<PAGE> 1
AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999
SECURITIES ACT FILE NO. 33-32430
INVESTMENT COMPANY ACT FILE NO. 811-5969
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [ ]
(CHECK APPROPRIATE BOX OR BOXES)
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SCUDDER NEW EUROPE FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 891-0667
------------------------
BRUCE H. GOLDFARB, ESQ.
SCUDDER KEMPER INVESTMENTS, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
BURTON M. LEIBERT, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019-6099
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 28, 1999
LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD
, 1999
PROSPECTUS
Mutual funds:
- are not FDIC-insured
- have no bank guarantees
- may lose value
KEMPER EUROPE FUND
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
FUND SUMMARY................................................ 1
Investment Objective and Principal Strategies............. 1
PRINCIPAL RISK FACTORS...................................... 1
Past Performance.......................................... 1
Fee and Expense Information............................... 3
Example................................................... 5
ABOUT THE FUND.............................................. 5
Principal Investment Strategies........................... 5
Other Investments......................................... 6
Risk Management Strategies................................ 6
Main Risks -- Generally................................... 6
Types of Investment Risk.................................. 6
Investment Manager........................................ 7
Portfolio Management...................................... 8
ABOUT YOUR INVESTMENT....................................... 9
Choosing a Share Class.................................... 9
Rule 12b-1 Plan........................................... 10
Special Features.......................................... 10
Buying Shares............................................. 11
Class A Shares............................................ 11
NAV Purchases............................................. 11
Selling and Exchanging Shares............................. 14
Distributions and Taxes................................... 15
Transaction Information................................... 16
FINANCIAL HIGHLIGHTS........................................ 18
</TABLE>
THE FUND WAS A CLOSED-END FUND LISTED ON THE NEW YORK STOCK EXCHANGE. THE
SHAREHOLDERS OF THE FUND HAVE APPROVED A PROPOSAL TO CONVERT THE FUND TO
OPEN-END STATUS -- TO BECOME A MUTUAL FUND. THE CONVERSION OF THE FUND TO AN
OPEN-END INVESTMENT COMPANY IS EXPECTED TO OCCUR AS OF THE DATE OF THIS
PROSPECTUS. THIS PROSPECTUS PERTAINS TO THE FUND AS AN OPEN-END INVESTMENT
COMPANY.
i
<PAGE> 4
FUND SUMMARY
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
The fund seeks long-term capital appreciation. Except as otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
The fund seeks to achieve its investment objective by investing primarily
in equity securities of European companies that in the opinion of the fund's
investment manager, are likely to benefit from economic, political, structural
and technological changes and developments in Western, Southern and Eastern
Europe.
PRINCIPAL RISK FACTORS
There are market and investment risks with any security and the value of an
investment in the fund will fluctuate over time and it is possible to lose money
invested in the fund. The principal risks of investing in the fund are:
- STOCK MARKET. The fund's returns and net asset value will go up and
down. Stock market movements will affect the fund's share price on a
daily basis. Declines in value are possible both in the overall stock
market or in the types of securities held by the fund.
- PORTFOLIO STRATEGY. The portfolio manager's skill in choosing
appropriate investments for the fund will determine in large part the
fund's ability to achieve its investment objective.
- FOREIGN SECURITIES. Investing in foreign securities involves other
considerations including limited information, higher brokerage costs,
different accounting standards and thinner trading markets as compared to
U.S. markets. In addition, investing in foreign securities, and to a
greater extent emerging markets, involves special risks including changes
in foreign currency exchange rates and political and economic
instability.
- EUROPEAN SECURITIES. The fund's performance will be affected by
political, social and economic factors affecting issuers in European
countries, including: growth of GDP or GNP, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position,
as well as interest and monetary exchange rates among European countries.
- EMERGING MARKETS. Eastern European countries and certain Southern
European countries are considered to be emerging markets. Investing in
emerging markets involves higher levels of risk, including increased
currency, information, liquidity, market, political and valuation risk.
Deficiencies in regulatory oversight, market infrastructure, shareholder
protections and company laws could expose the fund to operational and
other risks as well. Some countries may have restrictions that could
limit the fund's access to attractive opportunities. Additionally,
emerging markets often face serious problems (such as high external debt,
inflation and unemployment) that could subject the fund to increased
volatility or substantial declines in value.
- NON-DIVERSIFIED STATUS. The fund is considered a non-diversified
investment company under the Investment Company Act of 1940, as amended
(1940 Act), and is permitted to invest a greater proportion of its assets
in the securities of a smaller number of issuers than a diversified fund.
As a result, the fund may be subject to greater volatility with respect
to its portfolio securities than a fund that is more broadly diversified.
PAST PERFORMANCE
The chart and table below provide some indication of the risks of investing
in the fund by illustrating how the fund has performed and comparing this
information to a broad measure of market performance. Of course, past
performance is not necessarily an indication of future performance.
The fund currently offers three classes of shares. Because Classes A, B and
C had not commenced operations as of December 31, 1998, the performance
information set forth below is for Class M shares only.
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<PAGE> 5
Class M shares are no longer offered by the fund, are expected to be outstanding
for one year from the date of this prospectus and will automatically convert to
Class A shares one year after that date. The other share classes would have
substantially similar returns because the shares are invested in the same
portfolio of securities and the annual returns would differ only to the extent
that Class A, B and C do not have the same expenses.
TOTAL RETURNS FOR YEARS ENDED DECEMBER 31:
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURNS
--------------------------
<S> <C>
'1989' N/A
'1990' N/A
'1991' 3.06
'1992' -9.59
'1993' 25.62
'1994' -0.27
'1995' 18.97
'1996' 34.38
'1997' 20.03
'1998' 34.39
</TABLE>
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 27.41% (1st Quarter 1998), and the fund's lowest return for
a calendar quarter was 16.81% (3rd Quarter)*
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* During this period, the fund operated as a closed-end investment company,
without daily sales and redemptions.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
MSCI
EUROPE
FOR PERIODS ENDED DECEMBER 31, 1998 CLASS M INDEX*
----------------------------------- ------- ------
<S> <C> <C>
One Year.................................................... 34.39% 28.53%
Five Year................................................... 20.80% 19.09%
Ten Years................................................... N/A N/A
Since Inception**........................................... 12.45% 14.47%
</TABLE>
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* The Morgan Stanley Capital International Europe Index is an unmanaged index
that is generally representative of the equity securities of the European
markets. Index returns assume reinvestment of dividends and unlike the fund's
returns, do not reflect any fees, expenses or sales charges.
** Inception date for Class M Shares is February 16, 1990.
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<PAGE> 6
FEE AND EXPENSE INFORMATION
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying Shares and
Special Features sections of this prospectus.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS M
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<S> <C> <C> <C> <C>
SHAREHOLDER FEES: FEES PAID DIRECTLY FROM YOUR
INVESTMENT.
Maximum Sales Charge (Load) Imposed on Purchases (as a %
of offering price).................................... 5.75% None None None
Maximum Deferred Sales Charge (Load) (as a % of
redemption proceeds).................................. None(1) 4% 1% None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions............................... None None None None
Redemption Fee (as % of amount redeemed, if
applicable)........................................... None None None 2%(2)
Exchange Fee............................................ None None None 2%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS M
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<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES: (ESTIMATED AS A
PERCENTAGE OF AVERAGE NET ASSETS).
Management Fee.......................................... .74 .74 .74 .74
Distribution (12b-1) Fees............................... None .75 .75 None
Other Expenses.......................................... 1.01 1.16 1.13 .68
Total Annual Fund Operating Expenses(3)(4).............. 1.75 2.65 2.62 1.42
==== ==== ==== ====
</TABLE>
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(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
(2) A 2% redemption fee, which is retained by the fund, is imposed on all
redemptions (including redemptions paid in-kind) and exchanges of Class M
shares for a period of one year from the date of this prospectus.
(3) The fund was reorganized from a closed-end fund to an open-end fund in
September 1999. The fees and expenses of open-end funds are, in many cases,
higher than those of closed-end funds. Accordingly, the expense ratios shown
above are estimated for the fund's current fiscal year ending October 31,
1999, based on the fund's current fee schedule and expenses incurred by the
fund during its most recent fiscal year. The actual expenses for each class
of shares in future years may be more or less than the numbers in the tables
above, depending on a number of factors, including changes in actual value
of the fund's assets represented by each class of shares.
(4) Pursuant to their respective agreements with the fund, the investment
manager, the underwriter, the administrator, the accounting agent and the
transfer agent have agreed, for the one year period commencing on the date
of this prospectus, to limit their respective fees and to reimburse other
operating expenses, to the extent necessary to limit total operating
expenses of the classes of the fund to the levels set forth in the table
above. Without taking into effect these expense caps, for the Class A, Class
B, Class C and Class M shares of the fund: management fees are estimated to
be .74% (all classes); 12b-1 fees are estimated to be None, .75%, .75% and
None, respectively; Other Expenses are estimated to be 1.11%, 1.65%, 1.13%
and .68%, respectively; and total operating expenses are estimated to be
1.85%, 3.14%, 2.62% and 1.42%, respectively.
EXAMPLE
This example is to help you compare the cost of investing in the fund with
the cost of investing in other mutual funds.
3
<PAGE> 7
This example illustrates the impact of the above fees and expenses on an
account with an initial investment of $10,000, based on the expenses shown
above. It assumes a 5% annual return, the reinvestment of all dividends and
distributions and "annual fund operating expenses" remaining the same each year.
The example is hypothetical: actual fund expenses and return vary from year to
year, and may be higher or lower than those shown.
FEES AND EXPENSES IF YOU SOLD SHARES AFTER:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
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<S> <C> <C> <C>
1 Year................................................... $ 746 $ 717 $ 347
3 Years.................................................. $1,106 $1,269 $ 761
5 Years.................................................. $1,489 $1,845 $1,301
10 Years................................................. $2,559 $2,845 $2,776
</TABLE>
FEES AND EXPENSES IF YOU DID NOT SELL YOUR SHARES:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year................................................... $ 746 $ 317 $ 247
3 Years.................................................. $1,106 $ 969 $ 761
5 Years.................................................. $1,489 $1,645 $1,301
10 Years................................................. $2,559 $2,845 $2,776
</TABLE>
4
<PAGE> 8
ABOUT THE FUND
OPEN-ENDING AND REORGANIZATION
The fund began operations on February 9, 1990 as a closed-end management
investment company. On July 20, 1999, the fund's shareholders approved the
conversion of the fund to an open-end investment company. As a result of a
reorganization, with Kemper Europe Fund, the fund changed its name to "Kemper
Europe Fund, Inc." and issued newly designated Class A, Class B and Class C
shares to the shareholders of Kemper Europe Fund and Class M shares to its
existing shareholders. Class M shares will automatically convert to Class A
shares one year after the date of this prospectus.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the fund will invest at least 65% of its total
assets in equity securities of European companies and intends to allocate its
investments among at least three countries at all times. The fund considers an
issuer of securities to be a European company if:
- the company is organized under the laws of a European country and has a
principal office in a European country; or
- the company derives 50% or more of its total revenues from business in
Europe; or
- the company's equity securities are traded principally in European
securities markets.
Equity securities that may be purchased by the fund include:
- common and preferred stocks;
- depository receipts;
- debt securities convertible into common stock;
- common stock purchase warrants and rights; and
- joint venture interests and general and limited partnership interests.
The fund will invest in established markets and companies with large
capitalizations as well as newer markets and smaller companies, and the portion
of the fund's assets invested in each will vary from time to time. The fund
expects, however, to invest the majority of its assets in the more established
and liquid markets of Western and Southern Europe. These countries include:
Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Ireland, Italy,
Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland and the United
Kingdom.
To enhance return, the fund may also pursue investment opportunities in the
less wealthy nations of Southern Europe, currently Greece, Portugal and Turkey,
and the former Communist countries once part of the Soviet Union. The fund may
invest in other European countries if opportunities arise. To a lesser extent,
the fund may also invest in "Specialized Investments" which include equity
securities of:
- privately-held and small European companies;
- companies and joint ventures based in Eastern Europe;
- European companies that have recently made initial public offerings of
their shares; and
- European companies that, in the public market, are selling at a
significant discount to their "private market value" (i.e., the value the
fund's investment manager believes informed investors would be willing to
pay to acquire such companies).
In choosing investments, the fund's investment manager will focus on
European companies that:
- generate or apply new technologies, distribution systems or services;
- expect to benefit from changing consumer demands or lifestyles;
5
<PAGE> 9
- have prospects for above-average earnings growth; or
- are undervalued due to market misperception, temporary negative
developments, limited investor familiarity or other factors.
In addition to the above, the fund's investment manager will also consider
other factors in selecting portfolio investments for the fund.
OTHER INVESTMENTS
The fund may invest up to 20% of its total assets in European debt
securities. Within this 20% limit, the fund may invest in debt securities which
are rated below Baa by Moody's Investors Service, Inc. or below BBB by Standard
& Poor's or unrated securities of comparable quality as determined by the
investment manager. Below-investment grade securities are commonly referred to
as "junk bonds."
The fund may invest in when-issued securities, illiquid and restricted
securities and convertible securities and may enter into repurchase agreements
and reverse repurchase agreements. The fund may also invest in investment
companies that invest primarily in equity securities of European companies.
To a limited extent, the fund may engage in other investment practices.
RISK MANAGEMENT STRATEGIES
The fund may use certain derivatives (investments whose value is based on
indices or other securities) to protect against or otherwise cushion price
declines in the value of the fund's portfolio, to manage the effective maturity
or duration of fixed-income securities in the fund's portfolio or to enhance
potential gain. These instruments include:
- options on securities, equity and fixed-income indices and other
financial instruments;
- financial futures and related options;
- interest rate transactions (i.e., swaps, caps, floors and collars); and
- currency transactions (i.e., currency forward contracts, currency futures
contracts, currency swaps and options on currencies and currency
futures).
The fund is not obligated to pursue any hedging strategy. In addition,
hedging practices may not be available, may be too costly to be used effectively
or may be unable to be used for other reasons. The fund is limited to 5% of net
assets for initial margin and premium amounts on futures positions considered
speculative by the Commodities Futures Trading Commission.
Under unusual circumstances, the fund may invest up to 100% of its assets
in short and medium term high-grade debt securities, cash and cash equivalents
for temporary defensive purposes and up to 20% to maintain liquidity. Because
this defensive policy differs from the fund's investment objective, the fund may
not achieve its goal during a defensive period.
MAIN RISKS -- GENERALLY
Foreign investments, particularly investments in emerging markets, carry
added risks due to inadequate or inaccurate financial information about
companies, potential political disturbances and fluctuations in currency
exchange rates. In addition, the investment manager's choice of countries,
market sectors or specific investments may not perform as well as expected, and
the fund could underperform its peers or lose money.
TYPES OF INVESTMENT RISK
ACCESS RISK. The risk that some countries may restrict the fund's access
to investments or offer terms that are less advantageous than those for local
investors. This could limit the attractive investment opportunities available to
the fund.
6
<PAGE> 10
CORRELATION RISK. The risk that the relationships between markets are not
contemplated in the investment decision-making process. Incomplete correlation,
or inaccurately forecasted correlation, can result in unanticipated risks.
CREDIT RISK. The risk that the issuer of a security, or the counterparty
to a contract, will default or otherwise become unable to honor a financial
obligation.
EXPOSURE RISK. The risk associated with techniques that increase the
fund's exposure to a security, index or its investment portfolio. Exposure is
the fund's maximum potential gain or loss from an investment. Certain
investments (such as options and futures) may have the effect of magnifying
declines as well as increases in the fund's net asset value. Losses from writing
options and entering into futures can be unlimited.
INTEREST RATE RISK. Changes in interest rates may cause a decline in an
investment's market value. With bonds and other fixed income securities, a rise
in interest rates typically causes a fall in values, while a fall in interest
rates typically causes a rise in values.
LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that the fund would like. The fund
may have to lower the price, sell other securities instead or forego an
investment opportunity. Any of these could have a negative effect on fund
management or performance.
LOWER RATED SECURITIES. These securities carry a higher risk that the
issuer will be unable to pay principal and interest when due, and the market to
sell such securities may be limited.
OPERATIONAL RISK. The risk that some countries may have less developed
securities markets (and related transaction, registration and custody
practices). Related to this factor is the concern that reliance on computer
systems not Year 2000 compliant could severely hamper a marketplace's ability to
handle securities transactions.
RISKS OF DERIVATIVE INSTRUMENTS. The use of these instruments requires
special skills, knowledge and investment techniques that differ from those
required for normal portfolio management. The success of the fund in selecting
these instruments for its portfolio depends on the skill of the investment
manager in predicting the movement of interest rates, the value of particular
instruments and other economic variables. There is no assurance that the
investment manager will accurately predict these movements.
TRADING LIMIT AND TRADING HALT RISK. Exchanges on which options and
futures contracts are traded have established limits on how much an option or
futures contract may decline over various time periods within a day. If an
option or futures contract's price declines more than the established limits, no
trading may occur at prices outside that limit. If a trading limit is reached
before the close of a trading day, the fund may not be able to purchase or sell
options or futures contracts at advantageous prices or at all. In such an event,
the fund also may be required to use a "fair-value" method to price its
outstanding contracts.
VALUATION RISK. The risk that the fund has valued certain of its
securities at a higher price that it can sell them for.
INVESTMENT MANAGER
The fund retains the investment management firm of Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, New York, to manage its daily
investment and business affairs subject to the policies established by the
fund's Board. Scudder Kemper Investments, Inc. actively manages the fund's
investments. Professional management can be an important advantage for investors
who do not have the time or expertise to invest directly in individual
securities. Scudder Kemper Investments, Inc. is one of the largest and most
experienced investment management organizations worldwide, managing more than
$280 billion in assets globally for mutual fund investors, retirement and
pension plans, institutional and corporate clients, and private family and
individual accounts.
7
<PAGE> 11
The fund pays the investment manager a (graduated) monthly investment
management fee at the following rate:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT
AVERAGE DAILY NET ASSETS OF THE FUND FEE RATES
- ------------------------------------ -----------------
<S> <C>
$0 -- $250 million....................................... 0.75%
$250 million -- $1 billion............................... 0.72
$1 billion -- $2.5 billion............................... 0.70
$2.5 billion -- $5 billion............................... 0.68
$5 billion -- $7.5 billion............................... 0.65
$7.5 billion -- $10 billion.............................. 0.64
$10 billion -- $12.5 billion............................. 0.63
Over $12.5 billion....................................... 0.62
</TABLE>
For the fiscal year ended October 31, 1998, the investment manager received
an investment management fee of $4,151,077, which was based upon the fund's
prior (higher) investment management fee schedule.
PORTFOLIO MANAGEMENT
The fund is managed by a team of investment professionals who each play an
important role in the fund's management process. Team members work together to
develop investment strategies and select securities for the fund's portfolio.
They are supported by the investment manager's large staff of economists,
research analysts, traders and other investment specialists who work in the
investment manager's offices across the United States and abroad. The investment
manager believes its team approach benefits fund investors by bringing together
many disciplines and leveraging its extensive resources.
The following investment professionals are associated with the fund:
<TABLE>
<CAPTION>
JOINED
NAME & TITLE THE FUND BACKGROUND
- ------------ -------- ----------
<S> <C> <C>
Carol L. Franklin 19 Joined Scudder Kemper in 1981 as a portfolio manager.
Lead Portfolio Manager She is a member of the firm's Global Equity Group and
is a portfolio manager for other affiliated
international mutual funds. She began her investment
career in 1975. Prior to joining Scudder Kemper, she
worked for an unaffiliated investment management
company.
Joan R. Gregory 19 Joined Scudder Kemper in 1992. She is a member of the
Portfolio Manager firm's Global Equity Group and is on the portfolio
management teams for other affiliated international
mutual funds. She began her investment career in 1989.
Prior to joining Scudder Kemper, she worked in the
international investment department at a bank.
Marc Slendebroek 19 Joined Scudder Kemper in 1994 as a European equity
Portfolio Manager analyst. He is an International Portfolio Manager at
Scudder Investments, UK Ltd., an affiliated investment
management company. He began his investment career in
1990. Prior to joining Scudder Kemper, he worked for an
unaffiliated investment management company responsible
for the Dutch equity research product.
</TABLE>
YEAR 2000 READINESS
Like other mutual funds and financial and business organizations worldwide,
the fund could be adversely affected if computer systems on which it relies,
which primarily include those used by the investment manager, its affiliates or
other service providers, are unable to process correctly date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to address successfully the Year 2000 Issue could result in
interruptions to and other material adverse effects on the fund's business and
operations, such as problems with calculating net asset value and difficulties
in implementing the fund's
8
<PAGE> 12
purchase and redemption procedures. The investment manager has commenced a
review of the Year 2000 Issue as it may affect the fund and is taking steps it
believes are reasonably designed to address the Year 2000 issue, although there
can be no assurances that these steps will be sufficient. In addition, there can
be no assurances that the Year 2000 Issue will not have an adverse effect on the
issuers whose securities are held by the fund or on global markets or economies
generally.
EURO CONVERSION
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and the operations of the fund. The Euro
was introduced on January 1, 1999, by eleven European countries that are members
of the European Economic and Monetary Union (EMU). The introduction of the Euro
will require the redenomination of European debt and equity securities over a
period of time, which may result in various accounting differences and/or tax
treatments. Additional questions are raised by the fact that certain other EMU
members, including the United Kingdom, did not officially implement the Euro on
January 1, 1999.
The investment manager is actively working to address Euro-related issues
and understands that other key service providers are taking similar steps. At
this time, no one knows precisely what the degree of impact will be. To the
extent that the market impact or effect on the fund's holdings is negative, the
fund's performance could be hurt.
ABOUT YOUR INVESTMENT
CHOOSING A SHARE CLASS
The fund provides investors with the option of purchasing shares in the
following ways:
CLASS A SHARES............. Offered at net asset value plus a maximum sales
charge of 5.75% of the offering price.
Reduced sales charges apply to purchases of $50,000
or more. Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege
may be subject to a 1% contingent deferred sales
charge if redeemed within one year of purchase and
a 0.50% contingent deferred sales charge if
redeemed during the second year of purchase.
CLASS B SHARES............. Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1
distribution fee and a contingent deferred sales
charge that declines from 4% to zero on certain
redemptions made within six years of purchase.
Class B shares automatically convert into Class A
shares (which have lower ongoing expenses) six
years after purchase.
CLASS C SHARES............. Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1
distribution fee and a 1% contingent deferred sales
charge on redemptions made within one year of
purchase. Class C shares do not convert into
another class.
CLASS M SHARES............. Represent the initial shares of the fund and are no
longer offered. Class M shares are not subject to a
contingent deferred sales charge or a Rule 12b-1
distribution fee. Class M shares are subject to a
2% fee on all redemptions (including redemptions
in-kind) and exchanges. Class M Shares will
automatically convert to Class A shares one year
after the date of this prospectus.
When placing purchase orders, investors must specify whether the order is
for Class A, Class B or Class C shares. Each class of shares represents
interests in the same portfolio of investments of the fund.
9
<PAGE> 13
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors that
qualify for reduced sales charges might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than six years might consider Class B shares. Investors who prefer not
to pay an initial sales charge but who plan to redeem their shares within six
years might consider Class C shares. For more information about these sales
arrangements, consult your financial representative or Kemper Distributors, Inc.
Be aware that financial services firms may receive different compensation
depending upon which class of shares they sell.
RULE 12b-1 PLAN
The fund has adopted a plan under Rule 12b-1 that provides for fees payable
as an expense of the Class B shares and the Class C shares that are used by the
principal underwriter to pay for distribution and services for those classes.
Rule 12b-1 fees are not imposed on Class A or Class M shares. Because fees are
paid out of fund assets on an ongoing basis, they will, over time, increase the
cost of investment and may cost more than other types of sales charges.
Long-term shareholders may pay more than the economic equivalent of the maximum
initial sales charges permitted by the National Association of Securities
Dealers, although Kemper Distributors, Inc. believes that it is unlikely, in the
case of Class B shares, because of the automatic conversion feature of the
shares.
SPECIAL FEATURES
CLASS A SHARES -- COMBINED PURCHASES. The fund's Class A shares may be
purchased at the rate applicable to the discount bracket attained by combining
concurrent investments in Class A shares of most Kemper Funds.
CLASS A SHARES -- LETTER OF INTENT. The same reduced sales charges for
Class A shares also apply to the aggregate amount of purchases made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by Kemper Distributors, Inc. The Letter, which imposes no obligation to
purchase or sell additional Class A shares, provides for a price adjustment
depending upon the actual amount purchased within such period.
CLASS A SHARES -- CUMULATIVE DISCOUNT. Class A shares of the fund may also
be purchased at the rate applicable to the discount bracket attained by adding
to the cost of shares of the fund being purchased, the value of all Class A
shares of most Kemper Funds (computed at the maximum offering price at the time
of the purchase for which the discount is applicable) already owned by the
investor.
EXCHANGE PRIVILEGE -- GENERAL. Shareholders of Class A, Class B and Class
C shares may exchange their shares for shares of the corresponding class of
Kemper Mutual Funds. Class M shareholders may exchange their shares for Class A
shares of a Kemper Mutual Fund and may only exchange shares in an amount less
than $250,000. A 2% fee will apply to any exchange of Class M shares and will be
retained by the fund for the benefit of the remaining shareholders (see
"Redemption Fee" below). Shares of a Kemper Fund with a value in excess of
$1,000,000 (except Kemper Cash Reserves Fund) acquired by exchange from another
Kemper Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15-Day Hold Policy"). Shares of a Kemper
Fund with a value of $1,000,000 or less (except Kemper Cash Reserve Fund)
acquired by exchange from another Kemper Fund or a Money Market Fund may not be
exchanged thereafter until they have been owned for 15 days, if, in the
investment manager's judgment, the exchange activity may have an adverse effect
on the fund. In particular, a pattern of exchanges that coincides with a
"market-timing" strategy may be disruptive to the fund and therefore may be
subject to the 15-Day Hold Policy. For purposes of determining whether the
15-Day Hold Policy applies to a particular exchange, the value of the shares to
be exchanged shall be computed by aggregating the value of shares being
exchanged for all accounts under common control, direction or advice, including
without limitation accounts administered by a financial services firm offering
market timing, asset allocation or similar services.
For purposes of determining any contingent deferred sales charge that may
be imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
10
<PAGE> 14
BUYING SHARES
You may purchase shares of the fund by contacting the securities dealer or
other financial services firm from whom you received this prospectus.
CLASS A SHARES
PUBLIC OFFERING PRICE, INCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE
----------------------------------
AS A % OF AS A % OF NET
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED*
- ------------------ -------------- ----------------
<S> <C> <C>
Less than $50,000....................................... 5.75% 6.10%
$50,000 but less than $100,000.......................... 4.50 4.71
$100,000 but less than $250,000......................... 3.50 3.63
$250,000 but less than $500,000......................... 2.60 2.67
$500,000 but less than $1 million....................... 2.00 2.04
$1 million and over..................................... 0.00**
</TABLE>
- ---------------
* Rounded to nearest one hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
NAV PURCHASES
Class A shares of the fund may be purchased at net asset value by:
- shareholders in connection with the investment or reinvestment of income
and capital gain dividends;
- a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation plan or a
participant-directed qualified retirement plan which is not sponsored by
a K-12 school district, provided in each case that such plan has not less
than 200 eligible employees;
- any purchaser with Kemper Funds investment totals of at least $1,000,000;
- unitholders of unit investment trusts sponsored by Ranson & Associates,
Inc. or its predecessors through reinvestment programs described in the
prospectuses of such trusts that have such programs;
- officers, directors, employees (including retirees) and sales
representatives of the fund, its investment manager, its principal
underwriter or certain affiliated companies, for themselves or members of
their families, any trust, pension, profit-sharing or other benefit plan
for only such persons;
- persons who purchase shares through bank trust departments that process
such trades through an automated, integrated mutual fund clearing program
provided by a third party clearing firm;
- registered representatives and employees of broker-dealers having selling
group agreements with Kemper Distributors, Inc., any trust, pension,
profit-sharing or other benefit plan for only such persons;
- officers, directors, and employees of service agents of the fund;
- members of the plaintiff class in the proceeding known as Howard and
Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et. al.,
Case No. 93 C 5231 (N.D.IL);
- selected employees (including their spouses and dependent children) of
banks and other financial services firms that provide administrative
services related to the fund pursuant to an agreement with Kemper
Distributors, Inc. or one of its affiliates;
- certain professionals who assist in the promotion of Kemper Funds
pursuant to personal services contracts with Kemper Distributors, Inc.,
for themselves or members of their families;
11
<PAGE> 15
- in connection with the acquisition of the assets of or merger or
consolidation with another investment company;
- shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on
September 8, 1995, and have continuously owned shares of KVS (or a Kemper
Fund acquired by exchange of KVS shares) since that date, for themselves
or members of their families, any trust, pension, profit-sharing or other
benefit plan for only such persons;
- persons who purchase shares of the fund through Kemper Distributors, Inc.
as part of an automated billing and wage deduction program administered
by RewardsPlus of America;
- through certain investment advisers registered under the Investment
Advisers Act of 1940 and other financial services firms acting solely as
agent for their clients, that adhere to certain standards established by
Kemper Distributors, Inc., including a requirement that such shares be
sold for the benefit of their clients participating in an investment
advisory program or agency commission program under which such clients
pay a fee to the investment advisor or other firm for portfolio
management or agency brokerage services.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge may be imposed upon redemption of Class
A shares purchased under the Large Order NAV Purchase Privilege as follows: 1%
if they are redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The contingent
deferred sales charge will be waived in the event of:
- redemptions under the fund's Systematic Withdrawal Plan at a maximum of
10% per year of the net asset value of the account;
- redemption of shares of a shareholder (including a registered joint
owner) who has died;
- redemption of shares of a shareholder (including a registered joint
owner) who after purchase of the shares being redeemed becomes totally
disabled (as evidenced by a determination by the federal Social Security
Administration);
- redemptions by a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation plan or a
participant-directed qualified retirement plan which is not sponsored by
a K-12 school district;
- redemptions by employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder
Service Agent or its affiliates;
- redemptions of shares whose dealer of record at the time of the
investment notifies Kemper Distributors, Inc. that the dealer waives the
commission applicable to such Large Order NAV Purchase.
RULE 12B-1 FEE
None
EXCHANGE PRIVILEGE
Class A shares may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange.
Class A shares purchased under the Large Order NAV Purchase Privilege may
be exchanged for Class A shares of any Kemper Fund or a Money Market Fund
without paying any contingent deferred sales charge. If
12
<PAGE> 16
the Class A shares received on exchange are redeemed thereafter, a contingent
deferred sales charge may be imposed.
CLASS B SHARES
PUBLIC OFFERING PRICE
Net asset value per share without any sales charge at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge may be imposed upon redemption of Class
B shares. There is no such charge upon redemption of any share appreciation or
reinvested dividends. The charge is computed at the following rates applied to
the value of the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
YEAR OF REDEMPTION AFTER PURCHASE: FIRST SECOND THIRD FOURTH FIFTH SIXTH
- ---------------------------------- ----- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Contingent Deferred Sales Charge:....................... 4% 3% 3% 2% 2% 1%
</TABLE>
The contingent deferred sales charge will be waived:
- for redemptions to satisfy required minimum distributions after age
70 1/2 from an IRA account (with the maximum amount subject to this waiver
being based only upon the shareholder's Kemper IRA accounts);
- for redemptions made pursuant to any IRA systematic withdrawal based on
the shareholder's life expectancy including, but not limited to,
substantially equal periodic payments described in Section
72(t)(2)(A)(iv) of the Internal Revenue Code of 1986, as amended (Code)
prior to age 59 1/2;
- for redemptions made pursuant to a systematic withdrawal plan;
- in the event of the total disability (as evidenced by a determination by
the federal Social Security Administration) of the shareholder (including
a registered joint owner) occurring after the purchase of the shares
being redeemed;
- in the event of the death of the shareholder (including a registered
joint owner).
The contingent deferred sales charge will also be waived in connection with
the following redemptions of shares held by employer sponsored employee benefit
plans maintained on the subaccount record keeping system made available by the
Shareholder Service Agent:
- redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent
deferred sales charge and the conversion privilege);
- redemptions in connection with retirement distributions (limited at any
one time to 10% of the total value of plan assets invested in the fund);
- redemptions in connection with distributions qualifying under the
hardship provisions of the Code;
- redemptions representing returns of excess contributions to such plans.
RULE 12B-1 FEE
0.75%
CONVERSION FEATURE
Class B shares of the fund will automatically convert to Class A shares of
the fund six years after issuance on the basis of the relative net asset value
per share. Shares purchased through the reinvestment of dividends and other
distributions paid with respect to Class B shares in a shareholder's fund
account will be converted to Class A shares on a pro rata basis.
13
<PAGE> 17
EXCHANGE PRIVILEGE
Class B shares of the fund and Class B shares of most Kemper Funds may be
exchanged for each other at their relative net asset values without a contingent
deferred sales charge.
