<PAGE> 1
AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1997
REGISTRATION NO. 333-33457
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 326-6200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
KATHRYN L. QUIRK, ESQ.
C/O SCUDDER, STEVENS & CLARK, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copy to:
ROSE F. DIMARTINO, ESQ.
WILLKIE FARR & GALLAGHER
153 E. 53RD STREET
NEW YORK, NEW YORK 10022
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.01
par value)........ 3,900,000 Shares $16.16 $63,024,000 $19,098.19(2)
================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, based on the
average of the high and low sales prices reported on the New York Stock
Exchange on August 7, 1997.
(2) Previously paid.
It is proposed that this filing will become effective on September 11, 1997
pursuant to Rule 488.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(a))
PART A
<TABLE>
<CAPTION>
ITEM JOINT PROXY STATEMENT -- PROSPECTUS
NO. ITEM CAPTION CAPTION
- ------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
PART A
Item 1. Beginning of Registration Statement and
Outside Front Cover Page of Prospectus... Cover Page
Item 2. Beginning and Outside Back Cover Page of
Prospectus............................... Cover Page Table of Contents; Available
Information
Item 3. Synopsis and Risk Factors................ Summary; Special Considerations Regarding
the Reorganization, Risk Factors
Item 4. Information about the Transaction........ The Reorganization; Description of Shares
to be Issued by the Acquiring Fund
Item 5. Information about the Registrant......... Available Information; The
Reorganization; Comparison of the
Acquiring Fund and the Acquired Fund;
Investment Objectives and Policies;
Election of Directors; Additional
Information About the Funds; Investment
Advisory and Management Arrangements
Item 6. Information about the Company Being
Acquired................................. Available Information; The
Reorganization; Comparison of the
Acquiring Fund and the Acquired Fund;
Investment Objectives and Policies;
Election of Directors; Additional
Information About the Funds; Investment
Advisory and Management Arrangements
Item 7. Voting Information....................... The Meetings; The Reorganization;
Election of Directors
Item 8. Interest of Certain Persons and
Experts.................................. Not Applicable
Item 9. Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters............................. Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
CAPTION
Item Cover Page............................... Cover Page
10.
Item Table of Contents........................ Cover Page
11.
Item Additional Information about the
12. Registrant............................... Investment Objectives and Policies;
Investment Restrictions; Management of
the Funds; Investment Advisory and
Management Arrangements; Security
Ownership of Certain Beneficial Owners;
Portfolio Transactions; Taxes; Financial
Statements
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM JOINT PROXY STATEMENT -- PROSPECTUS
NO. ITEM CAPTION CAPTION
- ------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
Item Additional Information about the Company
13. Being Acquired........................... Investment Objectives and Policies;
Investment Restrictions; Management of
the Funds; Investment Advisory and
Management Arrangements; Security
Ownership of Certain Beneficial Owners;
Portfolio Transactions; Taxes; Financial
Statements
Item Financial Statements..................... Financial Statements
14...
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 4
LOGO
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
September , 1997
Dear Stockholder:
We are pleased to invite you to the Annual Meeting of Stockholders of The
Latin America Dollar Income Fund, Inc. The meeting is scheduled for Tuesday,
October 28, 1997 at 12:45 p.m., Eastern time, at the offices of Scudder, Stevens
& Clark, Inc., 25th floor, 345 Park Avenue (at 51st Street), New York, New York
10154. We hope you will be able to attend.
In addition to electing directors and ratifying the selection of auditors,
the meeting addresses two important matters: (1) a Reorganization of the Fund
and (2) the Scudder-Zurich Alliance.
The Reorganization. At the meeting you will be asked to approve the
issuance of shares of your Fund's Common Stock in connection with the
Reorganization of The Latin America Dollar Income Fund, Inc. ("LADIF" or the
"Acquiring Fund") and Scudder World Income Opportunities Fund, Inc. ("SWIOF" or
the "Acquired Fund"). Pursuant to the Reorganization, your Fund would acquire
substantially all of the assets and assume substantially all of the liabilities
of SWIOF in exchange for newly issued shares of your Fund's Common Stock, which
would then be distributed to SWIOF stockholders (the "Reorganization"). In
connection with the Reorganization, you will also be asked to modify the Fund's
fundamental policy concerning industry concentration to permit the Fund to
invest more than 25% of its assets in securities of any world government and to
change the name of the Fund to "Scudder Global High Income Fund, Inc."
The Board of LADIF believes that LADIF stockholders would benefit from
LADIF being able to seek investment opportunities throughout the world.
Developments have occurred in the market for emerging market debt securities
since 1992, when LADIF commenced operations and at which time substantially all
issuers of emerging market debt were located in Latin America. Non-Latin
American debt issues have, at times, had higher yields and/or returns than Latin
American issues. The elimination of LADIF's geographic focus is expected to have
other benefits: (1) providing access to more portfolio securities, thereby
permitting greater diversification by country, industry and issuer and enhancing
portfolio choices and (2) enabling LADIF more opportunity to invest in countries
where the performance of debt instruments is less correlated to the performance
of issuers in other countries than the Latin American debt markets have been.
Detailed information about the proposed Reorganization and the reasons for it
are contained in the enclosed materials.
The Scudder-Zurich Alliance. Scudder, Stevens & Clark, Inc. ("Scudder")
entered into an agreement with Zurich Insurance Company ("Zurich") pursuant to
which Scudder and Zurich have agreed to form an alliance. Under the terms of the
agreement, Zurich will acquire a majority interest in Scudder, and Zurich Kemper
Investments, Inc., a Zurich subsidiary, will become part of Scudder. Scudder's
name will be changed to Scudder Kemper Investments, Inc. As a result of this
transaction, it is necessary for the shareholders of each of the funds for which
Scudder act as investment manager, including your Fund, to approve a new
investment management agreement.
The following important facts about the transaction are outlined below:
- The transaction has no effect on the number of shares you own or the
value of those shares.
- The advisory fees and expenses paid by your Fund will not increase as a
result of this transaction.
<PAGE> 5
- The non-interested Directors of your Fund have carefully reviewed the
proposed transaction, and have concluded that the transaction should
cause no reduction in the quality of services provided to your Fund and
should enhance Scudder's ability to provide such services.
The Board of Directors of your Fund has approved the Reorganization and the
new investment management agreement and recommends that stockholders vote FOR
all proposals relating to them and FOR all other proposals described in the
attached Joint Proxy Statement -- Prospectus.
Since all of the funds for which Scudder acts as investment manager are
required to conduct stockholder meetings, if you own shares of more than one
fund, you will receive more than one proxy card. Please sign and return each
proxy card you receive.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. AFTER REVIEWING
THE ENCLOSED MATERIALS, PLEASE TAKE A MOMENT TO COMPLETE, DATE AND SIGN YOUR
PROXY CARD AND MAIL IT IN THE ENCLOSED RETURN ENVELOPE TODAY. YOUR PROMPT RETURN
OF THE ENCLOSED PROXY IS GREATLY APPRECIATED. IF YOU ATTEND THE MEETING, YOU MAY
VOTE YOUR SHARES PERSONALLY WHETHER OR NOT YOU HAVE PREVIOUSLY SUBMITTED A
PROXY. IF YOU PLAN TO ATTEND THE MEETING, WE LOOK FORWARD TO SEEING YOU ON
OCTOBER 28, 1997.
We appreciate your continued support and confidence, and I thank you for
your goodwill.
Very truly yours,
Lynn Birdsong signature
LYNN S. BIRDSONG
President
<PAGE> 6
SCUDDER WORLD INCOME OPPORTUNITIES FUND, INC.
September , 1997
Dear Stockholder:
We are pleased to invite you to the Annual Meeting of Stockholders of
Scudder World Income Opportunities Fund, Inc. The meeting is scheduled for
Tuesday, October 28, 1997 at 12:45 p.m., Eastern time, at the offices of
Scudder, Stevens & Clark, Inc., 25th floor, 345 Park Avenue (at 51st Street),
New York, New York 10154. We hope you will be able to attend.
In addition to electing directors and ratifying the selection of auditors,
the meeting addresses two important matters: (1) a Reorganization of the Fund
and (2) the Scudder-Zurich Alliance.
The Reorganization. At the meeting you will be asked to approve and adopt
the Agreement and Plan of Reorganization (the "Plan"), by and between The Latin
America Dollar Income Fund, Inc. ("LADIF" or the "Acquiring Fund") and Scudder
World Income Opportunities Fund, Inc. ("SWIOF" or the "Acquired Fund"). Under
the Plan, your Fund would transfer substantially all its assets and liabilities
to LADIF in exchange for newly issued shares of LADIF, which would then be
distributed to SWIOF stockholders (the "Reorganization"). If the Reorganization
is approved, you will become a stockholder of LADIF, which will operate in a
manner substantially similar to your Fund in most respects -- both are
exchange-traded, non-diversified, closed-end management investment companies
that invest in debt instruments of issuers in emerging markets.
The Reorganization will result in a larger fund, which should lead to
greater efficiency and flexibility in portfolio management and a more liquid
trading market for Shares of the combined Fund. In addition, the Reorganization
should result in lower expenses for the combined Fund (before the effect of
interest charges for any borrowings) than SWIOF currently has. Detailed
information about the proposed Reorganization and the reasons for it are
contained in the enclosed materials.
The Scudder-Zurich Alliance. Scudder, Stevens & Clark, Inc. ("Scudder")
entered into an agreement with Zurich Insurance Company ("Zurich") pursuant to
which Scudder and Zurich have agreed to form an alliance. Under the terms of the
agreement, Zurich will acquire a majority interest in Scudder, and Zurich Kemper
Investments, Inc., a Zurich subsidiary, will become part of Scudder. Scudder's
name will be changed to Scudder Kemper Investments, Inc. As a result of this
transaction, it is necessary for the shareholders of each of the funds for which
Scudder act as investment manager, including your Fund, to approve a new
investment management agreement.
The following important facts about the transaction are outlined below:
- The transaction has no effect on the number of shares you own or the
value of those shares.
- The advisory fees and expenses paid by your Fund will not increase as a
result of this transaction.
- The non-interested Directors of your Fund have carefully reviewed the
proposed transaction, and have concluded that the transaction should
cause no reduction in the quality of services provided to your Fund and
should enhance Scudder's ability to provide such services.
The Board of Directors of your Fund has approved the Reorganization and the
new investment management agreement and recommends that stockholders vote FOR
all proposals relating to them and FOR all other proposals described in the
attached Joint Proxy Statement-Prospectus.
Since all of the funds for which Scudder acts as investment manager are
required to conduct stockholder meetings, if you own shares of more than one
fund, you will receive more than one proxy card. Please sign and return each
proxy card you receive.
<PAGE> 7
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. AFTER REVIEWING
THE ENCLOSED MATERIALS, PLEASE TAKE A MOMENT TO COMPLETE, DATE AND SIGN YOUR
PROXY CARD AND MAIL IT IN THE ENCLOSED RETURN ENVELOPE TODAY. YOUR PROMPT RETURN
OF THE ENCLOSED PROXY IS GREATLY APPRECIATED. IF YOU ATTEND THE MEETING, YOU MAY
VOTE YOUR SHARES PERSONALLY WHETHER OR NOT YOU HAVE PREVIOUSLY SUBMITTED A
PROXY. IF YOU PLAN TO ATTEND THE MEETING, WE LOOK FORWARD TO SEEING YOU ON
OCTOBER 28, 1997.
We appreciate your continued support and confidence, and I thank you for
your goodwill.
Very truly yours,
Lynn Birdsong signature
LYNN S. BIRDSONG
President
<PAGE> 8
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 28, 1997
------------------------
TO THE STOCKHOLDERS OF THE LATIN AMERICA DOLLAR INCOME FUND, INC.:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of The Latin America Dollar Income Fund, Inc. ("LADIF" or the
"Acquiring Fund") will be held at the offices of Scudder, Stevens & Clark, Inc.,
25th floor, 345 Park Avenue (at 51 Street), New York, New York 10154, on
Tuesday, October 28, 1997 at 12:45 p.m., Eastern time, for the following
purposes:
(1) (a) To approve or disapprove the issuance of shares of LADIF's
common stock, par value $.01 per share, in connection with an Agreement and
Plan of Reorganization between LADIF and Scudder World Income Opportunities
Fund, Inc. ("SWIOF" or the "Acquired Fund") whereby LADIF would acquire
substantially all of the assets, and assume substantially all of the
liabilities, of SWIOF in exchange for newly issued shares of LADIF's common
stock (the "Reorganization"), (b) in connection with the Reorganization, to
approve or disapprove a modification of LADIF's fundamental policy
concerning industry concentration and (c) in connection with the
Reorganization, to approve or disapprove changing the name of the Fund to
"Scudder Global High Income Fund, Inc."
(2) To approve or disapprove an new investment management agreement
between LADIF and its investment manager.
(3) To elect certain Directors to serve for a term of three years.
(4) To consider and act upon a proposal to ratify the selection of
Price Waterhouse LLP to serve as independent accountants of LADIF for its
current fiscal year.
(5) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on August 15, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting or any adjournment thereof.
You are cordially invited to attend the Meeting. Stockholders are requested
to complete, date and sign the enclosed form of proxy and return it promptly in
the envelope provided for this purpose, so that their shares may be represented
at the meeting. Your prompt return of the enclosed proxy is greatly appreciated.
If you attend the meeting, you may vote your shares personally whether or not
you have previously submitted a proxy. The enclosed proxy is being solicited on
behalf of the Board of Directors of the Fund.
By Order of the Board of Directors
[Thomas F. McDonough signature]
THOMAS F. MCDONOUGH
Secretary
New York, New York
Dated: September , 1997
<PAGE> 9
SCUDDER WORLD INCOME OPPORTUNITIES FUND, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 28, 1997
------------------------
TO THE STOCKHOLDERS OF SCUDDER WORLD INCOME OPPORTUNITIES FUND, INC.:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Scudder World Income Opportunities Fund, Inc. ("SWIOF" or the
"Acquired Fund") will be held at the offices of Scudder, Stevens & Clark, Inc.,
25th floor, 345 Park Avenue (at 51st Street), New York, New York 10154, on
Tuesday, October 28, 1997 at 12:45 p.m., Eastern time, for the following
purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization
between SWIOF and The Latin America Dollar Income Fund, Inc. ("LADIF" or
the "Acquiring Fund") whereby LADIF would acquire substantially all of the
assets, and assume substantially all of the liabilities, of SWIOF in
exchange for newly issued shares of LADIF's common stock, par value $0.01
per share (the "Reorganization") and, the newly issued shares of LADIF's
common stock would be distributed to the stockholders of SWIOF, and SWIOF
would subsequently be dissolved.
(2) To approve or disapprove an new investment management agreement
between SWIOF and its investment manager, in the event the Reorganization
is not approved.
(3) To elect certain Directors to serve for a term of three years, in
the event the Reorganization is not approved.
(4) To consider and act upon a proposal to ratify the selection of
Coopers & Lybrand L.L.P. to serve as independent accountants of SWIOF for
its current fiscal year, in the event the Reorganization is not approved.
(5) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on August 15, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting or any adjournment thereof.
You are cordially invited to attend the Meeting. Stockholders are requested
to complete, date and sign the enclosed form of proxy and return it promptly in
the envelope provided for this purpose, so that their shares may be represented
at the meeting. Your prompt return of the enclosed proxy is greatly appreciated.
If you attend the meeting, you may vote your shares personally whether or not
you have previously submitted a proxy. The enclosed proxy is being solicited on
behalf of the Board of Directors of the Fund.
By Order of the Board of Directors
[Thomas F. McDonough signature]
THOMAS F. MCDONOUGH
Secretary
New York, New York
Dated: September , 1997
<PAGE> 10
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY STATE.
SUBJECT TO COMPLETION -- DATED SEPTEMBER 11, 1997
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
AND
SCUDDER WORLD INCOME OPPORTUNITIES FUND, INC.
JOINT PROXY STATEMENT
ANNUAL MEETINGS OF STOCKHOLDERS TO BE HELD OCTOBER 28, 1997
------------------------
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
PROSPECTUS
------------------------
This Joint Proxy Statement -- Prospectus is being furnished to the
stockholders of The Latin America Dollar Income Fund, Inc. (the "Acquiring Fund"
or "LADIF") and of Scudder World Income Opportunities Fund, Inc. (the "Acquired
Fund" or "SWIOF" and, together with the Acquiring Fund, the "Funds") for use at
the Annual Meeting of Stockholders of the Acquiring Fund (the "Acquiring Fund
Meeting") and of the Acquired Fund (the "Acquired Fund Meeting" and together
with the Acquiring Fund Meeting, the "Meetings") to be held on October 28, 1997,
at 12:45 p.m., Eastern time, and at any and all adjournments thereof.
