $ (1.10) $ .71 $ .45
-------- -------- -------- -------- -------- -------- --------
Total from investment operations.............. $ .40 $ 1.14 $ 1.37 $ 1.30 $ (.22) $ 1.70 $ 1.39
======== ======== ======== ======== ======== ======== ========
Distribution from net investment income....... $ .90 $ .90 $ .90 $ .90 $ .90 $ .95 $ .97
======== ======== ======== ======== ======== ======== ========
Distribution from paid-in-surplus............. -- -- -- -- -- -- --
======== ======== ======== ======== ======== ======== ========
Net asset value, end of year.................. $ 8.94 $ 9.44 $ 9.20 $ 8.73 $ 8.33 $ 9.45 $ 8.70
======== ======== ======== ======== ======== ======== ========
Market value, end of year..................... $ 9.88 $ 10.19 $ 10.00 $ 9.50 $ 8.38 $ 9.13 $ 9.13
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN
Based on net asset value...................... 4.38% 12.99% 16.56% 16.30% (2.55)% 20.62% 17.42%
Based on market value......................... 6.50% 11.98% 16.12% 25.81% 1.47% 10.14% 17.50%
RATIOS TO AVERAGE NET ASSETS
Expenses...................................... 1.55% 1.56% 1.59% 1.52% 1.64% 1.82% 2.03%
Net investment income......................... 10.01% 9.84% 10.33% 10.64% 9.91% 11.08% 10.86%
SUPPLEMENTAL DATA
Net assets at end of year (in thousands)...... $213,895 $222,919 $214,649 $200,502 $188,294 $211,194 $190,950
Portfolio turnover rate....................... 83% 79% 74% 85% 83% 98% 47%
Total debt outstanding at end of year (in
thousands).................................. $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 17,312
Asset coverage per $1,000 of debt............. $ 11,700 $ 12,100 $ 11,700 $ 11,000 $ 10,400 $ 11,600 $ 12,000
<CAPTION>
YEAR ENDED NOVEMBER 30
------------------------------
1991 1990 1989
-------- -------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year............ $ 6.25 $ 8.86 $ 10.84
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... $ 1.01 $ 1.22 $ 1.29
-------- -------- --------
Net realized and unrealized gain (loss)....... $ 2.07 $ (2.63) $ (1.90)
-------- -------- --------
Total from investment operations.............. $ 3.08 $ (1.41) $ (.61)
======== ======== ========
Distribution from net investment income....... $ .94 $ 1.20 $ 1.30
======== ======== ========
Distribution from paid-in-surplus............. $ .11 -- $ .07
======== ======== ========
Net asset value, end of year.................. $ 8.28 $ 6.25 $ 8.86
======== ======== ========
Market value, end of year..................... $ 8.63 $ 6.00 $ 9.00
======== ======== ========
TOTAL RETURN
Based on net asset value...................... 52.90% (17.40) (6.61)
Based on market value......................... 65.03% (22.65) (12.50)
RATIOS TO AVERAGE NET ASSETS
Expenses...................................... 2.22% 2.25% 1.93%
Net investment income......................... 13.78% 16.17% 12.92%
SUPPLEMENTAL DATA
Net assets at end of year (in thousands)...... $178,145 $131,602 $181,023
Portfolio turnover rate....................... 27% 29% 45%
Total debt outstanding at end of year (in
thousands).................................. $ 17,312 17,312 17,312
Asset coverage per $1,000 of debt............. $ 11,300 8,600 11,500
</TABLE>
- ---------------
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.
8
<PAGE> 12
PORTFOLIO CHARACTERISTICS AND COMPOSITION
The following tables set forth certain information with respect to the
characteristics and the composition of the Fund's investment portfolio as of
February 28, 1999.
<TABLE>
<S> <C>
PORTFOLIO COMPOSITION
High-Yield Bonds 96%
Cash and Equivalents 2%
Short-Term Treasuries 0%
Preferred and Common Stock 2%
</TABLE>
Average Maturity: 8.5 years
<TABLE>
<S> <C>
LONG-TERM FIXED INCOME SECURITIES
RATINGS
AAA 0%
AA 0%
A 0%
BBB 1%
BB 13%
B 75%
Below B 10%
NR 1%
</TABLE>
CAPITALIZATION AT FEBRUARY 28, 1999
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
EXCLUSIVE OF AMOUNT AMOUNT HELD BY THE
AMOUNT HELD BY THE FUND OR FUND OR FOR ITS
TITLE OF CLASS AUTHORIZED FOR ITS ACCOUNT ACCOUNT
- -------------- ---------- ------------------- ------------------
<S> <C> <C> <C>
Shares of Beneficial
Interest Unlimited 23,967,223 0 Shares
</TABLE>
INFORMATION REGARDING SENIOR SECURITIES
The Fund has outstanding a $20,000,000 loan from Bank of America at
November 30, 1998. The loan is evidenced by a note which bears interest at the
London Interbank Offered Rate plus 0.275% (5.3375% at November 30, 1998) which
is payable quarterly. The loan amount and rate are reset periodically under a
credit facility which is available until June 30, 1999. The outstanding senior
securities as of November 30 for each of the last ten fiscal years is as
follows:
<TABLE>
<CAPTION>
AT TOTAL AMOUNT ASSET COVERAGE
NOVEMBER 30 OUTSTANDING PER $1,000 OF DEBT
- ----------- ------------ ------------------
<S> <C> <C>
1998... $20,000,000 $11,700
1997... 20,000,000 12,100
1996... 20,000,000 11,700
1995... 20,000,000 11,700
1994... 20,000,000 10,400
1993... 20,000,000 11,600
1992... 17,312,000 12,000
1991... 17,312,000 11,300
1990... 17,312,000 8,600
1989... 17,312,000 11,500
</TABLE>
9
<PAGE> 13
TRADING AND NET ASSET VALUE INFORMATION
In the past, the Fund's shares have traded at both a premium and at a
discount in relation to net asset value. Although the Fund's shares recently
have been trading at a premium above net asset value, there can be no assurance
that this premium will continue after the Offer or that the shares will not
again trade at a discount. Shares of closed-end investment companies such as the
Fund frequently trade at a discount from net asset value. See "Risk Factors and
Special Considerations."
The Fund's shares are listed and traded on the NYSE. The average weekly
trading volume of the shares on the NYSE during the year ended December 31, 1998
was 25,940 shares. The following table shows for the quarters indicated: (1) the
high and low sale price of the shares on the NYSE; (2) the high and low net
asset value per share; and (3) the high and low premium or discount to net asset
value at which the Fund's shares were trading (as a percentage of net asset
value).
<TABLE>
<CAPTION>
PREMIUM/(DISCOUNT)
TO NET ASSET
PRICE(1) NET ASSET VALUE(2) VALUE(3)
------------------ ------------------ ------------------
FISCAL QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- -------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
February 28, 1997.................. $10.250 $ 9.500 $9.410 $9.130 11.292% 2.703%
May 31, 1997....................... 10.125 9.625 9.350 8.980 9.116 5.615
August 31, 1997.................... 10.250 9.813 9.520 9.300 8.871 6.374
November 30, 1997.................. 10.438 9.750 9.660 9.390 11.161 4.497
February 28, 1998.................. 10.375 10.000 9.660 9.380 9.275 5.263
May 31, 1998....................... 10.500 9.938 9.670 9.520 8.729 4.172
August 31, 1998.................... 10.375 8.250 9.580 8.670 11.264 (4.844)
November 30, 1998.................. 10.063 8.125 8.940 8.200 16.822 2.958
February 28, 1999.................. 10.125 9.313 8.950 8.690 15.006 5.351
</TABLE>
- ---------------
(1) CDA/Weisenberger.
(2) CDA/Weisenberger.
(3) CDA/Weisenberger.
Immediately prior to the Fund's announcement of the Offer on February 12,
1999 and on March 19, 1999, the last reported sale price of a share of the
Fund's shares on the NYSE was $9.94 and $9.38, respectively. The Fund's net
asset value on February 12, 1999 and on March 19, 1999 was $8.87 and $8.83,
respectively. See "Net Asset Value" in the SAI.
10
<PAGE> 14
THE FUND
The Fund is a diversified, closed-end management investment company. The
Fund's primary investment objective is to seek the highest current income
obtainable consistent with reasonable risk as determined by the Manager. As a
secondary objective, the Fund will seek capital gains where consistent with its
primary objective. The Fund may invest its assets in a broad range of
income-producing securities, such as U.S. corporate fixed income securities,
bonds and other obligations of the U.S. Government and its agencies and
instrumentalities, bonds and other obligations of foreign governments and their
agencies and instrumentalities and other fixed income securities, including
fixed income securities which may be denominated in foreign currencies. Any of
the Fund's portfolio securities may or may not be rated. The Fund has no
requirements regarding whether the income-producing securities it purchases must
be rated or, if such securities are rated, what the minimum or maximum rating on
such securities must be. Lower grade securities normally offer a current yield
or yield to maturity which is significantly higher than the yield available from
securities rated in the higher grade categories as assigned by S&P or Moody's.
The characteristics of the fixed income securities in the Fund's portfolio, such
as the maturity and the type of issuer, will affect yields and yield
differentials, which vary over time. The actual yield realized by an investor is
subject, among other things, to the Fund's expenses and the investor's
transaction costs. The Fund, if market and economic conditions warrant, may
invest all or a portion of its assets in different segments of the fixed income
securities market in order to achieve the Fund's objectives.
The Fund is a closed-end investment company. Closed-end investment
companies differ from open-end investment companies (commonly referred to as
"mutual funds") in that closed-end investment companies have a fixed capital
base, whereas open-end companies issue securities redeemable at net asset value
at any time at the option of the shareholder and typically engage in a
continuous offering of their shares. Accordingly, open-end investment companies
are subject to periodic in-flows and out-flows that can complicate portfolio
management. Closed-end investment companies do not face the prospect of having
to liquidate portfolio holdings to satisfy redemptions at the option of
shareholders or having to maintain cash positions to meet the possibility of
such redemptions.
The Fund was organized as a business trust under the laws of the
Commonwealth of Massachusetts on May 28, 1987 and has registered with the SEC
under the Investment Company Act of 1940, as amended ("1940 Act"). The Fund's
principal office is located at 222 South Riverside Plaza, Chicago, Illinois
60606. The Manager is an investment management firm registered with the SEC
under the Investment Advisers Act of 1940, as amended.
THE OFFER
PURPOSE OF THE OFFER
The Board of Trustees of the Fund determined that it would be in the best
interests of the Fund and its existing shareholders to increase the assets of
the Fund available for investment, thereby allowing the Fund to more fully take
advantage of available investment opportunities consistent with the Fund's
investment objectives. In reaching its decision, the Board of Trustees was
advised by the Manager that the availability of new funds would provide the Fund
with additional investment flexibility, as well as an enhanced ability to take
advantage of what the Manager believes to be timely investment opportunities.
The Manager believes that, as a result of historically wide high-yield bond
premiums over Treasuries in a strong and growing economy, there exists an
opportunity for the Fund to realize higher relative yields than have been
available in many years. It was noted that, in order to take advantage of these
opportunities without an infusion of new capital, the Fund would be required to
sell current portfolio positions which the Fund desired to retain and which
could cause the realization of capital gains by the Fund and its shareholders.
With an increased asset base as a result of the Offer, the Manager believes the
Fund would be able to further diversify its portfolio and invest in a larger
universe of securities which the Manager believes would have the benefits
described below.
The Board of Trustees considered the proposal for the Offer at several
meetings, including a meeting at which the non-interested Trustees met with
counsel and without management present to discuss the Offer.
11
<PAGE> 15
The Board, including all of the non-interested Trustees, unanimously approved
the Offer. In its deliberations, the Board considered a number of issues and
factors, including, but not limited to, the potential impact of the Offer on
current exercising and non-exercising shareholders; the potential impact of the
Offer on the Fund's net asset value, share price, and trading activity; the
potential dilutive impact of the Offer on Fund income and the ability of the
Fund to maintain current dividend levels; the potential allocation of the
Offering proceeds across different sectors and ratings categories; the revenue
impact of the Offer on the Manager and its affiliates and the appropriateness of
the Manager's compensation in light of the nature, quality, and complexity of
the investment management services provided to the Fund; the addition of a
breakpoint in the management fee schedule, which should affect at least a
portion of the assets raised in the Offer; the value and quality of the services
expected to be provided by the Dealer Manager in light of the relationship
between the Dealer Manager and existing shareholders, and the Dealer Manager's
familiarity with the Fund and with the Manager; and the terms of the Offer
compared to the terms of similar offers conducted by other closed-end funds. The
Trustees concluded that increasing the assets of the Fund would be beneficial to
the Fund and its shareholders. However, there can be no assurance that any of
the anticipated benefits discussed in this prospectus will be realized as a
result of the Offer.
In addition, the Board of Trustees considered that the Offering could
ultimately result in a larger number of shareholders and daily trading volume
and therefore could result in an improvement in the liquidity of the trading
market for the Fund's shares on the NYSE, where the shares are listed and
traded. The Board of Trustees also believes that a larger number of outstanding
shares and a larger number of beneficial owners of shares could increase the
level of market interest in the Fund. The Trustees considered that the Fund
could potentially achieve additional economies of scale as a result of an
increase in total assets, resulting in a nominal decrease in the Fund's
operating expense ratio.
In addition, the Trustees considered that the Offer affords existing
shareholders the opportunity to purchase additional shares of the Fund at a
price that may be below market value and/or net asset value. It is noted in this
regard that certain of the Fund's Trustees currently intend to exercise the
rights to be issued to them as shareholders. However, these Trustees reserve the
right not to exercise their rights and sell their rights. In addition certain of
the Fund's Trustees reserve the right to exercise the Over Subscription
Privilege.
The Trustees also considered the expenses of the Offer and its dilutive
effect, including the effect on non-exercising shareholders. They also
considered the representation by the Manager that based upon current market
conditions and available leverage opportunities, the Manager did not believe
that the Offer would impede the Fund's ability to maintain current dividend
levels for the foreseeable future, although there could be no assurance that
that would be the case and, depending upon the actual yields generated by the
securities purchased with the proceeds of the Offer, the Fund's ability to
maintain current dividend levels could indeed be impeded.
The Trustees noted that the Manager will benefit from the Offer because its
fees for investment management services are based on the average weekly net
assets of the Fund. In this regard, the Trustees approved a management proposal
to impose a breakpoint in the investment management fee applicable to the Fund.
Accordingly, the Fund's amended and restated management agreement with the
Manager provides for a lower management fee applicable to assets of the Fund in
excess of $250 million. See "MANAGEMENT OF THE FUND -- Investment Management
Agreement." It is not possible to state precisely the amount of additional
compensation the Manager will receive as a result of the Offer because it is not
known how many Rights will be exercised and because the proceeds of the Offer
will be invested in additional portfolio securities that may fluctuate in value.
However, in the event that all the Rights are exercised in full, based on the
Subscription Price of $8.30 per share, the Manager would receive additional fees
for investment management services of approximately $552,000 per annum as a
result of the increase in assets under management.
In determining that the Offer was in the best interests of the Fund and its
shareholders, the Board of Trustees retained the Dealer Manager to provide the
Fund with financial advisory and marketing services relating to the Offer,
including the structure, timing and terms of the Offer. In addition to the
foregoing, the Board of Trustees considered, among other things, using a
variable pricing versus fixed pricing mechanism, the
12
<PAGE> 16
benefits and drawbacks of conducting a non-transferable versus a transferable
rights offering, the effect on the Fund if the Offer is undersubscribed and the
experience of the Dealer Manager in conducting rights offerings.
The Fund may, in the future and at its discretion, choose to make
additional rights offerings of its shares from time to time for a number of
shares and on terms which may or may not be similar to this Offer. Any such
future offering will be made in accordance with the 1940 Act.
TERMS OF THE OFFER
The Fund is issuing to its shareholders of record ("Record Date
Shareholders"), as of the close of business on the Record Date, transferable
Rights entitling the holders thereof to subscribe for an aggregate of up to
8,003,074 shares of beneficial interest in the Fund. Each Record Date
Shareholder is being issued one Right for each whole share of beneficial
interest owned on the Record Date. The Rights entitle the holders thereof to
subscribe for one share for every three Rights held (1-for-3) (the "Primary
Subscription"). Fractional shares will not be issued upon the exercise of
Rights. Record Date Shareholders issued fewer than three Rights are entitled to
subscribe for one share pursuant to the Primary Subscription.
The Rights are transferable among Record Date Shareholders and non-Record
Date Shareholders. Holders of Rights who are not Record Date Shareholders
("Rights Holders") may purchase shares in the Primary Subscription, but are not
entitled to subscribe for shares pursuant to the Over-Subscription Privilege
described below. Record Date Shareholders and Rights Holders purchasing shares
in the Primary Subscription and Record Date Shareholders who purchase shares
pursuant to the Over-Subscription Privilege are hereinafter referred to as
"Exercising Rights Holders."
Rights may be exercised at any time during the subscription period (the
"Subscription Period"), which commences on March 23, 1999 and ends at 5:00 P.M.,
New York City time, on April 16, 1999, the Expiration Date, unless extended. The
Rights are evidenced by Subscription Certificates that will be mailed to Record
Date Shareholders, except as discussed below under "Foreign Restrictions."
Shares not subscribed for in the Primary Subscription will be offered, by
means of the Over-Subscription Privilege, to those Record Date Shareholders who
have exercised all Rights issued to them and who wish to acquire more than the
number of shares they are entitled to purchase pursuant to the exercise of their
Rights (other than those Rights which cannot be exercised because they represent
the right to acquire less than one share). Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, as more fully discussed
below under "Over-Subscription Privilege." For purposes of determining the
maximum number of shares a shareholder may acquire pursuant to the Offer,
shareholders whose shares are held of record by Cede & Co. ("Cede"), as nominee
for The Depository Trust Company ("DTC"), or by any other depository or nominee
will be deemed to be the holders of the Rights that are issued to Cede or such
other depository or nominee on their behalf.
The first regular monthly dividend to be paid on shares acquired upon
exercise of Rights will be the first monthly dividend, the Record Date for which
occurs after the issuance of the shares. Assuming the Subscription Period is not
extended, it is expected that the first dividend declared for shares acquired in
the Offer will be paid on May 31, 1999. "Business Day" means a day on which the
NYSE is open for trading and which is not a Saturday or Sunday or a holiday,
including New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Thanksgiving
Day, Christmas Day or any other day on which banks in New York City are
authorized or obligated by law or executive order to close.
There is no minimum number of Rights which must be exercised in order for
the Offer to close.
OVER-SUBSCRIPTION PRIVILEGE
Shares not subscribed for by Record Date Shareholders or Rights Holders
(the "Excess Shares") will be offered, by means of the Over-Subscription
Privilege, to the Record Date Shareholders who have exercised all exercisable
Rights issued to them (other than those Rights which cannot be exercised because
they represent the Right to acquire less than one share) and who wish to acquire
more than the number of shares for which
13
<PAGE> 17
the Rights issued to them are exercisable. Record Date Shareholders should
indicate, on the Subscription Certificate which they submit with respect to the
exercise of the Rights issued to them, how many Excess Shares they are willing
to acquire pursuant to the Over-Subscription Privilege. If sufficient Excess
Shares remain, all Record Date Shareholders' over-subscription requests will be
honored in full. If Record Date Shareholder requests for shares pursuant to the
Over-Subscription Privilege exceed the Excess Shares available, the available
Excess Shares will be allocated pro rata among Record Date Shareholders who over
subscribe based on the number of Rights originally issued to them.
Banks, brokers, trustees and other nominee holders of Rights will be
required to certify to the Subscription Agent (as defined below), before any
Over-Subscription Privilege may be exercised with respect to any particular
beneficial owner, as to the aggregate number of Rights exercised pursuant to the
Primary Subscription and the number of shares subscribed for pursuant to the
Over-Subscription Privilege by such beneficial owner and that such beneficial
owner's Primary Subscription was exercised in full. Nominee Holder
Over-Subscription Forms and Beneficial Owner Certification Forms will be
distributed to banks, brokers, trustees and other nominee holders of Rights with
the Subscription Certificates.
The Fund will not offer or sell in connection with the Offer any shares
that are not subscribed for pursuant to the Primary Subscription or the
Over-Subscription Privilege.
SUBSCRIPTION PRICE
The Subscription Price for the shares to be issued pursuant to the Offer
will be $8.30 per share.
The Fund announced the Offer after the close of business on February 12,
1999. The net asset value per share of beneficial interest at the close of
business on February 12, 1999 (the last trading date on which the Fund publicly
reported its net asset value prior to the announcement) and on March 19, 1999
(the last trading date on which the Fund publicly reported its net asset value
prior to the date of this prospectus) was $8.87 and $8.83, respectively, and the
last reported sale price of a share of the Fund's shares of beneficial interest
on the NYSE on those dates was $9.94 and $9.38, respectively.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on the Expiration
Date. The Rights will expire on the Expiration Date and thereafter may not be
exercised. Any extension of the Offer will be followed as promptly as
practicable by an announcement thereof. Such announcement will be issued no
later than 9:00 a.m., New York City time, on the next business day following the
previously scheduled Expiration Date. Without limiting the manner in which the
Fund may choose to make such announcement, the Fund will not, unless otherwise
obligated by law, have any obligation to publish, advertise, or otherwise
communicate any such announcement other than by making a release to the Dow
Jones News Service or such other means of announcement as the Fund deems
appropriate.
SUBSCRIPTION AGENT
The subscription agent is Boston EquiServe (the "Subscription Agent"). The
Subscription Agent will receive for its administrative, processing, invoicing
and other services as Subscription Agent, a fee estimated to be approximately
$45,000 which includes reimbursement for all out-of-pocket expenses related to
the Offer. Questions regarding the Subscription Certificates should be directed
to Shareholder Communications Corporation at (800) 618-7826. Banks and brokers
should call (800) 877-8579 ext. 113; shareholders may also consult their brokers
or nominees.
Completed Subscription Certificates must be sent together with proper
payment of the Subscription Price for all shares subscribed for in the Primary
Subscription and pursuant to the Over-Subscription Privilege (for Record Date
Shareholders) to the Subscription Agent by one of the methods described below.
Alternatively, Notice of Guaranteed Delivery may be sent by facsimile to
(781) 575-4826 to be received by the Subscription Agent prior to 5:00 P.M., New
York City time, on the Expiration Date. Facsimiles should be confirmed by
telephone at (781) 575-4816. The Fund will accept only properly completed and
executed
14
<PAGE> 18
Subscription Certificates actually received at any of the addresses listed
below, prior to 5:00 P.M., New York City time, on the Expiration Date or by the
close of business on the third Business Day after the Expiration Date following
timely receipt of a Notice of Guaranteed Delivery. See "Payment for Shares"
below.
(1) BY FIRST CLASS MAIL:
State Street Bank and Trust Company
Corporate Reorganization
P.O. Box 9573
Boston, Massachusetts 02205-9573
U.S.A.
(2) BY OVERNIGHT COURIER:
State Street Bank and Trust Company
Corporate Reorganization
40 Campanelli Drive
Braintree, Massachusetts 02184
U.S.A.
(3) BY HAND:
Securities Transfer and Reporting Services Inc.
c/o Boston EquiServe
100 William St. Galleria
New York, New York 10038
U.S.A.
DELIVERY TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES LISTED ABOVE WILL NOT
CONSTITUTE VALID DELIVERY.
METHOD FOR EXERCISING RIGHTS
Rights are evidenced by Subscription Certificates that, except as described
below under "Foreign Restrictions," will be mailed to Record Date Shareholders
or, if a shareholder's shares of beneficial interest are held by Cede or any
other depository or nominee on their behalf, to Cede or such depository or
nominee. Rights may be exercised by completing and signing the Subscription
Certificate that accompanies this prospectus and mailing it in the envelope
provided, or otherwise delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment in full for the
shares at the Subscription Price by the Expiration Date. Rights may also be
exercised by contacting your broker, banker or trust company, which can arrange,
on your behalf, to guarantee payment and delivery of a properly completed and
executed Subscription Certificate pursuant to a Notice of Guaranteed Delivery by
the close of business on the third business day after the Expiration Date. A fee
may be charged for this service. Fractional shares will not be issued upon the
exercise of Rights. Record Date Shareholders issued fewer than three Rights are
entitled to subscribe for one share pursuant to the Primary Subscription.
Completed Subscription Certificates must be received by the Subscription Agent
prior to 5:00 P.M., New York City time, on the Expiration Date at one of the
addresses set forth above (unless the guaranteed delivery procedures are
complied with as described below under "Payment for Shares").
Shareholders Who are Record Owners. To exercise their Rights, Record Date
shareholders may choose between either option to exercise their shares set forth
under "Payment for Shares" below. If time is of the essence, option (2) under
"Payment for Shares" below will permit delivery of the Subscription Certificate
and payment after the Expiration Date.
Shareholders Whose Shares are Held By a Nominee. Shareholders whose shares
are held by a nominee such as a bank, broker or trustee must contact that
nominee to exercise their Rights. In that case, the nominee will complete the
Subscription Certificate on behalf of the shareholder and arrange for proper
payment by one of the methods set forth under "Payment for Shares" below.
Nominees. Nominees who hold shares for the account of others should notify
the respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain
15
<PAGE> 19
instructions with respect to the Rights. If the beneficial owner so instructs,
the nominee should complete the Subscription Certificate and submit it to the
Subscription Agent with the proper payment as described under "Payment for
Shares" below.
INFORMATION AGENT
Any questions or requests for assistance concerning the method of
subscribing for shares or for additional copies of this prospectus or
Subscription Certificates or Notices of Guaranteed Delivery may be directed to
the Information Agent at its telephone number and address listed below:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
(800) 618-7826
Banks and Brokers should call:
(800) 877-8579 ext. 113
Shareholders may also contact their brokers or nominees for information
with respect to the Offer. The Information Agent will receive a fee of $15,000,
plus reimbursement for its out-of-pocket expenses related to the Offer.
PAYMENT FOR SHARES
Shareholders who wish to acquire shares pursuant to the Offer may choose
between the following methods of payment:
(1) An Exercising Rights Holder may send the Subscription Certificate
together with payment for the shares acquired in the Primary Subscription and
any additional shares subscribed for pursuant to the Over-Subscription Privilege
(for Record Date Shareholders) to the Subscription Agent based on the
Subscription Price of $8.30 per share. A subscription will be accepted when
payment, together with a properly completed and executed Subscription
Certificate, is received by the Subscription Agent's office at one of the
addresses set forth above no later than 5:00 P.M., New York City time, on the
Expiration Date. The Subscription Agent will deposit all checks and money orders
received by it for the purchase of shares into a segregated interest-bearing
account (the interest from which will accrue to the benefit of the Fund) pending
proration and distribution of shares. A PAYMENT PURSUANT TO THIS METHOD MUST BE
IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK OR BRANCH LOCATED IN THE
UNITED STATES, MUST BE PAYABLE TO KEMPER HIGH INCOME TRUST AND MUST ACCOMPANY A
PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION
CERTIFICATE TO BE ACCEPTED. EXERCISE BY THIS METHOD IS SUBJECT TO ACTUAL
COLLECTION OF CHECKS BY 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR, SHAREHOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS
OF A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
(2) Alternatively, an Exercising Rights Holder may acquire shares, and a
subscription will be accepted by the Subscription Agent if, prior to 5:00 P.M.,
New York City time, on the Expiration Date, the Subscription Agent has received
a Notice of Guaranteed Delivery by facsimile or otherwise from a financial
institution that is a member of the Securities Transfer Agents Medallion
Program, the Stock Exchange Medallion Program or the NYSE Medallion Signature
Program guaranteeing delivery of (i) payment of the Subscription Price of $8.30
per share for the shares subscribed for in the Primary Subscription and any
additional shares subscribed for pursuant to the Over-Subscription Privilege
(for Record Date Shareholders), and (ii) a properly completed and executed
Subscription Certificate. The Subscription Agent will not honor a Notice of
Guaranteed Delivery unless a properly completed and executed Subscription
Certificate and full payment for the shares is received by the Subscription
Agent by the close of business on the third Business Day after the Expiration
Date.
16
<PAGE> 20
On a date within eight Business Days following the Expiration Date (the
"Confirmation Date"), the Subscription Agent will send to each Exercising Rights
Holder (or, if shares are held by Cede or any other depository or nominee, to
Cede or such other depository or nominee) a confirmation showing (i) the number
of shares purchased pursuant to the Primary Subscription and (ii) the number of
shares, if any, acquired pursuant to the Over-Subscription Privilege (for Record
Date Shareholders). All payments by an Exercising Rights Holder must be in U.S.
dollars by money order or check drawn on a bank or branch located in the United
States and payable to KEMPER HIGH INCOME TRUST.
The Subscription Agent will deposit all checks received by it prior to the
final payment date into a segregated interest-bearing account (which interest
will accrue to the benefit of the Fund) pending proration and distribution of
the shares.
WHICHEVER OF THE TWO METHODS DESCRIBED ABOVE IS USED, ISSUANCE OF THE
SHARES PURCHASED IS SUBJECT TO COLLECTION OF CHECKS AND ACTUAL PAYMENT. IF A
HOLDER OF RIGHTS WHO SUBSCRIBES FOR SHARES PURSUANT TO THE PRIMARY SUBSCRIPTION
OR OVER-SUBSCRIPTION PRIVILEGE (FOR RECORD DATE SHAREHOLDERS) DOES NOT MAKE
PAYMENT OF ANY AMOUNTS DUE BY THE EXPIRATION DATE OR THE DATE GUARANTEED
PAYMENTS ARE DUE UNDER A NOTICE OF GUARANTEED DELIVERY, THE SUBSCRIPTION AGENT
RESERVES THE RIGHT TO TAKE ANY OR ALL OF THE FOLLOWING ACTIONS: (i) FIND OTHER
RECORD DATE SHAREHOLDERS FOR SUCH SUBSCRIBED AND UNPAID FOR SHARES; (ii) APPLY
ANY PAYMENT ACTUALLY RECEIVED BY IT TOWARD THE PURCHASE OF THE GREATEST WHOLE
NUMBER OF SHARES WHICH COULD BE ACQUIRED BY SUCH HOLDER UPON EXERCISE OF THE
PRIMARY SUBSCRIPTION AND/OR OVER-SUBSCRIPTION PRIVILEGE; AND/OR (iii) EXERCISE
ANY AND ALL OTHER RIGHTS OR REMEDIES TO WHICH IT MAY BE ENTITLED, INCLUDING,
WITHOUT LIMITATION, THE RIGHT TO SET OFF AGAINST PAYMENTS ACTUALLY RECEIVED BY
IT WITH RESPECT TO SUCH SUBSCRIBED SHARES.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE
EXERCISING RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL
CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO
PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY
ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Subscription
Agent determines in its sole discretion. The Subscription Agent will not be
under any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Certificates or incur any liability for
failure to give such notification.
EXERCISING RIGHTS HOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION
AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT AS
PROVIDED BELOW UNDER "NOTICE OF NET ASSET VALUE DECLINE."
SALE OF RIGHTS
The Rights are transferable until the Expiration Date. The Rights will be
listed for trading on the NYSE, subject to notice of issuance. The Fund will use
its best efforts to ensure that an adequate trading market for the Rights will
exist, although no assurance can be given that a market for the Rights will
develop. It is anticipated that the Rights will trade on the NYSE on a
when-issued basis commencing on or about March 23, 1999 until approximately
March 25, 1999, and on a regular way basis thereafter until and including the
last Business Day prior to the Expiration Date. Exercising Rights Holders are
encouraged to contact their broker, bank or financial advisor for more
information about trading of the Rights.
17
<PAGE> 21
Sales through Subscription Agent and Dealer Manager. Alternatively, Record
Date Shareholders who do not wish to exercise any or all of their Rights may
instruct the Subscription Agent to sell any unexercised Rights through or to the
Dealer Manager. Subscription Certificates representing the Rights to be sold by
or to the Dealer Manager must be received by the Subscription Agent on or before
April 14, 1999 (or if the Offer is extended, until two Business Days prior to
the Expiration Date). Upon the timely receipt by the Subscription Agent of
appropriate instructions to sell Rights, the Subscription Agent will request the
Dealer Manager either to purchase or to use its best efforts to complete the
sale and the Subscription Agent will remit the proceeds of sale, net of
commissions, to the selling Record Date Shareholders. Any commissions on sales
of Rights will be paid by the selling Record Date Shareholders. If the Rights
can be sold, sales of such Rights will be deemed to have been effected at the
weighted-average price received by the Dealer Manager on the day such Rights are
sold. The sale price of any Rights sold to the Dealer Manager will be based upon
the then current market price for the Rights, less amounts comparable to the
usual and customary brokerage fees. The Dealer Manager will also attempt to sell
all Rights which remain unclaimed as a result of Subscription Certificates being
returned by the postal authorities to the Subscription Agent as undeliverable as
of the fourth Business Day prior to the Expiration Date. Such sales will be made
net of commissions on behalf of the nonclaiming Record Date Shareholders. The
Subscription Agent will hold the proceeds from those sales for the benefit of
such nonclaiming Record Date Shareholders until such proceeds are either claimed
or escheat. There can be no assurance that the Dealer Manager will purchase or
be able to complete the sale of any such Rights, and neither the Fund nor the
Dealer Manager has guaranteed any minimum sales price for the Rights.
Other Transfers. The Rights evidenced by a Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights.
In such event, a new Subscription Certificate evidencing the balance of the
Rights, if any, will be issued to the Record Date Shareholder or, if the Record
Date Shareholder so instructs, to an additional transferee. The signature on the
Subscription Certificate must correspond with the name as written upon the face
of the Subscription Certificate in every particular, without alteration or
enlargement, or any change. A signature guarantee must be provided by an
eligible financial institution as defined in Rule 17Ad-15 of the Securities
Exchange Act of 1934, as amended, subject to the standards and procedures
adopted by the Fund.
Record Date Shareholders wishing to transfer all or a portion of their
Rights should allow at least five Business Days prior to the Expiration Date
for: (i) the transfer instructions to be received and processed by the
Subscription Agent; (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained Rights, if any; and (iii) the
Rights evidenced by such new Subscription Certificate to be exercised or sold by
the recipients thereof. Neither the Fund nor the Subscription Agent nor the
Dealer Manager shall have any liability to a transferee or transferor of Rights
if Subscription Certificates are not received in time for exercise or sale prior
to the Expiration Date.
Except for the fees charged by the Subscription Agent and Dealer Manager
(which will be paid by the Fund), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred or charged in
connection with the purchase, sale or exercise of Rights will be for the account
of the transferor of the Rights, and none of such commissions, fees or expenses
will be paid by the Fund, the Subscription Agent or the Dealer Manager.
The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription (but not the Over-Subscription
Privilege) may be effected through the facilities of The Depository Trust
Company ("DTC"). (Rights exercised through DTC are referred to as "DTC-Exercised
Rights"). Record Date Shareholders of DTC-Exercised Rights may exercise the
Over-Subscription Privilege in respect of such DTC-Exercised Rights by properly
executing and delivering to the Subscription Agent, at or prior to 5:00 p.m.,
New York City time, on the Expiration Date, a Nominee Holder Over-Subscription
18
<PAGE> 22
Exercise Form or a substantially similar form satisfactory to the Subscription
Agent, together with payment of the Subscription Price for the number of shares
for which the Over-Subscription Privilege is to be exercised.
DISTRIBUTION ARRANGEMENTS
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York,
will act as the Dealer Manager for the Offer. Under the terms and subject to the
conditions contained in the Dealer Manager Agreement dated the date hereof (the
"Dealer Manager Agreement"), the Dealer Manager will provide financial advisory
and marketing services in connection with the Offer and will solicit the
exercise of Rights and participation in the Over-Subscription Privilege. The
Offer is not contingent upon any number of Rights being exercised. The Fund has
agreed to pay the Dealer Manager a fee for their financial advisory, marketing
and soliciting services equal to 3.75% of the aggregate Subscription Price for
shares issued pursuant to the Offer.
The Dealer Manager will reallow to broker-dealers included in the selling
group to be formed and managed by the Dealer Manager ("Selling Group Members")
selling fees equal to 2.50% of the Subscription Price per share for each share
issued pursuant to the Offer as a result of their selling efforts. In addition,
the Dealer Manager will reallow to other broker-dealers that have executed and
delivered a soliciting dealer agreement and have solicited the exercise of
Rights, solicitation fees equal to 0.50% of the Subscription Price per share for
each share issued pursuant to the exercise of Rights as a result of their
soliciting efforts, subject to a maximum fee based upon the number of shares of
beneficial interest held by each broker-dealer through DTC on the Record Date.
Fees will be paid to the broker-dealer designated on the applicable portion of
the Subscription Certificates or, in the absence of such designation, to the
Dealer Manager.
The Fund has agreed to indemnify the Dealer Manager or contribute to losses
arising out of certain liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Dealer Manager Agreement
also provides that the Dealer Manager will not be subject to any liability to
the Fund in rendering the services contemplated by such Agreement except for any
act of bad faith, willful misconduct or gross negligence of the Dealer Manager
or reckless disregard by the Dealer Manager of its obligations and duties under
such Agreement.
Prior to the expiration of the Offer, the Dealer Manager may independently
offer for sale shares of beneficial interest, including shares acquired through
purchasing and exercising the rights, at prices it sets. The Dealer Manager may
realize profits or losses independent of any fees described in this Prospectus.
The Fund has agreed not to offer or sell, or enter into any agreement to
sell, any equity or equity related securities of the Fund or securities
convertible into such securities for a period of 180 days after the date of the
Dealer Manager Agreement, except for the shares issued pursuant to the Offer or
shares issued in reinvestment of dividends or distributions or other limited
circumstances.
DELIVERY OF SHARE CERTIFICATES
Certificates representing shares acquired in the Primary Subscription and
representing shares acquired pursuant to the Over-Subscription Privilege will be
mailed promptly after the expiration of the Offer once full payment for such
shares has been received and cleared. Participants in the Fund's Dividend
Reinvestment and Cash Purchase Plan (the "Plan") will have any shares acquired
in the Primary Subscription and pursuant to the Over-Subscription Privilege
credited to their shareholder dividend reinvestment accounts in the Plan.
Participants in the Plan wishing to exercise Rights for the shares of beneficial
interest held in their accounts in the Plan must exercise such Rights in
accordance with the procedures set forth above. Shareholders whose shares of
beneficial interest are held of record by Cede or by any other depository or
nominee on their behalf or their broker-dealer's behalf will have any shares
acquired in the Primary Subscription credited to the account of Cede or such
other depository or nominee. Shares acquired pursuant to the Over-Subscription
Privilege will be certificated and certificates representing such shares will be
sent directly to Cede or such other depository or nominee. Share certificates
will not be issued for shares credited to Plan accounts.
19
<PAGE> 23
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (the term "United States"
includes the states, the District of Columbia, and the territories and
possessions of the United States). Foreign Record Date Shareholders will receive
written notice of the Offer. The Rights to which such Subscription Certificates
relate will be held by the Subscription Agent for such foreign Record Date
Shareholders' accounts until instructions are received to exercise the Rights.
If no instructions have been received by 5:00 P.M., New York City time, three
business days prior to the Expiration Date, the Rights of those foreign Record
Date Shareholders will be transferred by the Subscription Agent to the Dealer
Manager, who will either purchase the Rights or use its best efforts to sell the
Rights. The net proceeds, if any, from the sale of those Rights by or to the
Dealer Manager will be remitted to foreign Record Date Shareholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER
The following discussion summarizes the principal federal income tax
consequences of the Offer to Record Date Shareholders and exercising
shareholders. It is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), U.S. Treasury regulations, Internal Revenue Service rulings and
policies and judicial decisions in effect on the date of this prospectus, all of
which may be subject to change or differing interpretation, possibly with
retroactive effect. This discussion does not address all federal income tax
aspects of the Offer that may be relevant to a particular shareholder in light
of his individual circumstances or to shareholders subject to special treatment
under the Code (such as insurance companies, financial institutions, tax-exempt
entities, dealers in securities, foreign corporations, and persons who are not
citizens or residents of the United States), and it does not address any state,
local or foreign tax consequences. Accordingly, each shareholder should consult
his own tax advisor as to the specific tax consequences of the Offer to him.
Each shareholder should also review the discussion of certain tax considerations
affecting the Fund and its shareholders set forth under "Federal Taxation" below
and under "Taxation" in the SAI.
For federal income tax purposes, neither the receipt nor the exercise of
the Rights by Record Date Shareholders will result in taxable income to those
shareholders, and no loss will be realized if the Rights expire without
exercise.
A Record Date Shareholder's holding period for a Right includes the holding
period of the Fund share with respect to which the Right was issued. A Record
Date Shareholder's holding period for a share acquired upon exercise of a Right
begins with the date of exercise. A Record Date Shareholder's basis for
determining gain or loss upon the sale of a share acquired upon the exercise of
a Right will be equal to the sum of the shareholder's basis in the Right, if
any, and the Subscription Price. The shareholder's basis in the Right will be
zero unless either (i) the fair market value of the Right on the date of
issuance is 15% or more of the fair market value on such date of the shares with
respect to which the Right was issued, or (ii) the shareholder elects, in its
federal income tax return for the taxable year in which the Right is received,
to allocate part of the basis of such shares to the Right. If either of clauses
(i) and (ii) is applicable, then if the Right is exercised, the shareholder will
allocate its basis in the shares with respect to which the Right was issued
between such shares and the Right in proportion to the fair market values of
each on the date of issuance. A shareholder's gain or loss recognized upon a
sale of a share acquired upon the exercise of a Right will be capital gain or
loss (assuming the share was held as a capital asset at the time of sale) and
will be long-term capital gain or loss if the share was held at the time of sale
for more than one year.
The foregoing is a general summary of the principal federal income tax
consequences of the Offer to Record Date shareholders and exercising holders
under federal income tax laws presently in effect, and does not cover any state,
local or foreign tax consequences of the Offer. Shareholders should consult
their own tax advisors concerning the tax consequences of this transaction. See
"FEDERAL TAXATION."
NOTICE OF NET ASSET VALUE DECLINE
The Fund has, as required by the SEC's registration form, undertaken to
suspend the Offer until it amends this prospectus if, subsequent to the
effective date of the Fund's Registration Statement, the Fund's net asset value
declines more than 10% from its net asset value as of that date. Accordingly,
the Expiration
20
<PAGE> 24
Date would be extended and the Fund would notify Record Date Shareholders of any
such decline and permit Exercising Rights Holders to cancel their exercise of
Rights.
EMPLOYEE BENEFIT PLAN CONSIDERATIONS
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), profit sharing/retirement plans for
corporations and self-employed individuals and Individual Retirement Accounts
(collectively, "Retirement Plans") should be aware that additional contributions
of cash to the Retirement Plan (other than rollover contributions or
trustee-to-trustee transfers from other Retirement Plans) in order to exercise
Rights would be treated as Retirement Plan contributions and therefore, when
taken together with contributions previously made, may be treated as excess or
nondeductible contributions subject to excise taxes. In the case of Retirement
Plans qualified under Section 401(a) of the Code, additional cash contributions
could cause violations of the maximum contribution limitations of Section 415 of
the Code or other qualification rules. Retirement Plans in which contributions
are so limited should consider whether there is an additional source of funds
available within the Retirement Plan, including the liquidation of assets, with
which to exercise the Rights. Because the rules governing plans are extensive
and complex, Retirement Plans contemplating the exercise of Rights should
consult with their counsel prior to such exercise.
Retirement Plans and other tax exempt entities, including governmental
plans, should also be aware that if they borrow in order to finance their
exercise of Rights, they may become subject to the tax on unrelated business
taxable income ("UBTI") under Section 511 of the Code. If any portion of an
Individual Retirement Account ("IRA") is used as security for a loan, the
portion so used is treated as a distribution to the IRA depositor.
ERISA contains fiduciary responsibility requirements, and ERISA and the
Code contain prohibited transactions rules that may impact the exercise of
Rights. Due to the complexity of these rules and the penalties for
noncompliance, Retirement Plans should consult with their counsel regarding the
consequences of their exercise of Rights under ERISA and the Code.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
- ----- ---------------
<S> <C>
Record Date............................................ March 23, 1999
Subscription Period.................................... March 23, 1999
to April 16,*
1999
Expiration Date........................................ April 16, 1999*
Subscription Certificates and Payment for Shares
Due+................................................. April 16, 1999*
Notice of Guaranteed Delivery Due+..................... April 16, 1999*
Payment for Guarantees of Delivery Due................. April 21, 1999*
Confirmation Mailed to Participants.................... April 28, 1999*
</TABLE>
- ---------------
* Unless the Offer is extended.
+ A shareholder exercising Rights must deliver either (i) a Subscription
Certificate and payment for shares or (ii) a Notice of Guaranteed Delivery by
the Expiration Date.
Shares of beneficial interest of the Fund are expected to trade on the NYSE
with due bills attached from March 19, 1999 through March 24, 1999. You are
encouraged to contact your broker, bank or financial adviser about your ability
to participate in the Offer if you anticipate purchase or sale activity during
such period.
USE OF PROCEEDS
If all the Rights are exercised in full at the Subscription Price of $8.30
per share, the net proceeds of the Offer to the Fund, assuming all 8,003,074
shares offered hereby are sold, are estimated to be approximately $63,434,557,
after deducting Offering expenses payable by the Fund, estimated at
approximately $500,000. The Manager anticipates that the Fund will take up to
thirty days from its receipt of the net proceeds of the
21
<PAGE> 25
Offer to invest or otherwise employ such proceeds, but in no event will any such
investment use take longer than six months. Pending the use of the proceeds of
the Offer, the proceeds will be held in U.S. Government securities (which term
includes obligations of the United States Government, its agencies or
instrumentalities) and other high-quality, short-term money market instruments.
While the proceeds are invested in U.S. Government securities and other
high-quality, short-term money market instruments, the proceeds will not be
invested in securities consistent with the Fund's objective of high current
income.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's primary investment objective is to seek, through a
professionally managed, diversified portfolio of income-producing securities,
the highest current income obtainable consistent with reasonable risk as
determined by the Manager. As a secondary objective, the Fund seeks capital
gains where consistent with its primary objective. There can be no assurance
that the Fund's objectives will be achieved.
The Fund may invest its assets in a broad range of income-producing
securities, such as U.S. corporate fixed income securities, bonds and other
obligations of the U.S. Government and its agencies and instrumentalities, bonds
and other obligations of foreign governments and their agencies and
instrumentalities and other fixed income securities, including fixed income
securities which may be denominated in foreign currencies. The Fund's fixed
income securities may or may not be rated. The Fund has no requirements
regarding whether the income-producing securities it purchases must be rated or,
if such securities are rated, what the minimum or maximum rating on such
securities must be. Lower grade securities normally offer a current yield or
yield to maturity which is significantly higher than the yield available from
securities rated in the higher grade categories as assigned by S&P or Moody's.
The characteristics of the fixed income securities in the Fund's portfolio, such
as the maturity and the type of issuer, affects yields and yield differentials,
which vary over time. The actual yield realized by an investor is subject, among
other things, to the Fund's expenses and the investor's transaction costs. The
Fund, if market and economic conditions warrant, may invest all or a portion of
its assets in different segments of the fixed income securities market in order
to achieve the Fund's objectives.
The Manager's judgment as to the "reasonableness" of the risk involved in
any particular investment is a function of: its experience in managing fixed
income investments; its evaluation of general economic and financial conditions
and of a specific issuer's (a) business and management, (b) cash flow, (c)
earnings coverage of interest and dividends, (d) ability to operate under
adverse economic conditions, and (e) fair market value of assets; and its
evaluation of such other considerations as the Manager may deem appropriate.
Although some risk is inherent in all securities ownership, holders of fixed
income securities have a claim on the assets of the issuer prior to the holders
of common stock. Therefore, an investment in fixed income securities generally
entails less risk than an investment in common stock of the same issuer.
The Fund normally does not engage in the trading of fixed income securities
for the purpose of realizing short term profits, but it adjusts its portfolio as
considered advisable in view of prevailing or anticipated market conditions and
the Fund's investment objectives. Accordingly, the Fund may sell portfolio
securities in anticipation of a rise in interest rates and purchase fixed income
securities for inclusion in its portfolio in anticipation of a decline in
interest rates. In addition, the Fund may sell portfolio securities denominated
in foreign currencies in anticipation of appreciation of such currencies
relative to the U.S. dollar, and may purchase securities denominated in foreign
currencies in anticipation of an appreciation of such currencies relative to the
U.S. dollar. Frequency of portfolio turnover is not a limiting factor should the
Manager deem it desirable to purchase or sell portfolio securities.
There are market and investment risks associated with an investment in any
fixed income security and the value of an investment in the Fund will fluctuate
over time. In seeking to achieve its investment objectives, the Fund invests in
fixed income securities based on the Manager's analysis without relying on
published ratings, if any, for such securities. The various investment standards
which are used by the Manager in selecting investments are included in the
investment policies of the Fund, discussed below. While seeking to maximize
current return, the Manager closely monitors developments that may affect the
value of the Fund's portfolio securities, as well as potential investments and
broad trends in the economy. The Fund invests in a particular fixed income
security if in the view or the Manager the increased yield on such security is
sufficient to
22
<PAGE> 26
compensate for a reasonable element of assumed risk. Since investments are based
upon the Manager's analysis rather than on the basis of published ratings,
achievement of the Fund's goals will depend more upon the abilities of the
Manager than would otherwise be the case. The characteristics of the rating
categories of S&P and Moody's are described in Appendix A.
Fixed income securities in which the Fund may invest include: domestic or
foreign corporate debt obligations (as well as debt and preferred stock issues,
including securities convertible into equity securities), debt obligations of
the U.S. Government or foreign governments and their agencies and
instrumentalities, fixed income securities denominated in foreign currencies,
collateralized mortgage obligations, municipal bonds and other income-producing
securities which the Manager considers appropriate. Such securities may be rated
or unrated by rating agencies.
The Fund's investment philosophy includes the premise that, over the long
term, a broadly diversified portfolio of high-yield, fixed income securities
should, taking into account possible losses, provide a higher rate of return
than that achievable on a portfolio of higher rated securities. The Fund's
primary investment objective is to achieve the highest current income obtainable
consistent with reasonable risk through (i) broad diversification, (ii) the
Manager's credit analysis of the issues in which the Fund invests, (iii)
purchase of high-yield securities at discounts from par or stated value when
practicable and (iv) monitoring and seeking to anticipate changes and trends in
the economy and financial markets which might affect the prices of portfolio
securities. As a secondary objective, the Fund seeks capital gains where
consistent with its primary investment objective. In some circumstances,
temporary defensive strategies may be implemented to preserve or enhance capital
even at the sacrifice of current yield. Such strategies, which may be used
singly or in any combination, may include, but are not limited to, investments
in fixed income discount securities or investments in money market instruments.
The Fund anticipates that in normal circumstances 90% to 100% of its assets
will be invested in income-producing securities. As a matter of fundamental
policy, at least 65% of the Fund's assets will, in normal circumstances, be
invested in securities which provide the potential to result in high income to
the Fund, but which have speculative characteristics such as lower credit
quality, currency exchange risk, liquidity constraints and/or risk associated
with related options and hedging activities. This fundamental policy may not be
changed without the approval of the holders of a majority of the Fund's shares
(as defined in the SAI under "Investment Restrictions"). The Fund may invest in
common stocks, rights or other equity securities when consistent with the Fund's
objectives, but will generally hold such equity investments only as a result of
purchases of unit offerings of income-producing securities which include such
securities or in connection with an actual or proposed conversion or exchange of
income-producing securities.
During temporary defensive periods when the Manager deems it appropriate,
the Fund may invest all or a portion of its assets in cash (including foreign
currencies) or money market instruments such as: short term obligations of the
U.S. Government, its agencies or instrumentalities; other short term debt
securities; commercial paper; bank certificates of deposit or bankers'
acceptances of domestic or Canadian charter banks having total assets in excess
of $1 billion; and any of the foregoing investments subject to short term
repurchase agreements (an instrument under which the purchaser acquires
ownership of the underlying obligation and the seller agrees, at the time of
sale, to repurchase the obligation at a mutually agreed upon time and price).
The yield on these securities will as a general matter tend to be lower than the
yield on other securities to be purchased by the Fund.
The Fund may also purchase and sell options on fixed income securities and
on indices based on fixed income securities and may engage in interest rate,
foreign currency and other hedging transactions. See "OTHER INVESTMENT
PRACTICES."
The Fund may invest in fixed income securities purchased in direct
placements. Fixed income securities obtained by means of direct placements are
subject to statutory or contractual restrictions and delays on resale. They are
therefore, often referred to as "restricted securities." Restricted securities
may generally be resold only in a privately negotiated transaction with a
limited number of purchasers or in a public offering registered under the
Securities Act of 1933. Private or public sales of such securities by the Fund
may involve significant delays and expense. Private sales require negotiation
with one or more purchasers and generally produce less favorable prices than the
sale of similar unrestricted securities. Public sales generally involve the time
and
23
<PAGE> 27
expense of the preparation and processing of a registration statement under the
Securities Act of 1933 (and the possible decline in value of the securities
during such period) and may involve the payment of underwriting commissions. The
Fund may have to bear the costs of registration in order to sell such shares
publicly.
Direct placements of debt securities have frequently resulted in higher
yields and restrictive covenants providing greater protection for the purchaser.
An issuer is often willing to create more attractive features in its securities
issued privately, because it has averted the expense and delay involved in a
public offering of its securities. Also, adverse conditions in the public
securities markets may at certain times preclude a public offering of an
issuer's securities.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Manager relies on information from various sources,
including research analysis and appraisals of brokers and dealers; its own views
regarding economic developments and interest rate trends; and the Manager's own
analysis of factors it deems relevant. The Manager has substantial experience in
the management of portfolios consisting of securities similar to those in which
the Fund may invest.
U.S. CORPORATE FIXED INCOME SECURITIES
"U.S. Corporate Fixed Income Securities" in which the Fund may invest
include bonds, debentures, notes, equipment lease certificates, commercial
paper, loan participations and preferred and preference stock of U.S. corporate
issuers and may involve equity features, such as conversion or exchange rights,
warrants or the purchase of common stock in a unit transaction. These securities
will include fixed income debt securities rated below investment grade by
recognized rating services or non-rated securities of comparable quality. See
Appendix A.
Securities rated below investment grade, and non-rated securities of
comparable quality, are subject to greater risk of loss of principal and
interest than higher rated securities and are generally considered to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. They generally are considered to be subject to greater risk
than securities with higher ratings in the event of a deterioration of general
economic conditions.
Included among the U.S. Corporate Fixed Income Securities in which the Fund
may invest are securities issued in connection with corporate restructurings,
such as takeovers or leveraged buyouts, which may pose particular risks but
often provide higher relative rates of return. Securities issued to finance
corporate restructurings may have special credit risks due to the highly
leveraged condition of the issuers. In addition, such issuers may lose
experienced management as a result of the restructuring. Finally, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. Also, in the lower quality
segments of the fixed income securities market, changes in perceptions of
issuers' creditworthiness tend to occur more frequently and in a more pronounced
manner than do such changes with respect to higher quality segments of the fixed
income securities market, causing greater yield and price volatility.
Lower rated and comparable non-rated securities tend to offer higher yields
than higher rated securities with the same maturities. Since lower rated
securities are considered to be more speculative and generally involve greater
risks of loss of income and principal than higher rated securities, investors
should examine carefully the relative risks associated with the Fund's
investments in securities that carry lower ratings and in comparable non-rated
securities. The Manager will attempt to reduce these risks through
diversification of the U.S. Corporate Fixed Income Securities included in the
Fund's portfolio and by analysis of each issuer and its ability to make timely
payments of income and principal.
Capital appreciation may result from an improvement in the credit standing
of an issuer whose securities are held in the Fund's portfolio or from a general
lowering of interest rates, or a combination of both. Conversely, capital
depreciation may result, for example, from a lowered credit standing or a
general rise in interest rates, or a combination of both.
U.S. Corporate Fixed Income Securities may also include collateralized
mortgage obligations which are debt obligations issued generally by finance
subsidiaries or trusts that are secured by mortgage-backed
24
<PAGE> 28
certificates, including, in many cases, GNMA certificates, FHLMC certificates
and FNMA certificates, together with certain funds and other collateral.
Scheduled distributions on the mortgage-backed certificates pledged to
secure the collateralized mortgage obligations, together with certain funds and
other collateral, should be sufficient to make timely payments of interest on
the collateralized mortgage obligations, and to retire the collateralized
mortgage obligations not later than their stated maturity. Since the rate of
payment of principal of the collateralized mortgage obligations will depend on
the rate of payment (including prepayments) of the principal of the underlying
mortgage-backed certificates, the actual maturity of the collateralized mortgage
obligations could occur significantly earlier than their stated maturity. The
collateralized mortgage obligations may be subject to redemption under certain
circumstances. Collateralized mortgage obligations bought at a premium (i.e., a
price in excess of principal amount) may involve additional risk of loss of
principal in the event of unanticipated prepayments of the underlying mortgages
because the premium may not have been fully amortized at the time the obligation
is repaid.
Although payment of the principal of and interest on the mortgage-backed
certificates pledged to secure the collateralized mortgage obligations may be
guaranteed by GNMA, FHLMC or FNMA, the collateralized mortgage obligations
represent obligations solely of the issuer and are not insured or guaranteed by
GNMA, FHLMC, FNMA or any other governmental agency, or by any other person or
entity. The issuers of collateralized mortgage obligations typically have no
significant assets other than those pledged as collateral for the obligations.
The staff of the SEC has determined that certain issuers of collateralized
mortgage obligations are investment companies for purposes of Section 12(d) of
the 1940 Act and the Fund's investments in such issuers are subject to
restrictions on investments in the securities of other investment companies
described under "Investment Restrictions" in the SAI.
The Fund may invest in U.S. Corporate Fixed Income Securities that are
zero-coupon securities. For a description of the market volatility of such
investments and the tax treatment of zero-coupon securities, see "U.S.
Government Securities" above and "Taxation" in the SAI.
U.S. GOVERNMENT SECURITIES
"U.S. Government Securities" include the following.
U.S. Treasury Securities. The Fund may invest in U.S. Treasury securities,
including bills, notes and bonds issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. They differ primarily in their
interest rates, the lengths of their maturities and their dates of issuance.
Obligations Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. The Fund may invest in obligations issued by agencies of the
U.S. Government or instrumentalities established or sponsored by the U.S.
Government. These obligations, including those that are guaranteed by federal
agencies or instrumentalities, may or may not be backed by the "full faith and
credit" of the United States. Obligations of the Government National Mortgage
Association ("GNMA"), the Farmers Home Administration and the Export-Import Bank
are backed by the full faith and credit of the United States. Securities in
which the Fund may invest that are not backed by the full faith and credit of
the United States include, among others, obligations issued by the Tennessee
Valley Authority, the Federal National Mortgage Association ("FNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC") and the United States Postal
Service, each of which has the Right to borrow from the United States Treasury
to meet its obligations, and obligations of the Federal Farm Credit Bank and the
Federal Home Loan Bank, the obligations of which may be satisfied only by the
individual credit of the issuing agency. Investments in FHLMC obligations may
include collateralized mortgage obligations issued by FHLMC. In the case of
securities not backed by the full faith and credit of the United States, the
Fund must look principally to the agency issuing or guaranteeing the obligation
for ultimate repayment and may not be able to assert a claim against the U.S. if
the agency or instrumentality does not meet its commitments.
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<PAGE> 29
Mortgage-Related Securities Issued by U.S. Government
Instrumentalities. The Fund may invest in mortgage-backed securities issued by
GNMA, FNMA or FHLMC and representing undivided ownership interests in pools of
mortgages. The mortgages backing these securities include conventional 30-year
fixed rate mortgages, 15-year fixed rate mortgages, graduated payment mortgages
and adjustable rate mortgages. The U.S. Government or the issuing agency
guarantees the payment of the interest on and principal of these securities.
However, the guarantees do not extend to the securities' yield or value, which
are likely to vary inversely with fluctuations in interest rates, nor do the
guarantees extend to the yield or value of the Fund's shares. These securities
are in most cases "pass-through" instruments through which the holders receive a
share of all interest and principal payments from the mortgage underlying the
securities, net of certain fees. Because the principal amounts of such
underlying mortgages may generally be prepaid in whole or in part by the
mortgagees at any time without penalty and the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the average
life of a particular issue of pass-through securities. Mortgage-backed
securities are often subject to more rapid repayment than their stated maturity
date would indicate as a result of the pass-through of prepayments of principal
on the underlying mortgage obligations. For example, securities backed by
mortgages with 30-year maturities are customarily treated as prepaying fully in
the twelfth year and securities backed by mortgages with 15-year maturities are
customarily treated as prepaying fully in the seventh year. While the timing of
prepayments of graduated payment mortgages differs somewhat from that of
conventional mortgages, the prepayment experience of graduated mortgages is
basically the same as that of the conventional mortgages of the same maturity
dates over the life of the pool. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. When the mortgage obligations are prepaid, the Fund reinvests the
prepaid amounts in other income-producing securities, the yields of which
reflect interest rates prevailing at the time. Therefore, the Fund's ability to
maintain a portfolio of high-yielding mortgage-backed securities will be
adversely affected to the extent that prepayments of mortgages must be
reinvested in securities which have lower yields than the prepaid
mortgage-backed securities. Moreover, prepayments of mortgages which underlie
securities purchased at a premium could result in capital losses.
The Fund may invest in "zero coupon" Treasury securities, which are U.S.
Treasury bills, notes, and bonds which have been stripped of their unmatured
interest coupons, and receipts or certificates representing interests in such
stripped debt obligations and coupons. A zero coupon security pays no interest
to its holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price).
Zero coupon Treasury securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly such securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. In order to be consistent with its investment objective of obtaining
current income, the Fund does not anticipate that it will normally hold such
zero coupon securities to maturity. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payment in cash on the security during the year. For
additional discussion of the tax treatment of "zero coupon" Treasury securities,
see "Taxation" in the SAI.
Additional Considerations. U.S. Government securities are considered among
the most creditworthy of fixed income investments. The yields available from
U.S. Government securities are generally lower than the yields available from
corporate debt securities. The values of U.S. Government securities (like those
of fixed income securities generally) will change as interest rates fluctuate.