CLASS C SHARES
PUBLIC OFFERING PRICE
Net asset value per share without any sales charge at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge of 1% may be imposed upon redemption of
Class C shares redeemed within one year of purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
contingent deferred sales charge will be waived in the event of:
- redemptions by a participant-directed qualified retirement plan described
in Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457;
- redemption by employer sponsored employee benefit plans (or their
participants) using the subaccount record keeping system made available
through the Shareholder Service Agent or its affiliates;
- redemption of shares of a shareholder (including a registered joint
owner) who has died;
- redemption of shares of a shareholder (including a registered joint
owner) who after purchase of the shares being redeemed becomes totally
disabled (as evidenced by a determination by the federal Social Security
Administration);
- redemptions under the fund's systematic withdrawal plan at a maximum of
10% per year of the net asset value of the account;
- redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to Kemper Funds and whose dealer of record has
waived the advance on the first year administrative service and
distribution fees applicable to such shares and agrees to receive such
fees quarterly;
- redemption of shares purchased through a dealer-sponsored asset
allocation program maintained on an omnibus record-keeping system
provided the dealer of record has waived the advance of the first year
administrative services and distribution fees applicable to such shares
and has agreed to receive such fees quarterly.
RULE 12B-1 FEE
0.75%
CONVERSION FEATURE
None
EXCHANGE PRIVILEGE
Class C shares of the fund and Class C shares of most Kemper Funds may be
exchanged for each other at their relative net asset value without paying any
contingent deferred sales charge.
SELLING AND EXCHANGING SHARES
GENERAL
Contact your securities dealer or other financial services firm to arrange
for share redemptions or exchanges.
14
<PAGE> 18
Any shareholder may require the fund to redeem his or her shares. When
shares are held for the account of a shareholder by the fund's transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557.
Any exchange of shares entails the sale of fund shares and subsequent
purchase of shares of another Kemper Mutual Fund.
The rate of the contingent deferred sales charge is determined by the
length of the period of ownership. Investments are tracked on a monthly basis.
The period of ownership for this purpose begins the first day of the month in
which the order for investment is received. For example, an investment made in
December, 1998 will be eligible for the second year's charge if redeemed on or
after December 1, 1999. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares presenting reinvested dividends and then from the
earliest purchase of shares. Kemper Distributors, Inc. receives any contingent
deferred sales charges directly.
SHARE CERTIFICATES
When certificates for shares have been issued, they must be mailed to or
deposited with Kemper Services Company, along with a duly endorsed stock power
and accompanied by a written request for redemption. Redemption requests and a
stock power must be endorsed by the account holder with signatures guaranteed.
The redemption request and stock power must be signed exactly as the account is
registered, including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
REINVESTMENT PRIVILEGE
Under certain circumstances, a shareholder who has redeemed Class A shares
may reinvest up to the full amount redeemed at net asset value at the time of
the reinvestment. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares. The reinvestment privilege may be terminated or modified at any
time. The reinvestment privilege can be used only once as to any specific shares
and reinvestment must be effected within six months of the redemption.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The fund normally distributes dividends of net investment income annually.
The fund distributes any net realized short-term and long-term capital gains at
least annually.
Income and capital gains dividends, if any, of the fund will be credited to
shareholder accounts in full and fractional shares of the same class of the fund
at net asset value on the reinvestment date (with the exception of Class M
shareholders who will receive Class A shares of the fund), except that, upon
written request to the Shareholder Service Agent, Kemper Services Company, a
shareholder may select one of the following options:
(1) To receive income and short-term capital gains dividends in cash and
long-term capital gains dividends in shares of the same class at net
asset value; or
(2) To receive income and capital gains dividends in cash.
Any dividends of the fund that are reinvested will normally be reinvested
in shares of the same class of the fund, except for Class M shareholders who
will receive Class A shares of the fund. However, by writing to the Shareholder
Service Agent, you may choose to have dividends of the fund invested in shares
of the same
15
<PAGE> 19
class of another Kemper fund at the net asset value of that class and fund. To
use this privilege, you must maintain a minimum account value of $1,000 in the
fund distributing the dividends. The fund will reinvest dividend checks (and
future dividends) in shares of the same class of the fund if checks are returned
as undeliverable. Dividends and other distributions in the aggregate amount of
$10 or less are automatically reinvested in shares of the fund unless you
request that such policy not be applied to your account.
Distributions are generally taxable, whether received in cash or
reinvested.
TAXES
Dividends representing net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individual shareholders as long-term capital gains, regardless of the length of
time shareholders have owned shares. Short-term capital gains and any other
taxable income distributions are taxable to you as ordinary income. A portion of
dividends from ordinary income may qualify for the dividends-received deduction
for corporations.
A dividend received shortly after the purchase of shares reduces the net
asset value of the shares by the amount of the dividend and, although in effect
a return of capital, is taxable to you.
Any dividends or capital gains distributions declared in October, November
or December with a record date in such month and paid during the following
January are taxable to you as if paid on December 31 of the calendar year in
which they were declared.
A sale or exchange of your shares is a taxable event and may result in a
capital gain or loss which may be long-term or short-term, generally depending
on how long you owned the shares. Shareholders of the fund may be subject to
state, local and foreign taxes on fund distributions and redemptions of fund
shares. You should consult your tax advisor regarding the particular tax
consequences of an investment in the fund.
The fund sends you detailed tax information about the amount and type of
its distributions by January 31 of the following year. In certain years, you may
be able to claim a credit or deduction on your income tax return for your share
of foreign taxes paid by the fund.
The fund may be required to withhold U.S. federal income tax at the rate of
31% of all taxable distributions and redemption proceeds payable to you if you
fail to provide the fund your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal Revenue
Service that you are subject to backup withholding. Any such withheld amounts
may be credited against your U.S. federal income tax liability.
TRANSACTION INFORMATION
SHARE PRICE
Scudder Fund Accounting Corporation determines the net asset value per
share of the fund as of the close of regular trading on the New York Stock
Exchange normally 4:00 p.m. eastern time, on each day the New York Stock
Exchange is open for trading. Market prices are used to determine the value of
the fund's assets. If market prices are not readily available for a security or
if a security's price is not considered to be market indicative, that security
may be valued by another method that the Board or its delegate believes
accurately reflects fair value. In those circumstances where a security's price
is not considered to be market indicative, the security's valuation may differ
from an available market quotation.
The net asset value per share of the fund is the value of one share and is
determined separately for each class by dividing the value of the fund's net
assets attributable to that class, less all liabilities of that class, by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of the fund will generally be lower than that of the
Class A and M shares of the fund because of the higher annual expenses borne by
the Class B and Class C shares.
16
<PAGE> 20
To the extent that the fund invests in foreign securities, these securities
may be listed on foreign exchanges that trade on days when the fund does not
price its shares. As a result, the net asset value per share of the fund may
change at a time when shareholders are not able to purchase or redeem their
shares.
REDEMPTION FEE (CLASS M SHARES)
Upon the redemption or exchange of Class M shares of the fund (including
redemptions in-kind) for a period of one year from the date of this prospectus,
a fee of 2% of the current net asset value of the shares will be assessed and
retained by the fund for the benefit of the remaining shareholders. This fee is
intended to discourage short term trading in a vehicle intended for long term
investment, to avoid transaction and other expenses caused by early redemptions,
and to facilitate portfolio management. The fee is not a deferred sales charge,
is not a commission paid to the investment manager or its subsidiaries, and does
not benefit the investment manager in any way. The fund reserves the right to
modify the terms of or terminate this fee at any time.
The fee applies to all redemptions from the fund and exchanges to other
Kemper Funds by Class M shareholders. The fee is applied to the shares being
redeemed or exchanged in the order in which they were purchased.
PROCESSING TIME
All requests to buy and sell shares that are received in good order by the
fund's transfer agent by the close of regular trading on the New York Stock
Exchange are executed at the net asset value per share calculated at the close
of trading that day (subject to any applicable sales load, contingent deferred
sales charge or redemption fee). Orders received by dealers or other financial
services firms prior to the determination of net asset value and received by the
fund's transfer agent prior to the close of its business day will be confirmed
at a price based on the net asset value effective on that day. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
before shares will be purchased.
Payment for shares you sell will be made in cash as promptly as practicable
but in no event later than seven days after receipt of a properly executed
request. If you have share certificates, these must accompany your order in
proper form for transfer. When you place an order to sell shares for which the
fund may not yet have received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), the fund may delay transmittal of the
proceeds until it has determined that collected funds have been received for the
purchase of such shares. This may be up to 10 days from receipt by the fund of
the purchase amount. The redemption of shares within certain time periods may be
subject to contingent deferred sales charges, as noted above.
SIGNATURE GUARANTEES
A signature guarantee is required when you sell $50,000 or less worth of
shares (prior to the imposition of any contingent deferred sales charge) and the
proceeds are payable to the shareholder of record at the address of record. You
can obtain a guarantee from most brokerage houses and financial institutions,
although not from a notary public. The fund will normally send you the proceeds
within one business day following your request, but may take up to seven
business days (or longer in the case of shares recently purchased by check).
PURCHASE RESTRICTIONS
Purchase and sales should be made for long-term investment purposes only.
The fund and its transfer agent each reserves the right to reject purchases of
fund shares (including exchanges) for any reason, including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in the fund's share price. The fund reserves the right
to withdraw all or any part of the offering made by this prospectus and to
reject purchase orders. Also, from time to time, the fund may temporarily
suspend the offering of its shares or a class of its shares to new investors.
During the period of such suspension, persons who are already shareholders
normally are permitted to continue to purchase additional shares and to have
dividends reinvested.
17
<PAGE> 21
MINIMUM BALANCES
The minimum initial investment for the fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an IRA is $250
and the minimum subsequent investment is $50. Under an automatic investment
plan, such as Bank Direct Deposit, Payroll Direct Deposit or Government Direct
Deposit, the minimum initial and subsequent investment is $50. These minimum
amounts may be changed at any time in management's discretion.
Because of the high cost of maintaining small accounts, the fund may assess
a quarterly fee of $9 on an account with a balance below $1,000 for the quarter
which will be collected automatically by the fund from the shareholder's
account. The fee will not apply to accounts enrolled in an automatic investment
program, IRAs or employer sponsored employee benefit plans using the subaccount
record keeping system made available through the Shareholder Service Agent.
THIRD PARTY TRANSACTIONS
If you buy and sell shares of the fund through a member of the National
Association of Securities Dealers, Inc. (other than the fund's distributor),
that member may charge a fee for that service. This prospectus should be read in
connection with such firm's material regarding its fees and services.
REDEMPTIONS IN-KIND
The fund reserves the right to honor any request for redemption or
repurchases by making payment in whole or in part in readily marketable
securities ("redemption in-kind"). These securities will be chosen by the fund
and valued as they are for purposes of computing the fund's net asset value. A
shareholder may incur transaction expenses in converting these securities to
cash.
With respect to Class M shareholders, all large redemption requests (i.e.,
redemptions exceeding $250,000) will be redeemed in-kind, and like all
redemptions of Class M shares, will be subject to a 2% redemption fee on the
current net asset value of the shares. Shareholders whose redemptions are
effected in-kind may bear expenses in excess of 1% of the net asset value of the
shares redeemed, which expenses are in addition to any applicable redemption
fee. No redemption requests subject to in-kind redemption may be made other than
by a written request accompanied by a properly completed redemption and
certification form, which is available from Kemper Service Company.
FINANCIAL HIGHLIGHTS
The table below is intended to help you understand the fund's financial
performance for the periods reflected below. Certain information reflects the
financial results for a single fund share. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by PricewaterhouseCoopers LLP
whose report, along with the fund's financial statements, is included in the
fund's annual report, which is available upon request by calling Kemper at
1-800-621-1048.
Prior to the date of this prospectus, the fund operated as a closed-end
management investment company that had one class of shares. Accordingly, the
following table shows financial information for the fund's original share class
(Class M) expressed in terms of one share outstanding throughout the relevant
period, and reflects the operations of the fund as a closed-end investment
company. Financial information is not available for the fund's Class A, B and C
shares since the reorganization of the fund took place after the close of the
fund's most recent fiscal year. The fund's performance may have been lower if it
had operated as an open-end fund during this period.
[TO BE COMPLETED BY SCUDDER KEMPER]
Additional information about the fund may be found in the fund's STATEMENT
OF ADDITIONAL INFORMATION, the SHAREHOLDER SERVICES GUIDE and in SHAREHOLDER
REPORTS. Shareholder inquiries may be made by calling the toll-free telephone
number listed below. The Statement of Additional Information contains more
detailed
18
<PAGE> 22
information on fund investments and operations. The Shareholder Services Guide
contains information about purchases and sales of fund shares. The semiannual
and annual shareholder reports contain a discussion of the market conditions and
the investment strategies that significantly affected the fund's performance
during the last fiscal year, as well as a listing of portfolio holdings and
financial statements. These and other fund documents may be obtained without
charge from the following sources:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
CALL THE KEMPER FUNDS AT:
BY TELEPHONE 1-800-621-1048
- --------------------------------------------------------------------------------------------
<S> <C>
In Person Public Reference Room
Securities and Exchange Commission
Washington, D.C.
(Call 1-800-SEC-0330 for more
information).
- --------------------------------------------------------------------------------------------
By Mail Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
or
Public Reference Section,
Securities and Exchange Commission,
Washington, D.C. 20549-6009
(a duplication fee is charged)
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By Internet http://www.sec.gov
http://www.kemper.com
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The Statement of Additional Information dated , 1999 is incorporated
by reference into this prospectus (is legally a part of this prospectus).
INVESTMENT COMPANY ACT FILE NUMBER: 811-5969
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<PAGE> 23
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED APRIL 28, 1999
STATEMENT OF ADDITIONAL INFORMATION
, 1999
KEMPER EUROPE FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the prospectus of the Kemper Europe Fund, Inc. (the
"Fund") dated , 1999. The prospectus may be obtained without charge
from the Fund and is also available along with other related materials on the
SEC's Internet web site (http://www.sec.gov).
The Fund was a closed-end fund whose shares were listed on the New York
Stock Exchange, Inc. The shareholders of the Fund have approved a proposal to
open-end the Fund. The conversion of the Fund to an open-end investment company
is expected to occur as of the date of this Statement of Additional Information.
This Statement of Additional Information pertains to the Fund as an open-end
investment company.
<PAGE> 24
TABLE OF CONTENTS
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<S> <C>
INVESTMENT RESTRICTIONS..................................... 1
INVESTMENT OBJECTIVE AND POLICIES........................... 2
CERTAIN INVESTMENT PRACTICES................................ 4
DIVIDENDS AND TAXES......................................... 18
NET ASSET VALUE............................................. 22
PERFORMANCE................................................. 23
INVESTMENT MANAGER AND UNDERWRITER.......................... 26
PORTFOLIO TRANSACTIONS...................................... 30
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES............... 31
REDEMPTION OR REPURCHASE OF SHARES.......................... 37
SPECIAL FEATURES............................................ 42
OFFICERS AND DIRECTORS...................................... 46
ORGANIZATION OF THE FUND.................................... 48
</TABLE>
The financial statements appearing in the Fund's Annual Report to
Shareholders are incorporated herein by reference. The Report for the Fund
accompanies this document.
PRINTED
ON RECYCLED PAPER
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<PAGE> 25
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which,
together with the investment objective and fundamental policies of the Fund,
cannot be changed without approval of a "majority" of its outstanding voting
securities. As defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), this means the lesser of (1) 67% of the Fund's shares present at a
meeting where more than 50% of the outstanding shares are present in person or
by proxy; or (2) more than 50% of the Fund's outstanding shares.
The Fund is classified as a non-diversified open-end management company.
The Fund may not:
1. Purchase securities on margin, except such short-term credits as
may be necessary or routine for clearance of transactions and the
maintenance of margin with respect to futures and forward contracts.
2. Make short sales of securities, except short sales against the
box.
3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow money as permitted under the 1940 Act, as
interpreted or modified by regulatory authority having jurisdiction from
time to time, and may also pledge its assets to secure such borrowings. For
the purposes of this investment restriction, collateral arrangements with
respect to the writing of options or the purchase or sale of futures
contracts are not deemed a pledge of assets or the issuance of a senior
security.
4. Invest more than 25% of the total value of its assets in a
particular industry; provided, however, that the foregoing restriction
shall not be deemed to prohibit the Fund from purchasing the securities of
any issuer pursuant to the exercise of rights distributed to the Fund by
the issuer, except that no such purchase may be made if as a result the
Fund will fail to meet the diversification requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). This restriction does not
apply to securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities, but will apply to foreign government
obligations unless the U.S. Securities and Exchange Commission (the "SEC")
permits their exclusion.
5. Act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under applicable securities laws.
6. Buy or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities that
are secured by real estate or commodities and securities of companies that
invest or deal in real estate or commodities, may purchase and sell futures
contracts and related options on stock indices and currencies, may enter
into forward currency exchange contracts, may write options on stocks and
may purchase and sell options on currencies and stock indexes.
7. Make loans, provided that the Fund may (a) acquire debt securities
as described herein, (b) enter into repurchase agreements and (c) lend
portfolio securities in an amount not to exceed 25% of the Fund's total
assets.
The following additional restrictions are not fundamental policies of the
Fund and may be changed by the Board of Directors.
The Fund may not:
1. Borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging in
reverse repurchase agreements, dollar rolls, or other investments or
transactions described in the Fund's registration statement which may be
deemed to be borrowings.
2. Enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets.
<PAGE> 26
3. Purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total assets;
or sell put options, if as a result the aggregate value of the obligations
underlying such put options would exceed 50% of its total assets.
4. Enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial margin
with respect to such futures contracts entered into on behalf of the Fund
and the premiums paid for such options on futures contracts does not exceed
5% of the fair market value of the Fund's total assets; provided that, in
the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing the 5% limit.
5. Purchase warrants if as a result such securities, taken at the
lower of cost or market value, would represent more than 5% of the value of
the Fund's total assets (for this purpose, warrants acquired in units or
attached to securities will be deemed to have no value).
6. Lend portfolio securities in an amount greater than 5% of its
total assets.
7. Make investments for the purpose of exercising control or
management. Substantial stock ownership may occasionally confer on the Fund
the ability to influence policies of portfolio companies. In addition, the
Fund's management may consult with and advise the management of portfolio
companies with respect to the operating and financial policies of such
companies.
8. Participate on a joint and several basis in any trading account in
securities.
9. Purchase any security (other than obligations of the U.S.
government, its agencies or instrumentalities) if, as a result, more than
10% of the Fund's total assets (taken at current value) would then be
invested in securities of any single issuer. The exercise of stock
subscription rights or conversion rights is not deemed to be a purchase for
purposes of this restriction.
10. Invest more than 15% of its assets in illiquid securities.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation,
which it seeks to achieve by investing primarily in equity securities of
European companies.
The Fund will invest in both the industrialized nations of Western Europe
and the less wealthy or developed countries in Southern and Eastern Europe. The
Fund will invest in established markets and companies with large capitalizations
as well as newer markets and smaller companies, and the portion of the Fund's
assets invested in each will vary from time to time. The Fund seeks to benefit
from accelerating economic growth transformation and deregulation taking hold in
Europe. These developments involve, among other things, increased privatizations
and corporate restructurings, the reopening of equity markets and economies in
Eastern Europe, further broadening of the European Union, and the implementation
of economic policies to promote non-inflationary growth. The Fund invests in
companies it believes are well placed to benefit from these and other structural
and cyclical changes now underway in this region.
Except as otherwise indicated, the Fund's investment objective and policies
are not fundamental and may be changed without a vote of shareholders. If there
is a change in investment objective, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
The Fund will invest, under normal market conditions, at least 65% of its
total assets in the equity securities of European companies. The Fund defines a
European company as: (i) a company organized under the laws of a European
country and that has a principal office in a European country; or (ii) a
company, wherever organized, where at least 50% of the company's non-current
assets, capitalization, gross revenue or profit in its most recent fiscal year
represents (directly or indirectly through subsidiaries) assets or activities
located in Europe; or (iii) a company whose equity securities are traded
principally in European securities markets. The Fund's definition of European
companies may include companies that have characteristics and business
relationships common to companies in other regions. As a result, the value of
the securities of such
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<PAGE> 27
companies may reflect economic and market forces applicable to other regions, as
well as to Europe. The Fund believes, however, that investment in such companies
will be appropriate in light of the Fund's investment objective, because Scudder
Kemper Investments, Inc. (the "Adviser") will select among such companies only
those which, in its view, have sufficiently strong exposure to economic and
market forces in Europe such that their value will tend to reflect European
developments to a greater extent than developments in other regions. For
example, the Adviser may invest in companies organized and located in the U.S.
or other countries outside of Europe, including companies having their entire
production facilities outside of Europe, when such companies meet one or more
elements of the Fund's definition of European companies so long as the Adviser
believes at the time of investment that the value of the company's securities
will reflect principally conditions in Europe.
The Fund expects the majority of its equity assets to be invested in the
more established and liquid markets of Western and Southern Europe. These more
established Western and Southern European countries include: Austria, Belgium,
Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Spain, Sweden, Switzerland, and the United Kingdom. To
enhance return potential, however, the Fund may pursue investment opportunities
in the less wealthy nations of Southern Europe, currently Greece, Portugal and
Turkey, and the former communist countries of Eastern Europe, including
countries once part of the Soviet Union. The Fund may invest in other countries
of Europe when their markets become sufficiently developed, in the opinion of
the Adviser.
The Fund intends to allocate its investments among at least three countries
at all times. The Fund's equity investments may consist of: common stock,
preferred stock (convertible or non-convertible), depositary receipts (sponsored
or unsponsored) and warrants. These may be illiquid securities. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter ("OTC")or have no organized
market. In addition, the Fund may engage in strategic transactions, including
derivatives.
The Fund may invest, under normal market conditions, up to 20% of its total
assets in European debt securities. Capital appreciation in debt securities may
arise from a favorable change in relative interest rate levels or in the
creditworthiness of issuers. Within this 20% limit, the Fund may invest in debt
securities which are unrated, rated, or the equivalent of those rated below
investment grade (commonly referred to as "junk bonds"); that is, rated below
Baa by Moody's Investor Service, Inc. ("Moody's") or below BBB by Standard &
Poor's Ratings Service ("S&P"). Such securities may be in default with respect
to payment of principal or interest.
The Fund may invest in when-issued securities, illiquid and restricted
securities and convertible securities and may enter into repurchase agreements
and reverse repurchase agreements. The Fund may also invest in closed-end
investment companies that invest primarily in Europe.
When, in the opinion of the Adviser, market conditions warrant, the Fund
may hold foreign or U.S. debt instruments as well as cash or cash equivalents,
including foreign and domestic money market instruments, short-term government
and corporate obligations, and repurchase agreements without limit for temporary
defensive purposes and up to 20% to maintain liquidity. It is impossible to
accurately predict how long such alternative strategies may be utilized.
Foreign securities such as those purchased by the Fund may be subject to
foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund.
From time to time, the Fund may be a purchaser of restricted debt or equity
securities (i.e., securities which may require registration under the Securities
Act of 1933, as amended (the "1933 Act"), or an exemption therefrom, in order to
be sold in the ordinary course of business) in a private placement. The Fund has
undertaken not to purchase or acquire any such securities if, solely as a result
of such purchase or acquisition, more than 15% of the value of the Fund's net
assets would be invested in illiquid securities.
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<PAGE> 28
To a lesser extent, the Fund may also invest in "Specialized Investments"
which consist of equity securities of: (i) privately-held European companies;
(ii) European companies that have recently made initial public offerings of
their shares; (iii) government-owned or -controlled companies that are being
privatized; (iv) smaller publicly-held European companies, i.e., any European
company having a market capitalization of less than $500 million (the Board of
Directors of the Fund may, in the future, reevaluate and increase or decrease
the maximum market capitalization for qualification as a smaller European
company); (v) companies and joint ventures based in Eastern Europe; (vi) private
placements and joint venture participations in European companies that may not
be readily marketable; (vii) pooled investment funds that invest principally in
securities in which the Fund may invest, which are considered investment
companies for purposes of the 1940 Act restrictions described below; and (viii)
European companies with private market values perceived by the Adviser to be
substantially in excess of their publicly-traded values.
CERTAIN INVESTMENT PRACTICES
INVESTING IN FOREIGN SECURITIES
Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in U.S. securities and which may favorably
or unfavorably affect the Fund's performance. As foreign companies are not
generally subject to uniform accounting and auditing financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than the New York
Stock Exchange (the "NYSE"), and securities of some foreign companies are less
liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than the volume and
liquidity in the U.S. and at times, volatility of price can be greater than in
the U.S. Further, foreign markets have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems either could result in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. Payment
for securities without delivery may be required in certain foreign markets.
Fixed commissions on some foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges, although the Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. Further,
the Fund may encounter difficulties or be unable to pursue legal remedies and
obtain judgments in foreign courts. There is generally less government
supervision and regulation of business and industry practices, stock exchanges,
brokers and listed companies in foreign countries than in the U.S. It may be
more difficult for the Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters which may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. In addition, with respect to certain foreign countries, there is the
possibility of nationalization, expropriation, the imposition of withholding or
confiscatory taxes, political, social, or economic instability, or diplomatic
developments which could affect U.S. investments in those countries. Investments
in foreign securities may also entail certain risks, such as possible currency
blockages or transfer restrictions, and the difficulty of enforcing rights in
other countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Many of the currencies of Eastern European countries have experienced a
steady devaluation relative to Western currencies. Any future devaluation may
have a detrimental impact on any investments made by the
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<PAGE> 29
Fund in Eastern Europe. The currencies of most Eastern European countries are
not freely convertible into other currencies and are not internationally traded.
The Fund will not invest its assets in non-convertible fixed income securities
denominated in currencies that are not freely convertible into other currencies
at the time the investment is made.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may not be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
EMERGING MARKETS. While the Fund's investments in foreign securities will
principally be in developed countries, the Fund may invest in countries
considered by the Adviser to be developing or "emerging" markets. Developing or
emerging markets involve exposure to economic structures that are generally less
diverse and mature than in the U.S., and to political systems that may be less
stable. A developing country or emerging market country can be considered to be
a country that is in the initial stages of its industrialization cycle.
Currently, emerging markets generally include every country in the world other
than the U.S., Canada, Japan, Australia, New Zealand, Hong Kong, Singapore and
most Western European countries. Currently, investing in many emerging markets
may not be desirable or feasible because of the lack of adequate custody
arrangements for the Fund's assets, overly burdensome repatriation and similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks or other reasons. As opportunities to invest in securities in
emerging markets develop, the Fund may expand and further broaden the group of
emerging markets in which it invests. In the past, markets of developing
countries have been more volatile than the markets of developed countries;
however, such markets often have provided higher rates of return to investors.
The Adviser believes that these characteristics can be expected to continue in
the future.
Many of the risks described above relating to foreign securities generally
will be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially
smaller, less developed, less liquid and more volatile than the securities
markets of the U.S. and other more developed countries. Disclosure, regulatory
and accounting standards in many respects are less stringent than in the U.S.
and other developed markets. There also may be a lower level of monitoring and
regulation of developing markets and the activities of investors in such
markets, and enforcement of existing regulations has been extremely limited.
In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the U.S.; this is particularly true with respect to emerging markets. Such
markets have different settlement and clearance procedures. In certain markets,
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Such settlement problems may cause emerging market securities to
be illiquid. The inability of the Fund to make intended securities purchases due
to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability
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<PAGE> 30
to the purchaser. Certain emerging markets may lack clearing facilities
equivalent to those in developed countries. Accordingly, settlements can pose
additional risks in such markets and ultimately can expose the Fund to the risk
of losses resulting from the Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of its Board of Directors.
Investment in certain emerging market securities is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain emerging market securities and
increase the costs and expenses of a Fund. Emerging markets may require
governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In addition, if a
deterioration occurs in an emerging market's balance of payments, the market
could impose temporary restrictions on foreign capital remittances.
PRIVATIZED ENTERPRISES. Investments in foreign securities may include
securities issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. The Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government- or state-owned or -controlled company or enterprise that has not
yet conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.
In certain jurisdictions, the ability of foreign entities, such as the
Fund, to participate in privatizations may be limited by local law, or the price
or terms on which the Fund may be able to participate may be less advantageous
than for local investors. Moreover, there can be no assurance that governments
that have embarked on privatization programs will continue to divest their
ownership of state enterprises, that proposed privatizations will be successful
or that governments will not re-nationalize enterprises that have been
privatized.
In the case of the enterprises in which the Fund may invest, large blocks
of the stock of those enterprises may be held by a small group of stockholders,
even after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or
former state enterprises go through an internal reorganization or management.
Such reorganizations are made in an attempt to better enable these enterprises
to compete in the private sector. However, certain reorganizations could result
in a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering, these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
FOREIGN CURRENCIES. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on futures
contracts on foreign currencies, the value of the assets of the Fund as measured
in U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Fund may incur
costs in connection with conversions between various currencies.
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<PAGE> 31
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward or futures contracts to purchase or sell foreign currencies.
DEPOSITARY RECEIPTS. The Fund may invest directly in securities of
emerging country issuers through sponsored or unsponsored American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary
Receipts ("IDRs") and other types of Depositary Receipts (which, together with
ADRs, GDRs and IDRs are hereinafter referred to as "Depositary Receipts").
Depositary Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored Depositary Receipts are not obligated to
disclose material information in the U.S. and, therefore, there may not be a
correlation between such information and the market value of the Depositary
Receipts. ADRs are Depositary Receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs, IDRs and other types of Depositary Receipts are typically
issued by foreign banks or trust companies, although they also may be issued by
U.S. banks or trust companies, and evidence ownership of underlying securities
issued by either a foreign or a U.S. corporation. Generally, Depositary Receipts
in bearer form are designed for use in securities markets outside the U.S. For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depositary Receipts will be deemed to be investments in the
underlying securities of the European company into which they may be converted.
Depositary Receipts other than those denominated in U.S. dollars will be subject
to foreign currency exchange rate risk. Certain Depositary Receipts may not be
listed on an exchange and therefore may be illiquid securities.
DEBT SECURITIES. When the Adviser believes that it is appropriate to do so
in order to achieve the Fund's objective of long-term capital appreciation, the
Fund may invest up to 20% of its total assets in European debt securities,
including bonds of foreign governments, supranational organizations and private
issuers. Portfolio debt investments will be selected on the basis of, among
other things, credit quality, and the fundamental outlooks for currency,
economic and interest rate trends, taking into account the ability to hedge a
degree of currency or local bond price risk. The Fund may purchase
"investment-grade" bonds, rated Aaa, Aa or A by Moody's or AAA, AA or A by S&P
or, if unrated, judged to be of equivalent quality as determined by the Adviser.
Subject to the above 20% limit, the Fund may also purchase debt securities
which are rated below investment-grade, that is, rated below Baa by Moody's or
below BBB by S&P and unrated securities ("high-yield/high-risk securities"),
which usually entail greater risk (including the possibility of default or
bankruptcy of the issuers of such securities), generally involve greater
volatility of price and risk of principal and income, and may be less liquid
than securities in the higher rating categories. The lower the ratings of such
debt securities, the greater their risks. The Fund may also purchase bonds rated
B or lower by Moody's or S&P, and may invest in securities which are rated C by
Moody's or D by S&P or securities of comparable quality in the Adviser's
judgment. Such securities may be in default with respect to payment of principal
or interest, carry a high degree of risk and are considered speculative. See the
Appendix to this Statement of Additional Information for a more complete
description of the ratings assigned by Moody's and S&P and their respective
characteristics.
To the extent developments in emerging markets result in improving credit
fundamentals and rating upgrades for countries in emerging markets, the Adviser
believes that there is the potential for capital appreciation as the improving
fundamentals become reflected in the price of debt instruments. The Adviser also
believes that a country's sovereign credit rating (with respect to foreign
currency denominated issues) acts as a "ceiling" on the rating of all debt
issuers from that country. Thus, the ratings of private sector
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<PAGE> 32
companies cannot be higher than that of their home countries. The Adviser
believes, however, that many companies in emerging market countries, if rated on
a stand-alone basis without regard to the rating of the home country, possess
fundamentals that could justify a higher credit rating, particularly if they are
major exporters and receive the bulk of their revenues in U.S. dollars or other
hard currencies. The Adviser seeks to identify such opportunities and benefit
from this type of market inefficiency.
Trading in debt obligations ("sovereign debt") issued or guaranteed by
foreign governments or their agencies or instrumentalities ("governmental
entities") also involves a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be willing or able to repay the
principal and/or interest when due in accordance with the terms of such
obligations. A governmental entity's willingness or ability to repay principal
and interest due in a timely manner may be affected by, among other factors, its
cash flow situation, dependence on expected disbursements from third parties,
the governmental entity's policy towards the International Monetary Fund and the
political constraints to which a governmental entity may be subject. As a
result, governmental entities may default on their sovereign debt. Holders of
sovereign debt may be requested to participate in the rescheduling of such debt
and to extend further loans to governmental entities. There is no bankruptcy
proceeding by which defaulted sovereign debt may be collected in whole or in
part.