The Reorganization. At the Acquiring Fund Meeting, stockholders of the
Acquiring Fund will be asked to approve a proposal to issue shares of Common
Stock, $.01 par value per share (the "Acquiring Fund Shares"), in connection
with an Agreement and Plan of Reorganization, dated as of September 9, 1997 (the
"Plan"), between the Acquiring Fund and the Acquired Fund whereby the Acquiring
Fund would acquire substantially all of the assets, and assume substantially all
of the liabilities, of the Acquired Fund in exchange for the Acquiring Fund
Shares. At the Acquiring Fund Meeting, stockholders of the Acquiring Fund will
also be asked to approve a modification of the Acquiring Fund's fundamental
policy concerning industry concentration to permit the Fund to invest more than
25% of its assets in securities of any world government and to change the name
of the Acquiring Fund to "Scudder Global High Income Fund, Inc." The number of
Acquiring Fund Shares to be issued to the Acquired Fund would be that number
having an aggregate net asset value equal to the aggregate value of the net
assets of the Acquired Fund transferred to the Acquiring Fund. At the Acquired
Fund Meeting, stockholders of the Acquired Fund will be asked to approve the
Plan.
Following receipt of the Acquiring Fund Shares, the Acquiring Fund Shares
would be distributed pro rata to the stockholders of the Acquired Fund and the
Acquired Fund would be dissolved. This transaction, consisting of the transfer
to the Acquiring Fund of substantially all of the assets of the Acquired Fund in
exchange for the Acquiring Fund Shares and the Acquiring Fund's assumption of
substantially all of the liabilities of the Acquired Fund, and the subsequent
distribution of the Acquiring Fund Shares in liquidation of the Acquired Fund
and its subsequent dissolution, is referred to herein as the "Reorganization."
The terms and conditions of the Reorganization and related transactions are
more fully described in this Joint Proxy Statement -- Prospectus and in the
Plan, a copy of which is attached as Appendix I hereto.
The Scudder-Zurich Alliance. In addition, at the Meetings, stockholders of
each of the Acquiring Fund and the Acquired Fund will be asked to approve a
proposal relating a new investment advisory agreement between Scudder Kemper
Investments, Inc. ("Scudder Kemper") and the respective Fund as a result of the
recently announced alliance between Scudder, Stevens & Clark, Inc. and Zurich
Insurance Company, a leading international insurance and financial services
organization.
Directors/Accountants. At the Meetings, stockholders of each Fund will also
be asked to consider and vote upon the election of certain directors and the
ratification of independent accountants for their respective Fund. The
stockholders of the Acquired Fund are being asked to vote on these additional
matters (as well as the new investment advisory agreement) in case the
Reorganization is not approved and the Acquired Fund remains a separate entity;
if the Reorganization is approved, the Acquired Fund's directors will cease to
serve as such, and its current Investment Advisory, Management and
Administration Agreement will terminate, upon the dissolution of the Acquired
Fund pursuant to the Plan.
Each Fund is a closed-end management investment company investing primarily
in debt securities of issuers in emerging markets. The principal executive
office of each Fund is located at 345 Park Avenue, New York, New York 10154, and
the telephone number is (212) 326-6200.
This Joint Proxy Statement -- Prospectus sets forth concisely the
information that stockholders of the Funds should know before voting on the
proposals described above and should be retained for future reference. A
Statement of Additional Information dated September , 1997, relating to this
Joint Proxy Statement -- Prospectus and the Reorganization, has been filed with
the Commission and is incorporated by reference into this Joint Proxy
Statement-Prospectus. A copy of such Statement of Additional Information is
available upon request and without charge by writing to the Acquired Fund at the
address listed on the cover page of this Joint Proxy Statement -- Prospectus or
by calling 800-349-4281 from within the United States and 01-617-295-3079 from
outside the United States.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT -- PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT -- PROSPECTUS IS , 1997.
<PAGE> 11
AVAILABLE INFORMATION
Both Funds are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended (the "1940 Act"), and in accordance therewith
are required to file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Commission maintains
a Web site (http://www.sec.gov) that contains information about the Funds. Any
such reports, proxy statements and other information can be inspected and copied
at the public reference facilities of the Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549, and at the Commission's
New York Regional Office, Seven World Trade Center, New York, New York 10048 and
Chicago Regional Office, Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. Copies of such materials can be obtained from the
Public Reference Branch, office of Consumer Affairs and Information Services of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The shares of common stock of both Funds are listed on the New York Stock
Exchange (the "NYSE"), and such reports, proxy statements and other information
concerning the Funds can also be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
The Acquiring Fund has filed with the Commission a registration statement
on Form N-14 (together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Joint Proxy Statement -- Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Acquiring Fund Shares
issuable pursuant to the Reorganization, reference is hereby made to the
Registration Statement.
The information in this Joint Proxy Statement -- Prospectus concerning the
Acquiring Fund has been furnished by the Acquiring Fund, and the information
concerning the Acquired Fund has been furnished by the Acquired Fund. This Joint
Proxy Statement -- Prospectus constitutes a prospectus of the Acquiring Fund
with respect to the shares of the Acquiring Fund to be issued in connection with
the Reorganization.
2
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement -- Prospectus. This summary is qualified in its
entirety by the more detailed information contained herein. Stockholders should
read the entire Joint Proxy Statement -- Prospectus. Certain capitalized terms
in this summary are defined elsewhere in this Joint Proxy
Statement -- Prospectus.
The Meetings. This Joint Proxy Statement -- Prospectus is being furnished
to the stockholders of the Acquiring Fund and the Acquired Fund in connection
with the solicitation by the Boards of Directors of the Funds of proxies to be
voted at the Meetings to be held on October 28, 1997 at the offices of Scudder,
Stevens & Clark, Inc. ("Scudder"), 345 Park Avenue, New York, New York. Holders
of record of shares of each Fund as of the close of business on August 15, 1997
will be entitled to notice of and to vote at their Fund's Meeting, as described
elsewhere in this Joint Proxy Statement-Prospectus.
Stockholders of the Acquiring Fund will be asked to vote (1) on the
approval of the issuance of additional shares of the Acquiring Fund to the
Acquired Fund in connection with the Reorganization and, as related matters, the
amendment of the Acquiring Fund's fundamental policy concerning industry
concentration and the change of the Acquiring Fund's name to "Scudder Global
High Income Fund, Inc.", (2) on the approval of a new investment management
agreement with Scudder Kemper as investment manager, (3) on the election of two
nominees for director and (4) on the ratification of the Acquiring Fund's
selection of independent accountants.
Stockholders of the Acquired Fund will be asked to vote (1) on the approval
of the Reorganization, (2) on the approval of a new investment management
agreement with Scudder Kemper as investment manager, (3) on the election of two
nominees for director and (4) on the ratification of the Acquired Fund's
selection of independent accountants. Stockholders of the Acquired Fund will be
asked to vote on (2), (3) and (4) in the event the Reorganization is not
approved and the Acquired Fund remains a separate entity.
The details of each proposal to be voted on by the stockholders of each
Fund and the vote required for approval of each proposal are set forth under the
description of each proposal in this Joint Proxy Statement-Prospectus.
The Reorganization. The Board of Directors of each of the Acquiring Fund
and the Acquired Fund, which consist of the same individuals, have approved the
proposed Reorganization pursuant to which the Acquiring Fund would acquire
substantially all of the assets of the Acquired Fund in exchange for the
issuance of Acquiring Fund Shares and the assumption by the Acquiring Fund of
substantially all of the Acquired Fund's liabilities. Following receipt of the
Acquiring Fund Shares, the Acquiring Fund Shares received would be distributed
to the stockholders of the Acquired Fund and the Acquired Fund would be
dissolved. The number of Acquiring Fund Shares to be issued to the Acquired Fund
would be that number having an aggregate net asset value equal to the aggregate
value of the Acquired Fund's assets transferred to, net of the liabilities
assumed by, the Acquiring Fund as of the time such assets and liabilities are
transferred and assumed (such time being referred to as the "Closing Date"). If
the requisite stockholder approval is obtained, the Closing Date is expected to
be the close of business on November 7, 1997.
In addition, the Reorganization is conditioned upon the approval by the
Acquiring Fund's stockholders of an amendment to the Acquiring Fund's
fundamental policy concerning industry concentration and the changing of the
Acquiring Fund's name to "Scudder Global High Income Fund, Inc."
The Plan may be terminated and the Reorganization abandoned, whether before
or after approval by the Funds' stockholders, at any time prior to the Closing
Date (a) by the mutual written consent of the Boards of Directors of the Funds
or (b) by either Fund if the conditions to that Fund's obligations have not been
satisfied or waived. If the transactions contemplated by the Plan have not been
consummated by April 30, 1998, the Plan automatically terminates on that date,
unless a later date is mutually agreed upon by the Boards of Directors of both
Funds.
3
<PAGE> 13
As a result of the Reorganization, the assets of the Funds would be
combined and the stockholders of the Acquired Fund would become stockholders of
the Acquiring Fund. The directors and officers of the larger combined entity
would be identical to that of each of the separate Funds.
The Board of Directors of each Fund, including the directors of each Fund
who are not "interested persons" as that term is defined by the 1940 Act, has
concluded that the Reorganization would be in the best interests of the
stockholders of each respective Fund and that the interests of those
stockholders would not be diluted as a result of the Reorganization.
Each Board of Directors approved the Reorganization because, among other
reasons, it believes that the Reorganization should result in greater efficiency
and flexibility in portfolio management and a more liquid trading market for the
shares of the combined Fund. In addition, the Boards of the Funds believe that
the Reorganization should result in lower expenses for the combined Fund (before
the effect of interest charges for any borrowings) than is currently the case
for either Fund. In addition, the Board of LADIF believes that LADIF
stockholders would benefit from LADIF being able to seek investment
opportunities throughout the world and provide LADIF access to more portfolio
securities, thereby permitting greater diversification by country, industry and
issuer and enhancing portfolio choices and enabling LADIF to invest in countries
where the performance of debt instruments is less correlated to each other than
the Latin American debt markets have been. Based on these and other factors,
each Board concluded that the Reorganization would be in the best interests of
the relevant Fund and its stockholders. ACCORDINGLY, THE BOARD OF EACH FUND
RECOMMENDS THAT STOCKHOLDERS OF THE FUND VOTE FOR THE APPROVAL OF THE PROPOSALS
RELATING TO THE REORGANIZATION. See "The Reorganization" and "Additional
Information About the Funds".
Tax Consequences of the Reorganization. Prior to the Reorganization, each
Fund will have received an opinion of counsel that, upon the closing of the
Reorganization and the transfer of the assets and liabilities of the Acquired
Fund, no stockholder of either Fund will recognize taxable gain or loss upon the
issuance of Acquiring Fund Shares in the Reorganization. The consummation of the
Reorganization is subject to receipt of such opinions. Accordingly, neither Fund
will recognize gain or loss in connection with the Reorganization. In addition,
stockholders of the Acquired Fund who receive Acquiring Fund Shares pursuant to
the Reorganization will recognize no gain or loss, except with respect to the
cash received for a fractional share interest, if any. The holding period and
aggregate tax basis of the Acquiring Fund's shares received by an Acquired Fund
stockholder will be the same as the holding period and aggregate tax basis of
the shares of the Acquired Fund previously held by such stockholder. See "The
Reorganization -- Federal Income Tax Consequences of the Reorganization".
Scudder-Zurich Alliance. Scudder, Stevens & Clark, Inc. ("Scudder")
entered into an agreement with Zurich Insurance Company ("Zurich") pursuant to
which Scudder and Zurich have agreed to form an alliance. Under the terms of the
agreement, Zurich will acquire a majority interest in Scudder, and Zurich Kemper
Investments, Inc., a Zurich subsidiary, will become part of Scudder. Scudder's
name will be changed to Scudder Kemper Investments, Inc. As a result of this
transaction, it is necessary for the stockholders of each of the funds for which
Scudder act as investment manager, including your Fund, to approve a new
investment management agreement. If the Reorganization is approved and a new
investment management agreement with Scudder Kemper is also approved by the
stockholders of LADIF in connection with the Scudder-Zurich alliance, the
advisory fees to be charged to LADIF (which are the same as those for SWIOF)
will not change.
4
<PAGE> 14
EXPENSE TABLE
The following table lists the costs and expenses an investor would incur
either directly or indirectly as a stockholder of the Funds, based on an
estimate of the Funds' operating expenses as of July 31, 1997, and as adjusted
to give effect to the Reorganization discussed herein:
<TABLE>
<CAPTION>
LADIF
LADIF SWIOF (AS ADJUSTED)
-------- -------- -------------
<S> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price).................. None None None
Dividend Reinvestment Plan Fees................................. None None None
ANNUAL EXPENSES (as a percentage of net assets attributable to
Common Stock)
Investment Management and Administration Fees................... 1.20% 1.20% 1.20%
Servicing Fees.................................................. 0% .10% 0%
Interest Payments on Borrowed Funds............................. 0%* 0% 0%*
Other Expenses (estimated)...................................... .48% .77% .40%
---- ---- ----
Total Annual Expenses (estimated)............................. 1.68% 2.07% 1.60%
</TABLE>
- ---------------
* The table reflects that LADIF had no borrowings outstanding on July 31, 1997,
although LADIF has the authority to borrow up to 33 1/3% of its total assets.
For LADIF's last three fiscal years, the Fund borrowed a weighted average
annual percentage of 25.2% of its average assets. Assuming this rate of
borrowings at July 31, 1997, the amount of Interest Payments on Borrowed Funds
would have equaled 1.57% at July 31, 1997. In addition, for the 10 months
ended August 31, 1997, LADIF's annualized Interest Payments on Borrowed Funds
for actual borrowings during that period was .61%.
The nature of the services for which the Funds pay management and
administration fees and servicing fees is described below under the caption
"Investment Advisory and Management Arrangements." The nature of the services
will not change under the new investment advisory agreement with Scudder to be
considered at the Meetings. "Other Expenses" in the above table include fees for
stockholder services, custodial fees, legal and accounting fees, printing costs,
the costs involved in communicating with stockholders of the Funds and the costs
of regulatory compliance and maintaining corporate existence and the listing of
shares of the Common Stock on the NYSE.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Funds. These amounts are based upon payment by
the Funds of operating expenses at the levels set out in the table above and the
specific assumptions stated below.
An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) reinvestment of all dividends and
distributions at net asset value:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
LADIF.................................................... $ 17 $53 $ 91 $199
SWIOF.................................................... $ 21 $65 $ 111 $240
LADIF (As Adjusted)...................................... $ 16 $50 $ 87 $190
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
OF THE FUNDS AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. IN
PARTICULAR, THE ACTUAL EXPENSES OF LADIF (AS ADJUSTED) WILL VARY BASED ON THE
LEVEL OF INTEREST EXPENSE FOR BORROWINGS. The above example is intended to
assist an investor in understanding the various costs and expenses that an
investor in the Funds would bear directly or indirectly. Moreover, while the
example assumes a 5% annual return, a Fund's performance will vary and may
result in a return greater or less than 5%. In addition, while the example
assumes reinvestment of all dividends and distributions at net asset value,
participants in the Plan may receive shares purchased or issued at a price or
value different from net asset value. See "Dividends and Distributions;
Automatic Dividend Reinvestment Plan".
5
<PAGE> 15
COMPARISON OF THE ACQUIRING FUND AND THE ACQUIRED FUND
GENERAL
The Acquiring Fund and the Acquired Fund are both non-diversified,
closed-end management investment companies organized under the laws of the State
of Maryland. The shares of the common stock of the Acquiring Fund and of the
Acquired Fund are listed and trade on the NYSE under the symbols LBF and SWI,
respectively. After the Reorganization, the Acquiring Fund will be traded on the
NYSE under the symbol LBF. The shares of common stock of the Funds have
identical corporate attributes except for their trading prices. All of the
shares of common stock of both Funds have equal non-cumulative voting rights and
equal rights with respect to dividends, assets and dissolution. The Funds'
shares of common stock are fully paid and non-assessable and have no preemptive,
conversion or exchange rights. For more detailed information about the general
business and management of the Funds, see "Additional Information About the
Funds".
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Funds are substantially similar. In
addition, except as noted below, the Funds currently have substantially similar
investment policies. No significant differences exist regarding the quality of
investments permitted for either Fund. The primary difference between the Funds
at present is that, while SWIOF is permitted to invest throughout the world,
LADIF focuses its investments in Latin American countries, and is required to
invest a greater percentage of its assets in U.S. dollar-denominated debt
securities than SWIOF. As of July 31, 1997, 91% of LADIF's total assets were
invested in U.S. dollar denominated securities and 64% of SWIOF's total assets
were so invested. As of July 31, 1997, 98% of LADIF's total assets were invested
in securities of Latin American issuers and 55% of SWIOF's total assets were so
invested. Further, SWIOF may invest up to 20% of its assets in emerging country
equity securities, such as common stocks; LADIF currently may not invest in
equity securities. In addition, SWIOF currently may borrow from banks only for
temporary or emergency purposes, including for clearance of transactions, share
repurchases, tender offers or payments of dividends to stockholders, in an
amount not exceeding 5% of the value of the Fund's total assets, including the
amount borrowed, while LADIF is authorized to borrow money from banks and other
entities in an amount equal to up to 33 1/3% of the Fund's total assets,
including the amount borrowed, less all liabilities and indebtedness other than
the borrowing, and may use the proceeds of the borrowings for investment
purposes.
