<PAGE> 1
AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 1999
SECURITIES ACT FILE NO. 33-32430
INVESTMENT COMPANY ACT FILE NO. 811-5969
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 3 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 3 [X]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
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
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 SEPTEMBER 1, 1999
LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD
SEPTEMBER 3, 1999
PROSPECTUS
Mutual funds:
- - are not FDIC-insured
- - have no bank guarantees
- - may lose value
KEMPER NEW EUROPE FUND, INC.
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
----
<S> <C>
FUND SUMMARY.............................................. 1
Investment Objective and Principal Strategies........... 1
PRINCIPAL RISK FACTORS.................................... 1
Past Performance........................................ 2
Fee and Expense Information............................. 3
Example................................................. 5
ABOUT THE FUND............................................ 6
Principal Investment Strategies......................... 6
Other Investments....................................... 7
Risk Management Strategies.............................. 8
Main Risks -- Generally................................. 8
Types of Investment Risk................................ 9
Investment Manager...................................... 10
Portfolio Management.................................... 11
ABOUT YOUR INVESTMENT..................................... 12
Choosing a Share Class.................................. 12
Rule 12b-1 Plan......................................... 14
Special Features........................................ 14
Buying Shares........................................... 15
NAV Purchases........................................... 15
Selling and Exchanging Shares........................... 21
Distributions and Taxes................................. 22
Transaction Information................................. 24
FINANCIAL HIGHLIGHTS...................................... 27
</TABLE>
THE FUND WAS A CLOSED-END FUND LISTED ON THE NEW YORK STOCK EXCHANGE. THE
SHAREHOLDERS OF THE FUND 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 OCCURRED ON SEPTEMBER 3, 1999. THIS PROSPECTUS PERTAINS TO
THE FUND AS AN OPEN-END INVESTMENT COMPANY.
<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 at least 65% of
its total assets 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.
The fund will invest primarily in the more established and liquid markets of
Western and Southern Europe. To enhance return, the fund may also pursue
investment opportunities in the less wealthy nations (emerging markets) of
Southern Europe. The fund intends to allocate its investments among at least
three European countries at all times.
The portfolio management team emphasizes a growth investment approach in buying
and selling securities for the fund, but also includes value considerations in
making investment decisions. The portfolio management team looks at factors such
as earnings growth, new or leading products or technologies and valuation trends
in carrying out its investment approach. A stock is typically sold when, in the
opinion of the portfolio manager, the stock has reached a predetermined value,
the company's fundamentals have deteriorated, there is a loss of confidence in
company management or there are changes in the fund's portfolio or more
attractive investment opportunities.
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 equity 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.
1
<PAGE> 5
- - 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 performance of Class M shares shown in the bar chart and performance table
reflects the performance of the fund in closed-end form (without daily sales and
redemptions). The bar chart and performance table provide some indication of
risks of investing in the fund by showing changes in the fund's performance from
year to year and by showing how the fund's average annual returns for 1 and
5-year periods and since inception compare with those of a broad measure of
market performance. The fund's performance may have been lower if it had
operated as an open-end fund during this period. The fund's past performance is
not necessarily an indication of how the fund will perform in the future.
2
<PAGE> 6
TOTAL RETURNS FOR YEARS ENDED DECEMBER 31:
YEAR-BY-YEAR TOTAL RETURNS
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURNS
--------------------------
<S> <C>
'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 1998). The fund's year to date
performance through June 30, 1999 was 4.93%.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
MSCI
EUROPE
FOR PERIODS ENDED DECEMBER 31, 1998 CLASS M* INDEX**
- ----------------------------------- -------- -------
<S> <C> <C>
One Year........................... 30.33% 28.53%
Five Years......................... 20.80% 19.09%
Since Inception***................. 12.45% 14.47%
</TABLE>
- ---------------
* The one year average annual total return reflects the imposition of a 2%
redemption fee.
** 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.
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
3
<PAGE> 7
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
------- ------- ------- -------
<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)..................... None None None 2%(2)
Exchange Fee.................... None None None 2%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS M
------- ------- ------- -------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fee.................. 0.74% 0.74% 0.74% 0.74%
Distribution and Service (12b-1)
Fees.......................... None 0.75% 0.75% None
Other Expenses.................. 1.11% 1.65% 1.13% 0.68%
==== ==== ==== ====
Total Annual Fund Operating
Expenses...................... 1.85% 3.14% 2.62% 1.42%
Expense Reimbursement........... 0.10% 0.49% None None
==== ==== ==== ====
Net Annual Fund Operating
Expenses(3)................... 1.75% 2.65% 2.62% 1.42%
==== ==== ==== ====
</TABLE>
- ---------------
(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 on
September 3, 1999. The fees and expenses of open-end
4
<PAGE> 8
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 adjusted for any
open-end related expenses. 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. Pursuant to contractual agreements with the
fund, the investment manager, the underwriter, the administrator, the accounting
agent and the transfer agent have agreed, for the period through October 31,
2000, 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.
EXAMPLE
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
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. The expense calculations
incorporate the contractual expense reimbursements in place for the first year
in the periods reflected below. 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 AT THE END OF:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year..................... $ 743 $ 668 $ 365
3 Years.................... $1,118 $1,230 $ 814
5 Years.................... $1,519 $1,824 $1,390
10 Years*.................. $2,641 $3,529 $2,954
</TABLE>
FEES AND EXPENSES IF YOU DID NOT SELL YOUR SHARES AT THE END OF:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year..................... $ 743 $ 268 $ 265
3 Years.................... $1,118 $ 930 $ 814
5 Years.................... $1,519 $1,624 $1,390
10 Years*.................. $2,641 $3,529 $2,954
</TABLE>
- ---------------
* Class B automatically converts into Class A six years after purchase.
5
<PAGE> 9
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 the
conversion and a reorganization with Kemper Europe Fund, the fund changed its
name to "Kemper New 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
- - 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
- - the company's equity securities are traded principally in European securities
markets.
The fund may purchase the following types of equity securities, although other
than investments in common stocks, it has no current intention of investing a
significant amount of its assets in any of the other categories:
- - common and preferred stocks;
- - sponsored and unsponsored depositary receipts;
- - debt securities convertible into common stock; and
- - common stock purchase warrants and rights.
The fund will invest in established markets as well as newer markets, and the
portion of the fund's assets invested in each will vary from time to time. The
fund may also invest in companies of any size. The fund expects, however, to
invest primarily 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.
6
<PAGE> 10
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, although the fund
has no current intention to invest a significant amount of its assets in these
countries. 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: small European companies; companies and
joint ventures based in Europe; 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).
The portfolio management team conducts regional, country, industry and company
analysis in search of investments likely to benefit from economic, political,
industrial and other changes occurring across Europe. In analyzing regions and
countries, the portfolio management team analyzes factors such as projected
economic growth, changes in interest rates and inflation, trade patterns,
currency fluctuations and political developments. In choosing investments, the
portfolio management team will focus on European companies that:
- - generate or apply new technologies, distribution systems or services;
- - expect to benefit from changing consumer demands or lifestyles;
- - have prospects for above-average earnings growth; or
- - are undervalued due to market misperception, temporary negative developments,
limited investor familiarity or other factors.
A security is typically sold when, in the opinion of the portfolio management
team, the stock has reached its fair market value and its appreciation is
limited, a company's fundamentals have deteriorated, the portfolio management
team loses confidence in company management, the fund's portfolio is too heavily
weighted in a particular company, country or sector, or more attractive
alternatives are available in other companies or sectors.
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."
7
<PAGE> 11
The fund may invest in when-issued securities, illiquid and restricted
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.
RISK MANAGEMENT STRATEGIES
The fund may use certain derivatives (investments whose value is based on
indices or other securities) to attempt to offset 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.
For temporary defensive purposes, the fund may invest without limit in 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 and may invest up to 20% in those
instruments to maintain liquidity. In such a case, the fund would not be
pursuing, and may not achieve, its investment objective.
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.
8
<PAGE> 12
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.
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.
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.
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 (I.E., "JUNK BONDS"). 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.
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.