HIGH-YIELD/HIGH-RISK SECURITIES. As stated above, within the Fund's 20%
limit of investments in European debt securities, the Fund may also invest in
high-yield/high-risk securities.
High-yield, high-risk securities are especially subject to adverse changes
in general economic conditions, to changes in the financial condition of their
issuers and to price fluctuations in response to changes in interest rates. An
economic downturn could disrupt the high-yield market and impair the ability of
issuers to repay principal and interest. Also, an increase in interest rates
would have a greater adverse impact on the value of such obligations than on
higher-quality debt securities. During an economic downturn or period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations. Prices and yields of high-yield securities will fluctuate
over time and, during periods of economic uncertainty, volatility of high-yield
securities may adversely affect the Fund's net asset value. In addition,
investments in high-yield, zero coupon or pay-in-kind bonds, rather than
income-bearing high-yield securities, may be more speculative and may be subject
to greater fluctuations in value due to changes in interest rates.
The trading market for high-yield securities may be thin to the extent that
there is no established retail secondary market. A thin trading market may limit
the ability of the Fund to accurately value high-yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high-yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality securities.
Should the rating of a portfolio security be downgraded, the Adviser will
determine whether it is in the best interest of the Fund to retain or dispose of
such security.
SMALL COMPANIES. The Fund may invest its assets in the securities of small
companies. Investments in small companies involve considerations that are not
applicable to investing in securities of established, larger-capitalization
issuers, including reduced and less reliable information about issuers and
markets, less stringent financial disclosure requirements and accounting
standards, illiquidity of securities, higher brokerage commissions and fees and
greater market risk in general. In addition, these securities involve greater
risks since they may have limited marketability and, thus, may be more volatile.
Because such companies normally have fewer shares outstanding than larger
companies, it may be more difficult for the Fund to buy or sell significant
amounts of such shares without an unfavorable impact on prevailing prices. These
companies may have
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limited product lines, markets or financial resources and may lack management
depth. In addition, these companies are typically subject to a greater degree of
changes in earnings and business prospectus than are larger, more established
companies.
STRATEGIC TRANSACTIONS AND DERIVATIVES. The Fund may, but is not required
to, utilize various other investment strategies as described below to hedge
various market risks (such as interest rates, currency exchange rates, and broad
or specific equity or fixed-income market movements), to protect the Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of the fixed-income securities in the Fund's portfolio, to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities, or to enhance potential gain. No
more than 5% of the Fund's assets will be [committed] to Strategic Transactions
(as defined below) entered into for non-hedging purposes. Strategic Transactions
involving financial futures and options thereon will be purchased, sold or
entered into only for bona fide hedging, risk management or portfolio management
purposes and not for speculative purposes. These strategies may be executed
through the use of derivative contracts. Such strategies are generally accepted
as part of modern portfolio management and are regularly utilized by many mutual
funds and other institutional investors. Techniques and instruments may change
over time as new instruments and strategies are developed or regulatory changes
occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and OTC put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, "Strategic Transactions"). Any or all of these investment
techniques may be used at any time and in any combination, and there is no
particular strategy that dictates the use of one technique rather than another.
The use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize Strategic
Transactions successfully will depend on the Adviser's ability to predict market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments.
Strategic Transactions, including derivative contracts, involve risks,
including possible default by the other party to the transactions, illiquidity
and, to the extent the Adviser's view as to certain market movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the purchase or sale of portfolio securities
at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount
of appreciation the Fund can realize on its investments or cause the Fund to
hold a security it might otherwise sell. The use of currency transactions can
result in the Fund incurring losses as a result of a number of factors including
the imposition of exchange controls, suspension of settlements, or the inability
to deliver or receive a specified currency. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain OTC options may have no markets. As a result, in
certain markets, the Fund might not be able to close out a transaction without
incurring substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been used.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions,
in addition to other requirements, require that the Fund segregate cash or
liquid assets with its custodian, The Chase Manhattan Bank (the "Custodian"), to
the extent Fund obligations are not otherwise "covered" through ownership of the
underlying security, financial instrument or currency. In general, either the
full amount of any obligation by
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<PAGE> 34
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid assets at least equal
to the current amount of the obligation must be segregated with the Custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate liquid
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the amount. These amounts will equal
100% of the exercise price in the case of a non cash-settled put, the same as an
OCC guaranteed listed option sold by the Fund, or the in-the-money amount plus
any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, and the Fund will segregate
an amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
deliver or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possibly daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are
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<PAGE> 35
purchased or sold. Thus, the following general discussion relates to each of the
types of options discussed in greater detail below. In addition, many Strategic
Transactions involving options require segregation of Fund assets as described
above under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period, while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
OTC options. Exchange listed options are issued by a regulated intermediary,
such as the Options Clearing Corporation ("OCC"), which guarantees the
performance of the obligations of the parties to such options. The discussion
below uses the OCC as an example, but is also applicable to other financial
intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument
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<PAGE> 36
underlying an OTC option it has entered into with the Fund or fails to make a
cash settlement payment due in accordance with the terms of that option, the
Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. Accordingly, the Adviser must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied. The Fund will engage in OTC option
transactions only with U.S. government securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers" or broker/dealers,
domestic or foreign banks or other financial institutions which have received
(or the guarantors of the obligation of which have received) a short-term credit
rating of A-1 from S&P or P-1 from Moody's or an equivalent rating from any
nationally recognized statistical rating organization ("NRSRO") or are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by a fund, and
portfolio securities "covering" the amount of a fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to a fund's limitation on investing no
more than 15% of its net assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
OTC markets, and on securities indices, currencies and futures contracts. All
calls sold by the Fund must be "covered" (i.e., the Fund must own the securities
or futures contract subject to the call) or must meet the asset segregation
requirements described above as long as the call is outstanding. See "Use of
Segregated and Other Special Accounts." Even though the Fund will receive the
option premium to help protect it against loss, a call sold by the Fund exposes
the Fund during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the Fund to hold a security or instrument which it
might otherwise have sold.
The Fund may purchase and sell put options on securities, including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also
may purchase and sell call and put options on securities and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement. An option on an index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the index upon
which the option is based exceeds, in the case of a call, or is less than, in
the case of a put, the exercise price of the option (except if, in the case of
an OTC option, physical delivery is specified). This amount of cash is equal to
the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
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GENERAL CHARACTERISTICS OF FUTURES. As stated above, the Fund may enter
into financial futures contracts or purchase or sell put and call options on
such futures for bona fide hedging, risk management or portfolio management
purposes and not for speculative purposes. Futures are generally bought and sold
on the commodities exchanges where they are listed with payment of initial and
variation margin as described below. The sale of a futures contract creates a
firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.
The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any future obligation on the part of
the Fund. If the Fund exercises an option on a futures contract, it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
The Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described above. See "Use of Segregated and Other Special Accounts."
CURRENCY TRANSACTIONS. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or (except for OTC currency options)
are determined to be of equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or
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generally quoted in or currently convertible into such currency, other than with
respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars.
Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived correlation between various currencies may not be present or may not
be present during the particular time that the Fund is engaging in proxy
hedging. If the Fund enters into a currency hedging transaction, the Fund will
comply with the asset segregation requirements described below.
RISKS OF CURRENCY TRANSACTIONS. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and any combination of futures, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into
which the Fund may enter into are interest rate, currency and index swaps and
the purchase or sale of related caps, floors and collars. The Fund expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream
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the Fund may be obligated to pay. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreement related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
EURODOLLAR INSTRUMENTS. The Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE U.S. When conducted outside
the U.S., Strategic Transactions may not be regulated as rigorously as in the
U.S., may not involve a clearing mechanism and related guarantees, and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities, currencies and other instruments. The value of such
positions also could be adversely affected by: (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the U.S.
of data on which to make trading decisions, (iii) delays in the Fund's ability
to act upon economic events occurring in foreign markets during non-business
hours in the U.S., (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the U.S. and (v) lower
trading volume and liquidity.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities
which are bonds, notes, debentures, preferred stocks, and other securities which
are convertible into common stocks. Investments in convertible securities can
provide income through interest and dividend payment and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions, or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a
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lesser extent than with debt securities generally, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion or exchange feature, the market value of convertible securities
typically changes as the market value of the underlying common stocks changes,
and, therefore, also tends to follow movements in the general market for equity
securities. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock increases, although typically not as much as the underlying common stock.
While no securities investments are without risk, investments in convertible
securities generally entail less risk than investments in common stock of the
same issuer.
As fixed income securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all fixed income securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may default
on their obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stocks of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes (LYONs). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the purchase price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
member banks of the Federal Reserve System, any foreign bank or with any
domestic or foreign broker-dealer which is recognized as a reporting government
securities dealer if the creditworthiness of the bank or broker-dealer has been
determined by the Adviser to be at least as high as that of other obligations
the Fund may purchase.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be held by the Custodian or in the Federal Reserve Book Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan
from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to
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<PAGE> 41
the seller of the Obligation before repurchase of the Obligation under a
repurchase agreement, the Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the Obligation. If the court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the Obligation, the Fund
may be required to return the Obligation to the seller's estate and be treated
as an unsecured creditor of the seller. As an unsecured creditor, the Fund would
be at risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case the Fund may incur a loss if the proceeds to the Fund of the sale to a
third party are less than the repurchase price. However, if the market value of
the Obligation subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of the
Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.
BORROWING. The fund may not borrow money, except as permitted under
Federal law. The Fund will borrow only when the Adviser believes that borrowing
will benefit the Fund after taking into account considerations such as the costs
of the borrowing. The Fund does not expect to borrow for investment purposes, to
increase return or leverage the portfolio. Borrowing by the Fund will involve
special risk considerations. Although the principal of the fund's borrowings
will be fixed, the Fund's assets may change in value during the time a borrowing
is outstanding, thus increasing exposure to capital risk.
ILLIQUID SECURITIES. The Fund may occasionally purchase securities other
than in the open market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities" or "not readily
marketable," i.e., securities which cannot be sold to the public without
registration under the 1933 Act or the availability of an exemption from
registration (such as Rules 144 or 144A) or because they are subject to other
legal or contractual delays in or restrictions on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the 1933 Act. The Fund may be deemed to be an "underwriter" for
purposes of the 1933 Act when selling restricted securities to the public, and
in such event the Fund may be liable to purchasers of such securities if such
sale is made in violation of the 1933 Act or if the registration statement
prepared by the issuer, or the prospectus forming a part of it, is materially
inaccurate or misleading.
The Fund may invest up to 15% of its total net assets in illiquid
securities.
WHEN-ISSUED SECURITIES. The Fund may from time to time purchase equity and
debt securities on a "when-issued" or "forward delivery" basis. The price of
such securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities takes place at a later date. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
or forward delivery securities may be sold prior to the settlement date, the
Fund intends to purchase such securities with the purpose of actually acquiring
them unless a sale appears desirable for investment reasons. At the time the
Fund makes the commitment to purchase a security on a when-issued or forward
delivery basis, it will record the transaction and reflect the value of the
security in
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<PAGE> 42
determining its net asset value. The market value of the when-issued or forward
delivery securities may be more or less than the purchase price. The Fund does
not believe that its net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis.
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 to member firms of the NYSE, and would be required to be
secured continuously by collateral in cash, U.S. Government securities or other
high grade debt obligations maintained on a current basis at an amount at least
equal to the market value and accrued interest of the securities loaned. The
Fund would have the right to call a loan and obtain the securities loaned on no
more than five days' notice. During the existence of a loan, the Fund would
continue to receive the equivalent of the interest paid by the issuer on the
securities loaned and would also receive compensation based on the investment of
the collateral. 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 Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If the Fund determines to make
securities loans, the value of the securities loaned will not exceed [5%] of the
value of the Fund's total assets at the time any loan is made.
SHORT SALES AGAINST-THE-BOX. The Fund may make short sales against-the-box
for the purpose of, but not limited to, deferring realization of loss when
deemed advantageous for federal income tax purposes. A short sale
"against-the-box" is a short sale in which the Fund owns at least an equal
amount of the securities sold short or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and at least equal in amount to, the securities or other
assets sold short. [The Fund may engage in such short sales only to the extent
that not more than 10% of the Fund's total assets (determined at the time of the
short sale) is held as collateral for such sales.] [The Fund currently does not
intend, however, to engage in such short sales to the extent that more than 5%
of its net assets will be held as collateral therefor during the current year.]
If the Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect short sales.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund normally distributes dividends of net investment
income annually and distributes any net realized short-term and long-term
capital gains at least annually. The level of income dividends per share (as a
percentage of net asset value) will be lower for Class B and Class C shares than
for Class A and M shares primarily as a result of the distribution services fee
applicable to Class B and Class C shares. Distributions of capital gains, if
any, will be paid in the same amount for each class.
The Fund may vary at any time the foregoing dividend practice and,
therefore, reserves the right from time to time either to distribute or to
retain for reinvestment such of its net investment income and its net short-term
and long-term capital gains as the Board of Directors of the Fund determines
appropriate under then current circumstances. In particular, and without
limiting the foregoing, the Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Code. Income dividends and capital
gain dividends, if any, of the Fund will be credited to shareholder accounts in
full and fractional Fund shares of the same class at net asset value except
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that, upon written request to the Shareholder Service Agent, a shareholder may
select one of the following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net
asset value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested
in Fund shares of the same class. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of the Fund
invested without a sales charge in shares of the same class of another Kemper
Fund at the net asset value of such class of such other fund. See "Special
Features -- Class A Shares -- Combined Purchases" for a list of such other
Kemper Funds. To use this privilege of investing dividends of the Fund in shares
of another Kemper Fund, shareholders must maintain a minimum account value of
$1,000 in the Fund distributing the dividends. The Fund reinvests dividend
checks (and future dividends) in shares of the same class of the same Fund if
checks are returned as undeliverable. Dividends and other distributions in the
aggregate amount of $10 or less are automatically reinvested in shares of the
same class of the same Fund unless the shareholder requests that such policy not
be applied to the shareholder's account.
TAXES. The Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, will not be liable
for federal income taxes to the extent its earnings are distributed in the
manner required by the Code. Such qualification does not involve governmental
supervision or management of investment practices or policy.
To so qualify, the Fund is required to distribute to its shareholders at
least 90% of its investment company taxable income (including net short-term
capital gain) (the "90% Distribution Requirement").
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of the Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 in the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. The Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to meet the 90% Distribution Requirement and to prevent imposition of the 4%
excise tax.
Dividends derived from net investment income and net short-term capital
gains are taxable to shareholders as ordinary income and long-term capital gain
dividends are taxable to shareholders as long-term capital gain regardless of
how long the shares have been held and whether received in cash or shares.
Dividends declared in October, November or December to shareholders of record as
of a date in one of those months and paid during the following January are
treated as paid on December 31 of the calendar year declared.
A dividend received shortly after the purchase of shares reduces the net
asset value of the shares by the amount of the dividend and, although in effect
a return of capital, will be taxable to the shareholder.
It is anticipated that only a small portion, if any, of the ordinary income
dividends from the Fund will be eligible for the dividends received deduction
available to corporate shareholders. The aggregate amount eligible for the
dividends received deduction may not exceed the aggregate qualifying dividends
received by the Fund for the fiscal year.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a pro rata share of federal income taxes paid by
the Fund on such gains as a credit against federal income tax liability, and
will be entitled to increase the adjusted tax basis on Fund shares by the
difference between such gains and the tax credit.
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<PAGE> 44
A shareholder who redeems shares of the Fund will recognize capital gain or
loss for federal income tax purposes measured by the difference between the
value of the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares.
[A shareholder who has redeemed shares of the Fund or any other Kemper
Mutual Fund listed herein under "Special Features -- Class A Shares -- Combined
Purchases" (other than shares of Kemper Cash Reserves Fund not acquired by
exchange from another Kemper Mutual Fund) may reinvest the amount redeemed at
net asset value at the time of the reinvestment in shares of the Fund or in
shares of the other Kemper Mutual Funds within six months of the redemption as
described herein under "Redemption or Repurchase of Shares -- Reinvestment
Privilege." If redeemed shares were held less than 91 days, then the lesser of
(a) the sales charge waived on the reinvested shares, or (b) the sales charge
incurred on the redeemed shares, is included in the basis of the reinvested
shares and is not included in the basis of the redeemed shares.]
If a shareholder realizes a loss on the redemption or exchange of the
Fund's shares and reinvests in shares of the same Fund within 30 days before or
after the redemption or exchange, the transactions may be subject to the wash
sale rules resulting in a postponement of the recognition of such loss for
federal income tax purposes. An exchange of the Fund's shares for shares of
another fund is treated as a redemption and reinvestment for federal income tax
purposes upon which gain or loss may be recognized.
Investment income derived from foreign securities may be subject to foreign
income taxes withheld at the source. Because the amount of the Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance. The Fund may
elect for U.S. income tax purposes to treat foreign income taxes paid by it as
paid by its shareholders if: (i) the Fund qualifies as a regulated investment
company, (ii) certain asset and distribution requirements are satisfied, and
(iii) more than 50% of the Fund's total assets at the close of its fiscal year
consists of stock or securities of foreign corporations. The Fund may qualify
for and make this election in some, but not necessarily all, of its taxable
years. If the Fund were to make an election, shareholders of the Fund would be
required to take into account an amount equal to their pro rata portions of such
foreign taxes in computing their taxable income and then treat an amount equal
to those foreign taxes as a U.S. federal income tax deduction or as a foreign
tax credit against their U.S. federal income taxes. Shortly after any year for
which it makes such an election, the Fund will report to its shareholders the
amount per share of such foreign income tax that must be included in each
shareholder's gross income and the amount which will be available for the
deduction or credit. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Certain limitations will be imposed
on the extent to which the credit (but not the deduction) for foreign taxes may
be claimed.
The Fund may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
the Fund receives a so-called "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to a tax on a portion of the excess distribution.
Certain distributions from a PFIC as well as gains from the sale of the PFIC
shares are treated as "excess distributions." In general, under the PFIC rules,
an excess distribution is treated as having been realized ratably over the
period during which the Fund held the PFIC shares. The Fund will be subject to
tax on the portion, if any, of an excess distribution that is allocated to prior
Fund taxable years, and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Excess distributions allocated
to the current taxable year are characterized as ordinary income even though,
absent application of the PFIC rules, certain excess distributions (such as a
gain on a sale of PFIC shares) might have been classified as capital gain.
The Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares. Mark
to market losses would be deductible, as ordinary losses, to the extent of any
net mark to market gains included in income in prior years.
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<PAGE> 45
The effect of the election would be to treat excess distributions and gain on
dispositions as ordinary income which is not subject to a fund level tax when
distributed to shareholders as a dividend. Alternatively, the Fund may elect to
include as income and gain its share of the ordinary earnings and net capital
gain of certain foreign investment companies in lieu of being taxed in the
manner described above.
The Fund's Strategic Transactions will be subject to special tax rules.
Equity options (including covered call options on portfolio stock) and OTC
options on debt securities written or purchased by the Fund will be subject to
tax under Section 1234 of the Code. In general, no loss is recognized by the
Fund upon payment of a premium in connection with the purchase of a put or call
option. The character of any gain or loss recognized (i.e., long-term or
short-term) will generally depend, in the case of a lapse or sale of the option,
on the Fund's holding period for the option, and in the case of an exercise of a
put option, on the Fund's holding period for the underlying stock. If the Fund
writes a put or call option, no gain is recognized upon its receipt of a
premium. If the option lapses or is closed out, any gain or loss is treated as a
short-term capital gain or loss. If a call option is exercised, any resulting
gain or loss is a short-term or long-term capital gain or loss depending on the
holding period of the underlying stock. The exercise of a put option written by
the Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts
entered into by the Fund and all listed non-equity options written or purchased
by the Fund (including options on futures contracts and options on broad-based
stock indices) will be governed by Section 1256 of the Code. In general, gain or
loss attributable to the lapse, exercise or closing out of any such position
generally will be treated as 60% long-term and 40% short-term capital gain or
loss, and on the last trading day of the Fund's fiscal year, all outstanding
Section 1256 positions will be marked to market (i.e. treated as if such
positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income.
Positions of the Fund which consist of at least one stock and at least one
other position with respect to a related security which substantially diminishes
the Fund's risk of loss with respect to such stock could be treated as a
"straddle" which is governed by Section 1092 of the Code, the operation of which
may cause deferral of losses, adjustments in the holding periods of stock or
securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.
Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or non-equity
option governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. The Fund intends to monitor its transactions in
options and futures and may make certain tax elections in connection with these
investments.
Under certain circumstances, the purchase of a put option or the entry into
a futures contract to sell a security may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in the Fund's
portfolio. Moreover, recent tax law changes may require the Fund to recognize
gain (but not loss) from a constructive sale of certain "appreciated financial
positions" if the Fund enters into a short sale, offsetting notional principal
contract, futures or forward contract transaction with respect to the
appreciated position or substantially identical property. Appreciated financial
positions subject to this constructive sale treatment are interests (including
options, futures and forward contracts and short sales) in stock, partnership
interests, certain actively traded trust instruments and certain debt
instruments.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of
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certain options, futures contracts and forward contracts, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition are also
treated as ordinary gain or loss. These gains or losses, referred to under the
Code as "Section 988" gains or losses, may increase or decrease the amount of
the Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
Under the backup withholding provisions, distributions of taxable income
and capital gains and proceeds from the redemption or exchange of the shares of
a regulated investment company may be subject to withholding of federal income
tax at the rate of 31% in the case of non-exempt shareholders who fail to
furnish the investment company with their taxpayer identification numbers and
with required certifications regarding their status under the federal income tax
law. Withholding may also be required if the Fund is notified by the IRS or a
broker that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisors about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situations.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A and M shares of the
Fund because of the higher expenses borne by the Class B and Class C shares. The
net asset value of shares of the Fund is computed as of the close of regular
trading (the "value time") on the NYSE on each day the NYSE is open for trading.
The NYSE is scheduled to be closed on the following holidays: New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
generally valued at market value as of the value time in the manner described
below. All other securities may be valued at fair value as determined in good
faith by or under the direction of the Board of Directors.
Securities listed primarily on foreign exchanges may trade on days when the
Fund's net asset value is not computed; and therefore, the net asset value of
the Fund may be significantly affected on days when investors have no access to
the Fund.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market Inc.
("Nasdaq") is valued at its most recent
22
<PAGE> 47
sale price. Lacking any sales, the security is valued at the most recent bid
quotation. The value of an equity security not quoted on Nasdaq, but traded in
another OTC market, is its most recent sale price. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation.
Debt securities are valued at prices supplied by a pricing agent(s) which
reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board of Directors believes approximates market value. If it is not possible
to value a particular debt security pursuant to these valuation methods, the
value of such security is the most recent bid quotation supplied by a bona fide
marketmaker. If it is not possible to value a particular debt security pursuant
to the above methods, the Adviser of the Fund may calculate the price of that
debt security, subject to limitations established by the Board of Directors.
An exchange-traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded OTC is
valued at the most recent bid quotation in the case of a purchased options
contract and at the most recent asked quotation in the case of a written options
contract. Futures contracts are valued at the most recent settlement price.
Foreign currency exchange forward contracts are valued at the value of the
underlying currency at the prevailing exchange rate on the valuation date.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the OTC market, quotations are taken from the market in which
the security is traded most extensively.
If, in the opinion of the Valuation Committee of the Board of Directors,
the value of a portfolio asset as determined in accordance with these procedures
does not represent the fair market value of the portfolio asset, the value of
the portfolio asset is taken to be an amount which, in the opinion of the
Valuation Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee, most
fairly reflects market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
PERFORMANCE
The Fund may advertise several types of performance information for a class
of shares, including "average annual total return" and "total return."
Performance information will be computed separately for each class. Each of
these figures is based upon historical results and is not representative of the
future performance of any class of the Fund. If fees or expenses are being
waived or absorbed by the Adviser, the Fund may also advertise performance
information before and after the effect of the fee waiver or expense absorption.
The Fund's average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the SEC. The average annual
total return for the Fund for a specific period is found by first taking a
hypothetical $1,000 investment ("initial investment") in the Fund's shares on
the first day of the period, adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "redeemable value" of that
investment at the end of the period. The redeemable value in the case of Class B
or Class C shares include the effect of the applicable contingent deferred sales
charge that may be imposed at the end of the period. The redeemable value in the
case of Class M shares may or may not include the effect of any applicable
redemption fee. The redeemable value is then divided by the initial investment,
and this
23
<PAGE> 48
quotient is taken to the Nth root (N representing the number of years in the
period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Average annual total return figures may also be
calculated without deducting the maximum sales charge.
Calculation of the Fund's total return is not subject to a standardized
formula, except when calculated for the Fund's "Financial Highlights" table in
the Fund's financial statements and Prospectus. Total return performance for a
specific period is calculated by first taking a hypothetical investment
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge (in the
case of Class A shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of Class B, Class C and Class M shares may or may
not include the effect of the applicable contingent deferred sales charge that
may be imposed at the end of the period or any applicable redemption fee. The
calculation assumes that all income and capital gains dividends paid by the Fund
have been reinvested at net asset value on the reinvestment dates during the
period. Total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Total return calculations that do not
include the effect of the sales charge for Class A shares or the contingent
deferred sales charge for Class B or C shares or redemption fee for Class M
shares would be reduced if such charges were included.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in the Fund
during a specified period. Average annual total return will be quoted for at
least the one-, five- and ten-year periods ending on a recent calendar quarter
(or if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
The Fund's performance figures are based upon historical results and are
not representative of future performance. The Fund's Class A shares are sold at
net asset value plus a maximum sales charge of 5.75% of the offering price.
Class B and C shares are sold at net asset value. Redemption of Class B shares
may be subject to a contingent deferred sales charge that is 4% in the first
year following the purchase, declines by a specified percentage each year
thereafter and becomes zero after six years. Redemption of Class C shares may be
subject to a 1% contingent deferred sales charge in the first year following
purchase. Redemptions and exchanges of Class M shares (including redemptions
in-kind) will be subject to a 2% redemption fee. Average annual total return
figures do, and total return figures may, include the effect of the contingent
deferred sales charge for the Class B and C shares that may be imposed at the
end of the period in question and the applicable redemption fee imposed on Class
M shares. Performance figures for the Class B, C and M shares not including the
effect of the applicable contingent deferred sales charge or redemption fee
would be reduced if it were included. Returns and net asset value will
fluctuate. Factors affecting the Fund's performance include general market
conditions, operating expenses and investment management. Any additional fees
charged by a dealer or other financial services firm would reduce returns
described in this section. Shares of the Fund are redeemable at the then current
net asset value, which may be more or less than original cost.
The Fund's performance may be compared to that of [INSERT APPROPRIATE
INDICES] and may also be compared to the performance of other mutual funds or
mutual fund indexes with similar objectives and policies as reported by
independent mutual fund reporting services such as Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations are based upon changes in net
asset value with all dividends reinvested and do not include the effect of any
sales charges.
24
<PAGE> 49
Information may be quoted from publications such as Morningstar, Inc., The
Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago
Tribune, USA Today, Institutional Investor and Registered Representative.
Also, investors may want to compare the historical returns of various
investments, performance indexes of those investments or economic indicators,
including but not limited to stocks, bonds, certificates of deposit and other
bank products, money market funds and U.S. Treasury obligations. Bank product
performance may be based upon, among other things, the Bank Rate Monitor
National Index(TM) or various certificate of deposit indexes. Performance of
U.S. Treasury obligations may be based upon, among other things, various U.S.
Treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured. Economic indicators
may include, without limitation, indicators of market rate trends and cost of
funds, such as Federal Home Loan Bank Board 11th District Cost of Funds Index
("COFI").
Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, IBC/Donoghue's Money Fund Averages(R)
(All Taxable). As reported by IBC/Donoghue's, all investment results represent
total return (annualized results for the period net of management fees and
expenses) and one year investment results are effective annual yields assuming
reinvestment of dividends.
The Fund may depict the historical performance of the securities in which
the Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
The Fund's returns and net asset value will fluctuate and shares of the
Fund are redeemable by an investor at the then current net asset value, which
may be more or less than original cost. Redemption of Class B shares and Class C
shares may be subject to a contingent deferred sales charge as described above.
Redemption and exchanges of Class M shares (including redemptions in-kind) are
subject to a 2% fee as described above. Additional information about the Fund's
performance also appears in its Annual Report to Shareholders, which is
available without charge from the Fund.
The Fund converted to open-end status and combined, as the surviving
entity, with the Kemper Europe Fund, which was subsequently terminated, as of
, 1999 (the "Reorganization"). Prior to the Reorganization, the Fund
had only one class of shares which was renamed Class M shares upon the
Reorganization. The figures below show performance information prior to the
Reorganization for Class M shares over various periods. Class A, B and C shares
are newly offered and therefore have no available performance information. The
other share classes, however, would have substantially similar returns because
the shares are invested in the same portfolio securities and the annual returns
would differ only to the extent that Class A, B and C shares do not have the
same expenses. Comparative information with respect to certain indices is also
included. There are differences and similarities between the investments which
the Fund may purchase and the investments measured by the indices which are
described herein. [DESCRIBE RELEVANT INDICES]. The foregoing indices are
unmanaged. The net asset value and returns of the Fund will fluctuate. No
adjustment has been made for taxes payable on dividends. The periods indicated
were ones of fluctuating securities prices and interest rates.
[SCUDDER KEMPER TO PROVIDE PERFORMANCE FIGURES]
The following table compares the performance of the Class M shares of the
Fund over various periods with that of other mutual funds within the category
described below according to data reported by Lipper. Lipper performance figures
are based on changes in net asset value, with all income and capital gain
dividends reinvested. Such calculations do not include the effect of any sales
charges. Future performance cannot be guaranteed. Lipper publishes performance
analyses on a regular basis.
[SCUDDER KEMPER TO PROVIDE PERFORMANCE FIGURES]
25
<PAGE> 50
Again, the historical performance figures reflected above represent the
operations of the Fund in closed-end form. If the Fund had operated as an
open-end fund during those periods, the performance of the Fund would likely
have been different and possibly lower.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("the Adviser"), 345
Park Avenue, New York, New York, is the Fund's investment manager. The Adviser
is approximately 70% owned directly and indirectly by Zurich Financial Services,
a newly formed global insurance and financial services company. The balance of
the Adviser is owned by its officers and employees. Pursuant to an investment
management agreement, the Adviser acts as the Fund's investment adviser, manages
its investments, administers its business affairs, furnishes office facilities
and equipment, provides clerical and administrative services, and permits any of
its officers or employees to serve without compensation as directors or officers
of the Fund if elected to such positions. The investment management agreement
provides that the Fund shall pay the charges and expenses of its operations,
including the fees and expenses of the directors (except those who are
affiliated with officers or employees of the Adviser), independent auditors,
counsel, custodian and transfer agent and the cost of share certificates,
reports and notices to shareholders, brokerage commissions or transaction costs,
costs of calculating net asset value and maintaining all accounting records
related thereto, taxes and membership dues. The Fund bears the expenses of
registration of its shares with the SEC, while Kemper Distributors, Inc.
("KDI"), as principal underwriter, pays the cost of qualifying and maintaining
the qualification of the Fund's shares for sale under the securities laws of the
various states.
The investment management agreement provides that the Adviser shall not be
liable for any error of judgment or of law, or for any loss suffered by the Fund
in connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the agreement.
The Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually by a majority of
the directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of the Fund and by the
shareholders of the Fund subject thereto or the Board of Directors. The Fund's
investment management agreement may be terminated at any time upon 60 days'
notice by either party, or by a majority vote of the outstanding shares of the
Fund subject thereto, and will terminate automatically upon assignment.
Responsibility for overall management of the Fund rests with its Board of
Directors and officers. Professional investment supervision is provided by the
Adviser.
On December 31, 1997, pursuant to the terms of an agreement, Scudder,
Stevens & Clark, Inc. ("Scudder") and Zurich Insurance Company ("Zurich") formed
a new global organization by combining Scudder with Zurich Kemper Investments,
Inc., a former subsidiary of Zurich and the former investment manager to the
Fund, and Scudder changed its name to Scudder Kemper Investments, Inc. As a
result of the transaction, Zurich owned approximately 70% of the Adviser, with
the balance owned by the Adviser's officers and employees.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Adviser) and the financial services businesses of B.A.T.
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services, Inc. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board therefore approved a new investment management
agreement with the Adviser, which was substantially identical to the prior
investment management agreement of the Fund in closed-end form, except for the
date of execution and termination.
26
<PAGE> 51
This agreement became effective upon the termination of the then current
investment management agreement and was approved by shareholders at a special
meeting which concluded in December 1998.
A new investment management agreement was approved by the Board of
Directors and subsequently by the shareholders of the Fund at the annual meeting
held on July 20, 1999, in connection with the proposal to convert the Fund to
open-end status and to combine the Fund with the Kemper Europe Fund. This new
agreement reflects the implementation of lower advisory fees and other changes
to conform the agreement to those in place for other open-end funds in the
Kemper family of funds. A summary of the terms of the new agreement is provided
above.