At a meeting held on July 29, 1997, the Board of Directors of LADIF
approved changes to certain policies of LADIF to become effective on the Closing
Date of the Reorganization. Consequently, after the Reorganization, LADIF will
have substantially the same investment policies as SWIOF currently has, except
that LADIF will retain its borrowing policy. The description of LADIF in the
next paragraph in this Proxy Statement -- Prospectus refers to LADIF's CURRENT
policies and not to those that would be effective following the Reorganization,
at which time the differences between the two Funds in such key areas as
geographic focus, country diversification and ability to invest in local
currency-denominated securities as well as emerging market equity securities
will no longer exist.
LADIF'S primary investment objective is to seek high current income with
capital appreciation as a secondary investment objective. LADIF invests
principally in debt obligations of public and private entities located in Latin
America. Under normal market conditions, at least 85% of the Fund's total assets
is invested in U.S. dollar-denominated Latin American debt instruments, and at
least 65% of the Fund's income is derived from such investments. LADIF has a
policy of limiting to 15% the portion of its total assets invested in issuers in
any one Latin American country other than Argentina, Brazil, Chile, Mexico and
Venezuela. For each of these countries, the limitation is 40% of the Fund's
total assets. In addition, no more than 25% of the Fund's total assets may be
invested in securities issued by the government of any one Latin American
country and its agencies and instrumentalities. See "Investment Objectives and
Policies".
SWIOF'S investment objective is high income, and to the extent consistent
with that objective, the Fund will also seek capital appreciation. Under normal
market conditions, SWIOF invests in a portfolio of income securities of issuers
located in developed and developing countries throughout the world. SWIOF may
also
6
<PAGE> 16
invest up to 35% of its assets in securities that are not considered income
securities, such as common stock, warrants that are not part of a unit with
income securities and preferred stock that is non-dividend paying. In no event
will more than 20% of SWIOF's assets (measured at the time of investment) be
invested in emerging country equity securities. Under normal market conditions,
a significant portion of the Fund's assets are invested in emerging markets with
at least 65% of the Fund's assets invested in no fewer than 3 countries, one of
which may be the United States. SWIOF has a policy of limiting to 25% the
portion of its assets invested in issuers in any foreign country other than
Argentina, Brazil, Mexico and Venezuela. For these countries, the limitation is
35% of the Fund's assets. The Fund invests at least 50% of its assets in
securities denominated in U.S. dollars. Not more than 25% of SWIOF's assets may
be invested in securities denominated or indexed to any one foreign currency.
MANAGEMENT OF THE FUNDS
The Acquiring Fund and the Acquired Fund have the same directors and the
same officers. In addition Scudder acts as the investment adviser and
administrator for, and manages the investment and reinvestment of the assets of,
both Funds. Pursuant to the Investment Advisory, Management and Administration
Agreements between the Investment Adviser and each of the Funds, each Fund has
agreed to pay the Investment Adviser a monthly fee at an annual rate of 1.20% of
each Fund's average weekly net assets for the services and facilities furnished
by the Investment Adviser. See "Investment Advisory and Management
Arrangements". If the proposal relating to the approval of the new investment
management agreement is approved, the fees charged to the Acquiring Fund and the
Acquired Fund will not change. See "Approval of New Investment Management
Agreements".
DIVIDENDS AND DISTRIBUTIONS
The Funds have similar dividend policies. Each Fund's present policy, which
may be changed by its Board of Directors, is to distribute its net investment
income quarterly and to distribute substantially all of its net investment
income to holders of common stock. Net capital gains, if any, will be
distributed annually to holders of common stock of LADIF and twice per year in
the case of SWIOF. After the Reorganization, it is anticipated that net
investment income will continue to be distributed quarterly and that
substantially all net investment income will be distributed to holders of common
stock. In addition, net capital gains, if any, will continue to be distributed
annually. See "The Reorganization -- Description of Shares To Be Issued by the
Acquiring Fund -- Dividends and Distributions"; "Additional Information About
the Funds" and "Taxes".
AUTOMATIC DIVIDEND REINVESTMENT PLAN
All dividend and capital gain distributions of a Fund will be reinvested
automatically in additional shares of the Fund unless a stockholder elects to
receive cash. Stockholders whose shares are held in the name of a broker or
nominee should contact such broker or nominee to confirm that they may
participate in each Fund's dividend reinvestment plan. See "The
Reorganization -- Description of Shares To Be Issued by the Acquiring
Fund -- Automatic Dividend Reinvestment Plan".
SPECIAL CONSIDERATIONS REGARDING THE REORGANIZATION
The following factors should be taken into consideration by stockholders of
each Fund in their evaluation of the Reorganization:
1. During the periods since the inception of the Funds, shares of both
Funds at various times have traded at a premium and a discount to net asset
value. Since the termination of share price stabilization following each
Fund's initial public offering, share prices for prices for the Acquiring
Fund have fluctuated between a maximum premium of 25.6% and a maximum
discount of 12.8% and for the Acquired Fund have fluctuated between a
maximum premium of 10.0% and a maximum discount of 15.8%. Although there is
no reason to believe that this pattern should be affected by the
Reorganization, it is not possible to state whether shares of the Acquiring
Fund will trade at a premium or discount to net asset value following the
Reorganization, or what the extent of any such premium or discount might
be.
2. Certain of the instruments held by LADIF, and certain of the
investment practices that LADIF may employ, could expose LADIF to special
risks. The instruments presenting LADIF with risks include
7
<PAGE> 17
illiquid investments, investments in non-publicly traded securities,
convertible securities and warrants. Among the risks that some but not all
of these instruments involve are lack of liquid secondary markets,
difficulty in valuation and certain credit risks. Investment practices
involving risks to LADIF include participating in privatization programs
implemented by or on behalf of the governments of emerging countries,
investing in other investment funds, entering into Strategic Transactions
(as defined below under "Investment Objectives and Policies -- Strategic
Transactions"), entering into securities transactions on a when-issued or
delayed delivery basis, entering into repurchase agreements, engaging in
short sales of securities and lending portfolio securities. Among the risks
that some, but not all, of these practices involve are the payment of
duplicative fees and expenses, the possibility of default by the other
party to the transaction and increased exposure to fluctuations in the
market price of securities.
LADIF is permitted to invest without limitation in Income Securities that
are not current in the payment of interest or principal and in Income
Securities that are in default, so long as the Investment Adviser believes
it to be consistent with LADIF's investment objectives. LADIF may also
invest in participations in, or assignments of, loans arranged through
private negotiations between an issuer of an Income Security and one or
more private financial institutions, in which LADIF may acquire rights only
against its seller, rather than against the underlying borrower, or in
which the rights acquired by LADIF may differ from those of the original
lender.
3. The performance of the Funds in terms of dividend yield and total
return has varied since inception based on the composition of their
portfolios. Set forth below is performance data for certain periods based
on both each Fund's net asset value and each Fund's market value. Past
performance is not a guarantee of future results, and it is not possible to
predict whether the performance of the Funds will be positively or
negatively affected by the Reorganization.
TOTAL RETURN FOR PERIODS ENDED JULY 31, 1997
(BASED ON NET ASSET VALUES)
<TABLE>
<CAPTION>
THREE YEAR INCEPTION TO DATE(a)
-------------------- --------------------
AVERAGE AVERAGE
ANNUAL CUMULATIVE ANNUAL CUMULATIVE
NAME OF FUND ONE YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------- -------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
SWIOF............................................ 31.84% 22.31% 82.97% 19.82% 81.81%
LADIF(b)......................................... 36.79% 25.81% 99.13% 17.85% 127.39%
</TABLE>
- ---------------
(a) SWIOF commenced operations on April 11, 1994. LADIF commenced operations on
July 31, 1992.
(b) The information presented for LADIF is based upon LADIF's current investment
policies and procedures and investment restrictions, which will change in
connection with the Reorganization. See "The Reorganization -- Change of
LADIF's Name; Amendment of Fundamental Policy on Industry Concentration,"
"Investment Objectives and Policies" and "Investment Restrictions".
TOTAL RETURN FOR PERIODS ENDED JULY 31, 1997
(BASED ON MARKET PRICES)
<TABLE>
<CAPTION>
THREE YEAR INCEPTION TO DATE(a)
-------------------- --------------------
AVERAGE AVERAGE
ANNUAL CUMULATIVE ANNUAL CUMULATIVE
NAME OF FUND ONE YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------- -------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
SWIOF............................................ 39.99% 19.74% 71.67% 14.48% 56.40%
LADIF............................................ 42.56% 25.42% 97.31% 15.26% 103.51%
</TABLE>
- ---------------
(a) SWIOF commenced operations on April 11, 1994. LADIF commenced operations on
July 31, 1992.
COMPARATIVE YIELD INFORMATION
<TABLE>
<CAPTION>
DIVIDEND YIELD AS
PERCENTAGE OF MARKET PRICE
NAME OF FUND ON JULY 31, 1997(a)
--------------------------------------------------------------- --------------------------
<S> <C>
SWIOF.......................................................... 8.59%
LADIF.......................................................... 9.16%
</TABLE>
- ---------------
(a) Reflects all income dividends paid during the twelve-month period ended July
31, 1997.
8
<PAGE> 18
RISK FACTORS
Set forth below are the principal risk factors related to investing in
LADIF. These risks are also generally present in an investment in SWIOF, given
the similarities in the investment objectives and policies and structure of the
two Funds. In addition, while LADIF and not SWIOF has been exposed to the risks
of leverage due to its borrowing policy, this same risk will apply to the
combined Fund following the Reorganization.
Investments in Income Securities. The value of the Income Securities (as
defined below under "Investment Objectives and Policies") held by LADIF, and
thus the net asset value of the Common Stock, generally will fluctuate with (i)
changes in the perceived creditworthiness of the issuers of those securities,
(ii) movements in interest rates and (iii) changes in the relative values of the
currencies in which LADIF's investments in Income Securities are denominated
with respect to the U.S. Dollar. The extent of the fluctuation will depend on
various other factors, such as the average maturity of LADIF's investments in
Income Securities, and the extent to which LADIF hedges its interest rate and
currency exchange rate risks which may be limited. Although LADIF may invest in
securities of any maturity, many of the Income Securities in which LADIF will
invest, including Brady Bonds, are expected to have long maturities. A longer
average maturity generally is associated with a higher level of volatility in
the market value of such securities in response to changes in interest rates and
other market conditions. In addition, securities issued at a deep discount, such
as certain types of Brady Bonds and zero coupon obligations in which LADIF may
invest, are subject to greater fluctuations of market value in response to
changes in interest rates than debt obligations of comparable maturities that
were not issued at a deep discount. See "Investment Objectives and Policies".
Investment in High Yield, High Risk Securities. At any one time,
substantially all of LADIF's assets may be invested in high yield, high risk
Income Securities which are predominantly speculative. Such Income Securities
are generally considered to have a credit quality below investment grade as
determined by internationally recognized credit rating organizations, such as
Moody's Investors Service, Inc. ("Moody's") and Standard & Poors Ratings Group
("S&P"), and frequently are unrated. Income Securities rated below investment
grade (that is, rated Ba1 or lower by Moody's or BB+ or lower by S&P) and
unrated securities of comparable credit quality are considered to be speculative
and to involve major risk exposures to adverse conditions. Investment in such
securities typically involves risks not associated with higher grade securities,
including, among others, overall greater risk of nonpayment of interest and
principal, potentially greater sensitivity to general economic conditions and
changes in interest rates, greater market price volatility and less liquid
secondary market trading. Certain of the Income Securities in which LADIF may
invest may be considered comparable to securities having the lowest ratings
assigned by Moody's or S&P (that is, rated C by Moody's or D by S&P). These
securities are considered to have extremely poor prospects of ever attaining any
real investment standing, to have a current identifiable vulnerability to
default, to be unlikely to have the capacity to pay interest and repay principal
when due in the event of adverse business, financial or economic conditions,
and/or to be in default or not current in the payment of interest or principal.
Investments in Sovereign Debt. Investments in debt securities issued or
guaranteed by foreign governments, their agencies, instrumentalities or
political subdivisions, by supranational organizations, or by government owned,
controlled or sponsored entities, including central banks (collectively,
"Sovereign Debt") involve special risks. Foreign governmental issuers of debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or pay interest when due. In the event of
default, there may be limited or no legal recourse in that, generally, remedies
for defaults must be pursued in the courts of the defaulting party. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of Sovereign Debt in the event of
default under commercial bank loan agreements. In addition, there is no
bankruptcy proceeding that a holder may avail itself of with respect to
Sovereign Debt on which a sovereign has defaulted and, accordingly, LADIF may be
unable to collect all or any part of its investment in a particular issue. A
substantial portion of the Sovereign Debt in which LADIF will invest, including
Brady Bonds, is issued as part of debt restructurings and such debt is to be
considered speculative. There is a history of defaults with respect to
commercial bank loans by public and private entities issuing Brady Bonds. All or
a portion of the interest
9
<PAGE> 19
payments and/or principal repayment with respect to Brady Bonds may be
uncollateralized. LADIF may also invest in securities of issuers organized
solely for the purpose of restructuring the investment characteristics of other
securities (including Brady Bonds) in which LADIF may invest. For example, LADIF
may invest in a security that restructures a collateralized Brady Bond in such a
manner that LADIF's investment will not benefit from such collateralization and
thus will be subject to greater risks. See "Investment Objectives and
Policies -- Restructured Securities".
Investments in Equity Securities. Common stock generally represents the
most junior position in an issuer's capital structure and, as such, generally
entitles holders to an interest in the assets of the issuer, if any, remaining
after all more senior claims to such assets have been satisfied. Holders of
common stock generally are entitled to dividends only if and to the extent
declared by the governing body of the issuer out of income or other assets
available after making interest, dividend and any other required payments on
more senior securities of the issuer. Warrants are securities permitting, but
not obligating, their holders to subscribe for other equity securities, and they
do not represent any rights in the assets of the issuer. As a result, warrants
may be considered more speculative than other types of equity investments.
Foreign Issuers. Investments in securities of foreign issuers and, in
particular, issuers in emerging countries, involve risks and special
considerations not typically associated with investment in the securities of
U.S. issuers. Because LADIF expects that, even after the Reorganization it will
invest to a large extent in securities of Latin American issuers, LADIF is
likely to be especially susceptible to risks affecting Latin American countries
as well as to risks affecting other emerging markets. Trading volume in certain
foreign securities markets is substantially less than that in the securities
markets of the United States or other developed countries. In addition,
securities of non-U.S. issuers held by LADIF may be less liquid and their prices
more volatile than those of securities of comparable U.S. issuers. Commissions
for trading on foreign country stock exchanges are generally higher than
commissions for trading on U.S. exchanges, and companies in foreign countries
are not generally subject to uniform accounting, auditing and financial
reporting standards, practices and disclosure requirements comparable to those
applicable to U.S. companies. Further, foreign markets typically have less
government supervision and regulation of the securities markets and participants
in those markets have significantly smaller capitalization as compared to the
U.S. markets.
In the course of investment in foreign countries, LADIF will be exposed to
the direct or indirect consequences of political, social and economic changes in
one or more countries. The possibility exists in some, if not all, foreign
countries of nationalization, expropriation or confiscatory taxation, political
changes, government regulation, social instability or diplomatic developments
(including war) that could affect adversely the economies of those countries or
the value of LADIF's investments in the countries. In emerging countries in
particular, there is increased risk of hyperinflation, currency devaluation and
government intervention in the economy in general.
Foreign investment in certain countries is restricted or controlled to
varying degrees. These restrictions or controls often take the form of:
requiring governmental approval for the repatriation of investment income or the
proceeds of sales of securities by foreign investors; requiring governmental
approval prior to investments by foreign persons; limiting the amount or type of
investments that may be made by foreign investors in companies in the foreign
countries; and restricting investment opportunities in issuers in industries
deemed important to national interests. These restrictions or controls may at
times limit or preclude foreign investment
in certain foreign securities and increase the costs and expenses of LADIF.
Because of LADIF's intent to invest to a significant extent in emerging
markets, the risks described above may be exacerbated, particularly risks
arising from political, social and economic changes in or one or more emerging
markets.
Foreign Currencies. After the Reorganization up to 50% of LADIF's assets
will be invested in securities denominated in foreign currencies, and much of
the income received by LADIF may be in foreign currencies. Because LADIF will
invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the value of
securities in LADIF's portfolio and the unrealized appreciation or depreciation
of SWIOF's investments. Changes in foreign exchange rates may also adversely
affect SWIOF's ability to make distributions to its stockholders. In addition,
LADIF will incur costs
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<PAGE> 20
in connection with conversions between various currencies. The currencies of
certain countries in which LADIF may invest have in the past experienced
significant devaluations relative to the U.S. dollar. Although LADIF is
authorized to use various investment strategies to hedge various market risks,
such as changes in currency exchange rates, many of these strategies may not at
the present time be used by LADIF to a significant extent with respect to
emerging country securities and may not become available for extensive use in
the future.