SMALL COMPANIES RISK. The risk that small companies may have less-experienced
management, limited product lines, unproven track records or inadequate capital
reserves. These securities may carry increased mar-
9
<PAGE> 13
ket and liquidity risks. Key information about the company may also be
inaccurate or unavailable.
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.
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.
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 (approximately 1.15% of the fund's
average weekly net assets), which was based upon the fund's prior (higher)
investment management fee schedule.
10
<PAGE> 14
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 1990 Joined Scudder Kemper in 1981 as a
Lead Portfolio portfolio manager. She is a member
Manager 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 1992 Joined Scudder Kemper in 1992 as a
Portfolio Manager portfolio manager. She is a member
of the 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 1998 Joined Scudder Kemper in 1994 as a
Portfolio Manager European equity 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>
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<PAGE> 15
YEAR 2000 READINESS
Like all mutual funds, the fund could be affected by the inability of some
computer systems to recognize the year 2000. Scudder Kemper has a year 2000
readiness program designed to address this problem, and is also researching the
readiness of suppliers and business partners as well as issuers of securities
the fund owns. Still, there is some risk that the year 2000 problem could
materially affect the fund's operations (such as its ability to calculate net
asset value and process purchase and redemptions), its investments, or
securities markets in general.
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.
12
<PAGE> 16
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.
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.
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.
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
13
<PAGE> 17
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.
CLASS A SHARES -- LARGE ORDER NAV PURCHASE PRIVILEGE. Class A shares of the
fund may be purchased at net asset value by any purchaser provided that the
amount invested in the fund or other Kemper Funds 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 above.
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
$500,000 (during any ninety day period). 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
14
<PAGE> 18
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.
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;
15
<PAGE> 19
- - 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;
- - 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;
16
<PAGE> 20
- - 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.
17
<PAGE> 21
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 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;
18
<PAGE> 22
- - 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.
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.
19
<PAGE> 23
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%
20
<PAGE> 24
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.
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 Service 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,
21
<PAGE> 25
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 and
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 Service 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 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
22
<PAGE> 26
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 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.
23
<PAGE> 27
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.
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
and is not a commission paid to the investment manager or its subsidiaries. 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.
24
<PAGE> 28
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 unless 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
25
<PAGE> 29
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.
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 redemptions will be paid in-kind to
the extent those redemptions exceed $500,000 during any ninety day period within
the one year period following the fund's conversion to open-end status, 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
26
<PAGE> 30
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 reports, along with the fund's financial statements, are included in the
fund's semi-annual report for the six-month period ended April 30, 1999, and the
fund's annual report for the year ended October 31, 1998, which are available
upon request by calling Kemper at 1-800-621-1048.
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 periods, 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 and the above-referenced six-month
period. The fund's performance may have been lower if it had operated as an
open-end fund during this period.
27
<PAGE> 31
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED OCTOBER 31,
APRIL 30, ------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period............... $ 22.23 $19.96 $16.60 $13.24 $11.61 $10.72
----------- ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income
(loss)(a)............... .01(c) -- (.01) .05 .05 .02
Net realized and
unrealized gain (loss)
on investment
transactions............ 2.31 4.47 3.43 3.36 1.58 .87
----------- ------ ------ ------ ------ ------
Total from investment
operations.............. 2.32 4.47 3.42 3.41 1.63 .89
----------- ------ ------ ------ ------ ------
Less distributions from:
Net investment income..... (.03) (.09) (.06) (.05) -- --
Net realized gains on
investment
transactions............ (2.96) (2.11) -- -- -- --
----------- ------ ------ ------ ------ ------
Total distributions....... (2.99) (2.20) (.06) (.05) -- --
----------- ------ ------ ------ ------ ------
Net asset value, end of
period.................. $ 21.56 $22.23 $19.96 $16.60 $13.24 $11.61
=========== ====== ====== ====== ====== ======
Market value, end of
period.................. $ 19.88 $18.88 $15.50 $14.00 $10.25 $ 9.75
=========== ====== ====== ====== ====== ======
TOTAL RETURN
Per share market value
(%)..................... 23.01** 39.56 11.16 37.18 5.13 (4.88)
Per share net asset value
(%)(b).................. 13.30** 27.70 20.66 25.92 14.04 8.30
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period
($ millions)............ 352 359 320 266 213 186
Ratio of operating
expenses to average net
assets (%).............. 1.56(d)* 1.41 1.49 1.51 1.62 1.67
Ratio of net investment
income (loss) to average
net assets (%).......... .03** (.01) (.03) .31 .39 .20
Portfolio turnover rate
(%)..................... 59.1* 41.4 44.7 35.3 32.4 43.2
</TABLE>
- ---------------
(a) Based on monthly average shares outstanding during the period.
28
<PAGE> 32
(b) Total investment returns reflect changes in net asset value per share during
each period and assume that dividends and capital gains distributions, if
any, were reinvested. These percentages are not an indication of the
performance of a shareholder's investment in the Fund based on market price.
(c) Net investment income per share includes non-recurring dividend income
amounting to $.08 per share.
(d) Includes reorganization expense ratio of .14%.
* Annualized
** Not annualized
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 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)
- ---------------------------------------------------------------------
By Internet http://www.sec.gov
http://www.kemper.com
- ---------------------------------------------------------------------
</TABLE>
The Statement of Additional Information dated September 3, 1999 is incorporated
by reference into this prospectus (is legally a part of this prospectus).
INVESTMENT COMPANY ACT FILE NUMBER: 811-5969
29
<PAGE> 33
SNEFp0699
<PAGE> 34
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 SEPTEMBER 1, 1999
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1999
KEMPER NEW EUROPE FUND, INC.
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 New Europe Fund, Inc. (the
"Fund") dated September 3, 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's audited Semi-Annual
Report dated April 30, 1999 and its audited Annual Report dated October 31,
1998, each of which either accompanies this Statement of Additional Information
or has been previously provided to the investor to whom this Statement of
Additional Information is being sent, are incorporated by reference. The Fund
will furnish without charge a copy of the Semi-Annual Report and the Annual
Report upon request by calling 1-800-621-1048.
The Fund was a closed-end fund whose shares were listed on the New York
Stock Exchange, Inc. The shareholders of the Fund approved a proposal to
open-end the Fund. The conversion of the Fund to an open-end investment company
occurred on September 3, 1999. This Statement of Additional Information pertains
to the Fund as an open-end investment company.
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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.......................... 27
PORTFOLIO TRANSACTIONS...................................... 31
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES............... 32
REDEMPTION OR REPURCHASE OF SHARES.......................... 37
SPECIAL FEATURES............................................ 42
OFFICERS AND DIRECTORS...................................... 46
ORGANIZATION OF THE FUND.................................... 48
FINANCIAL STATEMENTS........................................ 50
</TABLE>
PRINTED ON RECYCLED PAPER
i
<PAGE> 36
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> 37
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 net 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
2
<PAGE> 38
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 invest without limit in 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 for
temporary defensive purposes and up to 20% to maintain liquidity. In such a
case, the Fund would not be pursuing, and may not achieve, its investment
objective.
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.
3
<PAGE> 39
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 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
4
<PAGE> 40
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
5
<PAGE> 41
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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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.
Subject to the above 20% limit, the Fund may 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 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
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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 limited product lines, markets or financial resources and may
lack management depth. In addition, these
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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 the Fund to pay or deliver securities or assets
must be covered at all times by the securities, instruments or
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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 purchased or sold. Thus, the
following general discussion relates to each of the types of options discussed
in
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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 underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in
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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.
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
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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 generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
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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 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
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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 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
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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 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
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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 determining its net asset value. The market value of the when-issued
or forward delivery securities may be
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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 and 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) may 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
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.
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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.
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.
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
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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. 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
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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 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
21
<PAGE> 57
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 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
22
<PAGE> 58
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 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
23
<PAGE> 59
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 the Morgan Stanley
Capital International (MSCI) Europe Index 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") and other independent organizations.
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.