The Fund pays Scudder Kemper an investment management fee, payable monthly,
at 1/12 of the annual rates shown below:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT
AVERAGE DAILY NET ASSETS OF THE FUND FEE RATES
- ------------------------------------ -----------------
<S> <C>
$0 - $250 million.......................................... 0.75%
$250 million - $1 billion.................................. 0.72
$1 billion - $2.5 billion.................................. 0.70
$2.5 billion - $5 billion.................................. 0.68
$5 billion - $7.5 billion.................................. 0.65
$7.5 billion - $10 billion................................. 0.64
$10 billion - $12.5 billion................................ 0.63
Over $12.5 billion......................................... 0.62
</TABLE>
The expenses of the Fund, and of other investment companies investing in
foreign securities, can be expected to be higher than for investment companies
investing primarily in domestic securities since the costs of operation are
higher, including custody and transaction costs for foreign securities and
investment management fees.
The investment management fees incurred by the Fund for its last three
fiscal years are shown in the table below. These fees are based on the Fund's
former fee schedule as a closed-end entity and are based on the Fund's average
weekly net assets. The investment management fees to be paid by the fund in
open-end form will be lower.
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
<S> <C> <C> <C>
</TABLE>
[SCUDDER KEMPER TO PROVIDE]
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, a subsidiary of the Adviser,
is responsible for determining the daily net asset value per share of the Fund
and maintaining all accounting records related thereto. As a closed-end
investment company, the Fund was not charged any fees for the services provided
by SFAC. As an open-end investment company, however, the Fund will incur an
annual accounting service fee that is based on the actual services provided, but
is expected to equal approximately .10% of the average daily net assets of the
Fund.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution
services agreements ("distribution agreement"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, an affiliate of
the Adviser, is the principal underwriter and distributor for the shares of the
Fund and acts as agent of the Fund in the continuous offering of its shares. KDI
bears all of its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. The Fund pays the cost for
the
27
<PAGE> 52
prospectus and shareholder reports to be set in type and printed for existing
shareholders, and KDI pays for the printing and distribution of copies thereof
used in connection with the offering of shares to prospective investors. KDI
also pays for supplementary sales literature and advertising costs.
The distribution agreement continues in effect from year to year so long as
such continuance is approved for each relevant class at least annually by a vote
of the Board of Directors of the Fund, including the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the agreement. The agreement automatically terminates in the event
of its assignment and may be terminated for a class at any time without penalty
by the Fund or by KDI upon 60 days' notice. Termination by the Fund with respect
to a class may be by vote of a majority of the Board of Directors, or a majority
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
1940 Act. The agreement may not be amended for a class to increase the fee to be
paid by the Fund with respect to such class without approval by a majority of
the outstanding voting securities of such class of the Fund and all material
amendments must in any event be approved by the Board of Directors in the manner
described above with respect to the continuation of the agreement. The
provisions concerning the continuation, amendment and termination of the
distribution agreement are on a class by class basis.
CLASS A SHARES. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreement not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of the Fund's shares.
CLASS B SHARES. For its services under the distribution agreement, KDI
receives a fee from the Fund under a Rule 12b-1 Plan, payable monthly, at the
annual rate of 0.75% of average daily net assets of the Fund attributable to
Class B shares. This fee is accrued daily as an expense of Class B shares. KDI
also receives any contingent deferred sales charges. See "Redemption or
Repurchase of Shares -- Contingent Deferred Sales Charge -- Class B Shares." KDI
currently compensates firms for sales of Class B shares at a commission rate of
3.75%.
CLASS C SHARES. For its services under the distribution agreement, KDI
receives a fee from the Fund under a Rule 12b-1 Plan, payable monthly, at the
annual rate of 0.75% of average daily net assets of the Fund attributable to
Class C shares. This fee is accrued daily as an expense of Class C shares. KDI
currently advances to firms the first year distribution fee at a rate of 0.75%
of the purchase price of Class C shares. For periods after the first year, KDI
currently pays firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of 0.75% of net assets attributable to Class C
shares maintained and serviced by the firm and the fee continues until
terminated by KDI or the Fund. KDI also receives any contingent deferred sales
charges. See "Redemption or Repurchase of Shares -- Contingent Deferred Sales
Charges -- Class C Shares".
CLASS M SHARES. KDI receives no compensation from the Fund as principal
underwriter for Class M shares.
CLASS B SHARES AND CLASS C SHARES. The Fund has adopted a plan under Rule
12b-1 of the Act (the "Plan") that provides for fees payable as an expense of
the Class B shares and Class C shares that are used by KDI to pay for
distribution and services for those classes. Because 12b-1 fees are paid out of
Fund assets on an ongoing basis, they will, over time, increase the cost of an
investment and cost more than other types of sales charges.
If the Plan is terminated in accordance with its terms, the obligation of
the Fund to make payments to KDI pursuant to the Plan will cease and the Fund
will not be required to make any payments past the termination date. Thus, there
is no legal obligation for the Fund to pay any expenses incurred by KDI in
excess of its fees under a Plan, if for any reason the Plan is terminated in
accordance with its terms. Future fees under a Plan may or may not be sufficient
to reimburse KDI for its expenses incurred.
28
<PAGE> 53
ADMINISTRATIVE SERVICES. Administrative services are provided to the Fund
under an administrative services agreement ("administrative agreement") with
KDI. KDI bears all its expenses of providing services pursuant to the
administrative agreement between KDI and the Fund, including the payment of
service fees. For the services under the administrative agreement, the Fund pays
KDI an administrative services fee, payable monthly, at the annual rate of up to
0.25% of average daily net assets of Class A, B, C and M shares of the Fund.
KDI enters into related arrangements with various broker-dealers and other
service or administrative firms ("firms"), that provide services and facilities
for their customers or clients who are investors of the Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Fund, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. With respect to Class A and
Class M shares, KDI pays each firm a service fee, normally payable quarterly, at
an annual rate of up to 0.25% (calculated monthly and normally paid quarterly)
of the net assets attributable to Class A shares maintained and serviced by the
firm and the fee continues until terminated by KDI and the Fund. With respect to
Class B shares and Class C shares, KDI currently advances to firms the first
year service fee at a rate of up to 0.25% of the purchase price of such shares.
For periods after the first year, KDI currently intends to pay firms a service
fee at an annual rate of up to 0.25% (calculated monthly and normally paid
quarterly) of the net assets attributable to Class B and Class C shares
maintained and serviced by the firm and the fee continues until terminated by
KDI or the Fund. Firms to which service fees may be paid include broker-dealers
affiliated with KDI.
Prior to the date of this Statement of Additional Information, the Fund has
not paid any administrative services fees.
KDI also may provide some of the above services and may retain any portion
of the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of the Fund while this
procedure is in effect will depend upon the proportion of Fund assets that is in
accounts for which there is a firm of record. The Board of Directors of the
Fund, in its discretion, may approve basing the fee to KDI on all Fund assets in
the future.
Certain Directors or officers of the Fund are also directors or officers of
the Adviser, or KDI as indicated under "Officers and Directors."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Brown Brothers
Harriman & Co. (the "Custodian"), 40 Water Street, Boston, Massachusetts 02109,
has custody of all securities and cash of the Fund. The Custodian attends to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by the Fund. Investors Fiduciary Trust Company
("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, is the Fund's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSvC"), an affiliate of the Adviser, serves as
"Shareholder Service Agent" of the Fund and, as such, performs all of IFTC's
duties as transfer agent and dividend paying agent. IFTC receives as transfer
agent, and pays to KSvC, annual account fees of $10.00 ($18.00 for retirement
accounts) plus set up charges, annual fees associated with the contingent
deferred sales charge (Class B only), an asset-based fee of 0.08% and
out-of-pocket reimbursement. IFTC's fee is reduced by certain earnings credits
in favor of the Fund.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders
29
<PAGE> 54
will receive annual audited financial statements and semi-annual unaudited
financial statements. Prior to July 20, 1999, PricewaterhouseCoopers LLP served
as independent auditors to the Fund.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle
Street, Chicago, Illinois 60601, serves as legal counsel to the Fund.
PORTFOLIO TRANSACTIONS
BROKERAGE
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase and
sale of securities for the Fund's portfolio is to obtain the most favorable net
results taking into account such factors as price, commission where applicable,
size of order, difficulty of execution and skill required of the executing
broker/ dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
KDI with commissions charged on comparable transactions, as well as by comparing
commissions paid by the Fund to reported commissions paid by others. The Adviser
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction solely on account of the receipt of research,
market or statistical information. The Adviser may place orders with
broker/dealers on the basis that the broker/dealer has or has not sold shares of
the Fund. In effecting transactions in OTC securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of the
Adviser. SIS will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Funds and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Board members review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
30
<PAGE> 55
The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective.
The table below shows total brokerage commissions paid by the Fund for the
last three fiscal periods and for the most recent fiscal year, the percentage
thereof that was allocated to firms based upon research information provided.
<TABLE>
<CAPTION>
ALLOCATED TO
FIRMS BASED ON
RESEARCH IN
FISCAL 1998 FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
</TABLE>
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase and do not convert into another class. Class M shares
represent the initial class of shares of the Fund and are no longer offered.
Class M shares are subject to a 2% fee on exchanges and redemptions (including
redemptions in-kind). Class M Shares expire one year from the date of this
Statement of Additional Information. When placing purchase orders, investors
must specify whether the order is for Class A, Class B or Class C shares.
The primary distinctions among the classes of the Fund's shares lie in
their initial and contingent deferred sales charge structures and in their
ongoing expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
31
<PAGE> 56
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
SALES CHARGE DAILY NET ASSETS) OTHER INFORMATION
------------ ------------------ -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived or
5.75% of the public offering reduced for certain purchases
price
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A shares
charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first
year after purchase
Class M None None Subject to 2% fee on all
redemptions (including
redemptions in-kind) and
exchanges; all "large" redemption
requests (i.e., $250,000 or
greater) will be redeemed
in-kind; Class M shares will
convert into Class A shares of
the Fund one year from the date
of this Statement of Additional
Information
</TABLE>
The minimum initial investment for the Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an IRA is $250
and the minimum subsequent investment is $50. Under an automatic investment
plan, such as Bank Direct Deposit, Payroll Direct Deposit or Government Direct
Deposit, the minimum initial and subsequent investment is $50. These minimum
amounts may be changed at any time in management's discretion.
Share certificates will not be issued unless requested in writing and may
not be available for certain types of account registrations. It is recommended
that investors not request share certificates unless needed for a specific
purpose. You cannot redeem shares by telephone or wire transfer or use the
telephone exchange privilege if share certificates have been issued. A lost or
destroyed certificate is difficult to replace and can be expensive to the
shareholder (a bond worth 2% or more of the certificate value is normally
required).
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The public offering
price of Class A shares for purchasers of the Fund choosing the initial sales
charge alternative is the net asset value plus a sales charge, as set forth
below.
SALES CHARGE
<TABLE>
<CAPTION>
ALLOWED TO
DEALERS AS A
AS A PERCENTAGE OF AS A PERCENTAGE OF PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE NET ASSET VALUE* OFFERING PRICE
- ------------------ ------------------ ------------------ --------------
<S> <C> <C> <C>
Less than $50,000............................ 5.75% 6.10% 5.20%
$50,000 but less than $100,000............... 4.50 4.71 4.00
$100,000 but less than $250,000.............. 3.50 3.63 3.00
$250,000 but less than $500,000.............. 2.60 2.67 2.25
$500,000 but less than $1 million............ 2.00 2.04 1.75
$1 million and over.......................... 0.00** 0.00** ***
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by KDI as discussed below.
The Fund receives the entire net asset value of all Class A shares sold.
KDI, the Fund's principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the
32
<PAGE> 57
applicable public offering price to investment dealers, which discounts are
uniform for all dealers in the United States and its territories. The normal
discount allowed to dealers is set forth in the above table. Upon notice to all
dealers with whom it has sales agreements, KDI may reallow up to the full
applicable sales charge, as shown in the above table, during periods and for
transactions specified in such notice and such reallowances may be based upon
attainment of minimum sales levels. During periods when 90% or more of the sales
charge is reallowed, such dealers may be deemed to be underwriters as that term
is defined in the 1933 Act.
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in the Fund or other Kemper Mutual
Funds listed under "Special Features -- Class A Shares -- Combined Purchases"
totals at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district provided in each case
that such plan has not less than 200 eligible employees (the "Large Order NAV
Purchase Privilege"). Redemption within two years of shares purchased under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred sales
charge. See "Redemption or Repurchase of Shares -- Contingent Deferred Sales
Charge -- Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through KSvC. For purposes of determining the appropriate commission percentage
to be applied to a particular sale, KDI will consider the cumulative amount
invested by the purchaser in the Fund and other Kemper Mutual Funds listed under
"Special Features -- Class A Shares -- Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above. The privilege of purchasing Class A shares
of the Fund at net asset value under the Large Order NAV Purchase Privilege is
not available if another net asset value purchase privilege also applies.
Class A shares of the Fund or any other Kemper Mutual Fund listed under
"Special Features -- Class A Shares -- Combined Purchases" may be purchased at
net asset value in any amount by members of the plaintiff class in the
proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et al., Case No. 93 C 5231 (N.D.Il). This privilege is
generally non-transferable and continues for the lifetime of individual class
members and for a ten year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 0.25% of net assets attributable to such
shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts attributable to shares purchased under
this privilege in the month after the month of purchase and the concession
continues until terminated by KDI. The privilege of purchasing Class A shares of
the Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.
Class A shares may be sold at net asset value in any amount to: (a)
officers, directors, trustees, employees (including retirees) and sales
representatives of the Fund, its Adviser, its principal underwriter or certain
affiliated companies, for themselves or members of their families; (b)
registered representatives and employees of broker-dealers having selling group
agreements with KDI and officers, directors and employees
33
<PAGE> 58
of service agents of the Fund, for themselves or their spouses or dependent
children; (c) shareholders who owned shares of Kemper Value Series, Inc. ("KVS")
on September 8, 1995, and have continuously owned shares of KVS (or a Kemper
Fund acquired by exchange of KVS shares) since that date, for themselves or
members of their families; and (d) any trust or pension, profit sharing or other
benefit plan for only such persons. Class A shares may be sold at net asset
value in any amount to selected employees (including their spouses and dependent
children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may also be sold at net asset value in any amount to unit
investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase Fund Class A shares at net asset value through
reinvestment programs described herein of such trusts that have such programs.
Class A shares of the Fund may be sold at net asset value through certain
investment advisers registered under the 1940 Act and other financial services
firms acting solely as agents for their clients, that adhere to certain
standards established by KDI, including a requirement that such shares be sold
for the benefit of their clients participating in an investment advisory program
or agency commission program under which such clients pay a fee to the
investment adviser or other firm for portfolio management or agency brokerage
services. Such shares are sold for investment purposes and on the condition that
they will not be resold except through redemption or repurchase by the Fund. The
Fund may also issue Class A shares at net asset value in connection with the
acquisition of the assets of or merger or consolidation with another investment
company, or to shareholders in connection with the investment or reinvestment of
income and capital gain dividends.
Class A shares of the Fund may be purchased at net asset value by persons
who purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of the Fund may be purchased at net asset value in any
amount by certain professionals who assist in the promotion of Kemper Funds
pursuant to personal services contracts with KDI, for themselves or members of
their families. KDI in its discretion may compensate financial services firms
for sales of Class A shares under this privilege at a commission rate of 0.50%
of the amount of Class A shares purchased.
Class A shares of the Fund may be purchased at net asset value by persons
who purchase shares of the Fund through KDI as part of an automated billing and
wage deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Investors choosing
the deferred sales charge alternative may purchase Class B shares at net asset
value per share without any sales charge at the time of purchase. Since Class B
shares are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class B Shares."
34
<PAGE> 59
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of
the Fund six years after issuance on the basis of the relative net asset value
per share. The purpose of the conversion feature is to relieve holders of Class
B shares from the distribution services fee when they have been outstanding long
enough for KDI to have been compensated for distribution related expenses. For
purposes of conversion to Class A shares, shares purchased through the
reinvestment of dividends and other distributions paid with respect to Class B
shares in a shareholder's Fund account will be converted to Class A shares on a
pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C
shares of the Fund is the next determined net asset value. No initial sales
charge is imposed. Since Class C shares are sold without an initial sales
charge, the full amount of the investor's purchase payment will be invested in
Class C shares for his or her account. A contingent deferred sales charge may be
imposed upon the redemption of Class C shares if they are redeemed within one
year of purchase. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class C Shares." KDI currently advances to firms the first year
distribution fee at the rate of 0.75% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms for sales of
Class C shares a distribution fee, payable quarterly, at an annual rate of 0.75%
of net assets attributable to Class C shares maintained and serviced by the
firm. KDI is compensated by the Fund for services as distributor and principal
underwriter for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of
shares provides a more suitable investment for an investor depends on a number
of factors, including the amount and intended length of the investment.
Investors making investments that qualify for reduced sales charges might
consider Class A shares. Investors who prefer not to pay an initial sales charge
and who plan to hold their investment for more than six years might consider
Class B shares. Investors who prefer not to pay an initial sales charge but who
plan to redeem their shares within six years might consider Class C shares.
Orders for Class B shares or Class C shares for $500,000 or more will be
declined. Orders for Class B shares or Class C shares by employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the KSvC will be invested instead in Class A shares at net asset value
where the combined subaccount value in the Fund or other Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" is in
excess of $5 million including purchases pursuant to the "Combined Purchases,"
"Letter of Intent" and "Cumulative Discount" features described under "Special
Features." For more information about the above sales arrangements, consult your
financial representative or the KSvC. Financial services firms may receive
different compensation depending upon which class of shares they sell.
GENERAL. Banks and other financial services firms may provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients, and KDI may pay them a
transaction fee up to the level of the discount or commission allowable or
payable to dealers as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
Banks or other financial services firms may be subject to various state laws
regarding the services described above and may be required to register as
dealers pursuant to state law. If banking firms were prohibited from acting in
any capacity or providing any of the described services, management would
consider what action, if any, would be appropriate. KDI does not believe that
termination of a relationship with a bank would result in any material adverse
consequences to the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the
amount of shares of the Fund sold by the firm under the following conditions:
(i) the purchased shares are held in a Kemper IRA account, (ii) the shares are
purchased as a direct "roll over" of a distribution from a qualified retirement
plan account maintained on a participant subaccount record keeping system
provided by KSvC, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in
35
<PAGE> 60
acknowledgment of their dedication to the employee benefit plan area and (iv)
the purchase is not otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from
time to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash to firms that sell shares of the Fund. In some
instances, such discounts, commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Fund or other funds underwritten by
KDI.
Orders for the purchase of shares of the Fund will be confirmed at a price
based on the net asset value of the Fund next determined after receipt by KDI of
the order accompanied by payment. However, orders received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of its business day will be confirmed at a
price based on the net asset value effective on that day ("trade date"). The
Fund reserves the right to determine the net asset value more frequently than
once a day if deemed desirable. Dealers and other financial services firms are
obligated to transmit orders promptly. Collection may take significantly longer
for a check drawn on a foreign bank than for a check drawn on a domestic bank.
Therefore, if an order is accompanied by a check drawn on a foreign bank, funds
must normally be collected before shares will be purchased.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase, repurchase and redemption of shares or the
reinvestment of dividends may not be available through such firms. Some firms
may participate in a program allowing them access to their clients' accounts for
servicing including, without limitation, transfers of registration and dividend
payee changes; and may perform functions such as generation of confirmation
statements and disbursement of cash dividends. Such firms, including affiliates
of KDI, may receive compensation from the Fund through the Shareholder Service
Agent for these services.
The Fund reserves the right to withdraw all or any part of the offering
made by the prospectus and this statement of additional information and to
reject purchase orders. Also, from time to time, the Fund may temporarily
suspend the offering of any class of its shares to new investors. During the
period of such suspension, persons who are already shareholders of such class of
the Fund normally are permitted to continue to purchase additional shares of
such class and to have dividends reinvested.
Shareholders should direct their inquiries to KSvC, 811 Main Street, Kansas
City, Missouri 64105-2005 or to the firm from which they received this statement
of additional information.
As described herein, Fund shares are sold at their public offering price,
which is the net asset value next determined after an order is received in
proper form plus, with respect to Class A shares, an initial sales charge. The
minimum initial investment is $1,000 and the minimum subsequent investment is
$100 but such minimum amounts may be changed at any time. An order for the
purchase of shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed unless and until the Fund determines that
it has received payment of the proceeds of the check. The time required for such
a determination will vary and cannot be determined in advance. The amount
received by a shareholder upon redemption or repurchase may be more or less than
the amount paid for such shares depending on the market value of the Fund's
portfolio securities at the time.
36
<PAGE> 61
The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than KDI to accept purchase and
redemption orders for the Fund's shares. Those brokers may also designate other
parties to accept purchase and redemption orders on the Fund's behalf. Orders
for purchase or redemption will be deemed to have been received by the Fund when
such brokers or their authorized designees accept the orders. Subject to the
terms of the contract between the Fund and the broker, ordinarily orders will be
priced as the Fund's net asset value next computed after acceptance by such
brokers or their authorized designees. Further, if purchases or redemptions of
the Fund's shares are arranged and settlement is made at an investor's election
through any other authorized NASD member, that member may, at its discretion,
charge a fee for that service. The Board of Directors of the Fund and KDI each
has the right to limit the amount of purchases by, and to refuse to sell to, any
person. The Board and KDI may suspend or terminate the offering of shares of the
Fund at any time for any reason.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require the Fund to redeem his or her shares.
When shares are held for the account of a shareholder by the Fund's transfer
agent, the shareholder may redeem them by sending a written request with
signatures guaranteed to Kemper Mutual Funds, Attention: Redemption Department,
P.O. Box 419557, Kansas City, Missouri 64141-6557. When certificates for shares
have been issued, they must be mailed to or deposited with the Shareholder
Service Agent, along with a duly endorsed stock power and accompanied by a
written request for redemption. Redemption requests and a stock power must be
endorsed by the account holder with signatures guaranteed by a commercial bank,
trust company, savings and loan association, federal savings bank, member firm
of a national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
The redemption price for shares of the Fund will be the net asset value per
share of the Fund next determined following receipt by the Shareholder Service
Agent of a properly executed request with any required documents as described
above. Payment for shares redeemed will be made in cash as promptly as
practicable but in no event later than seven days after receipt of a properly
executed request accompanied by any outstanding share certificates in proper
form for transfer. When the Fund is asked to redeem shares for which it may not
have yet received good payment (i.e., purchases by check, EXPRESS-Transfer or
Bank Direct Deposit), it may delay transmittal of redemption proceeds until it
has determined that collected funds have been received for the purchase of such
shares, which will be up to 10 days from receipt by the Fund of the purchase
amount. The redemption within two years of Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales charge (see "Purchase of Shares -- Initial Sales
Charge Alternative -- Class A Shares") and the redemption of Class B shares
within six years may be subject to a contingent deferred sales charge (see
"Contingent Deferred Sales Charge -- Class B Shares" below) and the redemption
of Class C shares within the first year following purchase may be subject to a
contingent deferred sales charge (see "Contingent Deferred Sales Charge -- Class
C Shares" below).
Upon the redemption or exchange of Class M shares of the Fund (including
redemptions in-kind), a fee of 2% of the current net asset value of the shares
will be assessed and retained by the Fund for the benefit of the remaining
shareholders. This fee is intended to discourage short term trading in a vehicle
intended for long term investment. The fee is not a deferred sales charge, is
not a commission paid to the investment manager or its subsidiaries, and does
not benefit the investment manager in any way. The Fund reserves the right to
modify the terms of or terminate this fee at any time. The 2% fee applies to
redemptions from the Fund and exchanges to other Kemper Mutual Funds by Class M
shareholders, but not to dividend or capital gains distributions which have been
automatically reinvested in the Fund. The fee is applied to the shares being
redeemed or exchanged in the order in which they were purchased.
37
<PAGE> 62
Because of the high cost of maintaining small accounts, the Fund may assess
a quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
IRAs or employer sponsored employee benefit plans using the subaccount record
keeping system made available through the Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephone instructions are genuine. THE SHAREHOLDER WILL BEAR THE RISK OF LOSS
including loss resulting from fraudulent or unauthorized transactions, so long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge or applicable redemption fee)
are $50,000 or less and the proceeds are payable to the shareholder of record at
the address of record, normally a telephone request or a written request by any
one account holder without a signature guarantee is sufficient for redemptions
by individual or joint account holders, and trust, executor, guardian and
custodial account holders provided the trustee, executor, or guardian or
custodian is named in the account registration. Other institutional account
holders may exercise this special privilege of redeeming shares by telephone
request or written request without signature guarantee subject to the same
conditions as individual account holders and subject to the limitations on
liability described under "General" above, provided that this privilege has been
pre-authorized by the institutional account holder or guardian account holder by
written instruction to the Shareholder Service Agent with signatures guaranteed.
Telephone requests may be made by calling 1-800-621-1048. Shares purchased by
check or through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed
under this privilege of redeeming shares by telephone request until such shares
have been owned for at least 10 days. This privilege of redeeming shares by
telephone request or by written request without a signature guarantee may not be
used to redeem shares held in certificated form and may not be used if the
shareholder's account has had an address change within 30 days of the redemption
request. During periods when it is difficult to contact the Shareholder Service
Agent by telephone, it may be difficult to use the telephone redemption
privilege, although investors can still redeem by mail. The Fund reserves the
right to terminate or modify this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by KDI.
However, requests for repurchases received by dealers or other firms prior to
the determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value effective on
that day and normally the proceeds will be sent to the designated account the
following business day. Delivery of the proceeds of a wire redemption request of
$250,000 or more may be delayed by the Fund for up to seven days if Scudder
Kemper deems it appropriate under then current
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<PAGE> 63
market conditions. Once authorization is on file, the Shareholder Service Agent
will honor requests by telephone at 1-800-621-1048 or in writing, subject to the
limitations on liability described under "General" above. The Fund is not
responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. The Fund currently does not charge the
account holder for wire transfers. The account holder is responsible for any
charges imposed by the account holder's firm or bank. There is a $1,000 wire
redemption minimum (including any contingent deferred sales charge or redemption
fee). To change the designated account to receive wire redemption proceeds, send
a written request to the Shareholder Service Agent with signatures guaranteed as
described above or contact the firm through which shares of the Fund were
purchased. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be redeemed by wire transfer until such shares have been owned
for at least 10 days. Account holders may not use this privilege to redeem
shares held in certificated form. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
expedited wire transfer redemption privilege. The Fund reserves the right to
terminate or modify this privilege at any time.
CONTINGENT DEFERRED SALES CHARGE -- LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon the redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent or its affiliates;
(c) redemption of shares of a shareholder (including a registered joint owner)
who has died; (d) redemption of shares of a shareholder (including a registered
joint owner) who after purchase of the shares being redeemed becomes totally
disabled (as evidenced by a determination by the federal Social Security
Administration); (e) redemptions under the Fund's Systematic Withdrawal Plan at
a maximum of 10% per year of the net asset value of the account; and (f)
redemptions of shares whose dealer of record at the time of the investment
notifies KDI that the dealer waives the commission applicable to such Large
Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES. A contingent deferred
sales charge may be imposed upon redemption of Class B shares. There is no such
charge upon redemption of any share appreciation or reinvested dividends on
Class B shares. The charge is computed at the following rates applied to the
value of the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE
- --------------------------------- -------------------
<S> <C>
First....................................................... 4%
Second...................................................... 3%
Third....................................................... 3%
Fourth...................................................... 2%
Fifth....................................................... 2%
Sixth....................................................... 1%
</TABLE>
The contingent deferred sales charge will be waived: (a) in the event of
the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features -- Systematic Withdrawal Plan" below), (d) for redemptions made
pursuant to any IRA systematic withdrawal based on the shareholder's life
expectancy including, but not limited to, substantially equal periodic payments
described in Code Section 72(t)(2)(A)(iv) prior to age 59 1/2
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<PAGE> 64
and (e) for, redemptions to satisfy required minimum distributions after age
70 1/2 from an IRA account (with the maximum amount subject to this waiver being
based only upon the shareholder's Kemper IRA accounts). The contingent deferred
sales charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in the Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Code and (d)
redemptions representing returns of excess contributions to such plans.
CONTINGENT DEFERRED SALES CHARGE -- CLASS C SHARES. A contingent deferred
sales charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features -- Systematic Withdrawal Plan"), (d) for redemptions made pursuant to
any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service Agent
and (g) redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to Kemper Funds and whose dealer of record has waived
the advance of the first year administrative service and distribution fees
applicable to such shares and agrees to receive such fees quarterly.
CONTINGENT DEFERRED SALES CHARGE -- GENERAL. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of the Fund's Class B shares and
that 16 months later the value of the shares has grown by $1,000 through
reinvested dividends and by an additional $1,000 in appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the
length of the period of ownership. Investments are tracked on a monthly basis.
The period of ownership for this purpose begins the first day of the month in
which the order for the investment is received. For example, an investment made
in March 1999 will be eligible for the second year's charge if redeemed on or
after March 1, 2000. In the event no specific order is requested, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of
the Fund or any other Kemper Mutual Fund listed under "Special Features -- Class
A Shares -- Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
the Fund or of the other listed Kemper Mutual Funds. A shareholder of the Fund
or any other Kemper Mutual Fund who redeems Class A shares purchased under the
Large Order NAV Purchase Privilege (see "Purchase of Shares -- Initial Sales
Charge Alternative -- Class A Shares"), Class B shares or Class C shares and
incurs a contingent deferred sales charge may reinvest up to the full amount
redeemed at net asset value at the time of
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<PAGE> 65
the reinvestment in Class A shares, Class B shares or Class C shares, as the
case may be, of the Fund or of other Kemper Mutual Funds. The amount of any
contingent deferred sales charge also will be reinvested. These reinvested
shares will retain their original cost and purchase date for purposes of the
contingent deferred sales charge. Also, a holder of Class B shares who has
redeemed shares may reinvest up to the full amount redeemed, less any applicable
contingent deferred sales charge that may have been imposed upon the redemption
of such shares, at net asset value in Class A shares of the Fund or of the other
Kemper Mutual Funds listed under "Special Features -- Class A Shares -- Combined
Purchases." Purchases through the reinvestment privilege are subject to the
minimum investment requirements applicable to the shares being purchased and may
only be made for Kemper Mutual Funds available for sale in the shareholder's
state of residence as listed under "Special Features -- Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of Fund shares, the reinvestment in the same Fund may
be subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinvestment privilege may be terminated or modified at any
time.
REDEMPTION IN-KIND. The Fund has adopted the following redemption policy
in an attempt to avoid the imposition of adverse tax consequences on remaining
shareholders that may be caused by certain large-scale redemptions. In
conformity with Rule 18f-1 under the 1940 Act, the Fund reserves the right to
redeem its shares, with respect to any one shareholder during any 90-day period,
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund at the beginning of the period. As an operating policy, the Fund reserves
the right to satisfy redemption requests in excess of such amount by
distributing portfolio securities in lieu of cash. This policy may be modified
or terminated at any time by the Board of Directors. As to Class M shareholders,
the Fund will honor any request for a large redemption (i.e., redemptions
exceeding $250,000) by making payment in whole or in part in readily marketable
securities. Any securities distributed in-kind would be valued in accordance
with the Fund's policies used to determine net asset value, and would be
selected pursuant to procedures adopted by the Board of Directors to help ensure
that such redemptions are effected in a manner that is fair and equitable to all
shareholders. The redeeming shareholder will bear the risk of fluctuations in
value of the in-kind redemption proceeds after the trade date for the
redemption. Shareholders who receive portfolio securities in redemption of Fund
shares will be required to make arrangements for the transfer of custody of such
securities to the shareholder's account and must communicate relevant custody
information to the Fund prior to the effectiveness of a redemption request.
Redemption requests subject to the Fund's redemption in-kind policy will not be
considered in good order unless such information is provided. As discussed
below, a redeeming shareholder will bear all costs associated with the in-kind
distribution of portfolio securities. Shareholders receiving securities in-kind
may, when selling them, receive less than the redemption value of such
securities and would also incur certain transaction costs. Such a redemption
would not be as liquid as a redemption entirely in cash.
Redeeming shareholders will bear any costs of delivery and transfer of the
portfolio securities received in an in-kind redemption (generally, certain
transfer taxes and custodial expenses), and such costs will be deducted from
their redemption proceeds. Redeeming shareholders will also bear the costs of
re-registering the securities, as the securities delivered will be registered in
the Fund's name or the nominee names of the Fund's custodians. The actual per
share expenses for redeeming shareholders of effecting an in-kind redemption and
of any subsequent liquidation by the shareholder of the portfolio securities
received will depend on a number of factors, including the number of shares
redeemed, the Fund's portfolio composition at the time and market conditions
prevailing during the liquidation process. The Fund gives no assurances of such
expenses, and shareholders whose redemptions are effected in-kind may bear
expenses in excess of 1% of the net asset value of the shares of the Fund
redeemed. These expenses are in addition to any applicable redemption fee or
contingent deferred sales charge.