Special Techniques. Certain of the instruments held by LADIF, and certain
of the investment practices that LADIF may employ, could expose LADIF to special
risks. The instruments presenting LADIF with risks include illiquid investments,
investments in non-publicly traded securities, convertible securities and
warrants. Among the risks that some but not all of these instruments involve are
lack of liquid secondary markets, difficulty in valuation and certain credit
risks. Investment practices involving risks to LADIF include participating in
privatization programs implemented by or on behalf of the governments of
emerging countries, investing in other investment funds, entering into Strategic
Transactions (as defined below under "Investment Objectives and
Policies -- Strategic Transactions"), entering into securities transactions on a
when-issued or delayed delivery basis, entering into repurchase agreements,
engaging in short sales of securities and lending portfolio securities. Among
the risks that some, but not all, of these practices involve are the payment of
duplicative fees and expenses, the possibility of default by the other party to
the transaction and increased exposure to fluctuations in the market price of
securities. See "Investment Objectives and Policies".
LADIF is permitted to invest without limitation in Income Securities that
are not current in the payment of interest or principal and in Income Securities
that are in default, so long as the Investment Adviser believes it to be
consistent with LADIF's investment objectives. LADIF may also invest in
participations in, or assignments of, loans arranged through private
negotiations between an issuer of an Income Security and one or more private
financial institutions, in which the Fund may acquire rights only against its
seller, rather than against the underlying borrower, or in which the rights
acquired by LADIF may differ from those of the original lender. See "Investment
Objectives and Policies".
Foreign Taxation. Certain interest or dividends received by LADIF may be
subject to withholding and other taxes imposed by foreign countries, which taxes
would reduce the return to LADIF on those securities; this reduction may not be
recoverable by LADIF or its stockholders.
Non-Diversified Status. LADIF is classified as a "non-diversified"
investment company under the 1940 Act, which means that the Fund is not limited
by the 1940 Act in the proportion of its assets that it may invest in the
securities of a single issuer. To the extent that LADIF invests in a limited
number of issuers, LADIF will be subject to greater risks of loss as a result of
changes in the value of any single investment. LADIF intends to comply with the
diversification requirements imposed by the U.S. Internal Revenue Code of 1986,
as amended (the "Code").
Anti-Takeover Provisions. Certain provisions of LADIF's Articles of
Incorporation may have the effect of inhibiting LADIF's possible conversion to
an open-end investment company and limiting the ability of other persons to
acquire control of LADIF. In certain circumstances, these provisions might also
inhibit the ability of stockholders to sell their shares of Common Stock at a
premium over prevailing market prices. LADIF's Board of Directors has determined
that these provisions are in the best interest of stockholders generally. See
"Description of Shares to be Issued by the Acquiring Fund".
Discount to Net Asset Value. Shares of closed-end investment companies
have frequently traded at a discount from net asset values. This characteristic
is a risk separate and distinct from the risk that LADIF's net asset value may
decrease, and may be greater for investors expecting to sell their shares of
Common Stock in a relatively short period. The Common Stock should thus be
viewed as being designed primarily for long-term investors and should not be
considered a vehicle for trading purposes.
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<PAGE> 21
THE MEETINGS
GENERAL
This Joint Proxy Statement -- Prospectus is furnished in connection with
the solicitation by the Boards of Directors of the Acquired Fund and the
Acquiring Fund of proxies to be voted at the Acquired Fund Meeting and the
Acquiring Fund Meeting, respectively, each to be held at the offices of Scudder,
Stevens & Clark, Inc., 25th floor, 345 Park Avenue, New York, New York 10154, on
October 28, at 12:45 p.m., eastern time, and at any and all adjournments of such
meetings. Additional solicitation may be made by letter, telephone or telegraph
by officers of the Funds, by officers or employees of the Investment Adviser, or
by dealers and their representatives. The Funds have engaged Shareholder
Communications Corporation to assist in the solicitation of proxies at a total
estimated cost of $24,000. The aggregate cost of solicitation of the
stockholders of the Funds is expected to be approximately $35,000.
The Funds and Scudder have agreed that the cost of preparing, printing and
mailing the enclosed proxy, accompanying notice and Joint Proxy
Statement -- Prospectus, and all other costs in connection with the solicitation
of proxies will be shared among the Funds and Scudder. The Funds have agreed to
pay 75% of these costs and Scudder has agreed to pay 25% of these costs for
amounts that are less than or equal to $300,000. Scudder has also agreed to pay
all of these costs that are in excess of $300,000. The costs to be paid by the
Funds will be shared pro rata based upon the Funds' relative asset size. See
"The Reorganization -- Expenses Associated with the Reorganization" for
information relating to the payment of other expenses of the Reorganization.
Shareholder Communications Corporation, or an agent of Shareholder
Communications Corporation may call stockholders to ask if they would be willing
to authorize Shareholder Communications Corporation or its agent to execute a
proxy on their behalf authorizing the voting of their shares in accordance with
the instructions given over the telephone by the stockholders. The latter
telephone solicitation procedure is designed to authenticate the stockholder's
identity by, among other things, asking the stockholder to provide his or her
social security number (in the case of an individual) or taxpayer identification
number (in the case of an entity). The stockholder's instructions will be
implemented in a proxy executed by Shareholder Communications Corporation or its
agent and a confirmation will be sent to the stockholder to ensure that the vote
has been authorized in accordance with the stockholder's instructions. Although
a stockholder's vote may be solicited and cast in this manner, each stockholder
will receive a copy of this Joint Proxy Statement -- Prospectus and may vote by
mail using the enclosed proxy card. The Funds believe that this telephone voting
system will comply with Maryland law and will obtain an opinion of counsel to
that effect prior to implementing such procedures.
It is anticipated that banks, brokerage houses and other institutions,
nominees and fiduciaries will be requested to forward proxy materials to
beneficial owners and to obtain authorization for the execution of proxies. The
Funds may, upon request, reimburse banks, brokerage houses and other
institutions, nominees and fiduciaries for their expenses in forwarding proxy
materials to beneficial owners.
The Board of Directors of each Fund has fixed the close of business on
August 15, 1997 as the record date (the "Record Date") for determining holders
of that Fund's shares of common stock entitled to notice of and to vote at each
Fund's Meeting. Each stockholder will be entitled to one vote for each share
held. At the close of business on the Record Date, there were outstanding
6,140,840 shares of the Acquiring Fund and 3,419,143 shares of the Acquired
Fund. This Joint Proxy Statement -- Prospectus is first being mailed to
stockholders of the Funds on or about September 8, 1997.
In the event that a quorum necessary for a stockholders meeting is not
present or sufficient votes to approve one or more of the proposals are not
received by October 28, 1997, the persons named as proxies may propose one or
more adjournments of a Meeting to permit further solicitation of proxies. In
determining whether to adjourn a Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to stockholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares of the relevant Fund present in person or by proxy
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<PAGE> 22
and entitled to vote at the Meeting. The persons named as proxies will vote upon
a decision to adjourn a Meeting with respect to a Fund after consideration of
the best interests of all stockholders of that Fund.
VOTING; PROXIES
The Shares of the Acquiring Fund that are entitled to vote at the Acquiring
Fund Meeting and that are represented by properly executed proxies will, unless
such proxies have been revoked, be voted in accordance with the stockholder's
instructions indicated on such proxies. If no contrary instructions are
indicated, such shares will be voted FOR the approval of the issuance of the
Acquiring Fund Shares in connection with the Reorganization, FOR the
modification of the Acquiring Fund's fundamental investment policy concerning
industry concentration, FOR changing the Acquiring Fund's name to "Scudder
Global High Income Fund, Inc.," FOR the approval of the new investment
management agreement with its investment manager, FOR the election of the two
nominees for director and FOR ratification of the Acquiring Fund's selection of
independent accountants, as described in this Joint Proxy
Statement -- Prospectus.
The Shares of the Acquired Fund that are entitled to vote at the Acquired
Fund Meeting and that are represented by properly executed proxies will, unless
such proxies have been revoked, be voted in accordance with the stockholder's
instructions indicated on such proxies. If no contrary instructions are
indicated, such Shares will be voted FOR approval of the Reorganization, FOR the
approval of the new investment management agreement with its investment manager,
FOR the election of the two nominees for director and FOR ratification of the
Acquired Fund's selection of independent accountants, as described in this Joint
Proxy Statement -- Prospectus.
A quorum of stockholders is required to take action at each Meeting. A
majority of the shares entitled to vote at each Meeting, represented in person
or by proxy, will constitute a quorum of stockholders at that Meeting. Votes
cast by proxy or in person at each Meeting will be tabulated by the inspectors
of elections appointed for that Meeting. The inspectors of election will
determine whether or not a quorum is present at the Meeting.
The description of each proposal contained in this Joint Proxy
Statement -- Prospectus contains the details as to the specific vote that is
required to approve the proposal. Abstentions will have the effect of a "no"
vote on all proposals. Broker non-votes will have the effect of a "no" vote for
those proposals that are to be approved by obtaining the affirmative vote of
more than 50% of the outstanding shares of the Fund. Broker non-votes will not
constitute "yes" or "no" votes and will be disregarded in determining the voting
securities "present" if such vote is determined on the basis of the affirmative
vote of 67% of the voting securities of the Fund present at the meeting and a
majority of the voting securities of the Fund present at the meeting.
Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee has neither received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter. ACCORDINGLY, STOCKHOLDERS ARE URGED TO FORWARD THEIR VOTING
INSTRUCTIONS PROMPTLY.
The details of each proposal to be voted on by the stockholders of each
Fund and the vote required for approval of each proposal are set forth under the
description of each proposal below. Stockholders of either Fund who execute
proxies may revoke them at any time before they are voted by filing with their
Fund a written notice of revocation, by delivering a duly executed proxy bearing
a later date, or by attending the meeting and voting in person.
THE REORGANIZATION
The terms and conditions under which the proposed Reorganization may be
consummated are set forth in the Agreement and Plan of Reorganization (the
"Plan"). Significant provisions of the Plan are summarized below; however, this
summary is qualified in its entirety by reference to the Plan, a copy of which
is attached as Appendix I to this Joint Proxy Statement -- Prospectus.
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<PAGE> 23
GENERAL
The Plan contemplates a proposed Reorganization under which (a) the
Acquiring Fund would acquire substantially all of the assets of the Acquired
Fund in exchange for the Acquiring Fund's assumption of substantially all of the
liabilities of the Acquired Fund and the issuance of Acquiring Fund Shares to
the Acquired Fund; (b) the Acquiring Fund Shares would be distributed to the
stockholders of the Acquired Fund; and (c) the Acquired Fund would be dissolved
and liquidated and its registration under the 1940 Act would be terminated. The
number of Acquiring Fund Shares to be issued to the Acquired Fund would be that
number having an aggregate net asset value equal to the aggregate value of the
Acquired Fund's assets transferred to, net of the liabilities assumed by, the
Acquiring Fund as of the time such assets and liabilities are transferred and
assumed (such time being referred to as the "Closing Date"). If the requisite
stockholder approval is obtained, the Closing Date is expected to be the close
of business on November 7, 1997.
The result of the Reorganization would be that (a) the Acquiring Fund would
add to its assets substantially all of the assets of the Acquired Fund, other
than cash to be used to pay expenses of the Acquired Fund and to make a final
distribution of ordinary income and capital gains to the stockholders of the
Acquired Fund as of the Closing Date and (b) the stockholders of the Acquired
Fund as of the Closing Date would become stockholders of the Acquiring Fund. See
"Description of Shares To Be Issued by the Acquiring Fund" and "Comparison of
Rights of Holders of Shares of the Acquiring Fund and the Acquired Fund" for a
description of the rights of such stockholders. For Federal income tax reasons,
the Acquired Fund must distribute all of its income and capital gains prior to
the end of its fiscal year, which would occur at the Closing Date.
If the requisite stockholder approval is obtained, the assets of the
Acquired Fund to be acquired by the Acquiring Fund will include without
limitation all cash (except as necessary to pay the liabilities retained by the
Acquired Fund or described in the next sentence), cash equivalents, instruments
and other securities, receivables and other property owned by the Acquired Fund.
The Acquiring Fund will assume from the Acquired Fund all debts, liabilities,
obligations and duties of the Acquired Fund, other than (a) certain expenses
incurred by the Acquired Fund in connection with the Reorganization and (b) the
Acquired Fund's obligation to distribute any ordinary income and capital gains
accrued as of the Closing Date.
The value of the Acquired Fund's assets to be acquired and the liabilities
to be assumed by the Acquiring Fund and the net asset value per share for the
shares to be issued by the Acquiring Fund will be determined by Scudder Fund
Accounting Corporation ("SFAC"), the accounting agent for both Funds, as of the
Closing Date. To determine the net asset value per share for the Funds, the
value of the securities held by each Fund plus any cash or other assets
(including interest and dividends accumulated but not yet received) minus all
liabilities (including accrued expenses) is divided by the total number of
shares outstanding at such time. Expenses, including the fees payable to the
Investment Adviser, are accrued daily. The number of Acquiring Fund Shares to be
issued to the Acquired Fund pursuant to the Closing will be calculated based on
the determinations of SFAC.
As soon as practicable after the Closing Date, the Acquired Fund would
distribute the Acquiring Fund Shares received by it pro rata to its stockholders
of record in exchange for such stockholders' interests in the Acquired Fund.
Such distribution would be accomplished by opening accounts on the books of the
Acquiring Fund in the names of the stockholders of the Acquired Fund and
transferring to those stockholder accounts the Acquiring Fund Shares previously
credited on those books to the account of the Acquired Fund. Each stockholder
account would represent the respective pro rata number of Acquiring Fund Shares
due such Acquired Fund stockholder. Fractional shares will not be issued except
upon surrender of his or her Acquired Fund Share certificates. See "Surrender
and Exchange of Acquired Fund Share Certificates" for a description of the
procedures to be followed by Acquired Fund stockholders to obtain their
Acquiring Fund Shares (and cash in lieu of fractional shares, if any). The
Acquired Fund would be dissolved thereafter.
Accordingly, as a result of the Reorganization, every stockholder of the
Acquired Fund would own Acquiring Fund Shares that would have an aggregate net
asset value immediately after the Closing Date equal to the aggregate net asset
value of that stockholder's Acquired Fund Shares immediately prior to the
Closing Date. Since the Acquiring Fund Shares would be issued at net asset value
in exchange for net assets of the
14
<PAGE> 24
Acquired Fund having a value equal to the aggregate net asset value of those
shares, the net asset value per share of the Acquiring Fund Shares should remain
virtually unchanged by the Reorganization. Thus, the Reorganization should
result in no dilution of net asset value of any stockholder's holdings, other
than to reflect the cost to effect the Reorganization. See "Pro Forma Financial
information". However, as a result of the Reorganization, a stockholder of
either Fund would likely hold a reduced percentage of ownership in the larger
combined entity than he or she did in either of the constituent Funds.
The Plan may be terminated and the Reorganization abandoned, whether before
or after approval by the Funds' stockholders, at any time prior to the Closing
Date (a) by the mutual written consent of the Boards of Directors of the Funds
or (b) by either Fund if the conditions to that Fund's obligations under the
Plan have not been satisfied or waived and it reasonably appears that such
conditions will not be satisfied. If the transactions contemplated by the Plan
have not been consummated by April 30, 1998, the Plan automatically terminates
on that date, unless a later date is mutually agreed upon by the Boards of
Directors of both Funds. Under Maryland law and each Fund's Articles of
Incorporation/By-Laws, stockholders of the Funds do not have appraisal rights
with respect to the Reorganization.
CHANGE OF LADIF'S NAME; AMENDMENT OF FUNDAMENTAL POLICY ON INDUSTRY
CONCENTRATION
The Reorganization is subject to several conditions, including the approval
by the Acquiring Fund's stockholders of (i) an amendment to LADIF's Articles of
Incorporation changing its name to "Scudder Global High Income Fund, Inc." and
(ii) an amendment to LADIF's fundamental policy concerning industry
concentration.
Name Change. As stated above, the Board of Directors of LADIF has approved
changes to certain investment policies of LADIF to conform them to those of
SWIOF, such changes to become effective upon the closing of the Reorganization.
Two of the more important of those changes involve broadening the geographic
universe of Fund investments and permitting up to 50% of Fund assets to be
invested in local currency-denominated securities. The name of LADIF is proposed
to be changed in order to more accurately reflect the broader investment focus
and policies of the combined Fund following the Reorganization.
The Board of LADIF believes that LADIF stockholders would benefit from the
Fund being able to seek investment opportunities throughout the world.