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
24
<PAGE> 60
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, on September 3, 1999 (the
"Reorganization"). The Fund's former closed-end share class was renamed Class M
shares upon the Reorganization. The figures below show performance information
prior to the Reorganization for Class M shares for periods ended December 31,
1998. Class A, B and C shares are newly offered and therefore have no available
performance information. Comparative information with respect to the MSCI Index
is also included. There are differences and similarities between the investments
which the Fund may purchase and the investments measured by the MSCI Index. 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.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
MSCI
Europe
FOR PERIODS ENDED DECEMBER 31, 1998 Class M(1) Index(2)
----------------------------------- ---------- --------
<S> <C> <C>
One Year.................................................... 30.33% 28.53%
Five Years.................................................. 20.80% 19.09%
Since Inception(3).......................................... 12.45% 14.47%
</TABLE>
- ---------------
(1) The one year average annual total return reflects the imposition of a 2%
redemption fee.
(2) 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.
(3) Inception date for Class M Shares is February 16, 1990.
25
<PAGE> 61
The following table compares the performance of the Class M shares of the
Fund over various periods ended December 31, 1998, 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.
<TABLE>
<CAPTION>
LIPPER MUTUAL FUND
PERFORMANCE ANALYSIS
WESTERN EUROPEAN FUNDS
----------------------
<S> <C>
One Year (Period ended 12/31/98)............................ #4 of 13 Funds
Five Years (Period ended 12/31/98).......................... #5 of 13 Funds
</TABLE>
The Lipper Western European Funds category includes funds that concentrate
their investments in equity securities with primary trading markets or
operations concentrated in Western European regions or in a single country
within these regions.
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.
26
<PAGE> 62
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. 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
27
<PAGE> 63
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>
$4,151,077 $3,490,192 $2,805,909
</TABLE>
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 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
28
<PAGE> 64
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.
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
29
<PAGE> 65
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 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.
30
<PAGE> 66
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.
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.
31
<PAGE> 67
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>
$789,718 None $662,786 $262,451
</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.
<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; Class M shares are not None Subject to 2% fee on all
offered for sale redemptions (including
redemptions in-kind) and
exchanges; all "large" redemption
requests (i.e., $500,000 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
32
<PAGE> 68
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 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
33
<PAGE> 69
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 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.
34
<PAGE> 70
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."
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
35
<PAGE> 71
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 KDI. 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 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
36
<PAGE> 72
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.
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.
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<PAGE> 73
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. The fee is applied to the shares being redeemed or exchanged in
the order in which they were purchased.
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
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<PAGE> 74
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 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
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<PAGE> 75
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 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
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<PAGE> 76
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 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 redemptions by making payment in whole or in
part in readily marketable securities to the extent those redemptions exceed
$500,000 during any 90-day period within the one year period following the
Fund's conversion to open-end status. 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
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<PAGE> 77
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.
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
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<PAGE> 78
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. 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
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<PAGE> 79
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 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
44
<PAGE> 80
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 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.
45
<PAGE> 81
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 (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.
46
<PAGE> 82
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 and Vice President, 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.
*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.
*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 (12/3/52), Vice President, 345 Park Avenue, New York,
New York; Managing Director, Scudder Kemper
*JOAN R. GREGORY (8/4/45), Vice President, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper.
*MARC SLENDEBROEK (12/8/64), Vice President, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper.
47
<PAGE> 83
*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.
- ---------------
* 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.
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
ESTIMATED AGGREGATE KEMPER FUND COMPLEX PAID
COMPENSATION TO BOARD
NAME OF DIRECTOR FROM FUND MEMBERS(2)
- ---------------- ------------------- ------------------------
<S> <C> <C>
James E. Akins.............................. $1,800 $130,000
Arthur R. Gottschalk(1)..................... $1,800 $133,200
Frederick T. Kelsey......................... $1,800 $130,500
Fred B. Renwick............................. $1,800 $130,500
John G. Weithers............................ $1,800 $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 55
fund portfolios. Each Director currently serves as a board member of 15
Kemper funds with 55 fund portfolios.
As of August 13, 1999, 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>
NAME AND ADDRESS CLASS PERCENTAGE
---------------- ----- ----------
<S> <C> <C>
Lazard Freres & Co., Inc. M 6.4%
30 Rockefeller Plaza
New York, New York 10020
</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. As a result of the conversion and
the reorganization with Kemper Europe Fund, the Fund changed its name to "Kemper
New 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. Class M shares of the Fund are no longer offered. 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 the 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
48
<PAGE> 84
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 has provisions in its Charter that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Fund, to cause it to engage in certain transactions or to modify its structure.
These provisions were included in the Fund's original Charter as a closed-end
fund and require a 75% vote of the shareholders in order to be amended.
The Board of Directors is divided into three classes, each class having a
term of three years. The Fund holds annual shareholders meetings to elect
directors whose terms expire that year. This provision could delay for up to two
years the replacement of a majority of the Board of Directors. A director may be
removed from office only for cause and only by a vote of the holders of at least
75% of the shares of the Fund entitled to be voted on the matter.
In addition, the affirmative vote of 75% of the directors and the holders
of 75% of the shares of the Fund are required to authorize any of the following
transactions:
(i) merger, consolidation or share exchange of the Fund with or into any
other person;
(ii) issuance or transfer by the Fund (in one or a series of transactions
in any 12 month period) of any securities of the Fund to any person or entity
for cash, securities or other property (or combination thereof) having an
aggregate fair market value of $1,000,000 or more excluding (x) sales of
securities of the Fund in connection with a public offering, (y) issuances of
securities of the Fund issued pursuant to a dividend reinvestment plan adopted
by the Fund and (z) issuances of securities of the Fund upon the exercise of any
stock subscription rights distributed by the Fund;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Fund (in one or a series of transactions in any 12 month
period) to or with any person or entity of any assets of the Fund having an
aggregate fair market value of $1,000,000 or more except for portfolio
transactions effected by the Fund in the ordinary course of its business
(transactions within clauses (i), (ii) and (iii) above being known individually
as a "Business Combination");
(iv) any proposal as to the voluntary liquidation or dissolution of the
Fund; and
(v) any shareholder proposal as to specific investment decisions made or to
be made with respect to the Fund's assets.
However, a 75% shareholder vote will not be required with respect to the
foregoing transactions (other than those set forth in (v) above) if they are
approved by a vote of 75% of the "Continuing Directors" (as defined below), in
which case a vote of the holders of a majority of the outstanding shares of the
Fund will be required, or, in the case of (i), (ii) or (iii) above, if certain
conditions regarding the consideration paid by such corporation, person or
entity are satisfied and, in those cases, the lesser state law voting
requirements, if any, will apply. A "Continuing Director" is any member of the
Board of Directors of the Fund who (i) is not a person or affiliate of a person
(other than an investment company advised by the Fund's initial investment
manager or any of its affiliates) who enters or proposes to enter into a
Business Combination with the Fund (an "Interested Party") and (ii) who has been
a member of the Board of Directors of the Fund 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 of the Fund.
The Fund's By-Laws contain provisions the effect of which is to prevent matters,
including nominations of directors, from being considered at shareholder
meetings where the Fund has not received sufficient prior notice of the matters.
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
49
<PAGE> 85
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.
FINANCIAL STATEMENTS
The Fund's audited Semi-Annual Report dated April 30, 1999 and its audited
Annual Report dated October 31, 1998, each of which either accompanies this
Statement of Additional Information or has been previously provided to the
investor to whom this Statement of Additional Information is being sent, are
incorporated herein by reference with respect to all information regarding the
Fund included therein. The Fund will furnish without charge a copy of the
Semi-Annual Report and the Annual Report upon request by calling 1-800-621-1048.
50
<PAGE> 86
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> 87
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> 88
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
(a) (1) Articles of Incorporation.(1)
(2) Articles of Amendment dated January 4, 1990.(1)
(3) Articles of Amendment dated February 2, 1990.(1)
(4) Form of Amended and Restated Articles of Incorporation dated
September 3, 1999.
(5) Form of Articles of Amendment dated September 3, 1999.