During periods of falling U.S. interest rates, the values of outstanding long
term U.S. Government securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline. The
magnitude of these fluctuations will generally be greater for securities with
longer maturities. Although changes in the value of U.S. Government securities
will not affect investment income from those securities, they will affect the
Fund's net asset value.
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<PAGE> 30
FOREIGN SECURITIES
"Foreign Securities" include debt securities issued or guaranteed as to
payment of principal and interest by foreign corporations, governments,
quasi-governmental entities, governmental agencies, supranational entities and
other governmental entities and are denominated in the currencies of such
countries or in U.S. dollars (including debt securities of an issuer in any such
country denominated in the currency of another such country).
A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of "quasi-governmental entities" are
issued by entities owned by either a national, state or equivalent government or
are obligations of a political unit that are not backed by the national
government's full faith and credit and general taxing powers.
Additional Considerations. Investment in the Fund's shares requires
consideration of certain factors that arise from the Fund's investment in
Foreign Securities.
Currency Fluctuations. The Fund will invest in debt securities denominated
in foreign currencies. A change in the value of any such currency against the
U.S. dollar will result in a corresponding change in the U.S. dollar value of
the Fund's assets denominated in that currency. Such changes will also affect
the Fund's yield, income and distributions to shareholders. In addition,
although the Fund will receive income in such currencies, the Fund will be
required to compute and distribute its income in U.S. dollars. Therefore, if the
exchange rate for any such currency depreciates after the Fund's income has been
accrued and translated into U.S. dollars, the Fund could be required to
liquidate portfolio securities to make such distributions. Similarly, if a
foreign currency exchange rate depreciates between the time the Fund incurs
expenses in U.S. dollars and the time such expenses are paid, the amount of such
currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount of such
currency at the time they were incurred. Under the Code, changes in an exchange
rate which occur between the time the Fund accrues interest 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 liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities will result in foreign exchange gains or
losses that increase or decrease distributable net income. Similarly,
dispositions of certain debt securities (by sale, at maturity or otherwise) at a
U.S. dollar amount that is higher or lower than the Fund's original U.S. dollar
cost may result in foreign exchange gains or losses, which will increase or
decrease distributable net investment income. The Fund will invest only in
foreign currency denominated debt securities that are freely convertible into
U.S. dollars without legal restriction at the time of investment.
Foreign Withholding Taxes. The Fund's interest income from Foreign
Securities issued in local markets may, in some cases, be subject to applicable
withholding taxes imposed by governments in such markets. Because the Fund,
under current market conditions, is unlikely to have more than 50% of its total
assets invested in securities of foreign governments or corporations, the Fund
probably will not be entitled to "pass-through" to shareholders the amount of
foreign taxes paid by the Fund. See "Taxation" in the SAI.
Other Risks and Costs of Foreign Investment. Certain foreign countries are
not as stable politically as the United States. In addition, there may be less
government supervision and regulation of foreign securities exchanges, brokers
and listed companies than exists in the United States. Restrictions and controls
on investment in the securities markets of some countries may have an adverse
effect on the availability and costs to the Fund of investments in those
countries. In addition, the possibility of expropriations, confiscatory
taxation, currency blockage, political, economic or social instability or
diplomatic developments could affect assets of the Fund that are invested in
Foreign Securities.
There may also be less publicly available information about foreign issuers
than is contained in reports and reflected in ratings published for U.S.
issuers. Some foreign securities may be less liquid and more volatile than U.S.
securities. Transaction costs on foreign securities exchanges may be higher than
in the United States, and foreign securities settlements may, in some instances,
be subject to delays and related administrative uncertainties.
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<PAGE> 31
In addition, custodial, valuation, communication and other administrative
costs relating to foreign securities are generally higher than corresponding
costs relating to domestic securities.
OTHER INVESTMENT CHARACTERISTICS OF FIXED INCOME SECURITIES
When and if available, fixed income securities may be purchased at a
discount from face value. However, the Fund does not intend to hold such
securities to maturity for the purpose of achieving potential capital gains,
unless current yields on the securities remain attractive. The market value of
fixed income securities generally fluctuates inversely with changes in interest
rates; as market interest rates increase, the market value of fixed income
securities tends to decrease so that the yields to maturity on such securities
tend to equal the stated interest rates on newly issued fixed income securities
with comparable maturities. To the extent fixed income securities are purchased
at a price less than the face (principal) value thereof, the yield to the Fund
will exceed the stated coupon rate on such securities and will provide the Fund
with a return comparable to newly issued fixed income obligations of like
maturity. In addition, discounted securities may provide a greater opportunity
for capital gains in the event that interest rates decline than securities
trading at par or at a premium over par. Consequently, the ability of the Fund
to purchase fixed income securities at less than their face value provides an
increased supply of income-producing securities available for purchase, provides
a potential for capital gains and does not necessarily increase the risks to the
Fund's portfolio.
The investment objectives and policies described above are fundamental
objectives and policies and may not be changed without shareholder approval. See
"Investment Restrictions" in the SAI.
BORROWING AND OTHER SENIOR SECURITIES
The Fund may borrow to purchase portfolio securities (i.e., leverage its
portfolio). To the extent that the Fund engages in any such borrowings, the 1940
Act requires the Fund to maintain "asset coverage" of not less than 300% of its
"senior securities representing indebtedness," as those terms are defined and
used in the 1940 Act. In addition, the Fund may not make any cash distributions
to shareholders if, after the distribution, there would be less than 300% asset
coverage of a senior security representing indebtedness for borrowings
(excluding for this purpose certain evidences of indebtedness made by a bank or
other entity and privately arranged and not intended to be publicly
distributed). The Fund is also permitted to issue preferred shares on conditions
outlined in the 1940 Act, including that there be "asset coverage" of not less
than 200% with respect to any such shares. In addition to these 1940 Act
requirements, the Fund's borrowing arrangements may also have requirements or
limitations, such as, among other things, maintaining minimum average balances
in connection with borrowings, paying commitment or other fees to maintain the
credit facility, or subjecting the Fund to certain asset coverage or portfolio
composition requirements. It is not anticipated that any such requirements or
limitations will impede the Manager from managing the Fund's portfolio in
accordance with the Fund's investment objective and policies.
The Fund currently expects that it may enter into definitive agreements
with respect to a credit facility after the date of this prospectus. The Fund is
currently in negotiations on a credit facility pursuant to which the Fund
expects to be entitled to borrow an amount equal to approximately 33 1/3% of the
Fund's total assets (inclusive of the amount borrowed). Any such borrowings
would constitute financial leverage. The terms of any agreements relating to
such a credit facility have not been determined and are subject to definitive
agreement and other conditions but the Fund anticipates that such a credit
facility would have terms substantially similar to the following: (i) a final
maturity not expected to exceed three years, subject to possible extension by
the Fund; (ii) with respect to each draw under the facility, an interest rate
equal to the lesser of LIBOR plus a stated premium or an alternate rate on the
outstanding amount of each such draw, reset over periods ranging from one to six
months; and (iii) payment by the Fund of certain fees and expenses including an
underwriting fee, a commitment fee on the average undrawn amount of the
facility, an ongoing administration fee and the expenses of the lenders under
the facility incurred in connection therewith. The facility is not expected to
be convertible into any other securities of the Fund, outstanding amounts are
expected to be prepayable by the Fund prior to final maturity without
significant penalty and there are not expected to be any sinking fund or
mandatory retirement provisions. Outstanding amounts would be payable at
maturity or such earlier times as required by the agreement. The Fund may be
required to prepay outstanding
28
<PAGE> 32
amounts under the facility or incur a penalty rate of interest in the event of
the occurrence of certain events of default. The Fund expects to indemnify the
lenders under the facility against liabilities they may incur in connection with
the facility. In addition the Fund expects that such a credit facility would
contain covenants which, among other things, likely will limit the Fund's
ability to pay dividends in certain circumstances, incur additional debt, change
its fundamental investment policies and engage in certain transactions including
mergers and consolidations, and may require asset coverage ratios in addition to
those required by the 1940 Act. The Fund may be required to pledge its assets
and to maintain a portion of its assets in cash or high-grade securities as a
reserve against interest or principal payments and expenses. The Fund expects
that any credit facility would have customary covenant, negative covenant and
default provisions. There can be no assurance that the Fund will enter into an
agreement for a credit facility on terms and conditions representative of the
foregoing, or that additional material terms will not apply. In addition, if
entered into, any such credit facility may in the future be replaced or
refinanced by one or more credit facilities having substantially different terms
or by the issuance of preferred shares or debt securities.
The Fund's willingness to borrow money for investment purposes, and the
amount the Fund will borrow, will depend on many factors, the most important of
which are market conditions and interest rates. Successful use of a leveraging
strategy depends on the Manager's ability to predict correctly interest rates
and market movements, and there is no assurance that a leveraging strategy will
be successful during any period in which it is employed.
The rights of lenders to the Fund to receive interest on and repayment of
principal of any such borrowings will be senior to those of the shareholders,
and the terms of any such borrowings may contain provisions which limit certain
activities of the Fund, including the payment of dividends to shareholders in
certain circumstances. Further, the terms of any such borrowing may and the 1940
Act does (in certain circumstances) grant to the lenders to the Fund certain
voting rights in the event of default in the payment of interest on or repayment
of principal. In the event that such provisions would impair the Fund's status
as a regulated investment company, the Fund, subject to its ability to liquidate
its portfolio, intends to repay the borrowings. Any borrowing will likely rank
senior to or pari passu (on the same level as) with all other existing and
future borrowings of the Fund.
Assuming the realization of leverage in the amount of approximately 33 1/3%
of the Fund's total assets and an annual interest rate on borrowings of 5.50%
payable on such leverage based on market rates as of the date of this
prospectus, the annual return that the total assets in the Fund's portfolio must
experience (net of expenses) in order to cover such interest payments would be
1.83%. The Fund's actual cost of leverage will be based on market rates at the
time the Fund undertakes a leveraging strategy, and such actual cost of leverage
may be higher or lower than that assumed in the previous example.
The following table is designed to illustrate the effect on the return to a
holder of the Fund's shares if leverage in the amount of approximately 33 1/3%
of the Fund's total assets is obtained, assuming hypothetical annual returns of
the Fund's portfolio of minus 10% to plus 10%. As the table shows, leverage
generally increases the return to shareholders when portfolio return is positive
and greater than the cost of leverage and decreases the return when the
portfolio return is negative or less than the cost of leverage. The figures
appearing in the table are hypothetical and actual return may be greater or less
than those appearing in the table.
<TABLE>
<S> <C> <C> <C> <C> <C>
Assuming Portfolio Return (net of
expense)................................. (10)% (5)% 0% 5% 10%
Corresponding Share Return Assuming 33 1/2%
Leverage................................. (17.79)% (10.27)% (2.75)% 4.76% 12.28%
</TABLE>
Leveraging exaggerates any increase or decrease in the net asset value of
the Fund. Any investment gains made available as a result of the Fund's
borrowing, in excess of interest paid on such borrowings, will cause the net
income per share and the net asset value per share of the Fund to be greater
than would otherwise be the case. On the other hand, if the investment
performance of the additional fixed income securities purchased fails to cover
their cost (including any interest paid on the money borrowed) to the Fund, then
the net income per share and net asset value per share of the Fund will be less
than would otherwise be the case and dividends on shares will be reduced or
eliminated. See also "RISK FACTORS AND SPECIAL CONSIDERATIONS -- Risks of
Leverage."
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<PAGE> 33
OTHER INVESTMENT PRACTICES
In connection with the investment objectives and policies described above,
the Fund may: purchase and sell options on fixed income securities and on
indices based on fixed income securities; engage in interest rate, foreign
currency, and other hedging transactions; lend its portfolio securities;
purchase and sell fixed income securities on a "when issued" or "forward
delivery" basis; and enter into repurchase agreements. These investment
practices, which are described below and in the SAI, entail risks and may be
changed without shareholder approval.
SECURITIES OPTIONS TRANSACTIONS
The Fund may deal in options on any fixed income securities which the Fund
may purchase for its portfolio. Such options may be listed for trading on a
national securities exchange or traded over-the-counter. In general, the Fund
may write (sell) options on up to 25% of its net assets. The Fund may, without
regard to any limitation, write (sell) options on the U.S. Government securities
in its portfolio and may purchase put and call options. The SEC requires that
obligations of investment companies such as the Fund, in connection with option
sale positions, comply with certain segregation or cover requirements which are
more fully described in the SAI. There is no limitation on the amount of the
Fund's assets which can be used to comply with such segregation or cover
requirements.
A call option gives the purchaser the Right to buy, and the writer the
obligation to sell, the underlying, security at the agreed upon exercise (or
"strike") price during the option period. A put option gives the purchaser the
Right to sell, and the writer the obligation to buy, the underlying security at
the strike price during the option period. Purchasers of options pay an amount,
known as a premium, to the option writer in exchange for the Right under the
option contract.
The Fund may purchase put and call options in hedging transactions to
protect against a decline in the market value of fixed income securities in the
Fund's portfolio (e.g., by the purchase of a put option) and to protect against
an increase in the cost of fixed income securities that the Fund may seek to
purchase in the future (e.g., by the purchase of a call option). In the event
the Fund purchases put and call options, paying premiums therefor, and price
movements in the underlying securities are such that exercise of the options
would not be profitable for the Fund, to the extent underlying securities
correlate in value to the Fund's portfolio securities, losses of the premiums
paid may be offset by an increase in the value of the Fund's portfolio
securities (in the case of a purchase of put options) or by a decrease in the
cost of acquisition of securities by the Fund (in the case of a purchase of call
options).
The Fund may also sell put and call options as a means of increasing the
yield on the Fund's portfolio and also as a means of providing limited
protection against decreases in the market value of the Fund's portfolio. When
the Fund sells an option, if the underlying securities do not increase (in the
case of a call option) or decrease (in the case of a put option) to a price
level that would make the exercise of the option profitable to the holder of the
option, the option will generally expire without being exercised and the Fund
will realize as a profit the premium paid for such option. When a call option of
which the Fund is the writer is exercised, the option holder purchases the
underlying security at the strike price and the Fund does not participate in any
increase in the price of such securities above the strike price. When a put
option of which the Fund is the writer is exercised, the Fund will be required
to purchase the underlying securities at the strike price, which may be in
excess of the market value of such securities.
Over-the-counter options ("OTC options") differ from exchange-traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than for exchange-traded
options. Because OTC options are not traded on an exchange, pricing is normally
done by reference to information from a market maker, which information is
carefully monitored by the Manager and verified in appropriate cases.
It will generally be the Fund's policy, in order to avoid the exercise of
an option sold by it, to cancel its obligation under the option by entering into
a "closing purchase transaction," if available, unless it is determined to be in
the Fund's interest to sell (in the case of a call option) or to purchase (in
the case of a put
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option) the underlying securities. A closing purchase transaction consists of
the Fund purchasing an option having the same terms as the option sold by the
Fund and has the effect of cancelling the Fund's position as a seller. The
premium which the Fund will pay in executing a closing purchase transaction may
be higher than the premium received when the option was sold, depending in large
part upon the relative price of the underlying security at the time of each
transaction. To the extent options sold by the Fund are exercised and the Fund
either delivers portfolio securities to the holder of a call option or
liquidates securities in its portfolio as a source of funds to purchase
securities put to the Fund, the Fund's portfolio turnover rate may increase,
resulting in a possible increase in short term capital gains and a possible
decrease in long term capital gains.
During the option period, the Fund, as a covered call writer, gives up the
potential appreciation above the exercise price should the underlying security
rise in value, and the Fund, as a secured put writer, retains the risk of loss
should the underlying security decline in value. For the covered call writer,
substantial appreciation in the value of the underlying security could result in
the security being "called away" at the strike price of the option which may be
substantially below the fair market value of such security. For the secured put
writer, substantial depreciation in the value of the underlying security would
result in the security being "put to" the writer at the strike price of the
option, which may be substantially in excess of the fair market value of such
security. If a covered call option or a secured put option expires unexercised,
the writer realizes a gain, and the buyer a loss, in the amount of the premium.
As part of its options transactions, the Fund may also use index options,
subject to the limitation that the Fund may write (sell) options on up to 25% of
its net assets and may purchase put and call options on U.S. Government
securities in its portfolios without regard to any limitation. Indices on which
the Fund may purchase and sell options include indices on the types of fixed
income securities which the Fund may purchase for its portfolio (to the extent
an active market in any such index exists) and equity-based indices to the
extent the Fund may invest in equity securities consistent with the Fund's
investment objectives and to the extent that the Manager determines that there
exists an acceptable level of correlation between the price movements of such an
equity index and price movements of fixed income securities held in or to be
acquired for the Fund's portfolio. Through the writing or purchase of index
options, the Fund can achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on securities except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
strike price of the option. If no active secondary market exists for any index
with respect to which the Fund purchases or sells options, such options will be
treated as illiquid securities for purposes of the Fund's investment
restrictions.
Price movements in securities which the Fund owns or intends to purchase
will not correlate perfectly with movements in the level of an index and,
therefore, the Fund bears the risk of a loss on an index option which is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities.
CURRENCY, INTEREST RATE AND OTHER HEDGING TRANSACTIONS
In order to protect the dollar equivalent value of its portfolio securities
against declines resulting from currency value fluctuations and changes in
interest rate or other market changes, the Fund may enter into various hedging
transactions such as forward foreign currency contracts, financial instrument
and currency futures contracts and related options contracts.
The Fund may enter into various interest rate hedging transactions using
financial instruments with a high degree of correlation to the fixed income
securities which the Fund may purchase for its portfolio, including interest
rate futures contracts on such financial instruments (e.g., futures contracts on
U.S. Treasury bonds and notes and on GNMA securities) and interest rate-related
indices (to the extent an active market in any
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such indices exists), put and call options on such futures contracts and on such
financial instruments. The Fund expects to enter into these transactions to
"lock in" a return or spread on a particular investment or portion of its
portfolio and to protect against any increase in the price of securities the
Fund anticipates purchasing at a later date.
The Fund may also enter into various foreign currency transactions,
including forward foreign currency contracts, foreign currency or currency index
futures contracts and put and call options on such contracts or on currencies. A
forward foreign currency contract involves an obligation to purchase or sell a
specific currency for a set price at a future date. Forward foreign currency
contracts are established in the interbank market and are conducted directly
between currency traders (usually large commercial banks or other financial
institutions) on behalf of their customers. Futures contracts are similar to
forward contracts except that they are traded on an organized exchange and the
obligations thereunder may be offset by taking an equal but opposite position to
the original contract, with profit or loss determined by the relative prices
between the opening and offsetting positions. The Fund expects to enter into
these foreign currency contracts only in two circumstances: to "lock in" the
U.S. dollar equivalent price of a security the Fund is buying or selling that is
denominated in a non-U.S. currency; or to protect against an anticipated
substantial decline of the currency of a particular country against the U.S.
dollar.
The Fund will not engage in the foregoing transactions for speculative
purposes, but only as a means to hedge risks associated with management of the
Fund's portfolio. Typically, investment in these contracts requires the Fund to
deposit with the applicable exchange or other specified financial intermediary
as a good faith deposit for its obligations an amount of cash or specified debt
securities which initially is 1%-5% of the face amount of the contract and which
thereafter fluctuates on a periodic basis as the value of the contract
fluctuates.
The SEC generally requires that when investment companies, such as the
Fund, effect transactions of the foregoing nature, such investment companies
must either segregate cash or liquid portfolio securities in the amount of their
obligations under the foregoing transactions, or cover such obligations by
maintaining positions in portfolio securities, futures contracts or options that
would serve to satisfy or offset the risk of such obligations. When effecting
transactions of the foregoing nature, the Fund will comply with such segregation
or asset coverage requirements. There is no limitation as to the percentage of
the Fund's assets which may be invested in such transactions.
The Fund will typically enter into a futures contract or related option
only if it constitutes a bona fide hedging position under applicable
regulations. Otherwise the Fund will limit its investments in futures contracts
and related options so that, immediately after such investment, the sum of the
amount of its initial margin deposits on open futures contracts and its premiums
on open options contracts will not exceed 5% of the Fund's total assets at
current value.
All of the foregoing transactions present certain risks. In particular, the
variable degree of correlation between price movements of futures contracts and
dollar equivalent price movements in the currency or security being hedged
creates the possibility that losses on the hedge may be greater than gains in
the value of the Fund's securities. In addition, these instruments may not be
liquid in all circumstances and are generally closed out by entering into
offsetting transactions rather than by disposing of the obligations. As a
result, in volatile markets, the Fund may not be able to close out a transaction
without incurring losses. Although the use of these contracts should tend to
reduce the risk of loss due to a decline in the value of the hedged currency or
security, at the same time, their use could tend to limit any potential gain
which might result from an increase in the value of the hedged currency or
security. Finally, the daily deposit requirements in futures contracts create an
ongoing greater potential financial risk than do option purchase transactions,
where the exposure is limited to the cost of the premium for the option.
Successful use of futures contracts and options thereon by the Fund is
subject to the ability of the Manager to predict correctly movements in the
direction of interest rates and other factors affecting markets for securities.
If the Manager's expectations are not met, the Fund would be in a worse position
than if a
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hedging strategy had not been pursued. For example, if the Fund has hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities in its portfolio and the price of such securities
increases instead, the Fund will lose part or all of the benefit of the
increased value of its securities because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash to meet daily variation margin requirements, it may have to sell securities
to meet such requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it is disadvantageous to do so.
In addition to engaging in transactions utilizing options on futures
contracts, the Fund may purchase put and call options on securities and on
currencies and, as developed from time to time, on interest or currency indices
and other instruments. Purchasing options may increase investment flexibility
and improve total return, but also risks loss of the option premium if an asset
the Fund has the option to buy declines in value or if an asset the Fund has the
option to sell increases in value.
New options and futures contracts and various combinations thereof continue
to be developed and the Fund may invest in any such options and contracts as may
be developed to the extent consistent with its investment objectives and
regulatory requirements applicable to investment companies.
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RISK FACTORS AND SPECIAL CONSIDERATIONS
DILUTION
If you do not exercise all of your Rights during the Subscription Period,
you should expect that, when the Offering is over, you will own relatively less
of the Fund than if you had exercised all of your Rights. The Fund cannot tell
you precisely how much less of the Fund you would own because the Fund does not
know how many of the Fund's shareholders will exercise their Rights and how many
of their Rights they will exercise.
An immediate dilution of the aggregate net asset value of the shares may be
experienced as a result of the Offer because the Subscription Price per Share
may be less than the Fund's net asset value per share on the Expiration Date,
and the number of shares outstanding after the Offer is likely to increase in a
greater percentage than the increase in the size of the Fund's assets. Such
dilution will disproportionately affect shareholders who do not exercise their
rights in full. Although it is not possible to state precisely the amount of any
such decrease in net asset value, because it is not known at this time what the
net asset value per share will be at the Expiration Date or what proportion of
the Shares will be subscribed, such dilution could be substantial. For example,
assuming all the Shares are sold at the Subscription Price of $8.30 per share
and the net asset value per share at the expiration date was $8.83, the Fund's
net asset value per share would be reduced by approximately $0.23 per share or
2.6%.
The fact that the Rights are transferable may reduce the effects of any
dilution as a result of the Offer. You can transfer or sell your Rights. The
cash received from the sale of Rights is partial compensation for any possible
dilution. The Fund cannot give any assurance that a market for the Rights will
develop or as to the value, if any, that the Rights will have.
HIGH-YIELD INVESTMENTS; VALUATION
Investments in lower grade securities generally provide greater income than
investments in higher rated securities, but also usually entail greater risk
(including the possibility of default or bankruptcy of the issuers of such
securities). Accordingly, an investment in shares of the Fund should not be your
only investment and may not be appropriate for you at all if you are not able to
bear the greater risk of loss inherent in seeking higher income. The Fund will
seek to reduce risk by investing its assets in a number of issuers, performing
credit analyses of potential investments and monitoring current developments and
trends in both the economy and financial markets.
High-yield securities are regarded by the rating agencies as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Analysis of the creditworthiness of issuers of high yield
securities may be more complex than for issuers of higher quality debt
securities, and the ability of the Fund to achieve its investment objectives
may, to the extent of its investments in high-yield securities, be more
dependent upon such creditworthiness analysis than would be the case if the Fund
were investing in higher quality securities.
High-yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high-yield securities have been found to be less sensitive to interest
rate changes than more highly rated investments, but more sensitive to economic
downturns or individual corporate developments. A projection of an economic
downturn or of a period of rising interest rates, for example, could cause a
decline in high-yield security prices because the advent of a recession could
lessen the ability of a highly leveraged company to make principal and interest
payments on its debt securities. If the issuer of high-yield securities
defaults, the Fund may incur additional expenses to seek recovery. In the case
of high-yield securities structured as zero coupon or payment-in-kind
securities, the market prices of such securities are affected to a greater
extent by interest rate changes, and therefore tend to be more volatile than
securities which pay interest periodically and in cash.
The secondary markets on which high-yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of the Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield securities, especially in a thinly traded
market.
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The value of shares of the Fund will vary with increases or decreases in
the aggregate value of the Fund's portfolio securities as well as with other
market factors such as the relative demand for, and supply of, such shares in
the market, the Fund's investment performance, the Fund's dividends and yield
and investor perception of the Fund's overall attractiveness as an investment as
compared with other investment alternatives. The net asset value of the Fund
will change as the general levels of interest rates fluctuate. When interest
rates decline, the value of portfolio securities can be expected to rise.
Conversely, when interest rates rise, the value of portfolio securities can be
expected to decline. Moreover, the value of fixed income securities that the
Fund purchases might fluctuate more than the value of higher rated fixed income
securities. Lower-rated fixed income securities generally tend to reflect short
term corporate and market developments to a greater extent than higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Generally, values for longer maturity issues will fluctuate more
than values for shorter maturity issues.
HEDGING
If the Fund is engaged in hedging transactions and the expectation of the
Manager as to changes in interest rates or its evaluation of the normal yield
relationship between two securities proves to be incorrect, the Fund's income,
net asset value and potential capital gains may be decreased or its potential
capital losses may be increased. The Fund's use of options on securities and
securities indices, futures contracts, options on futures contracts, and other
hedging strategies will result in the loss of principal under certain market
conditions and will involve certain other risks. See the SAI for further
information.
RISK OF LEVERAGE
The Fund's use of leverage creates special risks not associated with
unleveraged funds having similar investment objectives and policies. These risks
include a higher volatility of the net asset value of the Fund's shares and
potentially more volatility in the market value of the shares. If the investment
performance of the assets purchased with the proceeds of any leverage fails to
cover the interest and dividends on such leverage, the value of the shares may
decrease more quickly than would otherwise be the case, and dividends thereon
will be reduced or eliminated. This is the speculative effect of leverage.
As an owner of Fund shares, you will bear any decline in the net asset
value of the Fund's investments. As a result, the effect of leverage in a
declining market would result in a greater decrease in net asset value to
holders of Fund's shares than if the Fund were not leveraged. This would likely
be reflected in a greater decline in the market price for the Fund's shares. In
an extreme case, if the Fund's current investment income were not sufficient to
meet dividend and interest payments due in respect of any leverage, it could be
necessary for the Fund to liquidate certain of its investments, thereby reducing
the net asset value attributable to the Fund's shares. In addition, a decline in
the net asset value of the Fund's investments may affect the ability of the Fund
to make dividend payments on its shares and such failure to pay dividends or
make distributions may result in the Fund ceasing to qualify as a regulated
investment company under the Internal Revenue Code.
The 1940 Act generally imposes a 300% "asset coverage" test for "senior
securities representing indebtedness" and a 200% "asset coverage" test for
"senior securities representing stock." The 1940 Act generally restricts
distributions to shareholders while any senior security representing
indebtedness is outstanding and restricts distributions to the shareholders
while any senior security representing stock is outstanding, unless such
coverage requirements are satisfied. Furthermore, the 1940 Act generally limits
registered closed-end investment companies, such as the Fund, from issuing more
than one class of senior securities representing indebtedness and more than one
class of senior securities representing stock, subject to various exceptions.
DIVIDENDS AND DISTRIBUTIONS
Although changes in the value of the Fund's portfolio securities after the
purchase of such securities are reflected in the net asset value of the shares
of the Fund, such changes will not affect the income the Fund receives from such
securities. The dividends paid by the Fund will increase or decrease in relation
to the income received by the Fund from its investment. In any case, before
being distributed to you, the Fund's dividends will be reduced by the amount of
its expenses.
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FOREIGN SECURITIES
Investing in foreign securities involves considerations and possible risks
not typically associated with investing in domestic securities. The value of
foreign securities is affected by changes in currency rates or exchange control
regulations, changes in governmental administration or economic or monetary
policy (in this country or abroad) and changed circumstances in dealing between
nations. Costs may be incurred in connection with conversions between various
currencies. Moreover, there may be less publicly available information about
foreign issuers than about domestic issuers, and foreign issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of domestic issuers. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable domestic
issuers and foreign brokerage commissions are generally higher than in the
United States. Foreign securities markets may also be less liquid, more volatile
and less subject to governmental supervision than in the United States.
Investments in foreign countries could be affected by other factors not present
in the United States, including expropriation, confiscatory taxation, potential
difficulties in enforcing contractual obligations and possible extended
settlement periods.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate will not be a limiting factor when the
Fund deems it desirable to purchase or sell securities. A 100% annual turnover
rate would occur, for example, if all the securities in the portfolio were
replaced in a period of one year. A higher turnover rate necessarily involves
greater expenses to the Fund. The Fund will engage in portfolio trading if it
believes that a transaction will help in achieving its investment objectives.
DISCOUNT FROM NET ASSET VALUE
Shares of closed-end funds frequently trade at a market price which is less
than the value of the net assets owned by the Fund. The possibility that shares
of the Fund will trade at a discount from net asset value is a separate risk
from the risk that the Fund's net asset value will decrease. It should be noted,
however, that in some cases, shares of closed-end funds may trade at a premium
to net asset value. The Fund's shares have traded in the market above, at and
below net asset value since the commencement of the Fund's operations. The Fund
cannot predict whether its shares will trade at, below or above net asset value.
If, at any time, shares of the Fund are trading at a substantial discount
from net asset value, the Fund may take action to reduce or eliminate the
discount from net asset value at which the shares are trading. Such actions
could include, among other things, purchasing shares of the Fund in open market
transactions or pursuant to a cash tender offer, or recommending to the holders
of Fund shares that the Fund convert to an open-end investment company.
Conversion to an open-end investment company would make the shares of the Fund
redeemable upon demand by shareholders at prices based upon the then current net
asset value. See "Conversion to Open-End Status."
YEAR 2000
Like other registered investment companies and financial business
organizations worldwide, the Fund could be adversely affected if computer
systems on which the Fund relies, which primarily include those used by the
Manager, its affiliates or other service providers, are unable to correctly
process date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 (Y2K) Issue. Failure to successfully address the
Y2K Issue could result in interruptions to and other material adverse effects on
the Fund's business and operations. The Manager has commenced a review of the
Y2K Issue as it may affect the Fund and is taking steps it believes are
reasonably designed to address the Y2K Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Y2K Issue will not have any adverse effect on the companies
whose securities are held by the Fund or on global markets or economies
generally.
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MANAGEMENT OF THE FUND
MANAGER
Scudder Kemper Investments, Inc. (the "Manager" or "Scudder Kemper"), the
global investment management business of Zurich Financial Services, is one of
the largest and most experienced investment counsel firms in the world, managing
assets for institutional and corporate clients, retirement and pension plans,
insurance companies, mutual fund investors, and individuals. 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. Zurich Financial Services Group is a financial services
holding company incorporated in Switzerland and owned 57% by Zurich Allied AG
and 43% by Allied Zurich p.l.c. The Manager has served as investment manager to
the Fund since December 31, 1997, when the Manager replaced Zurich Kemper
Investments, Inc. and its predecessors which had served as the Fund's investment
manager since the inception of the Fund. As of December 31, 1998, the Manager
had more than $281.2 billion in assets under management.
Michael A. McNamara and Harry E. Resis, Jr. serve as Managing Directors and
Co-Portfolio Managers of the Fund and are responsible for the day-to-day
management of the Fund's portfolio. Mr. McNamara, Co-Portfolio Manager for the
Fund since August 1990, has been with what is now the Manager since 1972 and
directs all fixed income research by the Manager. Mr. McNamara graduated with a
B.S. in Business Administration from the University of Missouri and earned an
MBA from Loyola University. Mr. Resis joined the Manager in 1988 and is a
managing director. He received a B.A. in Finance from Michigan State University.
Mr. Resis has been Co-Portfolio Manager of the Fund since December 1992.
INVESTMENT MANAGEMENT AGREEMENT
The management agreement between the Fund and the Manager provides that the
Manager acts as investment adviser, manages the Fund's investments, administers
the Fund's business affairs, furnishes offices, necessary facilities and
equipment, provides clerical, bookkeeping and administrative services, provides
shareholder and information services and permits any of its officers or
employees to serve without compensation as Trustees or officers of the Fund if
duly elected to such positions. Under the management agreement, the Fund agrees
to assume and pay the charges and expenses of its operations including, by way
of example, the compensation of the Trustees other than those affiliated with
the Manager, charges and expenses of independent auditors, of legal counsel, of
any transfer or dividend disbursing agent, of any registrar of the Fund and of
the custodian (including fees for safekeeping of securities), costs of
calculating net asset value, all costs of acquiring and disposing of portfolio
securities, interest, if any, on obligations incurred by the Fund, costs of
share certificates, membership dues in the Investment Company Institute or any
similar organization, reports and notices to shareholders, other like
miscellaneous expenses and all taxes and fees to federal, state or other
governmental agencies.
For the services and facilities furnished, the Fund pays an investment
management fee, payable monthly, at the annual rate of 0.85% of the Fund's
average weekly net assets up to $250 million, and 0.75% of such assets in excess
of $250 million. For the fiscal year ended November 30, 1998, the Fund paid
investment management fees of $1,876,000. Because the Manager's fees are based
on the average weekly net assets of the Fund, the Manager will benefit from an
increase in the Fund's assets resulting from the Offer. The precise amount of
additional compensation to the Manager is not known at this time because it is
not known how many shares will be subscribed for in the Offer and because the
proceeds of the Offer will be invested in portfolio securities which will
fluctuate in value over time. However, based on the estimated proceeds assuming
all the Rights are exercised in full, the Manager would receive additional
annual advisory fees of approximately $514,000 as a result of the increase in
assets under management after the Offer. Two of the Fund's Trustees who approved
the Offer are "interested persons", as defined by the 1940 Act, of the Manager
and thus could indirectly benefit from the Offer because of their affiliations
with the Manager.
The management agreement provides that the Manager shall not be liable for
any error of judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which the management agreement
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relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Manager in the performance of its obligations and
duties or by reason of its reckless disregard of its obligations and duties
under the management agreement.
The management agreement may be terminated without penalty upon sixty (60)
days' written notice by either party, or by a majority vote of the outstanding
shares of the Fund or series thereof, and automatically terminates in the event
of its assignment.
FUND ACCOUNTING AGENT
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Manager,
is responsible for determining the net asset value for the Fund and maintaining
all accounting records related thereto. Currently, SFAC receives no fee for its
services to the Fund; however, subject to Board approval, at some time in the
future, SFAC may seek payment for its services under this agreement.
PORTFOLIO TRADING
The Manager also furnishes investment advice to other clients, including
other clients of Zurich Financial Services. At times, investment decisions may
be made to purchase or sell the same investment security for the Fund and for
one or more of the other clients advised by the Manager. When two or more of
such clients are simultaneously engaged in the purchase or sale of the same
security, the transactions are allocated as to amount and price in a manner
considered equitable to each so that each receives to the extent practicable the
average price of such transactions.
National securities exchanges have established limitations governing the
maximum number of options in each class which may be written by a single
investor or group of investors acting in concert. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose certain other sanctions. These position limits may restrict the number of
options the Fund will be able to write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities
or prices of securities and options or futures contracts available to the Fund.
On the other hand, the ability of the Fund to participate in volume transactions
may produce better executions for the Fund in some cases. The Board of Trustees
of the Fund believes that the benefits of the Manager's organization outweigh
any limitations that may arise from simultaneous transactions.
To the maximum extent feasible, the Manager places orders for portfolio
transactions through Scudder Investor Services, Inc. ("SIS"), Two International
Place, Boston, Massachusetts 02110, which in turn places orders on behalf of the
Fund with issuers, underwriters or other brokers and dealers. SIS is a
corporation registered as a broker/dealer, and a subsidiary of the Manager. SIS
does not receive any commissions, fees or other remuneration from the Funds for
this service. In selecting brokers and dealers with which to place portfolio
transactions for the Fund, the Manager may consider sales of shares of the Fund
and of other Scudder Kemper mutual funds. When it can be done consistently with
the policy of obtaining the most favorable net results, the Manager may place
such orders with brokers and dealers who supply research, market and statistical
information to the Fund or to the Manager. The Manager is authorized when
placing portfolio transactions for the Fund to pay a brokerage commission (to
the extent applicable) in excess of that which another broker might charge for
executing the same transaction, on account of the receipt of research, market or
statistical information. Allocation of portfolio transactions is supervised by
the Manager.
NET ASSET VALUE
The Fund determines the net asset value of its shares at least once a week
as of the close of business on the last day on which the NYSE is open, and on
such other days as may be required by the Dividend Reinvestment and Cash
Purchase Plan (the "Plan") in connection with the payment of the dividends and
distributions in shares of the Fund pursuant to such Plan. See "Dividends and
Distributions: Dividend
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Reinvestment and Cash Purchase Plan." Net asset value per share is determined by
dividing the value of all assets of the Fund (including accrued interest and
dividends), less all liabilities (including accrued expenses), by the total
number of shares outstanding. The net asset value per share will be made
available for publication weekly. Currently, The Wall Street Journal and
Barron's publish net asset values for closed-end investment companies each week.
Securities for which market quotations are readily available are valued at
market value, which is currently determined using the last reported sale price
or, if no sales are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price, except that certain U.S.
Government securities are stated at the mean between the last reported bid and
asked prices. All other securities and assets are valued at their fair value
following procedures approved by the Trustees.
In certain cases, reliable market quotations may not be considered to be
readily available for long term corporate bonds and notes, certain preferred
stocks, tax-exempt securities, or certain foreign securities. These investments
are stated at fair value on the basis of valuations furnished by pricing
services approved by the Trustees, which include market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.
Because foreign securities are quoted in foreign currencies which will be
translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar will affect the net asset value of Fund shares even
though there has not been any change in the values of such securities.
If any securities held by the Fund are restricted as to resale, the Manager
determines their fair value following procedures approved by the Trustees. The
Trustees periodically review such procedures. The fair value of such securities
is generally determined as the amount which the Fund could reasonably expect to
realize from an orderly disposition of such securities over a reasonable period
of time. The valuation procedures applied in any specific instance are likely to
vary from case to case. However, consideration is generally given to the
financial position of the issuer and other fundamental analytical data relating
to the investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by the Fund
in connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. Occasionally, events will
affect the values of such securities, but the changes in value will not be
reflected in the computation of the Fund's net asset value because the events
occur between the times at which the values of the foreign securities are
determined and the close of the NYSE. In these cases, an adjustment would be
made. All investments and assets are expressed in U.S. dollars based upon
current exchange rates.
The Trustees annually review the appropriateness of the time of day at
which the net asset value is computed.
Shares of closed-end investment companies frequently trade at a discount
from net asset value, but in some cases trade at a premium. Because the market
price of the Fund's shares will be determined by factors including trading
volume of such shares, general market and economic conditions and other factors
beyond the control of the Fund, the Fund cannot predict whether its shares will
trade at, below or above net asset value.
39
<PAGE> 43
DIVIDENDS AND DISTRIBUTIONS: DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
The Fund distributes monthly to shareholders substantially all of its net
investment income. Net short-term capital gains, if any, may be distributed
monthly and net capital gains (the excess of net long-term capital gains over
net short-term capital losses), if any, are distributed at least annually. See
"Federal Taxation."
DIVIDEND INVESTMENT ACCOUNT
The Fund's transfer agent and dividend disbursing agent or its delegate
(the "Agent") will establish a Dividend Investment Account (the "Account") for
each shareholder participating in the Plan. The Plan is an "opt-in" type of
plan, i.e., shareholders must affirmatively elect to participate in the Plan to
have their dividends reinvested. The Agent will credit to the Account of each
participant funds it receives from the following sources: (a) cash dividends and
capital gains distributions paid on shares of beneficial interest (the "shares")
of the Fund registered in the participant's name on the books of the Fund; (b)
cash dividends and capital gains distributions paid on shares registered in the
name of the Agent but credited to the participant's Account; and (c) voluntary
cash contributions as described below. Sources described in clauses (a) and (b)
of the preceding sentence are hereinafter called "Distributions."
INVESTMENT OF DISTRIBUTION FUNDS HELD IN EACH ACCOUNT
If on the Record Date for a Distribution (the "Distribution Record Date"),
shares are trading at a discount from net asset value per share (according to
the evaluation most recently made on shares of the Fund), funds credited to a
participant's Account will be used to purchase shares (each such purchase being
a "Purchase"). Commencing five days prior to the Payment Date and ending at the
close of business on the Payment Date, United Missouri Bank, n.a. ("UMB") will
attempt to acquire shares in the open market. "Payment Date" as used herein
shall mean the last business day of the month in which such Record Date occurs.
In the event that UMB is unable to acquire sufficient shares to satisfy the
Distribution by the close of business on the Payment Date, the Fund will issue
to UMB shares valued at net asset value per share (according to the most recent
evaluation of shares of the Fund) in the aggregate amount of the remaining value
of the Distribution. If, on the Record Date, shares are trading at a premium
over net asset value per share, the Fund will issue on the Payment Date shares
valued at net asset value per share on the Record Date to the Agent in the
aggregate amount of the funds credited to the participants' accounts. All cash
contributions to a participant's Account made as described in "Voluntary Cash
Contributions" below will be invested in shares purchased in the open market.
VOLUNTARY CASH CONTRIBUTIONS
A participant may from time to time make voluntary cash contributions to
his Account by sending the Agent a check or money order, payable to the Agent,
in a minimum amount of $100 with appropriate accompanying instructions. No more
than $500 may be contributed per month. The Agent will inform UMB of the total
funds available for the purchase of shares and UMB will use the funds to
purchase additional shares for the participant's account on the earlier of: (a)
when it next purchases shares as a result of a Distribution or (b) on or shortly
after the first day of each month and in no event more than thirty days after
such date except when temporary curtailment or suspension of purchases is
necessary to comply with applicable provisions of Federal securities laws. Cash
contributions received more than fifteen calendar days or less than five
calendar days prior to a Payment Date will be returned uninvested. Interest will
not be paid on any uninvested cash contributions. Participants making voluntary
cash investments will be charged a $.75 service fee for each such investment and
will be responsible for their pro rata brokerage commissions.
ADJUSTMENT OF PURCHASE PRICE
The Fund will increase the price at which shares may be issued under the
Plan to 95% of the fair market value of the shares on the Distribution Record
Date if the net asset value per share of the shares on the
40
<PAGE> 44
Distribution Record Date is less than 95% of the fair market value of the shares
on the Distribution Record Date.
DETERMINATION OF PURCHASE PRICE
The cost of shares and fractional shares acquired for each participant's
Account in connection with a Purchase shall be determined by the average cost
per share, including brokerage commissions as described below, of the shares
acquired by UMB in connection with that Purchase. As soon as practicable after
the Agent has received or UMB has purchased shares, shareholders will receive a
confirmation showing the average cost and number of shares acquired. The Agent
may mingle the cash in a participant's account with similar funds of other
participants of the Fund for whom UMB acts as agent under the Plan.
BROKERAGE CHARGES
There will be no brokerage charges with respect to shares issued directly
by the Fund as a result of Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to UMB's open
market purchases in connection with the reinvestment of Distributions as well as
from voluntary cash contributions. With respect to purchases from voluntary cash
contributions, UMB will charge a pro rata share of the brokerage commissions.
Brokerage charges for purchasing small amounts of shares for individual Accounts
through the Plan can be expected to be less than the usual brokerage charges for
such transactions, as UMB will be purchasing shares for all participants in
blocks and prorating the lower commission thus attainable.
SERVICE CHARGES
There are no service charges imposed by the Agent or UMB upon shareholders
who participate in the Plan, other than the service charges specified above
under "Voluntary Cash Contributions" or below under "Withdrawal from Plan."
However, the Fund reserves the right to amend the Plan in the future to include
a service charge.
TRANSFER OF SHARES HELD BY THE AGENT
The Agent will maintain the participant's Account, hold the additional
shares acquired through the Plan in safekeeping and furnish the participant with
written confirmation of all transactions in the Account. Shares in the account
are transferable upon proper written instructions to the Agent. Upon request to
the Agent, a certificate for any or all full shares in a participant's Account
will be sent to the participant.
SHARES NOT HELD IN SHAREHOLDER'S NAME
Beneficial owners of shares which are held in the name of a broker or
nominee will not be automatically included in the Plan and will receive all
distributions in cash. Such shareholders should contact the broker or nominee in
whose name their shares are held to determine whether and how they may
participate in the Plan.
AMENDMENTS
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan,
including provisions with respect to any Distribution paid subsequent to notice
thereof sent to participants in the Plan at least ninety days before such
Distribution Record Date.
WITHDRAWAL FROM PLAN
Shareholders may withdraw from the Plan at any time by giving the Agent a
written notice. If the proceeds are $25,000 or less and the proceeds are to be
payable to the shareholder of record and mailed to the address of record, a
signature guarantee normally will not be required for notices by individual
account owners (including joint account owners); otherwise a signature guarantee
will be required. In addition, if the certificate is to be sent to anyone other
than the registered owner(s) at the address of record, a signature
41
<PAGE> 45
guarantee will be required on the notice. A notice of withdrawal will be
effective for the next Distribution following receipt of the notice by the Agent
provided the notice is received by the Agent at least ten days prior to the
Distribution Record Date. When a participant withdraws from the Plan, or when
the Plan is terminated in accordance with the "Amendments" paragraph, above, the
participant will receive a certificate for full shares in the Account, plus a
check for any fractional shares, based on market price; or if a Participant so
desires, the Agent will notify UMB to sell his shares in the Plan and send the
proceeds to the participant, less brokerage commissions and a $2.50 service fee.
TAX IMPLICATIONS
Shareholders will receive tax information annually for their personal
records and to help them prepare their Federal income tax returns. Shareholders
who receive shares pursuant to the dividend reinvestment plan as described above
will recognize taxable income in the amount of the fair market value of those
shares.
ADDITIONAL INFORMATION
Shareholders may obtain additional information about the Plan, including
forms to elect to participate in the Plan by calling the Agent at 800-641-1048.
FEDERAL TAXATION
The following information is meant as a general summary for shareholders
who are United States citizens or residents within the meaning of the Code.
Please see the SAI for additional information. You should rely on your own tax
advisor for advice about the particular federal, state and local tax
consequences to you of investing in the Fund.
Although the Fund intends to operate so that it will not have to pay
federal income or excise tax, if it does have to pay tax, this would adversely
affect the investment performance of the Fund.
The Fund will distribute substantially all of its income and gains to its
shareholders every year, and shareholders will be taxed on distributions they
receive, regardless of whether they are paid in cash or are reinvested in shares
of the Fund. If the Fund declares a dividend in October, November or December
but pays it in January, you may be taxed on the dividend as if you received it
in the previous year.
The Fund will send you a tax report each year, before February 1st. The
report will tell you which dividends and redemptions must be treated as taxable
ordinary income, which, if any, are tax-exempt income, and which, if any, are
short-term or long-term capital gain. If the Fund designates a dividend as a
capital gain distribution, you will be required to pay for tax on that dividend
at the long-term capital gains tax rate, no matter how long you have held your
Fund shares.
If you hold your Fund shares in a tax-deferred retirement account, such as
an IRA, you generally will not have to pay tax on dividends until they are
distributed from the account. These accounts are subject to complex tax rules,
and you should consult your tax adviser about investment through a tax-deferred
account.
You will generally have a capital gain or loss if you sell your Fund
shares. The amount of the gain or loss and the rate of tax will depend primarily
upon how much you paid for the shares, how much you sell them for, and how long
you hold them.
The Fund may be required to withhold U.S. federal income tax at the rate of
31% of all taxable distributions payable to you if you fail to provide the Fund
with your correct taxpayer identification number or to make required
certifications, or if you have been notified by the IRS that you are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against your U.S. federal income tax liability.
42
<PAGE> 46
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
GENERAL
The Trustees of the Fund have authority to issue an unlimited number of
shares of beneficial interest, $.01 par value. The shares outstanding are, and
those offered hereby when issued will be, fully paid and nonassessable by the
Fund. The Fund's shares have no preemptive, conversion, exchange or redemption
rights. Each share has one vote, with fractional shares voting proportionately.
Shares are freely transferable, and holders thereof are entitled to dividends as
declared by the Trustees. If the Fund were liquidated, shareholders would
receive the net assets of the Fund. Under the rules of the NYSE applicable to
listed companies, the Fund will be required to hold an annual meeting of
shareholders in each year. If the Fund is converted to an open-end investment
company or, if for any other reason the Fund's shares are no longer listed on
the NYSE (or any other national securities exchange the rules of which require
annual meetings of shareholders), the Fund does not intend to hold annual
meetings of shareholders.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given in
each agreement obligation, or instrument entered into or executed by the Fund or
the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The likelihood of such circumstances is remote.
The Fund has no present intention of offering additional shares, other than
under this Offering and under the Plan. See "Dividends and Distributions:
Dividend Reinvestment and Cash Purchase Plan." Other offerings of Fund shares,
if made, will require approval of the Trustees. Any additional offering will be
subject to the requirements of the 1940 Act that shares may not be sold at a
price below the then current net asset value, exclusive of underwriting
discounts and commissions, except in connection with an offering to existing
shareholders or with the consent of the holders of a majority of the Fund's
outstanding shares. In addition, the Fund expects that it would commence a
continuous offering of its shares in the event it converted to an open-end
investment company. See "Conversion to Open-End Status."
The Agreement and Declaration of Trust further provides that obligations of
the Fund are not binding upon Trustees individually but only upon the property
of the Fund and that the Trustees will not be liable for errors of judgment or
mistakes of fact or law, but nothing in the Agreement and Declaration of Trust
protects a Trustee against any liability to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
REPURCHASE OF SHARES
Shares of closed-end management investment companies frequently trade at a
discount from net asset value but in some cases trade at a premium. In
recognition of the possibility that the Fund's shares might similarly trade at a
discount, the Fund's Board of Trustees has determined that it would be in the
interest of shareholders for the Fund to take action to attempt to reduce or
eliminate a market value discount from net asset value. To that end, the
Trustees presently contemplate that the Fund could from time-to-time take action
either to repurchase its shares in the open market or to tender for its own
shares at net asset value. The Board of Trustees, in consultation with the
Manager, reviews on a quarterly basis the possibility of open market repurchases
and/or tender offers for Fund shares. There are no assurances that the Board of
Trustees will, in fact, decide to undertake either of these actions or, if
undertaken, that such actions will result in the Fund's shares trading at a
price which is equal to or approximates their net asset value. In addition, the
Board of Trustees will not necessarily announce when it has given consideration
to these matters. See "Repurchase of Shares" in the SAI for further information.
43
<PAGE> 47
CONVERSION TO OPEN-END STATUS
Each year, if shares of the Fund have traded on the NYSE 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 the beginning of such year, the Fund will submit to
its shareholders at the next succeeding annual meeting of shareholders a
proposal to convert the Fund from a closed-end to an open-end investment
company. Such a conversion would require the approval of the holders of a
majority of the Fund's shares (which means the lesser of (i) more than 50% of
the outstanding shares of the Fund or (ii) 67% or more of the outstanding shares
of the Fund present at a meeting at which holders of more than 50% of its
outstanding shares are represented in person or by proxy). Shareholders of an
open-end investment company may require the company to redeem their shares at
any time (except in certain circumstances as authorized by or under the 1940
Act) at their net asset value, less such redemption charge, if any, as might be
in effect at the time of redemption. If the Fund is converted to an open-end
management investment company, it could be required to liquidate portfolio
securities to meet requests for redemption, and its shares would no longer be
listed on the NYSE. The Trustees may at any time propose conversion of the Fund
to an open-end management investment company depending upon their judgment as to
the availability of such action in light of circumstances then prevailing.
The Fund cannot predict whether any repurchase of shares made while the
Fund is a closed-end investment company (as described under "Repurchase of
Shares" above) would increase or decrease the discount from net asset value. To
the extent that any such repurchase decreased the discount from net asset value
to below 10% during the measurement period described above, the Fund would not
be required to submit to shareholders a proposal to convert the Fund to an
open-end investment company at the next annual meeting of shareholders.
CUSTODIAN, TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REGISTRAR
The Fund's securities and cash are held under a custodian agreement by
Investors Fiduciary Trust Company ("IFTC"), whose principal place of business is
127 West 10th Street, Kansas City, Missouri 64105. With respect to the Fund's
investments in foreign securities, the custodian employs foreign subcustodians
approved by the Board of Trustees in accordance with applicable regulations
after consideration of, among other things, the qualifications of proposed
foreign subcustodians and the legal constraints under which foreign
subcustodians operate. IFTC also serves as transfer agent, registrar and
dividend disbursing agent for the Fund's shares. Pursuant to a services
agreement with IFTC, Kemper Service Company, an affiliate of the Manager, serves
as Shareholder Service Agent for the Fund and, as such, performs all of IFTC's
duties as transfer agent and dividend-paying agent.
LEGAL MATTERS
Vedder, Price, Kaufman & Kammholz, Chicago, Illinois, serves as counsel to
the Fund and to the non-interested Trustees. Dechert Price & Rhoads, Washington,
DC, which is serving as special counsel to the Fund with respect to the Offer,
will pass on the legality of the shares offered hereby. Certain legal matters
will be passed on for the Dealer Manager by Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois.
REPORTS TO SHAREHOLDERS
The Fund will send unaudited semi-annual and audited annual reports to
shareholders, including a list of the portfolio investments held by the Fund.
44
<PAGE> 48
ACCOUNTANTS
The data in the "Financial Highlights" section of this prospectus are based
upon financial statements that have been audited by Ernst & Young LLP,
independent public accountants, 233 South Wacker Drive, Chicago, Illinois 60606
as indicated in their reports with respect thereto, and are included in reliance
upon the authority of said firm as experts in auditing and accounting.
FURTHER INFORMATION
This prospectus does not contain all of the information set forth in the
Registration Statement that the Fund has filed with the SEC. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by its Rules and Regulations.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... 3
Additional Information About Investments and Investment
Techniques................................................ 3
Investment Restrictions..................................... 8
Management.................................................. 10
Ownership of Fund Shares.................................... 14
Portfolio Transactions...................................... 14
Repurchase of Shares........................................ 15
Taxation.................................................... 17
Financial Statements........................................ 21
</TABLE>
45
<PAGE> 49
APPENDIX A
RATINGS OF CORPORATE OBLIGATIONS
Standard & Poor's describes classifications of bonds as follows:
"AAA." Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
"AA." Debt rated "AA" has a strong capacity to pay interest and repay
principal and differs from AAA rated debt issues only by a small degree.
"A." Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than AAA and AA rated debt
issues.
"BBB." Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than debt issues in higher rated categories.
"BB," "B," "CCC," "CC" AND "C." Debt rated "BB," "B," "CCC," "CC" and "C"
is regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "C" the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
"C1." The rating "C1" is reserved for income bonds on which no interest is
being paid.
Moody's Investors Service, Inc. describes classifications of bonds as
follows:
"Aaa." Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa." Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
"A." Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa." Bonds which are rated "Baa" are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba." Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered well assured. Often the protection of interest
and principal payments may be very moderate and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
"B." Bonds which are rated "B" generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
A-1
<PAGE> 50
"Caa." Bonds which are rated "Caa" are of poor standing. Such issues may be
in default or elements of danger with respect to principal or interest may be
present.
"Ca." Bonds which are rated "Ca" represent obligations which are highly
speculative. Such issues are often in default or have other marked shortcomings.
"C." Bonds which are rated "C" are the lowest rated class of bonds. Debt
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-2
<PAGE> 51
- ------------------------------------------------------
- ------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THIS OFFER. IF OTHER INFORMATION IS GIVEN OR OTHER REPRESENTATIONS ARE MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON SINCE NEITHER WAS
AUTHORIZED BY THE FUND, THE MANAGER OR THE DEALER MANAGER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE FUND'S SHARES, AS DESCRIBED IN THIS PROSPECTUS. THIS
PROSPECTUS ALSO DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY THE FUND'S SHARES, AS DESCRIBED IN THIS PROSPECTUS, BY ANYONE IN
ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
SUCH PERSON TO WHOM IT IS ILLEGAL TO MAKE SUCH OFFER OR SOLICITATION. THE
INFORMATION IN THIS PROSPECTUS MAY NO LONGER BE CORRECT AFTER THE DATE ON THE
PROSPECTUS. HOWEVER, IF ANY MATERIAL CHANGE OCCURS DURING THE PERIOD IN WHICH
THIS PROSPECTUS IS LEGALLY REQUIRED TO BE DELIVERED, THE PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 2
Fee Table............................. 6
Financial Highlights.................. 8
Capitalization at February 28, 1999... 9
Information Regarding Senior
Securities.......................... 9
Trading and Net Asset Value
Information......................... 10
The Fund.............................. 11
The Offer............................. 11
Use of Proceeds....................... 21
Investment Objectives and Policies.... 22
Other Investment Practices............ 30
Risk Factors and Special
Considerations...................... 34
Management of the Fund................ 37
Portfolio Trading..................... 38
Net Asset Value....................... 38
Dividends and Distributions: Dividend
Reinvestment and Cash Purchase
Plan................................ 40
Federal Taxation...................... 42
Description of Shares of Beneficial
Interest............................ 43
Custodian, Transfer Agent, Dividend
Disbursing Agent and Registrar...... 44
Legal Matters......................... 44
Reports to Shareholders............... 44
Accountants........................... 45
Further Information................... 45
Table of Contents of Statement of
Additional Information.............. 45
Appendix A: Ratings of Corporate
Obligations......................... A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
8,003,074
SHARES OF BENEFICIAL INTEREST
KEMPER HIGH INCOME TRUST
ISSUABLE UPON EXERCISE OF
TRANSFERABLE RIGHTS TO
SUBSCRIBE FOR SUCH
SHARES OF BENEFICIAL INTEREST
------------------------
PROSPECTUS
------------------------
DEALER MANAGER
PAINEWEBBER INCORPORATED
MARCH 22, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 52
[KEMPER FUND LOGO]
KEMPER HIGH INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
MARCH 22, 1999.
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus for the Fund dated March 22, 1999 (the
"Prospectus"). This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing shares
of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge, by
calling 1-800-537-6006. This Statement of Additional Information incorporates by
reference the entire Prospectus.
The Prospectus and this Statement of Additional Information are part of the
registration statement filed with the Securities and Exchange Commission,
Washington, D.C., which includes additional information regarding the Fund and
the Offer. The registration statement may be obtained from the Commission upon
payment of the fee prescribed, or inspected at the Commission's office at no
charge.
<PAGE> 53
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION......................................... 3
ADDITIONAL INFORMATION ABOUT INVESTMENTS AND INVESTMENT
TECHNIQUES................................................ 3
INVESTMENT RESTRICTIONS..................................... 8
MANAGEMENT.................................................. 10
OWNERSHIP OF FUND SHARES.................................... 14
PORTFOLIO TRANSACTIONS...................................... 14
REPURCHASE OF SHARES........................................ 15
TAXATION.................................................... 17
FINANCIAL STATEMENTS........................................ 21
</TABLE>
2
<PAGE> 54
GENERAL INFORMATION
Kemper High Income Trust (the "Fund") is a diversified, closed-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund's investment manager is Scudder Kemper
Investments, Inc. (the "Manager"). The Fund's primary investment objective is to
seek the highest current income obtainable consistent with reasonable risk as
determined by the Manager. As a secondary objective, the Fund seeks capital
gains where consistent with its primary investment objective. The Fund seeks to
achieve its objectives by investing in a broad range of income-producing
securities.
ADDITIONAL INFORMATION ABOUT INVESTMENTS
AND INVESTMENT TECHNIQUES
Some of the different types of securities in which the Fund may invest,
subject to its investment objectives, policies and restrictions, are described
in the Prospectus, under "INVESTMENT OBJECTIVES AND POLICIES" and "OTHER
INVESTMENT PRACTICES." Additional information concerning certain of the Fund's
investments and investment techniques is set forth below.
LENDING OF PORTFOLIO SECURITIES
The Fund may seek to increase its income by lending portfolio securities
under present regulatory policies, including those of the Board of Governors of
the Federal Reserve System and the SEC. Such loans may be made, without limit,
to brokers, dealers, banks or other recognized institutional borrowers of
securities and would be required to be secured continuously by collateral,
including cash, cash equivalents or U.S. Treasury bills maintained on a current
basis at an amount at least equal to the market value of the securities loaned.
The Fund would have the right to call a loan and obtain the securities loaned at
any time on five days' notice. For the duration of a loan, the Fund would
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned and would also receive compensation from the
investment of the collateral. The Fund would not, however, have the right to
vote any securities having voting rights during the existence of the loan, but
the Fund could call the loan in anticipation of an important vote to be taken
among holders of the securities or in anticipation of the giving or withholding
of their consent on a material matter affecting the securities. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, the loans would be made only to firms deemed by the Manager to be of
good standing, and when, in the judgment of the Manager, the consideration which
can be earned currently from securities loans of this type justify the attendant
risk. The creditworthiness of firms to which the Fund lends its portfolio
securities will be monitored on an ongoing basis by the Manager pursuant to
procedures adopted and reviewed, on an ongoing basis, by the Board of Trustees
of the Fund.
WHEN-ISSUED AND FORWARD DELIVERY SECURITIES
Securities may be purchased on a "when-issued" or on a "forward delivery"
basis, which means that the obligations will be delivered at a future date
beyond customary settlement time. The commitment to purchase a security for
which payment will be made on a future date may be deemed a separate security.
Although the Fund is not limited in the amount of securities for which it may
have commitments to purchase on such basis, it is expected that in normal
circumstances, the Fund will not commit more than 30% of its assets to such
purchases. The Fund does not pay for the securities until received or start
earning interest on them until it is notified of the settlement date. In order
to invest its assets immediately, while awaiting delivery of securities
purchased on such basis, the Fund will normally invest in short term securities
that offer same-day settlement and earnings, but that may bear interest at a
lower rate than longer term securities.