The Fund has received an exemptive order from the SEC to permit in-kind
redemption transactions to be effected by shareholders who may be deemed to be
affiliated with the Fund because they own 5% or more of the Fund's outstanding
voting securities.
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<PAGE> 66
SPECIAL FEATURES
CLASS A SHARES -- COMBINED PURCHASES. The Fund's Class A shares may be
purchased at the rate applicable to the discount bracket attained by combining
concurrent investments in Class A shares of any of the following funds: Kemper
Technology Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small
Capitalization Equity Fund, Kemper Income and Capital Preservation Fund, Kemper
Municipal Bond Fund, Kemper Strategic Income Fund, Kemper High Yield Series,
Kemper U.S. Government Securities Fund, Kemper International Fund, Kemper State
Tax-Free Income Series, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value Series,
Inc., Kemper Value Plus Growth Fund, Kemper Horizon Fund, Kemper Europe Fund,
Inc., Kemper Asian Growth Fund, Kemper Aggressive Growth Fund, Kemper
Global/International Series, Inc., Kemper Equity Trust, Kemper Income Trust,
Kemper Funds Trust and Kemper Securities Trust ("Kemper Mutual Funds"). Except
as noted below, there is no combined purchase credit for direct purchases of
shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California Money
Market Fund, Cash Account Trust, Investors Municipal Cash Fund or Investors Cash
Trust ("Money Market Funds"), which are not considered "Kemper Mutual Funds" for
purposes hereof. For purposes of the Combined Purchases feature described above
as well as for the Letter of Intent and Cumulative Discount features described
below, employer sponsored employee benefit plans using the subaccount record
keeping system made available through the Shareholder Service Agent may include:
(a) Money Market Funds as "Kemper Mutual Funds", (b) all classes of shares of
any Kemper Mutual Fund and (c) the value of any other plan investments, such as
guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.
CLASS A SHARES -- LETTER OF INTENT. The same reduced sales charges for
Class A shares, as shown in the applicable prospectus, also apply to the
aggregate amount of purchases of such Kemper Mutual Funds listed above made by
any purchaser within a 24-month period under a written Letter of Intent
("Letter") provided by KDI. The Letter, which imposes no obligation to purchase
or sell additional Class A shares, provides for a price adjustment depending
upon the actual amount purchased within such period. The Letter provides that
the first purchase following execution of the Letter must be at least 5% of the
amount of the intended purchase, and that 5% of the amount of the intended
purchase normally will be held in escrow in the form of shares pending
completion of the intended purchase. If the total investments under the Letter
are less than the intended amount and thereby qualify only for a higher sales
charge than actually paid, the appropriate number of escrowed shares are
redeemed and the proceeds used toward satisfaction of the obligation to pay the
increased sales charge. The Letter for an employer sponsored employee benefit
plan maintained on the subaccount record keeping system available through the
Shareholder Service Agent may have special provisions regarding payment of any
increased sales charge resulting from a failure to complete the intended
purchase under the Letter. A shareholder may include the value (at the maximum
offering price) of all shares of such Kemper Mutual Funds held of record as of
the initial purchase date under the Letter as an "accumulation credit" toward
the completion of the Letter, but no price adjustment will be made on such
shares. Only investments in Class A shares of a Fund are included for this
privilege.
CLASS A SHARES -- CUMULATIVE DISCOUNT. The Fund's Class A shares also may
be purchased at the rate applicable to the discount bracket attained by adding
to the cost of Fund shares being purchased the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES -- AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares
may exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
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<PAGE> 67
Shareholders of Class M shares may also exchange their shares for Class A shares
of other Kemper Mutual Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of
the Money Market Funds listed under "Special Features -- Class A
Shares -- Combined Purchases" above may be exchanged for each other at their
relative net asset values. Shares of Money Market Funds and Kemper Cash Reserves
Fund that were acquired by purchase (not including shares acquired by dividend
reinvestment) are subject to the applicable sales charge on exchange. Series of
Kemper Target Equity Fund are available on exchange only during the offering
period for such series as described in the applicable prospectus or statement of
additional information. Cash Equivalent Fund, Tax-Exempt California Money Market
Fund, Cash Account Trust, Investors Municipal Cash Fund and Investors Cash Trust
are available on exchange but only through a financial services firm having a
services agreement with KDI.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Mutual Fund or a
Money Market Fund under the exchange privilege described above without paying
any contingent deferred sales charge at the time of exchange. If the Class A
shares received on exchange are redeemed thereafter, a contingent deferred sales
charge may be imposed in accordance with the foregoing requirements provided
that the shares redeemed will retain their original cost and purchase date for
purposes of the contingent deferred sales charge.
CLASS B SHARES. Class B shares of the Fund and Class B shares of any other
Kemper Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class B shares may be exchanged without any contingent deferred sales charge
being imposed at the time of exchange. For purposes of the contingent deferred
sales charge that may be imposed upon the redemption of the Class B shares
received on exchange, amounts exchanged retain their original cost and purchase
date.
CLASS C SHARES. Class C shares of the Fund and Class C shares of any other
Kemper Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class C shares may be exchanged without a contingent deferred sales charge being
imposed at the time of exchange. For determining whether there is a contingent
deferred sales charge that may be imposed upon the redemption of the Class C
shares received by exchange, the cost and purchase date of the shares that were
originally purchased and exchanged are retained.
CLASS M SHARES. Class M shares of the Fund may be exchanged for Class A
Shares of any other Kemper Mutual Fund listed under "Special Features -- Class A
Shares -- Combined Purchases", subject to 2% fee. Class M shareholders may not
exchange shares in an amount that would trigger an in-kind redemption (see
above).
GENERAL. Shares of a Kemper Mutual Fund with a value in excess of
$1,000,000 or less (except Kemper Cash Reserves Fund) acquired by exchange from
another Kemper Mutual Fund, or from a Money Market Fund, may not be exchanged
thereafter until they have been owned for 15 days (the "15-Day Hold Period").
The Fund reserves the right to invoke the 15-Day Hold Policy for exchanges of
$1,000,000 or less if, in the investment manager's judgment, the exchange
activity may have an adverse effect on the Fund. In particular, a pattern of
exchanges that coincides with a "market timing" strategy may be disruptive to
the Fund and therefor may be subject to the 15-Day Hold Policy.
For purposes of determining whether the 15 Day Hold Policy applies to a
particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, direction or advice, including without limitation, accounts
administered by a financial services firm offering market timing, asset
allocation or similar services. The total value of shares being exchanged must
at least equal the minimum investment requirement of the Kemper Fund into which
they are being exchanged. Exchanges are made based on relative dollar values of
the shares involved in the exchange. There is no service fee for an exchange;
however, dealers or other firms may charge for their services in effecting
exchange transactions. Exchanges will be effected by redemption of shares of the
fund held and purchase of shares of the other fund. For federal income tax
purposes, any such exchange constitutes
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<PAGE> 68
a sale upon which a gain or loss may be realized, depending upon whether the
value of the shares being exchanged is more or less than the shareholder's
adjusted cost basis of such shares. Shareholders interested in exercising the
exchange privilege may obtain prospectuses of the other funds from dealers,
other firms or KDI. Exchanges may be accomplished by a written request to KSvC,
Attention: Exchange Department, P.O. Box 419557, Kansas City, Missouri
64141-6557, or by telephone if the shareholder has given authorization. Once the
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048, subject to the limitations on liability under
"Redemption or Repurchase of Shares -- General." Any share certificates must be
deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to implement the telephone exchange privilege. The exchange privilege
is not a right and may be suspended, terminated or modified at any time.
Exchanges may only be made for Kemper Funds that are eligible for sale in the
shareholder's state of residence. Currently Tax-Exempt California Money Market
Fund is available for sale only in California and the portfolios of Investors
Municipal Cash Fund are available for sale only in certain states.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of
the shares of a Kemper Mutual Fund or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another such Kemper Fund. If selected, exchanges
will be made automatically until the privilege is terminated by the shareholder
or the other Kemper Fund. Exchanges are subject to the terms and conditions
described above under "Exchange Privilege," except that the $1,000 minimum
investment requirement for the Kemper Fund acquired on exchange is not
applicable. This privilege may not be used for the exchange of shares held in
certificated form.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $5,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from ANY PERSON to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares -- General." Once enrolled
in EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048 Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable time to act upon the request. EXPRESS-Transfer cannot
be used with passbook savings accounts or for tax-deferred plans such as IRAs.
BANK DIRECT DEPOSIT. A shareholder may purchase additional Fund shares
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (minimum $50, maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her plan
by sending written notice to KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination by a shareholder will become effective within thirty
days after the Shareholder Service Agent has received the request. The Fund may
immediately terminate a shareholder's plan in the event that any item is unpaid
by the shareholder's financial institution. The Fund may terminate or modify
this privilege at any time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may
invest in the Fund through Payroll Direct Deposit or Government Direct Deposit.
Under these programs, all or a portion of a shareholder's net pay or government
check is automatically invested in the Fund account each payment
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<PAGE> 69
period. A shareholder may terminate participation in these programs by giving
written notice to the shareholder's employer or government agency, as
appropriate. (A reasonable time to act is required.) The Fund is not responsible
for the efficiency of the employer or government agency making the payment or
any financial institutions transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of the
Fund's shares at the offering price (net asset value plus, in the case of Class
A shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to IRAs. The minimum periodic payment is
$100. The maximum annual rate at which Class B shares may be redeemed (and Class
A shares purchased under the Large Order NAV Purchase Privilege and Class C
shares in their first year following the purchase) under a systematic withdrawal
plan is 10% of the net asset value of the account. Shares are redeemed so that
the payee will receive payment approximately the first of the month. Any income
and capital gain dividends will be automatically reinvested at net asset value.
A sufficient number of full and fractional shares will be redeemed to make the
designated payment. Depending upon the size of the payments requested and
fluctuations in the net asset value of the shares redeemed, redemptions for the
purpose of making such payments may reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic
withdrawal plan ordinarily will be disadvantageous to the investor because the
investor will be paying a sales charge on the purchase of shares at the same
time that the investor is redeeming shares upon which a sales charge may already
have been paid. Therefore, the Funds will not knowingly permit additional
investments of less than $2,000 if the investor is at the same time making
systematic withdrawals. KDI will waive the contingent deferred sales charge on
redemption of Class A shares purchased under the Large Order NAV Purchase
Privilege, Class B shares and Class C shares made pursuant to a systematic
withdrawal plan. The right is reserved to amend the systematic withdrawal plan
on 30 days' notice. The plan may be terminated at any time by the investor or
the Funds.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
- Traditional, Roth and Education IRAs with IFTC as custodian. This
includes Savings Incentive Match Plan for Employees of Small Employers
("SIMPLE") IRA accounts and Simplified Employee Pension Plan ("SEP") IRA
accounts and prototype documents.
- 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of
plan is available to employees of most non-profit organizations.
- Prototype money purchase pension and profit-sharing plans may be adopted
by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit
plans, target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and
materials for establishing them are available from the Shareholder Service Agent
upon request. The brochures for plans with IFTC as custodian describe the
current fees payable to IFTC for its services as custodian. Investors should
consult with their own tax advisers before establishing a retirement plan.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of the Fund will be redeemed by the Fund at the applicable net asset
value per share of such Fund as described in the Fund's prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B or Class C shares by certain classes of persons or
through certain types of transactions as described herein are provided because
of anticipated economies in sales and sales-related efforts.
The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the NYSE is closed other than customary
weekend and holiday closings or during any period in which trading on the NYSE
is restricted, (b) during any period when an emergency exists as a result of
which
45
<PAGE> 70
(i) disposal of the Fund's investments is not reasonably practicable, or (ii) it
is not reasonably practicable for the Fund to determine the value of its net
assets, or (c) for such other periods as the SEC may by order permit for the
protection of the Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the IRS or other
assurance acceptable to the Fund to the effect that (a) the assessment of the
distribution services fee with respect to Class B shares and not Class A shares
does not result in the Fund's dividends constituting "preferential dividends"
under the Code, and (b) that the conversion of Class B shares to Class A shares
does not constitute a taxable event under the Code. The conversion of Class B
shares to Class A shares may be suspended if such assurance is not available. In
that event, no further conversions of Class B shares would occur, and shares
might continue to be subject to the distribution services fee for an indefinite
period that may extend beyond the proposed conversion date as described herein.
OFFICERS AND DIRECTORS
The officers and directors of the Fund, their birthdates, their principal
occupations, addresses, and their affiliations, if any, with the Adviser and KDI
are listed below. All persons named as directors also serve in similar
capacities for other funds managed by the Adviser.
DIRECTORS.
JAMES E. AKINS (10/15/26), Director, 2904 Garfield Terrace N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly, a career United States Foreign Service Officer; Energy Adviser for the
White House; United States Ambassador to Saudi Arabia, 1973-1976.
ARTHUR R. GOTTSCHALK (2/13/25), Director, 10642 Brookridge Drive,
Frankfort, Illinois; Retired; formerly, President, Illinois Manufacturers
Association; Trustee, Illinois Masonic Medical Center; formerly, Illinois State
Senator; formerly, Vice President, The Reuben H. Donnelley Corp.; formerly,
attorney.
FREDERICK T. KELSEY (4/25/27), Director, 738 York Court, Northbrook,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Northern Institutional Funds; formerly,
Trustee of the Pilot Funds.
FRED B. RENWICK (2/1/30), Director, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director;
TIFF Industrial Program, Inc.; Director, The Warburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of Pensions
Evangelical Lutheran Church in America.
*THOMAS W. LITTAUER (4/26/55), Director, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper; formerly, Head of Broker
Dealer Division of an unaffiliated investment management firm during 1997; prior
thereto, President of Client Management Services of an unaffiliated investment
management firm from 1991 to 1996.
JOHN G. WEITHERS (8/8/33), Director, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.
OFFICERS
*CORNELIA M. SMALL (7/28/44), Chairman, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
46
<PAGE> 71
*MARK S. CASADY (9/21/60), President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
*PHILIP J. COLLORA (11/15/45), Vice President and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper.
*THOMAS W. LITTAUER (4/26/55), Vice President, Two International Place,
Boston, Massachusetts; Managing Director, Scudder Kemper.
*ANN M. MCCREARY (11/6/56), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
*KATHRYN L. QUIRK (12/3/52), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
*LINDA J. WONDRACK (9/12/64), Vice President, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper.
*JOHN R. HEBBLE (6/27/58), Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
*BRENDA LYONS (2/21/63), Assistant Treasurer, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper.
*CAROL L. FRANKLIN ( ), Vice President, 345 Park Avenue, New York,
New York; Managing Director, Scudder Kemper
*JOAN R. GREGORY ( ), Vice President, 345 Park Avenue, New York,
New York; Vice President, Scudder Kemper.
*MARC SLENDEBROEK ( ), Vice President, 345 Park Avenue, New York,
New York; Vice President, Scudder Kemper.
*CAROLINE PEARSON (4/1/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper.
*MAUREEN E. KANE (2/14/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
*ELIZABETH C. WERTH (10/1/47), Assistant Secretary, 222 South Riverside
Plaza, Chicago, Illinois; Vice President, Scudder Kemper; Vice President and
Director of State Registrations, KDI.
- ---------------
* Interested persons of the Fund as defined in the 1940 Act.
The directors and officers who are "interested persons" as designated above
receive no compensation from the Fund. The tables below shows amounts estimated
to be paid or accrued to those directors who are not designated "interested
persons" during the Fund's first full fiscal year following its reorganization
to open-end status except that the information in the last column is for
calendar year 1998.
47
<PAGE> 72
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
ESTIMATED AGGREGATE KEMPER FUND COMPLEX PAID
COMPENSATION TO BOARD
NAME OF DIRECTOR FROM FUND(1) MEMBERS(2)
- ---------------- ------------------- ------------------------
<S> <C> <C>
James E. Akins............................ $130,000
Arthur R. Gottschalk(1)................... $133,200
Frederick T. Kelsey(1).................... [TO BE PROVIDED BY $130,500
SCUDDER KEMPER]
Fred B. Renwick........................... $130,500
John G. Weithers.......................... $134,800
</TABLE>
- ---------------
(1) Includes deferred fees pursuant to deferred compensation agreements with
certain Kemper funds. Deferred amounts accrue interest monthly at a rate
equal to the yield of Zurich Money Funds -- Zurich Money Market Fund.
(2) Includes compensation for service on the Boards of [15] Kemper Funds with
[53] fund portfolios. Each Director currently serves as a board member of
[15] Kemper funds with [53] fund portfolios.
As of the date the Fund's Registration Statement became effective, the
directors and officers as a group owned less than 1% of the then outstanding
shares of the Fund and no person owned of record more than 5% of the outstanding
shares of any class of the Fund, except as shown below:
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS CLASS PERCENTAGE
- ---- ---------------- -------- ----------
<C> <S> <C> <C>
[TO BE PROVIDED BY SCUDDER KEMPER]
</TABLE>
ORGANIZATION OF THE FUND
The Fund was organized as a Maryland corporation on November 22, 1989. The
Fund began operations on February 9, 1990 as a closed-end management investment
company. On July 20, 1999, the fund's shareholders approved the conversion of
the Fund to an open-end investment company and the reorganization of the Fund
with Kemper Europe Fund. As a result of the reorganization, the Fund changed its
name to "Kemper Europe Fund, Inc." and issued newly designated Class A, Class B
and Class C shares to the shareholders of Kemper Europe Fund and Class M shares
to its existing shareholders. Class M shares will automatically convert to Class
A shares one year after the date of this Statement of Additional Information.
Currently, the Fund offers three classes of shares. These are Class A,
Class B and Class C shares, which have different expenses, which may affect
performance. Shares of the Fund have equal noncumulative voting rights except
that Class B and Class C shares have separate and exclusive voting rights with
respect to the Fund's Rule 12b-1 Plan. Shares of each class also have equal
rights with respect to dividends, assets and liquidation of such Fund subject to
any preferences (such as resulting from different Rule 12b-1 distribution fees),
rights or privileges of any classes of shares of the Fund. Shares are fully paid
and nonassessable when issued, are transferable without restriction and have no
preemptive rights. Class B Shares will convert to Class A Shares six years after
issuance and Class M shares will convert to Class A Shares one year after the
date of this Statement of Additional Information. The Fund is not required to
hold annual shareholder meetings and does not intend to do so. However, it will
hold special meetings as required or deemed desirable for such purposes as
electing directors, changing fundamental policies or approving an investment
management agreement. Subject to the Articles and By-laws of the Fund,
shareholders may remove directors.
Each director serves until the next meeting of shareholders, if any, called
for the purpose of electing directors and until the election and qualification
of a successor or until such director sooner dies, resigns, retires or is
removed by a majority vote of the shares entitled to vote (as described below).
In accordance with the 1940 Act (a) the Fund will hold a shareholder meeting for
the election of directors at such time as less than a majority of the directors
have been elected by shareholders, and (b) if, as a result of a vacancy in the
Board of Directors, less than two-thirds of the directors have been elected by
the shareholders, that vacancy will be filled only by a vote of the
shareholders.
48
<PAGE> 73
Directors may be removed from office by a vote of the holders of a majority
of the outstanding shares at a meeting called for that purpose, which meeting
shall be held upon the written request of the holders of not less than 10% of
the outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of the Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a director, the
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Fund's Articles provide that the presence at a shareholder meeting in
person or by proxy of at least one-third of the shares entitled to vote on a
matter shall constitute a quorum. Thus, a meeting of shareholders of the Fund
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of directors and ratification of the selection of
independent auditors. Investors in the Fund are entitled to one vote for each
full share held and fractional votes for fractional shares held. Shareholders of
the Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements.
49
<PAGE> 74
APPENDIX
The following is a description of the ratings given by S&P and Moody's to
corporate bonds.
RATINGS OF CORPORATE BONDS
S&P:
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong Debt rated AA has a very strong
capacity to pay interest and repay principal and differs from the highest rated
issues only in small degree. Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest, and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating. The rating CC typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating Cl is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's:
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. 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 winch make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to
<PAGE> 75
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.
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
2
<PAGE> 76
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
(a) (1) Articles of Incorporation.
(2) Articles of Amendment dated January 4, 1990.
(3) Articles of Amendment dated February 2, 1990.
(b) (1) Amended and Restated By-Laws.
(2) Amendment to By-Laws dated June 27, 1990.
(3) Amendment to By-Laws dated April 12, 1991.
(4) Amendment to By-Laws dated May 22, 1992.
(5) Amendment to By-Laws dated July 28, 1992.
(6) Amendment to By-Laws dated July 19, 1993.
(7) Amendment to By-Laws dated January 12, 1995.
(8) Amendment to By-Laws dated October 30, 1996.
(9) Amendment to By-Laws dated September 29, 1997.
(10) Amendment to By-Laws dated April 27, 1999.
(c) Form of Share Certificates.*
(d) Form of Investment Advisory Agreement with Scudder Kemper
Investments, Inc.
(e) Form of Underwriting and Distribution Services Agreement
with Kemper Distributors, Inc.
(f) Not applicable.
(g) Custodian Agreement with Brown Brothers Harriman & Co.*
(h) (1) Form of Transfer Agency and Service Agreement with Investors
Fiduciary Trust Company.
(2) Form of Administrative Services Agreement with Kemper
Distributors, Inc.
(3) Form of Fund Accounting Services Agreement with Scudder Fund
Accounting Corporation.
(i) (1) Opinion and Consent of Willkie Farr & Gallagher, counsel to
Registrant.*
(2) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to Registrant.*
(j) Consent of Ernst & Young LLP Independent Accountants.*
(k) Not applicable.
(l) Not applicable.
(m) (1) 12b-1 Plan for Class B Shares.
(2) 12b-1 Plan for Class C Shares.
(n) Financial Data Schedule.*
(o) 18f-3 Plan.
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 25. INDEMNIFICATION
Under Article XII of Registrant's Charter, the Directors and officers of
Registrant shall not have any liability to Registrant or its stockholders for
money damages, to the fullest extent permitted by Maryland law. This limitation
on liability applies to events occurring at the time a person serves as a
Director or officer of Registrant whether or not such person is a Director or
officer at the time of any proceeding in which liability is asserted. No
provision of Article XII shall protect or purport to protect any Director or
officer of Registrant
C-1
<PAGE> 77
against any liability to Registrant or its stockholders 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. Registrant shall indemnify and advance expenses to its currently acting
and its former Directors to the fullest extent that indemnification of Directors
and advancement of expenses to Directors is permitted by Maryland law.
Registrant shall indemnify and advance expenses to its officers or other
persons to the same extent as its Directors and to such further extent as is
consistent with such law.
Section 10.2 of Registrant's Bylaws authorize Registrant to obtain
insurance on behalf of its Directors, officers and employees, including any such
person who was serving at the request of the Registrant as a Director, trustee,
officer or employee of a corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against and claimed by such person in
such capacity, whether or not Registrant would have the power to indemnify such
person against such liability. Registrant may not, however, obtain insurance
that protects or purports to protect any Director, officer or employee against
any liability to 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 directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question as to whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding Corp.
("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens & Clark,
Inc. ("Scudder") and the representatives of the beneficial owners of the capital
stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the directors' evaluation of
the Transaction, Zurich agreed to indemnify the Registrant and the directors who
were not interested persons of ZKI or Scudder (the "Independent Directors") for
and against any liability and expenses based upon any action or omission by the
Independent Directors in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Directors for and against any liability and
expenses based upon any misstatements or omissions by Scudder to the Independent
Directors in connection with their consideration of the Transaction.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Registrant is managed by Scudder Kemper Investments, Inc. ("Scudder
Kemper"). The list required by this Item 26 of officers and directors of Scudder
Kemper together with information as to their other businesses, professions,
vocations or employment of a substantial nature during the past two years is
incorporated by reference to Schedules A and D of Form ADV filed by Scudder
Kemper (SEC File No. 801-00252) pursuant to the Investment Advisers Act of 1940,
as amended.
ITEM 27. PRINCIPAL UNDERWRITER
(a) Kemper Distributors, Inc. serves as principal underwriter for
Registrant and acts as principal underwriter of the Kemper Funds.
C-2
<PAGE> 78
(b) The information required by this Item 27 relating to each director,
officer or partner of Kemper Distributors, Inc. is incorporated by reference to
Schedule A of Form BD filed by Kemper Distributors, Inc. (SEC File No.
008-47765) pursuant to the Securities Exchange Act of 1934.
(c) None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(1) Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
(records relating to its functions as investment adviser; Registrant's
Articles of Incorporation, By-laws and minute books)
(2) Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
(records relating to its functions as distributor)
(3) Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
(records relating to its functions as custodian)
(4) Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105
(records relating to its functions as transfer agent)
(5) Kemper Service Company
811 Main street
Kansas City, Missouri 64105
(records relating to its functions as shareholder service agent)
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
C-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York, on the
27th day of April, 1999.
Scudder New Europe Fund, Inc.
By: /s/ NICHOLAS BRATT
--------------------------------------
Nicholas Bratt
President and Director
The persons whose signature appear below appoint Kathryn L. Quirk, Caroline
Pearson and Maureen Kane and each of them, any of whom may act without the
joinder of the others, as such person's agent and attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications, certificates, statements, filings, agreements and other documents
with the Securities and Exchange Commission or any other domestic or foreign
governmental or regulatory authority, pursuant to the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and the Securities
Exchange Act of 1934, as maybe desirable or necessary in connection with the
public offering of shares of Scudder New Europe Fund, Inc. All past acts of the
attorney-in-fact in Europe Fund, Inc. All past acts of the attorney-in-fact in
furtherance of the foregoing are hereby ratified and confirmed.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DANIEL PIERCE Chairman and Director April 27, 1999
- -----------------------------------------------------
Daniel Pierce
/s/ PAUL BANCROFT III Director April 27, 1999
- -----------------------------------------------------
Paul Bancroft III
/s/ MARY JOHNSTON EVANS Director April 27, 1999
- -----------------------------------------------------
Mary Johnston Evans
/s/ RICHARD HUNT Director April 27, 1999
- -----------------------------------------------------
Richard Hunt
/s/ WILLIAM H. LUERS Director April 27, 1999
- -----------------------------------------------------
William H. Luers
/s/ WILSON NOLEN Director April 27, 1999
- -----------------------------------------------------
Wilson Nolen
/s/ LADISLAS O. RICE Director April 27, 1999
- -----------------------------------------------------
Ladislas O. Rice
/s/ JOHN R. HEBBLE Treasurer (Principal Financial April 27, 1999
- ----------------------------------------------------- and Accounting Officer)
John R. Hebble
</TABLE>
<PAGE> 80
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
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(a) (1) Articles of Incorporation.
(2) Articles of Amendment dated January 4, 1990.
(3) Articles of Amendment dated February 2, 1990.
(b) (1) Amended and Restated By-Laws.
(2) Amendment to By-Laws dated June 27, 1990.
(3) Amendment to By-Laws dated April 12, 1991.
(4) Amendment to By-Laws dated May 22, 1992.
(5) Amendment to By-Laws dated July 28, 1992.
(6) Amendment to By-Laws dated July 19, 1993.
(7) Amendment to By-Laws dated January 12, 1995.
(8) Amendment to By-Laws dated October 30, 1996.
(9) Amendment to By-Laws dated September 29, 1997.
(10) Amendment to By-Laws dated April 27, 1999.
(d) Form of Investment Advisory Agreement with Scudder Kemper
Investments, Inc.
(e) Form of Underwriting and Distribution Services Agreement
with Kemper Distributors, Inc.
(h) (1) Form of Transfer Agency and Service Agreement with Investors
Fiduciary Trust Company.
(2) Form of Administrative Services Agreement with Kemper
Distributors, Inc.
(3) Form of Fund Accounting Services Agreement with Scudder Fund
Accounting Corporation.
(m) (1) 12b-1 Plan for Class B Shares.
(2) 12b-1 Plan for Class C Shares.
(o) 18f-3 Plan.
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SCUDDER NEW EUROPE FUND, INC.
ARTICLES OF INCORPORATION
FIRST: The undersigned, Joshua M. Levine, whose address is One Citicorp
Center, 153 East 53rd Street, New York, New York 10022, being at least eighteen
years of age, acting as incorporator, does hereby form a corporation under the
Maryland General Corporation Law.
SECOND: Name. The name of the corporation is Scudder New Europe Fund, Inc.
(the "Corporation").
THIRD: Corporate Purposes. The purposes for which the Corporation is
formed are to operate as and carry on the business of a closed-end management
investment company under the Investment Company Act of 1940, as amended, and
generally to exercise and enjoy all of the powers, rights and privileges granted
to, or conferred upon, corporations by the Maryland General Corporation Law.
FOURTH: Address and Resident Agent. The post office address of the
principal office of the Corporation in the State of Maryland is c/o The
Corporation Trust Company Incorporated, First Maryland Building, 32 South
Street, Baltimore, Maryland 21202. The name and address of the resident agent of
the Corporation in the State of Maryland is c/o The Corporation Trust Company
Incorporated, First Maryland Building, 32 South Street, Baltimore, Maryland
21202.
FIFTH: Capital Stock.
(a) The total number of shares of capital stock which the Corporation
shall have authority to issue is fifty million (50,000,000) shares, all of the
one class called Common Stock of one cent ($0.01) par value each, having an
aggregate par value of $500,000.
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(b) The Corporation may issue fractional shares. Any fractional share
shall carry proportionately the rights of a whole share including, without
limitation, the right to vote and the right to receive dividends. A fractional
share shall not, however, have the right to receive a certificate evidencing it.
(c) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of these Articles of Incorporation and the
By-Laws of the Corporation, as from time to time amended.
(d) The Board of Directors shall have authority to classify and reclassify
any authorized but unissued shares of capital stock from time to time by setting
or changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of the capital stock.
(e) Notwithstanding any provision of law requiring any action to be taken
or authorized by the affirmative vote of the holders of a greater proportion of
the votes of all classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or authorized by the affirmative
vote of a majority of the total number of votes entitled to be cast thereon,
except as otherwise provided in these Articles of Incorporation.
SIXTH: Board of Directors.
(a) The number of Directors of the Corporation shall be three, which
number shall be increased or decreased from time to time in the manner provided
in the By-Laws of the Corporation, provided that the number of Directors shall
not be less than three, nor more than twelve. A director may be removed from
office only for cause and only by the vote of 75% of the votes entitled to be
cast for the election of directors.
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(b) Beginning with the first annual meeting of the stockholders held after
the initial public offering of the shares of the Corporation, the Directors
shall be divided into three classes, and shall be designated as Class I, Class
II and Class III Directors, respectively. The Class I Directors elected at such
initial annual meeting shall serve for a term of office expiring at the next
succeeding annual stockholders meeting. The Class II Directors elected at such
initial annual meeting shall serve for a term of office expiring at the second
succeeding annual stockholders meeting. The Class III Directors elected at such
initial annual meeting shall serve for a term of office expiring at the third
succeeding annual stockholders meeting. After expiration of the terms of office
specified for the Directors elected at such initial annual meeting, the
Directors of each class shall serve for terms of three (3) years, or, when
filling a vacancy, for the unexpired portion of such term and until their
successors are elected and have qualified. If the number of Directors is
changed, any increase or decrease shall be apportioned among the classes by the
Board of Directors so as to maintain the number of Directors in each class as
nearly as possible, but in no event shall a decrease in the number of Directors
shorten the term of any incumbent Director.
(c) The names of the directors who shall act until the first annual
meeting or until their successors are duly chosen and qualify are:
George S. Johnston
Nicholas Bratt
Juris Padegs
SEVENTH: Management of the Affairs of the Corporation.
(a) All corporate powers and authority of the Corporation (except as
conferred on or reserved to the stockholders by statute, by these Articles of
Incorporation or by the By-Laws) shall be vested in and exercised by the Board
of Directors.
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(b) The Board of Directors shall have the power to make, alter or repeal
the By-Laws of the Corporation except as otherwise required by the Investment
Company Act of 1940, as amended.
(c) The Board of Directors shall have the power from time to time to
authorize payment of compensation to the directors for services to the
Corporation, including fees for attendance at meetings of the Board of Directors
and of committees.
(d) The Board of Directors shall have the power from time to time to
determine whether and to what extent, and at what times and places and under
what conditions and regulations, the accounts and books of the Corporation
(other than the stock ledger) shall be open to the inspection of stockholders;
and no stockholder shall have any right to inspect any account, book or document
of the Corporation except at such time as is conferred by statute or the By-Laws
or authorized by resolution of the Board of Directors or of the stockholders.
(e) Both stockholders and directors shall have the power, if the By-Laws
so provide, to hold their meetings and to have one or more offices, within or
without the State of Maryland, and to keep the books of the Corporation (except
as otherwise required by statute) outside the State of Maryland, at such places
as from time to time may be designated by the By-Laws or the Board of Directors.