(b) (1) Amended and Restated By-Laws.(1)
(2) Amendment to By-Laws dated June 27, 1990.(1)
(3) Amendment to By-Laws dated April 12, 1991.(1)
(4) Amendment to By-Laws dated May 22, 1992.(1)
(5) Amendment to By-Laws dated July 28, 1992.(1)
(6) Amendment to By-Laws dated July 19, 1993.(1)
(7) Amendment to By-Laws dated January 12, 1995.(1)
(8) Amendment to By-Laws dated October 30, 1996.(1)
(9) Amendment to By-Laws dated September 29, 1997.(1)
(10) Amendment to By-Laws dated April 27, 1999.(1)
(11) Form of Amended and Restated By-Laws dated September 3,
1999.
(c) Form of Share Certificates.(3)
(d) Form of Investment Advisory Agreement with Scudder Kemper
Investments, Inc.(1)
(e) Form of Underwriting and Distribution Services Agreement
with Kemper Distributors, Inc.(1)
(f) Not applicable.
(g) Custodian Agreement with Brown Brothers Harriman & Co. Fee
Schedule and Amendment.(2)
(h) (1) Form of Transfer Agency and Service Agreement with Investors
Fiduciary Trust Company.(1)
(2) Form of Administrative Services Agreement with Kemper
Distributors, Inc.(1)
(3) Form of Fund Accounting Services Agreement with Scudder Fund
Accounting Corporation.(1)
(i) (1) Opinion and Consent of Willkie Farr & Gallagher, counsel to
Registrant.(3)
(2) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to Registrant.(3)
(j) (1) Consent of Ernst & Young LLP Independent Auditors.(3)
(2) Consent of PricewaterhouseCoopers LLP Independent
Accountants.(3)
(k) Not applicable.
(l) Not applicable.
(m) (1) 12b-1 Plan for Class B Shares.(1)
(2) 12b-1 Plan for Class C Shares.(1)
(n) Not applicable.
(o) 18f-3 Plan.(1)
</TABLE>
- ---------------
(1) Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed April 28, 1999.
(2) Incorporated by reference to Pre-Effective No. 1 to the Registrant's
Registration Statement on Form N-1A filed June 8, 1999.
(3) Incorporated by reference to Pre-Effective No. 2 to the Registrant's
Registration Statement on Form N-1A filed August 16, 1999.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
C-1
<PAGE> 89
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 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
C-2
<PAGE> 90
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.
(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.
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<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, this Amendment to 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 1st day of September, 1999.
Scudder New Europe Fund, Inc.
By: /s/ NICHOLAS BRATT
--------------------------------------
Nicholas Bratt
President and Director
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>
Chairman and Director September 1, 1999
- -----------------------------------------------------
Daniel Pierce*
Director September 1, 1999
- -----------------------------------------------------
Paul Bancroft III*
Director September 1, 1999
- -----------------------------------------------------
Mary Johnston Evans*
Director September 1, 1999
- -----------------------------------------------------
Richard Hunt*
Director September 1, 1999
- -----------------------------------------------------
William H. Luers*
Director September 1, 1999
- -----------------------------------------------------
Wilson Nolen*
Director September 1, 1999
- -----------------------------------------------------
Ladislas O. Rice*
/s/ JOHN R. HEBBLE Treasurer (Principal September 1, 1999
- ----------------------------------------------------- Financial and Accounting
John R. Hebble Officer)
By: /s/ CAROLINE PEARSON
-------------------------------------------------
Caroline Pearson
as Attorney-in-Fact
</TABLE>
* Caroline Pearson signs this document pursuant to powers of attorney filed with
the Registrant's Registration Statement on Form N-1A, as filed with the
Securities and Exchange Commission on April 28, 1999.
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
(a) (4) Form of Amended and Restated Articles of Incorporation dated
September 3, 1999.
(a) (5) Form of Articles of Amendment dated September 3, 1999.
(b) (11) Form of Amended and Restated By-Laws dated September 3,
1999.
</TABLE>
<PAGE> 1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
SCUDDER NEW EUROPE FUND, INC.
Scudder New Europe Fund, Inc. a Maryland corporation, having its
principal office in Maryland in Baltimore City (hereinafter called the
"Corporation") hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
ARTICLE I: The Charter of the Corporation is amended and as so amended
is restated in its entirety by striking out Article First through Twelfth and
inserting in lieu thereof the following:
"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: The name of the Corporation is Kemper Europe Fund, Inc. (the
"Corporation").
THIRD: The purposes for which the Corporation is formed are to operate
and carry out the business of an open-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: The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation
<PAGE> 2
Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202. The name
and address of the resident agent of the Corporation in the State of Maryland is
The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland
21202.
FIFTH: (1) The total number of shares of capital stock which the
Corporation shall have authority to issue is five hundred million (500,000,000),
all of which shall be Common Stock having a par value of one-tenth of one cent
($0.001) per share and an aggregate par value of five hundred thousand dollars
($500,000). Until such time as the Board of Directors shall provide otherwise in
accordance with paragraph (1)(d) of Article Seventh hereof, two hundred million
(200,000,000) of the authorized shares of Common Stock of the Corporation are
classified as Class A Common Stock, one hundred million (100,000,000) of such
shares are classified as Class B Common Stock, one hundred million (100,000,000)
of such shares are classified as Class C Common Stock and one hundred million
(100,000,000) of such shares are classified as Class M Common Stock. Each share
(including for this purpose a fraction of a share) of Common Stock issued and
outstanding immediately prior to these Articles of Amendment and Restatement
becoming effective, shall, at such effective time, be reclassified
automatically, and without any action or choice on the part of the holder, into
a share (or the same fraction of a share) of Class M Common Stock.
(2) As more fully set forth hereafter, the assets and liabilities and
the income and expenses attributable to each class of the Corporation's stock
shall be determined separately from those of each other class of the
Corporation's stock and, accordingly, the net asset value, the dividends and
distributions payable to stockholders, and the amounts distributable in the
event of liquidation or dissolution of the Corporation to stockholders of the
Corporation's stock may vary from class to class.
2
<PAGE> 3
(3) The assets of the Corporation attributable to each of the Class A
Common Stock, the Class B Common Stock, the Class C Common Stock and the Class M
Common Stock shall be invested in the same investment portfolio of the
Corporation.
(4) The allocations of investment income and losses and capital gains
and losses and expenses and liabilities of the Corporation among each of the
classes of Common Stock of the Corporation shall be determined by the Board of
Directors in a manner that is consistent with the Investment Company Act of
1940, as amended. The determination of the Board of Directors shall be
conclusive as to the allocation of investment income and losses, capital gains
and losses, expenses and liabilities (including accrued expenses and reserves)
and assets to a particular class or classes.
(5) Shares of each class of stock shall be entitled to such dividends
or distributions, in stock or in cash or both, as may be declared from time to
time by the Board of Directors with respect to such class. Specifically, and
without limiting the generality of the foregoing, the dividends and
distributions of investment income and capital gains with respect to each class
of stock may vary with respect to each such class to reflect differing
allocations of the expenses of the Corporation among the holders of the classes
and any resultant differences among the net asset values per share of the
classes, to such extent and for such purposes as the Board of Directors may deem
appropriate. The Board of Directors may provide that dividends and distributions
on the Class M Common Stock may be paid or reinvested in shares of Class A
Common Stock. The Board of Directors may provide that dividends and
distributions shall be payable only with respect to those shares of stock that
have been held of record continuously by the stockholder for a specified period,
not to exceed 72 hours, prior to the record date of the dividend or
distribution.
(6) On each matter submitted to a vote of the stockholders, each holder
of a share of stock shall be entitled to one vote for
3
<PAGE> 4
each such share standing in such holder's name upon the books of the Corporation
regardless of the class thereof, and all shares of all classes shall vote
together as a single class; provided, however, that (i) when the Maryland
General Corporation Law or the Investment Company Act of 1940, as amended,
requires that a class vote separately with respect to a given matter, the
separate voting requirements of the applicable law shall govern with respect to
the affected class or classes: (ii) in the event that the separate vote
requirement referred to in (i) above applies with respect to one or more
classes, then, subject to (iii) below, the shares of all other classes shall
vote as one single class; and (iii) as to any matter, which, in the judgment of
the Board of Directors (which shall be conclusive and binding for all purposes),
does not affect the interests of a particular class, such class shall not be
entitled to any vote and only the holders of shares of the affected class or
classes shall be entitled to vote.