These transactions are subject to market fluctuation; the value of the
securities at delivery may be more or less than their purchase price, and yields
generally available on comparable securities when delivery occurs may be higher
than yields on the securities obtained pursuant to such transactions. Because
the Fund relies on the buyer or seller, as the case may be, to consummate the
transaction, failure by the other party to complete the transaction may result
in the Fund missing the opportunity of obtaining a price or yield considered to
be
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<PAGE> 55
advantageous. The Fund will make commitments to purchase securities on such
basis only with the intention of actually acquiring these securities, but the
Fund may sell such securities prior to the settlement date if such sale is
considered to be advisable. To the extent the Fund engages in "when issued" and
"forward delivery" transactions, it will do so for the purpose of acquiring
securities for the Fund's portfolio consistent with the Fund's investment
objectives and policies and not for the purpose of investment leverage.
The SEC generally requires that when investment companies, such as the
Fund, effect transactions of the foregoing nature, such investment companies
must either segregate cash or liquid portfolio securities in the amount of their
obligations under the foregoing transactions, or cover such obligations by
maintaining positions in portfolio securities, futures contracts or options that
would serve to satisfy or offset the risk of such obligations. When effecting
transactions of the foregoing nature, the Fund will comply with such segregation
or asset coverage requirements. There is no limitation as to the percentage of
the Fund's assets which may be invested in such transactions.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements (a purchase of, and a
simultaneous commitment to resell, a security at an agreed upon price on an
agreed upon date) only with member banks of the Federal Reserve System and
member firms of the New York Stock Exchange. When participating in repurchase
agreements, the Fund buys securities from a vendor, e.g., a bank or brokerage
firm, with the agreement that the vendor will repurchase the securities at a
higher price at a later date. Such transactions afford an opportunity for the
Fund to earn a return on available cash at minimal market risk, although the
Fund may be subject to various delays and risks of loss if the vendor is unable
to meet its obligation to repurchase. In evaluating whether to enter into a
repurchase agreement, the Manager will carefully consider the creditworthiness
of the vendor. If the member bank or member firm that is the party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
the U.S. Bankruptcy Code, the law regarding the rights of the Fund is unsettled.
The securities underlying a repurchase agreement will be marked to market every
business day so that the value of the collateral is at least equal to the value
of the loan, including the accrued interest thereon.
OPTIONS AND FUTURES
General. The Fund may engage in futures and options transactions in
accordance with its investment objectives and policies. The Fund intends to
engage in such transactions if it appears advantageous to the Manager to do so
in order to pursue its investment objectives, to hedge against the effects of
market conditions and to stabilize the value of its assets. The use of futures
and options, possible benefits and attendant risks are discussed below, along
with information concerning certain other investment policies and techniques.
Financial Futures Contracts. The Fund may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security,
or an amount of foreign currency, or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e., protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might adversely affect the value of securities which the Fund holds or
intends to purchase. A "sale" of a futures contract means the undertaking of a
contractual obligation to deliver the securities, or the cash value of an index,
or foreign currency called for by the contract at a specified price during a
specified delivery period. A "purchase" of a futures contract means the
undertaking of a contractual obligation to acquire the securities, cash value of
an index or foreign currency at a specified price during a specified delivery
period. At the time of delivery in the case of fixed income securities pursuant
to the contract, adjustments are made to recognize differences in value arising
from the delivery of securities with a different interest rate than that
specified in the contract. In some cases, securities called for by a futures
contract may not have been issued at the time the contract was written.
Although some financial futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the contractual
commitment is closed out before delivery without having to make or take delivery
of the security or foreign currency. The offsetting of a contractual obligation
is accomplished by purchasing (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for
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<PAGE> 56
delivery in the same period. Such a transaction cancels the obligation to make
or take delivery of the securities. All transactions in the futures market are
made, offset or fulfilled through a clearing house associated with the exchange
on which the contracts are traded. The Fund will incur brokerage fees when it
purchases or sells contracts, and will be required to maintain margin deposits.
Futures contracts entail risks. If the Manager's judgment about the general
direction of securities markets or exchange rates is wrong, the Fund's overall
performance may be poorer than if the Fund had not entered into such contracts.
There may be an imperfect correlation between movements in prices of
futures contracts and portfolio securities being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. If participants
in the futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the securities and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or foreign currencies rather than
engage in closing transactions due to the resultant reduction in the liquidity
of the futures market. In addition, because from the point of view of
speculators, the margin requirements in the futures market are less onerous than
margin requirements in the cash market, increased participation by speculators
in the futures market could cause temporary price distortions. Due to the
possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities or foreign
currencies and movements in the prices of futures contracts, a correct forecast
of market trends by the Manager may still not result in a successful hedging
transaction. If this should occur, the Fund could lose money on the financial
futures contracts and also on the value of its portfolio securities.
Options on Financial Futures Contracts. The Fund may purchase and write
call and put options on financial futures contracts. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Fund
would be required to deposit with its custodian initial margin and maintenance
margin with respect to put and call options on futures contracts written by it.
Options on futures contracts involve risks similar to those risks relating to
transactions in financial futures contracts described above. Also, an option
purchased by the Fund may expire worthless, in which case the Fund would lose
the premium paid therefor.
Options on Securities. The Fund may write (sell) covered call options so
long as it owns securities which are acceptable for escrow purposes and may
write secured put options, which means that so long as the Fund is obligated as
a writer of a put option, it will invest an amount, not less than the exercise
price of the put option, in eligible securities. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying security at the exercise price during the option period. A put option
gives the purchaser the right to sell, and the writer the obligation to buy, the
underlying security at the exercise price during the option period. The premium
received for writing an option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to the market price, the price volatility of the underlying security, the option
period, supply and demand and interest rates. The Fund may write or purchase
spread options, which are options for which the exercise price may be a fixed
dollar spread or yield spread between the security underlying the option and
another security that is used as benchmark. The exercise price of an option may
be below, equal to or above the current market value of the underlying security
at the time the option is written. The buyer of a put who also owns the related
security is protected by ownership of a put option against any decline in the
security's price below the exercise price, less the amount paid for the option.
The ability to purchase put options allows the Fund to protect capital gains in
an appreciated security it owns, without being required to actually sell that
security. At times the Fund would like to establish a position in a security
upon which call options are available. By purchasing a call option the Fund is
able to fix the cost of acquiring the security, this being the cost of the call
plus the exercise price of the option. This procedure also provides some
protection from an unexpected downturn in the market, because the Fund is only
at risk for the amount of the premium paid for the call option which it can, if
it chooses, permit to expire.
Over-the-Counter-Options. As previously indicated in the Prospectus (see
"Other Investment Practices -- Securities Options Transactions"), the Fund may
deal in OTC options. The Fund understands the
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<PAGE> 57
position of the staff of the SEC to be that purchased OTC options and the assets
used as "cover" for written OTC options are illiquid securities. The Fund and
the Manager disagree with this position and have found the dealers with which
they engage in OTC options transactions generally agreeable to and capable of
entering into closing transactions. As also indicated in the Prospectus, the
Fund has adopted procedures for engaging in OTC options for the purpose of
reducing any potential adverse impact of such transactions upon the liquidity of
the Fund's portfolio.
As part of these procedures the Fund will only engage in OTC options
transactions with dealers that have been specifically approved by the Board of
Trustees of the Fund. The Fund and its Manager believe that the approved dealers
should be agreeable and able to enter into closing transactions if necessary
and, therefore, present minimal credit risks to the Fund.
Options on Securities Indices. The Fund also may purchase and write call
and put options on securities indices. Through the writing or purchase of index
options, the Fund can achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike security options, all settlements are in cash
and gain or loss depends on price movements in the market generally (or in a
particular industry or segment of the market) rather than price movements in
individual securities.
When the Fund writes an option on a securities index, it will be required
to deposit with its Custodian eligible securities equal in value to 100% of the
exercise price in the case of a put, or the contract's value in the case of a
call. In addition, where the Fund writes a call option on a securities index at
a time when the contract value exceeds the exercise price, the Fund will
segregate, until the option expires or is closed out, cash or equivalents equal
in value to such excess.
Options on futures contracts and index options involve risks similar to
those risks relating to transactions in financial futures contracts described
above. Also, an option purchased by the Fund may expire worthless, in which case
the Fund would lose the premium paid therefor.
Forward Foreign Currency Exchange Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days ("Term") from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded directly between currency traders (usually
large commercial banks) and their customers.
The Fund does not intend to enter into such forward contracts if the Fund
would have more than 15% of the value of its total assets committed to such
contracts on a regular or continuous basis. The Fund also does not enter such
forward contracts or maintain a net exposure in such contracts where the Fund
would be obligated to delivery an amount of foreign currency in excess of the
value of the Fund's portfolio securities of other assets denominated in that
currency. The Manager believes that it is important to have the flexibility to
enter into such forward contracts when it determines that to do so is in the
best interests of the Fund. The Fund's Custodian segregates cash or equity or
debt securities in an amount not less than the value of the Fund's total assets
committed to forward foreign currency exchange contracts entered into under this
second type of transaction. If the value of the securities segregated declines,
additional cash or securities is added so that the segregated amount is less
than the amount of the Fund's commitments with respect to such contracts. The
Fund generally does not enter into a forward contract with Term longer than one
year.
Foreign Currency Options. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its
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<PAGE> 58
owner the right, but not the obligation, to sell the currency. The option seller
(writer) is obligated to fulfill the terms of the option sold if it is
exercised. However, either seller or buyer may close its position during the
option period in the secondary market for such options any time prior to
expiration. A call rises in value if the underlying currency appreciates.
Conversely, a put rises in value if the underlying currency depreciates.
Foreign Currency Futures Transactions. As part of its financial futures
transactions (see "Financial Futures and Options Transactions"), the Fund may
use futures contracts of foreign currencies and options on such. Through the
purchase or sale of such contracts, the Fund may be able to achieve many of the
same objectives through forward foreign currency exchange contracts more
effectively and perhaps at a lower cost.
Unlike forward contracts, foreign currency futures contracts and options on
foreign currency futures contracts are standardized as to amount and delivery
period and are traded on boards of trade and commodities exchange. It is
anticipated that such contracts may provide greater liquidity and lower cost
than forward currency exchange contracts.
Regulatory Restrictions. To the extent required to comply with SEC Release
No. 10666, when purchasing a futures contracts or writing a put option, the Fund
will maintain, in a segregated account, cash or liquid securities equal to the
value of such contracts.
The Fund will typically enter into a futures contract or related option
only if it constitutes a bona fide hedging position under applicable
regulations. Otherwise the Fund will limit its investments in futures contracts
and related options so that, immediately after such investment, the sum of the
amount of its initial margin deposits on open futures contracts and its premiums
on open options contracts will not exceed 5% of the Fund's total assets at
current value.
Accounting Considerations. When the Fund writes an option, an amount equal
to the premium received by it is included in the Fund's Statement of Net Assets
as a liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. When the Fund purchases
an option, the premium paid by the Fund is recorded as an asset and is
subsequently adjusted to the current market value of the option.
In the case of a regulated futures contract purchased or sold by the Fund,
an amount equal to the initial margin deposit is recorded as an asset. The
amount of the asset is subsequently adjusted to reflect changes in the amount of
the deposit as well as changes in the value of the contract.
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<PAGE> 59
INVESTMENT RESTRICTIONS
The Fund's investment objective and the following investment restrictions
are fundamental policies of the Fund and accordingly may not be changed without
the approval of the holders of a majority of the Fund's outstanding shares of
beneficial interest (which for this purpose and under the 1940 Act means the
lesser of (i) 67% of the shares of beneficial interest if the holders of more
than 50% of the outstanding shares are present or represented by proxy or (ii)
more than 50% of the outstanding shares). Subsequent to the issuance of a class
or classes of preferred shares, the following investment restrictions may not be
changed without the approval of a majority of the outstanding shares of
beneficial interest and of the preferred shares, voting together as a class, and
the approval of a majority of the outstanding shares of preferred shares, voting
separately by class. All other investment policies and practices described in
this Prospectus are not fundamental and may be changed without shareholder
approval. The Fund may not:
1. Borrow money, except to the extent permitted by applicable law;
2. Purchase any security or evidence of interest therein on margin
except that the Fund may obtain such short term credit as may be necessary
for the clearance of purchases and sales of securities and except that the
Fund may make deposits on margin in connection with currency, interest rate
and other hedging transactions and options described in the Prospectus or
this SAI;
3. Underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
4. Purchase or sell real estate (except that the Fund may invest in
securities secured by real estate or interests therein and securities of
issuers which invest or deal in real estate), interests in oil, gas or
mineral leases, commodities or commodity contracts (except for hedging
transactions and except for investments in the securities of the issuers
which invest in or sponsor such programs) in the ordinary course of
business of the Fund (the Fund reserves the freedom of action to hold and
to sell real estate acquired as a result of the ownership of securities);
5. Invest 25% or more of its total assets in securities of issuers
conducting their principal business activities in the same industry;
provided that this limitation shall not apply with respect to investments
in U.S. Government securities;
6. Invest more than 5% of its total assets in securities of any one
issuer, except that this limitation shall not apply to securities of the
U.S. Government, its agencies and instrumentalities or to the investment of
25% of its total assets;
7. Except for the borrowing provided in Paragraph 1, issue any "senior
security" as that term is defined in the 1940 Act (for the purpose of this
restriction, collateral arrangements with respect to options, future
contracts and options on future contracts and collateral arrangements
meeting applicable SEC requirements with respect to initial and variation
margin are not deemed to be the issuance of a senior security);
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8. Make loans to other persons except through the lending of its
portfolio securities not in excess of 30% of its total assets (taken at
market value) and except through the use of repurchase agreements, the
purchase of commercial paper or the purchase of commercial paper or the
purchase of all or a portion of an issue of debt securities in accordance
with its investment objectives, policies and restrictions;
9. Except for options transactions, make short sales of securities or
maintain a short position, unless at all times when a short position is
open it owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration for
securities of the same issue as, and equal in amount to, the securities
sold short ("short sales against the box"), and unless not more than 10% of
the Fund's net asset's (taken at market value) is held as collateral for
such sales at any one time; and
10. Invest in securities of any other investment company, if more than
3% of the outstanding voting stock of 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 other investment companies representing more than
10% of its assets.
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MANAGEMENT
INVESTMENT MANAGER
Scudder Kemper Investments, Inc. (the "Manager" or "Scudder Kemper"), the
global investment management business of Zurich Financial Services Group, is one
of the largest and most experienced investment management organization in the
world, managing assets for institutional and corporate clients, retirement and
pension plans, insurance companies, mutual fund investors, and individuals.
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.
Headquartered in Zurich, Switzerland, Zurich Financial Services Group is
one of the global leaders in the financial services industry, providing its
customers with the products and solutions in the area of financial protection
and asset accumulation. The Group has four core businesses: non-life and life
insurance, reinsurance and asset management.
The Investment Management Agreement between the Fund and the Manager
provides that the Manager will provide portfolio management services, place
portfolio transactions in accordance with policies expressed in the Fund's
registration statement, pay the Fund's office rent, and render significant
administrative services on behalf of the Fund (not otherwise provided by third
parties) necessary for the Fund's operating as a closed-end investment company,
including, but not limited to, preparing reports to and meeting materials for
the Fund's Board and reports and notices to Fund shareholders; supervising,
negotiating contractual arrangements with, to the extent appropriate, and
monitoring the performance of various third-party and affiliated service
providers to the Fund (such as the Fund's transfer and pricing agents, fund
accounting agent, custodian, accountants and others) and other persons in any
capacity deemed necessary or desirable to Fund operations; preparing and making
filings with the SEC and other regulatory and self-regulatory organizations,
including but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement and semi-annual reports
on Form N-SAR; overseeing the tabulation of proxies by the Fund's transfer
agent; assisting in the preparation of filing of the Fund's federal, state and
local tax returns; preparing and filing the Fund's federal excise tax returns
pursuant to Section 4982 of the Internal Revenue Code of 1986, as amended;
providing assistance with investor and public relations matters; monitoring the
valuation of portfolio securities and the calculation of net asset value;
monitoring the registration of shares of the Fund under applicable federal and
state securities laws; maintaining or causing to be maintained for the Fund all
books, records and reports and any other information required under the 1940
Act, to the extent such books, records and reports and other information are not
maintained by the Fund's custodian or other agents of the Fund; assisting in
establishing accounting policies of the Fund; assisting in the resolution of
accounting issues that may arise with respect to the Fund's operations and
consulting with the Fund's independent accountants, legal counsel and other
agents as necessary in connection therewith; establishing and monitoring the
Fund's operating expense budgets; reviewing the Fund's bills; processing the
payment of bills that have been approved by an authorized person; assisting the
Fund in determining the amount of dividends and distributions available to be
paid by the Fund to its shareholders, preparing and arranging for the printing
of dividend notices to shareholders, and providing the transfer and dividend
paying agent, the custodian, and the accounting agent with such information as
is required for such parties to effect the payment of dividends and
distributions; and otherwise assisting the Fund in the conduct of its business,
subject to the direction and control of the Fund's Board.
Under the Investment Management Agreement, the Fund is responsible for
other expenses, including organizational expenses (including out-of-pocket
expenses, but not including the Manager's overhead or employee costs); brokers'
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; legal, auditing and accounting expenses; payment for portfolio
pricing or valuation services to pricing agents, accountants, bankers and other
specialists, if any; taxes and governmental fees; the fees and expenses of the
Fund's transfer agent; expenses of preparing share certificates and any other
expenses, including clerical expenses, of issuance, offering, distribution,
sale, redemption or repurchase of shares; the expenses of and fees for
registering or qualifying securities for sale; the fees and expenses of those
Trustees who are not "interested persons" of the Fund (as defined in the 1940
Act); the cost of printing and distributing reports, notices and
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dividends to current shareholders; and the fees and expenses of the Fund's
custodians, subcustodians, accounting agent, dividend disbursing agents and
registrars. The Fund may arrange to have third parties assume all or part of the
expenses of sale, underwriting and distribution of shares of the Fund. The Fund
is also responsible for expenses of shareholders' and other meetings and its
expenses incurred in connection with litigation and the legal obligation it may
have to indemnify officers and Trustees of the Fund with respect thereto. The
Fund is also responsible for the maintenance of books and records which are
required to be maintained by the Fund's custodian or other agents of the Fund;
telephone, telex, facsimile, postage and other communications expenses; any
fees, dues and expenses incurred by the Fund in connection with membership in
investment company trade organizations; expenses of printing and mailing
prospectuses and statements of additional information of the Fund and
supplements thereto to current shareholders; costs of stationery; fees payable
to the Manager and to any other Fund advisors or consultants; expenses relating
to investor and public relations; interest charges, bond premiums and other
insurance expense; freight, insurance and other charges in connection with the
shipment of the Fund's portfolio securities; and other expenses.
The Manager is responsible for the payment of the compensation and expenses
of all Trustees, officers and executive employees of the Fund (including the
Fund's share of payroll taxes) affiliated with the Manager and making available,
without expense to the Fund, the services of such Trustees, officers and
employees as may duly be elected officers of the Fund, subject to their
individual consent to serve and to any limitations imposed by law. The Fund is
responsible for the fees and expenses (specifically including travel expenses
relating to Fund business) of Trustees not affiliated with the Manager
("Non-Interested Trustees") Under the Investment Management Agreement, the
Manager also pays the Fund's share of payroll taxes. During the Fund's most
recent fiscal year, no compensation, direct or otherwise (other than through
fees paid to the Manager, was paid or became payable by the Fund to any of its
officers or Trustees who were affiliated with the Manager.
In return for the services provided by the Manager as investment manager
and the expenses it assumes under the Investment Management Agreement, the Fund
pays the Manager a management fee which is payable monthly at an annual rate of
0.85% of the Fund's average weekly net assets up to $250 million, and 0.75% of
such assets in excess of $250 million.
The Investment Management Agreement further provides that the Manager shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by any Fund in connection with matters to which such agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Manager in the performance of its duties or from reckless
disregard by the Manager of its obligations and duties under such agreement. The
Investment Management Agreement also provides that purchase and sale
opportunities, which are suitable for more than one client of the Manager, will
be allocated by the Manager in an equitable manner. Lastly, the Investment
Management Agreement contains a provision stating that it supersedes all prior
agreements.
The Investment Management Agreement may be terminated without penalty upon
sixty (60) days' written notice by either party. The Fund may agree to terminate
its Investment Management Agreement either by the vote of a majority of the
outstanding voting securities of the Fund, or by a vote of the Board. The
Investment Management Agreement may also be terminated at any time without
penalty by the vote of a majority of the outstanding voting securities of the
Fund or by a vote of the Board if a court establishes that the Manager or any of
its officers or directors has taken any action resulting in a breach of the
Manager's covenants under the Investment Management Agreement. As stated above,
the Investment Management Agreement automatically terminates in the event of its
assignment.
For the fiscal years ended November 30, 1998, 1997 and 1996, the Manager or
its predecessor was paid investment management fees of $1,876,000, $1,862,000
and $1,756,000, respectively.
FUND ACCOUNTING AGENT
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Manager,
is responsible for determining the net asset value for the Fund and maintaining
all accounting records related thereto. Currently,
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SFAC receives no fee for its services to the Fund; however, subject to Board
approval, at some time in the future, SFAC may seek payment for its services
under this agreement.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Fund and their principal
occupations during the last five years are set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS AND AGE POSITION WITH THE FUND THE PAST FIVE YEARS
- --------------------- ------------------------ -----------------------------------------
<S> <C> <C>
James E. Akins Trustee Consultant on International, Political
2904 Garfield Terrace, N.W. and Economic Affairs; formerly a career
Washington, DC 20008 United States Foreign Service Officer,
Age: 73 Energy Advisor for the White House, and
United States Ambassador to Saudi Arabia.
Arthur R. Gottschalk Trustee Retired; formerly, President, Illinois
10642 Brookridge Drive Manufacturers Association; Trustee,
Frankfort, IL Illinois Masonic Medical Center;
Age: 74 formerly, Illinois State Senator;
formerly, Vice President, The Reuben H.
Donnelly Corporation.
Frederick T. Kelsey Trustee Retired; formerly, consultant to Goldman,
4010 Arbor Lane Sachs & Co; formerly, President,
Unit 102 Treasurer and Trustee of Liquid Assets
Northfield, IL 60093 and its affiliated mutual funds; Trustee
Age: 71 of the Northern Institutional Funds;
formerly Trustee of the Pilot Funds.
*Daniel Pierce Trustee Chairman of the Chairman of the Board and Managing
Two International Place Board Director Scudder Kemper Investments;
Boston, MA 02110 Director, Fiduciary Trust Company;
Age: 65 Director, Fiduciary Company Incorporated.
*Thomas W. Littauer Trustee Vice President Managing Director, Scudder Kemper
Two International Place Investments, Inc.; formerly, Head of
Boston, MA 02110 Broker Dealer Division of an unaffiliated
Age: 43 investment management firm during 1997;
prior thereto, President of Client
Management Services of an unaffiliated
investment management firm from 1991 to
1996.
Fred B. Renwick Trustee Professor of Finance, New York
3 Hanover Square University, Stern School of Business;
Suite 20H Director, the Wartburg Home Foundation;
New York, NY 10004 Chairman, Investment Committee of
Age: 69 Morehouse College Board of Trustees;
Director, American Bible Society
Investment Committee; formerly, member of
the Investment Committee of Atlanta
University Board of Trustees; formerly,
Director of Board of Pensions Evangelical
Lutheran Church of America.
**John B. Tingleff Trustee Retired; formerly, President, Tingleff &
2015 South Lake Shore Drive Associates (management consulting firm);
Harbor Springs, MI formerly, Senior Vice President,
Age: 64 Continental Illinois National Bank &
Trust Company.
</TABLE>
12
<PAGE> 64
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS AND AGE POSITION WITH THE FUND THE PAST FIVE YEARS
- --------------------- ------------------------ -----------------------------------------
<S> <C> <C>
John G. Weithers Trustee Retired; formerly, Chairman of the Board
311 Springlake and Chief Executive Officer, Chicago
Hinsdale, IL 60521 Stock Exchange; Director, Federal Life
Age: 67 Insurance Company; President of the
Members of the Corporation and Trustee,
DePaul University.
Mark S. Casady President Managing Director, Scudder Kemper
Two International Place Investments, Inc.
Boston, MA 02110
Age:38
Philip J. Collora Vice President, Senior Vice President, Scudder Kemper
222 South Riverside Plaza Secretary and Treasurer Investments, Inc.
Chicago, IL 60606
Age: 53
John R. Hebble Treasurer Senior Vice President, Scudder Kemper
222 South Riverside Plaza Investments, Inc.
Chicago, IL 60606
Age: 40
Ann M. McCreary Vice President Senior Vice President, Scudder Kemper
345 Park Avenue Investments, Inc.
New York, NY 10154
Age: 42
Michael A. McNamara Vice President Managing Director, Scudder Kemper
222 South Riverside Plaza Investments, Inc.
Chicago, IL 60606
Age: 54
Robert C. Peck Vice President Managing Director, Scudder Kemper
222 South Riverside Plaza Investments, Inc.; formerly, Executive
Chicago, IL 60606 Vice President and Chief Investment
Age: 52 Officer with an unaffiliated investment
management firm from 1988 to June 1997.
</TABLE>
- ---------------
* Messrs. Pierce and Littauer are "interested persons" of the Fund (as that
term is defined in the 1940 Act).
** Mr. Tingleff died on March 18, 1999. He had participated in all meetings of
the Trustees held prior to that date relating to the Offering. The Nominating
Committee of the Board of Trustees is expected to consider a successor to Mr.
Tingleff at its meeting to be held on March 31, 1999.
The Board has an audit and governance committee that is composed of Messrs.
Akins, Gottschalk, Kelsey, Renwick, Tingleff, and Weithers. The Committee makes
recommendations regarding the selection of independent auditors for the Fund,
confers with the independent auditors regarding the Fund's financial statements,
the results of audits and related matters, seeks and reviews nominees for Board
membership and performs other tasks as the Board assigns.
COMPENSATION OF TRUSTEES
The Trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during the
Fund's fiscal year ended November 30, 1998, except that the information
regarding the total compensation from the Fund and Fund complex in the last
column is for the calendar year 1998.
13
<PAGE> 65
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM FUND AND
COMPENSATION FUND COMPLEX(2)
NAME FROM FUND PAID TO TRUSTEES
- ---- ------------ ------------------
<S> <C> <C>
James E. Akins.............................................. 3,100 $140,800
Arthur R. Gottschalk(1)..................................... 3,200 $146,300
Frederick T. Kelsey......................................... 3,100 $141,300
Fred B. Renwick............................................. 3,100 $141,300
John B. Tingleff............................................ 3,200 $146,300
John G. Weithers............................................ 3,200 $146,300
</TABLE>
- ---------------
(1) Includes deferred fees. Pursuant to a deferred compensation agreement with
the Fund, deferred amounts accrued interest monthly at a rate approximate to
the yield of Zurich Money Funds -- Zurich Money Market Fund. Total deferred
fees (including interest thereon) payable from the Fund are $15,000 for Mr.
Gottschalk.
(2) Includes compensation for service on the Boards of 15 Kemper Funds with 52
fund portfolios. Each trustee currently serves as trustee of 15 Kemper Funds
with 52 funds portfolios.
OWNERSHIP OF FUND SHARES
As of March 16, 1999, the Trustees and Officers of the Fund as a Group
owned less than 1% of the outstanding shares of the Fund.
As of March 16, 1999, the following persons owned of record, more than 5%
of the outstanding shares of the Fund:
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS SHARES PERCENTAGE OF OUTSTANDING SHARES
---------------- --------- --------------------------------
<S> <C> <C>
Bank of New York...................................... 1,926,551 8.03%
One Wall Street
Sixth Floor
New York, New York 10208
PaineWebber Incorporated.............................. 1,433,035 5.98%
1000 Harbor Boulevard
Lincoln Harbor
Sixth Floor
Weehawken, New Jersey 07087
Tritech Services...................................... 1,395,817 5.82%
Four Corporate Place
Corporate Park 287
Piscataway, New Jersey 08855
Charles Schwab and Co. ............................... 1,315,450 5.49%
101 Montgomery Street
Ninth Floor
S.S-333-135H9
San Francisco, California 94105
</TABLE>
PORTFOLIO TRANSACTIONS
At times investment decisions may be made to purchase or sell the same
investment security for the Fund and for one or more of the other clients
advised by the Manager. When two or more of such clients are simultaneously
engaged in the purchase or sale of the same security, the transactions are
allocated as to
14
<PAGE> 66
amount and price in a manner considered equitable to each so that each receives
to the extent practicable the average price of such transactions.
National securities exchanges have established limitations governing the
maximum number of options in each class, which may be written by a single
investor, or group of investors acting in concert. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose certain other sanctions. These position limits may restrict the number of
options the Fund will be able to write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities
or prices of securities and options or futures contracts available to the Fund.
On the other hand, the ability of the Fund to participate in volume transactions
may produce better executions for the Fund in some cases. The Board of Trustees
of the Fund believes that the benefits of the Manager's organization outweigh
any limitations that may arise from simultaneous transactions.
The Manager, in effecting purchases and sales of portfolio securities for
the account of the Fund, will implement the Fund's policy of seeking best
execution of orders. Consistent with this policy, orders for portfolio
transactions are placed with broker-dealer firms, banks and other securities
dealers giving consideration to the quality, quantity and nature of each firm's
professional services which include execution, clearance procedures, wire
service quotations and statistical and other research information provided to
the Fund and the Manager. Any research benefits derived are available for all
clients including those of affiliated companies. Since statistical and other
research information is only supplementary to the research efforts of the
Manager and still must be analyzed and reviewed by its staff, the receipt of
research information is not expected to materially reduce its expenses. In
selecting among firms believed to meet the criteria for handling a particular
transaction the Manager may give consideration to those firms which have sold or
are selling shares of the Scudder Kemper mutual funds. When it can be done
consistently with the policy of obtaining the most favorable net results, the
Manager may place such orders with brokers and dealers who supply research,
market and statistical information to the Fund or to the Manager. The Manager is
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might charge for executing the same transaction, on account of the receipt of
research, market or statistical information. Allocation of portfolio
transactions is supervised by the Manager.
The Fund paid no brokerage commissions during the fiscal years ended
November 30, 1998, 1997, and 1996, as all portfolio transactions during this
period were effected on a principal basis.
PORTFOLIO TURNOVER
Generally, the Fund will not purchase securities for short-term trading
profits. However, the Fund may dispose of securities without regard to the time
they have been held when such actions, for defensive or other reasons, appear
advisable to the Manager. (The portfolio turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the particular
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during the particular fiscal year. For purposes of determining
this rate, all securities whose maturities at the time of acquisition are one
year or less are excluded.) The annual rate of the Fund's total portfolio
turnover for the years ended November 30, 1998, 1997 and 1996, was 83%, 79% and
74%, respectively.
REPURCHASE OF SHARES
Shares of closed-end management investment companies frequently trade at a
discount from net asset value but in some cases trade at a premium. In
recognition of the possibility that the Fund's shares might similarly trade at a
discount, the Fund's Board of Trustees has determined that it would be in the
interest of shareholders for the Fund to take action to attempt to reduce or
eliminate a market value discount from net asset value. To that end, the
Trustees presently contemplate that the Fund could from time to time take action
either to repurchase its shares in the open market or to tender for its own
shares at net asset value. The Board of Trustees, in consultation with the
Manager, will review on a quarterly basis the possibility of open market
15
<PAGE> 67
repurchases and/or tender offers for Fund shares. There are no assurances that
the Board of Trustees will, in fact, decide to undertake either of these actions
or, if undertaken, that such actions will result in the Fund's shares trading at
a price which is equal to or approximates their net asset value. In addition,
the Board of Trustees will not necessarily announce when it has given
consideration to these matters.
Subject to the Fund's investment policies and restrictions with respect to
borrowings, the Fund may incur debt to finance repurchases and/or tenders. See
"Investment Objectives and Policies" in the Fund's Prospectus and "Investment
Restrictions" herein. Interest on any such borrowings will reduce the Fund's net
investment income.
There can be no assurance that repurchases and/or tenders will result in
the Fund's shares trading at a price that approximates or is equal to their net
asset value. The Fund anticipates that the market price of its shares will from
time to time vary from net asset value. The market price of the Fund's shares
will, among other things, be determined by the relative demand for and supply of
such shares in the market, the Fund's investment performance, the Fund's
dividends and yield and investor perception of the Fund's overall attractiveness
as an investment as compared with other investment alternatives. Nevertheless,
the fact that the Fund's shares may be the subject of tender offers at net asset
value from time to time may reduce the spread between market price and net asset
value that might otherwise exist. In the opinion of the Manager, sellers may be
less inclined to accept a significant discount if they have a reasonable
expectation of being able to recover net asset value in conjunction with a
possible tender offer.
Although the Board of Trustees believes that share repurchases and tenders
generally would have a favorable effect on the market price of the Fund's
shares, it should be recognized that the acquisition of shares by the Fund will
decrease the total assets of the Fund and, therefore, have the effect of
increasing the Fund's expense ratio. Because of the nature of the Fund's
investment objectives and policies and the Fund's portfolio, the Manager does
not anticipate that repurchases and tenders should have a materially adverse
effect on the Fund's investment performance and does not anticipate any material
difficulty in disposing of portfolio securities in order to consummate share
repurchases and tenders.
Even if a tender offer has been made, it is the Trustees' announced policy,
which may be changed by the Trustees, that the Fund cannot accept tenders or
effect repurchases if (1) such transactions, if consummated, would (a) result in
the delisting of the Fund's shares from the NYSE (the NYSE having advised the
Fund that it would consider delisting if the aggregate market value of the
Fund's outstanding shares is less than $5,000,000, the number of publicly held
shares falls below 600,000 or the number of round-lot holders falls below
1,200), or (b) impair the Fund's status as a regulated investment company under
the Code (which would make the Fund a taxable entity, causing the Fund's income
to be taxed at the corporate level in addition to the taxation of shareholders
who receive dividends from the Fund) (2) the amount of securities tendered would
require liquidation of such a substantial portion of the Fund's securities that
the Fund would not be able to liquidate portfolio securities in an orderly
manner in light of the existing market conditions and such liquidation would
have an adverse effect on the net asset value of the Fund to the detriment of
nontendering shareholders; or (3) there is, in the Board of Trustees' judgment,
any material (a) legal action or proceeding instituted or threatened challenging
such transactions or otherwise materially adversely affecting the Fund; (b)
suspension of or limitation on prices for trading securities generally on the
NYSE or any foreign exchange on which portfolio securities of the Fund are
traded; (c) declaration of a banking moratorium by federal, state or foreign
authorities or any suspension of payment by banks in the United States, New York
State or foreign countries in which the Fund invests; (d) limitation affecting
the Fund or the issuers of its portfolio securities imposed by federal, state or
foreign authorities on the extension of credit by lending institutions or on the
exchange of foreign currency; (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States or other countries in which the Fund invests, or (f) other event
or condition which would have a material adverse effect on the Fund or its
shareholders if shares were repurchased. The Trustees may modify these
conditions in light of experience.
Any tender offer made by the Fund will be at a price equal to the net asset
value of the shares on a date subsequent to the Fund's receipt of all tenders.
During the pendency of any tender offer by the Fund, the Fund will calculate
daily the net asset value of the shares and will establish procedures which will
be specified in the tender offer documents, to enable shareholders to ascertain
readily such net asset value. Each offer will be
16
<PAGE> 68
made and shareholders notified in accordance with the requirements of the
Securities Exchange Act of 1934 and the 1940 Act, either by publication or
mailing or both. Each offering document will contain such information as is
prescribed by such laws and the rules and regulations promulgated thereunder.
Each offering document will also disclose the federal income tax consequences of
the Fund's repurchase of shares pursuant to the tender offer. When a tender
offer is authorized to be made by the Fund's Trustees, a shareholder wishing to
accept the offer will be required to tender all (but not less than all) of the
shares owned by such shareholder (or attributed to him for federal income tax
purposes under Section 318 of the Code). The Fund will not specify a record date
for the tender offer which will not permit a shareholder of record on the
effective date of the tender offer to tender his shares. The Fund will purchase
all shares tendered in accordance with the terms of the offer unless it
determines to accept none of them (based upon one of the conditions set forth
above). Each person tendering shares will pay to the Fund a reasonable service
charge to help defray certain costs, including the processing of tender forms,
effecting payment, postage and handling. It is the position of the staff of the
SEC that such service charge may not be deducted from the proceeds of the
purchase. The Fund's transfer agent will receive the fee as an offset to these
costs. The Fund expects the costs to the Fund of effecting a tender offer will
exceed the aggregate of all service charges received from those who tender their
shares. Costs associated with the tender will be charged against capital.
Tendered shares that have been accepted and purchased by the Fund will be
held in treasury and may be retired by the Trustees. Treasury shares will be
recorded and reported as an offset to shareholders' equity and accordingly will
reduce the Fund's total assets. If treasury shares are retired, shares issued
and outstanding and capital in excess of par value will be reduced.
If the Fund must liquidate portfolio securities in order to purchase Fund
shares tendered, the Fund may realize gains and losses. If the portfolio
securities sold are "Section 988" items, the Fund's distributable net investment
income could be positively or adversely affected. The portfolio turnover rate of
the Fund may or may not be affected by the Fund's repurchases of shares pursuant
to a tender offer.
TAXATION
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership, and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon current provisions of
the Code, the Treasury regulations promulgated thereunder, and judicial and
administrative ruling authorities, all of which are subject to change, possibly
with retroactive effect. Prospective investors should consult their own tax
advisers 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
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies).
As a regulated investment company, the Fund generally is not subject to
U.S. federal income tax on income and gains that it distributes to shareholders,
if it distributes at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any net
short-term
17
<PAGE> 69
capital gains over net long-term capital losses) for the taxable year. The Fund
intends to distribute substantially all of such income. To the extent the Fund
retains its net capital gain for investment rather than distributing such amount
to its shareholders, it will be subject to a federal income tax at a maximum
effective rate of 35% on the amount retained.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year at least an amount equal to the sum of (1) 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) 98%
of its capital gains in excess of its capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. To avoid application of the excise
tax, the Fund intends to make distributions in accordance with the calendar year
distribution requirement.
If in any taxable year the Fund fails to qualify as a regulated investment
company under the Code, the Fund will be taxed in the same manner as an ordinary
corporation, and distributions to its shareholders will not be deductible by the
Fund in computing its taxable income. In addition, in the event of failure to
qualify, the Fund's distributions, to the extent derived from its current or
accumulated earnings and profits, will constitute dividends (eligible for the
corporate dividends received deduction, subject to certain requirements) which
are taxable to shareholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the shareholders' hands
as long term capital gains. If the Fund fails to qualify as a regulated
investment company for any year, it generally must pay out its earnings and
profits accumulated in that year, less an interest charge on 50% of such
earnings and profits, before it can again qualify as a regulated investment
company.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
Distributions of net capital gain properly designated by the Fund as
capital gain dividends, whether paid in cash or reinvested in Fund shares, will
generally be taxable to shareholders as long-term gain, regardless of how long a
shareholder has held Fund shares. Net capital gains from assets held for one
year or less will be taxed as ordinary income.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
FOREIGN TAXES
The Fund may be subject to certain taxes imposed by the countries in which
it invests or operates. If the Fund qualifies as a regulated investment company
and if more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of stocks or securities of foreign corporations, the Fund
may elect, for U.S. federal income tax purposes, to treat any foreign taxes paid
by the Fund that qualify as income or similar taxes under U.S. income tax
principles as having been paid by the Fund's shareholders. For any year for
which the Fund makes such an election, each shareholder will be required to
include in its gross income an amount
18
<PAGE> 70
equal to its allocable share of such taxes paid by the Fund and the shareholders
will be entitled, subject to certain limitations, to credit their portions of
these amounts against their U.S. federal income tax liability, if any, or to
deduct their portions from their U.S. taxable income, if any. No deduction for
foreign taxes may be claimed by individuals who do not itemize deductions. In
any year in which it elects to "pass through" foreign taxes to shareholders, the
Fund will notify shareholders within 60 days after the close of the Fund's
taxable year of the amount of such taxes and the sources of its income.
Generally, a credit for foreign taxes paid or accrued is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities may have to be treated as derived from U.S. sources
and certain currency fluctuation gains may have to be treated as derived from
U.S. sources. The limitation of the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. Shareholders may be unable to claim a credit for the full amount
of their proportionate share of the foreign taxes paid by the Fund. The foreign
tax credit can be applied to offset no more than 90% of the alternative minimum
tax imposed on corporations and individuals.
The foregoing is only a general description of the foreign tax credit.
Because application of the credit depends on the particular circumstances of
each shareholder, shareholders are advised to consult their own tax advisers.
DISPOSITIONS
Upon a redemption, sale or exchange of shares of the Fund, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. A gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands, and the rate of tax will depend upon
the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of dividends) within a
period of 61 days, beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case the basis of the shares acquired will be
adjusted to reflect the disallowed loss. If a shareholder holds Fund shares for
six months or less and during that period receives a distribution taxable to the
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term capital loss to the
extent of such distribution.
If, within 90 days after purchasing Fund shares with a sales charge, a
shareholder exchanges the shares and acquires new shares at a reduced (or
without any) sales charge pursuant to a right acquired with the original shares,
then the shareholder may not take the original sales charge into account in
determining the shareholder's gain or loss on the disposition of the shares.
Gain or loss will generally be determined by excluding all or a portion of the
sales charge from the shareholder's tax basis in the exchanged shares, and the
amount excluded will be treated as an amount paid for the new shares.
BACKUP WITHHOLDING
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends, capital gain distributions,
and redemption proceeds paid to shareholders if (1) the shareholder fails to
furnish the Fund with the shareholder's correct taxpayer identification number
or social security number, (2) the IRS notifies the shareholder or the Fund that
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the shareholder fails to certify that he or she is not subject to
backup withholding. Any amounts withheld may be credited against the
shareholder's federal income tax liability.
OTHER TAXATION
Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders may
be subject to U.S. tax rules that differ significantly from those summarized
above, including the likelihood that ordinary income dividends to them would be
subject to withholding of U.S. tax at a rate of 30% (or a lower treaty rate, if
applicable).
19
<PAGE> 71
FUND INVESTMENTS
Market Discount. If the Fund purchases a debt security at a price lower
than the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount." If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
Original Issue Discount. Certain debt securities acquired by the Fund may
be treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
Options, Futures and Forward Contracts. Any regulated futures contracts
and certain options (namely, nonequity options and dealer equity options) in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by the
Fund may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Fund, and
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that the Fund may make with respect
to its straddle positions may also affect the amount, character and timing of
the recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Constructive Sales. Under certain circumstances, the Fund may recognize
gain from a constructive sale of an "appreciated financial position" it holds if
it enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain
20
<PAGE> 72
(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.
Constructive sale treatment does not apply to transactions closed in the 90-day
period ending with the 30th day after the close of the taxable year, if certain
conditions are met.
Section 988 Gains or Losses. Gains or losses attributable to fluctuations
in exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as "section 988" gains
or losses, increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.
Passive Foreign Investment Companies. The 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 50% of its assets constitute investment-type assets, or
75% or more of its gross income is investment-type income. If the Fund receives
a so-called "excess distribution" with respect to PFIC stock, the Fund itself
may be subject to a tax on a portion of the excess distribution, whether or not
the corresponding income is distributed by the Fund to shareholders. 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.
The Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. The Fund may make an election 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. Amounts included pursuant to the election would
most likely have to be distributed in order to satisfy the 90% distribution
requirement and the distribution requirement for avoiding income and excise
taxes. In most instances it will be very difficult to make this election due to
certain requirements imposed with respect to the election. Alternatively, the
Fund could elect to mark to market its 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 PFIC shares would be deductible as ordinary losses
to the extent of any net mark-to-market gains included in income in prior years.
By making the election to market its PFIC shares, the Fund could ameliorate the
adverse tax consequences arising from its ownership of PFIC stock, but in any
particular year may be required to recognize income in excess of the
distributions it receives from the PFIC and proceeds from the dispositions of
PFIC stock.
21
<PAGE> 73
FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP are the Fund's independent accounts providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various SEC filings. The address of Ernst & Young LLP is 233
South Wacker Drive, Chicago, Illinois 60606. The financial statements
incorporated by reference in this SAI have been so incorporated and the
financial highlights included in the Prospectus have been so included, in
reliance upon the report of Ernst & Young LLP given on the authority of said
firm as experts in accounting and auditing.
INCORPORATION BY REFERENCE
The Fund's Annual Report for the fiscal year ended November 30, 1998 (the
"Report"), which either accompanies this Statement of Additional Information or
has previously been provided to the person to whom this Statement of Additional
Information is being sent, is incorporated herein by reference with respect to
all information other than the information set forth in the Letter to
Shareholders included therein. The Fund will furnish, without charge, a copy of
its Report upon request to Kemper High Income Trust, 222 South Riverside Plaza,
Chicago, Illinois 60606 or call 1-800-537-6006.
22
<PAGE> 74
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements
Contained in Part A:
(a) Financial Highlights
Incorporated in Part B by reference to Registrant's November 30, 1998
Annual Report:
(a) Portfolio of Investments as of November 30, 1998
(b) Statement of Assets and Liabilities as of November 30, 1998
(c) Statement of Operations for the year ended November 30, 1998
(d) Statements of Changes in Net Assets for the year ended November 30,
1998
(e) Statement of Cash Flows for the year ended November 30, 1998
(f) Notes to Financial Statements
(g) Report of Independent Accountants dated January 19, 1999
2. Exhibits
(a) Amended and Restated Agreement and Declaration of Trust of the
Registrant
(b) By-Laws of the Registrant
(c) Not Applicable
(d) (1) Specimen Certificate for Shares of Beneficial Interest of the
Registrant
(d) (2) Form of Subscription Certificate
(d) (3) Form of Notice of Guaranteed Delivery
(d) (4) Form of Beneficial Owner Listing Certification
(e) Dividend Reinvestment and Cash Purchase Plan of the Registrant
(f) Not Applicable
(g) Investment Management Agreement between the Registrant and Scudder
Kemper Investments, Inc.
(h) Form of Dealer Manager Agreement between the Registrant and
PaineWebber Incorporated
(i) Not Applicable
(j) Custody Agreement between the Registrant and Investors Fiduciary
Trust Company
(k) (1)Form of Agency Agreement between the Registrant and Investors
Fiduciary Trust Company
(k) (2) Form of Subscription Agent Agreement between the Registrant and
Boston Equiserv
(k) (3) Form of Information Agent Agreement between the Registrant and
Shareholder Communication Corporation
(k) (4) Form of Credit Agreement between the Registrant and Bank of
America Illinois
(l) Opinion and Consent of Dechert Price & Rhoads
<PAGE> 75
(m) Not Applicable
(n) Consent of Ernst & Young LLP
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
(r) Financial Data Schedule
(s) Powers of Attorney
ITEM 25. MARKETING AGREEMENTS
See Form of Dealer Manager Agreement to be filed as Exhibit (h) to this
Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fees........................................... $ 22,000
Printing and Engraving Expenses............................. 125,000
Legal Fees and Expenses..................................... 180,000
New York Stock Exchange Listing Fees........................ 30,000
National Association of Securities Dealers, Inc. Fees....... 8,000
Accounting Fees and Expenses................................ 15,000
Subscription Agent Fees and Expenses........................ 45,000
Information Agent's Fees and Expenses....................... 50,000
Miscellaneous Expenses...................................... 25,000
--------
Total............................................. $500,000
</TABLE>
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL
Not Applicable.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF FEBRUARY 10, 1999
- -------------- ------------------------
<S> <C>
Shares of Beneficial Interest.......................... 4,434
</TABLE>
ITEM 29. INDEMNIFICATION
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit (a) hereto, which is incorporated by reference herein) provides in
effect that the Registrant will indemnify its officers and trustees under
certain circumstances. However, in accordance with Section 17(h) and 17(i) of
the Investment Company Act of 1940 and its own terms, said Article of the
Agreement and Declaration of Trust does not protect any person against any
liability to the Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise,
2
<PAGE> 76
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The description of the business of Scudder Kemper Investments, Inc. is set
forth under the caption "Management of the Fund" in the Prospectus forming part
of this Registration Statement.
The information as to the Directors and officers of Scudder Kemper
Investments, Inc. set forth in Scudder Kemper Investment's Form ADV filed with
the Securities and Exchange Commission (File No. 801-252), as amended through
the date hereof, is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Accounts and Records of the Fund are maintained at (i) the Fund's office at
222 South Riverside Plaza, Chicago, Illinois 60606, (ii) the offices of Scudder
Kemper Investments, Inc. at 345 Park Avenue, New York, New York, 10154-0010, and
(iii) the offices of Scudder Kemper Investments, Inc. at 2 International Place,
Boston, Massachusetts 02110-4103.
In addition, Investors Fiduciary Trust Company, 127 West 10th Street,
Kansas City, Missouri 64105, maintains all the required records in its capacity
as transfer, dividend paying and shareholder service agent of the Registrant.
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
1. The Registrant undertakes to suspend the Offer until the prospectus is
amended if (1) subsequent to the effective date of this registration statement,
the net asset value declines more than ten percent from its net asset value as
of the effective date of this registration statement or (2) the net asset value
increases to an amount greater than the net proceeds as stated in the prospectus
included in this registration statement.
2. Not Applicable.
3. Not Applicable.
4. Not Applicable.
5. The Registrant undertakes:
a. for the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant under Rule 497(h) under the
Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective; and
b. for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Washington, D.C. on this 19th day of March, 1999.
KEMPER HIGH INCOME TRUST
By: *
------------------------------------
Mark S. Casady
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<S> <C> <C>
* President March 19, 1999
- ------------------------------------------
Mark S. Casady
* Chairman and Trustee March 19, 1999
- ------------------------------------------
Daniel Pierce
* Trustee March 19, 1999
- ------------------------------------------
James E. Akins
* Trustee March 19, 1999
- ------------------------------------------
Arthur R. Gottschalk
* Trustee March 19, 1999
- ------------------------------------------
Frederick T. Kelsey
* Trustee March 19, 1999
- ------------------------------------------
Fred B. Renwick
Trustee March 19, 1999
- ------------------------------------------
John B. Tingleff
* Trustee March 19, 1999
- ------------------------------------------
Thomas W. Littauer
* Trustee March 19, 1999
- ------------------------------------------
John G. Weithers
* Treasurer March 19, 1999
- ------------------------------------------
John R. Hebble
*By /s/ WILLIAM J. KOTAPISH
- ------------------------------------------
William J. Kotapish
as attorney-in-fact
</TABLE>
<PAGE> 1
Exhibit (a)
KEMPER HIGH INCOME TRUST
AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made Amended and Restated this 14th day of
March, 1988, by the Trustees hereunder, and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS, the Trustees hereunder are desirous of forming a trust for the
purposes of carrying on the business of a management investment company; and
WHEREAS, in furtherance of such purposes, the Trustees are acquiring
and may hereafter acquire assets and properties, to hold and manage as trustees
of a Massachusetts voluntary association with transferable shares in accordance
with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets and properties, which they may from time to
time acquire in any manner as Trustees hereunder IN TRUST to manage and dispose
of the same upon the following terms and conditions for the pro rata benefit of
the holders from time to time of shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name and Registered Agent
Section 1. This Trust shall be known as Kemper High Income Trust and
the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine. The registered agent for the
Trust in Massachusetts shall be CT Corporation System whose address is 2 Oliver
Street, Boston, Massachusetts or such other person as the Trustees may from time
to time designate.
Definitions
Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:
(a) The "Trust" refers to the Massachusetts, voluntary
association established by this Agreement and Declaration of Trust, as amended
from time to time, pursuant to Massachusetts General law, Chapter 182;
<PAGE> 2
(b) "Trustees" refers to the Trustees of the Trust named
herein or elected in accordance with Article IV and then in office:
(c) "Shares" mean the equal proportionate transferable units
of interest into which the beneficial interest in the Trust shall be divided
from time to time and include fractions of Shares as well as whole Shares;
(d) "Shareholder" means a record owner of Shares:
(e) The "1940 Act" refers to the Investment Company Act of
1940 (any successor statute) and the Rules and regulations thereunder, all as
amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Principal Underwriter" and "vote of a majority of the
outstanding voting securities" shall have the meanings given them in the 1940
Act;
(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended
from time to time; and
(i) "Net asset value" shall have the meaning set forth in
Section 2 of Article VI hereof.
ARTICLE II
Nature and Purpose
The Trust is a voluntary association (commonly known as a business trust) of the
type referred to in Chapter 182 of the General laws of the Commonwealth of
Massachusetts. The Trust is not intended to be, shall not be deemed to be, and
shall not be treated as, a general or a limited partnership, joint venture,
corporation or joint stock company, nor shall the Trustees or Shareholders or
any of them for any purpose be deemed to be, or be treated in any way whatsoever
as though they were, liable or responsible hereunder as partners or joint
ventures. The purpose of the Trust is to engage in, operate and carry on the
business of a closed-end management investment company or to engage in, operate
and carry on the business or our open-end management investment company, or to
engage in, operate, and carry on the business of an open-end management
investment company under the circumstances provided in Article IX. Section 5, as
provided in Article IX, Section 5 hereof; and to do any and all acts of things
as are necessary, convenient, appropriate, incidental or customary in connection
therewith.
<PAGE> 3
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The beneficial interest in the Trust shall at all times be
divided into Shares ($.01 par value), each of which shall represent an equal
proportionate interest with each other Share, none having priority or preference
over another Share, the number of Shares authorized shall be unlimited, and the
Shares so authorized may be represented in part by fractional Shares. The
Trustees may from time to time divide or combine the Shares into a greater or
lesser number without thereby changing the proportionate beneficial interests in
the Trust. All Shares issued hereunder including, without limitation, Shares
issued in connection with a dividend in Shares or a split of Shares, shall be
fully paid and non-assessable.
Ownership of Shares
Section 2. The ownership and transfer of Shares shall be recorded on
the books of the Trust or its transfer or similar agent. No certificates
certifying the ownership of Shares shall be issued except as the Trustees may
otherwise determine from time to time. The Trustees may make such rules as they
consider appropriate for the issuance of Share certificates, the transfer of
Shares and similar matters. The record books of the Trust as kept by the Trust
or any transfer or similar agent of the Trust, as the case may be, shall be
conclusive as to who are the Shareholders of the Trust and as to the number of
Shares held from time to time by each Shareholder.
Investment in the Trust
Section 3. The Trustees may issue Shares of the Trust to such persons
and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as they may from time to time authorize.
All consideration received by the Trust for the issue or sale of
Shares, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever from the same may be, shall irrevocably belong to the Trust for all
purposes, subject only to the rights of creditors, and shall be so handled upon
the books of account of the Trust.
Merger or Consolidation
Section 4. In connection with the acquisition of all or substantially
all the assets or stock of another investment company, investment trust, or of a
company classified as a personal holding company under the Internal Revenue Code
of 1985, the Trustees may issue or cause to be issued Shares and accept in
payment therefor, in lieu of cash, such assets at their market
<PAGE> 4
value, or such stock at the market value of the assets held by such investment
company or investment trust, either with or without adjustment for contingent
costs or liabilities.
No Preemptive Rights, Etc.
Section 5. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust. The Shareholders shall have no appraisal rights with
respect to their Shares and, except as otherwise determined by the Trustees in
their sole discretion, shall have no exchange or conversion rights with respect
to their Shares.
Status of Shares and Limitation of Personal Liability
Section 6. Shares shall be deemed to be personal property giving only
the right provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to the
terms of the Declaration of Trust and to have become a party thereto. The death
of a Shareholder during the continuance of the Trust shall not operate to
terminate the same nor entitle the representative of any deceased Shareholder to
an accounting or to take any action in court of elsewhere against the Trust or
the Trustees, by only to the rights of said decedent under this Trust. Ownership
of Shares shall not entitle the Shareholder to any title in order to the whole
or any part of the Trust property or right to call for a partition or division
of the same or for an accounting, nor shall the ownership of Shares constitute
the Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholder, nor except as specifically provided herein to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
Shareholder Inspection Rights
Section 7. Any Shareholder or his agent may inspect and copy during
normal business hours any of the following documents of the Trust: By-Laws,
minutes of the proceedings of the Shareholders and annual financial statement of
the Trust, including a statement of net assets and statement of operations. The
foregoing rights of inspection of Shareholders of the Trust are the exclusive
and sole rights of the Shareholders with respect thereto and no Shareholder of
the Trust shall have, as a Shareholder, the right to inspect or copy any of the
books, records or other documents of the Trust except as specifically provided
in this Section 7 of this Article III or except as otherwise determined by the
Trustees.
<PAGE> 5
ARTICLE IV
The Trustees
Number, Designation, Election, Term, Etc.
Section 1.
(a) Initial Trustee. Upon his execution of this Declaration of
Trust or a counterpart hereof or some other writing in which he accepts such
Trusteeship and agree to the provisions hereof, Philip J.
Collara shall become a Trustee hereof.
(b) Number. The Trustees serving as such, whether named above
or hereafter becoming Trustees, may increase or decrease the number of Trustees
to a number other than the number theretofore determined which number shall not
be less than three nor more than 15 except during the period that the initial
Trustee named above is sole Trustee. No decrease in the number of Trustees shall
have the effect of removing any Trustee from office prior to the expiration of
his term, but the number of Trustees may be decreased in conjunction with the
removal of a Trustee pursuant to subsection (e) of this Section 1.
(c) Term and Election. Each Trustee, whether named above or
hereafter becoming a Trustee, shall serve as a trustee until the next meeting of
Shareholders, if any, called for the purpose of considering the election or
re-election of such Trustee or of a successor to such Trustee, and until the
election and qualification of his successor to such Trustee, and until the
election: and qualification of his successor, if any, elected at such meeting,
or until such Trustee sooner dies, resigns, retires or is removed. Upon the
election and qualification of a new Trustee, the Trust estate shall vest in the
new Trustee (together with the continuing or other new Trustees) without any
further act or conveyance. Prior to any sale or Shares pursuant to any public
offering, the initial Trustee named above shall have the right to appoint other
persons as Trustees each to serve with such initial Trustee as aforesaid until
the first meeting of Shareholders called for the purpose of the election or
re-election of such Trustee or of a successor to such Trustee.
(d) Resignation and Retirement. Any Trustee may resign his
trust or retire as a Trustee, by written instrument signed by him and delivered
to the other Trustees or to the Chairman of the Board, if any, the President or
the Secretary of the Trust, and such resignation or retirement shall take effect
upon such delivery or upon such later date as is specified in such instrument.
(e) Removal. Any Trustee may be removed for cause at any time
by written instrument, signed by at least a majority of the number of Trustees
prior to such removal, specifying the date upon which such removal shall become
effective. Any Trustee may be removed with or without cause (i) by the vote of
the Shareholders entitled to vote more than fifty percent (50%) of the votes
entitled to be cast on the matter voting at any meeting called for such purpose,
or (ii) by a written consent filed with the Secretary of the Trust and executed
by the
<PAGE> 6
Shareholders entitled to vote more than fifty percent (50%) of the votes
entitled to be cost on the matter.
Whenever ten or more Shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate Shares constituting at least one percent of the outstanding Shares of
the Trust, shall apply to the Trustees in writing, stating that they wish to
communicate with other Shareholders with a view to obtaining signatures to a
request for a meeting to consider removal of a Trustee and accompanied by a form
of communication and request that they wish to transmit, the Trustees shall
within five business days after receipt of such application inform such
applicants as to the approximate cost of mailing to the Shareholders of record
the proposed communication and form of request. Upon the written request of such
applicants, accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, the Trustees shall, within reasonable
promptness, mail such material to all Shareholders of record at their address as
recorded on the books of the Trust. Notwithstanding the foregoing, the Trustees
may refuse to mail such material on the basis and in accordance with the
procedures set forth in the last two paragraphs of Section 16(c) of the 1940
Act.
(f) Vacancies. Any vacancy or anticipated vacancy resulting
from any reason, including without limitation the death, resignation,
retirement, removal or incapacity of any of the Trustees, or resulting from an
increase in the number of Trustees by the other Trustees, may (but so long as
there are at least three remaining Trustees, need not unless required by the
1940 Act) by filled either by a majority of the remaining Trustees, even if less
than a quorum, through the appointment in writing of such other person as such
remaining Trustees in their discretion shall determine or, whenever deemed
appropriate by the remaining Trustees, by the election by the Shareholders, at a
meeting called for such purpose, or a person to fill such vacancy. Upon the
appointment or election and qualification of a new Trustee as aforesaid, the
Trust estate shall best in the new Trustee, together with the continuing
Trustees, without any further act or conveyance, except that any such
appointment or election in anticipation of a vacancy to occur by a sign of
retirement, resignation, or increase in number of Trustees to be effective at a
later date shall become effective only at or after the effective date of said
retirement, resignation, or increase in number of Trustees.
(g) Mandatory Election by Shareholders. Notwithstanding the
foregoing provisions (a) through (f) of this Section 1, the Trustees shall call
a meeting of the Shareholders for the election of none or more Trustees at such
time or times as may be required in order that the provisions of the 1940 Act
may be complied with, and the authority hereinabove provided for the Trustees to
appoint any successor Trustee or Trustees shall be restricted if such
appointment would result in failure of the Trust to comply with any provision of
the 1940 Act.
(h) Effect of Death, Resignation, Etc. The death, resignation,
retirement, removal or incapacity of the Trustees, or any one of them, shall not
operate to annul or terminate the Trust or to revoke or terminate any existing
agency or contract created or entered into pursuant to the terms of this
Declaration or Trust.
<PAGE> 7
(i) No Accounting. Except under circumstances which would
justify his removal for cause, no person ceasing to be a Trustee as a result of
his death, resignation, retirement, removal or incapacity (nor the estate of any
such person) shall be requited to make an accounting to the Shareholders or
remaining Trustees upon such cessation.