Developments have occurred in the market for emerging market debt securities
since 1992, when LADIF commenced operations. In 1992, substantially all issuers
of emerging market debt were located in Latin America. Five years later,
significant issuers are in Eastern Europe and Asia, and there are growing
markets in Africa. Non-Latin American debt issues have, at times, had higher
yields and/or returns than Latin American issues. In addition, investment in
certain of the emerging debt markets that are less mature than the Latin
American market generally may provide a greater opportunity to achieve capital
appreciation. In addition to positioning the Fund to take advantage of
potentially higher returns available in emerging markets other than Latin
America, the elimination of LADIF's geographic focus is expected to have other
benefits: (1) providing access to more portfolio securities, thereby permitting
greater diversification by country, industry and issuer and enhancing portfolio
choices and (2) enabling LADIF more opportunity to invest in countries where the
performance of debt instruments is less correlated to the performance of issuers
in other countries than the Latin American debt markets have been. Moreover,
greater geographic diversification of investments may reduce the volatility of
the Fund's net asset value related to the Fund's use of leverage.
After the Reorganization, the Fund will have the authority to invest up to
50% of its assets in securities denominated in local currencies; LADIF is
currently limited to 20%. The Investment Adviser believes that while investing a
higher percentage of its assets in non-U.S. dollar denominated securities may
result in greater volatility in the combined Fund's net asset value, those
securities generally have higher yields than U.S. dollar denominated securities.
Change of Industry Concentration Policy. The Acquiring Fund's current
fundamental policy concerning industry concentration generally prohibits the
Acquiring Fund from investing more than 25% of its assets in securities issued
by the government of any country and its agencies and instrumentalities.
However, the policy has an exception for securities issued by the government of
any one Latin American country and its agencies
15
<PAGE> 25
and instrumentalities. The effect of the exception is that LADIF may invest more
than 25% of its assets in securities issued by any one Latin American country if
the Fund's Board of Directors determines, on the basis of factors such as
liquidity, availability of investments and anticipated returns, that the Fund's
ability to achieve its investment objectives would be materially adversely
affected if the Fund were not permitted to invest more than 25% of its total
assets in those securities. The proposal would amend this policy to delete the
reference to "Latin American" in the exception, thereby permitting LADIF to
invest more than 25% of its assets in any country under the circumstances
described in the policy. See "Investment Restrictions" below for the text of the
investment policy proposed to be amended.
The Investment Adviser believes now, as it did in 1992 when the Fund
started, that the ability to invest more than 25% of its assets in government
securities of a single country is helpful in light of the evolving nature of the
markets for emerging market debt securities and the ever-changing investment
characteristics and returns in those markets. The policy as originally drafted
reflected the Fund's focus on Latin America; the change in policy is being
proposed to reflect the Fund's broadened global perspective.
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Directors of the Acquiring Fund and the Board of Directors of
the Acquired Fund, which consist of the same directors, each believes that the
Reorganization is in the best interests of the stockholders of its respective
Fund and recommends that the stockholders of that Fund vote FOR approval of the
proposal relating to the Reorganization.
In approving the Reorganization, the Boards identified certain potential
benefits from combining the Funds. The Boards also considered the possible risks
and costs of combining the Funds and determined that the risks and costs of the
Reorganization are outweighed by the anticipated benefits to the stockholders of
both Funds.
The larger fund that would result from the Reorganization would have a much
larger asset base than SWIOF or LADIF has currently, expected to be
approximately $161.2 million as compared with LADIF's net assets of $103.4
million and SWIOF's net assets of $57.8 million, each as of July 31, 1997. Based
on data presented by the Investment Adviser, the Boards of LADIF and SWIOF
believe that operating expenses for the larger combined Fund will be lower than
the aggregate operating expenses for either Fund currently, declining from
annual expense ratios of 2.07% for SWIOF and 1.68% for LADIF as of July 31, 1997
to 1.60% (excluding any interest expense that would be incurred were the
combined Fund to borrow).
In approving the Reorganization, the Boards of LADIF and SWIOF considered
other ways of increasing the sizes of the Funds, such as a secondary offering of
shares or a rights offering, and considered the Reorganization to provide the
best alternative at the present time for increasing LADIF's and SWIOF's asset
sizes.
The Boards also considered several other benefits of the Reorganization
that can be expected for each Fund:
A larger asset base should provide benefits in portfolio management. After
the Reorganization, the Acquiring Fund should be able to take positions of a
meaningful size in more markets, thereby diversifying holdings to mitigate
risks, while participating in more investment opportunities. In addition, a
larger aggregate size could result in a more liquid trading market for shares of
the combined Fund, which might have a positive impact on the discount at which
each Fund's shares have tended to trade. Further, the Reorganization itself
should focus the attention of a wider circle of securities analysts on the
Funds, and after the Reorganization, may facilitate securities analysts'
following of the larger combined Fund since it would eliminate confusion in the
marketplace between two funds both investing in emerging market debt securities
managed by the same adviser and would result in a fund with an aggregate size
that could command more attention from investment company analysts. Greater
analysts' attention could result in more active trading in Fund shares with the
concomitant benefit of a narrower discount on Fund shares, although this cannot
be guaranteed.
In approving the Reorganization, the Boards considered the fact that the
Reorganization should not be expected to have an adverse effect on the financial
status and ongoing performance of each Fund. The Boards
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<PAGE> 26
examined the relative credit strength, maturity characteristics, mix of type and
purpose, and yield of the portfolios of the Funds and the costs involved in a
transaction such as the Reorganization. The Boards noted the similarities
between the Funds, including their similar investment objectives and investment
policies. The Board also considered the fact that the Funds have the same key
service providers, including the Investment Adviser, the Custodian and the
Transfer Agent.
Based on these factors, the Boards concluded that the expenses and costs of
implementing the Reorganization are outweighed by the benefits that are
anticipated to be derived from Reorganization. In approving the Reorganization,
the Boards of Directors of the Funds determined that the interests of existing
stockholders of the Funds would not be diluted as a result of the
Reorganization. See "Pro Forma Financial Information."
VOTE REQUIRED
Consummation of the Reorganization requires the approval of the
stockholders of both Funds.
LADIF Stockholders are being asked to approve the issuance of LADIF common
stock in the Reorganization, whereby the Acquiring Fund would acquire
substantially all of the assets and assume substantially all of the liabilities
of the Acquired Fund in exchange for the Acquiring Fund Shares issued. A vote in
favor of the proposal to issue LADIF shares by a stockholder of LADIF will also
be considered a vote in favor of the related proposals to amend the Acquiring
Fund's industry concentration restriction and to change the Acquired Fund's name
to "Scudder Global High Income Fund, Inc." Even if approved, the amendment to
the industry concentration restriction and the change of the Fund's name will
not be implemented unless the Reorganization is also consummated and, in like
manner, the Reorganization will not be consummated unless the proposal to amend
the industry concentration restriction and to change the Fund's name have been
approved. Adoption of the proposal to issue LADIF shares requires the
affirmative vote of the holders of a majority of the votes cast at the Acquiring
Fund Meeting in person or by proxy. Approval of the proposal to amend the
industry concentration restriction has a different voting requirement: the
affirmative vote of a majority of the Acquiring Fund's outstanding voting
securities (which, for this purpose and under the 1940 Act, means the lesser of
(i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares). Approval of the proposal to change the Acquiring Fund's name requires
the affirmative vote of the holders of at least a majority of the shares of the
Acquiring Fund entitled to vote on the proposal. As a consequence of applying
these different voting requirements, the Reorganization will not be consummated
unless the highest of the voting requirements is met, specifically, the
affirmative vote of the holders of at least a majority of the shares of the
Acquiring Fund entitled to vote on the proposal.
SWIOF Stockholders are being asked to approve the Reorganization, whereby
(a) the Acquired Fund would transfer substantially all of its assets to the
Acquiring Fund in exchange for shares of the Acquiring Fund and the assumption
of substantially all of the Acquired Fund's liabilities by the Acquiring Fund;
and (b) the Acquiring Fund Shares received by the Acquired Fund would be
distributed to stockholders of the Acquired Fund and the Acquired Fund would
subsequently be dissolved. Adoption of this proposal will require the
affirmative vote of the holders of at least a majority of the shares of the
Acquired Fund entitled to vote on the proposal.
In the event that the requisite stockholder approval is not obtained, the
Funds will remain separate entities and continue to operate as such.
DESCRIPTION OF SHARES TO BE ISSUED BY THE ACQUIRING FUND
General. The Articles of Incorporation of the Acquiring Fund (the
"Acquiring Fund's Articles") authorizes the issuance of 100,000,000 shares of
capital stock in a single class, par value $.01 per share. As of July 31, 1997,
there were issued and outstanding 6,140,840 Acquiring Fund Shares. If the
Reorganization is approved, at the Closing Date the Acquiring Fund will issue
additional Acquiring Fund Shares. The number of such additional Acquiring Fund
Shares will be based on the relative net asset values of the Funds as of the
Closing Date; based on the relative net asset values as of July 31, 1997, the
Acquiring Fund would have issued
17
<PAGE> 27
approximately 3,428,524 additional Acquiring Fund Shares if the Reorganization
had occurred as of that date. The terms of the Shares to be issued pursuant to
the Reorganization will be identical to the terms of the Acquiring Fund Shares
that are outstanding. All of the Acquiring Fund's Shares have equal
non-cumulative voting rights and equal rights with respect to dividends, assets
and dissolution. The Acquiring Fund Shares are fully paid and non-assessable and
have no preemptive, conversion or exchange rights.
Dividends and Distributions. It is the Acquiring Fund's present policy,
which may be changed by the Board of Directors, to pay dividends quarterly and
to distribute substantially all of its net investment income to holders of
common stock. Net capital gains, if any, will be distributed annually to holders
of Common Stock. The Acquiring Fund's distribution level is determined by the
Board of Directors of the Acquiring Fund after giving consideration to a number
of factors, including the Acquiring Fund's undistributed net investment income
and historical and projected investment income and expenses. Net income of the
Acquiring Fund consists of all interest and dividend income accrued on portfolio
assets, less all expenses of the Acquiring Fund. Expenses of the Acquiring Fund
are accrued each day.
Automatic Dividend Reinvestment Plan. Pursuant to the Acquiring Fund's
Automatic Dividend Reinvestment Plan (the "Reinvestment Plan"), unless a
stockholder otherwise elects, all dividend and capital gain distributions will
be automatically reinvested by State Street Bank and Trust Company, as agent for
stockholders in administering the Reinvestment Plan (the "Plan Agent"), in
additional shares of Common Stock of the Acquiring Fund. Stockholders who elect
not to participate in the Reinvestment Plan will receive all distributions in
cash paid by check in dollars mailed directly to the stockholder of record (or,
if the shares are held in street or other nominee name then to such nominee) by
State Street Bank and Trust Company, as dividend paying agent. Stockholders who
do not wish to have distributions automatically reinvested should notify the
Acquiring Fund c/o the Plan Agent for The Latin America Dollar Income Fund,
Inc., 225 Franklin Street, Boston, Massachusetts 02101.
The Plan Agent serves as agent for the stockholders in administering the
Reinvestment Plan. If the Acquiring Fund's Board of Directors declares an income
dividend or a capital gains distribution payable either in Common Stock or in
cash, as stockholders may have elected, nonparticipants in the Reinvestment Plan
will receive cash and participants in the Reinvestment Plan will receive Common
Stock to be issued by the Acquiring Fund. If the market price per share on the
valuation date equals or exceeds net asset value per share on that date, the
Acquiring Fund will issue new shares of Common Stock to participants at net
asset value or, if the net asset value is less than 95% of the market price on
the valuation date, then at 95% of the market price. The valuation date will be
the dividend or distribution payment date or, if that date is not a NYSE trading
day, the next preceding trading day. If net asset value exceeds the market price
of the Fund's shares at that time, participants in the Reinvestment Plan will be
deemed to have elected to receive shares of Common Stock from the Fund, valued
at market price on the valuation date. If the Fund declares an income dividend
or capital gains distribution payable only in cash, the Plan Agent, as agent for
the participants, will buy shares of Common Stock in the open market, on the
NYSE or elsewhere, for the participants' accounts on, or shortly after, the
payment date.
Participants have the option of making additional cash payments to the Plan
Agent, semi-annually, in any amount from $100 to $3,000, for investment in
Common Stock. The Plan Agent will use all such funds received from participants
to purchase Common Stock in the open market on or about February 15 and August
15 of each year. Any voluntary cash payments received after the fifth day
preceding these dates and more than 30 days prior to these dates will be
returned by the Plan Agent, and interest will not be paid on any uninvested cash
payments. To avoid unnecessary cash accumulations, and also to allow ample time
for receipt and processing by the Plan Agent, participants should send in
voluntary cash payments to be received by the Plan Agent approximately ten days
before February 15 or August 15, as the case may be. A participant may withdraw
a voluntary cash payment by written notice, if the notice is received by the
Plan Agent not less than 48 hours before the payment is to be invested.
The Plan Agent will maintain all stockholder accounts in the Reinvestment
Plan and will furnish written confirmations of all transactions in an account,
including information needed by stockholders for personal and tax records.
Shares of Common Stock in the account of each Reinvestment Plan participant will
be held by
18
<PAGE> 28
the Plan Agent in the name of the participant, and each stockholder's proxy will
include those shares purchased pursuant to the Reinvestment Plan.
In the case of Acquiring Fund stockholders, such as banks, brokers or
nominees, that hold shares of Common Stock for others who are the beneficial
owners, the Plan Agent will administer the Reinvestment Plan on the basis of the
number of shares certified from time to time by the stockholder as representing
the total amount registered in the stockholder's name and held for the account
of beneficial owners who are to participate in the Reinvestment Plan.
There is no charge to Reinvestment Plan participants for reinvesting
dividends or capital gains distributions. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions will be paid by the
Acquiring Fund. There will be no brokerage charges with respect to shares of
Common Stock issued directly by the Fund as a result of dividends or capital
gains distributions payable either in stock or in cash. Participants will,
however, pay a proportionate share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with
reinvestment of any dividends or capital gains distributions payable only in
cash.
The Plan Agent will charge $1.00 for each purchase from a voluntary cash
payment for a Reinvestment Plan participant, plus a pro rata share of the
brokerage commissions. Brokerage charges for purchasing small amounts of stock
for individual accounts through the Reinvestment Plan are expected to be less
than the usual brokerage charges for such transactions, because the Plan Agent
will be purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The receipt of dividends and distributions under the Reinvestment Plan will
not relieve participants of any income tax (including withholding tax), which
may be payable on such dividends or distributions.
Experience under the Reinvestment Plan may indicate that changes in the
Reinvestment Plan are desirable. As a result, the Acquiring Fund and the Plan
Agent reserve the right to terminate the Reinvestment Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
notice of the termination sent to members of the Reinvestment Plan at least 30
days before the record date for such dividend or distribution. The Reinvestment
Plan also may be amended by the Acquiring Fund or the Plan Agent, but only by at
least 30 days' written notice to participants in the Reinvestment Plan (except
when necessary or appropriate to comply with applicable law, rules or policies
of a regulatory authority). All correspondence concerning the Reinvestment Plan
should be directed to the Plan Agent at 225 Franklin Street, Boston,
Massachusetts 02101.
Certain Provisions in the Acquiring Fund's Articles of Incorporation. For
purposes of the following discussion, references to the "Fund" are references to
the Acquiring Fund. The Fund has provisions in its Articles of Incorporation and
By-Laws 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. The Fund's Board of Directors is
divided into three classes. At the annual meeting of stockholders in each year,
the term of one class will expire and directors will be elected to serve in that
class for terms of three years. The classification of the Board of Directors in
this manner 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.
The affirmative votes of at least 75% of the directors and the holders of
at least 75% of the shares of Common Stock of the Fund are required to authorize
any of the following transactions (referred to individually as a "Business
Combination"): (1) a merger, consolidation or share exchange of the Fund with or
into any other person (referred to individually as a "Reorganization
Transaction"); (2) the 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 other
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 sales of
securities of the Fund in connection with a public offering, issuances of
securities of the Fund pursuant to a dividend reinvestment plan adopted by the
19
<PAGE> 29
Fund and issuances of securities of the Fund upon the exercise of any stock
subscription rights distributed by the Fund; (3) a 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 of any assets of
the Fund having an aggregate fair market value of $1,000,000 or more, except for
transactions in securities effected by the Fund in the ordinary course of its
business (each such sale, lease, exchange, mortgage, pledge, transfer or other
disposition being referred to individually as a "Transfer Transaction"). The
same affirmative votes are required with respect to: any proposal as to the
voluntary liquidation or dissolution of the Fund or any amendment to the Fund's
Articles of Incorporation to terminate its existence (referred to individually
as a "Termination Transaction"); and any stockholder proposal as to specific
investment decisions made or to be made with respect to the Fund's assets.
A 75% stockholder vote will not be required with respect to a Business
Combination if the transaction is approved by a vote of at least 75% of the
Continuing Directors or if certain conditions regarding the consideration paid
by the person entering into, or proposing to enter into, a Business Combination
with the Fund and various other requirements are satisfied. In such case, a
majority of the votes entitled to be cast by stockholders of the Fund will be
required to approve the transaction if it is a Reorganization Transaction or if
it is a Transfer Transaction that involves a transfer of substantially all of
the Fund's assets and no stockholder vote will be required to approve the
transaction if it is any other Business Combination. In addition, a 75%
stockholder vote will not be required with respect to a Termination Transaction
if it is approved by a vote of at least 75% of the Continuing Directors, in
which case a majority of the votes entitled to be cast by stockholders of the
Fund will be required to approve the transaction.