(7) In the event of the liquidation or dissolution of the Corporation,
stockholders of each class of the Corporation's stock shall be entitled to
receive, as a class, out of the assets of the Corporation available for
distribution to stockholders, but other than general assets not attributable to
any particular class of stock, the assets attributable to the class less the
liabilities allocated to that class; and the assets so distributable to the
stockholders shall be distributed among the stockholders in proportion to the
number of shares of the class held by them and recorded on the books of the
Corporation. In the event that there are any general assets not attributable to
any particular class of stock, and such assets are available for distribution,
the distribution shall be made to the holders of all classes in proportion to
the net asset value of the respective classes or as otherwise determined by the
Board of Directors.
(8) To the extent permitted by law, each holder of shares of the
Corporation's stock shall be entitled to require the
4
<PAGE> 5
Corporation to redeem all or any part of the shares of stock of the Corporation
standing in the name of the holder on the books of the Corporation, and all
shares of stock issued by the Corporation shall be subject to redemption by the
Corporation, at the redemption price of the shares as in effect from time to
time as may be determined by or pursuant to the direction of the Board of
Directors of the Corporation in accordance with the provisions of Article
Seventh, less the amount of any applicable redemption charge, deferred sales
charge or other amount imposed by the Board of Directors (to the extent
consistent with applicable law), subject to the right of the Board of Directors
of the Corporation to suspend the right of redemption or postpone the date of
payment of the redemption price in accordance with provisions of applicable law.
The proceeds of the redemption of a share (including a fractional share) of any
class of stock of the Corporation shall be reduced by the amount of any
redemption charge, deferred sales charge or other amount payable on such
redemption pursuant to the terms of issuance of such shares or otherwise imposed
by the Board of Directors. Without limiting the generality of the foregoing, the
Corporation shall, to the extent permitted by applicable law, have the right at
any time, at the Corporation's option, to redeem, in whole or in part, the
shares owned by any holder of stock of the Corporation (i) if the redemption is,
in the opinion of the Board of Directors of the Corporation, desirable in order
to prevent the Corporation from being deemed a "personal holding company" within
the meaning of the Internal Revenue Code of 1986, as amended, or (ii) if the
value of the shares in the account maintained by the Corporation or its transfer
agent for any class of stock for the stockholder is below an amount determined
from time to time by the Board of Directors of the Corporation (the "Minimum
Account Balance") and (a) the stockholder has been given notice of the
redemption and has failed to make additional purchases of shares in an amount
sufficient to bring the value in his account to at least the Minimum Account
Balance before the redemption is effected by the
5
<PAGE> 6
Corporation or (b) the redemption is with respect to fees to be paid by the
stockholder to the Corporation for failing to maintain the Minimum Account
Balance or (iii) the Board of Directors has otherwise determined that it is in
the best interests of the Corporation to redeem the shares. Notwithstanding any
other provision of this Article FIFTH(8), if certificates representing the
redeemed shares have been issued, the redemption price need not be paid by the
Corporation until such certificates are presented in proper form for transfer to
the Corporation or the agent of the Corporation appointed for such purpose;
however, the redemption shall be effective in accordance with the action of the
Board of Directors, regardless of whether or not such presentation has been
made. Payment of the redemption price shall be made in cash by the Corporation
at the time and in the manner as may be determined from time to time by the
Board of Directors of the Corporation unless, in the opinion of the Board of
Directors, which shall be conclusive, conditions exist that make payment wholly
in cash unwise or undesirable; in such event the Corporation may make payment
wholly or partly by securities or other property included in the assets
allocable to the class of the shares for which redemption is being sought, the
value of which shall be determined as provided herein.
(9) At such times as may be determined by the Board of Directors (or
with the authorization of the Board of Directors, by the officers of the
Corporation) in accordance with the Investment Company Act of 1940, as amended,
applicable rules and regulations thereunder and applicable rules and regulations
of the National Association of Securities Dealers, Inc. and from time to time
reflected in the registration statement of the Corporation (the "Corporation's
Registration Statement"), shares of a particular class of stock of the
Corporation may be automatically converted into shares of another class of stock
of the Corporation based on the relative net asset values of such classes at the
time of conversion, subject, however, to any
6
<PAGE> 7
conditions of conversion that may be imposed by the Board of Directors (or with
the authorization of the Board of Directors, by the officers of the Corporation)
and reflected in the Corporation's Registration Statement. The terms and
conditions of such conversion may vary within and among the classes to the
extent determined by the Board of Directors (or with the authorization of the
Board of Directors, by the officers of the Corporation) and set forth in the
Corporation's Registration Statement. Without limiting the generality of the
foregoing, each share (or fraction of a share) of Class M Common Stock that is
issued and outstanding as of the one year anniversary date of the date on which
these Articles of Amendment and Restatement become effective shall be converted
automatically, without any action or choice on the part of the holder, into a
share (or such fractional share), of Class A Common Stock of the Corporation
based on relative net asset values at the time of conversion, and outstanding
certificates previously representing the issued and outstanding shares of Class
M Common Stock shall thereafter represent Class A Common Stock in the resulting
number of whole shares.
(10) The Corporation may issue shares of stock in fractional
denominations to the same extent as its whole shares, and shares in fractional
denominations shall be shares of stock having proportionately to the respective
fractions represented thereby all the rights to vote, the right to receive
dividends and distributions, and the right to participate upon liquidation of
the Corporation, but excluding the right, if any, to receive a stock certificate
representing fractional shares.
(11) No stockholder shall be entitled to any preemptive right other
than as the Board of Directors may establish.
SIXTH: (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
7
<PAGE> 8
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.
(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: The following provisions are inserted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the Board
of Directors and stockholders.
8
<PAGE> 9
(1) In addition to its other powers explicitly or implicitly granted
under the Charter of the Corporation, by law or otherwise, the Board of
Directors of the Corporation:
(a) 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;
(b) may from time to time determine whether, to what extent,
at what times and places, and under what conditions and regulations the
accounts and books of the Corporation, or any of them, shall be open to
the inspection of the stockholders, and no stockholder shall have any
right to inspect any account, book or document of the Corporation
except as conferred by statute or as authorized by resolution of the
Board of Directors of the Corporation;
(c) is empowered to authorize, without stockholder approval,
the issuance and sale from time to time of shares of 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 may deem advisable;
(d) is authorized to classify or to reclassify, from time to
time, any unissued shares of stock of the Corporation, whether now or
hereafter authorized, by setting, changing or eliminating the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms and conditions of
or rights to require redemption for the stock. The provisions of these
Articles of Amendment and Restatement (including those in Article FIFTH
hereof) shall apply to each class of stock unless otherwise provided by
the Board of Directors prior to issuance of any shares of that class;
(e) is empowered to authorize and issue, without stockholder
approval, unsecured obligations of the Corporation, and subject to
Article Eighth of these Articles
9
<PAGE> 10
of Amendment and Restatement, secured obligations of the Corporation,
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;
(f) Notwithstanding anything in this Charter to the contrary,
is authorized to establish in its absolute discretion the basis or
method for determining the value of the assets attributable to any
class, the value of the liabilities attributable to any class and the
net asset value of each share of any class of the Corporation's stock;
and
(g) is authorized 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 other 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; and to establish payment dates
for dividends or any other distributions on any basis, including dates
occurring less frequently than the effectiveness of declarations
thereof.
(2) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all classes
or of any class of the Corporation's stock entitled to be cast in order to take
or authorize any action, any such action shall be effective and valid if taken
or authorized by the affirmative vote of a majority of the aggregate number of
votes entitled to be cast thereon subject to any
10
<PAGE> 11
applicable requirements of the Investment Company Act of 1940, as amended, as
from time to time in effect, or rules or orders of the Securities and Exchange
Commission or any successor thereto.
(3) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast (without regard to
class) shall constitute a quorum at any meeting of the stockholders, except with
respect to any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more classes of
stock, in which case the presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast by each class
entitled to vote as a class on the matter shall constitute a quorum.