Powers
Section 2. The Trustees, subject only the specific limitations
contained in this Declaration of Trust or otherwise imposed by the 1940 Act or
other applicable law, shall have, without further or other authorization and
free from any power or control of the Shareholders, full, absolute and exclusive
power, control and authority over the Trust assets and the business and affairs
of the Trust to the same extent as if the Trustees were the sole and absolute
owners thereof in their own right and to do all such acts and things as in their
sole judgment and discretion are necessary and incidental to, or desirable for
the carrying out of any of the purposes of the Trust or conducting the business
of the Trust. Any determination made in good faith by the Trustees of the
purposes of the Trust or the existence of any power or authority hereunder shall
be conclusive. In construing the provisions of this Declaration of Trust, there
shall be a presumption in favor of the grant of power and authority to the
Trustees. Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust containing provisions relating the
business of the Trust, the conduct of its affairs, its rights or powers and the
rights or powers of its Shareholders, Trustees, officers, employees and other
agents and may amend and repeal them to the extent that such By-Laws do not
reserve that right to the Shareholders; fill vacancies in their number,
including vacancies resulting from increase in their number, unless a vote of
the Trust's Shareholders is required to fill such vacancies pursuant to the 1940
Act; elect and remove such officers and appoint and terminate such agents as
they consider appropriate; appoint from their own number, and terminate, any one
or more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the powers and authority of the Trustees as the Trustees may determine;
appoint an advisory board, the members of which shall not be Trustees and need
not be Shareholders; employ one or more investment advisers or managers as
provided in Section 6 of this Article IV; employ one or more administrators as
provided in Section 6 of the Article IV; employ one or more custodians of the
assets of the Trust and authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities; retain a transfer agent or a Shareholder services agent,
or _____; provide for the distribution of Shares by the Trust, through one or
more principal underwriters or otherwise; set record dates for the determination
of Shareholders with respect to various matters; and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.
In furtherance of and not in limitation of the foregoing, the Trustees
shall have power and authority:
<PAGE> 8
(a) To invest and reinvest in, to buy or otherwise acquire, to
hold, for investment or otherwise, to sell or otherwise dispose of, to lend or
to pledge, to trade in or deal in securities or interests of all kinds, however
evidenced, or obligations of all kinds, however evidenced, or rights, warrants,
or contracts to acquire such securities, interests, or obligations, or any
private or public company, corporation, association, general or limited
partnership, trust or other enterprise or organization, foreign or domestic, or
issued or guaranteed by any national or state government, foreign or domestic,
or their agencies, instrumentalities or subdivisions (including but not limited
to, bonds, debentures, bills, time notes and all other evidences of
indebtedness); negotiable or non-negotiable instruments; any and all futures
contracts; government securities and money market instruments (including but not
limited to, bank certificates of deposit, finance paper, commercial paper,
bankers acceptances, and all kinds of repurchase agreements);
(b) To invest and reinvest in, to buy or otherwise acquire, to
hold, for investment or otherwise, to sell or otherwise dispose of foreign
currencies, and funds and exchanges, and make deposits in banks, savings banks,
trust companies, and savings and loan associations, foreign or domestic;
(c) To acquire (by purchase, lease or otherwise) and to hold,
use, maintain, develop, and dispose of (by sale or otherwise) any property, real
or personal, and any interest therein;
(d) To sell, exchange, lend, pledge, mortgage, hypothecate,
write options on and lease any or all of the assets of the Trust;
(e) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and to execute
and deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees shall deem
proper;
(f) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(g) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian, subcustodian
or other depository or a nominee or nominees or otherwise;
(h) To consent to or participate in any plan for the
reorganization, consolidation or merger or any corporation or issuer, any
security or property of which is or was held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such corporation or
issuer, and to pay calls or subscriptions with respect to any security held in
the Trust;
<PAGE> 9
(i) To join with other security holders in acting, through a
committee, depository, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depositary or trustee as the
Trustees shall deem proper;
(j) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(k) To enter into joint ventures, general or limited
partnerships any other combinations or associations;
(l) To borrow funds;
(m) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust property or any part thereof to secure any of or all such obligations;
(n) To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers or managers, principal
underwriters, or independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as Shareholder, Trustee, officer,
employee, agent, investment adviser or manager, principal underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability; and
(o) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees of common law trusts.
Except as otherwise provided herein or from time to time in the By-Laws, any
action to be taken by the Trustees may be taken by a majority of the Trustees
present at a meeting of Trustees (if a quorum be present), within or without
Massachusetts, including any meeting held by means of a conference telephone or
other
<PAGE> 10
communications equipment by means of which all persons participating in the
meeting can communicate with each other simultaneously and participation by such
means shall constitute presence in person at a meeting, or by written consents
of a majority of the Trustees then in office.
Payment of Expenses, Allocation of Liabilities
Section 3. The Trustee are authorized to pay or to cause to be paid out
of the principal income of the Trust, or partly out of principal and partly out
of income, as they deem fair, all expenses, fees, charges, taxes and liabilities
incurred or arising in connection with the Trust, or in connection with the
management thereof, including, but not limited to, the Trustees' compensation
and such expenses and charges for the service of the Trust's officers,
employees, investment adviser or manager, principal underwriter, auditor,
counsel, custodian, transfer agent, shareholder servicing agent, and such other
agents or independent contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur.
Section 4. The Trustee shall have the power, as frequently as they may
determine, to cause each Shareholder to pay directly, in advance or arrears, for
charges for the Trust's custodian or transfer or Shareholder service or similar
agent, an amount fixed from time to time by the Trustees, by setting off such
charges due from such Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of Shares in the account of such
Shareholder by that number of full and/or fractional shares which represents the
outstanding amount of such charges due from such Shareholder.
Ownership of Assets of the Trust
Section 5. Title to all of the assets and of the Trust shall at all
times be considered as vested in the Trustees.
Advisory and/or Management Agreement, Distribution Agreement, Administration
Agreement, Services
Section 6. Subject to a favorable vote of a majority of the outstanding
voting securities of the Trust, the Trustees may, at any time and from time to
time, contract for exclusive or nonexclusive advisory, and/or management
services with a corporation, trust, association or other organization, every
such contract to comply with such requirements and restrictions as may be set
forth in the By-Laws; and any such contract may contain such other terms
interpretive of or in addition to said requirements and restrictions as the
Trustees may determine, including, without limitation, authority to determine
from time to time what investments shall be purchased, held, sold or exchanged
and what portion, if any, of the assets of the Trust shall be held uninvested
and to make changes in the Trust's investments.
The Trustees may also, at any time and from time to time, contract with a
corporation, trust, association or other organization, appointing it exclusive
or nonexclusive distributor or principal underwriter for the Shares and/or
Administrator for the Fund in connection with such services as
<PAGE> 11
the Trustees deem appropriate, every such contract to comply with such
requirements and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.
The fact that:
(a) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter, or distributor or agent of or
for any corporation, trust, association, or other organization, or of
or for any parent or affiliate of any organization, with which an
advisory management or administrative or principal underwriter's or
distributor's contract, or transfer, shareholder services or other
agency contract may have been or may hereafter be made, or that any
such organization, or any parent or affiliate thereof, is a Shareholder
or has an interest in the Trust, or that
(b) any corporation, trust, association or other organization
with which an advisory, management or administrative or principal
underwriter's or distributor's contract, or transfer, shareholder
services or other agency contract may have been or may hereafter be
made also has an advisory, management or administrative contract, or
principal underwriter's or distributor's contract, or transfer,
shareholder services or other agency contract with one or more other
corporations, trusts, associations, or other organizations, or has
other businesses or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders Voting Powers and Meetings
Voting Powers
Section 1. The Shareholders shall have the power to vote only: (a) for
the election or removal of Trustees as provided in Article IV, Section 1; (b)
with respect to any investment adviser or manager as provided in Article IV,
Section 6; (c) with respect to any termination or reorganization of the Trust to
the extent and as provided in Article IX, Section 1; (d) with respect to any
amendment of this Declaration of Trust to the extent and as provided in Article
IX, Section 4; (e) with respect to any conversion of the Trust as provided in
Article IX, Section 5; (f) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders; and (g) with
respect to such additional matters relating to the Trust as may be required by
law, the 1940 Act, this Declaration of Trust, the By-Laws or any registration of
the Trust with the Securities and
<PAGE> 12
Exchange Commission (or any successor agency) or any state, or as the Trustees
may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to the exercise
of the proxy the Trust 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
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall resist on the challenger.
Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of Trust
or by the By-Laws to be taken by Shareholders.
Shareholders' Meetings
Section 2. Meetings of Shareholders may be called and held from time to
time for the purpose of taking action upon any matter requiring the vote of
authority of the Shareholders as herein provided or upon any other matter deemed
by the Trustees to be necessary or desirable. Such meetings shall be held at the
principal office of the Trust as set forth in the By-Laws of the Trust, or at
any such other place within the United States as may be designated in the call
thereof, which call shall be made by the Trustees or the President of the Trust.
Meetings of Shareholders may be called by the Trustees or such other person or
persons as may be specified in the By-Laws upon written application by
Shareholders holding at least twenty-five percent (25%) (or ten percent (10%) if
the purpose of the meeting is to determine if a Trustee is to be removed from
office) of the Shares then outstanding requesting a meeting be called for a
purpose requiring action by the Shareholders as provided herein or in the
By-Laws which purpose shall be specified in any such written application.
Shareholders shall be entitled to at least seven days written notice of
any meeting of the Shareholders.
Quorum and Required Vote
Section 3. The presence at a meeting of Shareholders in person or by
proxy of Shareholders entitled to vote at least thirty percent (30%) of all
votes entitled to be cast at the meeting shall be a quorum for the transaction
of business at a Shareholders' meeting. Any lesser number, however, shall be
sufficient for adjournments. Any adjourned session or sessions may be held
within a reasonable time after the date set for the original meeting without the
necessity of further notice.
<PAGE> 13
Except when a larger vote is required by any provisions of the 1940
Act, this Declaration of Trust or the By-Laws, a majority of the Shares voted on
the matter shall decide such matter and a plurality shall elect a Trustee.
Action of Written Consent
Section 4. Any action taken by Shareholders may be taken without a
meeting if Shareholders entitled to vote more than fifty percent (50%) of the
votes entitled to be cast on the matter consent to the action in writing and
such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Additional Provisions
Section 5. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters not inconsistent with the provisions
hereof.
ARTICLE VI
Distributions, Determination of Net Asset Value,
Repurchases, Tenders and Other Share Acquisitions
Distributions
Section 1. The Trustees may in their sole discretion from time to time
distribute to the Shareholders such income and gains accrued or realized, as the
Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with this Declaration of Trust and good accounting practices. The
Trustees shall have full discretion to determine which items shall be treated as
income and which items as capital and their determination shall be binding upon
the Shareholders. Distributions, if any be made, shall be in Shares, in cash or
otherwise and on a date or dates determined by the Trustees. At any time and
from time to time in their discretion, the Trustees may distribute to the
Shareholders as of a record date or dates determined by the Trustees, in Shares,
in cash or otherwise all or part of any gains realized on the sale or
disposition of property of the Trust or otherwise, or all or part of any other
principal of the Trust. Each distribution pursuant to this Section 1 shall be
made ratably according to the number of Shares held by the several Shareholders
on the applicable record date, and provided that no distributions need be made
on Shares purchased pursuant to orders received, or for which payment is made,
after such time or times as the Trustees may determine. Any distribution paid in
Shares will be paid at the net asset value thereof as determined in accordance
with this Declaration of Trust or at such other value as may be specified by the
By-Laws as the Trustees may from time to time determine subject to applicable
laws and regulations then in effect. The Trustees have the power, in their
discretion, to distribute for any year amount sufficient to enable the Trust to
qualify as a "regulated investment company" under the Internal Revenue Code of
<PAGE> 14
1986 as amended (or any successor thereto) to avoid any liability for federal
income tax in respect of that year.
Determination of Net Asset Value
Section 2. The term "net asset value" of each Share as of any
particular time shall be the quotient obtained by dividing the value, as at such
time, of the net assets of the Trust (i.e., the value of the assets of the Trust
less the liabilities of the Trust, exclusive of liabilities represented by the
Shares of the Trust) by the total number of Shares outstanding at such time, all
determined and computed in accordance with the Trust's current prospectus.
The Trustees, or any officers, of officers or agent of the Trust
designated for the purpose by the Trustees shall determine the net asset value
of the Shares and the Trustees shall fix the time or times as of which the net
asset value of the Shares shall be determined and shall fix the periods during
which any such net asset value shall be effective as to sales, and other
transactions in the shares, except as such times and periods for any such
transaction may be fixed by other provisions of this Declaration of Trust or by
the By-Laws.
Determinations in accordance with this Section 2 made in good faith
shall be binding on all parties concerned.
Repurchases, Tenders and Other Share Acquisitions
Section 3. Shares of the Trust may be reacquired by the Trust through
repurchases in the open market, through tender offers to shareholders under such
conditions as the Trustees deem appropriate, or by other acquisitions of any
nature deemed desirable or in the best interest of the Trust.
ARTICLE VII
Compensation and Limitation of Liability of Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust if the rate thereof is prescribed by such Trustees.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other services
and payment for the same by the Trust, it being recognized that such employment
may result in such Trustee being considered an Affiliated Person or an
Interested Person.
Limited of Liability
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, investment
advisor or manager, principal underwriter or custodian, nor shall any Trustee be
responsible for the act or omission of any other Trustee. Nothing in this
Declaration of Trust shall protect any Trustee against any liability
<PAGE> 15
to which such Trustee would otherwise by subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate, Share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his capacity as Trustees or Trustee and neither such
Trustees or Trustee nor the Shareholders shall be personally liable thereon.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
this Declaration of Trust is one file with the Secretary of The Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust by them as Trustees or Trustee or as officers or officer and
not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust and may contain such further recital as he or
they may deem appropriate, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually.
All persons extending credit to, contracting with or having any claim
against the Trust shall look only to the assets of the Trust for payment under
such credit, contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor.
Trustees' Good Faith Action, Expert Advice, No Bond or Surety
Section 3. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
only for his own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and their
duties as Trustees hereunder, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice. In
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written reports
made to the Trustees by any officer appointed by them, any independent public
accountant and (with respect to the subject matter of the contract involved) any
officer, partner or responsible employee of any other party to any contract
entered into pursuant to Section 2 of Article IV. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
<PAGE> 16
Section 4. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
ARTICLE VIII
Indemnification
Subject to the exceptions and limitations contained in this Article,
every person who is, or has been, a Trustee or officer of the Trust (including
persons who serve at the request of the Trust as directors, officers or trustees
of another organization in which the Trust has an interest as a shareholder,
creditor or otherwise) hereinafter referred to as a "Covered Person," shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been such a
Trustee, director or officer and against amounts paid or incurred by him in
settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by
reason of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office;
(b) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not
involving a final adjudication (as provided in paragraph (a) or (b) and
resulting in a payment by a Covered Person, unless there has been either a
determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement or
other disposition or a reasonable determination, based on a review of readily
available facts (as opposed to a full trial-type inquiry) that he did not engage
in such conduct:
(i) by a vote of a majority of the
Disinterested Trustees acting on the
matter (provided that a majority of
the Disinterested Trustees then in
office act on the matter); or
(ii) by written opinion of independent
legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any
<PAGE> 17
Covered Person may now or thereafter be entitled, continue as a person who has
ceased to be such a covered person and shall insure to the benefit of the heirs,
executors and administrators of such a person. Nothing contained herein shall
affect any rights to indemnification to which Trust personnel other than Covered
Persons may be entitled by contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding subject to a claim for indemnification under this
Article shall be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Article, provided that either:
(d) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out of
any such advances; or
(e) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter) or independent legal counsel in a written opinion shall
determine, based upon a review of the readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Article, a "Disinterested Trustee" is one (a) who is
not an "interested person" of the Trust, as defined in the 1940 Act (including
anyone who has been exempted from being an "interested person" by any rule,
regulation or order of the Commission), and (b) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds in then or has been pending.
As used in this Article, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits proceedings (civil,
criminal or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include without limitation, attorneys fees,
costs, judgments, amounts paid in settlement, fines penalties and other
liabilities.
In case any Shareholders or former Shareholder shall be held to be
personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss expense arising from such
liability but only out of the assets of the particular series of Shares of which
he or she is or was a Shareholder; provided, however, there shall be no
liability or obligation of the Trust arising hereunder to reimburse any
Shareholder for taxes paid by reason of such Shareholder's ownership of Shares
or for losses suffered by reason of any changes in value of any Trust assets.
<PAGE> 18
ARTICLE IX
Miscellaneous
Duration, Termination and Reorganization of Trust
Section 1. Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any time by
the Trustees by written notice to the Shareholders without a vote of the
shareholders of the Trust or by the vote of the Shareholders entitled to vote
more than fifty percent (50%) of the votes entitled to be cast on the matter.
Upon termination of the Trust after paying or otherwise providing for
all charges, taxes, expenses and liabilities, whether due or accrued or
anticipated, the Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets of the Trust to distributable
form in cash or other securities, or any combination thereof, and distribute the
proceeds to the Shareholders of the series involved, ratably according to the
number of Shares of the Trust held by the several Shareholders of the Trust on
the date of termination.
At any time by the affirmative vote of the Shareholders of the Trust
entitled to vote more than fifty percent (50%) of the votes entitled to be cast
on the matter, the Trustees may sell, convey and transfer the assets of the
Trust, to another trust, partnership, association or corporation organized under
the laws of any state of the United States in exchange for cash, shares or other
securities with such transfer being made subject to, or with the assumption by
the transferee of, the liabilities belonging to the Trust. Following such
transfer, the Trustees shall distribute such cash, shares or other securities
among the Shareholders of the Trust and if all of the assets of the Trust have
been so distributed, the Trust shall be terminated.
Filing of Copies, References, Headings
Section 2. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of The Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein," and
"hereof," and "hereunder," shall be deemed to refer to this instrument as
amended from time to time. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. The instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
<PAGE> 19
Applicable Laws
Section 3. This Declaration of Trust is made in The Commonwealth of
Massachusetts and it is created under and is to be governed by and construed and
administered according to the laws of said Commonwealth. The Trust shall be of
the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Amendments
Section 4. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
so to do by vote of Shareholders holding more than fifty percent (50%) of the
Shares entitled to vote. Amendments having the purpose of changing the name of
the Trust or any series or of supplying any omission, curing any ambiguity or
curing, correcting or supplementing any provision which is defective or
inconsistent with the 1940 Act or with the requirements of Internal Revenue Code
of 1986 and the regulations thereunder for the Trust's obtaining the most
favorable treatment thereunder available for the Trust's obtaining the most
favorable treatment thereunder available to regulated investment companies shall
not require authorization by Shareholder vote.
Conversion
Section 5. The Trust may be converted at any time from a "closed-end
company" to an "open-end company" as those terms are defined in Section 5(a)(2)
and 5(a)(1), respectively, of the 1940 Act as in effect on March 14, 1988, upon
the approval of such a proposal, together with the necessary amendments to the
Declaration of Trust to permit such a conversion, by the holders of a majority
of the Trust's outstanding Shares entitled to vote, and in each fiscal year
thereafter, if Shares of the Trust have traded on the principal securities
exchange where listed at an average discount from net asset value of more than
ten percent (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 (12) calendar weeks
preceding the beginning of each such year, the Trustees will submit to the
Shareholders at the next succeeding meeting, or within six months thereafter if
sooner, a proposal to convert the Trust from a "closed-end company" to an
"open-end company" as those terms are defined above, together with the necessary
amendments to this proposal and related amendments by the Fund's outstanding
shares entitled to vote, the Fund shall upon complying with any requirements of
the 1940 Act and state law, become an "open-end" investment company. Such
affirmative vote or consent shall be in addition to the vote or consent of the
holders of the Shares otherwise required by law, or any agreement between the
Trust and any national securities exchange.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
for himself and his assigns, as of the day and year first above written.
/s/ PHILIP J. COLLORA
Philip J. Collora, Trustee
<PAGE> 20
STATE OF ILLINOIS
County of Cook
Then personally appeared the above-named Philip J. Collora who
acknowledged the foregoing instrument to be his free act and deed, before me
this 14th day of March 1988.
/s/
Notary Public
My Commission Expires:_________
<PAGE> 1
Exhibit (b)
BY-LAWS OF
KEMPER HIGH INCOME TRUST
Section 1. Agreement and Declaration of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Kemper High Income Trust, the Massachusetts business
trust established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust; Resident Agent. The principal office of the
Trust shall be located in Chicago, Illinois. Its resident agent in Massachusetts
shall be CT Corporation system, 2 Oliver Street, Boston, Massachusetts or such
other persons as the Trustees may from time to time select.
Section 2. Shareholders
2.1 Shareholder Meetings. Meetings of the shareholders may be called at any time
by the Trustees, by the President or, if the Trustees and the President shall
fail to call any meeting of shareholders for a period of 30 days after written
application of one or more shareholders who hold at least 25% of all shares
issued and outstanding and entitled to vote at the meeting (or 10% if the
purpose of the meeting is to determine if a trustee shall be removed from
office), then such shareholders may call such meeting. Each call of a meeting
shall state the place, date, hour and purposes of the meeting.
2.2 Place of Meetings. All meetings of the shareholders shall be held at the
principal office of the Trust, or, to the extent permitted by the Declaration of
Trust, at such other place within the United States as shall be designated by
the Trustees or the President of the Trust.
2.3 Notice of Meetings. A written notice of each meeting of shareholders,
stating the place, date and hour and the purposes of the meeting, shall be given
at least seven days before the meeting to each shareholder entitled to vote
thereat by leaving such notice with him or at his residence or usual place of
business or by mailing it, postage prepaid, and addressed to such shareholder at
his address as it appears in the records of the Trust. Such notice shall be
given by the Secretary or an Assistant Secretary or by an officer designated by
the Trustees. No notice of any meeting of shareholders need be given to a
shareholder if a written waiver of notice, executed before or after the meeting
by such shareholder or his attorney thereunto duly authorized, is filed with the
records of the meeting.
2.4 Ballots. No ballot shall be required for any election unless requested by a
shareholder present or represented at the meeting and entitled to vote in the
election.
<PAGE> 2
2.5 Proxies and Voting. Shareholders entitled to vote may vote either in person
or by proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the Secretary or other person
responsible to record the proceedings of the meeting before being voted. Unless
otherwise specifically limited by their terms, such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but shall not be
valid after the final adjournment of such meeting. At all meetings of
shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters, the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting.
Section 3. Trustees
3.1 Committees and Advisory Board. The Trustees may appoint from their number an
executive committee and other committees. Any such committee may be abolished
and reconstituted at any time and from time to time by the Trustees. Except as
the Trustees may otherwise determine, any such committee may make rules for the
conduct of its business. The Trustees may appoint an advisory board to consist
of not less than two nor more than five members. The members of the advisory
board shall be compensated in such manner as the Trustees may determine and
shall confer with and advise the Trustees regarding the investments and other
affairs of the Trusts. Each member of the Advisory board shall hold office until
the first meeting of the Trustees following the meeting of the shareholders, if
any, next following his appointment and until his successor is appointed and
qualified, or until he sooner dies, resigns, is removed, or becomes
disqualified, or until the advisory board is sooner abolished by the Trustees.
3.2 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees. A regular meeting of the
Trustees may be held without call or notice immediately after and at the same
place as any meeting of the shareholders.
3.3 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting, when called by the
Chairman and the Board or by two or more Trustees, sufficient notice thereof
being given to each Trustee by the Secretary or an Assistant Secretary or by the
officer or one of the Trustees calling the meeting.
3.4 Notice. It shall be sufficient notice to a Trustee to send notice by mail at
least three days or by telegram at least twenty-four hours before the meeting
addressed to the Trustee at his or her usual or last known business or residence
address or to give notice to him or her in person or by telephone at least
twenty-four hours before the meeting. Notice of a meeting need not be given to
any Trustee if a written waiver of notice, executed by him or her before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him or her. Neither notice of a meeting nor a waiver of a
notice need specify the purposes of the meeting.
<PAGE> 3
3.5 Quorum. At any meeting of the Trustees, one-third of the Trustees then in
office shall constitute a quorum; provided, however, a quorum (unless the Board
of Trustees consists of two or fewer persons) shall not be less than two. Any
meeting may be adjourned from time to time by a majority of the votes cast upon
the question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice.
Section 4. Officers and Agents
4.1 Enumeration; Qualification. The officers of the Trust shall be a President,
a Treasurer, a Secretary and such other officers, if any, as the Trustees from
time to time may in their discretion elect or appoint. The Trust may also have
such agents, if any, as the Trustees from time to time may in their discretion
appoint. Any officer may be but none need be a Trustee or shareholder. Any two
or more offices may be held by the same person.
4.2 Power. Subject to the other provisions of these By-Laws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to his or her
office as if the Trust were organized as a Massachusetts business corporation
and such other duties and powers as the Trustees may from time to time
designate.
4.3 Election. The President, the Treasurer and the Secretary shall be elected
annually by the Trustees at their first meeting in each calendar year or at such
later meeting in such year as the Trustees shall determine. Other officers or
agents, if any, may be elected or appointed by the Trustees at said meeting or
at any other time.
4.4 Tenure. The president, Treasurer and Secretary shall hold office until the
first meeting of Trustees in each calendar year and until their respective
successors are chosen and qualified, or in each case until he or she sooner
dies, resigns, is removed or becomes disqualified. Each other officer shall hold
office and each agent shall retain his or her authority at the pleasure of the
Trustees.
4.5 Chairman of the Board. The chairman of the Board of Trustees, if one is so
appointed, shall be chosen from among the Trustees and may hold office only so
long as he continues to be a Trustee. The Chairman of the board, if any is so
appointed, shall preside at all meetings of the shareholders and of the Trustees
at which he is present; and shall have such other duties and powers as specified
herein and as may be assigned to him by the Trustees.
4.6 President and Vice Presidents. The President shall be the chief executive
officer of the Trust. The president shall, subject to the control of the
Trustees, have general charge and supervision of the Trust and shall perform
such other duties and have such other powers as the Trustees shall prescribe
from time to time. Any Vice President shall at the request or in the absence or
disability of the President exercise the powers of the President and perform
such other duties and have such other powers as shall be designated from time to
time by the Trustees.
<PAGE> 4
4.7 Treasurer and Controller. The Treasurer shall be the chief financial officer
of the Trust and, subject to any arrangement made by the Trustees with a bank or
trust company or other organization as custodian or transfer or shareholder
services agent, shall be in charge of its valuable papers and shall have such
other duties and powers as may be designated from time to time by the Trustees
or by the President. If at any time there shall be no Controller, the Treasurer
shall also be the chief accounting officer of the Trust and shall have the
duties and power prescribed herein for the Controller. Any Assistant Treasurer
shall have such duties and powers as shall be designated from time to time by
the Trustees.
The Controller, if any be elected, shall be the chief accounting officer of the
Trust and shall be in charge of its books of account and accounting records. The
Controller shall be responsible for preparation of financial statements of the
Trust and shall have such other duties and powers as may be designated from time
to time by the Trustees or the President.
4.8 Secretary and Assistant Secretaries. The Secretary shall record all
proceedings of the shareholders and the Trustees in books to be kept therefor,
which books shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of shareholders or Trustees, an Assistant
Secretary, or if there be none or if he or she is absent, a temporary clerk
chosen at the meeting shall record the proceedings thereof in the aforesaid
books.
Section 5. Resignation and Removals
Any Trustee may resign his trust or retire as a Trustee in accordance with
procedures set forth in the Declaration of Trust. Any officer or advisory board
member may resign at any time by delivering his or her resignation in writing to
the Chairman of the Board, the President or the Secretary or to a meeting of the
Trustees. The Trustees may remove any officer or advisory board member elected
or appointed by them with or without cause by the vote of a majority of the
Trustees then in office. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee, officer, or advisory board member
resigning, and no officer or advisory board member removed shall have any right
to any compensation for any period following his or her resignation or removal,
or any right to damages on account of such removal.
Section 6. Vacancies
A vacancy in the office of Trustee shall be filled in accordance with the
Declaration of Trust. Vacancies resulting from the death, resignation,
incapacity or removal of any officer may be filed by the Trustees. Each
successor of any such officer shall hold office for the unexpired term, and in
the case of the President, the Treasurer and the Secretary, until his or her
successor is chosen and qualified, or in each case until he or she sooner dies,
resigns, is removed or becomes disqualified.
Section 7. Shares of Beneficial Interest
7.1 Share Certificates. No certificates certifying the ownership of shares shall
be issued except as the Trustees may otherwise authorize. In the event that the
Trustees authorize the
<PAGE> 5
issuance of share certificates, subject to the provisions of Section 7.3, each
shareholder shall be entitled to a certificate stating the number of shares
owned by him or her, in such form as shall be prescribed from time to time by
the Trustees. Such certificate shall be signed by the President or a Vice
President and by the Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary. Such signatures may be facsimiles if the certificate is signed by a
transfer or shareholder services agent or by a registrar, other than a Trustee,
officer or employee of the Trust. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he or she were such officer at the time of its issue.
In lieu of issuing certificates for shares, the Trustees or the transfer or
shareholder services agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders or such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
7.2 Loss of Certificates. In the case of the alleged loss or destruction or the
mutilation of a share certificate, a duplicate certificate may, be issued in
placed thereof, upon such terms as the Trustees may prescribe.
7.3 Discontinuance of Issuance of Certificates. The Trustees may at any time
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the ownership of
shares in the Trust.
Section 8. Record Date
The Trustees may fix in advance a time, which shall not be more than 90 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or making of any other distribution to shareholders, as the record
date for determining the shareholders having the right to notice and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date.
Section 9. Seal
The seal of the Trust shall, subject to alternation by the Trustees, consist of
a flat-faced circular die with the world "Massachusetts" together with the name
of the Trust, cut or engraved thereon; but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument, or other paper executed
and delivered by or on behalf of the Trust.
<PAGE> 6
Section 10. Execution of Papers
Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be signed, and any transfers of securities standing in the name
of the Trust shall be executed, buy the President or by one of the Vice
Presidents or by the Treasurer or by whomsoever else shall be designated for
that purpose by the vote of the Trustees and need not bear the seal of the
Trust.
Section 11. Fiscal Year
The fiscal year of the Trust shall end on such date in each year as the Trustees
shall from time to time determine.
Section 12. Amendments
The By-Laws may be amended or repealed, in whole or in part, by a majority of
the Trustees then in office at any meeting of the Trustees, or by one or more
writings singed by such majority.
<PAGE> 1
Exhibit (d)(1)
SHARE(S) OF BENEFICIAL INTEREST SHARE(S) OF BENEFICIAL INTEREST
Number
KC
THIS CERTIFICATE IS TRANSFERABLE
IN KANSAS CITY, MISSOURI AND CUSIP 488416 106
NEW YORK, NEW YORK SEE REVERSE FOR
CERTAIN DEFINITIONS
KEMPER HIGH INCOME TRUST
CERTIFICATE OF SHARES
- --------------------------------
SHARES
- --------------------------------
S P E C I M E N
THIS
CERTIFIES
THAT
IS THE
OWNER OF
SHARES OF BENEFICIAL INTEREST IN
the above noted Fund (the "Fund"), fully paid and nonassessable, the said shares
being issued, and held subject to the terms and provisions of the Agreement and
Declaration of Trust of the Fund, and all amendments, thereto, copies of which
are on file with the Secretary of the Commonwealth of Massachusetts. The said
owner by accepting this certificate agrees to and is bound by all of the said
provisions properly endorsed for transfer. This certificate is executed on
behalf of the Trustees of the Trust as Trustees and not individually and the
obligations hereof are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets and property of
the Trust. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile seal of the Fund and the facsimile signatures of its duly
authorized officers.
<PAGE> 2
Dated:
Countersigned
Investors Fiduciary Trust Company
(Kansas City Missouri) Transfer Agent
and Registrar
Authorized Signature. SECRETARY PRESIDENT
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION, ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY A COMMERCIAL BANK, TRUST COMPANY, OR
SAVINGS AND LOAN ASSOCIATION, OR BY A MEMBER FIRM OF A NATIONAL SECURITIES
EXCHANGE, WHOSE SIGNATURE(S) IS KNOWN TO THE TRANSFER AGENT OF THE FUND.
The following abbreviations when used in the inscription on the face of this
certificate shall be construed as though they were written out in full according
to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
JT TEN As joint tenants, TEN COM As tenants in common
with right of TEN ENT As tenants by the
survivorship and entireties
not as tenants UNIF GIFT __________Custodian________Uniform Gifts to
in common MIN ACT (Cust.) (Minor) Minors Act______
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________
__________________________________________
_________________________________________________________________
(Please print or typewrite name and address, including zip
code, of assignee)
<PAGE> 3
- --------------------------------------------------------------------- Shares of
beneficial interest represented by the written Certificate and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------- Attorney,
to transfer said shares on the books of the within-named Fund with full power of
substitution in the premises.
Dated:
- ---------------------------------
Owner
- ---------------------------------
Signature of Co-Owner, if any
IMPORTANT: BEFORE SIGNING, READ AND COMPLY CAREFULLY WITH NOTICE PRINTED ABOVE
Signature(s) guaranteed by:
- ---------------------------------
<PAGE> 1
CONTROL NO.
MAXIMUM PRIMARY SUBSCRIPTION SHARES AVAILABLE
THE OFFER EXPIRES AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL 16, 1999*
KEMPER HIGH INCOME TRUST
RIGHTS TO SUBSCRIBE FOR SHARES OF BENEFICIAL INTEREST
SUBSCRIPTION CERTIFICATE
Kemper High Income Trust (the "Fund") issued to its shareholders of record
("Record Date Shareholders"), as of the close of business on March 23, 1999 (the
"Record Date"), transferable rights ("Rights") entitling the holders thereof to
subscribe for shares ("Shares") of the Fund's shares of beneficial interest,
$.01 par value (the "Shares"), at a rate of one Share for every three Rights
held (1-for-3). The terms and conditions of the Rights offer (the "Offer") are
set forth in the Fund's March 22, 1999 Prospectus (the "Prospectus")
incorporated herein by reference. The owner of this Subscription Certificate, or
assignee, is entitled to the number of Rights shown on this Subscription
Certificate and is entitled to subscribe for the number of Shares shown on this
Subscription Certificate. Record Date Shareholders who have fully exercised
their Rights pursuant to the Primary Subscription (other than those Rights which
cannot be exercised because they represent the right to subscribe for less than
one Share) are entitled to subscribe for additional Shares pursuant to the
Over-Subscription Privilege, subject to certain limitations and allotment, as
described in the Prospectus. Capitalized terms not defined herein have the
meanings attributed to them in the Prospectus. The Fund will not offer or sell
in connection with the Offer any Shares which are not subscribed for pursuant to
the Primary Subscription or the Over-Subscription Privilege.
SAMPLE CALCULATION
PRIMARY SUBSCRIPTION ENTITLEMENT (1-FOR-3)
<TABLE>
<S> <C> <C>
No. of shares owned on the Record Date 302/3 = 100 new shares
(equals no. of (ignore
Rights issued) fractions)
</TABLE>
THE RIGHTS ARE TRANSFERABLE
The Rights are transferable until the Expiration Date April 16, 1999. The
Rights will be listed for trading on the New York Stock Exchange under the
symbol "KHI.RT". If you wish to sell all or a portion of your Rights through the
Subscription Agent, the Rights must be received by the Subscription Agent at or
prior to 5:00 p.m., New York City time, on April 14, 1999, two business days
prior to the Expiration Date.
SUBSCRIPTION PRICE
The Subscription Price will be $8.30 per share.
METHOD OF EXERCISE OF RIGHTS
IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST EITHER (i) COMPLETE AND SIGN
THIS SUBSCRIPTION CERTIFICATE ON THE BACK AND RETURN IT TOGETHER WITH PAYMENT OF
THE SUBSCRIPTION PRICE FOR THE SHARES SUBSCRIBED, OR (ii) PRESENT A PROPERLY
COMPLETED NOTICE OF GUARANTEED DELIVERY, IN EITHER CASE TO THE SUBSCRIPTION
AGENT, FIRST DATA INVESTOR SERVICES GROUP, INC., BEFORE 5:00 P.M., NEW YORK CITY
TIME, ON APRIL 16, 1999 (THE "EXPIRATION DATE")*.
Full payment of the Subscription Price per Share for all Shares subscribed
for pursuant to both the Primary Subscription and, for Record Date Shareholders
only, the Over-Subscription Privilege must accompany this Subscription
Certificate and must be made payable in United States dollars by money order or
check drawn on a bank located in the United States payable to Kemper High Income
Trust. Because uncertified personal checks may take at least five business days
to clear, we recommend you pay, or arrange for payment, by means of certified or
cashier's check or money order. Alternatively, if a Notice of Guaranteed
Delivery is used, a properly completed and executed Subscription Certificate,
and full payment, as described in such notice, must be received by the
Subscription Agent no later than the close of business on the third business day
(April 21, 1999) after the Expiration Date (April 16, 1999). For additional
information, see the Prospectus.
Certificates for the Shares acquired pursuant to the Primary Subscription
will be mailed promptly after the expiration of the Offer and full payment for
the Shares subscribed for has been received and cleared. Certificates
representing Shares acquired pursuant to the Over-Subscription Privilege will be
mailed as soon as practicable after full payment has been received and cleared
and all allocations have been effected. Any excess payment to be refunded by the
Fund to a shareholder will be mailed by the Subscription Agent to such
shareholder as promptly as possible.
Account #:
Control #:
Number of Rights Issued:
CUSIP #:
(continued on back)
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
BY FIRST CLASS MAIL: BY OVERNIGHT COURIER: BY HAND:
- -----------------------------------------------------------------------------------------------------------------------------------
State Street Bank and Trust Company State Street Bank and Trust Company Securities Transfer and Reporting
Corporate Reorganization Corporate Reorganization Services, Inc.
P.O. Box 9573 40 Campanelli Drive c/o Boston EquiServe
Boston, Massachusetts 02205-9573 Braintree, Massachusetts 02184 100 William St. Galleria
U.S.A. U.S.A. New York, New York 10038
U.S.A.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Delivery to an address other than one of the addresses listed above will not
constitute valid delivery.
PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY
SECTION 1: OFFERING INSTRUCTIONS (check the appropriate boxes)
IF YOU WISH TO SUBSCRIBE FOR YOUR FULL ENTITLEMENT:
[ ] I apply for ALL of my entitlement of new shares pursuant to the Primary
Subscription ____________ X $8.30 = $________
(no. of new shares)
[ ] I apply for new shares pursuant to the Over-Subscription
Privilege** ____________ X $8.30 = $________
(no. of additional shares)
IF YOU DO NOT WISH TO APPLY FOR YOUR FULL ENTITLEMENT:
[ ] I apply for
____________________ X $8.30 = $________
(no. of new shares)
Amount of check enclosed ____________
[ ] Sell any remaining Rights
[ ] Sell ALL of my Rights
Note: If I apply for ALL of my entitlement of new shares pursuant to the
Primary Subscription, I hereby authorize the Subscription Agent, in
accordance with the procedures described in the Prospectus, to sell any
Rights I am unable to exercise because such Rights represent the right to
subscribe for less than one share. If I have checked either box to a sale
of Rights, I authorize the sale of Rights by the Subscription Agent
according to the procedures described in the Prospectus.
SECTION 2: SUBSCRIPTION AUTHORIZATION
I acknowledge that I have received the Prospectus for this Offer and I
hereby irrevocably subscribe for the number of shares indicated above on the
terms and conditions specified in the Prospectus relating to the Primary
Subscription and the Over-Subscription Privilege.
I hereby agree that if I fail to pay in full for the shares for which I have
subscribed, the Fund may exercise any of the remedies set forth for in the
Prospectus.
Signature of subscriber(s) ___________________________________________________
______________________________________________________
______________________________________________________
Telephone number (including area code)( )
_________________________________________________
If you wish to have your shares and refund check (if any) delivered to an
address other than that listed on this Subscription Certificate you must have
your signature guaranteed by a member of the New York Stock Exchange or a bank
or trust company. Please provide the delivery address above and note if it is a
permanent change.
SECTION 3: TRANSFER NOTIFICATION (except pursuant to a sale through the
Subscription Agent)
For value received, I request ____________ Rights (in a number evenly
divisible by three) represented by the Subscription Certificate be assigned to:
Name of Assignee:
- -------------------------------------------------------------
Address of Assignee:
- -----------------------------------------------------------
Signature of Assignor:
- ----------------------------------------------------------
IMPORTANT: The Signature(s) must correspond with the name(s) printed on your
Subscription Certificate. Your signature must be guaranteed by: a commercial
bank, trust company or savings and loan association, or by a member firm of a
national securities exchange, whose signature(s) is known to the transfer agent
of the Fund.
Signature guaranteed by:
- --------------------------------------------------------
PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES
UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT
AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
SECTION 4: DESIGNATION OF BROKER-DEALER
The following broker-dealer is hereby designated as having been instrumental
in the exercise of the Rights hereby exercised:
FIRM:
- --------------------------------------------
REPRESENTATIVE NAME:
-----------------------
REPRESENTATIVE NUMBER:
---------------------
- ---------------
* Unless the Offer is extended.
** You can only participate in the Over-Subscription Privilege if you are a
Record Date Shareholder and have subscribed for your full entitlement of new
Shares pursuant to the Primary Subscription.
Any questions regarding this Subscription Certificate and the Offer may be
directed to the Information Agent, Shareholder Communications Corporation, (800)
618-7826. Banks and brokers should call (800) 877-8579 ext. 113.
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY FOR SHARES OF
BENEFICIAL INTEREST OF KEMPER HIGH INCOME TRUST
SUBSCRIBED FOR PURSUANT TO THE PRIMARY SUBSCRIPTION
AND THE OVER-SUBSCRIPTION PRIVILEGE
KEMPER HIGH INCOME TRUST RIGHTS OFFERING
As set forth in the Prospectus dated March 22, 1999 (the "Prospectus")
under "The Offer -- Payment for Shares," this form or one substantially
equivalent hereto may be used as a means of effecting subscription and payment
for all shares of Kemper High Income Trust shares of Beneficial Interest (the
"Shares") subscribed for by exercise of Rights pursuant to the Primary
Subscription and the Over-Subscription Privilege. Such form may be delivered by
hand or sent by facsimile transmission, overnight courier or mail to the
Subscription Agent and must be received prior to 5:00 p.m. New York City time on
April 16, 1999 (the "Expiration Date"), unless extended by the Fund. The terms
and conditions of the Offer set forth in the Prospectus are incorporated by
reference herein. Capitalized terms not defined hereby have the meanings
attributed to them in the Prospectus.
THE SUBSCRIPTION AGENT IS:
BOSTON EQUISERVE
BY FACSIMILE:
(TELECOPIES)
(781) 575-4826
Confirm by telephone to:
(781) 575-4816
BY OVERNIGHT COURIER:
State Street Bank and Trust Company
Corporate Reorganization
40 Campanelli Drive
Braintree, Massachusetts 02184
U.S.A.
BY FIRST CLASS MAIL:
State Street Bank and Trust Company
Corporate Reorganization
P.O. Box 9573
Boston, Massachusetts 02205-9573
U.S.A.
BY HAND:
Securities Transfer and Reporting Services Inc.
c/o Boston EquiServe
100 William St. Galleria
New York, New York 10038
U.S.A.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS,
OR TRANSMISSION OF INSTRUCTIONS
VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE,
DOES NOT CONSTITUTE A VALID DELIVERY.
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for under both the Primary Subscription and the Over-Subscription
Privilege to the Subscription Agent and must deliver this Notice of Guaranteed
Delivery guaranteeing delivery of (i) payment in full for all subscribed Shares
and (ii) a properly completed and executed Subscription Certificate to the
Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. The Subscription Certificate and full payment must then be delivered to
the Subscription Agent by the close of business on April 21, 1999, which is the
third business day after the Expiration Date, unless extended by the Fund.
Failure to do so will result in a forfeiture of the Rights.
(continued on other side)
<PAGE> 2
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company guarantees delivery of payment to the Subscription Agent by the
close of business (5:00 p.m., New York City time) on the third business day
(April 21, 1999) after the Expiration Date (April 16, 1999 unless extended by
the Fund) of (i) a properly completed and executed Subscription Certificate and
(ii) payment of the full Subscription Price for shares subscribed for in the
Primary Subscription and pursuant to the Over-Subscription Privilege, if
applicable, as subscription for such shares is indicated herein or in the
Subscription Certificate.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1. Primary Subscription Number of Rights to be Number of Primary Shares Payment to be made in
exercised requested for which you are connection with
guaranteeing delivery of Primary Shares
Rights and Payment ________ $________
Shares (Rights / by 3)
- -------------------------------------------------------------------------------------------------------------
2. Over Subscription Number of Over-Subscription Payment to be made in
Shares requested for which you connection with
are guaranteeing payment Over-Subject Shares
________Shares $________
- -------------------------------------------------------------------------------------------------------------
3. Totals Total Number of Rights
to be Delivered $________
________ Rights Total Payment
- -------------------------------------------------------------------------------------------------------------
Method of Delivery of Rights A. Through The Depository Trust Company ("DTC")*
(circle one)
B. Direct to the Subscription Agent
</TABLE>
Please note that if you are guaranteeing for Over-Subscription Shares and
are a DTC participant, you must also execute and forward to Boston EquiServe, a
Nominee Holder Over-Subscription Exercise Form.
<TABLE>
<S> <C>
- ---------------------------------------------- ----------------------------------------------
Name of Firm Authorized Signature
- ---------------------------------------------- ----------------------------------------------
Address Title
- ---------------------------------------------- ----------------------------------------------
Zip Code Name (Please Type or Print)
- ----------------------------------------------
Name of Registered Holder
(If Applicable)
- ---------------------------------------------- ----------------------------------------------
Telephone Number Date
</TABLE>
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, CALL THE SUBSCRIPTION AGENT TO
OBTAIN A PROTECT IDENTIFICATION NUMBER, WHICH NEEDS TO BE COMMUNICATED BY YOU
TO DTC.
<PAGE> 1
BENEFICIAL OWNER LISTING CERTIFICATION
KEMPER HIGH INCOME TRUST RIGHTS OFFERING
The undersigned, a bank, broker or other nominee holder of rights
("Rights") to purchase Shares of Beneficial Interest, $0.01 par value (the
"Shares"), of Kemper High Income Trust (the "Fund") pursuant to the Rights
Offering (the "Offer") described and provided for in the Fund's Prospectus dated
March 22, 1999 (the "Prospectus"), hereby certifies to the Fund and to Boston
EquiServe, as Subscription Agent for such Offer, that for each numbered line
filled in below, the undersigned has exercised, on behalf of the beneficial
owner thereof (which may be the undersigned), the number of Rights specified on
such line pursuant to the Primary Subscription (as defined in the Prospectus)
and such beneficial owner wishes to subscribe for the purchase of additional
Shares of Beneficial Interest pursuant to the Over-Subscription Privilege (as
defined in the Prospectus), in the amount set forth in the third column of such
line.
<TABLE>
<CAPTION>
NUMBER OF RIGHTS NUMBER OF SHARES
NUMBER OF RECORD DATE EXERCISED PURSUANT TO THE REQUESTED PURSUANT TO THE
SHARES OWNED PRIMARY SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGE
<S> <C> <C> <C>
1 ---------------------------- ------------------------------------ --------------------------
2 ---------------------------- ------------------------------------ --------------------------
3 ---------------------------- ------------------------------------ --------------------------
4 ---------------------------- ------------------------------------ --------------------------
5 ---------------------------- ------------------------------------ --------------------------
6 ---------------------------- ------------------------------------ --------------------------
7 ---------------------------- ------------------------------------ --------------------------
8 ---------------------------- ------------------------------------ --------------------------
9 ---------------------------- ------------------------------------ --------------------------
10 ---------------------------- ------------------------------------ --------------------------
</TABLE>
- ------------------------------------ vested
Name of Nominee Holder
By:
- ----------------------------------------------------
Name:
- ---------------------------------------------
Title:
- -----------------------------------------------
Dated:
- ------------------------------------------, 1999
Provide the following information, if applicable:
- --------------------------------- Name of Broker: -----------------------
Depository Trust Company ("DTC")
Participant Number
- --------------------------------- Address: -----------------------------------
DTC Primary Subscription Confirmation Number(s)
<PAGE> 1
Exhibit (e)
KEMPER HIGH INCOME TRUST
DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
MARCH 19,1988
AS AMENDED ON JANUARY 17, 1989
AND FEBRUARY 28, 1992
1. PARTICIPATION. Shareholders of record of Kemper High Income Trust
(the "Fund") other than brokers or nominees may elect to be included In the
Dividend Reinvestment and Cash Purchase Plan (the "Plan") and shareholders who
so elect will be deemed to have appointed United Missouri Bank of Kansas City,
N.A. ("UMB") as their agent and as agent for the Fund under the Plan.
2. DIVIDEND INVESTMENT ACCOUNT. The Fund's transfer agent and dividend
disbursing agent or its delegate ("Agent") will establish a Dividend Investment
Account (the "Account") for each shareholder participating in the Plan. Agent
will credit to the Account of each participant funds it receives from the
following sources: (a) cash dividends and capital gains distributions paid on
shares of beneficial interest (the "Shares") of the Fund registered in the
participant's name on the books of the Fund; (b) cash dividends and capital
gains distributions paid on Shares registered In the name of Agent but credited
to the participant's Account; and (c) voluntary cash contributions made pursuant
to paragraph 4 hereof. Sources described In clauses (a) and (b) of the preceding
sentence are hereinafter called "Distributions."
3. INVESTMENT OF DISTRIBUTION FUNDS HELD IN EACH ACCOUNT. If, on the
record date for a Distribution (the "Record Date"), Shares are trading at a
discount from net asset value per Share (according to the evaluation most
recently made on Shares of the Fund), funds credited to a participant's Account
will be used to purchase Shares (the "Purchase"). UMB will attempt, commencing
five (5) days prior to the Payment Date and ending at the close of business on
the Payment Date ("Payment Date" As used herein shall mean the last business day
of the month in which such Record Date occurs), to acquire Shares in the open
market. If and to the extent that UMB is unable to acquire sufficient Shares to
satisfy the Distribution by the close of business on the Payment Date, the Fund
will issue to UMB Shares valued at net asset value per Share (according to the
evaluation most recently made on Shares of the Fund) in the aggregate amount of
the remaining value of the Distribution. If, on the Record Date, Shares are
trading at a premium over net asset value per Share, the Fund will issue on the
Payment Date, Shares valued at net asset value per Share on the Record Date to
Agent in the aggregate amount of the funds credited to the participants'
accounts. All cash contributions to a participant's Account made pursuant to
paragraph 4 hereof will be invested in Shares purchased in the open market.
<PAGE> 2
4. VOLUNTARY CASH CONTRIBUTIONS. A participant may from time to time
make voluntary cash contributions to his Account by sending to Agent a check or
money order, payable to Agent, in a minimum amount of $100 with appropriate
accompanying instructions. (No more than $500 may be contributed per month.)
Agent will inform UMB of the total funds available for the purchase of Shares
and UMB will use the funds to purchase additional Shares for the participant's
Account the earlier of: (a) when it next purchases Shares as a result of a
Distribution or (b) on or shortly after the first day of each month and in no
event more than 30 days after such date except when temporary curtailment or
suspension of purchases is necessary to comply with applicable provisions of
federal securities laws. Cash contributions received more than fifteen calendar
days or less than five calendar days prior to a Payment Date will be returned
uninvested. Interest will not be paid on any uninvested cash contributions.
Participants making voluntary cash investments will be charged a $.75 service
fee for each such Investment and will be responsible for their pro rata
brokerage commissions.
5. ADJUSTMENT OF PURCHASE PRICE. The Fund will Increase the price at
which Shares may be issued under the Plan to 95% of the fair market value of the
Shares on the Record Date if the net asset value per Share of the Shares on the
Record Date Is less than 95% of the fair market value of the Shares on the
Record Date.
6. DETERMINATION OF PURCHASE PRICE. The cost of Shares and fractional
Shares acquired for each participant's Account In connection with a Purchase
shall be determined by the average cost per Share, including brokerage
commissions as described in Paragraph 7 hereof, of the Shares acquired by UMB In
connection with that Purchase. Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as soon as practicable after
Agent has received or UMB has purchased Shares. Agent may mingle the cash In a
participant's account with similar funds of other participants of the Fund for
whom UMB acts as agent under the Plan.
7. BROKERAGE CHARGES. There will be no brokerage charges with respect
to Shares Issued directly by the Fund as a result of Distributions. However,
each participant will pay a pro rata share of brokerage commissions Incurred
with respect to UMB's open market purchases In connection with the reinvestment
of Distributions as well as from voluntary cash contributions. With respect to
purchases from voluntary cash contributions, UMB will charge a pro rata share of
the brokerage commissions. Brokerage charges for purchasing small amounts of
Shares for Individual Accounts through the Plan can be expected to be less than
the usual brokerage charges for such transactions, as UMB will be purchasing
Shares for all participants In blocks and prorating the lower commission thus
attainable.
8. SERVICES CHARGES. There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than service charges specified in
Paragraphs 4 and 12 hereof. However, the Fund reserves the right to amend the
Plan in the future to include a service charge.
9. TRANSFER OF SHARES HELD BY AGENT. Agent will maintain the
participant's Account, hold the additional Shares acquired through the Plan in
safekeeping and furnish the
<PAGE> 3
participant with written confirmation of all transactions in the Account. Shares
in the Account are transferable upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full Shares in a participant's
Account will be sent to the participant.
10. SHARES NOT HELD IN SHAREHOLDER'S NAME. Beneficial owners of Shares
which are held in the name of a broker or nominee will not be automatically
included in the Plan and will receive all distributions in cash. Such
shareholders should contact the broker or nominee in whose name their Shares are
held to determine whether and how they may participate in the Plan.
11. AMENDMENTS. Experience under the Plan may indicate that changes are
desirable. Accordingly, the Fund reserves the right to amend or terminate the
Plan, including provisions with respect to any Distribution paid subsequent to
notice thereof sent to participants in the Plan at least ninety days before the
record date for such Distribution.
12. WITHDRAWAL FROM PLAN. Shareholders may withdraw from the Plan at
any time by giving Agent a written notice. If the proceeds are $25,000 or less
and the proceeds are to be payable to the shareholder of record and mailed to
the address of record, a signature guarantee normally will not be required for
notices by individual account owners (including joint account owners), otherwise
a signature guarantee will be required. In addition, if the certificate is to be
sent to anyone other than the registered owner(s) at the address of record, a
signature guarantee will be required on the notice. A notice of withdrawal will
be effective for the next Distribution following receipt of the notice by the
Agent provided the notice is received by the Agent at least ten (10) days prior
to the Record Date for the Distribution. When a participant withdraws from the
Plan, or when the Plan is terminated in accordance with Paragraph 11 hereof, the
participant will receive a certificate for full Shares in the Account, plus a
check for any fractional Shares based on market price; or if a Participant so
desires, Agent win notify UMB to sell his Shares In the Plan and send the
proceeds to the participant, less brokerage commissions and a $2.50 service fee.
<PAGE> 1
Exhibit (g)
INVESTMENT MANAGEMENT AGREEMENT
KEMPER HIGH INCOME TRUST
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
SEPTEMBER 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
AMENDED and RESTATED
INVESTMENT MANAGEMENT AGREEMENT
Ladies and Gentlemen:
This Amended and Restated Investment Management Agreement between KEMPER HIGH
INCOME TRUST (the "Fund") and Scudder Kemper Investments, Inc. is effective as
of March 12, 1999.
The Fund has been established as a Massachusetts business trust to engage in the
business of an investment company. The Fund has issued shares of beneficial
interest (the "Shares").
The Fund has selected you to act as the investment manager of the Fund and to
provide certain other services, as more fully set forth below, and you have
indicated that you are willing to act as such investment manager and to perform
such services under the terms and conditions hereinafter set forth. Accordingly,
the Fund agrees with you as follows:
1. Delivery of Documents. The Fund engages in the business of investing and
reinvesting its assets in the manner and in accordance with its investment
objectives, policies and restrictions. The Fund has furnished you with copies
properly certified or authenticated of each of the following documents related
to the Fund:
(a) The Declaration of Trust ("Declaration"), as amended to date.
(b) By-Laws of the Fund as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Fund and the shareholders of the
Fund selecting you as investment manager and approving the form of this
Agreement.
The Fund will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with its investment objectives, policies and restrictions; the
applicable provisions of the Investment Company Act of 1940 (the "1940 Act") and
the Internal Revenue Code of 1986, as amended, (the "Code") relating to
regulated investment companies and all rules and regulations thereunder; and all
other applicable federal and state laws and regulations of which you have
knowledge; subject always to policies and instructions adopted by the Fund's
Board of Trustees. In connection therewith, you shall use reasonable efforts to
manage the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Fund. You shall
also make available to the Fund promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Fund in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any
<PAGE> 2
information or reports in connection with the services provided pursuant to this
Agreement which may be requested in order to ascertain whether the operations of
the Fund are being conducted in a manner consistent with applicable laws and
regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies.
You shall determine what portion of the Fund's portfolio shall be invested in
securities and other assets and what portion, if any, should be held uninvested.
You shall furnish to the Fund's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Fund's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Fund administrative services on behalf of
the Fund necessary for operating as a closed-end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Fund's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Fund's Registration Statement, and semi-annual
reports on Form N-SAR; overseeing the tabulation of proxies by the Fund's
transfer agent; assisting in the preparation and filing of the Fund's federal,
state and local tax returns; preparing and filing the Fund's federal excise tax
return pursuant to Section 4982 of the Code; providing assistance with investor
and public relations matters; monitoring the valuation of portfolio securities
and the calculation of net asset value; monitoring the registration of Shares of
the Fund under applicable federal and state securities laws; maintaining or
causing to be maintained for the Fund all books, records and reports and any
other information required under the 1940 Act, to the extent that such books,
records and reports and other information are not maintained by the Fund's
custodian or other agents of the Fund; assisting in establishing the accounting
policies of the Fund; assisting in the resolution of accounting issues that may
arise with respect to the Fund's operations and consulting with the Fund's
independent accountants, legal counsel and the Fund's other agents as necessary
in connection therewith; establishing and monitoring the Fund's operating
expense budgets; reviewing the Fund's bills; processing the payment of bills
that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Fund as it may reasonably request in the conduct of
the Fund's business, subject to the direction and control of the Fund's Board of
Trustees. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Fund or any other person not a
party to this Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Fund (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Fund, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
2
<PAGE> 3
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Fund; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Fund is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Fund business) of Trustees, officers and
employees of the Fund who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
statements of additional information of the Fund and supplements thereto; costs
of stationery; any litigation expenses; indemnification of Trustees and officers
of the Fund; and costs of shareholders' and other meetings.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Fund
shall pay you in United States Dollars on the last day of each month the unpaid
balance of a fee equal to the excess of (a) 1/12 of .85 of 1 percent of the
average weekly net assets of the Fund for such month; provided that, for any
calendar month during which the average of such values exceeds $250 million, the
fee payable for that month based on the portion of average of such values in
excess of $250 million shall be 1/12 of .75 of 1 percent of such portion over
(b) any compensation waived by you from time to time (as more fully described
below). You shall be entitled to receive during any month such interim payments
of your fee hereunder as you shall request, provided that no such payment shall
exceed 75 percent of the amount of your fee then accrued on the books of the
Fund and unpaid.
The net asset value of the Fund shall be calculated at such time or times as the
Trustees may determine in accordance with the provisions of the 1940 Act. On
each day when net asset value is not calculated, the net asset value shall be
deemed to be the net asset value as of the close of business on the last day on
which such calculation was made for the purpose of the foregoing computations.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies. If any
occasion should arise in which you give any advice to clients of yours
concerning the Shares of the Fund, you shall act solely as investment counsel
for such clients and not in any way on behalf of the Fund.
3
<PAGE> 4
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Fund. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Fund agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Fund or its
shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until April 1, 1998, and continue in force from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Trustees of the Fund, or by the vote of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder and
any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Fund's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Fund. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by the Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper High Income
Trust" refers to the Trustees under the Declaration collectively as Trustees and
not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Fund, shall be subject to claims
against or obligations of the Fund to any extent whatsoever, but that the Fund
estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Fund
pursuant to this Agreement shall be limited in all cases to the Fund and its
assets, and you shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Fund, or from any Trustee, officer,
employee or agent of the Fund.
4
<PAGE> 5
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
KEMPER HIGH INCOME TRUST
By:
--------------------------------------
President
The foregoing Agreement is
hereby accepted as of the
date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By:
--------------------------------------
Treasurer
5
<PAGE> 1
8,003,074 Common Shares of Beneficial Interest
Issuable Upon Exercise of Transferable Rights
to Subscribe for such Shares
DEALER MANAGER AGREEMENT
New York, New York
March 22, 1999
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Each of Kemper High Income Trust, a Massachusetts business
trust (the "Fund"), and Scudder Kemper Investments, Inc., a Delaware corporation
(the "Manager"), hereby confirms the agreement with and appointment by the Fund
of PaineWebber Incorporated to act as dealer manager (the "Dealer Manager") in
connection with the issuance by the Fund to the holders of record (the
"Holders") at the close of business on the record date set forth in the
Prospectus (as defined herein) (the "Record Date") transferable rights entitling
such Holders to subscribe for up to 8,003,074 shares (each a "Share" and,
collectively, the "Shares") of the Fund's common shares of beneficial interest,
par value $0.01 per share (the "Common Shares"), of the Fund (the "Offer").
Pursuant to the terms of the Offer, the Fund is issuing each Holder one
transferable right (each a "Right" and, collectively, the "Rights") for each
Common Share held by such Holder on the Record Date. Such Rights entitle holders
to acquire during the subscription period set forth in the Prospectus (the
"Subscription Period"), at the price set forth in such Prospectus (the
"Subscription Price"), one Share for each three Rights exercised (except that
any Holder who is issued fewer than three Rights will be able to subscribe for
one full Share pursuant to the primary subscription), on the terms and
conditions set forth in
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<PAGE> 2
such Prospectus. No fractional shares will be issued. Any Holder who fully
exercises all Rights initially issued to such Holder (other than those Rights
that cannot be exercised because they represent the right to acquire less than
one Share) will be entitled to subscribe for, subject to allocation, additional
Shares (the "Over-Subscription Privilege") on the terms and conditions set forth
in the Prospectus. The Rights are transferable and are expected to be listed on
the New York Stock Exchange, Inc. under the symbol "KHI.RT".