(f) The Board of Directors shall have the power, without the assent or
vote of the stockholders, to authorize the issuance from time to time of shares
of the stock of any class of the Corporation, whether now or hereafter
authorized, and securities convertible into shares of stock of the Corporation
of any class or classes, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable.
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(g) The Board of Directors shall have the power, without the assent or
vote of the stockholders, to authorize and issue obligations of the Corporation,
secured and unsecured, as the Board of Directors may determine, and to authorize
and cause to be executed mortgages and liens upon the real or personal property
of the Corporation.
(h) The Board of Directors shall have the power, notwithstanding anything
in these Articles of Incorporation to the contrary, to establish in its absolute
discretion the basis or method for determining the value of the assets belonging
to any class, the value of the liabilities belonging to any class and the net
asset value of each share of any class of the Corporation's stock.
(i) The Board of Directors shall have the power to determine in accordance
with generally accepted accounting principles and practices what constitutes net
profits, earnings, surplus or net assets in excess of capital, and to determine
what accounting periods shall be used by the Corporation for any purpose; to set
apart out of any funds of the Corporation reserves for such purposes as it shall
determine and to abolish the same; to declare and pay any dividends and
distributions in cash, securities or other property from surplus or any funds
legally available therefor, at such intervals as it shall determine; to declare
dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for dividends or
any other distributions on any basis, including dates occurring less frequently
than the effectiveness of declarations thereof.
(j) The Board of Directors shall have the power, in addition to the powers
and authorities granted herein and by statute expressly conferred upon it, to
exercise all powers and do all acts that may be exercised or done by the
Corporation pursuant to the provisions of the
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laws of the State of Maryland, these Articles of Incorporation and the By-Laws
of the Corporation.
(k) Any determination made in good faith, and in accordance with accepted
accounting practices, if applicable, by or pursuant to the direction of the
Board of Directors, with respect to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which the reserves or
charges have been created has been paid or discharged or is then or thereafter
required to be paid or discharged), as to the value or liquidity of any security
owned by the Corporation, the determination of the net asset value of shares of
any class of the Corporation's capital stock, or as to any other matters
relating to the issuance, sale or other acquisition or disposition of securities
or shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors whether any transaction constitutes
a purchase of securities on "margin," a sale of securities "short," or an
underwriting of the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of these Articles of Incorporation shall be effective to
(i) require a
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waiver of compliance with any provision of the Securities Act of 1933, as
amended, or the Investment Company Act of 1940, as amended, or of any valid
rule, regulation or order of the Securities and Exchange Commission under those
Acts or (ii) protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders 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.
EIGHTH: Special Vote of Stockholders.
(a) Except as otherwise provided in this Article Eighth, at least 75% of
the votes entitled to be cast by stockholders, in addition to the affirmative
vote of 75% of the Board of Directors, shall be necessary to effect any of the
following actions:
(i) any amendment to these Articles to make the Corporation's Common
Stock a "redeemable security" (as such term is defined in the Investment Company
Act of 1940, as amended) unless the Continuing Directors (as hereinafter
defined) of the Corporation, by a vote of at least 75% of such Directors,
approve such amendment in which case the affirmative vote of the holders of a
majority of the outstanding shares of the Corporation entitled to vote thereon
shall be required;
(ii) any stockholder proposal as to specific investment decisions
made or to be made with respect to the Corporation's assets;
(iii) any proposal as to the voluntary liquidation or dissolution of
the Corporation unless the Continuing Directors of the Corporation, by a vote of
at least 75% of such Directors, approve such proposal in which case the
affirmative vote of the holders of a majority of the outstanding shares of the
Corporation entitled to vote thereon shall be required; or
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(iv) any Business Combination (as hereinafter defined) unless either
the condition in clause (A) below is satisfied or all of the conditions in
clauses (B), (C), (D), (E) and (F) below are satisfied:
(A) The Business Combination shall have been approved by a
vote of at least 75% of the Continuing Directors in which case the affirmative
vote of the holders of a majority of the outstanding shares of the Corporation
entitled to vote thereon shall be required.
(B) The aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per share by
holders of any class of outstanding Voting Stock (as hereinafter defined) in
such Business Combination shall be at least equal to the higher of the
following:
(x) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by an Interested
Party (as hereinafter defined) for any shares of such Voting Stock acquired by
it (aa) within the two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the "Announcement
Date"), or (bb)(i) in the Threshold Transaction (as hereinafter defined), or
(ii) in any period between the Threshold Transaction and the consummation of the
Business Combination, whichever is higher; and
(y) the net asset value per share of such Voting Stock
on the Announcement Date or on the date of the Threshold Transaction, whichever
is higher.
(C) The consideration to be received by holders of the
particular class of outstanding Voting Stock shall be in cash or in the same
form as the Interested Party has previously paid for shares of any class of
Voting Stock. If the Interested Party has paid for
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shares of any class of Voting Stock with varying forms of consideration, the
form of consideration for such class of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class of Voting Stock
previously acquired by it.
(D) After the occurrence of the Threshold Transaction, and
prior to the consummation of such Business Combination, such Interested Party
shall not have become the beneficial owner of any additional shares of Voting
Stock except by virtue of the Threshold Transaction.
(E) After the occurrence of the Threshold Transaction, such
Interested Party shall not have received the benefit, directly or indirectly
(except proportionately as a shareholder of the Corporation), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Corporation, whether in anticipation of
or in connection with such Business Combination or otherwise.
(F) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder (or any subsequent provisions replacing such
Acts, rules or regulations) shall be prepared and mailed by the Interested
Party, at such Interested Party's expense, to the shareholders of the
Corporation at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is required to
be mailed pursuant to such Acts or subsequent provisions).
(b) For the purposes of this Article Eighth:
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(i) "Business Combination" shall mean any of the transactions
described or referred to in any one or more of the following subparagraphs:
(A) any merger, consolidation or share exchange of the
Corporation with or into any other person;
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions in any 12
month period) to or with any other person of any assets of the Corporation
having an aggregate Fair Market Value of $1,000,000 or more except for portfolio
transactions of the Corporation effected in the ordinary course of the
Corporation's business;
(C) the issuance or transfer by the Corporation (in one
transaction or a series of transactions in any 12 month period) of any
securities of the Corporation to any other person in exchange for cash,
securities or other property (or a combination thereof) having an aggregate Fair
Market Value of $100,000,000 or more excluding (x) sales of any securities of
the Corporation in connection with a public offering thereof, (y) issuances of
any securities of the Corporation pursuant to a dividend reinvestment plan
adopted by the Corporation and (Z) issuances of any securities of the
Corporation upon the exercise of any stock subscription rights distributed by
the Corporation;
(ii) "Continuing Director" means any member of the Board of
Directors of the Corporation who is not an Interested Party or an Affiliate of
an Interested Party and has been a member of the Board of Directors for a period
of at least 12 months, or is a successor of a Continuing Director who is
unaffiliated with an Interested Party and is recommended to succeed a Continuing
Director by a majority of the Continuing Directors then on the Board of
Directors.
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(iii) "Interested Party" shall mean any person, other than an
investment company advised by the Corporation's initial investment manager or
any of its Affiliates, which enters, or proposes to enter, into a Business
Combination with the Corporation.
(iv) "Person" shall mean an individual, a corporation, a trust or a
partnership.
(v) "Voting Stock" shall mean capital stock of the Corporation
entitled to vote generally in the election of directors.
(vi) A person shall be a "beneficial owner" of any Voting Stock:
(A) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly; or
(B) which such person or any of its Affiliates or Associates
has the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or
(C) which is beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(vii) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule l2b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934.
(viii) "Fair Market Value" means:
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(A) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the relevant date of a share of
such stock on the New York Stock Exchange, or if such stock is not listed on
such Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the 30-day period preceding the
relevant date on the National Association of Securities Dealers, Inc. Automated
Quotation Systems (NASDAQ) or any system then in use, or if no such quotations
are available, the fair market value on the relevant date of the share of such
stock as determined by 75% of the Continuing Directors in good faith, and
(B) in the case of property other than cash or stock, the fair
market value of such property on the relevant date as determined by 75% of the
Contracting Directors in good faith.
(ix) "Threshold Transaction" means the transaction by or as a result
of which an Interested Party first becomes the beneficial owner of Voting Stock.
(x) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in subparagraph (a)(iv)(B) above shall include the shares of Common
Stock and/or the shares of any other class of outstanding Voting Stock retained
by the holders of such shares.
(xi) Continuing Directors of the Corporation, acting by a vote of
75%, shall have the power and duty to determine, on the basis of information
known to them after reasonable inquiry, all facts necessary to determine (a) the
number of shares of Voting Stock beneficially owned by any person, (b) whether a
person is an Affiliate or Associate of another,
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(c) whether the requirements of subparagraph (a)(iv) above have been met with
respect to any Business Combination, and (d) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation in any Business
Combination has, an aggregate Fair Market Value of $1,000,000 or more.
NINTH: Pre-Emptive Rights. No holder of the Common Stock of the
Corporation or of any other class of stock or securities which may hereafter be
created shall be entitled as such, as a matter of right, to subscribe for or
purchase any part of any new or additional issue of stock of any class, or of
rights or options to purchase any stock, or of securities convertible into, or
carrying rights or options to purchase, stock of any class, whether now or
hereafter authorized or whether issued for money, for a consideration other than
money or by way of a dividend or otherwise, and all such rights are hereby
waived by each holder of Common Stock and of any other class of stock which may
hereafter be created.
TENTH: Reservation of Right to Amend. From time to time any of the
provisions of these Articles of Incorporation, with the exception of Articles
Third, Sixth, Eighth, Ninth, this Article Tenth and Article Eleventh, may be
amended, altered or repealed (including any amendment which changes the terms of
any of the outstanding stock by classification, reclassification or otherwise)
upon the vote of the holders of a majority of the voting power of the then
outstanding shares of Voting Stock of the Corporation at the time outstanding
and entitled to vote, and other provisions which might under the statutes of the
State of Maryland at the time in force be lawfully contained in articles of
incorporation may be added or inserted upon the vote of the holders of a
majority of the shares of Common Stock of the Corporation at the time
outstanding and entitled to vote; and all rights at any time
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conferred upon the stockholders of the Corporation by these Articles of
Incorporation are granted subject to the provisions of this Article Tenth. The
provisions of Articles Third, Sixth, Eighth, Ninth, this Article Tenth and
Article Eleventh may be amended, altered, or repealed only upon the vote of at
least 75% of the votes entitled to be cast by stockholders.
ELEVENTH: Duration. Subject to the provisions of Article Eighth(a)(iii),
the duration of the Corporation shall be perpetual.
TWELFTH: Indemnification.
(a) To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, no director
or officer of the Corporation shall have any liability to the Corporation or its
stockholders for damages. This limitation on liability applies to events
occuring at the time a person serves as a director or officer of the Corporation
whether or not such person is a director or officer at the time of any
proceeding in which liability is asserted.
(b) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent as its
directors and may do so to such further extent as is consistent with law. The
Board of Directors may by By-Law, resolution or agreement make further provision
for indemnification of directors, officers, employees and agents to the fullest
extent permitted by the Maryland General Corporation Law.
(c) No provision of these Articles of Incorporation shall be effective to
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful
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misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
(d) References to the Maryland General Corporation Law in this Article
TWELFTH are to that law as from time to time amended. No amendment to the
Corporation's Articles of Incorporation shall affect any right of any person
under this Article TWELFTH based on any event, omission or proceeding prior to
the amendment.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation,
acknowledging the same to be my act, on November 22, 1989.
/s/ Joshua M. Levine
--------------------
Joshua M. Levine
Incorporator
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SCUDDER NEW EUROPE FUND, INC.
ARTICLES OF AMENDMENT
Scudder New Europe Fund, Inc. a Maryland Corporation having its principal
office in the City of Baltimore, State of Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by striking out
paragraph (a) of Article Fifth and inserting in lieu thereof the following:
(a) the total number of shares of capital stock which the Corporation
shall have authority to issue is one hundred million (100,000,000) shares,
all of the one class called Common Stock of one cent ($0.01) par value
each, having an aggregate par value of $1,000,000.
SECOND: Immediately before the foregoing Amendment to the Charter of the
Corporation the total number of shares of capital stock which the Corporation
shall have authority to issue is fifty million (50,000,000) shares, all of one
class called Common Stock of one cent ($0.01) par value each, having an
aggregate par value of $500,000, and immediately after the Amendment the total
number of shares of capital stock which the Corporation shall have authority to
issue is one hundred million (100,000,000) shares, all of one class called
Common Stock of one cent ($0.01) par value each, having an aggregate par value
of $1,000,000.
THIRD: The foregoing amendment to the Charter of the Corporation has been
approved by a majority of the entire Board of Directors of the Corporation and
no stock entitled to be voted on this matter is outstanding or subscribed for.
IN WITNESS WHEREOF, Scudder New Europe Fund, Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf by its
President, Nicholas Bratt, attested by its Assistant Secretary, Paul J.
Elmlinger, on January 4, 1990.
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The President acknowledges these Articles of Amendment to be the corporate
act of the Corporation and states that to the best of his knowledge, information
and belief, the matters and facts set forth in these Articles with respect to
the authorization and approval of the amendment of the Corporation's Charter are
true in all material respects and that this statement is made under penalties of
perjury.
Scudder New Europe Fund, Inc.
By: /s/ Nicholas Bratt
-------------------------
Nicholas Bratt, President
Attest:
/s/ Paul J. Elmlinger
- ---------------------
Paul J. Elmlinger
Assistant Secretary
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SCUDDER NEW EUROPE FUND, INC.
ARTICLES OF AMENDMENT
Scudder New Europe Fund, Inc. a Maryland Corporation having its principal
office in the City of Baltimore, State of Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended so that Article
Tenth will now read as follows:
From time to time any of the provisions of this Charter may be amended,
altered or repealed (including any amendment which changes the terms of
any of the outstanding stock by classification, reclassification or
otherwise) and all rights at any time conferred upon the stockholders of
the Corporation by this Charter are granted subject to the provisions of
this Article Tenth. With the exception of Articles Third, Sixth, Eight,
Ninth, this Article Tenth and Article Eleventh, any of the provisions of
this Charter may be amended, altered or repealed upon the vote of a
majority of the votes entitled to be cast by stockholders. The provisions
of Articles Sixth, Eighth, Ninth, this Article Tenth and Article Eleventh
may be amended, altered or repealed only upon the vote of at least 75% of
the votes entitled to be cast by stockholders. The provisions of Article
Third may be amended, altered or repealed only upon the vote of at least
75% of the votes entitled to be cast by stockholders, unless, pursuant to
Article Eighth, Section (a)(i), the Continuing Directors of the
Corporation, by a vote of at least 75% of such Directors, approve such
amendment in which case the affirmative vote of a majority of the votes
entitled to be cast by stockholders shall be required.
SECOND: The foregoing amendment to the Charter of the Corporation has been
advised by a majority of the entire Board of Directors of the Corporation and
approved by the Sole Stockholder of the Corporation.
IN WITNESS WHEREOF, Scudder New Europe Fund, Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf by its Vice
President, Juris Padegs, and attested by its Assistant Secretary, Paul J.
Elmlinger, on February 2, 1990.
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The Vice President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief, the matters and facts set forth in these Articles with
respect to the authorization and approval of the amendment of the Corporation's
Charter are true in all material respects and that this statement is made under
penalties of perjury.
Scudder New Europe Fund, Inc.
By: /s/ Juris Padegs
-------------------------
Juris Padegs
Vice President
Attest:
/s/ Paul J. Elmlinger
- --------------------
Paul J. Elmlinger
Assistant Secretary
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<PAGE> 1
- ------------------------------------------------------------------------------
SCUDDER NEW EUROPE FUND, INC.
A Maryland Corporation
AMENDED
AND
RESTATED
BY-LAWS
February 1, 1990
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TABLE OF CONTENTS
Page
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ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL................1
Section 1.1. Principal offices............................................1
Section 1.2. Seal ........................................................1
ARTICLE II. STOCKHOLDERS....................................................2
Section 2.1. Annual Meetings..............................................2
Section 2.2. Special Meetings.............................................2
Section 2.3. Notice of Meetings...........................................3
Section 2.4. Notice of Stockholder Business...............................3
Section 2.5. Quorum ......................................................5
Section 2.6. Voting ......................................................6
Section 2.7. Stockholders Entitled to Vote................................6
Section 2.8. Proxies .....................................................7
Section 2.9. Voting and inspectors........................................7
Section 2.10. Action Without Meeting......................................7
ARTICLE III. BOARD OF DIRECTORS.............................................8
Section 3.1. Powers ......................................................8
Section 3.2. Power to Issue and Sell Stock................................8
Section 3.3. Power to Declare Dividends...................................8
Section 3.4. Number and Term..............................................9
Section 3.5. Director Nominations........................................11
Section 3.6. Election....................................................13
Section 3.7. Vacancies and Newly Created Directorships...................13
Section 3.8. Removal ....................................................14
Section 3.9. Annual and Regular Meetings.................................14
Section 3.10. Special Meetings...........................................15
Section 3.11. Waiver of Notice...........................................15
Section 3.12. Quorum and Voting..........................................15
Section 3.13. Action Without a Meeting...................................16
Section 3.14. Compensation of Directors..................................16
ARTICLE IV. COMMITTEES.....................................................17
Section 4.1. Organization................................................17
Section 4.2. Executive Committee.........................................17
Section 4.3. Other Committees............................................17
Section 4.4. Proceedings and Quorum......................................18
ARTICLE V. OFFICERS........................................................18
Section 5.1. General ....................................................18
Section 5.2. Election, Tenure and Qualifications.........................18
Section 5.3. Removal and Resignation.....................................19
Section 5.4. Chairman of the Board.......................................19
Section 5.5. Vice Chairman of the Board..................................20
Section 5.6. President...................................................20
Section 5.7. Vice President..............................................21
Section 5.8. Treasurer and Assistant Treasurers..........................21
Section 5.9. Secretary and Assistant Secretaries.........................22
(i)
<PAGE> 3
Section 5.10. Subordinate officers.......................................22
Section 5.11. Remuneration...............................................23
Section 5.12. Surety Bonds...............................................23
ARTICLE VI. NET ASSET VALUE................................................24
Section 6.1. Valuation of Assets.........................................24
ARTICLE VII. CAPITAL STOCK.................................................24
Section 7.1. Certificates of Stock.......................................24
Section 7.2. Transfer of Shares..........................................24
Section 7.3. Stock Ledgers...............................................25
Section 7.4. Transfer Agents and Registrars..............................25
Section 7.5. Fixing of Record Date.......................................25
Section 7.6. Lost, Stolen or Destroyed Certificates......................26
ARTICLE VIII. FISCAL YEAR AND ACCOUNTANT...................................27
Section 8.1. Fiscal Year.................................................27
Section 8.2. Accountant..................................................27
ARTICLE IX. CUSTODY OF SECURITIES..........................................28
Section 9.1. Employment of a Custodian...................................28
Section 9.2. Termination of Custodian Agreement..........................28
ARTICLE X. INDEMNIFICATION AND INSURANCE...................................29
Section 10.1. Indemnification of Directors, Officers and Members of
the Advisory Board..................................29
Section 10.2. Insurance of Officers, Directors, Members of the
Advisory Board, Employees and Agents................31
ARTICLE XI. AMENDMENTS......................................................32
Section 11.1. General....................................................32
ARTICLE XII. SPECIAL PROVISIONS............................................33
Section 12.1. Actions Relating to Discount in Price of the
Corporation's Shares................................33
<PAGE> 4
AMENDED AND RESTATED
BY-LAWS
OF
SCUDDER NEW EUROPE FUND, INC.
(A MARYLAND CORPORATION)
ARTICLE I.
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
Section 1.1. Principal Offices. The principal office of Scudder New
Europe Fund, Inc. (the "Corporation") in the State of Maryland shall be located
in Baltimore, Maryland. The Corporation may, in addition, establish and maintain
such other offices and places of business as the Board of Directors may, from
time to time, determine. [MGCL Sec. 2-1081]
Section 1.2. Seal. The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of its
incorporation, and the word "Maryland". The form of the seal shall be subject to
alteration by the Board of Directors and the seal may be used by causing it or a
facsimile to be impressed or affixed or printed or otherwise reproduced. Any
officer or Director of the Corporation shall have authority to affix the
corporate seal of the Corporation to any document requiring the same. If the
Corporation is required to place its corporate seal to a document, it shall be
sufficient
<PAGE> 5
- ----------
1 Statutory references are for convenience only. MGCL = Maryland General
Corporation Law; ICA = Investment Company Act.
<PAGE> 6
to place the word "(seal)" adjacent to the signature of the person authorized to
sign the document on behalf of the Corporation. [MGCL Sec. 1-304]
ARTICLE II.
STOCKHOLDERS
Section 2.1. Annual Meetings. An annual meeting of stockholders for
the election of Directors and the transaction of such other business as may
properly come before the meeting shall be held in April. The meeting will be
held at such place within the United States as the Board of Directors shall
select. The first annual stockholders' meeting shall be held in April, 1991
unless otherwise determined by the Board of Directors. [MGCL Sec. 2-501]
Section 2.2. Special Meetings. Special meetings of stockholders may
be called at any time by the President, by a majority of the Board of Directors
or by the Chairman of the Board, if any, and shall be held at such time and
place and may conduct such business as may be provided herein and as may be
stated in the notice of the meeting.
Special meetings of the stockholders shall also be called by the
Secretary upon the written request of the holders of shares entitled to not less
than 25% of all the votes entitled to be cast at such meeting, provided that (a)
such request shall state the purposes of such meeting and the matters proposed
to be acted on, and (b) the stockholders requesting such meeting shall have paid
to the Corporation the reasonably estimated cost of preparing and mailing the
notice thereof, which the Secretary
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<PAGE> 7
shall determine and specify to such stockholders. No special meeting shall be
called upon the request of stockholders to consider any matter which is
substantially the same as a matter voted upon at any special meeting of the
stockholders held during the preceding 12 months, unless requested by the
holders of a majority of all shares entitled to be voted at such meeting. [MGCL
Sec. 2-502]
Section 2.3. Notice of Meetings. The Secretary shall cause notice of
the place, date and hour, and, in the case of a special meeting or if otherwise
required by law, the purpose or purposes for which the meeting is called, to be
mailed, not less than 10 nor more than 90 days before the date of the meeting,
to each stockholder entitled to notice and to vote at such meeting at his
address as it appears on the records of the Corporation at the time of such
mailing. Notice of any stockholders' meeting need not be given to any
stockholder who shall sign a written waiver of such notice whether before or
after the time of such meeting, which waiver shall be filed with the record of
such meeting, or to any stockholder who is present at such meeting in person or
by proxy. [MGCL Sec. 2-504]
Section 2.4. Notice of Stockholder Business.
(a) At any annual or special meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual or special meeting, the
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii)
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<PAGE> 8
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting by a
stockholder.
(b) For business to be properly brought before an annual or
special meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, any such
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not later than 60 days prior to the date of the
meeting; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, any such
notice by a stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which notice of the date
of the annual or special meeting was given or such public disclosure was made.
(c) Any such notice by a stockholder shall set forth as to each
matter the stockholder proposes to bring before the annual or special meeting
(i) a brief description of the business desired to be brought before the annual
or special meeting and the reasons for conducting such business at the annual or
special meeting, (ii) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (iii) the class and number of
shares of the capital stock of the Corporation which are beneficially owned by
the stockholder, and (iv) any material interest of the stockholder in such
business.
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<PAGE> 9
(d) Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at any annual or special meeting except in
accordance with the procedures set forth in this Section 2.4. The Chairman of
the annual or special meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 2.4, and if he should so
determine, he shall so declare to the meeting that any such business not
properly brought before the meeting shall not be considered or transacted.
Section 2.5. Quorum. The presence at any stockholders' meeting, in
person or by proxy, of stockholders entitled to cast a majority of the votes
entitled to be cast thereat shall be necessary and sufficient to constitute a
quorum for the transaction of business. In the absence of a quorum, the holders
of a majority of shares entitled to vote at the meeting and present in person or
by proxy, or, if no stockholder entitled to vote is present in person or by
proxy, any officer present entitled to preside or act as Secretary of such
meeting, may adjourn the meeting sine die or from time to time without further
notice to a date not more than 120 days after the original record date. Any
business that might have been transacted at the meeting originally called may be
transacted at any such adjourned meeting at which a quorum is present. [MGCL
Sections 2-506, 2-511]
Section 2.6. Voting. At each stockholders' meeting, each stockholder
entitled to vote shall be entitled to one vote
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<PAGE> 10
for each share of stock of the Corporation validly issued and outstanding and
standing in his name on the books of the Corporation on the record date fixed in
accordance with Section 7.5 of Article VII hereof. Except as otherwise
specifically provided in the Articles of Incorporation or these By-Laws or as
required by law, as amended from time to time, all matters shall be decided by a
vote of the majority of the votes validly cast. The vote upon any question shall
be by ballot whenever requested by any person entitled to vote, but, unless such
a request is made, voting may be conducted in any way approved by the meeting.
[MGCL Sec. 2-507]
Section 2.7. Stockholders Entitled to Vote. If the Board of
Directors sets a record date for the determination of stockholders entitled to
notice of or to vote at any stockholders' meeting in accordance with Section 7.5
of Article VII hereof, each stockholder of the Corporation shall be entitled to
vote, in person or by proxy, each share of stock standing in his name on the
books of the Corporation on such record date. If no record date has been fixed,
the record date for the determination of stockholders entitled to notice of or
to vote at a meeting of stockholders shall be determined in accordance with the
Maryland General Corporation Law. [MGCL Sec. 2-511]
Section 2.8. Proxies. The right to vote by proxy shall exist only if
the instrument authorizing such proxy to act shall have been signed by the
stockholder or by his duly authorized attorney. Unless a proxy provides
otherwise, it is not valid more than eleven months after its date. Proxies shall
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<PAGE> 11
be delivered prior to the meeting to the Secretary of the Corporation or to the
person acting as Secretary of the meeting before being voted. A proxy purporting
to be executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise. [MGCL Sec. 2-507]
Section 2.9. Voting and Inspectors. At any election of Directors,
the Chairman of the meeting may appoint two inspectors of election who shall
first subscribe an oath or affirmation to execute faithfully the duties of
inspectors at such election with strict impartiality and according to the best
of their ability, and shall after election make a certificate of the result of
the vote taken. No candidate for the office of Director shall be appointed as
such an inspector.
Section 2.10. Action Without Meeting. Any action to be taken by
stockholders may be taken without a meeting if (a) all stockholders entitled to
vote on the matter consent to the action in writing, (b) all stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent and (c) said consents and waivers are filed with
the records of the meetings of stockholders. Such consent shall be treated for
all purposes as a vote at the meeting. [MGCL Sec. 2-505]
ARTICLE III.
BOARD OF DIRECTORS
Section 3.1. Powers. The property, affairs, and business of the
Corporation shall be managed by the Board of Directors, which may exercise all
the powers of the Corporation
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<PAGE> 12
except those powers vested solely in the stockholders of the Corporation by
statute, by the Articles of Incorporation or by these By-Laws. [MGCL Sec. 2-401]
Section 3.2. Power to Issue and Sell Stock. The Board of Directors
may from time to time authorize the issuance and sale of any of the
Corporation's authorized shares to such persons and for such consideration as
the Board of Directors may deem advisable. [MGCL Sections 2-201, 2-203]
Section 3.3. Power to Declare Dividends.
(a) The Board of Directors, from time to time as they may deem
advisable to the extent permitted by applicable law, may declare and pay
dividends in cash or other property of the Corporation, out of any source
available for dividends, to the stockholders according to their respective
rights and interests. [MGCL Sec. 2-309]
(b) The Board of Directors shall cause to be accompanied by a
written statement any dividend payment wholly or partly from any source other
than
(i) the Corporation's accumulated undistributed net income
(determined in accordance with generally accepted accounting
principles and the rules and regulations of the Securities and
Exchange Commission then in effect) and not including profits or
losses realized upon the sale of securities or other properties; or
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<PAGE> 13
(ii) the Corporation's net income so determined for the
current or preceding fiscal year. [MGCL Sec. 2-309; ICA Sec. 19(a)]
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Securities and
Exchange Commission may prescribe.
(c) Notwithstanding the above provisions of this Section 3.3, the
Board of Directors may at any time declare and distribute pro rata among the
stockholders a stock dividend out of the Corporation's authorized but unissued
shares of stock to the extent permitted by applicable law, including any shares
previously purchased by the Corporation, provided that such dividend shall not
be distributed in shares of any class with respect to any shares of a different
class. [MGCL Sec. 2-309(e)]
Section 3.4. Number and Term. The Board of Directors shall consist
of not fewer than three, nor more than twelve Directors, as specified by
resolution of the majority of the entire Board of Directors, provided that at
least 40% of the entire Board of Directors shall be persons who are not
interested persons of the Corporation as defined in the Investment Company Act
of 1940. Beginning with the first annual meeting of the stockholders held after
the initial public offering of the shares of the Fund, the Directors shall be
divided into three classes, and shall be designated as Class 1, Class II, and
Class III Directors, respectively. The Class I Directors elected at such initial
annual meeting shall serve for a term of office expiring at the next succeeding
annual stockholders meeting following such
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<PAGE> 14
initial annual meeting. The Class II Directors elected at such initial annual
meeting shall serve for a term of office expiring at the second succeeding
annual stockholders meeting following such initial annual meeting. The Class III
Directors elected at such initial annual meeting shall serve for a term of
office expiring at the third succeeding annual stockholders meeting following
such initial annual meeting. After expiration of the terms of office specified
for the Directors elected at such initial annual meeting, the Directors of each
class shall serve for terms of three (3) years, or, when filling a vacancy, for
the unexpired portion of such term and until their successors are elected and
have qualified. If the number of Directors is changed, any increase or decrease
shall be apportioned among the classes by the Board of Directors so as to
maintain the number of Directors in each class as nearly as possible, but in no
event shall a decrease in the number of Directors shorten the term of any
incumbent Director.
Section 3.5. Director Nominations.
(a) Only persons who are nominated in accordance with the procedures
set forth in this Section 3.5 shall be eligible for election or re-election as
Directors. Nominations of persons for election or re-election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors or by any stockholder of the Corporation
who is entitled to vote for the election of such nominee at the meeting and who
complies with the notice procedures set forth in this Section 3.5.
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<PAGE> 15
(b) Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice delivered in
writing to the Secretary of the Corporation. To be timely, any such notice by a
stockholder must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than 60 days prior to the
meeting; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, any such
notice by a stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which notice of the date
of the meeting was given or such public disclosure was made.
(c) Any such notice by a stockholder shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or
re-election as a Director, (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person and (D) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for the election of Directors pursuant to Regulation
14A under the Securities Exchange Act of 1934 or any successor regulation
thereto (including without limitation such persons' written consent to being
named in the proxy statement as a nominee and to serving as a Director if
elected and whether any person intends to seek reimbursement from the
Corporation of the expenses of any
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<PAGE> 16
solicitation of proxies should such person be elected a Director of the
Corporation); and (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the Corporation's books, of such stockholder and (B)
the class and number of shares of the capital stock of the Corporation which are
beneficially owned by such stockholder. At the request of the Board of Directors
any person nominated by the Board of Directors for election as a Director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.
(d) If a notice by a stockholder is required to be given pursuant to
this Section 3.5, no person shall be entitled to receive reimbursement from the
Corporation of the expenses of a solicitation of proxies for the election as a
Director of a person named in such notice unless such notice states that such
reimbursement will be sought from the Corporation. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
By-Laws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded for all purposes.
Section 3.6. Election. At the first annual meeting of stockholders
and each annual meeting thereafter, the Directors to be elected at that meeting
shall be elected by vote of the holders of a majority of the shares present in
person or by proxy and entitled to vote thereon.
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<PAGE> 17
Section 3.7. Vacancies and Newly Created Directorships. If any
vacancies shall occur in the Board of Directors by reason of death, resignation,
removal or otherwise, or if the authorized number of Directors shall be
increased, the Directors then in office shall continue to act, and such
vacancies (if not previously filled by the stockholders) may be filled by a vote
of a majority of the Directors then in office, although less than a quorum,
except that a newly created Directorship may be filled only by a majority vote
of the entire Board of Directors; provided, however, that immediately after
filling such vacancy, at least two-thirds (2/3) of the Directors then holding
office shall have been elected to such office by the stockholders of the
Corporation. In the event that at any time, other than the time preceding the
first annual stockholders' meeting, less than a majority of the Directors of the
Corporation holding office at that time were elected by the stockholders, a
meeting of the stockholders shall be held promptly and in any event within 60
days for the purpose of electing Directors to fill any existing vacancies in the
Board of Directors unless the Securities and Exchange Commission shall by order
extend such period. [MGCL Sec. 2-407; ICA Sec. 16]
Section 3.8. Removal. A Director may be removed from office only for
cause and only by the vote of 75% of the votes entitled to be cast for the
election of Directors.