(4) Any determination made in good faith by or pursuant to the
direction of the Board of Directors, as to the amount of the assets, debts,
obligations, or liabilities of the Corporation, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating such reserves or charges, as to the use, alteration or cancellation of
any reserves or charges (whether or not any debt, obligation, or liability for
which such reserves or charges shall have been created shall be then or
thereafter required to be paid or discharged), as to the value of or the method
of valuing any investment owned or held by the Corporation, as to market value
or fair value of any investment or fair value of any other asset of the
Corporation, as to the allocation of any asset of the Corporation to a
particular class or classes of the Corporation's stock, as to the charging of
any liability or expense of the Corporation to a particular class or classes of
the Corporation's stock, as to the number of shares of the Corporation
outstanding, as to the estimated expense to the Corporation in connection with
purchases of its shares, as to the ability to liquidate investments in orderly
fashion, or as to any other matters relating to the issue, sale, redemption or
other acquisition or disposition of investments or shares of the Corporation,
shall be
11
<PAGE> 12
final and conclusive and shall be binding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
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
(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
12
<PAGE> 13
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 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
13
<PAGE> 14
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:
(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;
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<PAGE> 15
(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 $1,000,000 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.
(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
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<PAGE> 16
(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-1 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
(viii) "Fair Market Value" means:
(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.
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<PAGE> 17
(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, (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 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.
17
<PAGE> 18
TENTH: Reservation of Right to Amend. 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, EIGHTH, 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.
ELEVENTH: Duration. Subject to the provisions of Article
Eighth(a)(iii), the duration of the Corporation shall be perpetual.
TWELFTH: (1) To the full 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 money damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not that person is a director or officer at the
time of any proceeding in which liability is asserted.
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<PAGE> 19
(2) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the full 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 full extent permitted by the Maryland General
Corporation Law.
(3) No provision of this Article shall be effective to protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its stockholders to which he or she 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 or
her office.
(4) References to the Maryland General Corporation Law in this Article
are to that law as from time to time amended. No amendment to the Charter of the
Corporation shall affect any right of any person under this Article based on any
event, omission or proceeding prior to the amendment."
ARTICLE II. Each share (including for this purpose a fraction
of a share) of Common Stock issued and outstanding immediately prior to these
Articles of Amendment and Restatement becoming effective, shall, at such
effective time, be reclassified automatically, and without any action or choice
on the part of the holder, into a share (or the same fraction of a share) of
Class M Common Stock. Outstanding certificates representing issued and
outstanding shares of Common Stock immediately prior to these Articles of
Amendment and Restatement becoming effective, shall upon these Articles of
Amendment and Restatement becoming effective be deemed to represent the same
number of shares of Class M Common Stock. Certificates
19
<PAGE> 20
representing shares of the Class M Common Stock resulting from the
aforesaid reclassification need not be issued until certificates representing
the shares of Common Stock so reclassified, if issued, have been received by the
Corporation or its agent duly endorsed for transfer with the request that a new
certificate be provided. The Class A Common Stock, Class B Common Stock, Class C
Common Stock and Class M Common Stock shall have the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption as set forth in the
Charter of the Corporation as herein amended and restated.
ARTICLE III: The Corporation desires to amend and restate its Charter
as currently in effect. The provisions set forth in these Articles of Amendment
and Restatement are all of the provisions of the Charter currently in effect as
herein amended. The current address of the principal office of the Corporation,
and the name and address of the Corporation's current resident agent are as set
forth herein. The number of directors is currently set at six and their names
are James E. Akins, Arthur R. Gottschalk, Frederick T. Kelsey, Fred B. Renwick,
Thomas W. Littauer and John G. Weithers.
ARTICLE IV: The amendment and restatement of the Charter of the
Corporation as hereinabove set forth has been duly advised by the Board of
Directors and approved by the stockholders.
ARTICLE V: The total number of shares of capital stock that the
Corporation had authority to issue immediately prior to these Articles of
Amendment and Restatement becoming effective was one hundred million
(100,000,000) shares of the par value of one cent ($.01) per share and of the
aggregate par value of one million dollars ($1,000,000 ) all of which shares
were designated Common Stock. The total number of shares of capital stock that
the Corporation has authority to issue upon these Articles of Amendment and
Restatement becoming effective is five hundred million (500,000,000) shares, all
of the par value of one-tenth
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of one cent ($.001) per share, and of the aggregate par value of five hundred
thousand dollars ($500,000). Two hundred million (200,000,000) of such shares
are designated as Class A Common Stock, one hundred million (100,000,000) of
such shares are designated as Class B Common Stock, one hundred million
(100,000,000) of such shares are designated as Class C Common Stock and one
hundred million (100,000,000) of such shares are designated as Class M Common
Stock.
ARTICLE VI: These Articles of Amendment and Restatement shall become
effective on September 3, 1999 at 4:00 p.m. Eastern Time.
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<PAGE> 22
IN WITNESS WHEREOF, Scudder New Europe Fund, Inc. has caused
these Articles of Amendment and Restatement to be signed in its name and on its
behalf by its Vice President, Bruce H. Goldfarb, and witnessed by its Secretary,
John Millette, as of September 1, 1999.
The Vice acknowledges these Articles of Amendment and
Restatement 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 this
amendment and restatement of the Corporation's Charter are true in all material
respects and that this statement is made under penalties of perjury.
By: /s/ Bruce H. Goldfarb
_________________________
Vice President
Witness:
/s/ John Millette
________________________
Secretary
22
<PAGE> 1
Exhibit (a)(5)
KEMPER EUROPE FUND, INC.
ARTICLES OF AMENDMENT
Kemper Europe Fund, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the Maryland Corporation Law,
hereby certifies to the Maryland State Department of Assessments and Taxation
that:
FIRST: Article SECOND of the Charter of the Corporation is
amended to read as follows:
"SECOND: The name of the Corporation is Kemper New Europe
Fund, Inc. (the "Corporation")."
SECOND: The above amendment to the Charter was unanimously
approved by the Board of Directors. The amendment is limited to a change
expressly permitted by Section 2-605 of the Maryland General Corporation Law to
be made without action by the stockholders and the Corporation is registered as
an open-end company under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the undersigned officers of the
Corporation have executed these Articles of Amendment on behalf of the
Corporation and do hereby acknowledge that these Articles of Amendment are the
act and deed of the Corporation and that, to the best of their knowledge,
information and belief, the matters and facts contained herein with respect to
authorization and approval are true in all material respects, under penalties of
perjury.
DATE: September 3, 1999 ______________________________________
Bruce H. Goldfarb
Vice President and Assistant Secretary
ATTEST:
________________________________________
John Millette
Secretary
<PAGE> 1
________________________________________________________________________________
KEMPER EUROPE FUND, INC.