The Fund has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form N-2 (Nos. 333-72341 and
811-5482) and a related preliminary prospectus and preliminary statement of
additional information under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations of the Commission under the
Investment Company Act and the Securities Act (the "Rules and Regulations"),
and has filed such amendments to such registration statement on Form N-2, if
any, and such amended preliminary prospectuses and preliminary statements of
additional information as may have been required to the date hereof. If the
registration statement has not become effective, a further amendment to such
registration statement, including forms of a final prospectus and final
statement of additional information necessary to permit such registration
statement to become effective will promptly be filed by the Fund with the
Commission. If the registration statement has become effective and any
prospectus or statement of additional information contained therein omits
certain information at the time of effectiveness pursuant to Rule 430A of the
Rules and Regulations, a final prospectus and final statement of additional
information containing such omitted information will promptly be filed by the
Fund with the Commission in accordance with Rule 497(h) of the Rules and
Regulations. The term "Registration Statement" means the registration statement,
as amended, at the time it becomes or became effective, including financial
statements and all exhibits and all documents, if any, incorporated therein by
reference, and any information deemed to be included by Rule 430A. The term
"Prospectus" means the final prospectus and final statement of additional
information in the forms filed with the Commission pursuant to Rule 497(c), (e),
(h) or (j) of the Rules and Regulations, as the case may be, as from time to
time amended or supplemented pursuant to the Securities Act.
The Prospectus and letters to beneficial owners of Common
Shares of the Fund, subscription certificates and other forms used to exercise
rights, brochures, wrappers, any letters from the Fund to securities dealers,
commercial banks and other
2
<PAGE> 3
nominees and any newspaper announcements, press releases and other offering
materials and information that the Fund may use, approve, prepare or authorize
for use in connection with the Offer, are collectively referred to hereinafter
as the "Offering Materials".
1. Representations and Warranties.
a. The Fund represents and warrants to, and agrees with, the
Dealer Manager as of the date hereof, as of the date of the
commencement of the Offer (such later date being hereinafter
referred to as the "Representation Date") and as of the
Expiration Date (as defined below) that:
i. the Fund meets the requirements for use of Form N-2
under the Securities Act and the Investment Company
Act and the Rules and Regulations. At the time the
Registration Statement became or becomes effective,
the Registration Statement did or will contain all
statements required to be stated therein in
accordance with and did or will comply in all
material respects with the requirements of the
Securities Act, the Investment Company Act and the
Rules and Regulations and did not or will not contain
an 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. From the time the Registration Statement
became or becomes effective through the expiration
date of the Offer set forth in the Prospectus (the
"Expiration Date"), the Prospectus and the other
Offering Materials will not contain an untrue
statement of a material fact or omit to state any
material fact required to be stated therein or
necessary in order 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 Registration Statement, Prospectus or Offering
Materials made in reliance upon and in conformity
with information relating to the Dealer Manager
furnished to the Fund in writing by the Dealer
Manager expressly for use in the Registration
Statement, Prospectus or Offering Materials.
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<PAGE> 4
ii. the Fund has been duly organized and is validly
existing under the laws of the Commonwealth of
Massachusetts as a voluntary organization with
transferable shares of beneficial interest commonly
referred to as a Massachusetts business trust, has
full power and authority (corporate and other) to
conduct its business as described in the Registration
Statement and the Prospectus, currently maintains all
material governmental licenses, permits, consents,
orders, approvals, and other authorizations
(collectively, the "Licenses and Permits") necessary
to carry on its business as contemplated in the
Prospectus, and is duly qualified to do business in
each jurisdiction wherein it owns or leases real
property or in which the conduct of its business
requires such qualification, except where the failure
to be so qualified does not involve a material
adverse effect upon the Fund's business, properties,
financial position or results of operations. The Fund
has no subsidiaries.
iii. the Fund is duly registered with the Commission under
the Investment Company Act as a closed-end,
diversified management investment company, no order
of suspension or revocation of such registration has
been issued or proceedings there for initiated or, to
the knowledge of the Fund, threatened by the
Commission, all required action has been taken under
the Securities Act, the Investment Company Act and
any state securities laws to make the public offering
and consummate the issuance of the Rights and the
issuance and sale of the Shares by the Fund upon
exercise of the Rights, and the provisions of the
Fund's declaration of trust and by-laws comply as to
form in all material respects with the requirements
of the In vestment Company Act and the rules and
regulations thereunder.
iv. Ernst & Young LLP, the accountants who certified the
financial statements of the Fund set forth or
incorporated by reference in the Registration
Statement and the Prospectus, are independent public
accountants as required by the Investment Company Act
and the Rules and Regulations.
v. the financial statements of the Fund set forth or
incorporated by reference in the Registration
Statement and the Prospectus present fairly in all
material respects the financial condition of
4
<PAGE> 5
the Fund as of the dates or for the periods indicated
in conformity with generally accepted accounting
principles applied on a consistent basis; and the
information set forth in the Prospectus under the
headings "Fee Table" and "Financial Highlights"
presents fairly in all material respects the
information stated therein.
vi. the Fund has an authorized capitalization as set
forth in the Prospectus; the outstanding Common
Shares have been duly authorized and are validly
issued, fully paid and non- assessable by the Fund
and conform in all material respects to the
description thereof in the Prospectus under the
heading "Description of Shares of Beneficial
Interest"; the Rights have been duly authorized by
all requisite action on the part of the Fund for
issuance pursuant to the Offer; the Shares have been
duly authorized by all requisite action on the part
of the Fund for issuance and sale pursuant to the
terms of the Offer and, when issued and delivered by
the Fund pursuant to the terms of the Offer against
payment of the consideration set forth in the
Prospectus, will be validly issued, fully paid and
non-assessable by the Fund; the Shares and the
Rights conform in all material respects to all
statements relating thereto contained in the
Registration Statement, the Prospectus and the other
Offering Materials; and the issuance of each of the
Rights and the Shares is not subject to any
preemptive rights.
vii. the Fund has authorized the debt leverage set forth
in the Prospectus; the outstanding note with Bank of
America, due June 30, 1999 (the "Note"), has been
duly authorized and conforms in all material respects
to the description thereof in the Prospectus under
the heading "Information Regarding Senior
Securities".
viii. except as set forth in the Prospectus, subsequent to
the respective dates as of which information is
given in the Registration Statement and the
Prospectus, (A) the Fund has not incurred any
liabilities or obligations, direct or contingent, or
entered into any transactions, other than in the
ordinary
5
<PAGE> 6
course of business, that are material to the Fund,
(B) there has not been any material change in the
Common Shares or long-term debt of the Fund, or any
material adverse change, or any development involving
a prospective material adverse change, in the
condition (financial or other), business, prospects,
net worth or results of operations of the Fund
(excluding fluctuations in the Fund's net asset value
due to investment activities in the ordinary course
of business) and (C) except for the regular monthly
dividend on the outstanding Common Shares, there have
been no dividends or distributions paid or declared
in respect of the Fund's common shares.
ix. each of this agreement (the "Agreement"), the
Subscription Agency Agreement (the "Subscription
Agency Agreement") dated as of March 16, 1999 between
the Fund and BankBoston, N.A. (the "Subscription
Agent"), the Information Agent Agreement (the
"Information Agent Agreement") dated as of March 16,
1999 between the Fund and Shareholder Communications
Corporation (the "Information Agent"), the Investment
Management Agreement dated as of September 7, 1998,
as amended as of March 12, 1999, between the Fund and
the Manager (the "Investment Management Agreement"),
the Custodian Agreement dated as of March 1, 1995
between the Fund and Investors Fiduciary Trust
Company (the "Custodian Agreement"), the Agency
Agreement dated as of May 3, 1991 between the Fund
and Investors Fiduciary Trust Company (the "Transfer
Agency Agreement"), the Credit Agreement dated as of
June 20, 1996 between the Fund and Bank of America
(the "Note Agreement"), and the Note dated as of June
20, 1996 between the Fund and Bank of America
(collectively, all the foregoing are the "Fund
Agreements"), has been duly authorized, executed and
delivered by the Fund; each of the Fund Agreements
complies with all applicable provisions of the
Investment Company Act and the rules and regulations
under such Act in all material respects; and,
assuming due authorization, execution and delivery by
the other parties thereto, each of the Fund
Agreements constitutes a legal, valid, binding and
enforceable obligation of the Fund, subject to the
qualification that the enforceability of the Fund's
obligations thereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar
laws of general applicability relating to or
affecting creditors' rights, and to general
principles of equity (regardless of whether
6
<PAGE> 7
enforceability is considered in a proceeding in
equity or at law).
x. neither the issuance of the Rights, nor the issuance
and sale of the Shares, nor the execution or delivery
by the Fund of the Fund Agreements, nor the
performance and consummation by the Fund of any other
of the transactions contemplated in the Fund
Agreements, or any sub-custodial arrangements entered
into pursuant to the Custodian Agreement, nor the
consummation of the transactions contemplated
therein or in the Registration Statement conflict
with, result in a breach or violation of, or
constitute a default or an event of default under, or
result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets
of the Fund under the declaration of trust or by-laws
of the Fund, or the terms and provisions of any
material agreement, indenture, mortgage, loan
agreement, note, insurance or surety agreement, lease
or other instrument to which the Fund is a party or
by which it may be bound or to which any of the
property or assets of the Fund is subject, nor will
such action result in any violation of any order,
law, rule or regulation of any court or governmental
agency or body having jurisdiction over the Fund or
any of its properties.
xi. there is no pending or, to the knowledge of the Fund,
threatened action, suit or proceeding affecting the
Fund or to which the Fund is a party before or by any
court or governmental agency, authority or body or
any arbitrator which might result in any material
adverse change in the condition (financial or other),
business prospects, net worth or operations of the
Fund, or which might materially and adversely affect
the properties or assets thereof of a character
required to be disclosed in the Registration
Statement or the Prospectus.
xii. there are no franchises, contracts or other documents
of the Fund required to be described in the
Registration Statement or the Prospectus, or to be
filed or incorporated by reference as exhibits which
are not described or filed or incorporated by
reference therein as permitted by the Securities Act,
the In vestment Company Act or the Rules and
Regulations.
xiii. no consent, approval, authorization, notification or
order of, or
7
<PAGE> 8
filing with, any court or governmental agency or body
is legally required for the consummation by the Fund
of the transactions contemplated by the Fund
Agreements or the Registration Statement, except such
as have been obtained, or if the registration
statement filed with respect to the Shares is not
effective under the Securities Act as of the time of
execution hereof, such as may be required (and shall
be obtained as provided in this Agreement) under the
Investment Company Act, the Securities Act, the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and state securities laws.
xiv. the Common Shares have been duly listed on the New
York Stock Exchange, Inc. and prior to their issuance
the Shares and the Rights will have been duly
approved for listing, subject to official notice of
issuance, on the New York Stock Exchange, Inc.
xv. the Fund (A) has not taken, directly or indirectly,
any action designed to cause or to result in, or that
has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation of
the price of any security of the Fund to facilitate
the issuance of the Rights or the sale or resale of
the Rights and the Shares, (B) has not since the
filing of the Registration Statement sold, bid for or
purchased, or paid anyone any compensation for
soliciting purchases of, Common Shares of the Fund
(except for the solicitation of exercises of the
Rights pursuant to this Agreement) and (C) will not,
until the later of the expiration of the Rights or
the completion of the distribution (within the
meaning of the anti- manipulation rules under the
Exchange Act) of the Shares, sell, bid for or
purchase, pay or agree to pay to any person any
compensation for soliciting another to purchase any
other securities of the Fund (except for the
solicitation of exercises of the Rights pursuant to
this Agreement); provided that any action in
connection with the Fund's dividend reinvestment and
cash purchase plan will not be deemed to be within
the terms of this Section 1.a.xv.
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<PAGE> 9
xvi. the Fund has complied in all previous tax years, and
intends to direct the investment of the proceeds of
the offering described in the Registration Statement
and the Prospectus in such a manner as to continue to
comply, with the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended
("Subchapter M of the Code"), and has qualified and
intends to continue to qualify as a regulated
investment company under Subchapter M of the Code.
xvii. the Fund has complied in all previous years, and
intends to direct the investment of the proceeds of
the offering described in the Registration Statement
and the Prospectus in such a manner as to continue to
comply, with the diversification and asset coverage
requirements of the Investment Company Act.
b. The Manager represents and warrants to, and agrees with, the
Dealer Manager as of the date hereof, as of the Representation
Date and as of the Expiration Date that:
i. the Manager has been duly incorporated and is validly
existing as a corporation in good standing under the
laws of the State of Delaware and has full corporate
power and authority to own its properties and conduct
its business as described in the Registration
Statement and the Prospectus.
ii. the Manager is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and is not prohibited
by the Advisers Act or the Investment Company Act, or
the rules and regulations under such Acts, from
acting as investment adviser for the Fund as
contemplated in the Prospectus and the Investment
Management Agreement.
iii. each of this Agreement and the Investment Management
Agreement has been duly authorized, executed and
delivered by the Manager and is, assuming due
authorization, execution and delivery by the other
parties thereto, a legal, valid, binding and
enforceable obligation of the Manager, subject to the
qualification that the enforceability of the
Manager's
9
<PAGE> 10
obligations thereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws
relating to or affecting creditors' rights, and to
general principles of equity (regardless of whether
enforceability is considered in a proceeding in
equity or at law).
iv. neither the execution, delivery, performance and
consummation by the Manager of its obligations under
this Agreement or the Investment Management Agreement
nor the consummation of the transactions
contemplated therein or in the Registration
Statement nor the fulfillment of the terms thereof
will conflict with or violate the charter or by-laws
of the Manager, or result in a breach or violation
of, or constitute a default or an event of default
under the terms and provisions of any material
agreement, indenture, mortgage, loan agreement, note,
insurance or surety agreement, lease or other
instrument to which the Manager is a party or by
which it is bound or to which any of the property or
assets of the Manager is subject, nor will such
action result in any violation of any order, law,
rule or regulation of any United States court or
governmental agency or body having jurisdiction over
the Manager or any of its properties.
v. there is no pending action, suit or proceeding
affecting the Manager or to which the Manager is a
party that would materially affect the Manager's
ability to perform its obligations under this
Agreement or under the Investment Management
Agreement.
vi. All written information furnished by the Manager
specifically for use in the Registration Statement
and Prospectus, including, without limitation, the
description of the Manager, does not, and on the
Expiration Date will not, contain any untrue
statement of a material fact or omit to state any
material fact necessary to make the Registration
Statement and Prospectus not misleading.
vii. the Manager (A) has not taken, directly or
indirectly, any action designed to cause or to result
in, or that has constituted or which would reasonably
be expected to constitute, the stabilization or
manipulation of the price of any security of the Fund
to facilitate the issuance of the Rights or the sale
or resale of the Rights and the Shares, (B) has not
since the filing
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<PAGE> 11
of the Registration Statement sold, bid for or
purchased, or paid anyone any compensation for
soliciting purchases of, Common Shares of the Fund
(except for the solicitation of exercises of the
Rights pursuant to this Agreement) and (C) will not,
until the later of the expiration of the Rights or
the completion of the distribution (within the
meaning of the anti- manipulation rules under the
Exchange Act) of the Shares, sell, bid for or
purchase, pay or agree to pay any person any
compensation for soliciting another to purchase any
other securities of the Fund (except for the
solicitation of exercises of the Rights pursuant to
this Agreement); provided that any action in
connection with the Fund's dividend reinvestment and
cash purchase plan will not be deemed to be within
the terms of this Section 1.b.vii.
c. Any certificate required by this Agreement that is signed by
any officer of the Fund or the Manager and delivered to the
Dealer Manager or counsel for the Dealer Manager shall be
deemed a representation and warranty by the Fund or the
Manager, as the case may be, to the Dealer Manager, as to the
matters covered thereby.
2. Agreement to Act as Dealer Manager.
a. On the basis of the representations and warranties contained
herein, and subject to the terms and conditions of the Offer:
i. The Fund hereby appoints the Dealer Manager to
solicit the exercise of Rights and authorizes the
Dealer Manager to sell Shares purchased by the Dealer
Manager from the Fund though the exercise of Rights
as described herein; the Fund hereby authorizes the
Dealer Manager to form and manage a group of selling
broker-dealers (each a "Selling Group Member" and
collectively the "Selling Group") that enter into a
Selling Group Agreement with the Dealer Manager in
the form attached hereto as Exhibit A to solicit the
exercise of Rights and to sell Shares purchased by
the Selling Group Member from the Dealer Manager as
described herein; and the Fund hereby authorizes
other soliciting broker-dealers (each a "Soliciting
Dealer" and collectively the "Soliciting Dealers")
that enter into a Soliciting Dealer Agreement with
the Dealer Manager in the form attached hereto as
Exhibit B to solicit the exercise of Rights. The
Dealer Manager hereby agrees to solicit the exercise
of Rights in accordance with the Securities
11
<PAGE> 12
Act, the Investment Company Act and the Exchange Act,
and its customary practice subject to the terms and
conditions of this Agreement, the procedures
described in the Registration Statement, the
Prospectus and, where applicable, the terms and
conditions of such Selling Group Agreement or
Soliciting Dealer Agreement; and the Dealer Manager
hereby agrees to form and manage the Selling Group to
solicit the exercise of Rights and to sell Shares to
the Selling Group purchased by the Dealer Manager
from the Fund through the exercise of Rights as
described herein in accordance with the Securities
Act, the Investment Company Act and the Exchange Act,
and its customary practice subject to the terms and
conditions of this Agreement, the procedures
described in the Registration Statement, the
Prospectus and, where applicable, the terms and
conditions of the Selling Group Agreement.
ii. The Fund hereby authorizes the Dealer Manager to buy
and exercise Rights, including unexercised Rights
delivered to the Subscription Agent for resale and
Rights of Foreign Record Date Shareholders (as
defined in the Prospectus) held by the Subscription
Agent for which no instructions are received, on the
terms and conditions set forth in such Prospectus,
and to sell Shares to the public or to Selling Group
Members at the offering price set by the Dealer
Manager from time to time. Sales of Shares by the
Dealer Manager or Selling Group Members shall not be
at a price higher than the offering price set by the
Dealer Manager from time to time.
b. The Fund agrees to furnish, or cause to be furnished, to the
Dealer Manager, lists, or copies of those lists, showing the
names and ad dresses of, and number of Common Shares held by,
Holders as of the Record Date, and the Dealer Manager agrees
to use such information only in connection with the Offer, and
not to furnish the information to any other person except for
securities brokers and dealers that have been requested by the
Dealer Manager to solicit exercises of Rights.
c. The Dealer Manager agrees to provide to the Fund, in addition
to the services described in paragraph 2.a., financial
advisory and marketing
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<PAGE> 13
services in connection with the Offer. No advisory
fee, other than the fees provided for in Section 3 of
this Agreement and the reimbursement of the Dealer
Manager's out-of-pocket expenses as described in
Section 5 of this Agreement, will be payable by the
Fund, or any other party hereto, to the Dealer
Manager in connection with the financial advisory and
marketing services provided by the Dealer Manager
pursuant to this Section 2.c.
d. The Fund and the Dealer Manager agree that the Dealer
Manager is an independent contractor with respect to
the solicitation of the exercise of Rights and the
performance of financial advisory and marketing
services for the Fund contemplated by this Agreement.
e. In rendering the services contemplated by this
Agreement, the Dealer Manager will not be subject to
any liability to the Fund or the Manager or any of
their affiliates, for any act or omission on the part
of any soliciting broker or dealer (except with
respect to the Dealer Manager acting in such
capacity) or any other person, and the Dealer Manager
will not be liable for acts or omissions in
performing its obligations under this Agreement,
except for any losses, claims, damages, liabilities
and expenses that are finally judicially determined
to have resulted primarily from the bad faith,
willful misconduct or gross negligence of the Dealer
Manager or by reason of its failure to perform the
obligations and duties of the Dealer Manager under
this Agreement.
3. Dealer Manager Fees. In full payment for the financial
advisory, marketing and soliciting services rendered and to be
rendered hereunder by the Dealer Manager, the Fund agrees to
pay the Dealer Manager a fee (the "Dealer Manager Fee") equal
to 3.75% of the aggregate Subscription Price for the Shares
issued pursuant to the exercise of Rights and the
Over-Subscription Privilege. In full payment for the
soliciting efforts to be rendered, the Dealer Manager agrees
to reallow selling fees (the "Selling Fees") to Selling Group
Members equal to 2.50% of the Subscription Price per Share for
each Share issued pursuant to either (a) the exercise of
Rights and the Over-Subscription Privilege where such Selling
Group Member is so designated on the subscription form or (b)
the purchase for resale from the Dealer Manager in accordance
with the Selling Group Agreement. In full payment for the
soliciting efforts to be rendered, the Dealer Manager agrees
to reallow soliciting fees (the "Soliciting Fees") to
Soliciting Dealers equal to 0.50% of the Subscription Price
per Share for each Share issued pursuant to the exercise of
Rights and the Over-Subscription Privilege where such
Soliciting Dealer is so designated on the subscription form,
subject to a maximum fee
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<PAGE> 14
based on the number of Common Shares held by such Soliciting
Dealer through The Depository Trust Company ("DTC") on the
Record Date. The Dealer Manager agrees to pay the Selling Fees
or Solicitation Fees, as the case may be, to the broker-dealer
designated on the applicable portion of the form used by the
holder to exercise Rights and the Over-Subscription Privilege,
and if no broker-dealer is so designated or a broker-dealer is
otherwise not entitled to receive compensation pursuant to the
terms of the Selling Group Agreement or Soliciting Dealer
Agreement, then the Dealer Manager shall retain such Selling
Fee or Solicitation Fee for Shares issued pursuant to the
exercise of Rights and the Over-Subscription Privilege.
Payment to the Dealer Manager by the Fund will be in the form
of a wire transfer of same day funds to an account or accounts
identified by the Dealer Manager. Such payment will be made on
each date on which the Fund issues Shares after the Expiration
Date. Payment to a Selling Group Member or Soliciting Dealer
will be made by the Dealer Manager directly to such Selling
Group Member or Soliciting Dealer by check to an address
identified by such broker-dealer. Such payments shall be made
on or before the tenth business day following the day the Fund
issues Shares after the Expiration Date.
4. Other Agreements.
a. The Fund covenants with the Dealer Manager as follows:
i. The Fund will use its best efforts to cause the
Registration Statement to become effective and
maintain its effectiveness under the Securities Act,
and will advise the Dealer Manager promptly as to the
time at which the Registration Statement and any
amendments thereto (including any post-effective
amendment) becomes so effective.
ii. The Fund will notify, and confirm the notice in
writing to, the Dealer Manager immediately (A) of the
effectiveness of the Registration Statement and any
amendment thereto (including any post-effective
amendment), (B) of the receipt of any comments from
the Commission, (C) of any request by the Commission
for any amendment to the Registration Statement or
any amendment or supplement to the Prospectus or for
14
<PAGE> 15
additional information, (D) of the issuance by the
Commission of any stop order suspending the
effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, and
(E) of the suspension of the qualification of the
Shares or the Rights for offering or sale in any
jurisdiction. The Fund will make every reasonable
effort to prevent the issuance of any stop order
described in subsection (D) hereunder and, if any
such stop order is issued, to obtain the lifting
thereof at the earliest possible moment.
iii. The Fund will give the Dealer Manager notice of its
intention to file any amendment to the Registration
Statement (including any post-effective amendment)
or any amendment or supplement to the Prospectus
(including any revised prospectus which the Fund
proposes for use by the Dealer Manager in connection
with the Offer, which differs from the prospectus on
file at the Commission at the time the Registration
Statement becomes effective, whether or not such
revised prospectus is required to be filed pursuant
to Rule 497(c), (e) or (h) of the Rules and
Regulations), whether pursuant to the Investment
Company Act, the Securities Act, or otherwise, and
will furnish the Dealer Manager with copies of any
such amendment or supplement a reasonable amount of
time prior to such proposed filing or use, as the
case may be, and will not file any such amendment or
supplement to which the Dealer Manager or counsel
for the Dealer Manager shall reasonably object.
iv. The Fund will, without charge, deliver to the Dealer
Manager, as soon as practicable, the number of copies
(one of which is manually executed) of the
Registration Statement as originally filed and of
each amendment thereto as it may reasonably request,
in each case with the exhibits filed therewith.
v. The Fund will, without charge, furnish to the Dealer
Manager, from time to time during the period when the
Prospectus is required to be delivered under the
Securities Act, such number of copies of the
Prospectus (as amended or supplemented) as the Dealer
Manager may reasonably request for the purposes
contemplated by the Securities Act or the Rules and
Regulations.
vi. If any event shall occur as a result of which it is
necessary, in
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<PAGE> 16
the reasonable opinion of counsel for the Dealer
Manager, to amend or supplement the Registration
Statement or the Prospectus in order to make the
Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to
a Holder, the Fund will forthwith amend or supplement
the Prospectus by preparing and filing with the
Commission (and furnishing to the Dealer Manager a
reasonable number of copies of) an amendment or
amendments of the Registration Statement or an
amendment or amendments of or a supplement or
supplements to the Prospectus (in form and substance
satisfactory to counsel for the Dealer Manager), at
the Fund's expense, which will amend or supplement
the Registration Statement or the Prospectus so that
the Prospectus will not contain an untrue statement
of a material fact or omit to state a material fact
required to be stated therein or necessary in order
to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is
delivered to a Holder, not misleading.
vii. The Fund will endeavor, in cooperation with the
Dealer Manager and its counsel, to assist such
counsel to qualify the Rights and the Shares for
offering and sale under the applicable securities
laws of such states and other jurisdictions of the
United States as the Dealer Manager may designate and
maintain such qualifications in effect for the
duration of the Offer; provided, however, that the
Fund will not be obligated to file any general
consent to service of process, or to qualify as a
foreign corporation or as a dealer in securities in
any jurisdiction in which it is not now so
qualified. The Fund will file such statements and
reports as may be required by the laws of each
jurisdiction in which the Rights and the Shares have
been qualified as above provided.
viii. The Fund will make generally available to its
security holders as soon as practicable, but no later
than 60 days after the end of the Fund's fiscal
semi-annual or fiscal year-end period covered
thereby, an earnings statement (which need not be
audited) (in form complying with the provisions of
Rule 158 of the Rules and Regulations of the
Securities Act) covering a
16
<PAGE> 17
twelve-month period beginning not later than the
first day of the Fund's fiscal semi-annual period
next following the "effective" date (as defined in
said Rule 158) of the Registration Statement.
ix. For a period of 180 days from the date of this
Agreement, the Fund will not, without the prior
consent of the Dealer Manager, which consent will
not be unreasonably withheld, offer or sell, or enter
into any agreement to sell, any equity or equity
related securities of the Fund or securities
convertible into such securities, other than the
Rights and the Shares and the Common Shares issued in
reinvestment of dividends or distributions.
x. The Fund will use the net proceeds from the Offer as
set forth under "Use of Proceeds" in the Prospectus.
xi. The Fund will use its best efforts to cause the
Rights and the Shares to be duly authorized for
listing by the New York Stock Exchange, Inc. prior to
the time the Rights are issued.
xii. The Fund will use its best efforts to maintain its
qualification as a regulated investment company under
Subchapter M of the Code.
xiii. The Fund will use its best efforts to apply the net
proceeds from the Offer consistent with the
diversification and asset coverage requirements of
the Investment Company Act.
xiv. The Fund will advise or cause the Subscription Agent
(A) to advise the Dealer Manager and, only where
specifically noted, each Selling Group Member who
specifically requests, from day to day during the
period of, and promptly after the termination of,
the Offer, as to the names and addresses of all
Holders exercising Rights, the total number of Rights
exercised by each Holder during the immediately
preceding day, indicating the total number of Rights
verified to be in proper form for exercise, rejected
for exercise and being processed and, for the Dealer
Manager and each Selling Group Member, the number of
Rights exercised on subscription certificates
indicating the Dealer Manager or such Selling Group
Member, as the case may be, as the broker-dealer with
respect to such exercise, and as to such other
information as
17
<PAGE> 18
the Dealer Manager may reasonably request; and will
notify the Dealer Manager and each Selling Group
Member, not later than 5:00 P.M., New York City time,
on the first business day following the Expiration
Date, of the total number of Rights exercised and
Shares related thereto, the total number of Rights
verified to be in proper form for exercise, rejected
for exercise and being processed and, for the Dealer
Manager and each Selling Group Member, the number of
Rights exercised on subscription certificates
indicating the Dealer Manager or such Selling Group
Member, as the case may be, as the broker-dealer with
respect to such exercise, and as to such other
information as the Dealer Manager may reasonably
request; (B) to sell any Rights received for resale
from Holders exclusively to or through the Dealer
Manager, which may, at its election, purchase such
Rights as principal or act as agent for the resale
thereof; and (C) to issue Shares upon the Dealer
Manager's exercise of Rights no later than the close
of business on the business day following the day
that full payment for such Shares has been received
by the Subscription Agent.
b. Neither the Fund nor the Manager will take, directly or
indirectly, any action designed to cause or to result in, or
that has constituted or which would reasonably be expected to
constitute, the stabilization or manipulation of the price of
any security of the Fund to facilitate the issuance of the
Rights or the sale or resale of the Rights or the Shares;
provided that any action in connection with the Fund's
dividend reinvestment and cash purchase plan will not be
deemed to be within the meaning of this Section 4.b.
5. Payment of Expenses.
a. The Fund will pay all expenses incident to the performance of
its obligations under this Agreement, including, but not
limited to, expenses relating to (i) the printing and filing
of the Registration Statement as originally filed and of each
amendment thereto, (ii) the preparation, issuance and delivery
of the certificates for the Shares and subscription
certificates relating to the Rights, (iii) the fees and
disbursements of the Fund's counsel (including the fees and
18
<PAGE> 19
disbursements of local counsel) and accountants, (iv) the
qualification of the Rights and the Shares under securities
laws in accordance with the provisions of Section 4.a.vii. of
this Agreement, including filing fees, (v) the printing or
other production and delivery to the Dealer Manager of copies
of the Registration Statement as originally filed and of each
amendment thereto and of the Prospectus and any amendments or
supplements thereto, (vi) the fees and expenses incurred with
respect to filing with the National Association of Securities
Dealers, Inc., (vii) the fees and expenses incurred in
connection with the listing of the Shares on the New York
Stock Exchange, Inc., (viii) the printing or other
production, mailing and delivery expenses incurred in
connection with Offering Materials and (ix) the fees and
expenses incurred with respect to the Subscription Agent and
the Information Agent.
b. In addition to any fees that may be payable to the Dealer
Manager under this Agreement, the Fund agrees to reimburse the
Dealer Manager upon request made from time to time for its
reasonable expenses incurred in connection with its activities
under this Agreement, including the reasonable fees and
disbursements of its legal counsel (excluding Blue Sky filing
fees which are paid directly by the Fund), in an amount up to
$100,000.
c. If this Agreement is terminated by the Dealer Manager in
accordance with the provisions of Section 6 or Section 9.a.i.,
9.a.ii. or 9.a.iii., the Fund agrees to reimburse the Dealer
Manager for all of its reasonable out-of-pocket expenses
incurred in connection with its performance hereunder,
including the reasonable fees and disbursements of counsel for
the Dealer Manager. In the event the transactions contemplated
hereunder are not consummated, the Fund agrees to pay all of
the costs and expenses set forth in paragraphs 5.a. and 5.b.
which the Fund would have paid if such transactions had been
consummated.
6. Conditions of the Dealer Manager's Obligations. The obligations of the
Dealer Manager hereunder are subject to the accuracy of the respective
representations and warranties of the Fund and the Manager contained
herein, to the performance by the Fund and the Manager of their
respective obligations hereunder, and to the following further
conditions:
a. The Registration Statement shall have become effective not
later than 5:30 P.M., New York City time, on the Record Date,
or at such later time and date as may be approved by the
Dealer Manager; the Prospectus and any amendment or
supplement thereto shall have been
19
<PAGE> 20
filed with the Commission in the manner and within the time
period required by Rule 497(c), (e), (h) or (j), as the case
may be, under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment
thereto shall have been is sued, and no proceedings for that
purpose shall have been instituted or threatened or, to the
knowledge of the Fund, the Manager or the Dealer Manager,
shall be contemplated by the Commission; and the Fund shall
have complied with any request of the Commission for
additional information (to be included in the Registration
Statement, the Prospectus or otherwise).
b. On the Representation Date and the Expiration Date, the Dealer
Manager shall have received:
i. The favorable opinions, dated the Representation Date
and the Expiration Date, of Dechert, Price & Rhoads,
counsel for the Fund, in form and substance
satisfactory to counsel for the Dealer Manager to the
effect that:
(1) the Fund has been duly organized and is
validly existing under the laws of the
Commonwealth of Massachusetts as a
voluntary organization with transferable
shares of beneficial interest commonly
referred to as a Massachusetts business
trust, has full power and authority
(corporate and other) to conduct its
business as described in the Registration
Statement and the Prospectus, currently
maintains all material Licenses and Permits
necessary to carry on its business as
contemplated in the Prospectus (except that
counsel need express no opinion as to
securities or "blue sky" laws of any state),
and is duly qualified to do business in each
jurisdiction wherein it owns or leases real
property or in which the conduct of its
business requires such qualification,
except where the failure to be so qualified
does not involve a material adverse effect
upon the Fund's business, properties,
financial position or results of operations.
(2) the Fund is duly registered with the
Commission under
20
<PAGE> 21
the Investment Company Act as a closed-end,
diversified management investment company,
and, to the knowledge of such counsel, no
order of suspension or revocation of such
registration has been issued or proceedings
therefor initiated or threatened by the
Commission, all required action has been
taken under the Securities Act and the
Investment Company Act to make the public
offering and consummate the issuance of the
Rights and the issuance and sale of the
Shares by the Fund upon exercise of the
Rights, and the provisions of the Fund's
declaration of trust and by-laws comply as
to form in all material respects with the
requirements of the Investment Company Act
and the rules and regulations thereunder.
(3) the Fund's authorized capitalization is as
set forth in the Prospectus; the outstanding
Common Shares have been duly authorized and
are validly issued, fully paid and
non-assessable by the Fund and conform in
all material respects to the description
thereof in the Prospectus under the heading
"Description of Shares of Beneficial
Interest"; the Rights have been duly
authorized by all requisite action on the
part of the Fund for issuance pursuant to
the Offer; the Shares have been duly
authorized by all requisite action on the
part of the Fund for issuance and sale
pursuant to the terms of the Offer and, when
issued and delivered by the Fund pursuant to
the terms of the Offer against payment of
the consideration set forth in the
Prospectus, will be validly issued, fully
paid and non-assessable by the Fund; the
Shares and the Rights conform in all
material respects to all statements relating
thereto contained in the Registration
Statement, the Prospectus and the other
Offering Materials; and the issuance of each
of the Rights and the Shares is not subject
to any preemptive rights.
(4) the Fund has authorized the debt leverage
set forth in the Prospectus; the outstanding
Note has been duly authorized and conforms
in all material respects to the description
thereof in the Prospectus under the heading
"Information Regarding Senior Securities".
21
<PAGE> 22
(5) each of the Fund Agreements has been duly
authorized, executed and delivered by the
Fund; each of the Fund Agreements complies
with all applicable provisions of the
Investment Company Act and the rules and
regulations under such Act in all material
respects; and, assuming due authorization,
execution and delivery by the other parties
thereto, each of the Fund Agreements
constitutes a legal, valid, binding and
enforceable obligation of the Fund, subject
to the qualification that the enforceability
of the Fund's obligations thereunder may be
limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws
of general applicability relating to or
affecting creditors' rights, and to general
principles of equity (regardless of whether
enforce ability is considered in a
proceeding in equity or at law).
(6) neither the issuance of the Rights, nor the
issuance and sale of the Shares, nor the
execution and delivery by the Fund of the
Fund Agreements, nor the performance and
consummation by the Fund of any other of the
transactions contemplated in the Fund
Agreements, or any sub-custodial
arrangements entered into pursuant to the
Custodian Agreement, nor the consummation of
the transactions contemplated therein or in
the Registration Statement conflict with,
result in a breach or violation of, or
constitute a default or an event of default
under, or result in the creation or
imposition of any lien, charge or
encumbrance upon any properties or assets of
the Fund under the declaration of trust or
by-laws of the Fund, or the terms and
provisions of any material agreement,
indenture, mortgage, loan agreement, note,
insurance or surety agreement, lease or
other instrument to which the Fund is a
party or by which it may be bound or to
which any of the property or assets of the
Fund is subject, nor, to the knowledge of
such counsel, will such action result in any
violation of any order, law, rule or
regulation of any court or governmental
agency or body having jurisdiction over
22
<PAGE> 23
the Fund or any of its properties.
(7) to the knowledge of such counsel, there is
no pending or, to the knowledge of such
counsel, threatened action, suit or
proceeding to which the Fund is a party
before or by any court or governmental
agency, authority or body or any arbitrator
which might result in any material adverse
change in the condition (financial or
other), business prospects, net worth or
operations of the Fund, or which might
materially and adversely affect the
properties or assets thereof of a character
required to be disclosed in the Registration
Statement or the Prospectus.
(8) to the knowledge of such counsel, there are
no franchises, contracts or other documents
of the Fund required to be described in the
Registration Statement or the Prospectus, or
to be filed or incorporated by reference as
exhibits which are not described or filed or
incorporated by reference therein as
permitted by the Securities Act, the
Investment Company Act or the Rules and
Regulations.
(9) no consent, approval, authorization,
notification or order of, or filing with,
any court or governmental agency or body is
required for the consummation by the Fund of
the transactions contemplated by the Fund
Agreements or the Registration Statement,
except (A) such as have been obtained and
(B) such as may be required under the blue
sky laws of any jurisdiction in connection
with the transactions contemplated hereby.
(10) the Common Shares have been duly listed on
the New York Stock Exchange, Inc. and the
Shares and the Rights have been duly
approved for listing, subject to official
notice of issuance, on the New York Stock Ex
change, Inc.
(11) the Registration Statement is effective
under the Securities Act; any required
filing of the Prospectus or any supplement
thereto pursuant to Rule 497(c), (e), (h) or
(j) required to be made prior to the date
hereof has been made in the manner and
within the time
23
<PAGE> 24
period required by Rule 497(c), (e), (h) or
(j), as the case may be; to the knowledge of
such counsel, no stop order suspending the
effectiveness of the Registration Statement
has been issued, and no proceedings for that
purpose have been instituted or threatened;
and the Registration Statement, the
Prospectus and each amendment thereof or
supplement thereto (other than the financial
statements, schedules, the notes thereto and
the schedules and other financial, economic
and statistical data contained or
incorporated by reference therein or omit
ted therefrom, as to which such counsel need
express no opinion) as of their respective
effective or issue dates complied as to form
in all material respects with the applicable
requirements of the Securities Act and the
Investment Company Act and the Rules and
Regulations.
(12) the statements in the Prospectus under the
heading "Federal Taxation" fairly present
the information disclosed therein in all
material respects.
In rendering such opinion, such counsel may rely as
to matters of fact, to the extent they deem proper,
on certificates of responsible officers of the Fund
and public officials.
Such counsel shall also have stated that, while they
have not themselves checked the accuracy and
completeness of or otherwise verified, and are not
passing upon and assume no responsibility for the
accuracy or completeness of, the statements contained
in the Registration Statement or the Prospectus, in
the course of their review and discussion of the
contents of the Registration Statement and Prospectus
with certain officers and employees of the Fund and
its independent accountants, no facts have come to
their attention which cause them to believe that the
Registration Statement, on the date it be came
effective, 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 contained therein not misleading or
that the Prospectus, as of its date and on the
24
<PAGE> 25
Representation Date or the Expiration Date, as the
case may be, contained any untrue statement of a
material fact or omit ted to state any material fact
required to be stated therein or necessary to make
the statements therein, in the light of the
circumstances under which they were made, not
misleading.
ii. The opinion, dated the Representation Date and the
Expiration Date, of Debevoise & Plimpton, counsel for
the Manager to the effect that:
(1) the Manager has been duly incorporated and
is validly existing as a corporation in good
standing under the laws of the State of
Delaware and has full corporate power and
authority to own its properties and conduct
its business as described in the
Registration Statement and the Prospectus.
(2) the Manager is duly registered as an
investment adviser under the Advisers Act,
and is not prohibited by the Advisers Act or
the Investment Company Act, or the rules and
regulations under such Acts, from acting as
investment adviser for the Fund as
contemplated in the Prospectus and the
Investment Management Agreement.
(3) each of this Agreement and the Investment
Management Agreement has been duly
authorized, executed and delivered by the
Manager and is, assuming due authorization,
execution and delivery by the other parties
thereto, a legal, valid, binding and
enforceable obligation of the Manager,
subject to the qualification that the
enforceability of the Manager's obligations
thereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium or
other laws relating to or affecting
creditors' rights, and to general principles
of equity (regardless of whether
enforceability is considered in a
proceeding in equity or at law).
(4) neither the execution, delivery, performance
and con summation by the Manager of its
obligations under this Agreement or the
Investment Management Agreement nor the
consummation of the transactions
25
<PAGE> 26
contemplated therein or in the Registration
Statement nor the fulfillment of the terms
thereof will conflict with or violate the
charter or by-laws of the Manager, or, to
the knowledge of such counsel, result in a
breach or violation of, or constitute a
default or an event of default under the
terms and provisions of any agreement,
indenture, mortgage, loan agreement, note,
insurance or surety agreement, lease or
other instrument to which the Manager is a
party or by which it is bound or to which
any of the property or assets of the Manager
is subject, nor will such action result in
any violation of any order, law, rule or
regulation of any United States court or
governmental agency or body having
jurisdiction over the Manager or any of its
properties.
In rendering such opinion, such counsel may rely as
to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of
the Manager and public officials.
c. The Dealer Manager shall have received from Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel for the Dealer
Manager, such opinion or opinions, dated the Representation
Date and the Expiration Date, with respect to the Offer, the
Registration Statement, the Prospectus and other related
matters as the Dealer Manager may reason ably require, and the
Fund shall have furnished to such counsel such documents as
they reasonably request for the purpose of enabling them to
pass upon such matters.
d. The Fund shall have furnished to the Dealer Manager
certificates of the Fund, signed by the President, the
Treasurer, the Secretary or a Vice President of the Fund,
dated the Representation Date and the Expiration Date, to the
effect that the signer(s) of such certificate care fully
examined the Registration Statement, the Prospectus, any
supplement to the Prospectus and this Agreement and that, to
the best of their knowledge:
i. the representations and warranties of the Fund in
this Agreement are true and correct in all material
respects on and
26
<PAGE> 27
as of the Representation Date or the Expiration Date,
as the case may be, with the same effect as if made
on the Representation Date or the Expiration Date, as
the case may be, and the Fund has complied with all
the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to
the Representation Date or the Expiration Date, as
the case may be;
ii. no stop order suspending the effectiveness of the
Registration Statement has been issued and no
proceedings for that purpose have been instituted or,
to the Fund's knowledge, threatened; and
iii. since the date of the most recent balance sheet
included or incorporated by reference in the
Prospectus, there has been no material adverse change
in the condition (financial or other), earnings,
business, prospects, net worth or results of
operations of the Fund (excluding fluctuations in the
Fund's net asset value due to investment activities
in the ordinary course of business), except as set
forth in or contemplated in the Prospectus.
e. The Manager shall have furnished to the Dealer Manager
certificates of the Manager, signed by the President,
Treasurer, Secretary or Vice President, dated the
Representation Date and the Expiration Date, to the effect
that to the best knowledge of such signer, the representa-
tions and warranties of the Manager in this Agreement are true
and correct in all material respects on and as of the
Representation Date or the Expiration Date, as the case may
be, with the same effect as if made on the Representation Date
or the Expiration Date, as the case may be.
f. Ernst & Young LLP shall have furnished to the Dealer Manager
letters, dated the Representation Date and the Expiration
Date, in form and substance satisfactory to the Dealer Manager
stating in effect that:
i. they are independent accountants with respect to the
Fund within the meaning of the Securities Act and the
applicable Rules and Regulations;
ii. in their opinion, the audited financial statements
examined by them and included or incorporated by
reference in the Registration Statement comply as to
form in all material
27
<PAGE> 28
respects with the applicable accounting requirements
of the Securities Act and the Investment Company Act
and the respective Rules and Regulations with respect
to registration statements on Form N-2;
iii. they have performed specified procedures, not
constituting an audit in accordance with generally
accepted auditing standards, including a reading of
the latest available unaudited financial information
of the Fund, a reading of the minute books of the
Fund, and inquiries of officials of the Fund
responsible for financial and accounting matters and
on the basis of such inquiries and procedures nothing
came to their attention that caused them to believe
that at a specified date not more than five business
days prior to the Representation Date or the
Expiration Date, as the case may be, there was any
change in the common shares, any decrease in net
assets or any increase in long-term debt of the Fund
as compared with amounts shown in the most recent
statement of assets and liabilities included or
incorporated by reference in the Registration
Statement, except as the Registration Statement
discloses has occurred or may occur, or they shall
state any specific changes, increases or decreases;
iv. in addition to the procedures referred to in clause
iii. above, they have compared certain dollar amounts
(or percentages as derived from such dollar amounts)
and other financial information regarding the
operations of the Fund appearing in the Registration
Statement, which have previously been specified by
the Dealer Manager and which shall be specified in
such letter, and have found such items to be in
agreement with, the accounting and financial records
of the Fund.
g. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there
shall not have been (i) any change, increase or decrease
specified in the letter or letters referred to in paragraph
6.f., or (ii) any change, or any development involving a
prospective change, in or affecting the business or properties
of the Fund, the effect of which, in any case referred to in
clause (i) or (ii) above, is, in the reasonable judgment of
28
<PAGE> 29
the Dealer Manager, so material and adverse as to make it
impractical or inadvisable to proceed with the Offer as
contemplated by the Registration Statement and the Prospectus.
h. Prior to the Representation Date, the Fund shall have
furnished to the Dealer Manager such further information,
certificates and documents as the Dealer Manager may
reasonably request.
i. If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as
provided in this Agreement or waived by the Dealer Manager,
or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material
respects satisfactory in form and substance to the Dealer
Manager and its counsel, this Agreement and all obligations of
the Dealer Manager hereunder may be canceled at, or at any
time prior to, the Expiration Date by the Dealer Manager.
Notice of such cancellation shall be given to the Fund in
writing or by telephone confirmed in writing.
7. Indemnification and Contribution.
a. The Fund will indemnify and hold harmless the Dealer Manager,
the directors, officers, employees and agents of the Dealer
Manager and each person, if any, who controls the Dealer
Manager within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act from and against any and
all losses, claims, liabilities, expenses and damages
(including, but not limited to, any and all investigative,
legal and other expenses reasonably incurred in connection
with, and any and all amounts paid in settlement of, any
action, suit or proceeding between any of the indemnified
parties and any indemnifying parties or between any
indemnified party and any third party, or otherwise, or any
claim asserted), as and when incurred to which the Dealer
Manager, or any such person, may become subject under the
Securities Act, the Exchange Act, the Investment Company Act,
the Advisers Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such
losses, claims, liabilities, expenses or damages arise out of
or are based on (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration
Statement, the Prospectus or Offering Materials, or any
amendment or supplement to the Registration Statement, the
Prospectus or Offering Materials, or in any application or
other document executed by or on behalf of the Fund or based
on written information furnished by or on behalf of the Fund
filed in any
29
<PAGE> 30
jurisdiction in order to qualify the Rights or the Shares
under the securities laws thereof or filed with the
Commission, (ii) the omission or alleged omission to state in
such document a material fact required to be stated in it or
necessary to make the statements in it not misleading or
(iii) any act or failure to act or any alleged act or failure
to act by the Dealer Manager in connection with, or relating
in any manner to, the Rights or the Shares or the offering
contemplated hereby, and which is included as part of or
referred to in any loss, claim, liability, expense or damage
arising out of or based upon matters covered by clause (i) or
(ii) above (provided that the Fund shall not be liable under
this clause (iii) to the extent it is finally judicially
determined by a court of competent jurisdiction that such
loss, claim, liability, expense or damage resulted directly
from any such acts or failures to act undertaken or omitted to
be taken by such Dealer Manager through its gross negligence
or willful misconduct); provided that the Fund will not be
liable to the extent that such loss, claim, liability, expense
or damage arises from the sale of the Shares in the public
offering to any person by the Dealer Manager and is based on
an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with
information relating to the Dealer Manager furnished in
writing to the Fund by the Dealer Manager expressly for
inclusion in the Registration Statement, the Prospectus or
Offering Materials. This indemnity agreement will be in
addition to any liability that the Fund might otherwise have.
b. The Manager will indemnify and hold harmless the Dealer
Manager, the directors, officers, employees and agents of the
Dealer Manager and each person, if any, who controls the
Dealer Manager within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act from and
against any and all losses, claims, liabilities, expenses and
damages (including, but not limited to, any and all
investigative, legal and other expenses reasonably incurred in
connection with, and any and all amounts paid in settlement
of, any action, suit or proceeding between any of the
indemnified parties and any indemnifying parties or between
any indemnified party and any third party, or otherwise, or
any claim asserted), as and when incurred to which the Dealer
Manager, or any such person, may become subject under the
Securities Act, the Exchange Act, the Investment Company Act,
the Advisers Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such
losses, claims, liabilities, expenses or damages arise out of
or are based on any untrue statement or alleged untrue
statement of a material fact contained in the Registration
Statement, the Prospectus or Offering
30
<PAGE> 31
Materials, or any amendment or supplement to the Registration
Statement, the Prospectus or Offering Materials, or arise out
of or are based on the omission or alleged omission to state
in such document a material fact required to be stated in it
or necessary to make the statements in it not misleading, in
each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and conformity with
written information furnished to the Fund by the Manager
specifically for use therein; provided that the Manager will
not be liable to the extent that such loss, claim, liability,
expense or damage arises from the sale of the Shares in the
public offering to any person by the Dealer Manager and is
based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity
with information relating to the Dealer Manager furnished in
writing to the Fund by the Dealer Manager expressly for
inclusion in the Registration Statement, the Prospectus or
the Offering Materials. This indemnity agreement will be in
addition to any liability that the Manager might otherwise
have.
c. The Dealer Manager will indemnify and hold harmless the Fund
and the Manager, each person, if any, who controls the Fund or
the Manager within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, each trustee
of the Fund and each officer of the Fund who signs the
Registration Statement to the same extent as the foregoing
indemnities from the Fund or the Manager to the Dealer
Manager, but only insofar as losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission
made in reliance on and in conformity with information
relating to the Dealer Manager furnished in writing to the
Fund by the Dealer Manager expressly for use in the
Registration Statement, Prospectus or Offering Materials. This
indemnity will be in addition to any liability that the Dealer
Manager might otherwise have.
d. Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of
which a claim is to be made against an indemnifying party or
parties under this Section 7, notify each such indemnifying
party of the commencement of such
31
<PAGE> 32
action, enclosing a copy of all papers served, but the
omission to so notify such indemnifying party will not relieve
it from any liability that it may have to any indemnified
party under the foregoing provision of this Section 7 unless,
and only to the extent that, such omission results in the
forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any
indemnified party and it notifies the indemnifying party of
its commencement, the indemnifying party will be entitled to
participate in and, to the extent that it elects by delivering
written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party
similarly notified, to assume the defense of the action, with
counsel satisfactory to the indemnified party, and after
notice from the indemnifying party to the indemnified party of
its election to assume the defense, the indemnifying party
will not be liable to the indemnified party for any legal or
other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The
indemnified party will have the right to employ its own
counsel in any such action, but the fees, disbursements and
other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the
indemnifying party, (2) the indemnified party has reasonably
concluded (based on the advice of counsel) that there may be
legal defenses available to it or other indemnified parties
that are different from or in addition to those available to
the indemnifying party (3) a conflict or potential conflict
exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to
direct the defense of such action on behalf of the indemnified
party) or (4) the indemnifying party has not in fact employed
counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of
the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood
that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm
admitted to practice in such jurisdiction at any one time for
all such indemnified party or parties. All such fees,
disbursements and other charges will be reimbursed by the
indemnifying party promptly as they are incurred. An
indemnifying
32
<PAGE> 33
party will not be liable for any settlement of any action or
claim effected without its written consent (which consent will
not be unreasonably withheld). No indemnifying party shall,
without the prior written consent of each indemnified party,
settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding
relating to the matters contemplated by this Section 7
(whether or not any indemnified party is a party thereto),
unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all
liability arising or that may arise out of such claim, action
or proceeding. Notwithstanding any other provision of this
Section 7.c., if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified
party for fees, disbursements and other charges of counsel,
such indemnifying party agrees that it shall be liable for
any settlement effected without its written consent if (i)
such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request,
(ii) such indemnifying party shall have received notice of
terms of such settlement at least 30 days prior to such
settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such
settlement.
e. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in
the foregoing paragraph of this Section 7 is applicable in
accordance with its terms but for any reason is held to be
unavailable from the Fund, the Manager or the Dealer Manager,
the Fund, the Manager and the Dealer Manager will contribute
to the total losses, claims, liabilities, expenses and
damages (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any
claim asserted, but after deducting any contribution received
by the Fund and the Manager from persons other than the Dealer
Manager, such as persons who control the Fund or the Manager
within the meaning of the Securities Act or the Exchange Act,
officers of the Fund who signed the Registration Statement and
trustees of the Fund, who may also be liable for contribution)
to which the Fund, the Manager and the Dealer Manager may be
subject in such proportion as shall be appropriate to reflect
the relative benefits received by the Fund on the one hand and
the Dealer Manager on the other. The relative benefits
received by the Fund on the one hand and the Dealer Manager on
the other hand shall be deemed to be in the same proportion as
the total net proceeds from the Offering (before deducting
expenses) received
33
<PAGE> 34
by the Fund bear to the total fees received by the Dealer
Manager, in each case as set forth on the cover page of the
Prospectus. If, but only if, the allocation provided by the
foregoing sentence is not permitted by applicable law, the
allocation of contribution shall be made in such proportion as
is appropriate to reflect not only such relative benefits
referred to in the foregoing sentence but also the relative
fault of the Fund, Manager and the Dealer Manager with respect
to the statements or omissions which resulted in such loss,
claim, liability, expense or damage in respect thereof, as
well as any other relevant equitable considerations with
respect to the Offering. Such relative fault of the parties
shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to
information supplied by the Fund, the Manager or the Dealer
Manager, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Fund, the Manager and
the Dealer Manager agree that it would not be just and
equitable if contributions pursuant to this Section 7.e. were
to be determined by pro rata allocation or by any other method
of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable
by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof,
referred to above in this Section 7.e. shall be deemed to
include, for purposes of this Section 7.e. any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 7.e.,
the Dealer Manager shall not be required to contribute any
amount in excess of the fees received by it and no person
found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this
Section 7.e., any person who controls a party to this
Agreement within the meaning of the Securities Act will have
the same rights to contribution as that party, and each
trustee of the Fund and each officer of the Fund who signed
the Registration Statement will have the same rights to
contribution as the Fund, subject in each case to the
provisions hereof. Any party entitled to contribution,
promptly after receipt of notice of commencement of any action
against such party in
34
<PAGE> 35
respect of which a claim for contribution may be made under
this Section 7.e., will notify such party or parties from whom
contribution may be sought, but the omission so to notify will
not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have under
this Section 7.e. Except for a settlement entered into
pursuant to the last sentence of Section 7.d. hereof, no party
will be liable for contribution with respect to any action or
claim settled without its written consent (which consent shall
not be unreasonably withheld).
f. The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Fund
and the Manager contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any
investigation made by or on behalf of the Dealer Manager, (ii)
acceptance of Shares and payment therefore or (iii) any
termination of this Agreement.
g. Notwithstanding any other provisions in this Section 7, no
party shall be entitled to indemnification or contribution
under this Agreement against any loss, claim, liability,
expense or damage arising by reason of such person's willful
misfeasance, bad faith or gross negligence or by reason of
such person's failure to perform such person's obligations and
duties hereunder.
h. The Fund and the Manager acknowledge that the statements under
the caption "The Offer-Distribution Arrangements" in the
Prospectus constitute the only information furnished in
writing to the Fund by the Dealer Manager expressly for use in
such document, and the Dealer Manager confirms that such
statements are correct in all material respects.
8. Representations, Warranties and Agreements to Survive Delivery. The
respective agreements, representations, warranties, indemnities and
other statements of the Fund or its officers, of the Manager and of the
Dealer Manager set forth in or made pursuant to this Agreement shall
survive the Expiration Date and will remain in full force and effect,
regardless of any investigation made by or on behalf of Dealer Manager
or the Fund or any of the officers, directors or controlling persons
referred to in Section 7 hereof, and will survive delivery of and
payment for the Shares pursuant to the Offer. The provisions of
Sections 5 and 7 hereof shall survive the termination or cancellation
of this Agreement.
9. Termination of Agreement.
35
<PAGE> 36
a. This Agreement shall be subject to termination in the absolute
discretion of the Dealer Manager, by notice given to the Fund
prior to the expiration of the Offer, if prior to such time
(i) financial, political, economic, currency, banking or
social conditions in the United States shall have undergone
any material change the effect of which on the financial
markets makes it, in the Dealer Manager's judgment,
impracticable or inadvisable to proceed with the Offer, (ii)
there has occurred any outbreak or material escalation of
hostilities or other calamity or crisis the effect of which on
the financial markets of the United States is such as to make
it, in the Dealer Manager's judgment, impracticable or
inadvisable to proceed with the Offer, (iii) trading in the
Common Shares shall have been suspended by the Commission or
the New York Stock Exchange, Inc., (iv) trading in securities
generally on the New York Stock Exchange, Inc. shall have
been suspended or limited or (v) a banking moratorium shall
have been declared either by Federal or New York State
authorities.
b. If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any
other party except as provided in Section 5.
10. Notices. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Dealer Manager, will be mailed,
delivered or telegraphed and confirmed to PaineWebber Incorporated,
Attn: Corporate Finance Department, 1285 Avenue of the Americas, New
York, New York 10019; or if sent to the Fund or the Manager will be
mailed, or delivered or telegraphed and confirmed to them at: Kemper
High Income Trust, Attn: Philip J. Collora, 222 South Riverside Plaza,
Chicago, Illinois 60606.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and will inure
to the benefit of the officers and directors and controlling persons
referred to in Section 7 hereof, and no other person will have any
right or obligation hereunder.
12. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York without reference to
the conflict of law principles thereof except for section 15, which
will be governed by and construed in accordance with the laws of the
36
<PAGE> 37
Commonwealth of Massachusetts.
13. Waiver of Trial by Jury. The Fund, the Manager and the Dealer Manager
each hereby irrevocably waive any right they may have to a trial by
jury in respect of any claim based upon or arising out of this
Agreement or the transactions contemplated hereby.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
15. Limitation of Liability. Consistent with the Fund's Declaration of
Trust, notice is hereby given and the parties hereto acknowledge and
agree that this agreement is executed on behalf of the Trustees of the
Fund as Trustees and not individually and that the obligations of this
Agreement are not binding upon any of the Trustees or shareholders of
the Fund individually but are binding only against the assets and
property of the Fund.
37
<PAGE> 38
If the foregoing is in accordance with your understanding of
our agreement, please so indicate in the space provided below for that purpose,
where upon this letter shall constitute a binding agreement among the Fund, the
Manager and the Dealer Manager.
Very truly yours,
Kemper High Income Trust
By:
Name:
Title:
Scudder Kemper Investments, Inc.
By:
Name:
Title:
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
PaineWebber Incorporated
By:
Name:
Title:
38
<PAGE> 39
EXHIBIT A
KEMPER HIGH INCOME TRUST
8,003,074 Common Shares of Beneficial Interest
Issuable Upon Exercise of Transferable Rights
to Subscribe for Such Shares
SELLING GROUP AGREEMENT
New York, New York
________ __, 199_
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
We understand that Kemper High Income Trust, a Massachusetts
business trust (the "Fund"), proposes to issue to holders of record (the
"Holders") at the close of business on the record date set forth in the
Prospectus (as defined herein) (the "Record Date") transferable rights entitling
such Holders to subscribe for up to 8,003,074 shares (each a "Share" and,
collectively, the "Shares") of the Fund's common shares of beneficial interest,
par value $0.01 per share (the "Common Shares"), of the Fund (the "Offer").
Pursuant to the terms of the Offer, the Fund is issuing each Holder one
transferable right (each a "Right" and, collectively, the "Rights") for each
Common Share held by such Holder on the Record Date. Such Rights entitle holders
to acquire during the subscription period set forth in the Prospectus (the
"Subscription Period"), at the price set forth in such Prospectus (the
"Subscription Price"), one Share for each three Rights (except that any Holder
who is issued fewer than three Rights will be able to subscribe for one full
Share pursuant to the primary subscription), on the terms and conditions set
forth in such Prospectus. No fractional shares will be issued. Any Holder who
fully exercises all Rights initially issued to such Holder (other than those
Rights that cannot be exercised because they represent the right to acquire less
than one Share) will be entitled to subscribe for, subject to allocation,
additional Shares (the "Over-Subscription Privilege") on the terms and
conditions set forth in such Prospectus. The Rights are transferable and are
expected to be listed on the New York Stock Exchange, Inc.
We further understand that the Fund has appointed PaineWebber
Incorporated to act as the dealer manager (the "Dealer Manager") in connection
with the Offer and has authorized the Dealer Manager to form and manage a group
of broker-dealers (each a "Selling Group Member" and collectively the "Selling
Group")
<PAGE> 40
KEMPER HIGH INCOME TRUST
Selling Group Agreement - Page 40
Transferable Rights Offer Expiring April 16, 1999, unless extended
to solicit the exercise of Rights and to sell Shares purchased by the Dealer
Manager from the Fund through the exercise of Rights.
We hereby express our interest in participating in the Offer
as a Selling Group Member.
We hereby agree with you as follows:
1. We have received and reviewed the Fund's prospectus dated
March 22, 1999 (the "Prospectus") relating to the Offer and we
understand that additional copies of the Prospectus (or of the
Prospectus as it may be subsequently supplemented or amended,
if applicable) and any other solicitation materials authorized
by the Fund relating to the Offer ("Offering Materials") will
be supplied to us in reasonable quantities upon our request
therefor to you. We agree that we will not use any
solicitation material other than the Prospectus (as
supplemented or amended, if applicable) and such Offering
Materials and we agree not to make any representation, oral or
written, to any shareholders or prospective shareholders of
the Fund that are not contained in the Prospectus, unless
previously authorized to do so in writing by the Fund.