In addition, the conversion of the Acquiring Fund to an open-end investment
company would require an amendment to the Acquiring Fund's Articles of
Incorporation. The amendment would have to be declared advisable by the Board of
Directors prior to its submission to stockholders.
In considering whether to recommend to stockholders the conversion of the
Fund to an open-end investment company, the Fund's Board of Directors would
consider a number of factors including whether the Fund's ability to operate in
accordance with its investment policies, such as its authority to invest in
illiquid securities, may be impaired as a result. In light of the position of
the Commission that illiquid securities and securities subject to legal or
contractual limitations on resale may not exceed 15% of the total assets of a
registered open-end investment company, any attempt to convert the Fund to such
a company would have to take into account the percentage of such securities in
the Fund's portfolio at the time, and other factors. The Fund cannot predict
whether it would be able to effect any such conversion or whether relief from
the Commission's position could be obtained.
Any amendment to the Fund's Articles of Incorporation that would convert
the Fund to an open-end investment company would require a favorable vote of 75%
of the Fund's directors and (1) the holders of a majority of the shares of the
Fund entitled to be voted on the matter (if such amendment were approved by 75%
of the Continuing Directors (as defined below)) or (2) the holders of 75% of the
shares of the Fund entitled to be voted on the matter (if such amendment were
approved by fewer than 75% of the Continuing Directors). A "Continuing Director"
is any member of the Fund's Board of Directors (1) who is not a person or
affiliate of a person who enters or proposes to enter into a Business
Combination (as defined below) with the Fund (other than an investment company
advised by the Fund's initial investment manager or any of its affiliates)(an
"Interested Party") and (2) who has been a member of the Fund's Board of
Directors for a period of at least 12 months (or since the Fund's commencement
of operations if that period is less than 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.
Stockholders of an open-end investment company may require the company to
redeem their shares of common stock at any time (except in certain circumstances
as authorized by or under the 1940 Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time of a redemption.
All redemptions will be made in cash. If the Acquiring Fund is converted to an
open-end investment company, it
20
<PAGE> 30
could be required to liquidate portfolio securities to meet requests for
redemption and the Common Stock would no longer be listed on a stock exchange.
The voting provisions described above could have the effect of depriving
stockholders of the Fund of an opportunity to sell their Common Stock at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Fund in a tender offer or similar transaction. In the
view of the Fund's Board of Directors, however, these provisions offer several
possible advantages, including: (1) requiring persons seeking control of the
Fund to negotiate with its management regarding the price to be paid for the
amount of Common Stock required to obtain control; (2) promoting continuity and
stability; and (3) enhancing the Fund's ability to pursue long-term strategies
that are consistent with its investment objective and policies. The Board of
Directors has determined that the voting requirements described above, which are
generally greater than the minimum requirements under Maryland law and the 1940
Act, are in the best interests of stockholders generally. In doing so, the Board
considered, among other things, that the restrictions should serve to allow the
Fund sufficient time to identify and acquire a portfolio consisting primarily of
securities of issuers located in emerging countries. In addition, the Fund's
By-Laws contain provisions the effect of which is to prevent matters, including
nominations of directors, from being considered at stockholders meetings if the
Fund has not received sufficient prior notice of the matters. Reference should
be made to the Acquiring Fund's Articles of Incorporation on file with the
Commission for the full text of these provisions.
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF THE ACQUIRING FUND AND THE ACQUIRED
FUND
The terms of the Acquiring Fund Shares to be issued in the Reorganization,
as described above, are identical to the terms of the outstanding shares of the
Acquired Fund. Moreover, each of the Funds is organized as a management
investment company under the laws of the State of Maryland pursuant to virtually
identical Articles of Incorporation. Therefore, the rights of holders of the
Acquiring Fund Shares to be received by Acquired Fund stockholders in the
Reorganization will be identical to their rights as holders of Acquired Fund
Shares. The shares will simply represent an equity ownership in a larger
combined entity after the Reorganization. The full text of each Fund's Articles
of Incorporation is on file with the Commission and may be obtained as described
under "Available Information". The terms of the Acquiring Fund's Automatic
Dividend Reinvestment Plan also are virtually identical to the terms of the
Acquired Fund's Automatic Dividend Reinvestment Plan.
SURRENDER AND EXCHANGE OF ACQUIRED FUND SHARE CERTIFICATES
After the Closing Date, each holder of an outstanding certificate or
certificates formerly representing shares of the Acquired Fund will be entitled
to receive, upon surrender of his or her certificates, a certificate or
certificates representing the number of Acquiring Fund Shares distributable with
respect to such holder's shares of the Acquired Fund, together with cash in lieu
of any fractional shares. Promptly after the Closing Date, the Transfer Agent
will mail to each holder of certificates formerly representing shares of the
Acquired Fund a letter of transmittal for use in surrendering his or her
certificates for certificates representing shares of the Acquiring Fund and cash
in lieu of any fractional shares.
PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME. UPON
CONSUMMATION OF THE REORGANIZATION, ACQUIRED FUND STOCKHOLDERS WILL BE FURNISHED
INSTRUCTIONS FOR EXCHANGING THEIR ACQUIRED FUND SHARE CERTIFICATES FOR ACQUIRING
FUND SHARE CERTIFICATES AND, IF APPLICABLE, CASH IN LIEU OF FRACTIONAL SHARES.
From and after the Closing Date, certificates formerly representing shares
of the Acquired Fund will be deemed for all Fund purposes to evidence ownership
of the number of full Acquiring Fund Shares distributable with respect to such
shares of the Acquired Fund in the Reorganization, provided that until such
Acquired Fund certificates have been so surrendered, no dividends payable to the
holders of record of Acquiring Fund Shares as of any date subsequent to the
Reorganization Date will be paid to the holders of such outstanding Acquired
Fund Share certificates. Dividends payable on Acquiring Fund Shares to holders
of record as of any date after the Closing Date and prior to the exchange of
certificates by any Acquired Fund
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<PAGE> 31
stockholder will be paid to such stockholder, without interest, at the time such
stockholder surrenders his or her Acquired Fund Share certificates for exchange.
In addition, with respect to any Acquired Fund stockholder holding
certificates evidencing ownership of the Acquired Fund Shares as of the Closing
Date, and subject to the Acquiring Fund being informed thereof in writing by the
Acquired Fund, the Acquiring Fund will not permit such stockholder to pledge
such Acquiring Fund Shares, in any case, until notified by the Acquired Fund or
its agent that such stockholder has surrendered his or her outstanding
certificates evidencing ownership of the Acquired Fund Shares or, in the event
of lost certificates, posted adequate bond. The Acquired Fund, at its own
expense, will request its stockholders to surrender their outstanding
certificates evidencing ownership of the Acquired Fund Shares, as the case may
be, or post adequate bond therefor.
From and after the Closing Date, there will be no transfers on the stock
transfer books of the Acquired Fund. If, after the Closing Date, certificates
representing shares of the Acquired Fund are presented to the Acquired Fund,
they will be canceled and exchanged for certificates representing the Acquiring
Fund Shares and the cash in lieu of fractional shares, if any, distributable
with respect to such Acquired Fund Shares in the Reorganization.
FRACTIONAL SHARES
No certificates or scrip representing less than one share of Acquiring Fund
Shares shall be issued upon the surrender for exchange of certificated Acquired
Fund Shares. In lieu of any such fractional share, each holder of certificated
Acquired Fund Shares who would otherwise have been entitled to a fraction of an
Acquiring Fund Share shall be paid upon surrender of such certificates cash
(without interest) in an amount equal to the net asset value of such fractional
share. Acquired Fund Shares that are registered in book entry form only shall be
issued fractional Acquiring Fund Shares in the Reorganization.
EXPENSES ASSOCIATED WITH THE REORGANIZATION
In evaluating the proposed Reorganization, management of the Funds
estimated the amount of additional expenses the Funds would incur, including
additional NYSE listing fees, Commission registration fees, legal and accounting
fees and increased proxy and distribution costs. These estimates were based in
part on historical expense information regarding expenses incurred by other
funds managed by the Fund's management in preparation for previous stockholder
meetings. The aggregate amount of estimated expenses of the Reorganization
(including Commission registration fees and annual NYSE fees that will be borne
by the Acquiring Fund after the Reorganization), will be allocated to the
Acquired Fund and the Acquiring Fund based on their respective asset size. See
"The Meetings -- General" for information relating to the payment of certain
expenses relating to the solicitation of stockholders of the Funds.
Reorganization expenses of the Acquiring Fund and the Acquired Fund have
been or will be expensed prior to the Closing Date.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Prior to completion of the Reorganization each Fund will have received an
opinion of counsel that, upon the closing of the Reorganization and the transfer
of the assets and liabilities of the Acquired Fund, the Reorganization will
constitute a "reorganization" under Section 368 (a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code") and no stockholder of either Fund
will recognize taxable gain or loss upon the issuance of Acquiring Fund Shares
in the Reorganization. Based upon representations by the Acquired Fund that the
Acquired Fund has qualified, and by the Acquiring Fund that the Acquiring Fund
has qualified, as a regulated investment company under the Code for the taxable
period up to and including the business day prior to the date on which the
Reorganization takes place, the status of each Fund as a regulated investment
company will not be affected as a result of the Reorganization, except that upon
the liquidation of the Acquired Fund in connection with the Reorganization its
regulated investment company status will terminate. The following discussion
summarizes the anticipated federal income tax treatment to stockholders of the
Acquired Fund.
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<PAGE> 32
Exchange of Acquired Fund Shares Solely for Acquiring Fund Shares. A
stockholder of the Acquired Fund who receives Acquiring Fund Shares pursuant to
the Reorganization will recognize no gain or loss, except with respect to the
cash received for a fractional share interest, if any. See "Fractional Share
Interests" below.
The aggregate basis of the Acquiring Fund Shares received by a stockholder
of the Acquired Fund (including any fractional share interest to which he or she
may be entitled) will be the same as the stockholder's aggregate basis in the
Acquired Fund Shares surrendered in exchange therefor, decreased by any cash
received and increased by the amount of gain recognized on the exchange.
The holding period of the Acquiring Fund Shares received by a stockholder
of the Acquired Fund (including any fractional share interest to which he or she
may be entitled) will include the period during which the stockholder's Acquired
Fund Shares were held, provided such Acquired Fund Shares were held as a capital
asset at the Closing Date.
Fractional Share Interests. Fractional Acquiring Fund Shares will not be
issued in the Reorganization except upon surrender by a Stockholder of Acquired
Fund Share Certificates. Upon surrender by a stockholder of his or her
certificates formerly representing shares of the Acquired Fund, such stockholder
will be entitled to receive a certificate or certificates representing the
number of Acquiring Fund Shares distributable with respect to such holder's
shares of the Acquired Fund, together with cash in lieu of any fractional
shares. Cash payments received by Acquired Fund stockholders in lieu of a
fractional Acquiring Fund Share will be treated as received by such stockholders
as a distribution in redemption by the Acquiring Fund of that fractional share
interest and will be treated as a distribution in full payment in exchange for
the fractional share interest, resulting in a capital gain or loss, assuming the
Acquired Fund Shares exchanged for cash in lieu of the fractional shares were
held as a capital asset at the Closing Date. The amount of capital gain or loss
recognized by a stockholder will equal the difference between the amount of cash
received by the stockholder and such stockholder's basis in the fractional share
interest.
THE FOREGOING IS INTENDED TO BE ONLY A SUMMARY OF THE PRINCIPAL FEDERAL
INCOME TAX CONSEQUENCES OF THE REORGANIZATION AND SHOULD NOT BE CONSIDERED TO BE
TAX ADVICE. THERE CAN BE NO ASSURANCE THAT THE INTERNAL REVENUE SERVICE WOULD,
IF ASKED, CONCUR ON ALL OR ANY OF THE ISSUES DISCUSSED ABOVE. ACQUIRING FUND
STOCKHOLDERS AND ACQUIRED FUND STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS REGARDING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES WITH RESPECT TO
THE FOREGOING MATTERS AND ANY OTHER CONSIDERATIONS WHICH MAY BE APPLICABLE TO
THEM.
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<PAGE> 33
PRO FORMA CAPITALIZATION
The following tables set forth the unaudited capitalization as of and for
the period ending April 30, 1997 and as adjusted to give effect to the
Reorganization discussed herein.
PRO-FORMA CAPITALIZATION AS OF APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
LADIF SWIOF LADIF (AS
(ACTUAL) (ACTUAL) ADJUSTED)(1)
----------- ----------- ------------
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY:
Common Shares, $0.01 par value per share; 100,000,000
shares authorized, 6,128,593 shares and 3,419,143
shares outstanding for Acquiring Fund (Actual) and
Acquired Fund (Actual), respectively; 9,180,224
shares outstanding for Acquiring Fund (As
Adjusted).......................................... $ 61,286 $ 34,191 $ 91,802(2)
Paid-in capital in excess of par..................... 82,805,901 48,495,888 129,921,990(3)
Undistributed investment income -- net............... (191,268) 384,212 --(4)
Accumulated realized capital gains -- net............ 10,628,418 4,964,522 10,628,418(4)
Unrealized appreciation on investments -- net........ 5,162,784 609,824 5,772,608
----------- ----------- ------------
Net Assets........................................... $98,467,121 $54,488,637 $146,414,818
=========== =========== ============
</TABLE>
- ---------------
(1) The adjusted balances are presented as if the Reorganization were effective
as of April 30, 1997 for information purposes only. The actual Closing Date
is expected to be November 7, 1997, at which time the results would be
reflective of the actual composition of stockholders' equity at that date.
(2) Assumes the issuance of 3,051,631 Acquiring Fund Shares in exchange for the
net assets of the Acquired Fund, which number is based on the net asset
value of the Acquiring Fund Shares, and the net asset value of the Acquired
Fund, as of April 30, 1997, after adjustment for the distributions referred
to below. The issuance of such number of Acquiring Fund Shares would result
in the distribution of 0.8925 Acquiring Fund Shares for each Acquired Fund
Share upon liquidation of the Acquired Fund.
(3) Includes the effect of estimated Reorganization costs of $225,000, the
elimination of Deferred Organization Costs (which will be paid to the
Acquired Fund by Scudder) and the estimated reduction in operating expenses
of $320,000.
(4) Assumes the Acquired Fund makes distributions of all tax basis income and
capital gains to its stockholders and the Acquiring Fund distributes
substantially all of its tax basis income to its stockholders.
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<PAGE> 34
APPROVAL OF NEW INVESTMENT MANAGEMENT AGREEMENTS
INTRODUCTION
Scudder acts as the investment adviser to and manager and administrator for
the both the Acquiring Fund and the Acquired Fund pursuant to Investment
Advisory, Management and Administration Agreement dated July 24, 1992, and March
31, 1994, respectively (together, the "Current Investment Management
Agreements"). On June 26, 1997, Scudder entered into a Transaction Agreement
(the "Transaction Agreement") with Zurich Insurance Company ("Zurich") pursuant
to which Scudder and Zurich have agreed to form an alliance. Under the terms of
the Transaction Agreement, Zurich will acquire a majority interest in Scudder,
and Zurich Kemper Investments, Inc. ("ZKI"), a Zurich subsidiary, will become
part of Scudder. Scudder's name will be changed to Scudder Kemper Investments,
Inc. ("Scudder Kemper"). The foregoing are referred to as the "Transactions."
ZKI, a Chicago-based investment adviser and the adviser to the Kemper funds, has
approximately $80 billion under management. The headquarters of Scudder Kemper
will remain in New York. Edmond D. Villani, Scudder's Chief Executive Officer,
will continue as Chief Executive Officer of Scudder Kemper and will become a
member of Zurich's Corporate Executive Board.
Consummation of the Transactions would constitute an "assignment," as that
term is defined in the 1940 Act, of the Current Investment Management Agreements
with Scudder. As required by the 1940 Act, the Current Investment Management
Agreements provide for its automatic termination in the event of its assignment.
In anticipation of the Transactions, new investment management agreements (the
"New Investment Management Agreements", together with the Current Investment
Management Agreements, are sometimes hereinafter collectively referred to as the
Investment Management Agreements) between each Fund and Scudder Kemper is being
proposed for approval by stockholders of the respective Fund. A copy of the form
of the New Investment Management Agreement for the Acquiring Fund is attached
hereto as Appendix II and for the Acquired Fund as Appendix III. THE NEW
INVESTMENT MANAGEMENT AGREEMENTS ARE ON THE SAME TERMS IN ALL MATERIAL RESPECTS
AS THE CURRENT INVESTMENT MANAGEMENT AGREEMENTS. Conforming changes are being
recommended to the New Investment Management Agreements in order to promote
consistency among all of the funds advised by Scudder and to permit ease of
administration. The material terms of the Current Investment Management
Agreements are described under "Investment Advisory and Management Agreements"
below.