A Maryland Corporation
AMENDED
AND
RESTATED
BY-LAWS
September 3, 1999
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL
<S> <C> <C>
Section 1.1. Principal Offices..................................... 1
Section 1.2. Seal.................................................. 1
ARTICLE II. STOCKHOLDERS
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. Stockholder Business not Eligible for Consideration... 5
Section 2.6. Quorum................................................ 6
Section 2.7. Adjourned Meetings.................................... 7
Section 2.8. Voting................................................ 7
Section 2.9. Stockholders Entitled to Vote......................... 8
Section 2.10. Proxies............................................... 8
Section 2.11. Voting and Inspectors................................. 9
Section 2.12. Action Without Meeting............................... 10
ARTICLE III. BOARD OF DIRECTORS
Section 3.1. Powers............................................... 10
Section 3.2. Power to Issue and Sell Stock........................ 11
Section 3.3. Power to Declare Dividends........................... 11
Section 3.4. Number and Term...................................... 12
Section 3.5. Director Nominations................................. 13
Section 3.6. Election............................................. 15
Section 3.7. Vacancies and Newly Created Directorships............ 15
Section 3.8. Removal.............................................. 16
Section 3.9. Regular Meetings..................................... 16
Section 3.10. Special Meetings..................................... 17
Section 3.11. Waiver of Notice..................................... 17
Section 3.12. Quorum and Voting.................................... 17
Section 3.13. Action Without a Meeting............................. 18
Section 3.14. Compensation of Directors............................ 18
ARTICLE IV. COMMITTEES
Section 4.1. Organization......................................... 19
Section 4.2. Executive Committee.................................. 19
Section 4.3. Other Committees..................................... 20
Section 4.4. Proceedings and Quorum............................... 20
ARTICLE V. OFFICERS
Section 5.1. General.............................................. 20
Section 5.2. Election, Tenure and Qualifications.................. 21
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.3. Removal and Resignation.............................. 21
Section 5.4. Chairman of the Board................................ 22
Section 5.5. Vice Chairman of the Board........................... 22
Section 5.6. President............................................ 22
Section 5.7. Vice President....................................... 23
Section 5.8. Treasurer and Assistant Treasurers................... 23
Section 5.9. Secretary and Assistant Secretaries.................. 24
Section 5.10. Subordinate Officers................................. 25
Section 5.11. Remuneration......................................... 25
Section 5.12. Surety Bonds......................................... 25
ARTICLE VI. NET ASSET VALUE
Section 6.1. Valuation of Assets.................................. 26
ARTICLE VII. CAPITAL STOCK
Section 7.1. Certificates of Stock................................ 26
Section 7.2. Transfer of Shares................................... 27
Section 7.3. Stock Ledgers........................................ 28
Section 7.4. Fixing of Record Date................................ 28
Section 7.5. Lost, Stolen or Destroyed Certificates............... 28
ARTICLE VIII. FISCAL YEAR
Section 8.1. Fiscal Year.......................................... 29
ARTICLE IX. INDEMNIFICATION AND INSURANCE
Section 9.1. Indemnification of Directors, Officers and
Members of the Advisory Board...................... 30
Section 9.2. Advances............................................. 31
Section 9.3. Procedure............................................ 32
Section 9.4. Indemnification of Employees and Agents.............. 32
Section 9.5. Other Rights......................................... 33
Section 9.6. Insurance............................................ 33
Section 9.7. Constituent, Resulting or Surviving Corporations..... 34
ARTICLE X. AMENDMENTS
Section 10.1. General.............................................. 34
</TABLE>
(ii)
<PAGE> 4
AMENDED AND RESTATED
BY-LAWS
of
KEMPER 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 Kemper
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.
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 to place the word "(seal)" adjacent to the signature of the person
authorized to sign the document on behalf of the Corporation.
<PAGE> 5
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 July. The meeting will be held
at such place within the United States as the Board of Directors shall select.
Section 2.2. Special Meetings. Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Charter, may be held at any place within the United States, and
may be called at any time by the Board of Directors or by the President, and
shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors or at the request in writing of stockholders
entitled to cast at least 25% of the votes entitled to be cast at the meeting
upon payment by such stockholders to the Corporation of the reasonably estimated
cost of preparing and mailing a notice of the meeting (which estimated cost
shall be provided to such stockholders by the Secretary of the Corporation).
Notwithstanding the foregoing, unless requested by stockholders entitled to cast
a majority of the votes entitled to be cast at the meeting, a special meeting of
the stockholders need not be called at the request of stockholders to consider
any matter which is substantially the same as a matter voted on at any special
meeting of the stockholders held during the preceding 12 (twelve) months. A
special meeting of the stockholders shall also be called by the
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<PAGE> 6
Board of Directors for the purpose of voting upon the question of removal of any
Director when requested in writing to do so by stockholders holding at least 10%
of the outstanding shares of the Corporation. A written request shall state the
purpose or purposes of the proposed meeting.
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.
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) otherwise
properly brought before the meeting by or at the
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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.
(d) Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at any annual or special
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<PAGE> 8
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. Stockholder Business not Eligible for Consideration.
(a) Notwithstanding anything in these By-Laws to the contrary, any
proposal that is otherwise properly brought before an annual or special meeting
by a stockholder will not be eligible for consideration by the stockholders at
such annual or special meeting if such proposal is substantially the same as a
matter properly brought before such annual or special meeting by or at the
direction of the Board of Directors of the Corporation. The chairman of such
annual or special meeting shall, if the facts warrant, determine and declare
that a stockholder proposal is substantially the same as a matter properly
brought before the meeting by or at the direction of the Board of Directors,
and, if he should so determine, he shall so declare to the meeting and any such
stockholder proposal shall not be considered at the meeting.
(b) This Section 2.5. shall not be construed or applied to make
ineligible for consideration by the stockholders at any annual or special
meeting any stockholder proposal
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<PAGE> 9
required to be included in the Corporation's proxy statement relating to such
meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, or any
successor rule thereto.
Section 2.6. Quorum. The presence at any stockholders' meeting in
person or by proxy, of stockholders entitled to cast at least one-third of the
votes entitled to be cast thereat shall be necessary and sufficient to
constitute a quorum for the transaction of business, except that where any
provision of law or the Charter permits or requires that stockholders of any
class of Common Stock of the Corporation shall vote as a class, one-third of the
votes entitled to be cast by said class shall constitute a quorum. 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.
Section 2.7. Adjourned Meetings. A meeting of stockholders convened
on the date for which it was called (including one adjourned to achieve a quorum
as above provided in Section 2.6 of this Article) may be adjourned from time to
time without further notice other than by announcement at the meeting
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<PAGE> 10
to a date not more than 120 days after the original record date, and any
business may be transacted at any adjourned meeting which could have been
transacted at the meeting as originally called.
Section 2.8. Voting. At each stockholders' meeting, each stockholder
entitled to vote shall be entitled to one vote for each share of stock of the
Corporation validly issued and outstanding and standing in his name on the books
of the Corporation on the record date fixed in accordance with Section 7.4 of
Article VII hereof; provided, however, that when required by the Investment
Company Act of 1940, as amended (the "1940 Act"), or the laws of the State of
Maryland or when the Board of Directors has determined that the matter affects
only the interest of one class of stock, matters may be submitted only to a vote
of the stockholders of that particular class, and each stockholder thereof shall
be entitled to votes equal to the shares of stock of that class registered in
the stockholder's name on the books of the Corporation. Except as otherwise
specifically provided in the Charter 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, except for the election of directors which
shall be by a plurality of votes 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 at the meeting.
Section 2.9. Stockholders Entitled to Vote. If the Board of
Directors sets a record date for the determination of
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stockholders entitled to notice of or to vote at any stockholders' meeting in
accordance with Section 7.4 of Article VII hereof, each stockholder of the
Corporation entitled to vote on the matter 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.
Section 2.10. Proxies. 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
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<PAGE> 12
executed by or on behalf of a stockholder shall be valid unless challenged at or
prior to its exercise.
Section 2.11. Voting and Inspectors. The Board of Directors may, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting or at any adjournment of the meeting. If the inspectors shall not be
so appointed or if any of them shall fail to appear or act, the Chairman of the
meeting may, and on the request of any stockholder entitled to vote at the
meeting shall, appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully the
duties of inspector at the meeting with strict impartiality and according to the
best of his ability. The inspectors shall determine the number of shares
outstanding and the voting power of each share, the number of shares represented
at the meeting, the existence of a quorum and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do those acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the Chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall
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act as inspector of an election of directors. Inspectors need not be
stockholders of the Corporation.
Section 2.12. 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.
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 except those powers vested solely in the
stockholders of the Corporation by statute, by the Charter or by these By-Laws.
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.
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
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Corporation, out of any source available for dividends, to the stockholders
according to their respective rights and interests.
(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
(ii) the Corporation's net income so determined for the
current or preceding fiscal year
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 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.
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
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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 1940 Act. 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 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 following such 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.
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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.
(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
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and number of shares of the capital stock of 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 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
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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 plurality of the votes cast
thereon.
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 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
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Securities and Exchange Commission shall by order extend such period. Any
Director elected or appointed to fill a vacancy shall hold office until a
successor has been chosen and qualifies or until his earlier death, resignation
or removal.
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. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at the time and place determined by the
Board of Directors. 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.
Section 3.10. Special Meetings. Special meetings of the Board of
Directors may be called by two or more Directors of the Corporation or by the
Chairman of the Board or the President. 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 an which a special meeting
is to be held or (b) delivered to him personally or by telephone, facsimile
transmission or other standard form of telecommunication, at least one day
before the meeting.