2. From time to time during the period (the "Subscription
Period") commencing on March 23, 1999 and ending at 5:00
p.m., New York City time, on the Expiration Date (the term
"Expiration Date" means April 16, 1999, unless and until the
Fund shall, in its sole discretion, have extended the period
for which the Offer is open, in which event the term
"Expiration Date" with respect to the Offer will mean the
latest time and date on which the Offer, as so extended by the
Fund, will expire), we may solicit the exercise of Rights in
connection with the Offer. We will be entitled to receive fees
in the amounts and at the times described in Section 4 of this
Agreement with respect to Shares purchased pursuant to the
exercise of Rights and with respect to which BankBoston N.A.
(the "Subscription Agent") has received, no later than 5:00
p.m., New York City time, on the Expiration Date, either (i) a
properly completed and executed Subscription Certificate
identifying us as the broker-dealer having been instrumental
in the exercise of such Rights, and full payment for such
Shares or (ii) a Notice of Guaranteed Delivery guaranteeing to
the Subscription Agent by the close of
<PAGE> 41
KEMPER HIGH INCOME TRUST
Selling Group Agreement - Page 41
Transferable Rights Offer Expiring April 16, 1999, unless extended
business of the third business day after the Expiration Date
of a properly completed and duly executed Subscription
Certificate, similarly identifying us, and full payment for
such Shares. We understand that we will not be paid these fees
with respect to Shares purchased pursuant to an exercise of
Rights for our own account or for the account of any of our
affiliates. We also understand and agree that we are not
entitled to receive any fees in connection with the
solicitation of the exercise of Rights other than pursuant to
the terms of this Agreement and, in particular, that we will
not be entitled to receive any fees under the Fund's
Soliciting Dealer Agreement. We agree to solicit the exercise
of Rights in accordance with the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended, and the rules and regulations
under each such Act, any applicable securities laws of any
state or jurisdiction where such solicitations may be
lawfully made, the applicable rules and regulations of any
self-regulatory organization or registered national securities
exchange and customary practice and subject to the terms of
the Subscription Agent Agreement between the Fund and the
Subscription Agent and the procedures described in the Fund's
registration statement on Form N-2 (File Nos. 333-72341 and
811-5482), as amended (the "Registration Statement").
3. From time to time during the Subscription Period, we may
indicate interest in purchasing Shares from the Dealer
Manager. We understand
that from time to time the Dealer Manager intends to offer
Shares obtained or to be obtained by the Dealer Manager
through the exercise of Rights to Selling Group Members who
have so indicated interest at prices which shall be determined
by the Dealer Manager (the "Offering Price"). We agree that
with respect to any such Shares purchased by us from the
Dealer Manager the sale of such Shares to us shall be
irrevocable and we will offer them to the public at the
Offering Price at which we purchase them from the Dealer
Manager. Shares not sold by us at such Offering Price may be
offered by us after the next succeeding Offering Price is set
at the latest Offering Price set by the Dealer Manager. The
Dealer Manager agrees that, if requested by any Selling Group
Member, and subject to applicable law, the Dealer Manager will
set a new Offering Price prior to 4:00 p.m., New York City
time, on any
<PAGE> 42
KEMPER HIGH INCOME TRUST
Selling Group Agreement - Page 42
Transferable Rights Offer Expiring April 16, 1999, unless extended
business day. We agree to advise the Dealer Manager from time
to time upon request, prior to the termination of this
Agreement, of the number of Shares remaining unsold which were
purchased by us from the Dealer Manager and, on the Dealer
Manager's request, we will resell to the Dealer Manager any of
such Shares remaining unsold at the purchase price thereof if
in the Dealer Manager's opinion such Shares are needed to make
delivery against sales made to other Selling Group Members.
Any shares purchased hereunder from the Dealer Manager shall
be subject to regular way settlement through the facilities of
the Depository Trust Company.
4. We understand that you will remit to us on or before the tenth
business day following the day the Fund issues Shares after
the Expiration Date, following receipt by you from the Fund of
the Dealer Manager Fee, a selling fee equal to 2.50% of the
Subscription Price per Share for (A) each Share issued
pursuant to the exercise of Rights or the Over-Subscription
Privilege pursuant to each Subscription Certificate upon which
we are designated, as certified to you by the Subscription
Agent, as a result of our solicitation efforts in accordance
with Section 2 and (B) each Share sold by the Dealer Manager
to us in accordance with Section 3 less any Shares resold to
the Dealer Manager in accordance with Section 3. Your only
obligation with respect to payment of the foregoing selling
fee to us is to remit to us amounts owing to us and actually
received by you from the Fund. Except as aforesaid, you shall
be under no liability to make any payments to us pursuant to
this Agreement.
5. We agree that you, as Dealer Manager, have full authority to
take such action as may seem advisable to you in respect of
all matters pertaining to the Offer. You are authorized to
approve on our behalf any amendments or supplements to the
Registration Statement or the Prospectus.
6. We represent that we are a member in good standing of the NASD
and, in making sales of Shares, agree to comply with all
applicable rules of the National Association of Securities
Dealers, Inc. (the "NASD") including, without limitation, the
NASD's Interpretation with Respect to Free-Riding and
Withholding, as set forth in IM 2110-1 of the NASD's Conduct
Rules, and Rule 2740 of the NASD's Conduct Rules.
<PAGE> 43
KEMPER HIGH INCOME TRUST
Selling Group Agreement - Page 43
Transferable Rights Offer Expiring April 16, 1999, unless extended
We understand that no action has been taken by you or the Fund
to permit the solicitation of the exercise of Rights or the
sale of Shares in any jurisdiction (other than the United
States) where action would be required for such purpose. We
agree that we will not, without your approval in advance, buy,
sell, deal or trade in, on a when-issued basis or otherwise,
the Rights or the Shares or any other option to acquire or
sell Shares for our own account or for the accounts of
customers, except as provided in Sections 2 and 3 hereof and
except that we may buy or sell Rights or Shares in brokerage
transactions on unsolicited orders which have not resulted
from activities on our part in connection with the
solicitation of the exercise of Rights and which are executed
by us in the ordinary course of our brokerage business. We
will keep an accurate record of the names and addresses of all
persons to whom we give copies of the Registration Statement,
the Prospectus, any preliminary prospectus (or any amendment
or supplement thereto) or any Offering Materials and, when
furnished with any subsequent amendment to the Registration
Statement and any subsequent prospectus, we will, upon your
request, promptly forward copies thereof to such persons.
7. Nothing contained in this Agreement will constitute the
Selling Group Members partners with the Dealer Manager or with
one another or create any association between those parties,
or will render the Dealer Manager or the Fund liable for the
obligations of any Selling Group Member. The Dealer Manager
will be under no liability to make any payment to any Selling
Group Member other than as provided in Section 4 of this
Agreement, and will be subject to no other liabilities to any
Selling Group Member, and no obligations of any sort will be
implied. We agree to indemnify and hold harmless you and each
other Selling Group Member and each person, if any, who
controls you and any such Selling Group Member within the
meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, against loss or liability caused by
any breach by us of the terms of this Agreement.
8. We agree to pay any transfer taxes which may be assessed and
paid on account of any sales or transfers for our account.
9. All communications to you relating to the Offer will be
addressed to:
<PAGE> 44
KEMPER HIGH INCOME TRUST
Selling Group Agreement - Page 44
Transferable Rights Offer Expiring April 16, 1999, unless extended
PaineWebber Incorporated, Attn: Jorge Solares, 1285 Avenue of
the Americas, New York, New York 10019; Telephone No.: (212)
713-1152 and Facsimile No.: (212) 713-4205.
10. This Agreement will be governed by the internal laws of the
State of New York.
<PAGE> 45
KEMPER HIGH INCOME TRUST
Selling Group Agreement - Page 45
Transferable Rights Offer Expiring April 16, 1999, unless extended
A signed copy of this Selling Group Agreement will be promptly returned
to the Selling Group Member at the address set forth below.
Very truly yours,
PaineWebber Incorporated
By:
Name:
Title:
PLEASE COMPLETE THE INFORMATION BELOW
Printed Firm Name Address
Contact at Selling Group Member
Authorized Signature Area Code and Telephone Number
Name and Title Facsimile Number
Dated:
Payment of the Selling Fee shall be mailed by check to the following address:
<PAGE> 46
KEMPER HIGH INCOME TRUST
Soliciting Dealer Agreement - Page 46
Transferable Rights Offer Expiring April 16, 1999
<PAGE> 47
KEMPER HIGH INCOME TRUST
Soliciting Dealer Agreement - Page 47
Transferable Rights Offer Expiring April 16, 1999
EXHIBIT B
KEMPER HIGH INCOME TRUST
Rights Offering for Common Shares of Beneficial Interest
<PAGE> 48
KEMPER HIGH INCOME TRUST
Soliciting Dealer Agreement - Page 48
Transferable Rights Offer Expiring April 16, 1999
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
April 16, 1999, UNLESS EXTENDED
To Securities Dealers and Brokers:
Kemper High Income Trust (the "Trust") is issuing to its
shareholders of record ("Record Date Shareholders") as of the close of business
on March 23, 1999 (the "Record Date") transferable rights ("Rights") to
subscribe for an aggregate of up to 8,003,074 shares (the "Shares") of the
Fund's common shares of beneficial interest, without par value (the "Common
Shares"), of the Fund upon the terms and subject to the conditions set forth in
the Fund's Prospectus (the "Prospectus") dated March 22, 1999 (the "Offer").
Each such Record Date Shareholder is being issued one Right for each full Common
Share owned on the Record Date. Such Rights entitle holders to acquire during
the Subscription Period (as hereinafter defined) at the Subscription Price (as
hereinafter defined), one Share for each three Rights (except that any Record
Date Shareholder who is issued fewer than three Rights will be able to subscribe
for one full Share pursuant to the primary subscription), on the terms and
conditions set forth in such Prospectus. No fractional shares will be issued.
Any Record Date Shareholder who fully exercises all Rights initially issued to
such holder (other than those Rights that cannot be exercised because they
represent the right to acquire less than one Share) will be entitled to
subscribe for, subject to allocation, additional Shares (the "Over-Subscription
Privilege") on the terms and conditions set forth in such Prospectus. The Rights
are transferable and are expected to be listed on the New York Stock Exchange,
Inc. The Subscription Price will be $8.30. The Subscription Period will commence
on March 23, 1999 and end at 5:00 p.m., New York City time on the Expiration
Date (the term "Expiration Date" means April 16, 1999, unless and until the Fund
shall, in its sole discretion, have extended the period for which the Offer is
open, in which event the term "Expiration Date" with respect to the Offer will
mean the latest time and date on which the Offer, as so extended by the Fund,
will expire).
For the duration of the Offer, the Fund has authorized and the
Dealer Manager has agreed to reallow a Solicitation Fee to any qualified broker
or dealer executing a Soliciting Dealer Agreement who solicits the exercise of
Rights and the
<PAGE> 49
KEMPER HIGH INCOME TRUST
Soliciting Dealer Agreement - Page 49
Transferable Rights Offer Expiring April 16, 1999
Over-Subscription Privilege in connection with the Offer and who complies with
the procedures described below (a "Soliciting Dealer"). Upon timely delivery to
BankBoston, N.A., the Fund's Subscription Agent for the Offer, of payment for
Shares purchased pursuant to the exercise of Rights and the Over-Subscription
Privilege and of properly completed and executed documentation as set forth in
this Soliciting Dealer Agreement, a Soliciting Dealer will be entitled to
receive the Solicitation Fee equal to 0.50% of the Subscription Price per Share
so purchased subject to a maximum fee based on the number of Common Shares held
by such Soliciting Dealer through The Depository Trust Company ("DTC") on the
Record Date; provided, however, that no payment shall be due with respect to the
issuance of any Shares until payment therefor is actually received. A qualified
broker or dealer is a broker or dealer which is a member of a registered
national securities exchange in the United States or the National Association of
Securities Dealers, Inc. ("NASD") or any foreign broker or dealer not eligible
for membership who agrees to conform to the Rules of Fair Practice of the NASD,
including Sections 2730, 2740, 2420 and 2750 thereof, in making solicitations in
the United States to the same extent as if it were a member thereof.
The Fund has authorized and the Dealer Manager has agreed to
pay the Solicitation Fees payable to the undersigned Soliciting Dealer on the
terms set forth in the Dealer Manager Agreement, dated March 22, 1999, among
PaineWebber Incorporated as the dealer manager (the "Dealer Manager"), the Fund
and others (the "Dealer Manager Agreement"). Solicitation and other activities
by Soliciting Dealers may be undertaken only in accordance with the applicable
rules and regulations of the Securities and Exchange Commission and only in
those states and other jurisdictions where such solicitations and other
activities may lawfully be undertaken and in accordance with the laws thereof.
Compensation will not be paid for solicitations in any state or other
jurisdiction in which the opinion of counsel to the Fund or counsel to the
Dealer Manager, such compensation may not lawfully be paid. No Soliciting Dealer
shall be paid Solicitation Fees with respect to Shares purchased pursuant to an
exercise of Rights and the Over-Subscription Privilege for its own account or
for the account of any affiliate of the Soliciting Dealer. No Soliciting Dealer
or any other person is authorized by the Fund or the Dealer Manager to give any
information or make any representations in connection with the Offer other than
those contained in the Prospectus and other authorized solicitation material
furnished by the Fund through the Dealer Manager. No Soliciting Dealer is
authorized to act as agent of the Fund or the Dealer Manager in any connection
or transaction. In addition, nothing herein contained shall constitute the
Soliciting Dealers partners with the Dealer Manager or with one another, or
agents of the Dealer Manager or of the Fund, or create any association
<PAGE> 50
KEMPER HIGH INCOME TRUST
Soliciting Dealer Agreement - Page 50
Transferable Rights Offer Expiring April 16, 1999
between such parties, or shall render the Dealer Manager or the Fund liable for
the obligations of any Soliciting Dealer. The Dealer Manager shall be under no
liability to make any payment to any Soliciting Dealer, and shall be subject to
no other liabilities to any Soliciting Dealer, and no obligations of any sort
shall be implied.
In order for a Soliciting Dealer to receive Solicitation Fees,
the Subscription Agent must have received from such Soliciting Dealer no later
than 5:00 p.m., New York City time, on the Expiration Date, either (i) a
properly completed and duly executed Subscription Certificate with respect to
Shares purchased pursuant to the exercise of Rights and the Over-Subscription
Privilege and full payment for such Shares; or (ii) a Notice of Guaranteed
Delivery guaranteeing delivery to the Subscription Agent by close of business on
the third business day after the Expiration Date, of (a) full payment for such
Shares and (b) a properly completed and duly executed Subscription Certificate
with respect to Shares purchased pursuant to the exercise of Rights.
Solicitation Fees will only be paid after receipt by the Subscription Agent of a
properly completed and duly executed Soliciting Dealer Agreement and a
Subscription Certificate designating the Soliciting Dealer in the applicable
portion hereof. In the case of a Notice of Guaranteed Delivery, Solicitation
Fees will only be paid after delivery in accordance with such Notice of
Guaranteed Delivery has been effected. Solicitation Fees will be paid by the
Fund (through the Subscription Agent) to the Soliciting Dealer by check to
an address designated by the Soliciting Dealer below by the tenth business day
following the day the Fund issues Shares after the Expiration Date.
All questions as to the form, validity and eligibility
(including time of receipt) of this Soliciting Dealer Agreement will be
determined by the Fund, in its sole discretion, which determination shall be
final and binding. Unless waived, any irregularities in connection with a
Soliciting Dealer Agreement or delivery thereof must be cured within such time
as the Fund shall determine. None of the Fund, the Dealer Manager, the
Subscription Agent, the Information Agent for the Offer or any other person will
be under any duty to give notification of any defects or irregularities in any
Soliciting Dealer Agreement or incur any liability for failure to give such
notification.
The acceptance of Solicitation Fees from the Fund by the
undersigned Soliciting Dealer shall constitute a representation by such
Soliciting Dealer to the Fund that: (i) it has received and reviewed the
Prospectus; (ii) in soliciting purchases of Shares pursuant to the exercise of
the Rights and the Over-Subscription Privilege, it has
<PAGE> 51
KEMPER HIGH INCOME TRUST
Soliciting Dealer Agreement - Page 51
Transferable Rights Offer Expiring April 16, 1999
complied with the applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the applicable rules and regulations
thereunder, any applicable securities laws of any state or jurisdiction where
such solicitations were made, and the applicable rules and regulations of any
self-regulatory organization or registered national securities exchange; (iii)
in soliciting purchases of Shares pursuant to the exercise of the Rights and the
Over-Subscription Privilege, it has not published, circulated or used any
soliciting materials other than the Prospectus and any other authorized
solicitation material furnished by the Fund through the Dealer Manager; (iv) it
has not purported to act as agent of the Fund or the Dealer Manager in any
connection or transaction relating to the Offer; (v) the information contained
in this Soliciting Dealer Agreement is, to its best knowledge, true and
complete; (vi) it is not affiliated with the Fund; (vii) it will not accept
Solicitation Fees paid by the Fund pursuant to the terms hereof with respect to
Shares purchased by the Soliciting Dealer pursuant to an exercise of Rights and
the Over-Subscription Privilege for its own account; (viii) it will not remit,
directly or indirectly, any part of Solicitation Fees paid by the Fund pursuant
to the terms hereof to any beneficial owner of Shares purchased pursuant to the
Offer; and (ix) it has agreed to the amount of the Solicitation Fees and the
terms and conditions set forth herein with respect to receiving such
Solicitation Fees. By returning a Soliciting Dealer Agreement and accepting
Solicitation Fees, a Soliciting Dealer will be deemed to have agreed to
indemnify the Fund and the Dealer Manager against losses, claims, damages and
liabilities to which the Fund may become subject as a result of the breach of
such Soliciting Dealer's representations made herein and described above. In
making the foregoing representations, Soliciting Dealers are reminded of the
possible applicability of the anti-manipulation rules under the Exchange Act if
they have bought, sold, dealt in or traded in any Shares for their own account
since the commencement of the Offer.
Upon expiration of the Offer, no Solicitation Fees will be
payable to Soliciting Dealers with respect to Shares purchased thereafter.
Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Dealer Manager Agreement or, if not defined
therein, in the Prospectus.
This Soliciting Dealer Agreement will be governed by the laws
of the State of New York.
<PAGE> 52
KEMPER HIGH INCOME TRUST
Soliciting Dealer Agreement - Page 52
Transferable Rights Offer Expiring April 16, 1999
Please execute this Soliciting Dealer Agreement below
accepting the terms and conditions hereof and confirming that you are a member
firm of the NASD or a foreign broker or dealer not eligible for membership who
has conformed to the Rules of Fair Practice of the NASD, including Sections
2730, 2740, 2420 and 2750 thereof, in making solicitations of the type being
undertaken pursuant to the Offer in the United States to the same extent as if
you were a member thereof, and certifying that you have solicited the purchase
of the Shares pursuant to exercise of the Rights, all as described above, in
accordance with the terms and conditions set forth in this Soliciting Dealer
Agreement. Please forward two executed copies of this Soliciting Dealer
Agreement to PaineWebber Incorporated, Attn: Jorge Solares, 1285 Avenue of the
Americas, New York, New York 10019; Telephone No.: (212) 713-1152 and Facsimile
No.: (212) 713-4205.
<PAGE> 53
KEMPER HIGH INCOME TRUST
Soliciting Dealer Agreement - Page 53
Transferable Rights Offer Expiring April 16, 1999
A signed copy of this Soliciting Dealer Agreement will be promptly
returned to the Soliciting Dealer at the address set forth below.
Very truly yours,
PaineWebber Incorporated
By:
Name:
Title:
PLEASE COMPLETE THE INFORMATION BELOW
Printed Firm Name Address
Contact at Soliciting Dealer
Authorized Signature Area Code and Telephone Number
Name and Title Facsimile Number
Dated:
Payment of the Solicitation Fee shall be mailed by check to the following
address:
<PAGE> 1
Exhibit (j)
CUSTODY AGREEMENT
AGREEMENT, made the 1st day of March, 1995 by and between Kemper High
Income Trust, a Massachusetts business trust having its principal place of
business at 120 South LaSalle Street, Chicago, Illinois 60603 ("Fund") and
Investors Fiduciary Trust Company, a trust company organized and existing under
the laws of Missouri, having its principal place of business at Kansas City,
Missouri ("Custodian").
WHEREAS, Fund wants to appoint Investors Fiduciary Trust Company as
Custodian to have custody of a portion of Fund's portfolio securities and monies
pursuant to this Agreement; and, for purposes related to its foreign investments
held outside the United States, Fund wants another custodian to have custody of
the remainder of Fund's portfolio securities and monies pursuant to a separate
agreement; and
WHEREAS, Investors Fiduciary Trust Company wants to accept such
appointment;
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN.
Fund hereby constitutes and appoints Investors Fiduciary Trust Company
as Custodian of Fund which is to include:
A. Custody of the securities and monies at any time owned by Fund
and received by Custodian; and
B. Performing certain accounting and record keeping functions
relating to its function as Custodian for Fund and each of its
Portfolios.
2. DELIVERY OF CORPORATE DOCUMENTS.
Fund has delivered or will deliver to Custodian prior to the effective
date of this Agreement, copies of the following documents and all
amendments or supplements thereto, properly certified or authenticated:
A. Resolutions of the Board of Trustees of Fund appointing
Investors Fiduciary Trust Company as Custodian hereunder and approving
the form of this Agreement; and
B. Resolutions of the Board of Trustees of Fund
<PAGE> 2
authorizing certain persons to give instructions on behalf of Fund to
Custodian and authorizing Custodian to rely upon written instructions
over their signatures.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
All Fund's securities and monies, except as permitted by the
Investment Company Act of 1940 ("1940 Act"), will be delivered either
to Custodian or to The Chase Manhattan Bank, N.A., pursuant to a
separate custody agreement. Fund will deliver or cause to be delivered
to Custodian on the effective date of this Agreement, or as soon
thereafter as practicable, and from time to time thereafter, portfolio
securities acquired by it and monies then owned by it except as
permitted by the 1940 Act or from time to time coming into its
possession during the time this Agreement shall continue in effect.
Custodian shall have no responsibility or liability whatsoever for or
on account of securities or monies not so delivered. All securities so
delivered to Custodian (other than bearer securities) shall be
registered in the name of Fund or its nominee, or of a nominee of
Custodian, or shall be properly endorsed and in form for transfer
satisfactory to Custodian.
B. Safekeeping
Custodian will receive delivery of and keep safely the assets of
Fund delivered to it from time to time. Custodian will not deliver any
such assets to any person except as permitted by the provisions of this
Agreement or any agreement executed by it according to the terms of
this Agreement. Custodian shall be responsible only for the monies and
securities of Fund held directly by it or its nominees or sub-custodian
under this Agreement; provided that Custodian's responsibility for any
sub-custodian appointed at the Fund's direction for purposes of (i)
effecting third-party repurchase transactions with banks, brokers,
dealers, or other entities through the use of a common custodian or
sub-custodian; or (ii) providing depository and clearing agency
services with respect to certain variable rate demand note securities
("special sub-custodian") shall be further limited as set forth in this
Agreement. Custodian may participate directly or indirectly through a
sub-custodian in the Depository Trust Company, the Treasury/Federal
Reserve Book Entry System, the Participants Trust Company and any other
securities depository approved by the Board of Trustees of the Fund,
subject to compliance with the provisions of Rule 17f-4
<PAGE> 3
under the 1940 Act including, without limitation, the specific
provisions of subsections (a) (1) through (d) (4) thereof.
C. Registration of Securities
Custodian will hold stocks and other registerable portfolio
securities of Fund registered in the name of Fund or in the name of any
nominee of Custodian for whose fidelity and liabilities Custodian shall
be fully responsible, or in street certificate form, so-called, with or
without any indication of fiduciary capacity. Unless otherwise
instructed, Custodian will register all such portfolio securities in
the name of its authorized nominee.
D. Exchange of Securities
Upon receipt of instructions, Custodian will exchange, or cause to
be exchanged, portfolio securities held by it for the account of Fund
for other securities or cash issued or paid in connection with any
reorganization, recapitalization, merger, consolidation, split-up of
shares, change of par value, conversion or otherwise, and will deposit
any such securities in accordance with the terms of any reorganization
or protective plan. Without instructions, Custodian is authorized to
exchange securities held by it in temporary form for securities in
definitive form, to effect an exchange of shares when the par value of
the stock is changed, and, upon receiving payment therefore, to
surrender bonds or other securities held by it at maturity or when
advised of earlier call for redemption, except that Custodian shall
receive instructions prior to surrendering any convertible security.
E. Purchases or Sales of Investments of Fund
Fund shall, on each business day on which a purchase or sale of a
portfolio security shall be made by it, deliver to Custodian
instructions which shall specify with respect to each such transaction:
(1) The name of the issuer and description of the security;
(2) The number of shares or the principal amount purchased or sold, and
accrued interest, if any;
(3) The trade date;
<PAGE> 4
(4) The settlement date;
(5) The date when the securities sold were purchased by Fund or other
information identifying the securities sold and to be delivered;
(6) The price per unit and the brokerage commission, taxes and other
expenses in connection with the transaction;
(7) The total amount payable or receivable upon such transaction; and
(8) The name of the person from whom or the broker or dealer through whom
the transaction was made.
In accordance with such purchase instructions, Custodian shall pay for
out of monies held for the account of Fund, but only insofar as monies
are available therein for such purpose, and receive the portfolio
securities so purchased by or for the account of Fund. Such payment
shall be made only upon receipt by Custodian of the securities so
purchased in form for transfer satisfactory to Custodian.
In accordance with such sales instructions, Custodian will deliver or
cause to be delivered the securities thus designated as sold for the
account of Fund to the broker or other person specified in the
instructions relating to such sale, such delivery to be made only upon
receipt of payment therefor in such form as shall be satisfactory to
Custodian, with the understanding that Custodian may deliver or cause
to be delivered securities for payment in accordance with the customs
prevailing among dealers in securities.
F. Purchases or Sales of Options and Futures Transactions
Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase or sale:
(1) Securities Options
(a) The underlying security;
(b) The price at which purchased or sold;
(c) The expiration date;
(d) The number of contracts;
(e) The exercise price;
(f) Whether opening, exercising, expiring or closing the transaction;
<PAGE> 5
(g) Whether the transaction involves a put or call;
(h) Whether the option is written or purchased;
(i) Market on which option traded; and
(j) Name and address of the broker or dealer through whom the sale or
purchase was made.
(2) Options on Indices
(a) The index;
(b) The price at which purchased or sold;
(c) The exercise price;
(d) The premium;
(e) The multiple;
(f) The expiration date;
(g) Whether the transaction is an opening, exercising, expiring or
closing transaction;
(h) Whether the transaction involves a put or call;
(i) Whether the option is written or purchased; and
(j) Name and address of the broker or dealer through whom the sale or
purchase was made.
(3) Securities Index Futures Transactions
(a) The last trading date specified in the contract and, when
available, the closing level, thereof;
(b) The index level on the date the contract is entered into;
(c) The multiple;
(d) Any margin requirements;
(e) The need for a segregated margin account (in addition to
instructions; and, if not already in the possession of Custodian,
Fund shall deliver a substantially complete and executed custodial
safekeeping account and procedural agreement which shall be
incorporated into this Custody Agreement); and
(f) The name and address of the futures commission merchant through
whom the sale or purchase was made.
(4) Options on Index Futures Contracts
(a) The underlying index futures contract;
(b) The premium;
(c) The expiration date;
(d) The number of options;
(e) The exercise price;
(f) Whether the transaction involves an opening, exercising,
expiring or closing transaction;
(g) Whether the transaction involves a put or call;
<PAGE> 6
(h) Whether the option is written or purchased; and
(i) The market on which the option is traded.
G. Securities Pledged to Secure Loans
(1) Upon receipt of instructions, Custodian will release or cause
to be released securities held in custody to the pledgee designated in
such instructions by way of pledge or hypothecation to cure any loan
incurred by Fund; provided, however, that the securities shall be
released only upon payment to Custodian of the monies borrowed, except
that in cases where additional collateral is required to secure a
borrowing already made, further securities may be released or caused to
be released for that purpose upon receipt of instructions. Upon receipt
of instructions, Custodian will pay, but only from funds available for
such purpose, any such loan upon redelivery to it of the securities
pledged or hypothecated therefor and upon surrender of the note or
notes evidencing such loan.
(2) Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated in such
instructions; provided, however, that the securities shall be released
only upon deposit with Custodian of full cash collateral as specified
in such instructions, and that Fund will retain the right to any
dividends, interest or distribution on such loaned securities. Upon
receipt of instructions and the loaned securities, Custodian will
release the cash collateral to the borrower.
H. Routine Matters
Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution, purchase,
transfer, or other dealings with securities or other property of Fund
except as may be otherwise provided in this Agreement or directed from
time to time by the Board of Trustees of Fund.
I. Demand Deposit Account
Custodian will open and maintain a demand deposit account or
accounts in the name of Custodian, subject only to draft or order by
Custodian upon receipt of instructions. All monies received by
Custodian from or for the account of Fund shall be deposited in said
account or accounts.
When properly authorized by a resolution of the Board of Trustees
of Fund, Custodian may open and maintain an
<PAGE> 7
additional demand deposit account or accounts in such other banks or
trust companies as may be designated in such resolution, such accounts,
however, to be in the name of Custodian and subject only to its draft
or order.
J. Income and Other Payments to Fund
Custodian will:
(1) collect, claim and receive and deposit for the account of Fund
all income and other payments which become due and payable on or after
the effective date of this Agreement with respect to the securities
deposited under this Agreement, and credit the account of Fund with
such income on the payable date;
(2) execute ownership and other certificates and affidavits for
all federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
(3) take such other action as may be necessary or proper in
connection with:
(a) the collection, receipt and deposit of such income and
other payments, including but not limited to the presentation
for payment of:
(1) all coupons and other income items requiring presentation;
(2) all other securities which may mature or be called,
redeemed, retired or otherwise become payable and
regarding which the Custodian has actual knowledge,
or notice of which is contained in publications of
the type to which it normally subscribes for such
purpose; and
(b) the endorsement for collection, in the name of Fund, of
all checks, drafts or other negotiable instruments.
Custodian, however, shall not be required to institute suit or
take other extraordinary action to enforce collection except upon
receipt of instructions and upon being indemnified to its satisfaction
against the costs and expenses of such suit or other actions. Custodian
will receive, claim and collect all stock dividends, rights and other
similar items and deal with the same pursuant to instructions. Unless
prior instructions have been received to the contrary, Custodian will,
without further
<PAGE> 8
instructions, sell any rights held for the account of Fund on the last
trade date prior to the date of expiration of such rights.
K. Payment of Dividends and Other Distributions
On the declaration of any dividend or other distribution on the
shares of beneficial interest of any Portfolio ("Portfolio Shares") by
the Board of Trustees of Fund, Fund shall deliver to Custodian
instructions with respect thereto, including a copy of the Resolution
of said Board of Trustees certified by the Secretary or an Assistant
Secretary of Fund wherein there shall be set forth the record date as
of which shareholders are entitled to receive such dividend or
distribution, and the amount payable per share on such dividend or
distribution.
On the date specified in such Resolution for the payment of such
dividend or other distribution, Custodian shall pay out of the monies
held for the account of Fund, insofar as the same shall be available
for such purposes, and credit to the account of the Dividend Disbursing
Agent for Fund, such amount as may be necessary to pay the amount per
share payable in cash on Portfolio Shares issued and outstanding on the
record date established by such Resolution.
L. Portfolio Shares Purchased by Fund
Whenever any Portfolio Shares are purchased by Fund, Fund or its
agent shall advise Custodian of the aggregate dollar amount to be paid
for such shares and shall confirm such advice in writing. Upon receipt
of such advice, Custodian shall charge such aggregate dollar amount to
the custody account of Fund and either deposit the same in the account
maintained for the purpose of paying for the purchase of Portfolio
Shares or deliver the same in accordance with such advice.
M. Portfolio Shares Purchased from Fund
Whenever Portfolio Shares are purchased from Fund, Fund will
deposit or cause to be deposited with Custodian the amount received for
such shares. Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added to the
proper shareholder account or accounts or that the proper number of
such shares have been added to the shareholder records.
N. Proxies and Notices
<PAGE> 9
Custodian will promptly deliver or mail to Fund all proxies
properly signed, all notices of meetings, all proxy statements and
other notices, requests or announcements affecting or relating to
securities held by Custodian for Fund and will, upon receipt of
instructions, execute and deliver or cause its nominee to execute and
deliver such proxies or other authorizations as may be required. Except
as provided by this Agreement or pursuant to instructions hereafter
received by Custodian, neither it nor its nominee shall exercise any
power inherent in any such securities, including any power to vote the
same, or execute any proxy, power of attorney, or other similar
instrument voting any of such securities, or give any consent, approval
or waiver with respect thereto, or take any other similar action.
O. Disbursements
Custodian will pay or cause to be paid insofar as funds are
available for the purpose, bills, statements and other obligations of
Fund (including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by Fund, interest
charges, variation margin, dividend disbursements, taxes, management
fees, administration-distribution fees, custodian fees, legal fees,
auditors' fees, transfer agents' fees, brokerage commissions,
compensation to personnel, and other operating expenses of Fund)
pursuant to instructions of Fund setting forth the name of the person
to whom payment is to be made, the amount of the payment, and the
purpose of the payment.
P. Books, Records and Accounts
Custodian acknowledges that all the records it shall prepare and
maintain pursuant to this Agreement shall be the property of Fund and
that upon request of Fund it shall make Fund's records available to it,
along with such other information and data as are reasonably requested
by Fund, for inspection, audit or copying, or turn said records over to
Fund.
Custodian shall, within a reasonable time, render to Fund as of
the close of business on each day, a detailed statement of the amounts
received or paid and of securities received or delivered for the
account of Fund during said day. Custodian shall, from time to time,
upon request by Fund, render a detailed statement of the securities and
<PAGE> 10
monies held for Fund under this Agreement, and Custodian shall maintain
such books and records as are necessary to enable it do so and shall
permit such persons as are authorized by Fund, including Fund's
independent public accountants, to examine such records or to confirm
the contents of such records; and, if demanded, shall permit federal
and state regulatory agencies to examine said securities, books and
records. Upon the written instructions of Fund or as demanded by
federal or state regulatory agencies, Custodian shall instruct any
sub-custodian to permit such persons as are authorized by Fund to
examine the books, records and securities held by such sub-custodian
which relate to Fund.
Q. Appointment of Sub-Custodian
Notwithstanding any other provisions of this Agreement, all or any
of the monies or securities of Fund may be held in Custodian's own
custody or in the custody of one or more other banks or trust companies
acting as sub-custodians as may be approved by resolutions of Fund's
Board of Trustees, evidenced by a copy thereof certified by the
Secretary or Assistant Secretary of Fund. Any sub-custodian must have
the qualifications required for custodians under the 1940 Act unless
exempted therefrom. Any sub-custodian may participate directly or
indirectly in the Depository Trust Company, the Treasury/Reserve Book
Entry System, the Participants Trust Company and any other securities
depository approved by the Board of Trustees of the Fund to the same
extent and subject to the same conditions as provided hereunder.
Neither Custodian nor sub-custodian shall be entitled to reimbursement
by Fund for any fees or expenses of any sub-custodian; provided that
Custodian shall not be liable for, and Fund shall hold Custodian
harmless from, the expenses of any special sub-custodian. The
appointment of a sub-custodian shall not relieve Custodian of any of
its obligations hereunder; provided that Custodian shall be responsible
to Fund for any loss, damage, or expense suffered or incurred by Fund
resulting from the actions or omissions of a special sub-custodian only
to the extent the special sub-custodian is liable to Custodian.
R. Multiple Portfolios
If Fund shall issue shares of more than one Portfolio during the
term hereof, Custodian agrees that all securities and other assets of
Fund shall be segregated by Portfolio and all books and records,
account values or actions shall be maintained, held, made or taken, as
the case may be, separately for each Portfolio.
<PAGE> 11
S. Other Custodian
Pursuant to instructions, Custodian will transmit securities and
moneys of Fund to The Chase Manhattan Bank, N.A., as custodian for
Fund.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written or oral
instructions to Custodian from an authorized person of Fund. Certified
copies of resolutions of the Board of Trustees of Fund naming one or
more persons authorized to give instructions in the name and on behalf
of Fund may be received and accepted by Custodian as conclusive
evidence of the authority of any person so to act and may be considered
to be in full force and effect (and Custodian shall be fully protected
in acting in reliance thereon) until receipt by Custodian of notice to
the contrary. Unless the resolution authorizing any person to give
instructions specifically requires that the approval of anyone else
shall first have been obtained, Custodian shall be under no obligation
to inquire into the right of the person giving such instructions to do
so. Notwithstanding any of the foregoing provisions of this Section 4,
no authorizations or instructions received by Custodian from Fund shall
be deemed to authorize or permit any trustee, officer, employee, or
agent of Fund to withdraw any of the securities or monies of Fund upon
the mere receipt of instructions from such trustee, officer, employee
or agent.
B. No later than the next business day immediately following each
oral instruction referred to herein, Fund shall give Custodian written
confirmation of each such oral instruction. Either party may
electronically record any oral instruction whether given in person or
via telephone.
5. LIMITATION OF LIABILITY OF CUSTODIAN
A. Custodian shall hold harmless and indemnify Fund from and
against any loss or liability arising out of Custodian's failure to
comply with the terms of this Agreement or arising out of Custodian's
negligence, willful misconduct, or bad faith. Custodian may request and
obtain the advice and opinion of counsel for Fund or of its own counsel
with respect to questions or matters of law, and it shall be without
liability to Fund for any action taken or omitted by it in good faith,
in conformity with such advice or opinion.
<PAGE> 12
B. If Fund requires Custodian in any capacity to take, with
respect to any securities, any action which involves the payment of
money by it, or which in Custodian's opinion might make it or its
nominee liable for payment of monies or in any other way, Custodian
shall be and be kept indemnified by Fund in an amount and form
satisfactory to Custodian against any liability on account of such
action.
C. Custodian shall be entitled to receive, and Fund agrees to pay
to Custodian, on demand, reimbursement for such cash disbursements,
costs and expenses as may be agreed upon from time to time by Custodian
and Fund.
D. Custodian shall be protected in acting as custodian hereunder
upon any instructions, advice, notice, request, consent, certificate or
other instrument or paper reasonably appearing to it to be genuine and
to have been properly executed and shall, unless otherwise specifically
provided herein, be entitled to receive as conclusive proof of any fact
or matter required to be ascertained from Fund hereunder, a certificate
signed by Fund's President, or other officer specifically authorized
for such purpose.
E. Without limiting the generality of the foregoing, Custodian
shall be under no duty or obligation to inquire into, and shall not be
liable for:
(1) The validity of the issue of any securities purchased
by or for Fund, the legality of the purchase thereof or
evidence of ownership required by Fund to be received by
Custodian, or the propriety of the decision to purchase or
amount paid therefor;
(2) The legality of the sales of any securities by or for
Fund, or the propriety of the amount paid therefor;
(3) The legality of the issue or sale of any shares of
Fund, or the sufficiency of the amount to be received
therefor;
(4) The legality of the purchase of any shares of Fund,
or the propriety of the amount to be paid therefor; or
(5) The legality of the declaration of any dividend by
Fund, or the legality of the issue of any
<PAGE> 13
shares of Fund in payment of any share dividend.
F. Custodian shall not be liable for, or considered to be the
custodian of, any money represented by any check, draft, wire transfer,
clearing house funds, uncollected funds, or instrument for the payment
of money received by it on behalf of Fund, until Custodian actually
receives such money, provided only that it shall advise Fund promptly
if it fails to receive any such money in the ordinary course of
business, and use its best efforts and cooperate with Fund toward the
end that such money shall be received.
G. Subject to the obligations of Custodian under Section 3.B.
hereof, Custodian shall not be responsible for loss occasioned by the
acts, neglects, defaults or insolvency of any broker, bank, trust
company, or any other person with whom Custodian may deal in the
absence of negligence, misconduct or bad faith on the part of
Custodian.
H. Custodian or any sub-custodian shall provide Fund for its
approval by its Board of Trustees agreements with banks or trust
companies which will act as sub-custodian for Fund pursuant to this
Agreement; and, as set forth in Section 3.B hereof, Custodian shall be
responsible for the monies and securities of the Fund held by it or its
nominees or sub-custodians under this Agreement, but not for monies and
securities of the Fund held by any special sub-custodian except to the
extent the special sub-custodian is liable to Custodian.
6. COMPENSATION.
Fund shall pay to Custodian such compensation at such times as may from
time to time be agreed upon in writing by Custodian and Fund. Custodian may
charge such compensation against monies held by it for the account of Fund.
Custodian shall also be entitled, notwithstanding the provisions of Sections 5B
or 5C hereof, to charge against any monies held by it for the account of Fund
the amount of any loss, damage, liability or expense for which it shall be
entitled to reimbursement under the provisions of this Agreement. Custodian
shall not be entitled to reimbursement by Fund for any loss or expenses of any
sub-custodian; provided that Custodian shall not be liable for, and Fund shall
hold Custodian harmless from, the expenses of any special sub-custodian.
7. TERMINATION.
Either party to this Agreement may terminate the same by notice in writing,
delivered or mailed, postage prepaid, to the
<PAGE> 14
other party hereto and received not less than sixty (60) days prior to the date
upon which such termination shall take effect. Upon termination of this
Agreement, Fund shall pay to Custodian such compensation for its reimbursable
disbursements, costs and expenses paid or incurred to such date and Fund shall
use its best efforts to obtain a successor custodian. Unless the holders of a
majority of the outstanding shares of Fund vote to have the securities, funds
and other properties held under this Agreement delivered and paid over to some
other person, firm or corporation specified in the vote, having not less than
Two Million Dollars ($2,000,000) aggregate capital, surplus and undivided
profits, as shown by its last published report, and meeting such other
qualifications for custodian as set forth in the Bylaws of Fund, the Board of
Trustees of Fund shall, forthwith upon giving or receiving notice of termination
of this Agreement, appoint as successor custodian a bank or trust company having
such qualifications. Custodian shall, upon termination of this Agreement,
deliver to the successor custodian so specified or appointed, at custodian's
office, all securities then held by Custodian hereunder, duly endorsed and in
form for transfer, and all funds and other properties of Fund deposited with or
held by Custodian hereunder, and shall cooperate in effecting changes in
book-entries at the Depository Trust Company, the Treasury/Federal Reserve
Book-Entry System, the Participants Trust Company and any other securities
depository holding assets of the Fund. In the event no such vote has been
adopted by the shareholders of Fund and no written order designating a successor
custodian shall have been delivered to Custodian on or before the date when such
termination shall become effective, then Custodian shall deliver the securities,
funds and properties of Fund to a bank or trust company at the selection of
Custodian and meeting the qualifications for custodian, if any, set forth in the
Bylaws of Fund and having not less than Two Million Dollars ($2,000,000)
aggregate capital, surplus and undivided profits, as shown by its last published
report. Upon either such delivery to a successor custodian, Custodian shall have
no further obligations or liabilities under this Agreement. Thereafter such bank
or trust company shall be the successor custodian under this Agreement and shall
be entitled to reasonable compensation for its services. In the event that no
such successor custodian can be found, Fund will submit to its shareholders,
before permitting delivery of the cash and securities owned by Fund to anyone
other than a successor custodian, the question of whether Fund shall be
liquidated or shall function without a custodian. Notwithstanding the foregoing
requirement as to delivery upon termination of this Agreement, Custodian may
make any other delivery of the securities, funds and property of Fund which
shall be permitted by the 1940 Act and Fund's Agreement and Declaration of Trust
and Bylaws then in effect. Except as otherwise provided herein, neither this
Agreement nor any portion
<PAGE> 15
thereof may be assigned by Custodian without the consent of Fund, authorized or
approved by a resolution of its Board of Trustees.
8. NOTICES.
Notices, requests, instructions and other writings received by Fund at 120
South LaSalle Street, Chicago, Illinois 60603 or at such other address as Fund
may have designated by certified resolution of the Board of Trustees to
Custodian and notices, requests, instructions and other writings received by
Custodian at its offices at 21 West 10th Street, Kansas City, Missouri 64105, or
to such other address as it may have designated to Fund in writing, shall be
deemed to have been properly given hereunder.
9. MISCELLANEOUS.
A. This Agreement is executed and delivered in the State of
Missouri and shall be governed by the laws of the State of Missouri
(except as to Section 9.H. hereof which shall be governed in accordance
with the laws of The Commonwealth of Massachusetts).
B. All the terms and provisions of this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
C. No provisions of the Agreement may be amended or modified in
any manner except by a written agreement properly authorized and
executed by both parties hereto.
D. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
E. This Agreement shall become effective at the close of business
on the date hereof.
F. 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.
G. If any part, term or provision of this Agreement is by the
courts held to be illegal, in conflict with any law or otherwise
invalid, the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations of the
parties shall be construed and
<PAGE> 16
enforced as if the Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
H. All parties hereto are expressly put on notice of Fund's
Agreement and Declaration of Trust, which is on file with the Secretary
of The Commonwealth of Massachusetts, and the limitation of shareholder
and trustee liability contained therein. This Agreement has been
executed by and on behalf of Fund by its representatives as such
representatives and not individually, and the obligations of Fund
hereunder are not binding upon any of the Trustees, officers or
shareholders of Fund individually but are binding upon only the assets
and property of Fund. With respect to any claim by Custodian for
recovery of that portion of the compensation (or any other liability of
Fund arising hereunder) allocated to a particular Portfolio, whether in
accordance with the express terms hereof or otherwise, Custodian shall
have recourse solely against the assets of that Portfolio to satisfy
such claim and shall have no recourse against the assets of any other
Portfolio for such purpose.
I. This Agreement, together with the Fee Schedule, is the entire
contract between the parties relating to the subject matter hereof and
supersedes all prior agreements.
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective authorized officers.
KEMPER HIGH INCOME TRUST
By:______________________________
Title:___________________________
Attest:______________________
Title:_______________________
INVESTORS FIDUCIARY TRUST COMPANY
By:______________________________
Title:___________________________
Attest:______________________
Title:_______________________
<PAGE> 1
Exhibit (k)(1)
AGENCY AGREEMENT
THIS AGREEMENT made as of the 3rd day of May, 1991, by and between
KEMPER HIGH INCOME TRUST, a Massachusetts business trust having its principal
place of business at 120 South LaSalle Street, Chicago, IL 60603 ("Fund"), and
INVESTORS FIDUCIARY TRUST COMPANY, a state chartered trust company organized and
existing under the laws of the State of Missouri, having its principal place of
business at 127 West 10th Street, Kansas City, Missouri 64105 ("IFTC").
WHEREAS, Fund wants to appoint IFTC as Transfer Agent and Dividend
Disbursing Agent, and IFTC wants to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
In connection with the appointment of IFTC as Transfer Agent and
Dividend Disbursing Agent for Fund, there will be filed with IFTC
the following documents:
A. A certified copy of the resolutions of the Board of
Trustees of Fund appointing IFTC as Transfer Agent and
Dividend Disbursing Agent, approving the form of this
Agreement, and designating certain persons to give written
instructions and requests on behalf of Fund.
B. A certified copy of the Agreement and Declaration of Trust
of Fund and any amendments thereto.
C. A certified copy of the Bylaws of Fund.
D. Copies of Registration Statements filed with the
Securities and Exchange Commission.
E. Specimens of all forms of outstanding share certificates,
in the forms approved by the Board of Trustees of Fund,
with a certificate of the Secretary of Fund, as to such
approval.
F. Specimens of the signatures of the officers of the Fund
authorized to sign share certificates and individuals
authorized to sign written instructions and requests on
behalf of the Fund.
<PAGE> 2
G. An opinion of counsel for Fund:
(1) With respect to Fund's organization and existence
under the laws of the Commonwealth of
Massachusetts.
(2) With respect to the status of all shares of Fund
covered by the appointment under the Securities
Act of 1933, as amended, and any other applicable
federal or state statute.
(3) To the effect that all issued shares are, and all
unissued shares will be when issued, validly
issued, fully paid and non-assessable.
2. Certain Representations and Warranties of IFTC. IFTC represents and
warrants to Fund that:
A. It is a trust company duly organized and existing and in
good standing under the laws of Missouri.
B. It is duly qualified to carry on its business in the State
of Missouri.
C. It is empowered under applicable laws and by its Articles
of Incorporation and Bylaws to enter into and perform the
services contemplated in this Agreement.
D. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
E. It has and will continue to have and maintain the
necessary facilities, equipment and personnel to perform
its duties and obligations under this Agreement.
F. It is, and will continue to be, registered as a transfer
agent under the Securities Exchange Act of 1934.
3. Certain Representations and Warranties of Fund. Fund represents and
warrants to IFTC that:
A. It is a business trust duly organized and existing and in
good standing under the laws of The Commonwealth of
Massachusetts.
B. It is an investment company registered under the
Investment Company Act of 1940.
C. All shares of the Fund offered for sale from time to time
will be registered under the Securities Act of 1933 or
exempt therefrom.
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<PAGE> 3
D. All requisite steps have been or will be taken to register
Fund's shares for sale in all applicable states, including
the District of Columbia.
E. Fund is empowered under applicable laws and by its
Agreement and Declaration of Trust and Bylaws to enter
into and perform this Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this Agreement,
Fund hereby employs and appoints IFTC as Transfer Agent
and Dividend Disbursing Agent effective the date hereof.
B. IFTC hereby accepts such employment and appointment and
agrees that it will act as Fund's Transfer Agent and
Dividend Disbursing Agent.
C. IFTC agrees to provide the necessary facilities, equipment
and personnel to perform its duties and obligations
hereunder in accordance with industry practice.
D. Fund agrees to use all reasonable efforts to deliver to
IFTC in Kansas City, Missouri, as soon as they are
available, all of its shareholder account records.
E. Subject to the provisions of Section 19 and 20 hereof,
IFTC agrees that it will perform all of the usual and
ordinary services of Transfer Agent and Dividend
Disbursing Agent and as agent for the various shareholder
accounts, including, without limitation, the following:
issuing, transferring and cancelling share certificates,
maintaining all shareholder accounts, preparing
shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing shareholder reports and
prospectuses, withholding federal income taxes, preparing
and mailing checks for disbursement of income dividends
and capital gains distributions, preparing and filing all
required U.S. Treasury Department information returns for
all shareholders, preparing and mailing confirmation forms
to shareholders and dealers with respect to all
transactions in shareholder accounts for which
confirmations are required and recording reinvestments of
dividends and distributions in Fund shares.
5. Compensation and Expenses.
A. In consideration for the services hereunder provided by
IFTC as Transfer Agent and Dividend Disbursing Agent, Fund
will pay to IFTC from time to time compensation as agreed
upon for all services rendered as Agent, and also, all its
reasonable out-of-pocket expenses and other disbursements
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<PAGE> 4
incurred in connection with the agency. Such compensation
will be set forth in a separate schedule to be agreed to
by Fund and IFTC. The initial agreement regarding
compensation is attached as Exhibit A.
B. Fund agrees to promptly reimburse IFTC for all reasonable
out-of-pocket expenses or advances incurred by IFTC in
connection with the performance of services under this
Agreement, including, but not limited to, postage (and
first class mail insurance in connection with mailing
share certificates), envelopes, check forms, continuous
forms, forms for reports and statements, stationery, and
other similar items, telephone and telegraph charges
incurred in answering inquiries from dealers or
shareholders, microfilm used each year to record the
previous year's transaction in shareholder accounts and
computer tapes used for permanent storage of records and
cost of insertion of materials in mailing envelopes by
outside firms. IFTC may, at its option, arrange to have
various service providers submit invoices directly to the
Fund for payment of out-of-pocket expenses reimbursable
hereunder.
6. Efficient Operation of IFTC System.
A. In connection with the performance of its services under
this Agreement, IFTC is responsible for the accurate and
efficient functioning of its system at all times,
including:
(1) The accuracy of the entries in IFTC's records
reflecting orders and instructions received by
IFTC from dealers, shareholders and Fund.
(2) The timely availability and the accuracy of
shareholder lists, shareholder account
verifications, confirmations and other shareholder
account information to be produced from its
records or data.
(3) The accurate and timely issuance of dividend and
distribution checks in accordance with
instructions received from Fund.
(4) The requiring of proper forms of instructions,
signatures and signature guarantees and any
necessary documents supporting the rightfulness of
transfers and other shareholder account
transactions, all in conformance with IFTC's
present procedures with such changes as may be
deemed reasonably appropriate by IFTC or as may be
reasonably approved by or on behalf of Fund.
(5) The maintenance of a current duplicate set of
Fund's essential or required records, as agreed
upon from time to time by Fund and
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<PAGE> 5
IFTC, at a secure distant location, in form
available and usable forthwith in the event of any
breakdown or disaster disrupting its main
operation.
7. Indemnification.
A. Fund shall indemnify and hold IFTC harmless from and
against any and all claims, actions, suits, losses,
damages, costs, charges, counsel fees, payments, expenses
and liabilities arising out of or attributable to any
action or omission by IFTC pursuant to this Agreement or
in connection with the agency relationship created by this
Agreement, provided that IFTC has acted in good faith and
without negligence and without willful misconduct.
B. IFTC shall indemnify and hold the Fund harmless from and
against, any and all claims, actions, suits, losses,
damages, costs, charges, counsel fees, payments, expenses
and liabilities arising out of or attributable to any
action or omission by IFTC pursuant to this Agreement or
in connection with the agency relationship created by this
Agreement, provided that IFTC has not acted in good faith
and without negligence and without willful misconduct.
C. In order that the indemnification provisions contained in
this Section 7 shall apply, upon the assertion of a claim
for which either party (the "Indemnifying Party") may be
required to provide indemnification hereunder, the party
seeking indemnification (the "Indemnitee") shall promptly
notify the Indemnifying Party of such assertion, and shall
keep such party advised with respect to all developments
concerning such claim. The Indemnifying Party shall be
entitled to assume control of the defense and the
negotiations, if any, regarding settlement of the claim.
If the Indemnifying Party assumes control, the Indemnitee
shall have the option to participate in the defense and
negotiations of such claim at its own expense. The
Indemnitee shall in no event confess, admit to,
compromise, or settle any claim for which the Indemnifying
Party may be required to indemnify it except with the
prior written consent of the Indemnifying Party, which
shall not be unreasonably withheld.
8. Certain Covenants of IFTC and Fund.
A. All requisite steps will be taken by Fund from time to
time when and as necessary to register the Fund's shares
for sale in all states in which Fund's shares shall at the
time be offered for sale and require registration. If at
any time Fund will receive notice of any stop order or
other proceeding in any such state affecting such
registration or the sale of Fund's shares, or of any
-5-
<PAGE> 6
stop order or other proceeding under the Federal
securities laws affecting the sale of Fund's shares, Fund
will give prompt notice thereof to IFTC.
B. IFTC hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to Fund for
safekeeping of share 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. Further, IFTC agrees to
carry insurance, as specified in Exhibit B hereto, with
insurers reasonably acceptable to Fund and in minimum
amounts that are reasonably acceptable to the Fund, which
will not be changed without the consent of Fund, which
consent will not be unreasonably withheld, and which will
be expanded in coverage or increased in amounts from time
to time if and when reasonably requested by Fund. If IFTC
determines that it is unable to obtain any such insurance
upon commercially reasonable terms, it shall promptly so
advise Fund in writing. In such event, Fund shall have the
right to terminate this Agreement upon 30 days notice.
C. To the extent required by Section 31 of the Investment
Company Act of 1940 and Rules thereunder, IFTC agrees that
all records maintained by IFTC relating to the services to
be performed by IFTC under this Agreement are the property
of Fund and will be preserved and will be surrendered
promptly to Fund on request.
D. IFTC agrees to furnish Fund semi-annual reports of its
financial condition, consisting of a balance sheet,
earnings statement and any other reasonably available
financial information reasonably requested by Fund. The
annual financial statements will be certified by IFTC's
certified public accountants.
E. IFTC represents and agrees that it will use all reasonable
efforts to keep current on the trends of the investment
company industry relating to shareholder services and will
use all reasonable efforts to continue to modernize and
improve its system without additional cost to Fund.
F. IFTC will permit Fund and its authorized representatives
to make periodic inspections of its operations at
reasonable times during business hours.
G. If IFTC is prevented from complying, either totally or in
part, with any of the terms or provisions of this
Agreement, by reason of fire, flood, storm, strike,
lockout or other labor trouble, riot, war, rebellion,
accidents, acts of God, equipment, utility or transmission
failure or damage, and/or any other cause or casualty
beyond the reasonable control of IFTC, whether similar to
the foregoing matters or not, then upon written notice to
Fund, the
-6-
<PAGE> 7
requirements of this Agreement that are affected by such
disability, to the extent so affected, shall be suspended
during the period of such disability; provided, however,
that IFTC shall make reasonable effort to remove such
disability as soon as possible. During such period, Fund
may seek alternate sources of service without liability
hereunder; and IFTC will use all reasonable efforts to
assist Fund to obtain alternate sources of service. IFTC
shall have no liability to Fund for nonperformance because
of the reasons set forth in this Section 8.G; but if a
disability that, in Fund's reasonable belief, materially
affects IFTC's ability to perform its obligations under
this Agreement continues for a period of 30 days, then
Fund shall have the right to terminate this Agreement upon
10 days written notice to IFTC.
9. Adjustment.
In case of any recapitalization, readjustment or other change in
the structure of Fund requiring a change in the form of share
certificates, IFTC will issue or register certificates in the new
form in exchange for, or in transfer of, the outstanding
certificates in the old form, upon receiving the following:
A. Written instructions from an officer of Fund.
B. Certified copy of the amendment to the Agreement and
Declaration of Trust or other document effecting the
change.
C. Certified copy of the order or consent of each
governmental or regulatory authority, required by law to
the issuance of the shares in the new form, and an opinion
of counsel that the order or consent of no other
government or regulatory authority is required.
D. Specimens of the new certificates in the form approved by
the Board of Trustees of Fund, with a certificate of the
Secretary of Fund as to such approval.
E. Opinion of counsel for Fund:
(1) With respect to the status of the shares of Fund
in the new form under the Securities Act of 1933,
and any other applicable federal or state laws.
(2) To the effect that the issued shares in the new
form are, and all unissued shares will be when
issued, validly issued, fully paid and
non-assessable.
-7-
<PAGE> 8
10. Share Certificates.
Fund will furnish IFTC with a sufficient supply of blank share
certificates and from time to time will renew such supply upon
the request of IFTC. Such certificates will be signed manually or
by facsimile signatures of the officers of Fund authorized by law
and Fund's Bylaws to sign share certificates, and if required,
will bear the trust seal or facsimile thereof.
11. Death, Resignation or Removal of Signing Officer.
Fund will file promptly with IFTC written notice of any change in
the officers authorized to sign share certificates, written
instructions or requests, together with two signature cards
bearing the specimen signature of each newly authorized officer,
all as certified by an appropriate officer of the Fund. In case
any officer of Fund who will have signed manually or whose
facsimile signature will have been affixed to blank share
certificates will die, resign, or be removed prior to the
issuance of such certificates, IFTC may issue or register such
share certificates as the share certificates of Fund
notwithstanding such death, resignation, or removal, until
specifically directed to the contrary by Fund in writing. In the
absence of such direction, Fund will file promptly with IFTC such
approval, adoption, or ratification as may be required by law.
12. Future Amendments of Agreement and Declaration of Trust and
Bylaws.
Fund will promptly file with IFTC copies of all material
amendments to its Agreement and Declaration of Trust and Bylaws
and Registration Statement made after the date of this Agreement.
13. Instructions, Opinion of Counsel and Signatures.
At any time IFTC may apply to any officer of Fund for
instructions, and may consult with legal counsel for Fund at the
expense of Fund, or with its own legal counsel at its own
expense, with respect to any matter arising in connection with
the agency; and it will not be liable for any action taken or
omitted by it in good faith in reliance upon such instructions or
upon the opinion of such counsel. IFTC is authorized to act on
the orders, directions or instructions of such persons as the
Board of Trustees of Fund shall from time to time designate by
resolution. IFTC will be protected in acting upon any paper or
document, including any orders, directions or instructions,
reasonably believed by it to be genuine and to have been signed
by the proper person or persons; and IFTC will not be held to
have notice of any change of authority of any person so
authorized by Fund until receipt of written notice thereof from
Fund. IFTC will also be protected in recognizing share
certificates that it reasonably believes to bear the proper
manual or facsimile signatures of the officers of Fund, and the
proper countersignature of
-8-
<PAGE> 9
any former Transfer Agent or Registrar, or of a Co-Transfer Agent
or Co-Registrar.
14. Papers Subject to Approval of Counsel.
The acceptance by IFTC of its appointment as Transfer Agent and
Dividend Disbursing Agent, and all documents filed in connection
with such appointment and thereafter in connection with the
agencies, will be subject to the approval of legal counsel for
IFTC, which approval will not be unreasonably withheld.
15. Certification of Documents.
The required copy of the Agreement and Declaration of Trust of
Fund and copies of all amendments thereto will be certified by
the appropriate official of The Commonwealth of Massachusetts;
and if such Agreement and Declaration of Trust and amendments are
required by law to be also filed with a county, city or other
officer of official body, a certificate of such filing will
appear on the certified copy submitted to IFTC. A copy of the
order to consent of each governmental or regulatory authority
required by law to the issuance of Fund shares will be certified
by the Secretary or Clerk of such governmental or regulatory
authority, under proper seal of such authority. The copy of the
Bylaws and copies of all amendments thereto and copies of
resolutions of the resolutions of the Board of Trustees of Fund
will be certified by the Secretary or an Assistant Secretary of
Fund.
16. Records.
IFTC will maintain customary records in connection with its
agency, and particularly will maintain those records required to
be maintained pursuant to sub-paragraph (2)(iv) of paragraph (b)
of Rule 31a-1 under the Investment Company Act of 1940, if any.
17. Disposition of Books, Records and Cancelled Certificates.
IFTC will send periodically to Fund, or to where designated by
the Secretary or an Assistant Secretary of Fund, all books,
documents, and all records no longer deemed needed for current
purposes and share certificates which have been cancelled in
transfer or in exchange, upon the understanding that such books,
documents, records, and share certificates will not destroyed by
Fund without the consent of IFTC (which consent will not be
unreasonably withheld), but will be safely stored for possible
future reference.