BOARDS OF DIRECTORS RECOMMENDATION
On July 29, 1997 the Board of Directors of the Acquiring Fund and the Board
of Directors of the Acquired Fund, in each case, including Directors who are not
parties to such agreement or "interested persons" (as defined under the 1940
Act) ("Non-interested Directors") of any such party, voted to approve the New
Investment Management Agreements and to recommend them to their respective
stockholders for their approval.
For information about the Boards' deliberations and the reasons for its
recommendation, please see "Board of Directors Evaluations" below.
The Board of Directors of the Acquiring Fund and the Board of Directors of
the Acquired Fund recommend that stockholders vote in favor of the approval of
the New Investment Management Agreements.
BOARDS OF DIRECTORS EVALUATIONS
On June 26 and 27, 1997, representatives of Scudder advised the
Non-interested Directors of the Fund, by means of telephone conference call and
memorandum, that Scudder had entered into the Transaction Agreement. At that
time, Scudder representatives described the general terms of the proposed
Transactions and the perceived benefits for the Scudder organization and for its
investment advisory clients.
Scudder subsequently furnished the Non-interested Directors additional
information regarding the proposed Transactions, including information regarding
the terms of the proposed Transactions, and information regarding the Zurich and
ZKI organizations. In a series of subsequent telephone conference calls and in-
25
<PAGE> 35
person meetings, the Noninterested Directors discussed this information among
themselves and with representatives of Scudder and Zurich. They were assisted in
their review of this information by their independent legal counsel.
In the course of these discussions, Scudder advised the Non-interested
Directors that it did not expect that the proposed Transactions would have a
material effect on the operations of the Fund or its stockholders. Scudder has
also advised the Non-interested Directors that the Transaction Agreement, by its
terms, does not contemplate any changes in the structure or operations of the
Fund. Scudder representatives have informed the Directors that Scudder intends
to maintain the separate existence of the funds that Scudder and ZKI manage in
their respective distribution channels. Scudder has also advised the
Non-interested Directors that, although it expects that various portions of the
ZKI organization would be combined with Scudder's operations, the senior
executives of Scudder overseeing those operations will remain largely unchanged.
It is possible, however, that changes in certain personnel currently involved in
providing services to the Fund may result from future efforts to combine the
strengths and efficiencies of both firms. In their discussions with the
Non-interested Directors, Scudder representatives also emphasized the strengths
of the Zurich organization and its commitment to provide the new Scudder Kemper
organization with the resources necessary to continue to provide high quality
services to the Fund and the other investment advisory clients of the new
Scudder Kemper organization.
The Board was advised that Scudder intends to rely on Section 15(f) of the
1940 Act, which provides a non-exclusive safe harbor for an investment adviser
to an investment company or any of the investment adviser's affiliated persons
(as defined under the 1940 Act) to receive any amount or benefit in connection
with a change in control of the investment adviser so long as two conditions are
met. First, for a period of three years after the transaction, at least 75% of
the board members of the investment company must not be "interested persons" of
the investment company's investment adviser or its predecessor adviser. On or
prior to the consummation of the Transactions, the Board, assuming the election
of the nominees that you are being asked to elect, would be in compliance with
this provision of Section 15(f). (See "Election of Directors.") Second, an
"unfair burden" must not be imposed upon the investment company as a result of
such transaction or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden" is defined in Section 15(f) to
include any arrangement during the two-year period after the transaction whereby
the investment adviser, or any interested person of any such adviser, receives
or is entitled to receive any compensation, directly or indirectly, from the
investment company or its stockholders (other than fees for bona fide investment
advisory or other services) or from any person in connection with the purchase
or sale of securities or other property to, from or on behalf of the investment
company (other than bona fide ordinary compensation as principal underwriter for
such investment company). No such compensation agreements are contemplated in
connection with the Transactions. Aside from the ordinary expenses incurred by
the Fund in conducting an annual meeting, Scudder has undertaken to pay a
portion of the costs of preparing and distributing proxy materials to, and of
holding the meeting of, the Fund's stockholders as well as other fees and
expenses in connection with the Transactions, including the fees and expenses of
legal counsel and consultants to the Fund and the Non-interested Directors.
During the course of their deliberations, the Non-interested Directors
considered a variety of factors, including the nature, quality and extent of the
services furnished by Scudder to the Fund; the necessity of Scudder maintaining
and enhancing its ability to retain and attract capable personnel to serve the
Fund; the investment record of Scudder in managing the Fund; the increased
complexity of the domestic and international securities markets; Scudder's
profitability from advising the Fund; possible economies of scale; comparative
data as to investment performance, advisory fees and other fees, including
administrative fees, and expense ratios; the risks assumed by Scudder; the
advantages and possible disadvantages to the Fund of having an adviser of the
Fund which also serves other investment companies as well as other accounts;
possible benefits to Scudder from serving as manager to the Fund and from
affiliates of Scudder serving the Fund in various other capacities; current and
developing conditions in the financial services industry, including the entry
into the industry of large and well-capitalized companies which are spending,
and appear to be prepared to continue to spend, substantial sums to engage
personnel and to provide services to competing investment
26
<PAGE> 36
companies; and the financial resources of Scudder and the continuance of
appropriate incentives to assure that Scudder will continue to furnish high
quality services to the Fund.
In addition to the foregoing factors, the Non-interested Directors gave
careful consideration to the likely impact of the Transactions on the Scudder
organization. In this regard, the Non-interested Directors considered, among
other things, the structure of the Transactions which affords Scudder executives
substantial autonomy over Scudder's operations and provides substantial equity
participation and incentives for many Scudder employees; Scudder's and Zurich's
commitment to Scudder's paying compensation adequate to attract and retain top
quality personnel; Zurich's strategy for the development of its asset management
business through Scudder; information regarding the financial resources and
business reputation of Zurich; and the complementary nature of various aspects
of the business of Scudder and ZKI and the intention to maintain separate
Scudder and Kemper brands in the mutual fund business. Based on the foregoing,
the Non-interested Directors concluded that the Transactions should cause no
reduction in the quality of services provided to the Fund and believe that the
Transactions should enhance Scudder's ability to provide such services.
On July 29, 1997, the Directors of the Fund, including the Non-interested
Directors of the Fund, approved the New Investment Management Agreements.
INFORMATION CONCERNING THE TRANSACTIONS AND ZURICH
Under the Transaction Agreement, Zurich will pay $866.7 million in cash to
acquire two-thirds of Scudder's outstanding shares and will contribute ZKI to
Scudder for additional shares, following which Zurich will have a 79.1% fully
diluted equity interest in the combined business. Zurich will then transfer a
9.6% fully diluted equity interest in Scudder Kemper to a defined compensation
plan established for the benefit of Scudder and ZKI employees, as well as cash
and warrants on Zurich shares for award to Scudder employees, in each case
subject to five-year vesting schedules. After giving effect to the Transactions,
current Scudder stockholders will have a 29.6% fully diluted equity interest in
Scudder Kemper and Zurich will have a 69.5% fully diluted interest in Scudder
Kemper. Scudder's name will be changed to Scudder Kemper Investments, Inc.
The purchase price for Scudder or for ZKI in the Transactions is subject to
adjustment based on the effect to revenues of non-consenting clients, and will
be reduced if the annualized investment management fee revenues (excluding the
effect of market changes, but taking into account new assets under management)
from clients at the time of closing, as a percentage of such revenues as of June
30, 1997 (the "Revenue Run Rate Percentage"), is less than 90%.
At the closing, Zurich and the other stockholders of Scudder Kemper will
enter into a Second Amended and Restated Security Holders Agreement (the "New
SHA"). Under the New SHA, Scudder stockholders will be entitled to designate
three of the seven members of the Scudder Kemper board and two of the four
members of an Executive Committee, which will be the primary management-level
committee of Scudder Kemper. Zurich will be entitled to designate the other four
members of the Scudder Kemper board and other two members of the Executive
Committee.
The names, addresses and principal occupations of the initial
Scudder-designated directors of Scudder Kemper are as follows: Lynn S. Birdsong,
345 Park Avenue, New York, NY, Managing Director of Scudder; Cornelia M. Small,
345 Park Avenue, New York, NY, Managing Director of Scudder; and Edmond D.
Villani, 345 Park Avenue, New York, NY, President, Chief Executive Officer and
Managing Director of Scudder.
The names, addresses and principal occupations of the initial
Zurich-designated directors of Scudder Kemper are as follows: Lawrence W. Cheng,
Mythenquai 2, Zurich, Switzerland, Chief Investment Officer for Investments and
Institutional Asset Management and the corporate functions of Securities and
Real Estate for Zurich; Steven M. Gluckstern, Mythenquai 2, Zurich, Switzerland,
responsible for Reinsurance, Structured Finance, Capital Market Products and
Strategic Investments, and a member of the Corporate Executive Board of Zurich;
Rolf Hueppi, Mythenquai 2, Zurich, Switzerland, Chairman of the Board and Chief
27
<PAGE> 37
Executive Officer of Zurich; and Markus Rohrbasser, Mythenquai 2, Zurich,
Switzerland, Chief Financial Officer and member of the Corporate Executive Board
of Zurich.
The initial Scudder-designated Executive Committee members will be Messrs.
Birdsong and Villani (Chairman). The initial Zurich-designated Executive
Committee members will be Messrs. Cheng and Rohrbasser.
The New SHA requires the approval of a majority of the Scudder-designated
directors for certain decisions, including changing the name of Scudder Kemper,
effecting an initial public offering before April 15, 2005, causing Scudder
Kemper to engage substantially in non-investment management and related
business, making material acquisitions or divestitures, making material changes
in Scudder Kemper's capital structure, dissolving or liquidating Scudder Kemper,
or entering into certain affiliate transactions with Zurich. The New SHA also
provides for various put and call rights with respect to Scudder Kemper stock
held by current Scudder employees, limitations on Zurich's ability to purchase
other asset management companies outside of Scudder Kemper, rights of Zurich to
repurchase Scudder Kemper stock upon termination of employment of Scudder Kemper
personnel, and registration rights for continuing Scudder stockholders.
The Transactions are subject to a number of conditions, including approval
by Scudder stockholders; the Revenue Run Rate Percentages of Scudder and ZKI
being at least 75%; Scudder and ZKI having obtained director and stockholder
approvals from U.S. registered funds representing 90% of assets of such funds
under management as of June 30, 1997; the absence of any restraining order or
injunction preventing the Transactions, or any litigation challenging the
Transactions that is reasonably likely to result to an injunction or
invalidation of the Transactions, and the continued accuracy of the
representations and warranties contained in the Transaction Agreement. The
Transactions are expected to close during the fourth quarter of 1997.
The information set forth above concerning the Transactions has been
provided to the Acquiring Fund and the Acquired Fund by Scudder, and the
information set forth below concerning Zurich has been provided to the Fund by
Zurich.
Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated Companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services,
and have branch offices and subsidiaries in more than 40 countries throughout
the world. The Zurich Insurance Group is particularly strong in the insurance of
international companies and organizations. Over the past few years, Zurich's
global presence, particularly in the United States, has been strengthened by
means of selective acquisitions.
DESCRIPTION OF THE CURRENT INVESTMENT MANAGEMENT AGREEMENT
See "Investment Advisory and Management Arrangements" for a discussion of
the terms of the current Investment Management Agreements between Scudder and
the Funds.
THE NEW INVESTMENT MANAGEMENT AGREEMENTS
The New Investment Management Agreements for the Funds will be dated as of
the date of the consummation of the Transactions, which is expected to occur in
the fourth quarter of 1997, but in no event later than February 28, 1998. Each
New Investment Management Agreement will be in effect for an initial term ending
on the date which is one year from the date of its execution, and may continue
thereafter from year to year only if specifically approved at least annually by
the vote of "a majority of the outstanding voting securities" of the Fund, or by
the Board and, in either event, the vote of a majority of the Non-interested
Directors, cast in person at a meeting called for such purpose. In the event
that stockholders of a Fund do not approve the New Investment Management
Agreement, the Current Investment Management Agreement will remain in effect
until the closing of the Transactions, at which time it would terminate. In such
event, the Board of the relevant Fund will take such action, if any, as it deems
to be in the best interest of the Fund and
28
<PAGE> 38
its stockholders. In the event the Transactions are not consummated, Scudder
will continue to provide services to the Funds in accordance with the terms of
the Current Investment Management Agreements for such periods as may be approved
at least annually by the Board, including a majority of the Non-interested
Directors.
DIFFERENCES BETWEEN THE CURRENT AND NEW INVESTMENT MANAGEMENT AGREEMENTS
The New Investment Management Agreements are substantially the same as the
Current Investment Management Agreements in all material respects. The principal
changes that have been made are summarized below. The New Investment Management
Agreements reflect conforming changes that have been made in order to promote
consistency among all the funds advised by Scudder and to permit ease of
administration. For example, it is proposed that the New Investment Management
Agreements contain provisions that provide that Scudder Kemper shall use its
best efforts to seek the best overall terms available in executing transactions
for the Fund and selecting brokers and dealers and shall consider on a
continuing basis all factors it deems relevant, including the consideration of
the brokerage and research services (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided to the Fund and/or other
accounts over which Scudder Kemper or an affiliate exercises investment
discretion. In addition, with respect to the allocation of investment and sale
opportunities among the Fund and other accounts or funds managed by Scudder
Kemper, it is proposed that the New Investment Management Agreements provide
that Scudder Kemper shall allocate such opportunities in accordance with
procedures believed by Scudder Kemper to be equitable to each entity. It is
proposed that the New Investment Management Agreements will also clarify that
such agreement supersedes all prior agreements.
INVESTMENT MANAGER
Scudder is one of the most experienced investment counsel firms in the
United States. It was established in 1919 as a partnership and was restructured
as a Delaware corporation in 1985. The principal source of Scudder's income is
professional fees received from providing continuing investment advice. Scudder
provides investment counsel for many individuals and institutions, including
insurance companies, endowments, industrial corporations and financial and
banking organizations.
Scudder is a Delaware corporation. Daniel Pierce* is the Chairman of the
Board of Scudder, Edmond D. Villani(#) is President and Chief Executive Officer
of Scudder, Stephen R. Beckwith(#), Lynn S. Birdsong(#), Nicholas Bratt(#), E.
Michael Brown*, Mark S. Casady*, Linda C. Coughlin*, Margaret D. Hadzima*,
Jerard K. Hartman(#), Richard A. Holt(@), John T. Packard(+), Kathryn L.
Quirk(#), Cornelia M. Small(#) and Stephen A. Wohler* are the other members of
the Board of Directors of Scudder. The principal occupation of each of the above
named individuals is serving as a Managing Director of Scudder.
All of the outstanding voting and nonvoting securities of Scudder are held
of record by Stephen R. Beckwith, Juris Padegs(#), Daniel Pierce, and Edmond D.
Villani in their capacity as the representatives of the beneficial owners of
such securities (the "Representatives"), pursuant to a Security Holders'
Agreement among Scudder, the beneficial owners of securities of Scudder and such
Representatives. Pursuant to the Existing Security Holders' Agreement, the
Representatives have the right to reallocate shares among the beneficial owners
from time to time. Such reallocations will be at net book value in cash
transactions. All Managing Directors of Scudder own voting and nonvoting stock
and all Principals of Scudder own nonvoting stock.
- ---------------
*Two International Place, Boston, Massachusetts
#345 Park Avenue, New York, New York
@Two Prudential Plaza, 180 North Stetson, Suite 5400, Chicago, Illinois
+101 California Street, San Francisco, California
29
<PAGE> 39
Directors, officers and employees of Scudder from time to time may enter
into transactions with various banks, including the Fund's custodian bank. It is
Scudder's opinion that the terms and conditions of those transactions will not
be influenced by existing or potential custodial or other Fund relationships.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder,
computes net asset value and provides fund accounting services for the Fund.
Scudder Service Corporation ("SSC"), also a subsidiary of Scudder, is the
shareholding agent for the Fund. For the fiscal year ended October 31, 1996, the
fees charged by SFAC and SSC to the Acquiring Fund were $63,935 and $15,000,
respectively and for the fiscal year ended April 30, 1997, the fees charged by
SFAC and SSC to the Acquired Fund were $57,032 and $15,000, respectively. SFAC
and SSC will continue to provide fund accounting and shareholding services to
the Fund under the current arrangements if the New Investment Management
Agreements are approved.
Appendix IV sets forth the investment companies for which the Investment
Manager serves as an investment adviser and which have investment objectives
similar to that of the Fund, and sets forth the fees payable to the Investment
Manager by such companies, including the Fund, and their net assets as of June
30, 1997.
REQUIRED VOTE
Approval of this proposal with respect to LADIF and SWIOF requires the
affirmative vote of a "majority of the outstanding voting securities" of each
such Fund. Each Fund's Directors recommend that stockholders vote in favor of
the approval of the new investment management agreement with Scudder Kemper.