Section 3.11. Waiver of Notice. No notice of any meeting need be
given to any Director who is present at the
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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.
Section 3.12. Quorum and Voting. At all meetings of the Board of
Directors, the presence of one-third (but not fewer than two unless there be
only one Director) of the entire Board of Directors shall constitute a quorum
for the action 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 Charter 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
any action referred to in Article Eighth of the Charter.
Section 3.13. Action Without a Meeting. Subject to the provisions of
the 1940 Act, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting if
a written consent to such action is signed by all members of the Board or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.
Section 3.14. Compensation of Directors. Directors shall be entitled
to receive such compensation from the
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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. By resolution adopted by the Board of
Directors, the Board may designate one or more committees, including an
Executive Committee that shall consist of not less than one or more 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. 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 and
fix the terms of stock subject to classification and 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.
Section 4.2. Executive Committee. Unless otherwise provided by
resolution of the Board of Directors, when the Board
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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.
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.
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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 annually at its annual
meeting. If any officers are not chosen at any annual meeting, such officers may
be chosen at any subsequent regular or special meeting of the Board. Except as
otherwise provided in this Article V, each officer chosen by the Board of
Directors shall hold office until the next annual meeting of the Board of
Directors and until his successor shall have been elected and qualified. Any
person may hold one or more offices of the Corporation except the 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.
Section 5.3. Removal and Resignation. Any officer of the Corporation
may be removed by the Board of Directors with or without cause at any time. Any
officer may resign his office at any time by delivering a written notice to the
Board of Directors, the President, the Secretary, or any Assistant Secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery
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Section 5.4. Chairman of the 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.
Section 5.5. Vice Chairman of the Board. The Vice Chairman of the
Board, if any, 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
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order, he may sign in the name and on behalf of the Corporation all deeds,
bonds, contracts or agreements. He shall exercise such other powers and perform
such other duties as from time to time may be assigned to him by the Board of
Directors.
Section 5.7. 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
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Office of Treasurer, subject to the control of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as
the Treasurer or the Board of Directors may assign, 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
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perform such duties as the Board of Directors may determine. The Board of
Directors from time to tine may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 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 1940 Act, 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.
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 time
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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. Each holder of stock of the
Corporation shall be entitled upon specific written request to such person as
may be designated by the Corporation, to have a certificate or certificates, in
a form approved by the Board, representing the number of shares of the
particular class of stock of the Corporation owned by him; provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by or in the name of
the Corporation by the Chairman of the Board, President or a Vice President and
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate shall be issued, it may be
issued by the Corporation with the same effect as if such officer, transfer
agent or registrar were still in office at the date of issue.
Section 7.2. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed
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and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for the shares properly
endorsed or accompanied by a duly executed stock transfer power and the payment
of all taxes thereon. Except as otherwise provided by law, the Corporation shall
be entitled to recognize the exclusive right of a person in whose name any share
or shares stand on the record of stockholders as the owner of the share or
shares for all purposes, including, without limitation, the rights to receive
dividends or other distributions and to vote as the owner, and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
any such share or shares on the part of any other person.
Section 7.3. Stock Ledgers. The Stock Ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 7.4. 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,
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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 not more than 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 stockholders the record date shall be at least 10 days
before the date of the meeting.
Section 7.5. Lost, Stolen or Destroyed Certificates. The holder of
any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of its theft, loss, destruction or mutilation
and the Corporation may issue a new certificate of stock in the place of any
certificate issued by it that has been alleged to have been stolen, lost or
destroyed or that shall have been mutilated. The Board may, in its discretion,
require the owner (or his legal representative) of a stolen, lost, destroyed or
mutilated certificate to give to the Corporation a bond in a sum, limited or
unlimited, and in a form and with any surety or sureties, as the Board in its
absolute discretion shall determine or to indemnify the Corporation against any
claim that may be made against it on account of the alleged theft, loss,
destruction or the mutilation of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board of
Directors, in its absolute discretion, may refuse to issue any such new
certificate, except pursuant to legal proceedings under the Maryland General
Corporation Law.
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ARTICLE VIII.
FISCAL YEAR
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 October.
ARTICLE IX.
INDEMNIFICATION AND INSURANCE
Section 9.1. Indemnification of Directors, Officers and Members of
the Advisory Board. Any person who was or is a party or is threatened to be made
a party in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is a current or former director, officer or member of any
Advisory Board of the Corporation, or is or was serving while a director,
officer or member of any Advisory Board of the Corporation at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, shall be indemnified by the Corporation against
judgments, penalties, fines, excise taxes, settlements and reasonable expenses
(including attorneys' fees) actually incurred by such person in connection with
such action, suit or proceeding to the full extent permissible under the
Maryland General Corporation Law, the Securities Act of 1933, as amended (the
"Securities Act"), and the 1940 Act, as such statutes are now or hereafter in
force, except that such
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indemnity shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person 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
("disabling conduct").
Section 9.2. Advances. Any current or former director, officer or
member of any Advisory Board of the Corporation claiming indemnification within
the scope of this Article IX shall be entitled to advances from the Corporation
for payment of the reasonable expenses incurred by him in connection with
proceedings to which he is a party in the manner and to the full extent
permissible under the Maryland General Corporation Law, the Securities Act and
the 1940 Act, as such statutes are now or hereafter in force; provided however,
that the person seeking indemnification shall provide to the Corporation a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met and a written
undertaking to repay any such advance unless it is ultimately determined that he
is entitled to indemnification, and provided further that at least one of the
following additional conditions is met: (a) the person seeking indemnification
shall provide a security in form and amount acceptable to the Corporation for
his undertaking; (b) the Corporation is insured against losses arising by reason
of the advance; or (c) a majority of a quorum of directors of the Corporation
who are neither "interested persons" as defined in Section 2(a)(19) of the 1940
Act, nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall determine, based on a
review of facts readily available to the Corporation at the time the advance is
proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
Section 9.3. Procedure. At the request of any current or former
director, officer or Advisory Board member, or any employee or agent whom the
Corporation proposes to indemnify, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, the Securities Act and the 1940 Act, as such statutes are now
or hereafter in force, whether the standards required by this Article IX have
been met; provided, however, that indemnification shall be made only following:
(a) a final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable by
reason of disabling conduct; or (b) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by
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reason of disabling conduct by, (i) the vote of a majority of a quorum of
disinterested non-party directors, or (ii) an independent legal counsel in a
written opinion.
Section 9.4. Indemnification of Employees and Agents. Employees and
agents who are not officers, directors or Advisory Board members of the
Corporation may be indemnified, and reasonable expenses may be advanced to such
employees or agents, in accordance with the procedures set forth in this Article
IX to the extent permissible under the 1940 Act, the Securities Act and Maryland
General Corporation Law, as such statutes are now or hereafter in force, to the
extent, consistent with the foregoing, as may be provided by action of the Board
of Directors or by contract.
Section 9.5. Other Rights. The indemnification provided by this
Article IX shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 9.6. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any
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person who is or was a director, officer, Advisory Board member, employee or
agent of the Corporation, or who, while a director, officer, Advisory Board
member, employee or agent of the Corporation, is or was serving at the request
of the Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, against any liability asserted against and incurred by
him in any such capacity, or arising out of his status as such, provided that no
insurance may be obtained by the Corporation for liabilities against which it
would not have the power to indemnify him under this Article IX or applicable
law.
Section 9.7. Constituent, Resulting or Surviving Corporations. For
the purposes of this Article IX, references to the "Corporation" shall include
all constituent corporations absorbed in a consolidation or merger as well the
resulting or surviving corporation so that any person who is or was a director,
officer, employee or agent of a constituent corporation or is or was serving at
the request of a constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under this Article IX with respect
to the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
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ARTICLE X.
AMENDMENTS
Section 10.1. General. Except as provided in the next succeeding
sentence and in the Charter, 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 Charter), at any regular or special meeting the notice of waiver
of notice of which shall have specified or summarized the proposed amendment,
alteration or repeal.
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