Section 3.9. Annual and Regular Meetings. The annual meeting of the
Board of Directors for choosing officers and transacting other proper business
shall be held immediately after
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<PAGE> 18
the annual stockholders' meeting at the place of such meeting. The Board of
Directors from time to time may provide by resolution for the holding of regular
meetings and fix their time and place within or outside the State of Maryland.
Notice of such annual and regular meetings need not be in writing, provided that
written notice of any change in the time or place of such meetings shall be sent
promptly, in the manner provided in Section 3.10 of this Article III for notice
of special meetings, to each Director not present at the meeting at which such
change was made. Members of the Board of Directors or any committee designated
thereby may participate in a meeting of such Board or committee by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
[MGCL Sec. 2-409]
Section 3.10. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place and for any purpose when called by
the Chairman of the Board or by a majority of the Directors. Notice of special
meetings, stating the time and place, shall be (a) mailed to each Director at
his residence or regular place of business at least three days before the day on
which a special meeting is to be held or (b) delivered to him personally or
transmitted to him by telegraph, cable or other communication leaving a visual
record at least one day before the meeting. [MGCL Sec. 2-409(b)]
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<PAGE> 19
Section 3.11. Waiver of Notice. No notice of any meeting need be
given to any Director who is present at the meeting or who waives notice of such
meeting in writing (which waiver shall be filed with the records of such
meeting), whether before or after the time of the meeting. [MGCL Sec. 2-409(c)]
Section 3.12. Quorum and Voting. At all meetings of the Board of
Directors, the presence of a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. In the absence of a quorum,
a majority of the Directors present may adjourn the meeting, from time to time,
until a quorum shall be present. The action of a majority of the Directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by law, by the Articles of Incorporation or by these By-Laws;
provided, however, that no action shall be taken without the affirmative vote of
75% of the Directors with respect to the following matters:
(a) any action referred to in Article Eighth of the Articles of
Incorporation; or
(b) the election of officers and the compensation of directors and
officers. [MGCL Sec. 2-408]
Section 3.13. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent to such
action is signed by all members of the Board or of such committee, as the case
may be,
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<PAGE> 20
and such written consent is filed with the minutes of proceedings of the Board
or committee. [MGCL Sec. 2-408(c)]
Section 3.14. Compensation of Directors. Directors shall be entitled
to receive such compensation from the Corporation for their services as may from
time to time be determined by resolution of the Board of Directors.
ARTICLE IV.
COMMITTEES
Section 4.1. Organization. The Board may designate one or more
committees, including an Executive Committee that shall consist of not less than
three Directors. The Chairmen of such committees shall be elected by the Board
of Directors. Each member of a committee shall be a Director and shall hold
office at the pleasure of the Board. The Board of Directors shall have the power
at any time to change the members of such committees and to fill vacancies in
the committees. The Board may delegate to these committees any of its powers,
except those which by law may not be delegated to a committee. [MGCL Sec. 2-411]
Section 4.2. Executive Committee. Unless otherwise provided by
resolution of the Board of Directors, when the Board of Directors is not in
session the Executive Committee shall have and may exercise all powers of the
Board of Directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by an Executive Committee. The
Chairman of the Board, if any, and the President shall be members of the
Executive Committee.
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<PAGE> 21
Section 4.3. Other Committees. The Board of Directors may appoint
other committees which shall have such powers and perform such duties as may be
delegated from time to time by the Board.
Section 4.4. Proceedings and Quorum. Each committee may adopt such
rules and regulations governing its proceedings, quorum and manner of acting as
it shall deem proper and desirable In the event any member of any committee is
absent from any meeting, the members thereof present at the meeting, whether or
not they constitute a quorum, may appoint a member of the Board of Directors to
act in the place of such absent member.
ARTICLE V.
OFFICERS
Section 5.1. General. The officers of the Corporation shall be a
President, a Secretary and a Treasurer, and may include one or more Vice
Presidents, Assistant Secretaries or Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.10
of this Article V. The Board of Directors may elect, but shall not be required
to elect, a Chairman of the Board. [MGCL Sec. 2-412]
Section 5.2. Election, Tenure and Qualifications. The officers of
the Corporation, except those appointed as provided in Section 5.10 of this
Article V, shall be elected by the Board of Directors at its first meeting or at
such meetings as shall be held prior to its first annual meeting, and thereafter
annually at its annual meeting. If any officers are
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<PAGE> 22
not chosen at any annual meeting, such officers may be chosen at any subsequent
regular or special meeting of the Board. Except as otherwise provided in this
Article V, each officer chosen by the Board of Directors shall hold office until
the next annual meeting of the Board of Directors and until his successor shall
have been elected and qualified. Any person may hold one or more offices of the
Corporation except the same person may not concurrently hold the offices of
President and Vice President. A person who holds more than one office may not
act in more than one capacity to execute, acknowledge or verify an instrument
required by law to be executed, acknowledged or verified. The Chairman of the
Board, if any, shall be elected from among the Directors of the Corporation and
may hold such office only so long as he continues to be a Director. No other
officer need be a Director. [MGCL Sec. 2-413]
Section 5.3. Removal and Resignation. Whenever in the Board's
judgment the best interest of the Corporation will be served thereby, any
officer may be removed from office by the vote of a majority of the members of
the Board of Directors given at a regular meeting or any special meeting called
for such purpose. Any officer may resign his office at any time by delivering a
written resignation to the Board of Directors, the President, the Secretary, or
any Assistant Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery. [MGCL Sec. 2-413]
Section 5.4. Chairman of the Board. The Chairman of the Board, if
there be such an officer, shall be the senior
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<PAGE> 23
officer of the Corporation, shall preside at all stockholders' meetings and at
all meetings of the Board of Directors and shall be ex officio a non-voting
member of all committees of the Board of Directors. He shall have such powers
and perform such other duties as may be assigned to him from time to time by the
Board of Directors.
Section 5.5. Vice Chairman of the Board. The Vice Chairman of the
Board shall consult with the Chairman as to the policies of the Corporation and
as to the agendas to be presented at the meetings of the Board of Directors. In
the absence of the Chairman of the Board and the President, he shall preside at
meetings of the Board of Directors. He shall have such powers and perform such
other duties as may be assigned to him from time to time by the Chairman.
Section 5.6. President. The President shall be the chief executive
officer of the Corporation and, in the absence of the Chairman of the Board or
if no Chairman of the Board has been chosen, he shall preside at all
stockholders' meetings and at all meetings of the Board of Directors and shall
in general exercise the powers and perform the duties of the Chairman of the
Board. Subject to the supervision of the Board of Directors, he shall have
general charge of the business, affairs, and property of the Corporation and
general supervision over its officers, employees and agents. Except as the Board
of Directors may otherwise order, he may sign in the name and on behalf of the
Corporation all deeds, bonds, contracts or agreements. He shall exercise
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<PAGE> 24
such other powers and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
Section 5.7. Vice President. The Board of Directors may from time to
time elect one or more Vice Presidents who shall have such powers and perform
such duties as from time to time may be assigned to them by the Board of
Directors or the President. At the request, or in the absence or disability, of
the President, the Vice President (or, if there are two or more Vice Presidents,
then the senior of the Vice Presidents present and able to act) may perform all
the duties of the President and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
Section 5.8. Treasurer and Assistant Treasurers. The Treasurer shall
be the principal financial and accounting officer of the Corporation and shall
have general charge of the finances and books of account of the Corporation.
Except as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. He shall render to the
Board of Directors, whenever directed by the Board, an account of the financial
condition of the Corporation and of all his transactions as Treasurer; and as
soon as possible after the close of each financial year he shall make and submit
to the Board of Directors a like report for such financial year. He shall
perform all acts incidental to the Office of Treasurer, subject to the control
of the Board of Directors.
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<PAGE> 25
Any Assistant Treasurer may perform such duties of the Treasurer as
the Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, he may perform all the duties of the Treasurer.
Section 5.9. Secretary and Assistant Secretaries. The Secretary
shall attend to the giving and serving of all notices of the Corporation and
shall record all proceedings of the meetings of the stockholders and Directors
in books to be kept for that purpose. He shall keep in safe custody the seal of
the Corporation, and shall have charge of the records of the Corporation,
including the stock books and such other books and papers as the Board of
Directors may direct and such books, reports, certificates and other documents
required by law to be kept, all of which shall at all reasonable times be open
to inspection by any Director. He shall perform such other duties as appertain
to his office or as may be required by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as
the Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
Section 5.10. Subordinate Officers. The Board of Directors from time
to time may appoint such other officers or agents as it may deem advisable, each
of whom shall have such title, hold office for such period, have such authority
and perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more
-21-
<PAGE> 26
officers or agents the power to appoint any such subordinate officers or agents
and to prescribe their respective rights, terms of office, authorities and
duties.
Section 5.11. Remuneration. The salaries or other compensation of
the officers of the Corporation shall be fixed from time to time by resolution
of the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 5.10 of this Article V.
Section 5.12. Surety Bonds. The Board of Directors may
require any officer or agent of the Corporation to execute a bond (including,
without limitation, any bond required by the Investment Company Act of 1940,
as amended, and the rules and regulations of the Securities and Exchange
Commission) to the Corporation in such sum and with such surety or sureties
as the Board of Directors may determine, conditioned upon the faithful
performance of his duties to the Corporation, including responsibility for
negligence and for the accounting of any of the Corporation's property, funds
or securities that may come into his hands. [ICA Sec. 17(g)]
ARTICLE VI.
NET ASSET VALUE
Section 6.1. Valuation of Assets. The value of the Corporation's net
assets shall be determined at such times and by such method as shall be
established from time to time by the
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<PAGE> 27
Board of Directors. Such method shall be reduced to writing and maintained in
the Corporation's permanent records.
ARTICLE VII.
CAPITAL STOCK
Section 7.1. Certificates of Stock. The interest of each stockholder
of the Corporation shall be evidenced in such form as the Board of Directors may
from time to time prescribe. No certificate shall be valid unless it is signed
by the President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer of the Corporation and
sealed with its seal, or bears the facsimile signatures of such officers and a
facsimile of such seal. [MGCL Sections 2-210, 2-212]
Section 7.2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same number of shares of
the same class, duly endorsed or accompanied by proper instruments of assignment
and transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require. The shares of stock of the
Corporation may be freely transferred, and the Board of Directors may, from time
to time, adopt rules and regulations with reference to the method of transfer of
the shares of stock of the Corporation.
Section 7.3. Stock Ledgers. The stock ledgers of the Corporation,
containing the names and addresses of the
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<PAGE> 28
stockholders and the number of shares held by them respectively, shall be kept
at the principal offices of the Corporation or, if the Corporation employs a
transfer agent, at the offices of the transfer agent of the Corporation. [MGCL
Sec. 2-209]
Section 7.4. Transfer Agents and Registrars. The Board of Directors
may from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made, all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned.
Section 7.5. Fixing of Record Date. The Board of Directors may fix
in advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, provided that
(1) such record date may not be prior to the close of business on the day the
record date is fixed and shall be within 90 days prior to the date on which the
particular action requiring such determination will be taken; and (2) in the
case of a meeting of
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<PAGE> 29
stockholders, the record date shall be at least 10 days before the date of the
meeting. [MGCL Sec. 2-511]
Section 7.6. Lost, Stolen or Destroyed Certificates. Before issuing
a new certificate for stock of the Corporation alleged to have been lost, stolen
or destroyed, the Board of Directors or any officer authorized by the Board may,
in its discretion, require the owner of the lost, stolen or destroyed
certificate (or his legal representative) to give the Corporation a bond or
other indemnity, in such form and in such amount as the Board or any such
officer may direct and with such surety or sureties as may be satisfactory to
the Board or any such officer, sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
[MGCL Sec. 2-213]
ARTICLE VIII.
FISCAL YEAR AND ACCOUNTANT
Section 8.1. Fiscal Year. The fiscal year of the Corporation shall,
unless otherwise ordered by the Board of Directors, be twelve calendar months
ending on the 31st day of December.
Section 8.2. Accountant.
(a) The Corporation shall employ an independent public accountant or
a firm of independent public accountants of national reputation as its
Accountant to examine the accounts of the Corporation and to sign and certify
financial statements filed by the Corporation. The Accountants' certificates and
-25-
<PAGE> 30
reports shall be addressed both to the Board of Directors and to the
stockholders. The employment of the Accountant shall be conditioned upon the
right of the Corporation to terminate the employment forthwith without any
penalty by vote of a majority of the outstanding voting securities at any
stockholders' meeting called for that purpose.
(b) A majority of the members of the Board of Directors who are not
"interested persons" (as such term is defined in the Investment Company Act of
1940, as amended) of the Corporation shall select the Accountant at any meeting
held in a manner consistent with the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder. Such selection shall be submitted for
ratification or rejection at the next succeeding annual stockholders' meeting.
If the stockholders shall reject such selection at such meeting, the Accountant
shall be selected by majority vote of the Corporation's outstanding voting
securities, either at the meeting at which the rejection occurred or at a
subsequent meeting of stockholders called for that purpose.
(c) Any vacancy occurring between annual meetings, due to the
resignation of the Accountant, may be filled by the vote of a majority of the
members of the Board of Directors who are not "interested persons". [ICA Sec.
32(a)]
ARTICLE IX.
CUSTODY OF SECURITIES
Section 9.1. Employment of a Custodian. The Corporation shall place
and at all times maintain in the custody
-26-
<PAGE> 31
of a Custodian (including any sub-custodian for the Custodian) all funds,
securities and similar investments owned by the Corporation. The Custodian (and
any sub-custodian) shall be an institution conforming to the requirements of
Section 17(f) of the Investment Company Act of 1940 and the rules of the U.S.
Securities and Exchange Commission thereunder. The Custodian shall be appointed
from time to time by the Board of Directors, which shall fix its remuneration.
[ICA Sec. 17(f)]
Section 9.2. Termination of Custodian Agreement. Upon termination of
the Custodian Agreement or inability of the Custodian to continue to serve, the
Board of Directors shall promptly appoint a successor Custodian, but in the
event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a Custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding shares of stock
entitled to vote of the Corporation, the Custodian shall deliver and pay over
all property of the Corporation held by it as specified in such vote.
ARTICLE X.
INDEMNIFICATION AND INSURANCE
Section 10.1. Indemnification of Directors, Officers and Members of
the Advisory Board. To the maximum extent permitted by the Investment Company
Act of 1940, the Securities Act of 1933 (as such statutes are now or hereinafter
in force)
-27-
<PAGE> 32
and by Maryland law in effect from time to time, the Corporation shall
indemnify, and shall pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to, (i) any individual who is a present or former
Director, officer or member of the Advisory Board of the Corporation or (ii) any
individual who serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director or
officer of such corporation or other enterprise or as a partner or trustee of
such partnership, joint venture, trust, employee benefit plan or other
enterprise at the request of the Corporation. The Corporation may, with the
approval of its Board of Directors, provide such indemnification and advancement
of expenses to a person who served a predecessor of the Corporation in any of
the capacities described in (i) or (ii) above and to any employee or agent of
the Corporation or a predecessor of the Corporation. Indemnification or
advancement shall be made only as authorized for a specific proceeding upon (i)
a determination that indemnification of or advancement to such person is proper
in the circumstances because he has met the applicable standard of conduct for
indemnification or applicable requirement for advancement and (ii) such other
authorizations and determinations as may be required by law to be made by (A)
the Board of Directors of the Corporation by the vote of a majority of a quorum
consisting of Directors who are neither "interested persons" of the Corporation
as defined in the Investment Company Act of 1940 nor parties to such proceeding
or, if such quorum cannot be obtained, by a majority vote of a
-28-
<PAGE> 33
committee of the Board of Directors consisting solely of two or more such
Directors who are duly designated to act in the matter by a majority vote of the
full Board of Directors; or (B) independent legal counsel in a written opinion,
which counsel shall be selected in accordance with such procedures as may be
required by law, provided, however, that such counsel shall make only such
determinations and authorizations as are permitted by law to be made by
independent counsel; or (C) the stockholders of the Corporation acting in
accordance with the Articles of Incorporation and these By-Laws and applicable
law.
Neither the amendment nor repeal of this Article X nor the adoption
or amendment of any other provision of these By-Laws or the Articles of
Incorporation inconsistent with this Article X, shall apply to or affect in any
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption. [MGCL Sec. 2-418]
Section 10.2. Insurance of Officers, Directors, Members of the
Advisory Board, Employees and Agents. To the maximum extent permitted by the
Investment Company Act of 1940, the Securities Act of 1933 (as such statutes are
now or hereinafter in force) and by Maryland law in effect from time to time,
the Corporation may purchase and maintain insurance on behalf of any person who
is or was a Director, officer, member of the Advisory Board, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee, partner, trustee or agent of another corporation,
partnership, joint venture, trust or other
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<PAGE> 34
enterprise against any liability asserted against him and incurred by him in or
arising out of his position. [MGCL Sec. 2-419(k)]
ARTICLE XI.
AMENDMENTS
Section 11.1. General. Except as provided in the next succeeding
sentence and in the Articles of Incorporation, all By-Laws of the Corporation,
whether adopted by the Board of Directors or the stockholders, shall be subject
to amendment, alteration or repeal, and new By-Laws may be made by the
affirmative vote of a majority of either: (a) the holders of record of the
outstanding shares of stock of the Corporation entitled to vote, at any annual
or special meeting, the notice or waiver of notice of which shall have specified
or summarized the proposed amendment, alteration, repeal or new By-Law; or (b)
the Directors, at any regular or special meeting the notice or waiver of notice
of which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-Law. The provisions of Article II, Section 2.4 and Article III,
Sections 3.4 and 3.5 of these By-Laws shall be subject to amendment, alterations
or repeal by the affirmative vote of either: (i) the holders of record of 75% of
the outstanding shares of stock of the Corporation entitled to vote, at any
annual or special meeting, the notice or waiver of notice of which shall have
specified or summarized the proposed amendment, alteration or repeal or (ii) 75%
of the Continuing Directors (as such term is defined in Article EIGHTH of the
Corporation's Articles of
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<PAGE> 35
Incorporation), at any regular or special meeting the notice or waiver of notice
of which shall have specified or summarized the proposed amendment, alteration
or repeal.
ARTICLE XII.
SPECIAL PROVISIONS
Section 12.1. Actions Relating to Discount in Price of the
Corporation's Shares. In the event that at any time during or after the fifth
year following the initial public offering of shares of the Corporation's Common
Stock such shares publicly trade for a substantial period of time at a
substantial discount from the Corporation's then current net asset value per
share, the Board of Directors shall, at its next regularly scheduled meeting,
consider taking actions designed to eliminate such discount. The actions
considered by the Board of Directors may include periodic repurchases by the
Corporation of its shares of Common Stock or an amendment to the Corporation's
Articles of Incorporation to make the Corporation's Common Stock a "redeemable
security" (as such term is defined in the Investment Company Act of 1940),
subject in all events to compliance with all applicable provisions of the
Corporation's Articles of Incorporation, these By-Laws, the Maryland General
Corporation Law and the Investment Company Act of 1940.
-31-
<PAGE> 1
\
SCUDDER NEW EUROPE FUND, INC.
Amendment to the By-Laws
On June 27, 1990, the Board of Directors of the Fund adopted the following
resolution amending the By-Laws of the Fund:
RESOLVED, that the amendment of Section 8.1 of the Fund's By-Laws to read
in its entirety as follows be, and it hereby is, approved:
"8.1. Fiscal Year. The fiscal year of the Corporation shall, unless
otherwise ordered by the Board of Directors, be twelve calendar
months ending on the 31st day of October."
<PAGE> 1
Scudder New Europe Fund, Inc.
Amendment to the By-Laws
On April 12, 1991, the Board of Directors of the Fund adopted the
following resolution amending the By-Laws of the Fund.
RESOLVED, that pursuant to Article XI of the Fund's By-Laws, Section
5.4 of Article V of the Fund's By-Laws is hereby amended to read in
its entirety as follows:
Section 5.4 Chairman of Board: The Chairman Of the Board, if
there be such an officer, shall be the senior officer of the
Corporation, shall preside at all stockholders' meetings and
at all meetings of the Board of Directors and shall be ex
officio a member of all committees of the Board of Directors
other than the audit committee and any nominating committee.
He shall have such powers and perform such other duties as may
be assigned to him from time to time by the Board of
Directors.
<PAGE> 1
Scudder New Europe Fund, Inc.
Amendment to the By-Laws
On May 22, 1992, the Board of Directors of the Fund adopted the following
resolution amending the By-Laws of the Fund.
RESOLVED, That pursuant to the provision of Section 11.1 of the
Fund's By-Laws, the first sentence of Section 2.1 of the Fund's
By-Laws is hereby amended to read as follows:
Section 21. - Annual Meetings. An annual meeting of the
stockholders for the election of Directors and the transaction
of such other business as may properly come before the meeting
shall be held in July.
<PAGE> 1
Scudder New Europe Fund, Inc.
Amendment to the By-Laws
On July 28, 1992, the Board of Directors of the Fund adopted the following
resolution amending the By-Laws of the Fund.
RESOLVED, that pursuant to the provision of Article XI, Section 11.1
of the Fund's By-Laws, Article IV, Section 4.1 shall be amended as
to read as follows:
Section 4.1 - Organization. The board may designate one or
more committees, including an Executive Committee, which shall
consist of not less than two Directors. The Chairman of such
committees shall be elected by the Board of Directors. Each
member of a committee shall be a Director and shall hold
office in accordance with the By-Laws of the Fund. The Board
of Directors shall have the power at any time to change the
members of such committees and to fill vacancies in the
committees. The board may delegate to these committees any of
its powers, except those which by law may not be delegated to
a committee. [MGCL Sec. 2-411]
<PAGE> 1
On July 19, 1993, the Board of Directors of Scudder New Europe Fund, Inc.
amended the Fund's By-Laws as follows:
RESOLVED, that, pursuant to the provision of Section 11.1 of the
Fund's By-Laws, Section 2.1 of the Fund's By-Laws is hereby amended
to read as follows:
Section 2.1. Annual Meetings. An annual meeting of stockholders for
the election of Directors and the transaction of such other business
as may properly come before the meeting shall be held in October.
<PAGE> 1
Scudder New Europe Fund, Inc.
Amendment to the By-Laws
On January 12, 1995, the Board of Directors of the Fund adopted the
following resolution amending the By-Laws of the Fund.
RESOLVED, that pursuant to the provision of Article XI, Section 11.1 of
the Fund's By-Laws, Article II, Section 2.1 shall be amended to read as
follows:
Section 2.1 Annual Meetings. An annual meeting of stockholders for
the election of Directors and the transaction of such other business
as may properly come before the meeting shall be held in July.
<PAGE> 1
SCUDDER NEW EUROPE FUND, INC.
AMENDMENT TO BY-LAWS
Approved October 30, 1996
RESOLVED, that, pursuant to the provision of Section 11.1 of the Fund's By-Laws,
the second paragraph of Section 2.2, and Section 4.1 of the Fund's By-Laws are
hereby amended to read as follows:
Section 2.2 Special Meetings. Special meetings of stockholders shall also
be called by the Secretary upon the written request of the holders of shares
entitled to not less than 50% of all the votes entitled to be cast at such
meeting, provided that (a) such request shall state the purposes of such meeting
and the matters proposed to be acted on, and (b) the stockholders requesting
such meeting shall have paid to the Corporation the reasonably estimated cost of
preparing and mailing the notice thereof, which the Secretary shall determine
and specify to such stockholders. No special meeting shall be called upon the
request of stockholders to consider any matter which is substantially the same
as a matter voted upon at any special meeting of the stockholders held during
the preceding 12 months, unless requested by the holders of a majority of all
shares entitled to be voted at such meeting. [MGCL ss. 2-502]; and
Section 4.1 Organization. By resolution adopted by the Board of Directors, the
Board may designate one or more committees, including an Executive Committee,
which shall consist of not less than two Directors. The Chairman of such
committees shall be elected by the Board of Directors. Each member of a
committee shall be a Director and shall hold office in accordance with the
By-Laws of the Fund. The Board of Directors shall have the power at any time to
change the members of such committees and to fill vacancies in the committees.
The Board may delegate to these committees any of its powers, except those which
by law may not be delegated to a committee. If the Board of Directors has given
general authorization for the issuance of stock providing for or establishing a
method or procedure for determining the maximum number of shares to be issued, a
committee of the Board, in accordance with that general authorization or any
stock option or other plan or program adopted by the Board, may authorize or fix
the terms of stock subject to classification or reclassification and the terms
on which any stock may be issued including all terms and conditions required or
permitted to be established or authorized by the Board of Directors under
Section 3.2 of these By-Laws. [MGCL ss. 2-411]
<PAGE> 1
Scudder New Europe Fund, Inc.
Amendment to the By-Laws
On September 29, 1997, the Board of Directors of the Fund adopted the
following resolution amending the By-Laws of the Fund.
RESOLVED, that pursuant to the provision of Article XI, Section 11.1 of
the Fund's By-Laws, Article IV, Section 1 shall be amended to read as
follows:
The Board may designate one or more committees, including an Executive
Committee, that shall consist of one or more Directors.
<PAGE> 1
Scudder New Europe Fund, Inc.
Amendment to the By-Laws
On April 27, 1999, the Board of Directors of the Fund adopted the
following resolutions amending the By-Laws of the Fund.
RESOLVED, that pursuant to the provisions of Article XI, Section
11.1 of the Fund's By-Laws, Article II, Section 2.8 shall be amended
to read as follows:
"Any stockholder entitled to vote at any meeting of stockholders may
vote either in person or by proxy. Unless a proxy provides
otherwise, it is not valid more than eleven months after its date.
Every proxy shall be in writing and signed by the stockholder or his
authorized agent or be in such other form as may be permitted by the
Maryland General Corporation Law, including electronic transmissions
from the stockholder or his authorized agent. Authorization may be
given orally, in writing, by telephone, by electronic transmission,
or by other means of communication. A copy, facsimile transmission
or other reproduction of a writing or transmission may be
substituted for the original writing or transmission for any purpose
for which the original writing or transmission could be used. Every
proxy shall be dated, but need not be sealed, witnessed or
acknowledged. All proxies shall be delivered to the Secretary of the
Corporation, or to the person acting as Secretary of the Meeting
being voted. A proxy purporting to be executed by or on behalf of a
stockholder shall be valid unless challenged at or prior to its
exercise;" and
FURTHER RESOLVED, that pursuant to the provisions of Article XI,
Section 11.1 of the Fund's By-laws, Article III, Section 3.6 shall
be amended to read as follows:
"At the first annual meeting of stockholders and each annual meeting
thereafter, the Directors to be elected at that meeting shall be
elected by vote of the majority of the votes validly cast."
<PAGE> 1
INVESTMENT MANAGEMENT AGREEMENT
KEMPER EUROPE FUND, INC.*
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
__________________, 1999
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
INVESTMENT MANAGEMENT AGREEMENT
KEMPER EUROPE FUND, INC.
Ladies and Gentlemen:
Kemper Europe Fund, Inc. (the "Fund") has been established as a Maryland
corporation to engage in the business of an investment company. Pursuant to the
Fund's Articles of Incorporation, as amended and restated from time to time (the
"Articles"), the Board of Directors is authorized to issue the Fund's shares of
Common Stock (the "Shares") in separate series or classes. The Board of
Directors has authorized five classes of shares. Additional series or classes
may be established from time to time by action of the Directors.
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 the investment
objectives, policies and restrictions specified in the currently effective
Prospectus (the "Prospectus") and Statement of Additional Information (the
"SAI") included in the Fund's Registration Statement on Form N-1A, as amended
from time to time (the "Registration Statement") filed by the Fund under the
Investment Company Act of
____________
* The Fund's name will remain Scudder Europe Fund, Inc. if the
Reorganization is not consummated.
<PAGE> 2
1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended.
Copies of the documents referred to in the preceding sentence have been
furnished to you by the Fund. The Fund has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Fund:
(a) The Articles, as amended and restated to date.
(b) By-Laws of the Fund as in effect on the date hereof
(the "By-Laws").
(c) Resolutions of the Directors 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,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Fund's Board of
Directors. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Fund. You shall
also make available to the Fund promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Fund in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Fund are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration
2
<PAGE> 3
Statement. You shall determine what portion of the Fund's portfolio shall be
invested in securities and other assets and what portion, if any, should be held
uninvested.
You shall furnish to the Fund's Board of Directors 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 Directors 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 necessary
for operating as an open-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 Directors 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 Registration Statement, semi-annual reports on Form N-SAR and
notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the tabulation of
proxies by the Fund's transfer agent; assisting in the preparation and filing of
the Fund's federal, state and local tax returns; preparing and filing the Fund's
federal excise tax return pursuant to Section 4982 of the Code; providing
assistance with investor and public relations matters; monitoring the valuation
of portfolio securities and the calculation of net asset value; monitoring the
registration of Shares of the Fund under applicable federal and state securities
laws; maintaining or causing to be maintained for the Fund all books, records
and reports and any other information required under the 1940 Act, to the extent
that such books, records and reports and other information are not maintained by
the Fund's custodian or other agents of the Fund; assisting in establishing the
accounting policies of the Fund; assisting in the resolution of accounting
issues that may arise with respect to the Fund's operations and consulting with
the Fund's independent accountants, legal counsel and the Fund's other agents as
necessary in connection therewith; establishing and monitoring the Fund's
operating expense budgets; reviewing the Fund's bills; processing the payment of
bills that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Fund as it may reasonably
3
<PAGE> 4
request in the conduct of the its business, subject to the direction and control
of the Fund's Board of Directors. 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 Directors,
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.
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 Directors 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 Directors, officers and
employees of the Fund who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Directors and officers of the Fund; and costs of
shareholders' and other meetings.
4
<PAGE> 5
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Fund shall have adopted a plan in conformity with Rule 12b-1 under the 1940
Act providing that the Fund (or some other party) shall assume some or all of
such expenses. You shall be required to pay such of the foregoing sales expenses
as are not required to be paid by the principal underwriter pursuant to the
underwriting agreement or are not permitted to be paid by the Fund (or some
other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Fund
shall pay you in United States Dollars on the last day of each month the unpaid
balance of a fee equal to the excess of (a) 1/12 of .75 of 1 percent of the
average daily net assets as defined below of the Fund for such month; provided
that, for any calendar month during which the average of such values exceeds
$250,000,000, the fee payable for that month based on the portion of the average
of such values in excess of $250,000,000 shall be 1/12 of .72 of 1 percent of
such portion; provided that, for any calendar month during which the average of
such values exceeds $1,000,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $1,000,000,000 shall be 1/12
of .70 of 1 percent of such portion; provided that, for any calendar month
during which the average of such values exceeds $2,500,000,000, the fee payable
for that month based on the portion of the average of such values in excess of
$2,500,000,000 shall be 1/12 of .68 of 1 percent of such portion; provided that,
for any calendar month during which the average of such values exceeds
$5,000,000,000, the fee payable for that month based on the portion of the
average of such values in excess of $5,000,000,000 shall be 1/12 of .65 of 1
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $7,500,000,000, the fee payable for that month
based on the portion of the average of such values in excess of $7,500,000,000
shall be 1/12 of .64 of 1 percent of such portion; provided that, for any
calendar month during which the average of such values exceeds $10,000,000,000,
the fee payable for that month based on the portion of the average of such
values in excess of $10,000,000,000 shall be 1/12 of .63 of 1 percent of such
portion; and provided that, for any calendar month during which the average of
such values exceeds $12,500,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $12,500,000,000 shall be 1/12
of .62 of 1 percent of such portion; over 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 "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net
5
<PAGE> 6
asset value of the Fund is determined consistent with the provisions of Rule
22c-1 under the 1940 Act or, if the Fund lawfully determines the value of its
net assets as of some other time on each business day, as of such time. The
value of the net assets of the Fund shall always be determined pursuant to the
applicable provisions of the Articles and the Registration Statement. If the
determination of net asset value does not take place for any particular day,
then for the purposes of this section 5, the value of the net assets of the Fund
as last determined shall be deemed to be the value of its net assets as of 4:00
p.m. (New York time), or as of such other time as the value of the net assets of
the Fund's portfolio may be lawfully determined on that day. If the Fund
determines the value of the net assets of its portfolio more than once on any
day, then the last such determination thereof on that day shall be deemed to be
the sole determination thereof on that day for the purposes of this section 5.
You may waive 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 as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent 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,
6
<PAGE> 7
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, 2001, 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 Directors 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
Directors 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 Directors 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 Directors 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. [Use of Scudder Marks. As exclusive licensee of the rights to use and
sublicense the use of the "Scudder," "Scudder Kemper Investments, Inc." and
"Scudder, Stevens & Clark, Inc." trademarks (together, the "Scudder Marks"), you
hereby grant the Fund a non-exclusive right and sublicense to use (i) the
"Scudder" name and mark as part of the Fund's name (the "Fund Name") and (ii)
the Scudder Marks in connection with the Fund's investment products and
services, in each case only for so long as this Agreement, any other investment
management agreement between the Fund and you (or any organization which shall
have succeeded to your business as investment manager (the "Successor")), or any
extension, renewal or
7
<PAGE> 8
amendment hereof or thereof remains in effect, and only for so long as you are a
licensee of the Scudder Marks, provided, however, that you agree to use your
best efforts to maintain your license to use and sublicense the Scudder Marks.