18. Provisions Relating to IFTC as Transfer Agent.
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<PAGE> 10
A. IFTC will make original issues of share certificates upon
written request of an officer of Fund and upon being
furnished with a certified copy of a resolution of the
Board of Trustees authorizing such original issue, an
opinion of counsel as outlined in paragraphs 1.G or 9.E of
this Agreement, the certificates required by Section 10 of
this Agreement and any other documents required by Section
1 or 9 of this Agreement.
B. Before making any original issue of certificates, Fund
will furnish IFTC with sufficient funds to pay any taxes
required on the original issue of the shares. Fund will
furnish IFTC such evidence as may be required by IFTC to
show the actual value of the shares. If no taxes are
payable, IFTC will upon request be furnished with an
opinion of outside counsel to that effect.
C. Shares will be transferred and new certificates issued in
transfer upon surrender of the old certificates in form
deemed by IFTC properly endorsed for transfer accompanied
by such documents as IFTC may deem necessary to evidence
that authority of the person making the transfer, and
bearing satisfactory evidence of the payment of any
applicable share transfer taxes. IFTC reserves the right
to refuse to transfer until it is satisfied that the
endorsement or signature on the certificate or any other
document is valid and genuine, and for that purpose it may
require a guarantee of signature by a firm having
membership in the New York Stock Exchange, Midwest Stock
Exchange, American Stock Exchange Securities Corporation,
Pacific Coast Stock Exchange, or any other exchange
acceptable to Fund or by a bank or trust company approved
by it. IFTC also reserves the right to refuse to transfer
shares until it is satisfied that the requested transfer
is legally authorized, and it will incur no liability for
the refusal in good faith to make transfers which, in its
judgment, are improper or unauthorized, or otherwise not
rightful. IFTC may, in effecting transfers, rely upon
Simplification Acts or other statutes which protect it and
Fund in not requiring complete fiduciary documentation.
D. When mail is used for delivery of share certificates, IFTC
will forward share certificates in "nonnegotiable" form as
provided by Fund by first class mail, all such mail
deliveries to be covered while in transit to the addressee
by insurance arranged for by IFTC.
E. IFTC will issue and mail subscription warrants and
certificates provided by Fund and representing share
dividends, exchanges or split-ups, or act as Conversion
Agent upon receiving written instructions from any officer
of Fund and such other documents as IFTC deems necessary.
-10-
<PAGE> 11
F. IFTC will issue, transfer, and split-up certificates upon
receiving written instructions from an officer of Fund and
such other documents as IFTC may deem necessary.
G. IFTC may issue new certificates in place of certificates
represented to have been lost, destroyed, stolen or
otherwise wrongfully taken, upon receiving indemnity
satisfactory to IFTC, and may issue new certificates in
exchange for, and upon surrender of, mutilated
certificates. Any such issuance shall be in accordance
with the provisions of law governing such matter and any
procedures adopted by the Board of Trustees of the Fund of
which IFTC has notice.
H. IFTC will supply a shareholder's list to Fund properly
certified by an officer of IFTC for any shareholder
meeting upon receiving a request from an officer of Fund.
It will also supply lists at such other times as may be
requested by an officer of Fund.
I. Upon receipt of written instructions of an officer of
Fund, IFTC will address and mail notices to shareholders.
J. In case of any request or demand for the inspection of the
share books of Fund or any other books of Fund in the
possession of IFTC, IFTC will endeavor to notify Fund and
to secure instructions as to permitting or refusing such
inspection. IFTC reserves the right, however, to exhibit
the share books or other books to any person in case it is
advised by its counsel that it may be held responsible for
the failure to exhibit the share books or other books to
such person.
19. Provisions Relating to Dividend Disbursing Agency.
A. IFTC will, at the expense of Fund, provide a special form
of check containing the imprint of any device or other
matter desired by Fund. Said checks must, however, be of a
form and size convenient for use by IFTC.
B. If Fund wants to include additional printed matter,
financial statements, etc., with the dividend checks, the
same will be furnished IFTC within a reasonable time prior
to the date of mailing of the dividend checks, at the
expense of Fund.
C. If Fund wants its distributions mailed in any special form
of envelopes, sufficient supply of the same will be
furnished to IFTC but the size and form of said envelopes
will be subject to the approval of IFTC. If stamped
envelopes are used, they must be furnished by Fund; or, if
postage stamps
-11-
<PAGE> 12
are to be affixed to the envelopes, the stamps or the cash
necessary for such stamps must be furnished by Fund.
D. IFTC will maintain one or more deposit accounts as Agent
for Fund, into which the funds for payment of dividends,
distributions or other disbursements provided for
hereunder will be deposited, and against which checks will
be drawn.
20. Termination of Agreement.
A. This Agreement may be terminated by either party upon
receipt of sixty (60) days written notice form the other
party.
B. Fund, in addition to any other rights and remedies, shall
have the right to terminate this Agreement forthwith upon
the occurrence at any time of any of the following events:
(1) Any interruption or cessation of operations by
IFTC or its assigns which materially interferes
with the business operation of Fund.
(2) The bankruptcy of IFTC or its assigns or the
appointment of a receiver for IFTC or its assigns.
(3) Any merger, consolidation or sale of substantially
all the assets of IFTC or its assigns.
(4) The acquisition of a controlling interest in IFTC
or its assigns, by any broker, dealer, investment
adviser or investment company except as may
presently exist.
(5) Failure by IFTC or its assigns to perform its
duties in accordance with the Agreement, which
failure materially adversely affects the business
operations of Fund and which failure continues for
thirty (30) days after receipt of written notice
from Fund.
(6) The registration of IFTC or its assigns as a
transfer agent under the Securities Exchange Act
of 1934 is revoked, terminated or suspended for
any reason.
C. In the event of termination, Fund will promptly pay IFTC
all amounts due to IFTC hereunder. Upon termination of
this Agreement, IFTC shall deliver all shareholder and
account records pertaining to Fund either to Fund or as
directed in writing by Fund.
21. Assignment.
-12-
<PAGE> 13
A. Except for the assignment of responsibilities pursuant to
the Services Agreement ("Services Agreement") between IFTC
and Kemper Service Company ("KSVC"), which Fund has
approved, neither this Agreement nor any rights or
obligations hereunder may be assigned by IFTC without the
written consent of Fund; provided, however, no assignment
will relieve IFTC of any of its obligations hereunder.
B. This Agreement including, without limitation, the
provisions of Section 7 will inure to the benefit of and
be binding upon the parties and their respective
successors and assigns including KSVC pursuant to the
aforesaid Services Agreement.
C. KSVC is authorized to use the system services of DST
Systems, Inc.
22. Confidentiality.
A. Except as provided in the last sentence of Section 18.J
hereof, or as otherwise required by law, IFTC will keep
confidential all records of and information in its
possession relating to Fund or its shareholders or
shareholder accounts and will not disclose the same to any
person except at the request or with the consent of Fund.
B. Except as otherwise required by law, Fund will keep
confidential all financial statements and other financial
records (other than statements and records relating solely
to Fund's business dealings with IFTC) and all manuals,
systems and other technical information and data, not
publicly disclosed, relating to IFTC's operations and
programs furnished to it by IFTC pursuant to this
Agreement and will not disclose the same to any person
except at the request or with the consent of IFTC.
Notwithstanding anything to the contrary in this Section
22.B, if an attempt is made pursuant to subpoena or other
legal process to require Fund to disclose or produce any
of the aforementioned manuals, systems or other technical
information and data, the Fund shall give IFTC prompt
notice thereof prior to disclosure or production so that
IFTC may, at its expense, resist such attempt.
23. Survival of Representations and Warranties.
A. All representations and warranties by either party herein
contained will survive the execution and delivery of this
Agreement.
24. Miscellaneous.
-13-
<PAGE> 14
A. This Agreement is executed and delivered in the State of
Illinois and shall be governed by the laws of said state
(except as to paragraph 24.G hereof which shall be
governed by the laws of The Commonwealth of
Massachusetts).
B. No provisions of the Agreement may be amended or modified,
in any manner except by a written agreement properly
authorized and executed by both parties hereto.
C. The captions in this Agreement are included for
convenience of reference only, and in no way define or
limit any of the provisions hereof or otherwise affect
their construction or effect.
D. This Agreement shall become effective as of the date
hereof.
E. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an
original but all of which together shall constitute one
and the same instrument.
F. If any part, term or provision of this Agreement is held
by the courts held to be illegal, in conflict with any law
or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the
rights and obligations of the parties shall be construed
and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or
invalid.
G. All parties hereto are expressly put on notice of the
Fund's Agreement and Declaration of Trust which is on file
with the Secretary of The Commonwealth of Massachusetts,
and the limitation of shareholder and trustee liability
contained therein. This Agreement has been executed by and
on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations
of the Fund hereunder are not binding upon any of the
Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and
property of the Fund. With respect to any claim by IFTC
for recovery of that portion of the compensation and
expenses (or any other liability of the Fund arising
hereunder) allocated to a particular Portfolio, whether in
accordance with the express terms hereof or otherwise,
IFTC shall have recourse solely against the assets of that
Portfolio to satisfy such claim and shall have no recourse
against the assets of any other Portfolio for such
purpose.
H. This Agreement, together with the Fee Schedule, is the
entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements
between the parties.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized officer.
KEMPER HIGH INCOME TRUST
By:
--------------------------------
Title:
-----------------------------
ATTEST:
By:
--------------------------
Title:
-----------------------
INVESTORS FIDUCIARY TRUST COMPANY
By:
--------------------------------
Title:
-----------------------------
ATTEST:
By:
--------------------------
Title:
-----------------------
<PAGE> 16
EXHIBIT A
FEE SCHEDULE
<TABLE>
<CAPTION>
Agency Function Fee Payable by Fund
<S> <C>
1. Maintenance of open shareholder account. $7.50 per year per account
2. Maintenance of closed shareholder account. $2.50 per year per account
3. Transaction Fee: Certificate Processing. $1.50 per certificate
</TABLE>
The out-of-pocket expenses of IFTC will be reimbursed by the Fund in accordance
with the provisions of paragraph 5.A of the Agency Agreement. All fees will be
subject to offset by earning allowances under the Custody Agreement between the
Fund and IFTC.
<PAGE> 17
EXHIBIT B
IFTC INSURANCE COVERAGE
DESCRIPTION OF POLICY:
BROKERS BLANKET BOND, STANDARD FORM 14
Covering losses caused by dishonesty of employees, physical loss
of securities on or outside of premises while in possession of
authorized person, loss caused by forgery or alteration of checks
or similar instruments.
ERRORS AND OMISSIONS INSURANCE
Covering replacement of destroyed records and computer errors and
omissions.
SPECIAL FORGERY BOND
Covering losses through forgery or alteration of checks or drafts
of customers processed by insured but drawn on or against them.
MAIL INSURANCE (APPLIES TO ALL FULL SERVICE OPERATIONS)
Provides indemnity for the following types of securities lost in
the mails:
Non-negotiable securities mailed to domestic locations via
registered mail.
Non-negotiable securities mailed to domestic locations via
first-class or certified mail.
Non-negotiable securities mailed to foreign locations via
registered mail.
Negotiable securities mailed to all locations via registered
mail.
<PAGE> 1
Exhibit (k)(2)
SUBSCRIPTION AGENT AGREEMENT (Company)
This Subscription Agent Agreement (the "Agreement") is made as of
__________________, 1999 between Kemper High Income Trust (the "Company") and
BankBoston, N.A. as subscription agent (the "Agent"). All terms not defined
herein shall have the meaning given in the prospectus (the "Prospectus")
included in the (Registration Statement on Form N-2 (File No. 811-5482) filed by
the Company with the Securities and Exchange Commission on February 12, 1999, as
amended by any amendment filed with respect thereto (the "Registration
Statement").
WHEREAS, the Company proposes to make subscription offer by issuing
certificates or other evidences of subscription rights, in the form designated
by the Company (the "Subscription Certificates") to shareholders of record (the
"Shareholders") of its Shares of Beneficial Interest, par value $0.01 per share
("Shares"), as of a record date specified by the Company (the "Record Date"),
pursuant to which each Shareholder will have certain rights (the "Rights") to
subscribe for the Shares, as described in and upon such terms as are set forth
in the Prospectus, a final copy of which has been or, upon availability will
promptly be, delivered to the Agent; and
WHEREAS, the Company wishes the Agent to perform certain acts on behalf
of the Company, and the Agent is willing to so act, in connection with the
distribution of the Subscription Certificates and the issuance and exercise of
the Rights to subscribe therein set forth, all upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
1. Appointment. The Company hereby appoints the Agent to act as subscription
agent in connection with the distribution of Subscription Certificates and the
issuance and exercise of the Rights in accordance with the terms set forth in
this Agreement and the Agent hereby accepts such appointment.
2. Form and Execution of Subscription Certificates.
(a) Each Subscription Certificate shall be irrevocable and fully
transferable. The Agent shall, in its capacity as Transfer Agent of the Company,
maintain a register of Subscription Certificates and the holders of record
thereof (each of whom shall be deemed a "Shareholder" hereunder for purposes of
determining the rights of holders of Subscription Certificates). Each
Subscription Certificate shall, subject to the provisions thereof, entitle the
Shareholder in whose name it is recorded to the following:
(1) The right to acquire during the Subscription Period, as
defined in the Prospectus, at the Subscription Price, as defined in the
Prospectus, a number of Shares equal to one Share for every three Rights (the
"Primary Subscription Right"); provided, however, any
1
<PAGE> 2
Shareholder who is issued fewer than three Rights may subscribe, at the
Subscription Price, for one full share; and
(2) The right to subscribe for additional Shares, subject to
the availability of such Shares and to the allotment of such Shares as may be
available among Shareholders who exercise Over-Subscription Rights on the basis
specified in the Prospectus; provided, however, that such Shareholder has
exercised all Primary Subscription Rights issued to him or her (the
"Over-Subscription Privilege").
3. Rights and Issuance of Subscription Certificates.
(a) Each Subscription Certificate shall evidence the Rights of the
Shareholder therein named to purchase Shares upon the terms and conditions
therein and herein set forth.
(b) Upon the written advice of the Company, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of the
Company Shareholders as of the Record Date to be prepared by the Agent in its
capacity as Transfer Agent of the Company, prepare and record Subscription
Certificates in the names of the Shareholders, setting forth the number of
Rights to subscribe for the Company's Common Stock calculated on the basis of
one Right for each full Share recorded on the books in the name of each such
Shareholder as of the Record Date. The number of Rights that are issued to
Record Date Shareholders will be rounded down, by the Agent, to the nearest
number of Full Rights as Fractional Rights will not be issued. Each Subscription
Certificate shall be dated as of the Record Date and shall be executed manually
or by facsimile signature of a duly authorized officer of the Subscription
Agent. Upon the written advice, signed as aforesaid, as to the effective date of
the Registration Statement, the Agent shall promptly countersign and deliver the
Subscription Certificates, together with a copy of the Prospectus, instruction
letter and any other document as the Company deems necessary or appropriate, to
all Shareholders with record addresses in the United States (including its
territories and possessions and the District of Columbia). Delivery shall be by
first class mail (without registration or insurance), except for those
Shareholders having a registered address outside the United States (who will
only receive copies of the Prospectus, instruction letter and other documents as
the Company deems necessary or appropriate, if any), delivery shall be by air
mail (without registration or insurance) and by first class mail (without
registration or insurance) to those Shareholders having APO or FPO addresses. No
Subscription Certificate shall be valid for any purpose unless so executed.
(c) The Agent will mail a copy of the Prospectus, instruction letter, a
special notice and other documents as the Company deems necessary or
appropriate, if any, but not Subscription Certificates to Record Date
Shareholders whose record addresses are outside the United States (including its
territories and possessions and the District of Columbia ) ("Foreign Record Date
Shareholders"). The Rights to which such Subscription Certificates relate will
be held by the Agent for such Foreign Record Date Shareholders' accounts until
instructions are received to exercise, sell or transfer the Rights.
2
<PAGE> 3
4. Exercise.
(a) Exercising Rights Holders may acquire Shares on Primary
Subscription and Record Date Shareholders may acquire Shares pursuant to the
Over-Subscription Privilege by delivery to the Agent as specified in the
Prospectus of (i) the Subscription Certificate with respect thereto, duly
executed by such Shareholder in accordance with and as provided by the terms and
conditions of the Subscription Certificate, together with (ii) the purchase
price as disclosed in the Prospectus for each Share subscribed for by exercise
of such Rights, in U.S. dollars by money order or check drawn on a bank in the
United States, in each case payable to the order of the Company or the Agent.
(b) Rights may be exercised at any time after the date of issuance of
the Subscription Certificates with respect thereto but no later than 5:00 P.M.
New York time on such date as the Company shall designate to the Agent in
writing (the "Expiration Date"). For the purpose of determining the time of the
exercise of any Rights, delivery of any material to the Agent shall be deemed to
occur when such materials are received at the Shareholder Services Division of
the Agent specified in the Prospectus.
(c) Notwithstanding the provisions of Section 4 (a) and 4 (b) regarding
delivery of an executed Subscription Certificate to the Agent prior to 5:00 P.M.
New York time on the Expiration Date, if prior to such time the Agent receives a
Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise from a bank,
a trust company or a New York Stock Exchange member guaranteeing delivery of (i)
payment of the full Subscription Price for the Shares subscribed for on Primary
Subscription and any additional Shares subscribed for pursuant to the
Over-Subscription Privilege, and (ii) a properly completed and executed
Subscription Certificate, then such exercise of Primary Subscription Rights and
Over-Subscription Rights shall be regarded as timely, subject, however, to
receipt of the duly executed Subscription Certificate and full payment for the
Shares by the Agent within three Business Days (as defined below) after the
Expiration Date (the "Protect Period") and full payment for their Shares within
ten Business Days after the Confirmation Date (as defined in Section 4(d)). For
the purposes of the Prospectus and this Agreement, "Business Day" shall mean any
day on which trading is conducted on the New York Stock Exchange.
(d) After five Business Days following the Expiration Date (the
"Confirm Date") the Agent shall send to each exercising shareholder (or, if
Shares on the Record Date are held by Cede & Co. or any other depository or
nominee, to Cede & Co. or such other depository or nominee) a confirmation
showing the number of Shares acquired pursuant to the Primary Subscription, and,
if applicable, the Over-Subscription Privilege, the per share and total purchase
price for such Shares, and any additional amount payable to the Company by such
shareholder or any excess to be refunded by the Company to such shareholder,
along with a letter explaining the allocation of Shares pursuant to the
Over-Subscription Privilege.
(e) Any additional payment required from a shareholder must be received
by the Agent within ten Business Days after the Confirmation Date and any excess
payment to be refunded by the Company to a shareholder will be mailed by the
Agent within ten Business Days after the Confirmation Date. If a shareholder
does not make timely payment of any additional
3
<PAGE> 4
amounts due in accordance with Section 4(d), the Agent will consult with the
Company in accordance with Section 5 as to the appropriate action to be taken.
The Agent will not issue or deliver certificates for Shares subscribed for until
payment in full therefore has been received, including collection of checks and
payment pursuant to notices of guaranteed delivery.
5. Transfer of Rights.
(a) Record Date Shareholders who do not wish to exercise any or all of
their Rights may instruct the Agent to sell any unexercised Rights through the
Dealer Manager (PaineWebber Incorporated) by delivering to the Agent
Subscription Certificates representing the Rights to be sold with the
appropriate instructions to sell the Rights on or prior to __________, 1999.
Upon timely receipt by the Agent of appropriate instructions to sell Rights, the
Agent shall request the Dealer Manager to use its best efforts to complete the
sale. Upon timely receipt of the proceeds of the sale, net of commissions, from
the Dealer Manager, the Agent will remit the proceeds of the sale to the Record
Date Shareholders. The Agent will also request the Dealer Manager to use its
best efforts to sell all Rights which remain unclaimed as a result of
Subscription Certificates being returned by the postal authorities to the Agent
as undeliverable as of the fourth business day prior to the Expiration Date.
Upon timely receipt of the proceeds of the sale, net of commissions, from the
Dealer Manager, the Agent will hold the proceeds from those sales for the
benefit of such nonclaiming Record Date Shareholders until such proceeds are
either claimed or escheat.
(b) Record Date Shareholders may transfer a portion of the Rights
evidenced by a single Subscription Certificate (but not fractional Rights) by
delivering to the Agent within at least three business days prior to the
Expiration Date a Subscription Certificate properly endorsed for transfer, with
instructions to register such portion of the Rights evidenced thereby in the
name of the transferee and to issue a new Subscription Certificate to the
transferee evidencing such transferred Rights. In such event, the Agent shall
issue a new Subscription Certificate evidencing the balance of the Rights to the
Record Date Shareholder or, if the Record Date Shareholder so instructed, to an
additional transferee.
6. Validity of Subscriptions. Irregular subscriptions not otherwise covered by
specific instructions herein shall be submitted to an appropriate officer of the
Company and handled in accordance with his or her instructions. Such
instructions will be documented by the Agent indicating the instructing officer
and the date thereof.
7. Over-Subscription. If, after allocation of the Shares to persons excercising
Primary Subscription Rights, there remain unexercised Rights, then the Agent
shall allot the Shares issuable upon exercise of such unexercised Rights (the
"Remaining Shares") to shareholders who have exercised all the Rights initially
issued to them and who wish to acquire more than the number of Shares for which
the Rights issued to them are exercisable. Shares subscribed for pursuant to the
Over-Subscription Privilege will be allocated in the amounts of such
over-subscriptions. If the number of Shares for which the Over-Subscription
Privilege has been exercised is greater than the Remaining Shares, the Agent
shall allocate the Remaining Shares to Record Date Shareholders exercising
Over-Subscription Privilege based on the number of Shares owned by them on the
Record Date. Any remaining Shares to be issued shall be allocated to
4
<PAGE> 5
holders of Rights acquired in the secondary market based on the number of Rights
exercised by such holders of Rights. The percentage of Remaining Shares each
over-subscribing Record Date Shareholder or other Rights holder may acquire will
be rounded up or down to result in delivery of whole Shares. The Agent shall
advise the Company immediately upon the completion of the allocation set forth
above as to the total number of Shares subscribed and distributable.
8. Delivery of Certificates. The Agent will deliver (i) certificates
representing those Shares purchased pursuant to exercise of Primary Subscription
Rights as soon as practicable after the corresponding Rights have been validly
exercised and full payment for such Shares has been received and cleared and
(ii) certificates representing those Shares purchased pursuant to the exercise
of the Over-Subscription Privilege as soon as practicable after the Expiration
Date and after all allocations have been effected.
9. Holding Proceeds of Rights Offering
(a) All proceeds received by the Agent from Shareholders in respect of
the exercise of Rights shall be held by the Agent, on behalf of the Company, in
a segregated account (the "Account"). No interest shall accrue to the Company or
shareholders on funds held in the Account pending disbursement in the manner
described in Section 4(e) above.
(b) The Agent shall deliver all proceeds received in respect of the
exercise of Rights to the Company as promptly as practicable, but in no event
later than ten business days after the Confirmation Date. Proceeds held in
respect of Excess Payments shall belong to the Company.
10. Reports.
(a) Daily, during the Subscription Period, the Agent will report by
telephone or telecopier (by 2:00 p.m., New York time), confirmed by letter, to
an Officer of the Company, data regarding Rights exercised, the total number of
Shares subscribed for, and payments received therefor, bringing forward the
figures from the previous day's report in each case so as to show the cumulative
totals and any such other information as may be mutually determined by the
Company and the Agent.
11. Loss or Mutilation. If any Subscription Certificate is lost, stolen,
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect the Company and the Agent as the Agent may in its discretion impose
(which shall, in the case of a mutilated Subscription Certificate include the
surrender and cancellation thereof), issue a new Subscription Certificate of
like denomination in substitution for the Subscription Certificate so lost,
stolen, mutilated or destroyed.
12. Compensation for Services. The Company agrees to pay to the Agent
compensation for its services as such in accordance with its Fee Schedule to act
as Agent, dated March 15, 1999 and set forth hereto as Exhibit A. The Company
further agrees that it will reimburse the Agent for its reasonable out-of-pocket
expenses incurred in the performance of its duties as such.
5
<PAGE> 6
13. Instructions and Indemnification. The Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions:
(a) The Agent shall be entitled to rely upon any instructions or
directions furnished to it by an appropriate officer of the Company, whether in
conformity with the provisions of this Agreement or constituting a modification
hereof or a supplement hereto. Without limiting the generality of the foregoing
or any other provision of this Agreement, the Agent, in connection with its
duties hereunder, shall not be under any duty or obligation to inquire into the
validity or invalidity or authority or lack thereof of any instruction or
direction from an officer of the Company which conforms to the applicable
requirements of this Agreement and which the Agent reasonably believes to be
genuine and shall not be liable for any delays, errors or loss of data occurring
by reason of circumstances beyond the Agent's control.
(b) The Company will indemnify the Agent and its nominees against, and
hold it harmless from, all liability and expense which may arise out of or in
connection with the services described in this Agreement or the instructions or
directions furnished to the Agent relating to this Agreement by an appropriate
officer of the Company, except for any liability or expense which shall arise
out of the negligence, bad faith or willful misconduct of the Agent or such
nominees.
14. Changes in Subscription Certificate. The Agent may, without the consent or
concurrence of the Shareholders in whose names Subscription Certificates are
registered, by supplemental agreement or otherwise, concur with the Company in
making any changes or corrections in a Subscription Certificate that it shall
have been advised by counsel (who may be counsel for the Company) is appropriate
to cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error therein or herein contained, and
which shall not be inconsistent with the provision of the Subscription
Certificate except insofar as any such change may confer additional rights upon
the Shareholders.
15. Assignment, Delegation.
(a) Neither this Agreement nor any rights or obligations hereunder may
be assigned or delegated by either party without the written consent of the
other party.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns. Nothing in
this Agreement is intended or shall be construed to confer upon any other person
any right, remedy or claim or to impose upon any other person any duty,
liability or obligation.
(c) The Agent may, without further consent on the part of the Company,
(i) subcontract for the performance hereof with Boston EquiServe Limited
Partnership or (ii) subcontract with other subcontractors for systems,
processing, and telephone and mailing services as may be required from time to
time; provided, however, that the Agent shall be as fully responsible to the
Company for the acts and omissions of any subcontractor as it is for its own
acts and omissions.
6
<PAGE> 7
16. Governing Law. The validity, interpretation and performance of this
Agreement shall be governed by the law of the Commonwealth of Massachusetts.
17. Third Party Beneficiaries. This Agreement does not constitute an agreement
for a partnership or joint venture between the Agent and the Company. Neither
party shall make any commitments with third parties that are binding on the
other party without the other party's prior written consent.
18. Force Majeure. 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 cause 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. Performance under this Agreement shall resume when
the affected party or parties are able to perform substantially that party's
duties.
19. Consequential Damages. Neither party to this Agreement shall be liable to
the other party for any consequential, indirect, special or incidental damages
under any provisions of this Agreement or for any consequential, indirect,
special or incidental damages arising out of any act or failure to act
hereunder even if that party has been advised of or has foreseen the possibility
of such damages.
20. Severability. If any provision of this Agreement shall be held invalid,
unlawful, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired.
21. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
22. Captions. The captions and descriptive headings herein are for the
convenience of the parties only. They do not in any way modify, amplify, alter
or give full notice of the provisions hereof.
23. Facsimile Signatures. Any facsimile signature of any party hereto shall
constitute a legal, valid and binding execution hereof by such party.
24. Confidentiality. The Agent and the Company 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 including the fees for services set forth in the attached schedule
shall remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by law.
25. Term. This Agreement shall remain in effect until terminated on ___________,
199_ (the "Termination Date") or, prior to the Termination Date, upon 30 days'
written notice by either party to the other. Upon termination of this Agreement,
all canceled
7
<PAGE> 8
Certificates and related documentation will be returned to the Company or agent
designated by the Company.
26. Merger of Agreement. This Agreement constitutes the entire agreement between
the parties hereto and supercedes any prior agreement with respect to the
subject matter hereof whether oral or written.
27. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper High Income
Trust" refers to the Trustees under the Declaration collectively as Trustees and
not as individuals or personally, and that no Shareholder of the Fund, or
Trustee, officer, employee or agent of the Fund, shall be subject to claims
against or obligations of the Fund to any extent whatsoever, but that the Fund
estate only shall be liable. The Agent is hereby expressly put on notice of the
limitation of liability as set forth in the Declaration and agrees that the
obligations assumed by the Fund pursuant to this Agreement shall be limited in
all cases to the Fund and its assets, and the Agent shall not seek satisfaction
of any such obligation from the Shareholders or any Shareholder of the Fund, or
from any Trustee, officer, employee or agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers, hereunto duly authorized,
as of the day and year first above written.
BANKBOSTON, N.A. COMPANY
- -------------------------------------- ------------------------------
Signature Signature
- -------------------------------------- ------------------------------
Title Title
8
<PAGE> 9
BANKBOSTON N.A.
FEE SCHEDULE
TO SERVE
KEMPER HIGH INCOME TRUST
AS
SUBSCRIPTION AGENT
This Fee Schedule sets forth the fees for the services to be performed under the
Subscription Agent Agreement between BankBoston N.A. and Kemper High Income
Trust dated March 15, 1999.
A. FEES FOR SERVICES
For the services set forth in the Subscription Agent Agreement dated
March 15, 1999, Kemper High Income Trust will be charged as follows:
<TABLE>
<S> <C>
$ 10,000.00 Project Management Fee*
$ 2.00 Per subscription form issued and mailed
$ 9.00 Per subscription processed registered and beneficial
$ 12.50 Per defective subscription form received and processed
$ 15.00 Per Notice of Guaranteed Delivery received
$ 1.75 Per refund check issued and mailed
$ 4.50 Per invoice mailed
$ 2.25 Subsequent cash management
$ 2.75 Per sale of right
$ 2.00 Per broker split certificate issued
$ 15.00 Per withdrawal of subscription certificate, if applicable
$ 1,000.00 New York window fee upon expiration
$ 3,000.00 Per offer extension
</TABLE>
*EXCLUDES OUT-OF-POCKET EXPENSES AS DESCRIBED IN SECTION B, "ITEMS NOT COVERED"
B. ITEMS NOT COVERED
- Services not specified in the Subscription Agent Agreement dated
March 15, 1999, including any services associated with new
duties, legislation or regulatory fiat which become effective
after the date of the Exchange Agency Agreement (these will be
provided on an appraisal basis)
9
<PAGE> 10
- All out-of-pocket expenses such as telephone line charges,
overprinting, certificates, checks, postage, stationery, wire
transfers, and excess material disposal (these will be billed as
incurred)
- Reasonable legal review fees if referred to outside counsel;
provided that BankBoston N.A. shall notify Kemper High Income
Trust in writing of its intention to use outside counsel
- Overtime charges assessed in the event of late delivery of
material for mailings unless the target mail date is rescheduled
C. LIMITATIONS
- Schedule based upon document review and information known at
this time about the transaction
- Significant changes made in the terms or requirements of this
transaction could require modifications to this Schedule
- Schedule based upon approximately 4,500 shareholders of record
- Material to be mailed to shareholders must be received no less
than five (5) business days prior to the start of the mailing
project
D. PAYMENT FOR SERVICES
It is agreed that an invoice for the Project Management Fee will be
rendered and payable on the effective date of the transaction. An
invoice for any out-of-pockets and per item fees realized will be
rendered and payable on a monthly basis, except for postage expenses in
excess of $5,000. Funds for such mailing expenses must be received one
(1) business day prior to the scheduled mailing date.
In witness whereof, the parties hereto have caused this Fee Schedule to
be executed by their respective officers, hereunto duly agreed and
authorized, as of the effective date of this Fee Schedule.
BANKBOSTON N.A. KEMPER HIGH INCOME TRUST
By: ______________________________ By: ____________________________
John J. Regan
Title: ___________________________ Title: _________________________
Vice President
Date: ____________________________ Date: __________________________
10
<PAGE> 1
Exhibit (k)(3)
INFORMATION AGENT AGREEMENT
This document will constitute the agreement between KEMPER HIGH INCOME
TRUST ("KHI"), with its principal executive offices at 222 South Riverside
Plaza, Chicago, IL 60606 and SHAREHOLDER COMMUNICATIONS CORPORATION ("SCC"),
with its principal executive offices at 17 State Street, New York, NY 10005,
relating to a Rights Offering (the "OFFER") of Kemper High Income Trust (the
"TRUST").
The services to be provided by SCC will be as follows:
(1) INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS
Target Group. SCC estimates that it may call between 3,000 to 5,100
of the approximately 19,000 outstanding beneficial and registered
shareholders of the TRUST. The estimate number is subject to
adjustment and SCC may actually call more or less shareholders
depending on the response to the OFFER or at KHI's direction.
Telephone Number Lookups. SCC will obtain the needed telephone
numbers from various types of telephone directories.
Initial Telephone Calls to Provide Information. SCC will begin
telephone calls to the target group as soon as practicable after
being instructed by KHI. Most calls will be made during 10:00 A.M. to
9:00 P.M. on business days and only during 10:00 A.M. to 5:00 P.M. on
Saturdays. No calls will be received by any shareholder after 9:00
P.M. on any day, in any time zone, unless specifically requested by
the shareholder. SCC will maintain "800" lines for shareholders to
call with questions about the OFFER. The "800" lines will be staffed
Monday through Friday between 9:00 a.m. and 9:00 p.m. SCC will
provide KHI with a weekly report reflecting the number of calls
received by SCC reflecting the names and phone number, if available.
Remails. SCC will coordinate remails of offering materials to the
shareholders who advise us that they have discarded or misplaced the
originally mailed materials. Use of overnight courier services must
receive prior approval by KHI.
Reminder/Extension Mailing. SCC will help to coordinate any targeted
or broad-based reminder mailing at the request of KHI. SCC will mail
only materials supplied by KHI or approved by KHI in writing.
Subscription Reports. SCC will provide KHI and/or the dealer manager
with subscription indications beginning not less than 7 business days
prior to expiration of the OFFER. These reports are based solely on
verbal indications received from the reorganization departments of
each participating broker dealer.
<PAGE> 2
(2) BANK/BROKER SERVICING
SCC will contact all banks, dealers and other nominee shareholders
("sponsors") holding stock as shown on appropriate portions of the
shareholder lists to ascertain quantities of offering materials
needed for forwarding to beneficial owners.
SCC will deliver offering materials by messenger to New York City
based intermediaries and by Federal Express or other means to non-New
York City based intermediaries. SCC will also follow-up by telephone
with each intermediary to insure receipt of the offering materials
and to confirm timely remailing of materials to the beneficial
owners.
SCC will maintain frequent contact with intermediaries to monitor
shareholder response and to insure that all liaison procedures are
proceeding satisfactorily. In addition, SCC will contact beneficial
holders directly, if possible, and do whatever may be appropriate or
necessary to provide information regarding the OFFER to this group.
SCC will, as frequently as practicable, report to KHI with responses
from intermediaries.
(3) PROJECT FEE
In consideration for acting as Information Agent SCC will receive a
project fee of $15,000.
(4) ESTIMATED EXPENSES
SCC will be reimbursed by KHI for its reasonable out-of-pocket
expenses incurred provided that SCC submits to KHI an expense report,
itemizing such expenses and providing copies of all supporting bills
in respect of such expenses. If the actual expenses incurred are less
than the portion of the estimated high range expenses paid in advance
by KHI, KHI will receive from SCC a check payable in the amount of
the difference at the time that SCC sends its final invoice for the
second half of the project fee.
SCC's expenses are estimated as set forth below and the estimates are
based largely on data provided to SCC by KHI. In the course of the
OFFER the expenses and expense categories may change due to changes
in the OFFER schedule or due to events beyond SCC's control, such as
delays in receiving offering material and related items. In the event
of a change of 10% or more from the total expenses estimated or new
expenses not originally contemplated, SCC will notify KHI by phone
and/or by letter for prior approval of such expenses.
<PAGE> 3
(5) PERFORMANCE
SCC will use its best efforts to achieve the goals of KHI but SCC is
not guaranteeing a minimum success rate. SCC's Project Fee as
outlined in Section 3 or Expenses as outlined in Section 4 are not
contingent on success or failure of the OFFER.
SCC's strategies revolve around a telephone information campaign. The
purpose of the telephone information campaign is to raise the overall
awareness amongst shareholders of the OFFER and help shareholders
better understand the transaction. This in turn may result in a
higher overall response.
(6) COMPLIANCE
SCC agrees that all activities by SCC and by others on behalf of SCC
pursuant to this Agreement shall be conducted in compliance with all
applicable (i) federal and state laws and regulations, including, but
not limited to all federal and state securities laws and regulations,
and (ii) requirements of the National Association of Securities
Dealers, Inc. and the New York Stock Exchange.
KHI agrees that all activities by KHI and by others (other than by,
or on behalf of SCC) on behalf of KHI pursuant to this Agreement
shall be conducted in compliance with all applicable (i) federal and
state laws and regulations, including, but not limited to all federal
and state securities laws and regulations, and (ii) requirements of
the National Association of Securities Dealers, Inc.
<PAGE> 4
In rendering the services contemplated by this Agreement, SCC agrees
not to make any representations, oral or written that are not
contained in the TRUST's current Prospectus for the OFFER, unless
previously authorized to do so in writing by KHI.
(7) PAYMENT
Payment for one half the project fee ($7,500) and one half the
estimated high range expenses ($19,416.00) for a total of $26,916.00
will be made at the signing of this contract. The balance, if any,
will be paid by KHI due thirty days after SCC sends its final
invoice.
(8) DISSEMINATION OF INFORMATION
In rendering the services contemplated by this Agreement, SCC agrees
that neither SCC, nor any person or entity acting on behalf of SCC
shall (i) mail or otherwise distribute any written materials unless
such materials have been provided by KHI to SCC for distribution, or
such distribution has been approved by KHI in advance in writing,
(ii) make any oral representations or other statements to any person
or entity relating in anyway to the TRUST or the OFFER other than as
set forth in (A) written materials provided by KHI to SCC for use by
SCC in oral communications pursuant to this Agreement or (B) the then
current prospectus for the OFFER. In connection with representations
or other statements based on information set forth in such
prospectus, SCC shall take appropriate steps to ensure that
information is presented in a manner that is fair, balanced and not
misleading.
(9) TRAINING
SCC shall at its own expense provide training to all persons who are
to be involved in communications with shareholders or intermediaries
so as to ensure that all such persons review carefully and understand
the OFFER and the prospectus for the TRUST so as to be in a position
to effectively communicate with shareholders and the intermediaries.
Training materials will be based solely on the information provided
in the prospectus or supplemented by KHI.
(10) MISCELLANEOUS
SCC will hold in confidence and will not use nor disclose to third
parties information we receive from KHI, or information developed by
SCC based upon such information we receive, except for information
which was public at the time of disclosure or becomes part of the
public domain without disclosure by SCC or information which we learn
from a third party which does not have an obligation of
confidentiality to KHI or the TRUST.
<PAGE> 5
In the event the project is cancelled for an indefinite period of
time after the signing of this Agreement and before the expiration of
the OFFER, SCC will be reimbursed by KHI for any expenses incurred
and a pro rata portion of the project fee as calculated based upon
the number of days lapsed from the signing of this Agreement through
the original expiration date.
KHI agrees to indemnify, hold harmless, reimburse and defend SCC, and
its officers, agents and employees, against all claims or threatened
claims, costs, expenses, liabilities, obligations, losses or damages
(including reasonable legal fees and expenses) of any nature,
incurred by or imposed upon SCC, or any of its officers, agents or
employees, which results, arises out of or is based upon services
rendered to KHI in accordance with the provisions of this AGREEMENT,
provided that such services are rendered to KHI without any
negligence, willful misconduct, bad faith or reckless disregard on
the part of SCC, or its officers, agents and employees. SCC agrees to
advise the TRUST of any claim or liability promptly after receipt of
any notice thereof. The TRUST shall not be liable for any settlement
without its written consent.
This agreement will be governed by and construed in accordance with the
laws of the State of New York. This AGREEMENT sets forth the entire AGREEMENT
between SCC and KHI with respect to the agreement herein and cannot be modified
except in writing by both parties.
IN WITNESS WHEREOF, the parties have signed this AGREEMENT this _____
day of March 1999.
KEMPER HIGH SHAREHOLDER COMMUNICATIONS
INCOME TRUST CORPORATION
By_________________________ By_________________________
Robert S. Brennan
Vice President
<PAGE> 1
Exhibit (k)(4)
EXECUTION COPY
U.S. $20,000,000
CREDIT AGREEMENT
dated as of June 20, 1996
between
KEMPER HIGH INCOME TRUST,
as the Borrower
and
BANK OF AMERICA ILLINOIS,
as the Lender
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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I DEFINITIONS AND ACCOUNTING TERMS......................................... 1
1.1. Defined Terms............................................. 1
1.2. Use of Defined Terms...................................... 13
1.3. Cross-References.......................................... 13
1.4. Accounting and Financial Determinations................... 13
1.5. Legal Representation...................................... 14
II COMMITMENTS, BORROWING PROCEDURES AND NOTE............................... 14
2.1. Commitments............................................... 14
2.1.1. Commitment of the Lender.................................. 14
2.1.2. Lender Not Required To Make Loans......................... 14
2.2. Making of Loans........................................... 14
2.2.1. Notice of Loans........................................... 15
2.2.2. Funding of Loans.......................................... 15
2.3. Continuation and Conversion Elections..................... 15
2.4. Funding................................................... 15
2.5. Note...................................................... 16
2.6. Reduction of Commitment Amount............................ 16
2.7. Termination of Commitment................................. 16
2.8. Extension of Commitment................................... 16
2.9. Change of Lending Office.................................. 17
III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES............................... 17
3.1. Repayments and Prepayments................................ 17
3.2. Interest Provisions....................................... 18
3.2.1. Rates .................................................... 18
3.2.2. Post-Maturity Rates....................................... 20
3.2.3. Payment Dates............................................. 20
3.3. Facility Fee.............................................. 21
IV CERTAIN EURODOLLAR RATE AND OTHER PROVISIONS............................. 21
4.1. Eurodollar Rate Lending Unlawful.......................... 21
4.2. Deposits Unavailable...................................... 21
4.3. Increased Eurodollar Rate Loan Costs, etc................. 22
4.4. Funding Losses............................................ 22
4.5. Increased Capital Costs................................... 23
4.6. Taxes, etc................................................ 23
4.7. Payments, Computations, etc............................... 24
4.8. Setoff ................................................... 25
4.9. Use of Proceeds........................................... 25
V CONDITIONS TO BORROWING.................................................. 25
5.1. Conditions Precedent to Initial Borrowing................. 25
5.1.1. Resolutions, etc.......................................... 25
5.1.2. Good Standing Certificate................................. 26
5.1.3. Delivery of Note.......................................... 26
5.1.4. Opinion of Borrower's Counsel............................. 26
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
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5.1.5. Closing Fees. Expenses. etc............................... 26
5.1.6. Consent Letter............................................ 26
5.1.7. Form U-1.................................................. 26
5.2. All Borrowings............................................ 26
5.2.1. No Default................................................ 27
5.2.2. Loan Request.............................................. 27
VI REPRESENTATIONS AND WARRANTIES........................................... 27
6.1. Organization, etc......................................... 27
6.1.1. Organization, Qualification, etc.......................... 27
6.1.2. Registration of Borrower and Borrower's Stock............. 28
6.2. Due Authorization. Non-Contravention. etc................. 28
6.3. Government Approval. Regulation. etc...................... 28
6.4. Validity. etc............................................. 28
6.5. Compliance with Laws...................................... 28
6.6. Financial Information..................................... 29
6.7. No Material Adverse Change................................ 29
6.8. Litigation................................................ 29
6.9. Subsidiaries.............................................. 29
6.10. Ownership of Properties................................... 29
6.11. Taxes .................................................... 29
6.12. Pension and Welfare Plans................................. 30
6.13. Regulations G, U and X.................................... 30
6.14. Investment Policies....................................... 30
6.15. Accuracy of Information................................... 30
6.16. Advisory Contract......................................... 30
6.17. Tax Status................................................ 30
VII COVENANTS .......................................................... 30
7.1. Affirmative Covenants..................................... 31
7.1.1. Financial Information, Reports, Notices, etc.............. 31
7.1.2. Compliance with Laws, etc................................. 33
7.1.3. Insurance................................................. 33
7.1.4. Books and Records......................................... 34
7.1.5. Use of Proceeds........................................... 34
7.1.6. Investment Adviser........................................ 34
7.1.7. Regulated Investment Company.............................. 34
7.2. Negative Covenants........................................ 34
7.2.1. Business Activities; Investment Policies.................. 34
7.2.2. Indebtedness.............................................. 35
7.2.3. Liens .................................................... 35
7.2.4. Asset Coverage Ratio...................................... 36
7.2.5. Investments............................................... 36
7.2.6. Restricted Payments, etc.................................. 36
7.2.7. Consolidation. Merger. etc................................ 36
7.2.8. Asset Dispositions, etc................................... 36
7.2.9. Transactions with Affiliates; Custodian................... 37
</TABLE>
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<TABLE>
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7.2.10. Restrictive Agreements. etc............................... 37
7.2.11. Plans .................................................... 37
</TABLE>
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<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
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7.2.12. Payment of Management Fees................................ 37
7.2.13. Partnerships and Joint Ventures........................... 37
VIII EVENT OF DEFAULTS........................................................ 37
8.1. Listing of Event of Defaults.............................. 37
8.1.1. Non-Payment of Obligations................................ 38
8.1.2. Breach of Warranty........................................ 38
8.1.3. Non-Performance of Certain Covenants and Obligations...... 38
8.1.4. Non-Performance of Net Asset Coverage Covenant............ 38
8.1.5. Non-Performance of Other Covenants and Obligations........ 38
8.1.6. Default on Other Indebtedness............................. 38
8.1.7. Judgments................................................. 39
8.1.8. Event of Bankruptcy....................................... 39
8.1.9. Change in Control of Investment Advisor................... 39
8.2. Action if Bankruptcy...................................... 39
8.3. Action if other Event of Default.......................... 39
IX MISCELLANEOUS PROVISIONS................................................. 40
9.1. Waivers, Amendments. etc.................................. 40
9.2. Notices................................................... 40
9.3. Payment of Costs and Expenses............................. 40
9.4. Indemnification........................................... 41
9.5. Survival.................................................. 42
9.6. Severability.............................................. 42
9.7. Headings.................................................. 42
9.8. Counterparts: Effectiveness............................... 42
9.9. Governing Law; Entire Agreement........................... 42
9.10. Successors and Assigns.................................... 43
9.11. Participations............................................ 43
9.12. Confidentiality........................................... 44
9.13. Forum Selection and Consent to Jurisdiction............... 44
9.14. Waiver of Jury Trial...................................... 45
9.15. Limitation of Liability................................... 45
</TABLE>
- iv -
<PAGE> 6
EXHIBITS
EXHIBIT 2.1.1 Form of Borrowing Request
EXHIBIT 2.4 Form of Continuation/conversion Notice
EXHIBIT 2.6 Form of Note
EXHIBIT 5.1.4 Form of opinion of Counsel to the Borrower
EXHIBIT 7.1.1 Form of Asset Coverage Certificate
EXHIBIT 7.2.1 Investment Policies Subject to Required Lender Approval to
Modify
- v -
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of June 20, 1996, is made by and
between KEMPER HIGH INCOME TRUST, a Massachusetts voluntary association
(commonly known as a Massachusetts business trust) (the "Borrower"), and BANK OF
AMERICA ILLINOIS (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower is a diversified management investment company of
the closed-end type; and
WHEREAS, the Borrower desires from time to time to borrow funds from
the Lender for the purpose of leveraging its purchases of assets; and
WHEREAS, the Borrower desires to obtain a Commitment from the Lender
pursuant to which Loans, in a maximum aggregate principal amount at any one time
outstanding not to exceed $20,000,000, will be made to the Borrower from time to
time prior to the Commitment Termination Date; and
WHEREAS, the Lender is willing, on the terms and subject to the
conditions hereinafter set forth (including Article V), to extend such a
Commitment and make such Loans to the Borrower.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Affiliate" of any Person means (a) any other Person directly or
indirectly owning, controlling, or holding with power to vote, five percent (5t)
or more of the outstanding voting securities of such other Person; (b) any other
Person five percent or more of whose outstanding voting securities are directly
or indirectly owned, controlled, or held with power to vote, by such other
Person; (c) any Person directly or indirectly controlling, controlled by, or
under common control with, such other Person; (d) any officer, director,
partner, co-partner, or
<PAGE> 8
employee of such other Person; (e) if such other Person is an investment
company, any investment adviser thereof or any member of an advisory board
thereof; and (f) if such other Person is an unincorporated investment company
not having a board of directors, the depositor thereof.
"Agreement" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alternate Reference Rate" means, on any date and with respect to all
Reference Rate Loans, a fluctuating rate of interest per annum equal to the
higher of:
(a) the rate of interest most recently announced by the Lender
at Chicago, Illinois as its reference rate for Dollar loans; and
(b) the Fed Funds Rate for such date plus 0.5%.
The Alternate Reference Rate is not necessarily intended to be the
lowest rate of interest determined by the Lender in connection with extensions
of credit. Changes in the rate of interest on that portion of any Loans
maintained as Reference Rate Loans will take effect simultaneously with each
change in the Alternate Reference Rate. The Lender will give notice promptly to
the Borrower of changes in the Alternate Reference Rate.
"Asset Coverage Certificate" means a certificate provided by the
Borrower to the Lender pursuant to Section 7.1.1(c), substantially in the form
of Exhibit 7.1.1 hereto.
"Authorized Officer" means, relative to the Borrower, those of its
officers whose signatures and incumbency shall have been certified to the Lender
pursuant to Section 5.1.2.
"Bankruptcy Code" means 11 U.S.C. Section 101 et seq., as amended from
time to time, together with all regulations and rules with respect thereto.
"Board of Trustees" means the Borrower's duly constituted Board of
Trustees.
"Borrower" is defined in the preamble.
"Borrowing" means the Loans of the same type and, in the case of Fixed
Rate Loans, having the same Interest Period, made
- 2 -
<PAGE> 9
by the Lender on the same Business Day and pursuant to the same Loan Request in
accordance with Section 2.2.
"Business Day" means:any day which is neither a Saturday or Sunday nor
a legal holiday on which banks are authorized or required to be closed
in Chicago, Illinois; and
(b) relative to the making, continuing, prepaying or repaying
of any Eurodollar Rate Loans, any day on which dealings in Dollars are
carried on in the Eurodollar interbank market.
"Capitalized Lease Liabilities" means all monetary obligations of the
Borrower under any leasing or similar arrangement which, in accordance with
GAAP, would be classified as capitalized leases, and, for purposes of this
Agreement and each other Loan Document, the amount of such obligations shall be
the capitalized amount thereof, determined in accordance with GAAP, and the
stated maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means the Lender's obligation to make Loans pursuant to
Section 2.1.1.
"Commitment Amount" means, on any date, $20,000,000, as such amount may
be reduced from time to time pursuant to Section 2.6.
"Commitment Termination Date" means the earliest of:
(a) June 20, 1999 (as such date may be extended pursuant to
Section 2.8, the "Scheduled Commitment Termination Date");
(b) the date on which the Commitment Amount is terminated in
full or reduced to zero pursuant to Section 2.7; and
(c) the date on which any Event of Bankruptcy occurs.
Upon the occurrence of any event described in clauses (a) through (c), the
Commitment shall terminate automatically and without further action.
- 3 -
<PAGE> 10
"Contingent Liability" means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
"Continuation/Conversion Notice", means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit 2.3.1 hereto.
"Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.
"Default" means any Event of Default or any condition, occurrence or
event which, with notice or lapse of time or both, would, unless cured or
waived, constitute an Event of Default.
"Dollar" and the symbol "$" mean the lawful money of the United States.
"Domestic Office", means the office of the Lender designated as such
below its signature hereto or such other office of the Lender (or any successor
or assign of the Lender) within the United States as may be designated from time
to time by notice from the Lender to the Borrower.
"Effective Date" means the date this Agreement becomes effective
pursuant to Section 9.8.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"Eurodollar Rate" is defined in Section 3.2.1.
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<PAGE> 11
"Eurodollar Rate Loan" means a Loan bearing interest, at all times
during an Interest Period applicable to such Loan, at a fixed rate of interest
determined by reference to the Eurodollar Rate (Reserve Adjusted).
"Eurodollar Rate (Reserve Adjusted)" is defined in Section 3.2.1.
"Eurodollar Office" means the IBOR Office or the LIBOR Office, as
applicable.
"Eurodollar Reserve Percentage" is defined in Section 3.2.1.
"Event of Bankruptcy" means the occurrence of either of the following
with respect to the Borrower:
(a) case or other proceeding shall be commenced, without the
application or consent of the Borrower, in any court, seeking the
liquidation, reorganization, debt arrangement, dissolution, winding up,
or composition or readjustment of debts of the Borrower, the
appointment of a trustee, receiver, custodian, liquidator, assignee,
sequestrator or the like for the Borrower or all or substantially all
of its assets, or any similar action with respect to the Borrower under
any law relating to bankruptcy, insolvency, reorganization, winding up
or composition or adjustment of debts, and such case or proceeding
shall continue undismissed, or unstayed and in effect, for a period of
60 consecutive days; or an order for relief in respect of the Borrower
shall be entered in an involuntary case under the Bankruptcy Code or
other similar laws now or hereafter in effect; or
(b) the Borrower shall commence a voluntary case or other
proceeding under any applicable bankruptcy, insolvency, reorganization,
debt arrangement, dissolution or other similar law now or hereafter in
effect, or shall consent to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) for, the Borrower or for any substantial part
of its property, or shall make any general assignment for the benefit
of creditors, or shall fail to, or admit in writing its inability to,
pay its debts generally as they become due, or its board of directors
shall vote to implement any of the foregoing, or its board of directors
shall take any action in furtherance of any of the foregoing.
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"Event of Default" means any of the events described in Section 8.1.
"Fair Market Value" means, for each of the Borrower's securities, the
value determined by using market quotations, or independent pricing services
that use prices provided by market makers or estimates of market values obtained
from yield data relating to instruments or securities with similar
characteristics. Portfolio securities of the Borrower that are primarily traded
on a domestic securities exchange or securities listed on the NASDAQ National
Market shall be valued at the last sale price on the exchange or market where
primarily traded or listed or, if there is no recent sale price available, at
the last current bid quotation. Portfolio securities of the Borrower that are
primarily traded on foreign securities exchanges shall be valued at the
preceding closing values of such securities on their respective exchanges where
primarily traded. A security that is listed or traded on more than one exchange
shall be valued at the quotation on the exchange determined to be the primary
market for such security by the Board of Trustees or its delegates. Securities
not so traded or listed shall be valued at the last current bid quotation if
market quotations are available. Equity options shall be valued at the last sale
price unless the bid price is higher or the ask price is lower, in which event
such bid or asked price is used. Exchange traded fixed income options shall be
valued at the last sale price unless there is no sale price, in which event
current prices provided by market makers are used. Over-the-counter traded
options shall be valued based upon current prices provided by market makers.
Financial futures and options thereon shall be valued at the settlement price
established each day by the board of trade or exchange on which they are traded.
Other securities of the Borrower, including restricted securities, and other
assets shall be valued at fair value as determined reasonably and in good faith
by the Board of Trustees. The calculation of the Fair Market Value of foreign
securities of the Borrower does not necessarily take place contemporaneously
with the determination of the prices of the majority of the Borrower's portfolio
securities, which may be made prior to the determination of net asset value. For
purposes of determining the Fair Market Value of a foreign security, the price
of such security as set forth above, in a foreign currency, will be converted
into Dollar values at the mean between the bid and offered quotations of such
currency against Dollars as last quoted by a recognized dealer. If an event were
to occur, after the value of a security had been so established but before the
Net Asset Value per share had been determined, which would be likely to change
the Net Asset Value
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<PAGE> 13
materially, then that security shall be valued reasonably and in good faith by
the Board of Trustees or its delegates.
"Fed Funds Rate" means, for any period, a fluctuating interest rate per
annum for each day during such period equal to:
(a) the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York; or
(b) if such rate is not so published for any day which is a
Business Day, the average of the quotations received by the Lender from
three leading federal funds brokers selected by the Lender for the last
transaction in overnight federal funds arranged prior to 9:00 a.m., New
York City time, on that day for federal funds transactions in New York
City.
"Fed Funds Rate Loan" means a Loan bearing interest, at all times
during an Interest Period applicable to such Loan, at a fixed rate of interest
determined by reference to the Fed Funds Rate.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of twelve consecutive calendar months
ending on November 30; references to a Fiscal Year with a number corresponding
to any calendar year (e.g. the 111999 Fiscal Year") refer to the Fiscal Year
ending on the November 30 occurring during such calendar year.
"Fixed Rate Loan" means a Eurodollar Rate Loan or a Fed Funds Rate
Loan.
"I.R.S. Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
"GAAP" is defined in Section 1.4.
"Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
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<PAGE> 14
"herein", "hereof", "hereto", "hereunder" and similar terms contained
in this Agreement or any other Loan Document refer to this Agreement or such
other Loan Document, as the case may be, as a whole and not to any particular
Section, paragraph or provision of this Agreement or such other Loan Document.
"IBOR" is defined in Section 3.2.1.
"IBOR Office" means the office of the Lender designated as such below
its signature hereto or such other office of the Lender as designated from time
to time by notice from the Lender to the Borrower, whether or not outside the
United States, which shall be making or maintaining Loans, interest on which is
determined by reference to IBOR.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of the Borrower, any qualification or exception to such opinion or
certification:
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of
matters relevant to such financial statement; or
(c) which relates to the treatment or classification of any
item in such financial statement and which, as a condition to its
removal, would require an adjustment to such item if the effect of such
adjustment would be to cause the Borrower to be in default of its
obligation under Section 7.2.4.
"including" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"Indebtedness" of the Borrower means, without duplication:
(a) all obligations of the Borrower for borrowed money and all
obligations of the Borrower evidenced by bonds, debentures, notes or
other similar instruments;
(b) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not
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<PAGE> 15
drawn, and banker's acceptances issued for the account of the Borrower;
(c) all obligations of the Borrower as lessee under leases
which have been or should be, in accordance with GAAP, recorded as
Capitalized Lease Liabilities;
(d) net liabilities of the Borrower under all Hedging
Obligations;
(e) whether or not so included as liabilities in accordance
with GAAP, all obligations of the Borrower to pay the deferred purchase
price of property or services, and indebtedness (excluding prepaid
interest thereon) secured by a Lien on property owned or being
purchased by the Borrower (including indebtedness arising under
conditional sales or other title retention agreements), whether or not
such indebtedness shall have been assumed by the Borrower or is limited
in recourse; and
(f) all Contingent Liabilities of the Borrower in respect of
any of the foregoing.
"Indemnified Liabilities" is defined in Section 9.4.
"Indemnified Parties" is defined in Section 9.4.
"Interest Period" means (a) relative to any Eurodollar Rate Loan, the
period beginning on (and including) the date on which such Eurodollar Rate Loan
is made or continued as, or converted into, a Eurodollar Rate Loan pursuant to
Section 2.2 or 2.4 and shall end on (but exclude) the day which numerically
corresponds to such date one, two, three or six months thereafter (or, if such
month has no numerically corresponding day, on the last Business Day of such
month), in either case as the Borrower may select in its relevant notice
pursuant to Section 2.2 or 2.4; and
(b) relative to any Fed Funds Rate Loan, the period beginning on (and
including) the date on which such Fed Funds Rate Loan is made or continued as,
or converted into, a Fed Funds Rate Loan pursuant to Section 2.2 or 2.4 and
ending on the date that is up to thirty days thereafter as the Borrower may
select in its relevant notice pursuant to Section 2.2 or 2.4;
provided that in any such case:
(i) the Borrower shall not be permitted to select
Interest Periods to be in effect at any one time
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<PAGE> 16
which have expiration dates occurring on more than six different dates;
(ii) if such Interest Period would otherwise end on a
day which is not a Business Day, such Interest Period shall end on the
next following Business Day (unless, in the case of a Eurodollar Rate
Loan, such next following Business Day is the first Business Day of a
calendar month, in which case such Interest Period shall end on the
Business Day next preceding such numerically corresponding day); and
(iii) no Interest Period may end later than the then
Scheduled Commitment Termination Date.
"Investment" means, relative to any Person,
(a) any loan or advance made by such Person to any other
Person (excluding commission, travel and similar advances to officers
and employees made in the ordinary course of business);
(b) any Contingent Liability of such Person; and
(c) any ownership or similar interest held by such Person in
any other Person.
"Investment Adviser" is defined in Section 7.1.6.
"Investment Policies" means those investment, borrowing and other
objectives, policies, limits and restrictions of the Borrower set forth in the
minutes of the meetings of the Borrower's Board of Directors and the minutes of
the meetings of the Borrower's shareholders or which may be in effect from time
to time in accordance with law.
"Lender" is defined in the preamble.
"LIBOR" is defined in Section 3.2.1.
"LIBOR Office" means the office of the Lender designated as such below
its signature hereto or such other office of the Lender as designated from time
to time by notice from the Lender to the Borrower, whether or not outside the
United States, which shall be making or maintaining Loans, interest on which is
determined by reference to LIBOR.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property
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<PAGE> 17
to secure payment of a debt or performance of an obligation or other priority or
preferential arrangement of any kind or nature whatsoever.
"Loan" is defined in Section 2.1.1.
"Loan Request" means a request for a Loan given by the Borrower to the
Lender substantially in the form of Exhibit 2.2.1.
"Loan Documents" means this Agreement and the Note.
"Net Asset Coverage Ratio" means, at the end of any Business Day, the
ratio which (i) the sum of (x) Net Assets plus (y) the aggregate amount of the
Loans outstanding at such time bears to (ii) the aggregate face amount of Senior
Securities Representing Indebtedness at such time.
"Net Assets" means, at any time, the aggregate Fair Market Value of the
Borrower's assets at such time minus the aggregate amount of the Borrower's
Indebtedness at such time.
"1933 Act" means the Securities Act of 1933, as amended, reformed or
otherwise modified from time to time, together with all rules and regulations
issued at any time in connection therewith.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
reformed or otherwise modified from time to time, together with all rules and
regulations issued at any time in connection therewith.
"1940 Act" means the Investment Company Act of 1940, as amended,
reformed or otherwise modified from time to time, together with all rules and
regulations issued at any time in connection therewith.