The Fund agrees that it shall have no right to sublicense or assign rights to
use the Scudder Marks, shall acquire no interest in the Scudder Marks other than
the rights granted herein, that all of the Fund's uses of the Scudder Marks
shall inure to the benefit of Scudder Trust Company as owner and licensor of the
Scudder Marks (the "Trademark Owner"), and that the Fund shall not challenge the
validity of the Scudder Marks or the Trademark Owner's ownership thereof, The
Fund further agrees that all services and products it offers in connection with
the Scudder Marks shall meet commercially reasonable standards of quality, as
may be determined by you or the Trademark Owner from time to time, provided that
you acknowledge that the services and products the Fund rendered during the
one-year period preceding the date of this Agreement are acceptable At your
reasonable request, the Fund shall cooperate with you and the Trademark Owner
and shall execute and deliver any and all documents necessary to maintain and
protect (including but not limited to in connection with any trademark
infringement action) the Scudder Marks and/or enter the Fund as a registered
user thereof. At such time as this Agreement or any other investment management
agreement shall no longer be in effect between you (or the Successor) and the
Fund, or you no longer is a licensee of the Scudder Marks, the Fund shall (to
the extent that, and as soon as, it lawfully can) cease to use the Fund Name or
any other name indicating that it is advised by, managed by or otherwise
connected with you (or the Successor) or the Trademark Owner. In no event shall
the Fund use the Scudder Marks or any other name or mark confusingly similar
thereto (including, but not limited to, any name or mark that includes the name
"Scudder") if this Agreement or any other investment advisory agreement between
you (or the Successor) and the Fund is terminated.][FOR INCLUSION ONLY IF THE
REORGANIZATION IS NOT CONSUMMATED]
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 State of
New York, 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.
8
<PAGE> 9
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 EUROPE FUND, INC.*
By:
------------------------------
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By:
------------------------------
- --------
* As stated above, the Fund's name will remain Scudder Europe Fund, Inc. if
the Reorganization is not consummated.
9
<PAGE> 1
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this ___ day of _________, 1999, between KEMPER EUROPE FUND, INC.
a Maryland corporation (the "Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware
corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as agent for distribution of
shares of common stock (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various financial service firms
("Firms") to provide distribution services to investors. The Firms shall provide
such office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter
and agrees to render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution services contemplated hereunder
directly to or for the benefit of existing and potential shareholders who may be
clients of such Firms. Such Firms shall at all times be deemed to be independent
contractors retained by KDI and not the Fund.
KDI shall use its best efforts with reasonable promptness to sell such
part of the authorized shares of the Fund remaining unissued as from time to
time shall be effectively registered under the Securities Act of 1933, as
amended ("Securities Act"), at prices determined as hereinafter provided and on
terms hereinafter set forth, all subject to applicable federal and state laws
and regulations and to the Fund's organizational documents.
<PAGE> 2
2. KDI shall sell shares of the Fund to or through qualified Firms in
such manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold
by KDI shall be so offered or sold at a price per share determined in accordance
with the then current prospectus. The price the Fund shall receive for all
shares purchased from it shall be the net asset value used in determining the
public offering price applicable to the sale of such shares. Any excess of the
sales price over the net asset value of the shares of the Fund sold by KDI as
agent shall be retained by KDI as a commission for its services hereunder. KDI
may compensate Firms for sales of shares at the commission levels provided in
the Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, and may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in the Fund's 12b-1 Plan, as amended from time
to time (the "Plan").
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered
under the Securities Act for sale as herein contemplated such shares as KDI
shall reasonably request and as the Securities and Exchange Commission shall
permit to be so registered. Notwithstanding any other provision hereof, the Fund
may terminate, suspend or withdraw the offering of shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to
issue and deliver on behalf of the Fund such confirmations of sales made by it
pursuant to this Agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
2
<PAGE> 3
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the extent
that it shall have received purchase orders therefor. KDI will not make, or
authorize Firms or others to make (a) any short sales of shares of the Fund; or
(b) any sales of such shares to any Board member or officer of the Fund or to
any officer or Board member of KDI or of any corporation or association
furnishing investment advisory, managerial or supervisory services to the Fund,
or to any corporation or association, unless such sales are made in accordance
with the then current prospectus relating to the sale of such shares. KDI, as
agent of and for the account of the Fund, may repurchase the shares of the Fund
at such prices and upon such terms and conditions as shall be specified in the
current prospectus of the Fund. In selling or reacquiring shares of the Fund for
the account of the Fund, KDI will in all respects conform to the requirements of
all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or reacquisition,
as the case may be, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940, as
amended (the "Investment Company Act"), notice of which shall have been given to
KDI) which at the time in any way require, limit, restrict, prohibit or
otherwise regulate any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. The Fund will pay or cause to be paid expenses
(including the fees and disbursements of its own counsel) of any registration of
the Fund and its shares under the United States securities laws and expenses
incident to the issuance of shares of common stock, such as the cost of share
certificates, issue taxes, and fees of the transfer agent. KDI will pay all
expenses (other than expenses which one or more Firms may bear pursuant to any
agreement with KDI) incident to the sale and distribution of the shares issued
or sold hereunder, including, without limiting the generality of the foregoing,
all (a) expenses of printing and distributing any prospectus and of preparing,
printing and distributing or disseminating any other literature, advertising and
selling aids in connection with the offering of the shares for sale (except that
such expenses need not include expenses incurred by the Fund in connection with
the preparation, typesetting, printing and distribution of any registration
statement or prospectus, report or other communication to shareholders in their
capacity as such), (b) expenses of advertising in connection with such offering
and (c) expenses (other than the Fund's auditing expenses) of qualifying or
continuing the qualification of the shares for sale and, in connection
therewith, of qualifying or continuing the qualification of the Fund as a dealer
or broker under the laws of such states as may be designated by KDI under the
conditions herein specified. No transfer taxes, if any, which may be payable in
connection with the issue or delivery or shares sold as herein contemplated or
of the certificates for such shares shall be borne by the Fund, and KDI will
indemnify and hold harmless the Fund against liability for all such transfer
taxes.
3
<PAGE> 4
8. This Agreement shall become effective on the date hereof and shall
continue until April 1, 2000; and shall continue from year to year thereafter
only so long as such continuance is approved in the manner required by the
Investment Company Act.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by KDI on sixty (60) days' written notice to the other party. The
Fund may effect termination with respect to any class of any series of the Fund
by a vote of (i) a majority of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
class. Without prejudice to any other remedies of the Fund, the Fund may
terminate this Agreement at any time immediately upon KDI's failure to fulfill
any of its obligations hereunder.
All material amendments to this Agreement must be approved by a vote of
a majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as
set forth in the Plan. Termination of this Agreement shall not affect the right
of KDI to receive payments on any unpaid balance of the compensation earned
prior to such termination, as set forth in the Plan.
Notwithstanding anything in this Agreement to the contrary, KDI shall
be contractually bound hereunder by the terms of any publicly announced waiver
of a cap on the compensation received for its distribution services under the
Plan or by the terms of any written document provided to the Board of Directors
of the Fund announcing a waiver or cap, as if such waiver or cap were fully set
forth herein.
9. KDI will not use or distribute, or authorize the use, distribution
or dissemination by Firms or others in connection with the sale of Fund shares
any statements other than those contained in the Fund's current prospectus,
except such supplemental literature or advertising as shall be lawful under
federal and state securities laws and regulations. KDI will furnish the Fund
with copies of all such material.
10. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
4
<PAGE> 5
12. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
13. This Agreement is the entire contract between the parties relating
to the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE> 6
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER EUROPE FUND, INC.
By:
-----------------------------
Title:
-----------------------------
ATTEST:
- -----------------------------------
Title:
-----------------------------
KEMPER DISTRIBUTORS, INC.
By:
-----------------------------
Title:
-----------------------------
ATTEST:
- -----------------------------------
Title:
-----------------------------
<PAGE> 1
AGENCY AGREEMENT
AGREEMENT dated the _____ day of ______, 1999, by and between SCUDDER EUROPE
FUND, INC., a Maryland corporation having its principal place of business at 222
South Riverside, Chicago, Illinois ("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
Directors 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 Articles of Incorporation 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 as approved by the Board of Directors 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.
G. An opinion of counsel for Fund:
(1) With respect to Fund's organization and
existence under the laws of The State of
Maryland.
<PAGE> 2
(2) With respect to the status of all shares of
Fund covered by this appointment under the
Securities Act of 1933, and any other
applicable federal or state statute.
(3) To the effect that all issued shares are,
and all unissued shares will be when issued,
validly issued, fully paid and
non-assessable.
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 the State 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 corporation duly organized and existing and
in good standing under the laws of The State of
Maryland.
B. It is an investment company registered under the
Investment Company Act of 1940.
C. A registration statement under the Securities Act of
1933 has been filed and will be effective with
respect to all shares of Fund being offered for sale
at any time and from time to time.
D. All requisite steps have been or will be taken to
register Fund's shares for sale in all applicable
states, including the District of Columbia.
<PAGE> 3
E. Fund and its Directors are empowered under applicable
laws and by the Fund's Articles of Incorporation 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. IFTC agrees that it
will also act as agent in connection with Fund's
periodic withdrawal payment accounts and other
open-account or similar plans for shareholders, if
any.
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 its shareholder account records.
E. Subject to the provisions of Sections 20 and 21
hereof, IFTC agrees that it will perform all the
usual and ordinary services of Transfer Agent and
Dividend Disbursing Agent and as agent for the
various shareholder accounts, including, without
limitation, the following: issuing, transferring and
canceling share certificates, maintaining all
shareholder accounts, preparing shareholder meeting
lists, mailing proxies, receiving and tabulating
proxies, mailing shareholder reports and
prospectuses, withholding federal income taxes,
preparing and mailing checks for disbursement of
income and capital gains dividends, preparing and
filing all required U.S. Treasury Department
information returns for all shareholders, preparing
and mailing confirmation forms to shareholders and
dealers with respect to all purchases and
liquidations of Fund shares and other transactions in
shareholder accounts for which confirmations are
required, recording reinvestments of dividends and
distributions in Fund shares, recording redemptions
of Fund shares and preparing and mailing checks for
payments upon redemption and for disbursements to
systematic withdrawal plan shareholders.
5. Compensation and Expenses.
A. In consideration for the services provided hereunder
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,
<PAGE> 4
all its reasonable out-of-pocket expenses and other
disbursements incurred in connection with the agency.
Such compensation will be set forth in a separate
schedule to be agreed to by 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 transactions in shareholder accounts and
computer tapes used for permanent storage of records
and cost of insertion of materials in mailing
envelopes by outside firms. 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.
C. Service Company shall be contractually bound
hereunder by the terms of any publicly announced fee
cap or waiver of its fee or by the terms of any
written document provided to the Board of Directors
of the Fund announcing a fee cap or waiver of its
fee, or any limitation of the Fund's expenses, as if
such fee cap, fee waiver or expense limitation were
fully set forth herein.
6. Efficient Operation of 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 purchase and redemption
orders and other instructions received by
IFTC from dealers, shareholders, Fund or its
principal underwriter.
(2) The timely availability and the accuracy of
shareholder lists, shareholder account
verifications, confirmations and other
shareholder account information to be
produced from IFTC's records or data.
(3) The accurate and timely issuance of dividend
and distribution checks in accordance with
instructions received from Fund.
(4) The accuracy of redemption transactions and
payments in accordance with redemption
instructions received from dealers,
shareholders or Fund or other authorized
persons.
<PAGE> 5
(5) The deposit daily in Fund's appropriate
special bank account of all checks and
payments received from dealers or
shareholders for investment in shares.
(6) The requiring of proper forms of
instructions, signatures and signature
guarantees and any necessary documents
supporting the rightfulness of transfers,
redemptions 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.
(7) The maintenance of a current duplicate set
of Fund's essential or required records, as
agreed upon from time to time by Fund and
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, without
negligence and without willful misconduct.
B. IFTC shall indemnify and hold 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,
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
<PAGE> 6
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 receives 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 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 Fund, which will not be
changed without the consent of Fund, which consent
shall not be unreasonably withheld, and which will be
expanded in coverage or increased in amounts from
time to time if and when reasonably requested by
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.
<PAGE> 7
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
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 any amendment to the Articles of
Incorporation or other document effecting the change.
C. Certified copy of any order or consent of each
governmental or regulatory authority required by law
for the issuance of the shares in the new form, and
an opinion of counsel that no order or consent of any
other government or regulatory authority is required.
D. Specimens of the new certificates in the form
approved by the Board of Directors of Fund, with a
certificate of the Secretary of Fund as to such
approval.
E. Opinion of counsel for Fund:
<PAGE> 8
(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.
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 Articles of Incorporation and Bylaws.
Fund will promptly file with IFTC copies of all material
amendments to its Articles of Incorporation 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 Directors of Fund shall from time to time
designate by resolution. IFTC will be protected in acting upon
<PAGE> 9
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 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 Articles of Incorporation of Fund and
copies of all amendments thereto will be certified by the
appropriate official of The State of Maryland; and if such
Articles of Incorporation and amendments are required by law
to be also filed with a county, city or other officer or
official body, a certificate of such filing will appear on the
certified copy submitted to IFTC. A copy of the order or
consent of each governmental or regulatory authority required
by law for the issuance of Fund shares will be certified by
the Secretary or Clerk of such governmental or regulatory
authority, under proper seal of such authority. The copy of
the Bylaws and copies of all amendments thereto and copies of
resolutions of the Board of Directors 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 be
destroyed by Fund without the consent of IFTC (which consent
will not be unreasonably withheld), but will be safely stored
for possible future reference.
<PAGE> 10
18. Provisions Relating to IFTC as Transfer Agent.
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 Directors authorizing such original
issue, an opinion of counsel as outlined in Section
1.G or 9.E of this Agreement, the certificates
required by Section 10 of this Agreement and any
other documents required by Section 1 or 9 of this
Agreement.
B. Before making any original issue of certificates,
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, or shares accepted for redemption
and funds remitted therefor, upon surrender of the
old certificates in form deemed by IFTC properly
endorsed for transfer or redemption accompanied by
such documents as IFTC may deem necessary to evidence
the authority of the person making the transfer or
redemption, and bearing satisfactory evidence of the
payment of any applicable share transfer taxes. IFTC
reserves the right to refuse to transfer or redeem
shares until it is satisfied that the endorsement or
signature on the certificate or any other document is
valid and genuine, and for that purpose it may
require a guarantee of signature by such persons as
may from time to time be specified in the prospectus
related to such shares or otherwise authorized by
Fund. IFTC also reserves the right to refuse to
transfer or redeem shares until it is satisfied that
the requested transfer or redemption is legally
authorized, and it will incur no liability for the
refusal in good faith to make transfers or
redemptions which, in its judgment, are improper,
unauthorized, or otherwise not rightful. IFTC may, in
effecting transfers or redemptions, 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.
<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 Directors 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 reasonably 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 to 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 are to be
<PAGE> 12
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, redemptions or other
disbursements provided for hereunder will be
deposited, and against which checks will be drawn.
20. Termination of Agreement.
A. This Agreement may be terminated by either party upon
sixty (60) days prior written notice to the other
party.
B. 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 this
Agreement, which failure materially
adversely affects the business operations of
Fund and which failure continues for thirty
(30) days after 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.
<PAGE> 13
21. Assignment.
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 by Fund 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, 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.
All representations and warranties by either party herein
contained will survive the execution and delivery of this
Agreement.
24. Miscellaneous.
<PAGE> 14
A. This Agreement is executed and delivered in the State
of Illinois and shall be governed by the laws of said
state.
B. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement
properly authorized and executed by both parties
hereto.
C. The captions in this Agreement are included for
convenience of reference only, and in no way define
or limit any of the provisions hereof or otherwise
affect their construction or effect.
D. This Agreement shall become effective as of the date
hereof.
E. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed
an original but all of which together shall
constitute one and the same instrument.
F. If any part, term or provision of this Agreement is
held by the courts to be illegal, in conflict with
any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be
affected, and the rights and obligations of the
parties shall be construed and enforced as if the
Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
G. 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.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized officer as of the day and year first set forth
above.
KEMPER EUROPE FUND, INC.
By:
-----------------------------------
Title:
-----------------------------------
INVESTORS FIDUCIARY TRUST COMPANY
By:
-----------------------------------
Title:
-----------------------------------
<PAGE> 15
EXHIBIT B
IFTC INSURANCE COVERAGE
DESCRIPTION OF POLICY:
Fidelity Bond
Covers 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
Covers claims made for actual or alleged negligent acts,
errors or omissions committed in the performance of transfer
agency services.
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> 16
EXHIBIT A
FEE SCHEDULE (MULTIPLE CLASSES OF SHARES)
<PAGE> 17
TRANSFER AGENCY FEE SCHEDULE SUPPLEMENT
For purposes of the following limitation, "Class Expenses" are expenses
identified as attributable to a particular class of the Fund and charged
directly to the class. Class Expenses are limited to the following: registration
fees, directors' or trustees' fees, expenses of periodic meetings of directors,
trustees or shareholders, transfer agency fees, legal and accounting fees (other
than fees for income tax return preparation or income tax advice), and costs of
shareholder communications required by law (e.g., the preparation and mailing of
prospectuses and proxy statements). Class Expenses specifically do not include
Rule 12b-1 fees and administrative service fees. Transfer agency fees and
expenses will be limited for any class of the Fund to the extent necessary to
ensure that the Class Expenses allocated to each share of a class of the Fund
for a fiscal year will differ from the Class Expenses allocated to each share of
any other class of the Fund by less than 50 basis points (.50%) of the average
daily net asset value per share of the class of shares with the smallest average
net asset value (adjusted as necessary for classes in effect for a partial
year). For a Fund with multiple series, the foregoing shall be applied to each
series separately.
<PAGE> 1
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this ___ day of _____, 1999, by and between KEMPER EUROPE FUND,
INC., a Maryland corporation (the "Fund"), and KEMPER DISTRIBUTORS, INC., a
Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to provide information and administrative
services for the benefit of the Fund and its shareholders. In this regard, KDI
shall appoint various broker-dealer firms and other service or administrative
firms ("Firms") to provide related services and facilities for persons who are
investors in the Fund ("investors"). The Firms shall provide such office space
and equipment, telephone facilities, personnel or other services as may be
necessary or beneficial for providing information and services to investors in
the Fund. Such services and assistance may include, but are not limited to,
establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund and its
special features, assistance to investors in changing dividend and investment
options, account designations and addresses, and such other administrative
services as the Fund or KDI may reasonably request. Firms may include affiliates
of KDI. KDI may also provide some of the above services for the Fund directly.
KDI accepts such appointment and agrees during such period to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. In carrying out its duties and
responsibilities hereunder, KDI will appoint various Firms to provide
administrative and other services described herein directly to or for the
benefit of investors in the Fund. Such Firms shall at all times be deemed to be
independent contractors retained by KDI and not the Fund. KDI and not the Fund
will be responsible for the payment of compensation to such Firms for such
services.
2. For the administrative services and facilities described in Section 1, the
Fund will pay to KDI at the end of each calendar month an administrative service
fee computed at an annual rate of up to 0.25 of 1% of the average daily net
assets of the Fund (except assets attributable to Class I Shares). The initial
fee schedule is set forth as Appendix I hereto. The administrative service fee
will be calculated separately for each class of each series of the Fund as an
expense of each such class; provided, however, no administrative service fee
shall be payable with respect to Class I Shares. For the month and year in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during such month and year, respectively. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others.
<PAGE> 2
KDI shall be contractually bound hereunder by the terms of any publicly
announced fee cap or waiver of its fee or by the terms of any written
documentation provided to the Board of Directors of the Fund announcing a fee
cap or waiver of its fee, or any limitation of the Fund's expenses, as if such
fee cap, fee waiver or expense limitation were fully set forth herein.
The net asset value for each share of the Fund shall be calculated in accordance
with the provisions of the Fund's current prospectus. On each day when net asset
value is not calculated, the net asset value of a share of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last day on which such calculation was made for the purpose of the foregoing
computations.
3. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
4. This Agreement may be terminated at any time without the payment of any
penalty by the Fund or by KDI on sixty (60) days written notice to the other
party. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation described in Section
2 hereof earned prior to such termination. This Agreement may not be amended for
any class of any series of the Fund to increase the amount to be paid to KDI for
services hereunder above .25 of 1% of the average daily net assets of such class
without the vote of a majority of the outstanding voting securities of such
class. All material amendments to this Agreement must in any event be approved
by vote of the Board of the Fund.
5. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
6. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
7. This Agreement shall be construed in accordance with applicable federal law
and the laws of the State of Illinois.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER EUROPE FUND, INC. KEMPER DISTRIBUTORS, INC.
By:__________________________ By:______________________________
Title:_______________________ Title:___________________________
2
<PAGE> 3
APPENDIX I
KEMPER EUROPE FUND, INC.
FEE SCHEDULE FOR ADMINISTRATIVE
SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement to which this
Appendix is attached, the Fund and KDI agree that the administrative service fee
will be computed at an annual rate of .25 of 1% (the "Fee Rate") based upon
assets with respect to which a Firm provides administrative services.
Dated: __________, 1999
KEMPER EUROPE FUND, INC. KEMPER DISTRIBUTORS, INC.
By:__________________________ By:______________________________
Title:_______________________ Title:___________________________
<PAGE> 1
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the ___ day of ________, 1999 between Kemper Europe
Fund, Inc. (the "Fund"), a registered open-end management investment company
with its principal place of business in 222 South Riverside Plaza, Chicago,
Illinois 60606 and Scudder Fund Accounting Corporation, with its principal place
of business in Boston, Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Fund has need to determine its net asset value which service FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
to calculate the net asset value of the Fund as provided in the
prospectus of the Fund and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940, as amended (the
"1940 Act") and Rules 31a-1, 31a-2 and 31a-3 thereunder,
applicable federal and state laws and any other law or
administrative rules or procedures which may be applicable to
the Fund, other than those accounts, books and financial
records required to be maintained by the Fund's investment
adviser, custodian or transfer agent and/or books and records
maintained by all other service providers necessary for the
Fund to conduct its business as a registered open-end
management investment company. All such books and records
shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection,
upon request of duly authorized officers of the Fund, by
employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Fund's public offering price and/or its daily
dividend rates and money market yields, if applicable, in
accordance with Section 3 of the Agreement and notify the Fund
and such other persons as the Fund may reasonably request of
the
<PAGE> 2
net asset value per share, the public offering price
and/or its daily dividend rates and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Directors of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Directors of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Fund's net asset value, including net
income, in a manner consistent with the specific provisions of the
Registration Statement. Such computation shall be made as of the time
or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Fund's books of account and making the necessary
computations FUND ACCOUNTING shall be entitled to receive, and may rely
upon, information furnished it by means of Proper Instructions,
including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Fund;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Directors.
2
<PAGE> 3
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Fund and shall be
without liability for any action taken or thing done in good faith in
reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Directors. The Fund
shall cause oral instructions to be confirmed in writing. Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices as from time to time agreed to
by an authorized officer of the Fund and FUND ACCOUNTING.
The Fund agrees to furnish to the appropriate person(s) within FUND
ACCOUNTING a copy of the Registration Statement as in effect from time
to time. FUND ACCOUNTING may conclusively rely on the Fund's most
recently delivered Registration Statement for all purposes under this
Agreement and shall not be liable to the Fund in acting in reliance
thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, or its shareholders to which FUND
ACCOUNTING would otherwise be subject by reason of willful misfeasance,
bad faith or negligence in the performance of its duties, or by reason
of its reckless disregard of its obligations and duties hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled,
if agreed to by the Fund to recover its reasonable telephone, courier
or delivery service, and all other reasonable out-of-pocket, expenses
as incurred, including, without limitation, reasonable attorneys' fees
and reasonable fees for pricing services.
FUND ACCOUNTING shall be contractually bound hereunder by the terms of
any publicly announced fee cap or waiver of its fee or by the terms of
any written document provided to the Board of Directors of the Fund
announcing a fee cap or waiver of its fee,
3
<PAGE> 4
or any limitation of the Fund's expenses, as if such fee cap, fee
waiver or expense limitation were fully set forth herein.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
<TABLE>
<S> <C>
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: Kemper Europe Fund, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Attn: President, Secretary or Treasurer
</TABLE>
Section 11. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Directors.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the
4
<PAGE> 5
provisions of this Agreement as in their joint opinions may be
consistent with this Agreement. Any such interpretive or additional
provisions shall be in writing, signed by both parties and annexed
hereto, but no such provisions shall be deemed to be an amendment of
this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
KEMPER EUROPE FUND, INC.
By:
-------------------------------
President
SCUDDER FUND ACCOUNTING CORPORATION
By:
-------------------------------
Vice President
6
<PAGE> 1
FUND: KEMPER EUROPE FUND, INC. (THE "FUND")
CLASS: CLASS B (THE "CLASS")
12B-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "Act"), this 12b-1 Plan (the "Plan") has been
adopted for the Fund and for the Class (as noted and defined above) by a
majority of the members of the Fund's Board (the "Board"), including a majority
of the Board members who are not "interested persons" of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan (the "Qualified Board Members") at a meeting
called for the purpose of voting on this Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("KDI")
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee levels provided in the Fund's prospectus from time to time. KDI may pay
other commissions, fees or concessions to Firms, and may pay them to others in
its discretion, in such amounts as KDI shall determine from time to time. The
distribution services fee for the Class shall be based upon average daily net
assets of the Fund attributable to the Class and such fee shall be charged only
to the Class. For the month and year in which this Plan becomes effective or
terminates, there shall be an appropriate proration of the distribution services
fee set forth in Paragraph 1 hereof on the basis of the number of days that the
Plan and any agreements related to the Plan are in effect during the month and
year, respectively. The distribution services fee shall be in addition to and
shall not be reduced or offset by the amount of any contingent deferred sales
charge received by KDI.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan
<PAGE> 2
must in any event be approved by a vote of a majority of the Board, and of the
Qualified Board Members, cast in person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Class as the Act or the rules thereunder so require.
Dated: ______________________, 1999
<PAGE> 1
FUND: KEMPER EUROPE FUND, INC. (THE "FUND")
CLASS: CLASS C (THE "CLASS")
12B-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "Act"), this 12b-1 Plan (the "Plan") has been
adopted for the Fund and for the Class (as noted and defined above) by a
majority of the members of the Fund's Board (the "Board"), including a majority
of the Board members who are not "interested persons" of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan (the "Qualified Board Members") at a meeting
called for the purpose of voting on this Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("KDI")
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee levels provided in the Fund's prospectus from time to time. KDI may pay
other commissions, fees or concessions to Firms, and may pay them to others in
its discretion, in such amounts as KDI shall determine from time to time. The
distribution services fee for the Class shall be based upon average daily net
assets of the Fund attributable to the Class and such fee shall be charged only
to the Class. For the month and year in which this Plan becomes effective or
terminates, there shall be an appropriate proration of the distribution services
fee set forth in Paragraph 1 hereof on the basis of the number of days that the
Plan and any agreements related to the Plan are in effect during the month and
year, respectively. The distribution services fee shall be in addition to and
shall not be reduced or offset by the amount of any contingent deferred sales
charge received by KDI.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan
<PAGE> 2
must in any event be approved by a vote of a majority of the Board, and of the
Qualified Board Members, cast in person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Class as the Act or the rules thereunder so require.
Dated: _______________, 1999
<PAGE> 1
KEMPER EUROPE FUND, INC.
MULTI-DISTRIBUTION SYSTEM PLAN
WHEREAS, Kemper Europe Fund, Inc. (the "Fund") is an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, Scudder Kemper Investments, Inc. serves as investment adviser
and Kemper Distributors, Inc. serves as principal underwriter for the Fund;
WHEREAS, the Fund has a non-Rule 12b-1 administrative services
agreement providing for a service fee at an annual rate of up to .25% of average
daily net assets;
WHEREAS, the Fund has established a Multi-Distribution System enabling
the Fund, as more fully reflected in its prospectus, to offer investors the
option of purchasing shares (a) with a front-end sales load and a service fee
("Class A shares"); (b) without a front-end sales load, but subject to a
Contingent Deferred Sales Charge ("CDSC"), a Rule 12b-1 plan providing for a
distribution fee, and a service fee ("Class B shares"); (c) without a front-end
sales load, but subject to a CDSC, a Rule 12b-1 Plan providing for a
distribution fee, and a service fee ("Class C shares"); and (d) ;without a
front-end sales load, a CDSC or a distribution fee, but subject to a service fee
and a redemption fee ("Class M shares"); and
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management
investment companies to issue multiple classes of voting stock representing
interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i)
under the 1940 Act if, among other things, such investment companies adopt a
written plan setting forth the separate arrangement and expense allocation of
each class and any related conversion features or exchange privileges;
NOW, THEREFORE, the Fund, wishing to be governed by Rule 18f-3 under
the 1940 Act, hereby adopts this Multi-Distribution System Plan as follows:
1. Each class of shares will represent interests in the same portfolio
of investments of the Fund (or series), and be identical in all respects to each
other class, except as set forth below. The only differences among the various
classes of shares of the Fund (or series) will relate solely to: (a) different
distribution fee payments associated with any Rule 12b-1 Plan for a particular
class of shares and any other costs relating to implementing or amending such
Rule 12b-1 Plan (including obtaining shareholder approval of such Rule 12b-1
Plan or any amendment thereto), which will be borne solely by shareholders of
such classes; (b) different service fees; (c) different shareholder servicing
fees; (d) different class expenses, which will be limited to the following
expenses determined by the Fund board to be attributable to a specific class of
shares: (i) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxy statements to
current shareholders of a specific class; (ii) Securities and Exchange
Commission registration fees incurred by a specific class; (iii) litigation or
other legal expenses relating to a specific class; (iv) board member fees or
expenses incurred as a result of issues relating to a specific class; and (v)
accounting expenses relating to a specific class; (e) the voting rights related
to any Rule 12b-1 Plan affecting a
<PAGE> 2
specific class of shares; (f) conversion features; (g) exchange privileges; and
(h) class names or designations. Any additional incremental expenses not
specifically identified above that are subsequently identified and determined to
be properly applied to one class of shares of the Fund shall be so applied upon
approval by a majority of the members of the Fund's board, including a majority
of the board members who are not interested persons of the Fund.
2. Under the Multi-Distribution System, certain expenses may be
attributable to the Fund, but not to a particular series or class thereof. All
such expenses will be borne by each class on the basis of the relative aggregate
net assets of the classes. Notwithstanding the foregoing, the underwriter, the
investment manager or other provider of services to the Fund may waive or
reimburse the expenses of a specific class or classes to the extent permitted
under Rule 18f-3 under the 1940 Act.
A class of shares may be permitted to bear expenses that are directly
attributable to that class including: (a) any distribution fees associated with
any Rule 12b-1 Plan for a particular class and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto); (b) any service fees
attributable to such class; (c) any shareholder servicing fees attributable to
such class; and (d) any class expenses determined by the Fund board to be
attributable to such class.
3. After a shareholder's Class B shares have been outstanding for six
years, they will automatically convert to Class A shares of the Fund at the
relative net asset values of the two classes and will thereafter not be subject
to a Rule 12b-1 Plan. Class B shares issued upon reinvestment of income and
capital gain dividends and other distributions will be converted to Class A
shares on a pro rata basis with the Class B shares. Class M shares will
automatically convert to Class A shares at the relative net asset values of the
two classes one year after the Fund's conversion to an open-end investment
company.
4. Any conversion of shares of one class to shares of another class is
subject to the continuing availability of a ruling of the Internal Revenue
Service or an opinion of counsel to the effect that the conversion of shares
does not constitute a taxable event under federal income tax law. Any such
conversion may be suspended if such a ruling or opinion is no longer available.
5. To the extent exchanges are permitted, shares of any class of the
Fund will be exchangeable with shares of the same class of another Fund (with
the exception of Class M shares which shall be exchanged into Class A shares),
or with money market fund shares as described in the applicable prospectus.
Exchanges will comply with all applicable provisions of Rule 11a-3 under the
1940 Act. For purposes of calculating the time period remaining on the
conversion of Class B shares to Class A shares, Class B shares received on
exchange retain their original purchase date.
6. Dividends paid by the Fund (or series) as to each class of its
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same amount;
except that any distribution fees, service fees, shareholder servicing fees and
class expenses allocated to a class will be borne exclusively by that class.
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<PAGE> 3
7. Any distribution arrangement of the Fund, including distribution
fees, front-end sales loads and CDSCs, will comply with Article III, Section 26,
of the Rules of Fair Practice of the National Association of Securities Dealers,
Inc.
8. All material amendments to this Plan must be approved by a majority
of the members of the Fund's board, including a majority of the board members
who are not interested persons of the Fund.
For use on or after: ____, 1999
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