"Obligations" means all obligations of the Borrower to the Lender under
the Loan Documents, including, without limitation, (a) all obligations to make
payments to the Lender of the principal amount of and interest on any Loans, and
(b) all obligations of the Borrower to the Lender in respect of fees, costs,
expenses, and indemnification under Sections 10.3 and 10.4.
"Organic Document" means, relative to the Borrower, its trust
agreement, its by-laws and all voting trusts and similar
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<PAGE> 18
arrangements to which it is a party that are applicable to any of its authorized
shares of capital stock.
"Participant" is defined in Section 9.11.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the
Borrower or any corporation, trade or business that is, along with the Borrower,
a member of a Controlled Group, may have liability, including any liability by
reason of having been a substantial employer within the meaning of section 4063
of ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under section 4069 of ERISA.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
"Quarterly Payment Date" means the last day of each February, May,
August, and November or, if any such day is not a Business Day, the next
succeeding Business Day.
"Reference Rate Loan" means a Loan bearing interest at a fluctuating
rate determined by reference to the Alternate Reference Rate.
"SEC" means the Securities and Exchange Commission.
"Scheduled Commitment Termination Date" is defined in the definition of
"Commitment Termination Date".
"Senior Security" means any bond, debenture, note, or similar
obligation or instrument constituting a security evidencing Indebtedness, or any
stock of a class having priority over any other class as to distribution of
assets or payment of dividends.
"Senior Security Representing Indebtedness" means any Senior Security
other than stock.
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<PAGE> 19
"Stated Maturity Date" means, with respect to each Loan, the earlier of
(i) the Scheduled Commitment Termination Date or (ii) the date the Loans are
accelerated pursuant to Section 8.3.
"Subsidiary" means, with respect to any Person, any corporation of
which 50% or more of the outstanding capital stock having ordinary voting power
to elect a majority of the board of directors of such corporation (irrespective
of whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person.
"Taxes" is defined in Section 4.6.
"Termination Event" means
(a) the occurrence of any Event of Bankruptcy or
(b) the occurrence of the Event of Default described in
Section 8.1.4.
"Total Assets" means, as of any date, an amount equal to the aggregate
Fair Market Value of all items which would be set forth as assets on a balance
sheet of the Borrower on such date in accordance with GAAP.
"Total Liabilities" means at any date the aggregate amount of all items
that would be set forth as liabilities on a balance sheet of the Borrower on
such date in accordance with GAAP.
"type" means, relative to any Loan, the portion thereof, if any, being
maintained as a Reference Rate Loan or a Fixed Rate Loan and, if a Fixed Rate
Loan, as a Eurodollar Rate Loan or a Fed Funds Rate Loan and, if a Eurodollar
Rate Loan, whether interest thereon is to be determined by reference to IBOR or
LIBOR.
"United States" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"Welfare Plan" means a "welfare plan", as such term is defined in
section 3(1) of ERISA.
Section 1.2 Use of Defined Terms. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such
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<PAGE> 20
meanings when used in each Note, Loan Request, Continuation/Conversion Notice,
Loan Document, notice and other communication delivered from time to time in
connection with this Agreement or any other Loan Document.
Section 1.3 Cross-References. Unless otherwise specified, references in
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
Section 1.4 Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 7.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared in
accordance with, those generally accepted accounting principles "GAAP") applied
in the preparation of the financial statements referred to in Section 6.6.
Section 1.5 Legal Representation. This Agreement and the other Loan
Documents were negotiated by the parties with the benefit of legal
representation and any rule of construction or interpretation otherwise
requiring this Agreement or any other Loan Document to be construed or
interpreted against any party shall not apply to any construction or
interpretation hereof or thereof.
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTE
Section 2.1 Commitments. On the terms and subject to the conditions of
this Agreement (including Article V), the Lender agrees to make Loans pursuant
to the Commitment described in this Section 2.1.
SECTION 2.1.1. Commitment of the Lender. From time to time on any
Business Day occurring prior to the Commitment Termination Date, the Lender will
make loans (the "Loans") to the Borrower equal to the aggregate amount of the
Borrowing requested by the Borrower to be made on such day. The commitment of
the Lender described in this Section 2.1.1 is herein referred to as the
"Commitment". On the terms and subject to the conditions hereof,
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<PAGE> 21
the Borrower may from time to time borrow, repay and reborrow Loans.
SECTION 2.1.2. Lender Not Required To Make Loans. The Lender shall not
be required to make any Loan if, after giving effect thereto, the aggregate
outstanding principal amount of all Loans
(a) would cause the Borrower to be in violation of Section
7.2.4, or
(b) would exceed the Commitment Amount.
Section 2.2 Making of Loans.
Section 2.2.1. Notice of Loans. The Borrower may request that a Loan be
made on any Business Day on or prior to the Commitment Termination Date by
delivering to the Lender W in the case of a Reference Rate Loan or Fed Funds
Rate Loan, not later than 10:30 a.m., Chicago time, on such Business Day, (ii)
in the case of a Eurodollar Rate Loan interest on which is to be determined by
reference to IBOR, not later than 1:00 p.m., Chicago time, on the third
preceding Business Day, and (iii) in the case of a Eurodollar Rate Loan interest
on which is to be determined by reference to LIBOR, not later than 1:00 p.m.,
Chicago time, on the fourth preceding Business Day, in each case a Loan Request,
appropriately completed and signed by an Authorized Officer. Each Loan Request
shall specify the type, the desired amount and the date of such Loan and shall
set forth the other information and calculations specified in such Loan Request;
provided that each Loan shall be in a minimum amount of $250,000 and an integral
multiple of $250,000.
Section 2.2.2. Funding of Loans. With respect to each Loan requested by
the Borrower in accordance with Section 2.2.1, upon satisfaction of the
applicable conditions set forth in Article V, the Lender shall transfer
immediately available funds to such account as the Borrower shall have
designated.
Section 2.3 Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Lender on or before 10:00 a.m., Chicago
time, on a Business Day, the Borrower may from time to time irrevocably elect,
on not less than three nor more than five Business Days' notice that all, or any
portion in an aggregate minimum amount of $250,000 and an integral multiple of
$250,000, of any Loans, in the case of Reference Rate Loans, be converted into
Fixed Rate Loans or, in the case of Fixed Rate Loans, be converted into
Reference Rate Loans or a Fixed Rate Loan of another type or continued as Fixed
Rate Loans
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<PAGE> 22
of the same type (in the absence of delivery of a Continuation/Conversion Notice
with respect to any Fixed Rate Loans at least three Business Days before the
last day of the then-current Interest Period with respect thereto, such Fixed
Rate Loans shall, on such last day, automatically convert to Reference Rate
Loans); provided that no portion of the outstanding principal amount of any
Loans may be continued as, or be converted into, Fixed Rate Loans when any
Default has occurred and is continuing.
Section 2.4 Funding. The Lender may, if it so elects, fulfill its
obligation to make, continue or convert Eurodollar Rate Loans hereunder by
causing one of its foreign branches or Affiliates (or an international banking
facility created by the Lender) to make or maintain such Eurodollar Rate Loan;
provided that such Eurodollar Rate Loan shall nonetheless be deemed to have been
made and to be held by the Lender, and the obligation of the Borrower to repay
such Eurodollar Rate Loan shall nevertheless be to the Lender for the account of
such foreign branch, Affiliate or international banking facility. In addition,
the Borrower hereby consents and agrees that, for purposes of any determination
to be made for purposes of Sections 4.1, 4.2, 4.3 or 4.4, it shall be
conclusively assumed that the Lender elected to fund all Eurodollar Rate Loans
by purchasing Dollar deposits in its Eurodollar Office's interbank eurodollar
market.
Section 2.5 Note. The Loans shall be evidenced by the Note payable to
the order of the Lender in a maximum principal amount equal to the original
Commitment Amount. The Borrower hereby irrevocably authorizes the Lender to make
(or cause to be made) appropriate notations on the grid attached to the Note (or
on any continuation of such grid), which notations, if made, shall evidence,
inter alia, the date of, the outstanding principal of, and the interest rate and
Interest Period applicable to the Loans evidenced thereby. Such notations shall
be conclusive and binding on the Borrower absent manifest error; provided that
the failure of the Lender to make any such notations shall not limit or
otherwise affect any Obligations of the Borrower.
Section 2.6 Reduction of Commitment Amount. The Borrower may from time
to time, upon not less than five Business Days' prior notice to the Lender,
voluntarily reduce the Commitment Amount effective as of the stated effective
date of such notice; provided that any such reduction shall be permanent and any
partial reduction of the Commitment Amount shall be in a minimum amount of
$2,000,000 and in an integral multiple of $1,000,000.
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<PAGE> 23
Section 2.7 Termination of Commitment. The Commitment shall terminate
on the Commitment Termination Date.
Section 2.8 Extension of Commitment. Not more than ninety (90) days and
not later than sixty (60) days prior to the then-effective Scheduled Commitment
Termination Date, the Borrower may request that the Scheduled Commitment
Termination Date be extended to the third anniversary of such then-effective
Scheduled Commitment Termination Date by notice to the Lender to such effect.
Upon receipt of such notice, the Lender shall determine as promptly as
practicable whether to agree to such extension request and shall give notice of
such determination to the Borrower. If the Lender determines to so agree and
gives such notice, the Scheduled Commitment Termination Date shall be extended
to such third anniversary date without any further or other action by the
parties.
Section 2.9 Change of Lending Office. The Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 4.1, 4.3, 4.5 or
4.6, it will, if requested by the Borrower and to the extent permitted by law or
by the relevant governmental authority, for a period of 30 days use reasonable
efforts in good faith to avoid the illegality or to avoid or minimize the
increase in costs or reduction in payments resulting from such event (including
using reasonable efforts to change its Domestic Office or Eurodollar Office);
provided that such avoidance or minimization can be made in such a manner so
that the Lender, in its sole determination, suffers no legal, economic or
regulatory disadvantage.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
Section 3.1 Repayments and Prepayments. The Borrower shall repay in
full the unpaid principal amount of each Loan upon the Stated Maturity Date
therefor. Prior thereto, the Borrower:
(a) may, from time to time on any Business Day, make a
voluntary prepayment, in whole or in part, of the outstanding principal
amount of any Loans; provided that
(i) no such prepayment of any Eurodollar Rate Loan
may be made on any day other than the last day of the Interest
Period for such Loan;
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<PAGE> 24
(ii) all such voluntary prepayments shall require at
least three but no more than five Business Days' prior written
notice to the Lender; and
(iii) all such voluntary partial prepayments shall be
in an aggregate minimum amount of $2,000,000 and an integral
multiple of $1,000,000;
(b) shall, on each date when any reduction in the Commitment
Amount shall become effective, including pursuant to Section 2.2, make
a mandatory prepayment of all Loans equal to the excess, if any, of the
aggregate outstanding principal amount of all Loans over the Commitment
Amount as so reduced; and
(c) shall, immediately upon any acceleration of the Stated
Maturity Date of any Loans pursuant to Section 8.2 or 8.3, repay all
Loans, unless, pursuant to Section 8.3, only a portion of all Loans is
so accelerated.
Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as may be required by Section 4.4. No voluntary
prepayment of principal of any Loans shall cause a reduction in the Commitment
Amount.
Section 3.2 Interest Provisions. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this Section 3.2.
Section 3.2.1. Rates. Pursuant to an appropriately delivered Loan
Request or Continuation/Conversion Notice, each Loan comprising a Borrowing
shall accrue interest at a rate per annum:
(a) relative to each Reference Rate Loan, equal to the
Alternate Reference Rate from time to time;
(b) relative to each Eurodollar Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the Eurodollar
Rate (Reserve Adjusted) for such Interest Period plus a margin of
0.275t per annum; or
(c) relative to each Fed Funds Rate Loan, during each Interest
Period applicable thereto, equal to the sum of the Fed Funds Rate for
such Interest Period plus a margin of 0.275t per annum.
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<PAGE> 25
The "Eurodollar Rate (Reserve Adjusted)" means, relative to any Loan to
be made, continued or maintained as, or converted into, a Eurodollar Rate Loan
for any Interest Period, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) determined pursuant to the following formula:
Eurodollar Rate = Eurodollar Rate
(Reserve Adjusted) ------------------------------------
1.00 - Eurodollar Reserve Percentage
The Eurodollar Rate (Reserve Adjusted) for any Interest Period for
Eurodollar Rate Loans will be determined by the Lender on the basis of the
Eurodollar Reserve Percentage in effect two Business Days before the first day
of such Interest Period, subject, however, to Section 3.2.4.
"Eurodollar Rate" means IBOR or LIBOR, as applicable.
"Eurodollar Reserve Percentage" means, relative to any Interest Period
for Eurodollar Rate Loans, a percentage (expressed as a decimal) equal to the
daily average during such Interest Period of the percentages in effect on each
day of such Interest Period for determining the maximum aggregate reserve
requirements (including all basic, emergency, supplemental, marginal and other
reserves and taking into account any transitional adjustments or other scheduled
changes in reserve requirements) specified under regulations issued from time to
time by the F.R.S. Board and then applicable to assets or liabilities consisting
of and including "Eurocurrency Liabilities", as currently defined in Regulation
D of the F.R.S. Board, having a term approximately equal or comparable to such
Interest Period.
"IBOR" means, relative to any Interest Period for Eurodollar Rate
Loans interest on which is determined by reference to IBOR, the rate of interest
equal to the weighted average (rounded upwards, if necessary, to the next 1/16
of it) of the rates per annum, at which Dollar deposits in immediately available
funds are offered to the Lender's IBOR Office in the interbank eurodollar market
as at or about 10:00 a.m., New York City time, two (2) Business Days prior to
the beginning of such Interest Period for delivery on the first day of such
Interest Period, and in an amount approximately equal to the amount of such
Eurodollar Rate Loans and for a period approximately equal to such Interest
Period.
"LIBOR" means, relative to any Interest Period for Eurodollar Rate
Loans interest on which is determined by
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reference to LIBOR, the rate of interest equal to the weighted average (rounded
upwards, if necessary, to the next 1/16 of 1%) of the rates per annum at which
Dollar deposits in immediately available funds are offered to the Lender's LIBOR
Office in the interbank eurodollar market as at or about 11:00 a.m., London
time, two (2) Business Days prior to the beginning of such Interest Period for
delivery on the first day of such Interest Period, and in an amount
approximately equal to the amount of such Eurodollar Rate Loans and for a period
approximately equal to such Interest Period.
All Fixed Rate Loans shall bear interest from and including the first
day of the applicable Interest Period to (but not including) the last day of
such Interest Period at the interest rate determined as applicable to such Fixed
Rate Loan.
Section 3.2.2. Post-Maturity Rates. After the date any principal
amount of any Loan is due and payable (whether on the Stated Maturity Date, upon
acceleration or otherwise), or after any other monetary Obligation of the
Borrower shall have become due and payable, the Borrower shall pay, but only to
the extent permitted by law, interest (after as well as before judgment) on such
amounts at a rate per annum equal to 2.0% per annum in excess of the otherwise
applicable interest rate with respect thereto or, if no interest rate is
otherwise applicable thereto, the Alternate Reference Rate plus a margin of
2.0%- per annum.
Section 3.2.3. Payment Dates. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any payment or prepayment, in whole or in
part, of principal outstanding on such Loan;
(c) with respect to Fixed Rate Loans, the last day of each
applicable Interest Period (and, if such Interest Period shall exceed
three months, on the last day of the third month of such Interest
Period);
(d) with respect to Reference Rate Loans, on each
(e) Quarterly Payment Date;
(f) with respect to any Reference Rate Loans converted into
Fixed Rate Loans on a day when interest would not otherwise have been
payable pursuant to clause (d), on the date of such conversion; and
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(g) on that portion of any Loans the Stated Maturity Date of
which is accelerated pursuant to Section 8.2 or Section 8.3,
immediately upon such acceleration.
Interest accrued on Loans or other monetary obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
Section 3.3 Facility Fee. The Borrower agrees to pay to the Lender, for
the period (including any portion thereof when the Commitment is suspended by
reason of the Borrower's inability to satisfy any condition of Article V)
commencing on the Effective Date and continuing through the final Commitment
Termination Date, a facility fee at the rate of 0.125k per annum on the
Commitment Amount. Such facility fee shall be payable by the Borrower in arrears
on each Quarterly Payment Date, commencing with the first such day following the
Effective Date, and on the Commitment Termination Date. All such fees shall be
non-refundable.
ARTICLE IV
CERTAIN EURODOLLAR RATE AND OTHER PROVISIONS
Section 4.1 Eurodollar Rate Lending Unlawful. If the Lender shall
determine (which determination shall, upon notice thereof to the Borrower, be
conclusive and binding on the Borrower) that the introduction of or any change
in or in the interpretation of any law makes it unlawful, or any central bank or
other governmental authority asserts that it is unlawful, for the Lender to
make, continue or maintain any Loan as, or to convert any Loan into, a
Eurodollar Rate Loan, the obligations of the Lender to make, continue, maintain
or convert any such Loans shall, upon such determination, forthwith be suspended
until the Lender shall notify the Borrower that the circumstances causing such
suspension no longer exist, and all Eurodollar Rate Loans shall automatically
convert into Reference Rate Loans at the end of the then current Interest
Periods with respect thereto or sooner, if required by such law or assertion.
Section 4.2 Deposits Unavailable. If the Lender shall have determined
that:
(a) Dollar certificates of deposit or Dollar deposits, as the
case may be, in the relevant amount and for
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the relevant Interest Period are not available to the Lender in its
relevant market; or
(b) by reason of circumstances affecting the Lender's relevant
market, adequate means do not exist for ascertaining the interest rate
applicable hereunder to Eurodollar Rate Loans,
then, upon notice from the Lender to the Borrower, the obligations of the Lender
under Sections 2.2 and 2.4 to make or continue any Loans as, or to convert any
Loans into, Eurodollar Rate Loans shall forthwith be suspended until the Lender
shall notify the Borrower that the circumstances causing such suspension no
longer exist.
Section 4.3 Increased Eurodollar Rate Loan Costs, etc. The Borrower
agrees to reimburse the Lender for any increase in the cost to the Lender of, or
any reduction in the amount of any sum receivable by the Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, Eurodollar Rate Loans. The Lender shall promptly notify the Borrower
in writing of the occurrence of any such event, such notice to state, in
reasonable detail, the reasons therefor and the additional amount required fully
to compensate the Lender for such increased cost or reduced amount. Such
additional amounts shall be payable by the Borrower to the Lender within five
days of its receipt of such notice, and such notice shall, in the absence of
manifest error, be conclusive and binding on the Borrower.
Section 4.4 Funding Losses. In the event the Lender shall incur any
loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Lender to
make, continue or maintain any portion of the principal amount of any Loan as,
or to convert any portion of the principal amount of any Loan into, a Eurodollar
Rate Loan) as a result of:
(a) any conversion or repayment or prepayment of the principal
amount of any Eurodollar Rate Loan on a date other than the scheduled
last day of the Interest Period applicable thereto, whether pursuant to
Section 3.1 or otherwise;
(b) any Loans not being made as Eurodollar Rate Loans in
accordance with the Loan Request therefor; or
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(c) any Loans not being continued as, or converted into,
Eurodollar Rate Loans in accordance with the applicable
Continuation/Conversion Notice therefor,
then, upon the written notice of the Lender to the Borrower, the Borrower shall,
within five days of its receipt thereof, pay to the Lender such amount as will
(in the reasonable determination of the Lender) reimburse the Lender for such
loss or expense. Such written notice (which shall include calculations in
reasonable detail) shall, in the absence of manifest error, be conclusive and
binding on the Borrower.
Section 4.5 Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by the Lender or any Person controlling
the Lender, and the Lender determines (in its sole and absolute discretion) that
the rate of return on its or such controlling Person's capital as a consequence
of its Commitment or the Loans made by the Lender is reduced to a level below
that which the Lender or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case upon notice from
time to time by the Lender to the Borrower, the Borrower shall immediately pay
directly to the Lender additional amounts sufficient to compensate the Lender or
such controlling Person for such reduction in rate of return. A statement of the
Lender as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on the Borrower. In determining such amount, the Lender
may use any method of averaging and attribution that it (in its sole and
absolute discretion) shall deem applicable.
Section 4.6 Taxes, etc.
(a) All payments by the Borrower to the Lender in respect of
any Obligation shall be made without any setoff or counterclaim, and
free and clear of and without deduction or withholding for or on
account of, any present or future Taxes now or hereafter imposed on the
Lender with respect to such payments by any governmental or other
authority, except to the extent that such deduction or withholding is
compelled by law. If the Borrower is compelled by law to make any such
deduction or withholding it will:
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(i) pay to the relevant authorities the full amount
required to be so withheld or deducted;
(ii) pay such additional amounts as may be necessary
in order that the net amount received by the Lender, after
such deduction or withholding (including any required
deduction or withholding on such additional amounts) shall
equal the amount such payee would have received had no such
deduction or withholding been made; and
(iii) promptly forward to the Lender an official
receipt or other documentation satisfactory to the Lender
evidencing such payment to such authorities.
Moreover, if any Taxes are directly asserted against the Lender with respect to
any payment made in respect of any Obligation, the Lender may pay such Taxes,
and the Borrower agrees promptly to pay such additional amount (including any
penalties, interest or expenses) as may be necessary in order that the net
amount received by the Lender after the payment of such Taxes (including any
Taxes on such additional amount) shall equal the amount the Lender would have
received had no such Taxes been asserted.
(b) If the Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Lender the
required receipts or other required documentary evidence, the Borrower
shall indemnify the Lender for any incremental Taxes, interest or
penalties that may become payable by the Lender as a result of any such
failure, other than incremental Taxes, interest and penalties arising
from the Lender's negligence or willful misconduct.
Section 4.7 Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement and the Note
shall be made by the Borrower to the Lender. All such payments required to be
made to the Lender shall be made not later than 11:00 a.m., Chicago time, on the
date due, in same day or immediately available funds, to such account as the
Lender shall specify from time to time by notice to the Borrower. Funds received
after that time shall be deemed to have been received by the Lender on the next
succeeding Business Day. All interest and fees shall be computed on the basis of
the actual number of days (including the first day but excluding the last day)
occurring during the period for which such interest or fee is payable over a
year comprised of 360 days (or, in the case of interest on a Reference Rate
Loan, 365 days or, if
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appropriate, 366 days). Whenever any payment to be made shall otherwise be due
on a day which is not a Business Day, such payment shall (except as otherwise
required by clause (c) of the definition of the term "Interest Period" with
respect to Eurodollar Rate Loans) be made on the next succeeding Business Day
and such extension of time shall be included in computing interest and fees, if
any, in connection with such payment.
Section 4.8 Setoff. The Lender shall, upon the occurrence of an Event
of Bankruptcy or upon the occurrence of any other Event of Default, have the
right to appropriate and apply to the payment of the Obligations owing to it
(whether or not then due) any and all balances, credits, deposits, accounts or
moneys of the Borrower then or thereafter maintained with the Lender. The Lender
agrees promptly to notify the Borrower after any such setoff and application
made by such Lender; provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of the Lender
under this Section are in addition to other rights and remedies (including other
rights of setoff under applicable law or otherwise) which the Lender may have.
Section 4.9 Use of Proceeds. The Borrower shall apply the proceeds of
each Borrowing in accordance with Section 7.1.5 and otherwise in accordance with
this Agreement. The Borrower acknowledges that the Loans are deemed by the
F.R.S. Board to be "purpose loans" under such Regulation U because of the
Borrower's status as an investment company under the 1940 Act.
ARTICLE V
CONDITIONS TO BORROWING
Section 5.1 Conditions Precedent to Initial Borrowing. The obligations
of the Lender to fund the initial Borrowing shall be subject to the prior or
concurrent satisfaction of each of the conditions set forth in this Section 5.1.
Section 5.1.1. Resolutions, etc. The Lender shall have received from
the Borrower a certificate, dated the date of the initial Borrowing or a recent
date prior thereto as shall be acceptable to the Lender, of its Secretary or
Assistant Secretary as to
(a) resolutions of its Board of Trustees then in full force
and effect authorizing the execution, delivery and performance of this
Agreement and the Note;
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(b) the incumbency and signatures of those of its officers
authorized to act with respect to this Agreement and the Note and each
other document executed by it; and
(c) the names and true signatures of the officers authorized
on the Borrower's behalf to sign any Loan Requests, notices and other
documents to be delivered by the Borrower, upon which certificates the
Lender may conclusively rely until it shall have received a further
certificate from the Borrower canceling or amending such prior
certificate.
Section 5.1.2. Good Standing Certificate. The Lender shall have
received a good standing certificate for the Borrower issued by the Secretary of
State of Massachusetts.
Section 5.1.3. Delivery of Note. The Lender shall have received the
Note duly executed and delivered by the Borrower and made payable to the order
of the Lender.
Section 5.1.4. Opinion of Borrower's Counsel. The Lender shall have
received an opinion, dated the date hereof and addressed to the Lender, from
Sharyn Tepper, Esq., substantially in the form of Exhibit 5.1.4 hereto.
Section 5.1.5. Closing Fees. Expenses. etc. The Lender shall have
received all fees, costs and expenses due and payable pursuant to Sections 3.3
and 10.3, if then invoiced.
Section 5.1.6. Consent Letter. The Lender shall have received a
letter, in form and substance satisfactory to the Lender and its counsel, from
the Investment Adviser consenting to the provisions of Section 7.2.12.
Section 5.1.7. Form U-1. The Lender shall have received a duly
executed Federal Reserve Form U-1 as required pursuant to F.R.S. Board
Regulation U (12 C.F.R. Section 221.1 et seq.) in form and substance
satisfactory to the Lender, together with all information requested by the
Lender in connection therewith.
Section 5.2 All Borrowings. The obligation of the Lender to fund any
Loan on the occasion of any Borrowing (including the initial Borrowing) shall be
subject to the satisfaction of each of the conditions precedent set forth in
this Section 5.2.
Section 5.2.1. No Default. Both immediately before and immediately
after giving effect to any Borrowing no Default shall have occurred and be
continuing.
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Section 5.2.2. Loan Request. The Lender shall have received a Loan
Request for such Borrowing. Each of the delivery of a Loan Request and the
acceptance by the Borrower of the proceeds of such Borrowing shall constitute a
representation and warranty by the Borrower that on the date of such Borrowing
(both immediately before and after giving effect to such Borrowing and the
application of the proceeds thereof) the statements made in Section 5.2.1 are
true and correct.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make
Loans hereunder, the Borrower represents and warrants unto the Lender as set
forth in this Article VI. The representations and warranties contained in this
Article VI shall be deemed to be repeated each time the Borrower requests that a
Loan be made.
Section 6.1 Organization, etc.
Section 6.1.1. Organization, Qualification, etc. The Borrower is a
Massachusetts voluntary association validly organized and existing and in good
standing under the laws of the State of Massachusetts, is duly qualified to do
business and is in good standing as a foreign trust in each jurisdiction where
the nature of its business requires such qualification, except where the failure
to so qualify will not have a materially adverse effect on the Borrower's
business, financial condition or operations, and the Borrower has full power and
authority and holds all requisite governmental licenses, permits and other
approvals to enter into and perform its Obligations under this Agreement and the
Note and to own and hold under lease its property and to conduct its business
substantially as currently conducted by it.
SECTION 6.1.2. Registration of Borrower and Borrower's Stock. The
Borrower is a registered investment company under the 1940 Act (Registration
Number 811-5482) and has registered the sale of its shares under the 1933 Act
and the 1940 Act pursuant to one or more registration statements.
Section 6.2 Due Authorization. Non-Contravention. etc. The execution,
delivery and performance by the Borrower of this Agreement and the Note are
within the Borrower's trust powers,
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have been duly authorized by all necessary trust action, and do not:
(a) contravene the Borrower's Organic Documents or any
Investment Policy;
(b) contravene any contractual restriction or any law or
governmental regulation or court decree or order binding on or
affecting the Borrower; or
(c) result in, or require the creation or imposition of, any
Lien on any of the Borrower's properties.
Section 6.3 Government Approval. Regulation. etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by the Borrower of this Agreement or the Note. The
Borrower is not a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
Section 6.4 Validity. etc. This Agreement constitutes, and the Note
will, on the due execution and delivery thereof, constitute, the legal, valid
and binding obligations of the Borrower enforceable in accordance with their
respective terms.
Section 6.5 Compliance with Laws. The Borrower is in compliance in all
material respects with all applicable laws and regulations (including the 1940
Act and all regulations thereunder), and all applicable ordinances, decrees,
requirements, orders and judgments of, and all of the material terms of any
applicable licenses and permits issued by, any governmental body, agency or
official. The Borrower has received no notice of any action to be taken by the
SEC with respect to the Borrower that would be materially adverse to the
Borrower's financial condition, operations, assets, business or properties. The
SEC has not made any request for any information from the Borrower since
November 1, 1992 other than information that is routine and/or periodic in
nature.
Section 6.6 Financial Information. The statement of assets and
liabilities of the Borrower as at November 30, 1992, and the related statements
of operations and changes in net Assets of the Borrower, copies of which have
been furnished to the Lender, have been prepared in accordance with GAAP
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consistently applied, and present fairly the financial condition of the Borrower
as at the dates thereof and the results of its operations for the periods then
ended.
Section 6.7 No Material Adverse Change. Since the date of the financial
statements described in Section 6.6, there has been no material adverse change
in the financial condition, operations, assets, business or properties, taken as
a whole, of the Borrower.
Section 6.8 Litigation. There is no pending or, to the knowledge of the
Borrower, threatened litigation, action or proceeding affecting the Borrower or
any of its properties, taken as a whole, businesses, assets or revenues, which
may materially adversely affect the financial condition, operations, assets,
business or properties, taken as a whole, of the Borrower or which purports to
affect the legality, validity or enforceability of this Agreement or the Note.
Section 6.9 Subsidiaries. The Borrower has no Subsidiaries.
Section 6.10 Ownership of Properties. The Borrower owns all of its
properties and assets, real and personal, tangible and intangible, of any nature
whatsoever, free and clear of all Liens, charges or claims except as permitted
pursuant to Section 7.2.3.
Section 6.11 Taxes. The Borrower has filed all tax returns and reports
required by law to have been filed by it and has paid all taxes and governmental
charges thereby shown to be owing, except any such taxes or charges which are
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books.
Section 6.12 Pension and Welfare Plans. The Borrower has no Pension
Plans or Welfare Plans.
Section 6.13 Regulations G, U and X. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock, and no proceeds of any Loans will be used for a purpose which violates,
or would be inconsistent with, F.R.S. Board Regulation G, U or X. Terms for
which meanings are provided in F.R.S. Board Regulation G, U or X or any
regulations substituted therefor, as from time to time in effect, are used in
this Section with such meanings.
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Section 6.14 Investment Policies. The Borrower is in compliance with
all of the Investment Policies.
Section 6.15 Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of the Borrower in
writing to the Lender for purposes of or in connection with this Agreement or
any transaction contemplated hereby is, and all other such factual information
hereafter furnished by or on behalf of the Borrower to the Lender will be, true
and accurate in every material respect on the date as of which such information
is dated or certified, and such information is not incomplete by omitting to
state any material fact necessary to make such information not misleading.
Section 6.16 Advisory Contract. The Borrower's advisory contract with
the Investment Adviser and each sub-advisory contract with respect thereto, if
any, are in full force and effect and no default exists under any of them.
Section 6.17 Tax Status. The Borrower has taken all steps necessary to
maintain its tax-exempt status under the Code with respect to net investment
income and net capital gains.
ARTICLE VII
COVENANTS
Section 7.1 Affirmative Covenants. The Borrower agrees with the Lender
that, until the Commitment has terminated and all Obligations have been paid and
performed in full, the Borrower will perform the obligations set forth in this
Section 7.1.
Section 7.1.1. Financial Information, Reports, Notices, etc. The
Borrower will furnish, or will cause to be furnished, to the Lender copies of
the following financial statements, reports, notices and information:
(a) as soon as available and in any event within 75 days after
the end of the second Fiscal Quarter of each Fiscal Year of the
Borrower, a copy of the Borrower's semi-annual unaudited asset
statement for such period, which shall have been prepared in accordance
with the requirements of the SEC, including therein balance sheets of
the Borrower as of the end of such period, statements of assets and
liabilities of the Borrower, including the portfolio of investments as
of the end of the preceding semi-annual period, and statements of
earnings and cash flow of the
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Borrower for such period, in each case certified by the Borrower's
chief financial or chief investment officer;
(b) as soon as available and in any event within 60 days after
the end of each Fiscal Year of the Borrower, a copy of the annual audit
report for such Fiscal Year for the Borrower, which shall have been
prepared in accordance with the requirements of the SEC, including
therein balance sheets of the Borrower as of the end of such Fiscal
Year, statements of assets and liabilities of the Borrower, including
the portfolio of investments as of the end of the previous Fiscal Year,
and statements of earnings and cash flow of the Borrower for such
Fiscal Year, in each case certified (other than as to the preparation
of such statements in accordance with the requirements of the SEC and
without any Impermissible Qualification) by Ernst & Young or other
independent public accountants reasonably acceptable to the Lender,
together with a certificate from such accountants containing a
computation of, and showing compliance with, the financial ratio
contained in Section 7.2.4 and to the effect that, in making the
examination necessary for the signing of such annual report by such
accountants, they have not become aware of any Default that has
occurred and is continuing, or, if they have become aware of such
Default, describing such Default and the steps, if any, being taken to
cure it;
(c) in addition to each Loan Request provided pursuant to
Section 2.3, as soon as available and not later than seven days after
the end of each calendar month, or, at any time that Loans are
outstanding, not later than two Business Days after the end of each
calendar month, or at any other time reasonably requested by the
Lender, an Asset Coverage Certificate signed by an Authorized Officer;
(d) as soon as possible, and in any event within 45 days after
the end of each Fiscal Quarter, an itemized statement containing such
detail as may be reasonably satisfactory to the Lender, of the
Borrower's (i) assets and the Fair Market Value thereof and (ii)
Indebtedness provided, that at any time that Loans are outstanding, the
statement referred to herein shall be provided no less frequently than
monthly;
(e) upon the written request of the Lender, all such
information as the Lender shall reasonably request relating to the
value of any portfolio security or other
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asset of the Borrower or the assignment of values thereto by the
Borrower or any other Person;
(f) as soon as possible and in any event within three Business
Days after the occurrence of any Default (or immediately upon the
occurrence thereof in the case of a Default specified in Section 8.1.4
or 8.1.8), a statement of the chief financial Authorized Officer of the
Borrower setting forth details of such Default and the action which the
Borrower has taken and proposes to take with respect thereto;
(g) as soon as possible and in any event within three Business
Days after (x) the occurrence of any materially adverse development
with respect to any litigation, action or proceeding described in
Section 6.8 or (y) the commencement of any litigation, action or
proceeding of the type described in Section 6.8, notice thereof and
copies of all documentation relating thereto;
(h) promptly after the sending or filing thereof, copies of
all reports which the Borrower sends to any of its security holders,
and all reports and registration statements which the Borrower files
with the SEC or any national securities exchange;
(i) promptly after the entering into thereof, copies of all
amendments to all investment advisory contracts (including all
sub-advisory or similar contracts), and of all new investment advisory
contracts (including all sub-advisory or similar contracts) entered
into after the Effective Date;
(j) as soon as possible after the occurrence thereof, notice
to the Lender of any loss in the Fair Market Value of the Borrower's
Total Assets that exceeds 20% of the Fair Market Value of such Total
Assets as of the Business Day immediately preceding the date of such
occurrence; and
(k) such other information respecting the condition or
operations, financial or otherwise, of the Borrower as the Lender may
from time to time reasonably request.
Section 7.1.2. Compliance with Laws, etc. The Borrower will comply in
all material respects with all applicable laws, rules, regulations and orders,
such compliance to include:
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(a) compliance in all material respects with the 1940 Act, the
1933 Act, and the 1934 Act; and
(b) the payment, before the same become delinquent, of all
taxes, assessments and governmental charges imposed upon it or upon its
property except to the extent being diligently contested in good faith
by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books.
Section 7.1.3. Insurance. The Borrower will maintain or cause to be
maintained with responsible insurance companies insurance with respect to its
properties and business to the extent required under applicable law, including
(a) such fidelity bond coverage as shall be required by Rule 17g-1 promulgated
under the 1940 Act or any successor provision, (b) errors and omissions, and
director and officer liability insurance, and (c) other insurance against such
casualties and contingencies, of such types and in such amounts as are
substantially similar to the coverages maintained by the Borrower as of the date
of this Agreement, and the Borrower will, upon request of the Lender, furnish to
the Lender at reasonable intervals a certificate of an Authorized Officer of the
Borrower setting forth the nature and extent of all insurance maintained by the
Borrower in accordance with this Section.
Section 7.1.4. Books and Records. The Borrower will keep books and
records which accurately reflect all of its business affairs and transactions
and permit the Lender or any of its representatives, at reasonable times and
intervals, to visit all of its offices, to discuss its financial matters with
its officers and independent public accountant (and the Borrower hereby
authorizes such independent public accountant to discuss the Borrower's
financial matters with the Lender or its representatives whether or not any
representative of the Borrower is present) and to examine (and, at the expense
of the Borrower, photocopy extracts from) any of its books or other corporate
records. The Borrower shall pay any fees of such independent public accountant
incurred in connection with the Lender's exercise of its rights pursuant to this
Section.
Section 7.1.5. Use of Proceeds. The proceeds of the Loans will be used
by the Borrower to provide funding for the acquisition of investment securities
and operating expenses.
Section 7.1.6. Investment Adviser. The Borrower, to the extent
permitted by applicable law, (a) shall at all times maintain Zurich Kemper
Investments, Inc. as its investment
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<PAGE> 40
adviser (the "Investment Adviser"), or (b) if the contract by which such
Investment Adviser is retained by the Borrower is terminated pursuant to or by
reason of the operation of the 1940 Act or any action taken by the SEC, the
Investment Adviser shall continue to serve as the Borrower's investment adviser,
with or without a fee, and a successor investment adviser shall thereafter be
approved, within 120 days of such termination, in the manner provided by the
1940 Act and with the consent of the Lender.
Section 7.1.7. Regulated Investment Company. The Borrower will at all
times maintain its status as a "regulated investment company" under the Code and
will timely distribute its income (including capital gains) so that it will not
be subject to tax (including corporate tax) under the Code.
Section 7.2 Negative Covenants. The Borrower agrees with the Lender
that, until the Commitment has terminated and all Obligations have been paid and
performed in full, the Borrower will perform the obligations set forth in this
Section 7.2.
Section 7.2.1. Business Activities; Investment Policies. The Borrower
will not engage in any business activity, except that described in the ' first
recital and such activities as may be incidental or related thereto. In addition
to, and not in limitation of the foregoing, the Borrower will not become an
open-end management investment company under the 1940 Act without the prior
written consent of the Lender. The Borrower will not amend, rescind, modify or
otherwise change any of the Investment Policies set forth in Exhibit 7.2.1
hereto without the prior written consent of the Lender. The Borrower will not
violate any of the Investment Policies.
Section 7.2.2. Indebtedness. The Borrower will not create, incur,
assume or suffer to exist or otherwise become or be liable in respect of any
Indebtedness, other than (i) the Indebtedness of the Borrower to the Lender
under this Agreement and (ii) unsecured Indebtedness incurred in the ordinary
course of business (including open accounts extended by suppliers on normal
trade terms in connection with purchases of goods and services, but excluding
margin Indebtedness, Indebtedness otherwise incurred through the borrowing of
money and Contingent Liabilities).
Section 7.2.3. Liens. The Borrower will not create, incur, assume or
suffer to exist any Lien upon any of its property, revenues or assets, whether
now owned or hereafter acquired, except:
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<PAGE> 41
(a) Liens for taxes, assessments or other governmental charges
or levies not at the time delinquent or thereafter payable without
penalty or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(b) Liens of broker-dealers, clearing corporations and similar
Liens incurred in the ordinary course of business, including Liens in
connection with margin deposits in respect of transactions in options,
futures and options on futures, but excluding Liens created in
connection with the purchase of securities on margin or the short sale
of securities;
(c) Liens of carriers, warehousemen, mechanics, materialmen
and landlords incurred in the ordinary course of business for sums not
overdue or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(d) Liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance or other
forms of governmental insurance or benefits, or to secure performance
of tenders, statutory obligations, leases and contracts (other than for
borrowed money) entered into in the ordinary course of business or to
secure obligations on surety or appeal bonds; and
(e) judgment Liens in existence less than 30 days after the
entry thereof or with respect to which execution has been stayed or the
payment of which is covered in full (subject to a customary deductible)
by insurance maintained with responsible insurance companies.
Section 7.2.4. Asset Coverage Ratio. The Borrower will not permit its
Net Asset Coverage Ratio to be less than 10 to 1.
Section 7.2.5. Investments. The Borrower will not make, incur, assume
or suffer to exist any Investment in any other Person, except Investments made
in compliance with the Investment Policies.
Section 7.2.6. Restricted Payments, etc. The Borrower will not declare,
pay or make any dividend or distribution (in cash, property or obligations) on
any shares of any class of capital
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<PAGE> 42
stock (now or hereafter outstanding) of the Borrower or on any warrants, options
or other rights with respect to any shares of any class of capital stock (now or
hereafter outstanding) of the Borrower except for dividends not in excess of the
Borrower's net income for any Fiscal Year plus any carryover amounts from the
prior Fiscal Year; nor will the Borrower apply any of its funds, property or
assets to the purchase, redemption, sinking fund or other retirement of, or
agree, to purchase or redeem, any shares of any class of common stock (now or
hereafter outstanding) of the Borrower, or warrants, options or other rights
with respect to any shares of any class of common stock (now or hereafter
outstanding) of the Borrower if any of the foregoing would cause the Borrower to
fail to be in compliance with Section 7.2.4.
Section 7.2.7. Consolidation. Merger. etc. The Borrower will not
liquidate or dissolve, consolidate with, or merge into or with, any other
Person, or purchase or otherwise acquire all or any substantial portion of the
assets of any Person.
Section 7.2.8. Asset Dispositions, etc. The Borrower will not sell,
transfer, lease, contribute or otherwise convey, or grant options, warrants or
other rights with respect to, all or any substantial part of its assets to any
Person, unless done in accordance with the Investment Policies.
Section 7.2.9. Transactions with Affiliates; Custodian. The Borrower
will not enter into, or cause, suffer or permit to exist any arrangement or
contract with any Affiliate that does not comply with the 1940 Act.
Notwithstanding the foregoing, the Borrower will not in any case permit any
Affiliate to act as a custodian for any of its assets. Each custodian of the
Borrower's assets shall have at all times a net worth of at least $25,000,000.
Section 7.2.10. Restrictive Agreements. etc. The Borrower will not
enter into any agreement prohibiting the ability of the Borrower to amend or
otherwise modify this Agreement or any other Loan Document.
Section 7.2.11. Plans. The Borrower shall not incur any liability or
obligation with respect to any Plan.
Section 7.2.12. Payment of Management Fees. At any time that an Event
of Default shall have occurred and be continuing, the Borrower will not pay, or
cause or permit to be paid, any management or advisory fees of any type to the
Investment Adviser, whether pursuant to the terms of an investment advisory
agreement or not.
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<PAGE> 43
Section 7.2.13. Partnerships and Joint Ventures. The Borrower will not
be a general partner or joint venturer in any partnership or joint venture.
ARTICLE VIII
EVENT OF DEFAULTS
Section 8.1 Listing of Event of Defaults. Each of the following events
or occurrences described in this Section 8.1 shall constitute an "Event of
Default".
Section 8.1.1. Non-Payment of Obligations. The Borrower shall default
in the payment or prepayment when due of any principal of any Loan, or the
Borrower shall default (and such default shall continue unremedied for a period
of five days) in the payment when due of any interest on any Loan, any
commitment fee, facility fee or any other Obligation.
Section 8.1.2. Breach of Warranty. Any representation or warranty of
the Borrower made or deemed to be made hereunder or any other writing or
certificate furnished by or on behalf of the Borrower to the Lender for the
purposes of or in connection with this Agreement (including any certificates
delivered pursuant to Article V) is or shall be incorrect in any material
respect.
Section 8.1.3. Non-Performance of Certain Covenants and Obligations.
The Borrower shall default in the due performance and observance of any of its
obligations under Section 7.1.2(a), 7.1.5, 7.1.6 or 7.1.7 or 7.2 and, in the
case of a default under Section 7.2 (other than under Section 7.2.4) only, such
default shall continue unremedied for a period of three days.
Section 8.1.4. Non-Performance of Net Asset Coverage Covenant. Either
(x) the Borrower shall default in the due performance and observance of its
obligations under Section 7.2.4 and such default shall continue unremedied for a
period of two consecutive Business Days, or (y) the Net Asset Coverage Ratio is
5 to 1 or less at any time.
Section 8.1.5. Non-Performance of Other Covenants and Obligations. The
Borrower shall default in the due performance and observance of any other
agreement contained herein or in any other Loan Document, and such default shall
continue unremedied for a period of 30 days after notice thereof shall have been
given to the Borrower by the Lender.
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<PAGE> 44
Section 8.1.6. Default on Other Indebtedness. A default shall occur in
the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in Section 8.1.1) of the Borrower in an aggregate amount in excess of
$250,000, or a default shall occur in the performance or observance of any
obligation or condition with respect to such Indebtedness if the effect of such
default is to accelerate the maturity of any such Indebtedness or such default
shall continue unremedied for any applicable period of time sufficient to permit
the holder or holders of such Indebtedness, or any trustee or agent for such
holders, to cause any such Indebtedness to become due and payable prior to its
expressed maturity.
Section 8.1.7. Judgments. Any judgment or order for the payment of
money in excess of $250,000 shall be rendered against the Borrower and either
(a) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order; or
(b) there shall be any period of 30 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
Section 8.1.8. Event of Bankruptcy. An Event of Bankruptcy shall occur.
Section 8.1.9. Change in Control of Investment Advisor. The
acquisition, through purchase or otherwise (including the agreement to act in
concert without anything more), by any Person or group of Persons acting in
concert, directly or indirectly, in one or more transactions, of (i) beneficial
ownership or control of securities representing 50% or more of the combined
voting power of the Investment Advisor's voting stock or (ii) substantially all
of the assets of the Investment Advisor.
Section 8.2 Action if Bankruptcy. If any Event of Bankruptcy shall
occur, the Commitment Termination Date shall be deemed to have occurred
automatically and the outstanding principal amount of all outstanding Loans and
all other Obligations shall automatically be and become immediately due and
payable, without notice, presentment or demand of any type, which are hereby
expressly waived.
Section 8.3 Action if other Event of Default. If any Event of Default
(other than an Event of Bankruptcy) shall occur
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<PAGE> 45
for any reason, whether voluntary or involuntary, and be continuing, the Lender
shall by notice to the Borrower declare all or any portion of the outstanding
principal amount of the Loans and other Obligations to be due and payable and/or
the Commitment (if not theretofore terminated) to be terminated, whereupon the
full unpaid amount of such Loans and other Obligations which shall be so
declared due and payable shall be and become immediately due and payable,
without further notice, demand or presentment, which are hereby expressly
waived.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Waivers, Amendments. etc. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrower and the Lender. No failure or delay on the part of the Lender or
the holder of the Note in exercising any power or right under this Agreement or
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to or
demand on the Borrower in any case shall entitle it to any notice or demand in
similar or other circumstances. No waiver or approval by the Lender or the
holder of the Note under this Agreement or any other Loan Document shall, except
as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
Section 9.2 Notices. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by Telex or by facsimile and addressed, delivered or transmitted to
such party at its address, Telex or facsimile number set forth below its
signature hereto or at such other address, Telex or facsimile number as may be
designated by such party in a notice to the other party. Any notice, if mailed
and properly addressed with postage prepaid or if properly addressed and sent by
pre-paid courier service, shall be deemed given when received; any notice, if
transmitted by Telex or facsimile, shall be deemed given when transmitted
(answerback confirmed in the case of Telexes).
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<PAGE> 46
Section 9.3 Payment of Costs and Expenses. The Borrower agrees to pay
on demand all expenses of the Lender (including the reasonable fees and
out-of-pocket expenses of counsel to the Lender and allocated costs of inhouse
counsel) in connection with
(a) the negotiation, preparation, execution and delivery of
this Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from
time to time hereafter be required, whether or not the transactions
contemplated hereby are consummated, and
(b) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save the Lender harmless from all
liability for, any stamp or other taxes which may be payable in connection with
the execution or delivery of this Agreement, the borrowings hereunder, or the
issuance of the Note. The Borrower also agrees to reimburse the Lender and each
Lender upon demand for all reasonable out-of-pocket expenses (including
attorneys, fees and legal expenses and allocated costs of inhouse counsel)
incurred by the Lender in connection with (x) the negotiation of any
restructuring or "work-out", whether or not consummated, of any Obligations and
(y) the enforcement of any Obligations.
Section 9.4 Indemnification. In consideration of the execution and
delivery of this Agreement by the Lender and the extension of the Commitment,
the Borrower hereby indemnifies, exonerates and holds the Lender and its
officers, directors, employees and agents (collectively, the "Indemnified
Parties") free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements and allocated costs of inhouse
counsel (collectively, the "Indemnified Liabilities"), incurred by the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to
(a) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan; or
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<PAGE> 47
(b) the entering into and performance of this Agreement and
any other Loan Document by any of the Indemnified Parties,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or willful misconduct (or, in the case of the Lender as an
Indemnified Party, the gross negligence or willful misconduct of such Person's
officers, directors, employees or agents). If and to the extent that the
foregoing undertaking may be unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
Section 9.5 Survival. The obligations of the Borrower under Sections
4.3, " , 4.5, 4.6, 9.3 and 9.4 shall in each case survive any termination of
this Agreement, the payment in full of all Obligations and the termination of
the Commitment. The representations and warranties made by the Borrower in this
Agreement shall survive the execution and delivery of this Agreement.
Section 9.6 Severability. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
Section 9.7 Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
Section 9.8 Counterparts: Effectiveness. This Agreement may be executed
in any number of counterparts and by the different parties on separate
counterparts, each of which shall be an original but all of which taken together
shall constitute one and the same instrument. This Agreement shall become
effective on the date (the "Effective Date") on which (a) counterparts of this
Agreement executed on behalf of each party hereto shall have been received by
the Lender, (b) all conditions to such effectiveness set forth in Article shall
have been
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<PAGE> 48
satisfied, and (c) notice of the foregoing shall have been given by the Lender
to the Borrower.
Section 9.9 Governing Law; Entire Agreement. THIS AGREEMENT AND THE
NOTE SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS. This Agreement and the Note together
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof and supersede any prior agreements, written or oral, with
respect thereto.
Section 9.10 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; Provided, however, that the Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of the Lender.
Section 9.11 Participations. The Lender may at any time sell to one or
more commercial banks (each of such commercial banks being herein called a
"Participant") participating interests in any of the Loans, its Commitment, or
other interests of the Lender hereunder; provided that
(a) no participation contemplated in this Section 9.11 shall
relieve the Lender from its Commitment or its other obligations
hereunder or under any other Loan Document,
(b) the Lender shall remain solely responsible for the
performance of its Commitment and such other obligations,
(c) the Borrower shall continue to deal solely and directly
with the Lender in connection with the Lender's rights and obligations
under this Agreement and each of the other Loan Documents,
(d) no Participant, unless such Participant is an Affiliate of
such Lender, shall be entitled to require the Lender to take or refrain
from taking any action hereunder or under any other Loan Document,
except that the Lender may agree with any Participant that the Lender
will not, without such Participant's consent, take any of the following
actions: (i) increase the Commitment Amount, reduce any fees described
in Article III, or extend the Commitment Termination Date, or (ii)
extend the due date for, or reduce the amount of, any scheduled
repayment or prepayment of
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<PAGE> 49
principal of or interest on any Loan (or reduce the principal amount of
or rate of interest on any Loan), and
(e) the Borrower shall not be required to pay any amount under
Section 4.6 that is greater than the amount which it would have been
required to pay had no participating interest been sold.
The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 4.3, 4.4, 4.5, 4.6, 4.8, 9.3 and 9.4, shall be considered a Lender.
Section 9.12 Confidentiality. The Lender shall hold all non-public
information (which has been identified as such by the Borrower) obtained
pursuant to the requirements of this Agreement in accordance with its customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to any of their examiners, Affiliates, outside auditors, counsel and
other professional advisors in connection with this Agreement or as reasonably
required by any bona fide transferee, participant or assignee or as required or
requested by any governmental agency or representative thereof or pursuant to
legal process; provided that:
(a) unless specifically prohibited by applicable law or court
order, the Lender shall notify the Borrower of any request by any
governmental agency or representative thereof (other than any such
request in connection with an examination of the financial condition of
the Lender by such governmental agency) for disclosure of any such
non-public information prior to disclosure of such information;
(b) prior to any such disclosure pursuant to this Section
9.12, the Lender shall require any such bona fide transferee,
participant and assignee receiving a disclosure of non-public
information to agree in writing
(i) to be bound by this Section 9.12; and
(ii) to require such Person to require any other
Person to whom such Person discloses such non-public
information to be similarly bound by this Section 9.12; and
(c) except as may be required by an order of a court of
competent jurisdiction and to the extent set forth
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<PAGE> 50
therein, no Lender shall be obligated or required to return any materials
furnished by the Borrower or any Subsidiary.
Section 9.13 Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE
BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE
OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND. EACH PARTY HERETO HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND
IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. EACH PARTY HERETO FURTHER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. EACH PARTY HERETO HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY
SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT
ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 9.14 Waiver of Jury Trial. THE LENDER AND THE BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF THE LENDER OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT
IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH
OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS
AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
Section 9.15 Limitation of Liability. The Lender acknowledges that it
has received a copy of Borrower's Agreement and Declaration of Trust, as amended
or otherwise modified and in effect on the date hereof, all of which are on file
with the Secretary of The Commonwealth of Massachusetts, and the express
limitation of shareholder and trustee liability contained
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<PAGE> 51
therein. This Agreement has been executed by and on behalf of Borrower by its
representatives as such representatives and not individually, and the
obligations of Borrower hereunder are not binding upon any of the trustees,
officers or shareholders of Borrower individually but are binding upon only the
assets and property of Borrower.
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<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
KEMPER HIGH INCOME TRUST, a
Massachusetts voluntary association
By: /S/
-----------------------------------------
Title: Vice President
Address: 120 South LaSalle Street
Chicago, Illinois 60603
Facsimile No.: 312/499-8335
Attention: Michael McNamara
-----------------------------------
with copy to: Sharyn Tepper
-----------------------------------
Jerome Duffy
BANK OF AMERICA ILLINOIS
By: /S/
-----------------------------------------
Title: Senior Vice President
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Facsimile No.: 312/974-9102
Attention: Mr. John Hayes
-----------------------------------
IBOR Office: 231 South LaSalle Street
Chicago, Illinois 60697
LIBOR Office: 231 South LaSalle Street
Chicago, Illinois 60697
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<PAGE> 53
NOTE
$20,000,000 June 20, 1996
FOR VALUE RECEIVED, the undersigned, KEMPER HIGH INCOME TRUST, a
Massachusetts voluntary association (commonly known as a Massachusetts business
trust) (the "Borrower"), promises to pay to the order of BANK OF AMERICA
ILLINOIS (the "Lender") on the Stated Maturity Date (as that term is defined in
the Credit Agreement hereinafter referred to) the principal sum of TWENTY
MILLION AND N0/100 DOLLARS ($20,000,000) or, if less, the aggregate unpaid
principal amount of all Loans shown on the schedule attached hereto (and any
continuation thereof) made by the Lender pursuant to that certain Credit
Agreement, dated as of June 20, 1996 (together with all amendments and other
modifications, if any, from time to time thereafter made thereto, the "Credit
Agreement"), between the Borrower and the Lender.
The Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum. and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money
of the United States of America in same day or immediately available funds to
the account designated by the Lender pursuant to the Credit Agreement.
This Note is the Note referred to in, and evidences Indebtedness
incurred under, the Credit Agreement, to which reference is made for a statement
of the terms and conditions on which the Borrower is permitted and required to
make prepayments and repayments of principal of the Indebtedness evidenced by
this Note and on which such Indebtedness may be declared to be immediately due
and payable. Unless otherwise defined, terms-used herein have the meanings
provided in the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of dishonor.
THIS NOTE HAS BEEN DELIVERED IN CHICAGO, ILLINOIS AND SHALL BE DEEMED
TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
ILLINOIS.
KEMPER HIGH INCOME TRUST, a
Massachusetts voluntary association
BY /S/
------------------------------------------
Title: Vice President
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<PAGE> 1
Exhibit (l)
Dechert Price & Rhoads
1775 Eye St., N.W.
Washington, D.C. 20006
Kemper High Income Trust
222 South Riverside Plaza
Chicago, Illinois 60606
Ladies and Gentlemen:
We have acted as counsel to Kemper High Income Trust (the "Trust") in
connection with the Registration Statement of the Fund on Form N-2 (File Nos.
333-72341 and 811-5482) (the "Registration Statement"), under the Securities Act
of 1933, as amended (the "Act"), and the Investment Company Act of 1940, as
amended, relating to the proposed issuance of transferable rights (the "Rights")
to subscribe for shares of beneficial interest, $.01 par value, of the Fund (the
"Shares"). The Shares are to be sold pursuant to a Dealer Manager Agreement to
be entered into by and among the Fund, Scudder Kemper Investments, Inc. and
PaineWebber Incorporated, as Dealer Manager (the "Dealer Manager Agreement").
We have examined the Fund's Agreement and Declaration of Trust, as
amended, and are familiar with the actions taken by the Fund's Trustees in
connection with the issuance of the Rights and the sale of the Shares. We have
also examined the form of Dealer Manager Agreement filed as an exhibit to the
Registration Statement and such other documents and records as we have deemed
necessary for the purpose of this opinion.
For purposes of this opinion, we have assumed that the Dealer Manager
Agreement in the form filed as an exhibit to the Registration Statement will
have been duly executed and delivered by and on behalf of each of the parties
thereto.
Based on the foregoing, we are of the opinion that the issuance of the
Rights and the sale of the Shares have been duly authorized; when issued in
accordance with the Dealer Manager Agreement, the Rights will be validly issued
by the Fund; and when the Shares are issued and paid for upon exercise of the
Rights in accordance with the Dealer Manager Agreement, the Shares will be
validly issued, fully paid and nonassessable by the Fund.
We consent to the filing of this opinion with and as part of the
Registration Statement and to the use of our name in such Registration Statement
and in the related Prospectus under the caption "Legal Matters."
Very truly yours,
<PAGE> 2
/s/ Dechert Price & Rhoads
-----------------------------------
Dechert Price & Rhoads
<PAGE> 1
Exhibit (n)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights," "Accountants" and "Financial Statements" and to the use of our
report dated January 19, 1999 in the Registration Statement (Form N-2) of Kemper
High Income Trust and its incorporation by reference in the related Prospectus
and Statement of Additional Information filed with the Securities and Exchange
Commission in this Pre-Effective Amendment No. 1 to the Registration Statement
under the Securities Act of 1933 (Registration No. 333-72341) and in this
Amendment No. 9 to the Registration Statement under the Investment Company Act
of 1940 (Registration No. 811-5482).
ERNST & YOUNG LLP
Chicago, Illinois
March 15, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the 1998
Annual Report to Shareholders and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 234,354
<INVESTMENTS-AT-VALUE> 228,777
<RECEIVABLES> 10,343
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 239,120
<PAYABLE-FOR-SECURITIES> 4,472
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,225
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 257,767
<SHARES-COMMON-STOCK> 23,919
<SHARES-COMMON-PRIOR> 23,613
<ACCUMULATED-NII-CURRENT> 1,521
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (39,816)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,577)
<NET-ASSETS> 213,895
<DIVIDEND-INCOME> 293
<INTEREST-INCOME> 25,180
<OTHER-INCOME> 0
<EXPENSES-NET> (3,421)
<NET-INVESTMENT-INCOME> 22,052
<REALIZED-GAINS-CURRENT> 3,290
<APPREC-INCREASE-CURRENT> (15,902)
<NET-CHANGE-FROM-OPS> 9,440
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21,509)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 306
<NET-CHANGE-IN-ASSETS> (9,024)
<ACCUMULATED-NII-PRIOR> 3,222
<ACCUMULATED-GAINS-PRIOR> (43,106)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,876
<INTEREST-EXPENSE> 1,242
<GROSS-EXPENSE> 3,421
<AVERAGE-NET-ASSETS> 220,219
<PER-SHARE-NAV-BEGIN> 9.44
<PER-SHARE-NII> .92
<PER-SHARE-GAIN-APPREC> (.52)
<PER-SHARE-DIVIDEND> (.90)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.94
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EXHIBIT(S)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ MARK S. CASADY
--------------------------------------
Mark S. Casady, President
Dated: February 12, 1999
---------------------------------------------------
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ DANIEL PIERCE
--------------------------------------
Daniel Pierce, Chairman and Trustee
Dated: February 12, 1999
---------------------------------------------------
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ JAMES E. AKINS
--------------------------------------
James E. Akins, Trustee
Dated: February 12, 1999
---------------------------------------
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ ARTHUR R. GOTTSCHALK
--------------------------------------
Arthur R. Gottschalk, Trustee
Dated: February 12, 1999
---------------------------------------
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ FREDERICK T. KELSEY
----------------------------------------------
Frederick T. Kelsey, Trustee
Dated:February 12, 1999
------------------------------------------
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ FRED B. RENWICK
--------------------------------------
Fred B. Renwick, Trustee
Dated: February 12, 1999
------------------------------------------
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ JOHN B. TINGLEFF
--------------------------------------
John B. Tingleff, Trustee
Dated: February 12, 1999
------------------------------------------
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ THOMAS W. LITTAUER
--------------------------------------
Thomas W. Littauer, Trustee
Dated: February 12, 1999
- ----------------------------
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ JOHN G. WEITHERS
--------------------------------------
John G. Weithers, Trustee
Dated: February 12, 1999
-------------------------------------------------------
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Philip J. Collora, Bruce H. Goldfarb, Robert W.
Helm, and William J. Kotapish his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him in his name,
place, and stead, in any and all capacities, to sign the Registration Statement
applicable to the Kemper High Income Trust and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ JOHN R. HEBBLE
--------------------------------------
John R. Hebble, Treasurer
Dated: February 12, 1999
-------------------------------------------------------