30
<PAGE> 40
ELECTION OF DIRECTORS
At the Meeting, certain nominees to the Board of Directors of each of the
Funds will be elected to serve for terms ending on the dates of the annual
meetings of Stockholders in the year 2000 or until their successors are duly
elected and qualified, or in the case of the Acquired Fund, until the earlier
dissolution of the Acquired Fund. It is the intention of the persons named in
the accompanying forms of Proxy to vote, on behalf of the stockholders, for the
election of the two nominees listed below as Directors of each Fund:
INFORMATION CONCERNING NOMINEES
The following table sets forth certain information concerning each of the
two nominees as a Director of each Fund. Each of the nominees is now a Director
of each Fund. Unless otherwise noted, each of the nominees has engaged in the
principal occupation listed in the following table for more than five years, but
not necessarily in the same capacity.
<TABLE>
<CAPTION>
PRESENT OFFICE WITH EACH
FUND, SHARES
IF ANY; PRINCIPAL OCCUPATION YEAR FIRST BENEFICIALLY
OR BECAME A OWNED ON
EMPLOYMENT AND DIRECTOR OF JUNE 30, 1997(2)
DIRECTORSHIPS THE ACQUIRING ACQUIRING FUND/ PERCENT
NAME (AGE) IN PUBLICLY HELD COMPANIES FUND(1) ACQUIRED FUND OF CLASS
- ----------------------------- ----------------------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
CLASS I OF THE ACQUIRING FUND AND CLASS III OF THE ACQUIRED FUND
NOMINEES TO SERVE UNTIL 2000 ANNUAL MEETING OF STOCKHOLDERS:
Lynn S. Birdsong(51)*+....... President; Managing 1992 -- --
Director of Scudder, Stevens -- --
& Clark, Inc. Mr. Birdsong
serves on the board no other
additional funds managed by
Scudder.
Robert J. Callander(66)...... Director: ARAMARK 1992 1,000 less than
Corporation, Barnes Group 1/4 of 1%
Inc., Beneficial Corporation
and Omnicom Group, Inc.; 500 less than
Member, Council on Foreign 1/4 of 1%
Relations; Managing Director,
Metropolitan Opera
Association; Trustee, Drew
University; Visiting
Professor/Executive-in-
Residence, Columbia Business
School, Columbia University
(until 1995). Mr. Callander
serves on the boards of an
additional two funds managed
by Scudder.
</TABLE>
31
<PAGE> 41
INFORMATION CONCERNING CONTINUING DIRECTORS
The Board of Directors is divided into three classes, each Director serving
for a term of three years. The terms of Classes II and III Directors of the
Acquiring Fund and Classes I and II of the Acquired Fund do not expire this
year. The following table sets forth certain information regarding the Directors
in such classes. Unless otherwise noted, each Director has engaged in the
principal occupation listed in the following table for more than five years, but
not necessarily in the same capacity.
<TABLE>
<CAPTION>
PRESENT OFFICE WITH EACH
FUND, SHARES
IF ANY; PRINCIPAL OCCUPATION YEAR FIRST BENEFICIALLY
OR BECAME A OWNED ON
EMPLOYMENT AND DIRECTOR OF JUNE 30, 1997(2)
DIRECTORSHIPS THE ACQUIRING ACQUIRING FUND/ PERCENT
NAME (AGE) IN PUBLICLY HELD COMPANIES FUND(1) ACQUIRED FUND OF CLASS
- ----------------------------- ----------------------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
CLASS II OF THE ACQUIRING FUND AND CLASS I OF THE ACQUIRED FUND
DIRECTORS SERVING UNTIL 1998 ANNUAL MEETING OF STOCKHOLDERS:
Robert J. Boyd (52)*......... President and Director, GLB 1992 -- --
Research, Inc.; Trustee,
Institute of Economic
Affairs; Non-Executive -- --
Director, Cosechar En
Argentina S.A., G.T. Japan
Investment Trust PLC and
Australian Opportunities
Investment Trust.
Ronaldo A. da Frota Nogueira
(59)....................... Director and Chief Executive 1992 3,000 less than
Officer, IMF Editora Ltda. 1/4 of 1%
(financial publisher). Mr.
Nogueira serves on the boards 1,537 less than
of an additional two funds 1/4 of 1%
managed by Scudder.
CLASS III OF THE ACQUIRING FUND AND CLASS II OF THE ACQUIRED FUND
DIRECTORS SERVING UNTIL 1999 ANNUAL MEETING OF STOCKHOLDERS:
George M. Lovejoy, Jr.(67)... President and Director 1992 1,047 less than
(Former Chairman), Fifty 1/4 of 1%
Associates (real estate
corporation); Trustee, MGI 1,277 less than
Properties; Chairman 1/4 of 1%
Emeritus, Meredith & Grew,
Inc. Mr. Lovejoy serves on
the boards of an additional
14 funds managed by Scudder.
Dr. Susan Kaufman Purcell
(55)....................... Vice President, Council of 1992 -- --
the Americas; Vice President,
Americas Society; Director, -- --
Valero Energy Corp. Dr.
Purcell serves on the boards
of one additional fund
managed by Scudder.
Edmond D. Villani(50)*+...... Chairman of the Board; 1992 500 less than
President, Chief Executive 1/4 of 1%
Officer and Managing Director
of Scudder, Stevens & Clark, 500 less than
Inc. Mr. Villani serves on 1/4 of 1%
the boards of one additional
fund managed by Scudder.
</TABLE>
32
<PAGE> 42
<TABLE>
<CAPTION>
PRESENT OFFICE WITH EACH
FUND, SHARES
IF ANY; PRINCIPAL OCCUPATION YEAR FIRST BENEFICIALLY
OR BECAME A OWNED ON
EMPLOYMENT AND DIRECTOR OF JUNE 30, 1997(2)
DIRECTORSHIPS THE ACQUIRING ACQUIRING FUND/ PERCENT
NAME (AGE) IN PUBLICLY HELD COMPANIES FUND(1) ACQUIRED FUND OF CLASS
- ----------------------------- ----------------------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
All Directors and Officers as
a group.................... 5,547 less than
3,814 1/4 of 1%
less than
1/4 of 1%
</TABLE>
- ---------------
* Persons considered by each Fund and its counsel to be "interested persons"
(which as used in this proxy statement is as defined in the Investment
Company Act of 1940, as amended) of each Fund or of each Fund's investment
manager, Scudder, Stevens & Clark, Inc. Messrs. Birdsong and Villani are
deemed to be interested persons because of their affiliation with each
Fund's investment manager, Scudder, Stevens & Clark, Inc., or because they
are Officers of each Fund or both. Mr. Boyd is deemed to be an interested
person because he serves as a consultant to Scudder.
+ Messrs. Birdsong and Villani are members of the Executive Committee of each
Fund.
(1) Each Director first became a Director of the Acquired Fund in 1994.
(2) The information as to beneficial ownership is based on statements furnished
to each Fund by the Directors. Unless otherwise noted, beneficial ownership
is based on sole voting and investment power.
It is the current intention of Messrs. Boyd and Villani to resign from the
Board of Directors of the Acquiring Fund at or prior to the consummation of the
Transactions so that Scudder can comply with the provisions of Section 15(f) of
the 1940 Act. At such time, Mr. Birdsong will become the Chairman of the Board
of the Acquiring Fund. After his resignation, it is anticipated that Mr. Boyd
will serve as a Honorary Director of the Funds. Honorary Directors are invited
to attend all Board meetings and to participate in Board discussions, but are
not entitled to vote on any matter presented to the Boards.
Messrs. Boyd and Nogueira are not residents of the United States, and
substantially all of the assets of such persons may be located outside of the
United States. As a result, it may be difficult for investors to effect service
of process upon such directors within the United States, to enforce in United
States courts, or to realize outside the United States, judgments of courts of
the United States predicated upon civil liabilities of such directors under the
federal securities laws of the United States. Each Fund has been advised that
there is substantial doubt as to the enforceability in the countries in which
such persons reside of such civil remedies and criminal penalties as are
afforded by the federal securities laws of the United States. Also it is unclear
if extradition treaties now in effect between the United States and any such
countries would subject such directors to effective enforcement of criminal
penalties.
Each of the nominees for Director has consented to be named in this Joint
Proxy Statement -- Prospectus and to serve as a Director if elected. The members
of the Board of Directors and the nominees for election to the Board are the
same for both Funds. The Board of Directors knows of no reason why any of these
nominees will be unable to serve, but in the event of any such unavailability,
the proxies received will be voted for such substitute nominee or nominees as
the Board of Directors may recommend. If the Reorganization is approved, the
Directors of the Acquired Fund will cease to serve as Directors of the Acquired
Fund upon the dissolution of the Acquired Fund pursuant to the Reorganization
Agreement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and Section 30(h) of the 1940 Act, as
applied to a fund requires the fund's officers and directors, investment
manager, affiliates of the investment manager, and persons who beneficially own
more than ten percent of a registered class of the fund's outstanding securities
("Reporting Persons"), to file reports of ownership of the fund's securities and
changes in such ownership with the Commission and the NYSE. Such persons are
required by Commission regulations to furnish the fund with copies of all such
filings.
33
<PAGE> 43
Based solely upon its review of the copies of such forms received by it and
written representations from certain Reporting Persons that no year-end reports
were required for those persons, each Fund believes that during the fiscal year
ended April 30, 1997 for the Acquiring Fund and October 31, 1996 for the
Acquired Fund, its Reporting Persons complied with all applicable filing
requirements except that Forms 3 on behalf of the following subsidiaries of
Scudder, Stevens & Clark, Inc. were filed late: Scudder Fund Accounting
Corporation; Scudder Realty Holdings Corporation; Scudder, Stevens & Clark Asia
Limited; Scudder Canada Investor Services L.T.D.; Scudder Defined Contribution
Services, Inc.; Scudder Capital Stock Corporation; SIS Investment Corporation;
SRV Investment Corporation; Scudder Cayman Ltd.; Scudder, Stevens & Clark
Australia Limited; and Scudder Realty Holdings (II) L.L.C.
To the best of each Fund's knowledge, as of July 31, 1997 no person owned
beneficially more than 5% of either Fund's outstanding stock.
COMMITTEES OF THE BOARD -- BOARD MEETINGS
The Board of Directors of the Acquiring Fund met seven times during the
fiscal year ended October 31, 1996 and the Board of Directors of the Acquired
Fund met six times during the fiscal year ended April 30, 1997. Each Director
attended at least 75% of the total number of meetings of the Board of Directors
and of all committees of the Board on which they served as regular members,
except Mr. Birdsong who attended 57% of the meetings of the Board of Directors
and related committees on which he serves of the Acquired Fund and Messrs.
Birdsong and Villani who attended 57% and 71%, respectively, of the meetings of
the Board of Directors and related committees on which they serve of the
Acquiring Fund.
The Board of Directors of each Fund, in addition to an Executive Committee,
has an Audit Committee, a Valuation Committee and a Committee on Independent
Directors.
Audit Committee. Each Board has an Audit Committee consisting of those
Directors who are unaffiliated persons of the Fund or of Scudder ("Unaffiliated
Directors") as defined in the 1940 Act, which met on February 25, 1997 for the
Acquiring Fund and July 29, 1997 for the Acquired Fund. The Audit Committee
reviews with management and the independent accountants for the Fund, among
other things, the scope of the audit and the controls of the Fund and its
agents, reviews and approves in advance the type of services to be rendered by
independent accountants, recommends the selection of independent accountants for
the Fund to the Board and in general considers and reports to the Board on
matters regarding the Fund's accounting and bookkeeping practices.
Committee on Independent Directors. Each Board has a Committee on
Independent Directors consisting of the Unaffiliated Directors. The Committee is
charged with the duty of making all nominations for unaffiliated Directors and
consideration of other related matters. Stockholders' recommendations as to
nominees received by management are referred to the Committee for its
consideration and action. The Committee met on May 28, 1997 for the Acquiring
Fund and February 25, 1997 for the Acquired Fund to consider and to nominate the
unaffiliated nominees set forth above.
34
<PAGE> 44
EXECUTIVE OFFICERS
In addition to Messrs. Birdsong and Villani, Directors who are also
Officers of each Fund, the following persons are Executive Officers of each
Fund:
<TABLE>
<CAPTION>
PRESENT OFFICE WITH EACH FUND; YEAR FIRST BECAME
NAME (AGE) PRINCIPAL OCCUPATION OR EMPLOYMENT(1) AN OFFICER(2)
- ------------------------------ ----------------------------------------------- -----------------
<S> <C> <C>
Paul J. Elmlinger (39)........ Vice President and Assistant Secretary; 1992
Managing Director of Scudder, Stevens & Clark,
Inc.
Susan E. Gray (32)............ Vice President; Principal of Scudder, Stevens & 1996
Clark, Inc.
Jerard K. Hartman (64)........ Vice President; Managing Director of Scudder, 1992
Stevens & Clark, Inc.
David S. Lee (63)............. Vice President; Managing Director of Scudder, 1992
Stevens & Clark, Inc.
Edward J. O'Connell (52)...... Vice President and Assistant Treasurer; 1992
Principal of Scudder, Stevens & Clark, Inc.
Kathryn L. Quirk (44)......... Vice President and Assistant Secretary; 1992
Managing Director of Scudder, Stevens & Clark,
Inc.
M. Isabel Saltzman (42)....... Vice President; Managing Director of Scudder, 1992
Stevens & Clark, Inc.
Thomas F. McDonough (50)...... Vice President and Secretary; Principal of 1992
Scudder, Stevens & Clark, Inc.
Pamela A. McGrath (43)........ Vice President and Treasurer; Managing Director 1992
of Scudder, Stevens & Clark, Inc.
</TABLE>
- ---------------
(1) Unless otherwise stated, all Executive Officers have been associated with
Scudder for more than five years, although not necessarily in the same
capacity.
(2) The President, Treasurer and Secretary each hold office until his or her
successor has been duly elected and qualified, and all other officers hold
office in accordance with the By-Laws of the Fund. Each officer of the
Acquiring Fund first became an officer in 1994 with the exception of Ms.
Gray who first became an officer in 1996.
TRANSACTIONS WITH AND REMUNERATION OF DIRECTORS AND OFFICERS
The aggregate direct remuneration by the Fund of Directors not affiliated
with Scudder was $90,971, including expenses, during the fiscal year ended April
30, 1997 for the Acquired Fund and $91,577 for the fiscal year ended October 31,
1996 for the Acquiring Fund. Each such unaffiliated Director currently receives
fees paid by each Fund of $750 per Directors' meeting attended and an annual
Director's fee of $6,000. Each Director also receives $250 per committee meeting
attended (other than Audit Committee meetings and meetings held for the purpose
of considering arrangements between each Fund and the Investment Manager or an
affiliate of the Investment Manager for which such Director receives a fee of
$750) and $150 per telephone conference call for the purpose of declaring each
Fund's quarterly dividends. Scudder supervises the Fund's investments, pays the
compensation and certain expenses of its personnel who serve as Directors and
Officers of the Fund and receives an investment management fee for its services.
Certain of the Fund's Officers and Directors are also officers, directors,
employees or stockholders of Scudder and participate in the fees paid to that
firm (see "Investment Manager," page 29), although the Fund makes no direct
payments to them other than for reimbursement of travel expenses in connection
with the attendance at Board of Directors and committee meetings.
35
<PAGE> 45
The following Compensation Table, provides in tabular form, the following
data:
Column (1) All Directors who receive compensation from each Fund.
Column (2) Aggregate compensation received by a Director from each Fund.
Columns (3) and (4) Pension or retirement benefits accrued or proposed to
be paid by the Fund Complex. The Fund does not pay its Directors such benefits.
Column (5) Total compensation received by a Director from the Fund, plus
compensation received from all funds managed by Scudder for which a Director
serves. The total number of funds from which a Director receives such
compensation is also provided in column (5). Generally, compensation received by
a Director for serving on the Board of a closed-end fund is greater than the
compensation received by a Director for serving on the Board of an open-end
fund.
COMPENSATION TABLE
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
- ------------------------------------------- -------------- ---------------- ------------- ----------------
TOTAL
AGGREGATE COMPENSATION
COMPENSATION PENSION OR ESTIMATED FROM EACH
FROM EACH FUND RETIREMENT ANNUAL FUND AND
ACQUIRING BENEFITS ACCRUED BENEFITS SCUDDER FUND
NAME OF PERSON, FUND/ AS PART OF FUND UPON COMPLEX
POSITION ACQUIRED FUND COMPLEX EXPENSES RETIREMENT PAID TO DIRECTOR
- ------------------------------------------- -------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Robert J. Boyd,............................ $ 11,200 N/A N/A $22,400
Director $ 11,200 (2 funds)
Robert J. Callander,....................... $ 12,850 N/A N/A $41,602
Director $ 12,850 (4 funds)
George M. Lovejoy, Jr.,.................... $ 12,850 N/A N/A $124,512
Director $ 12,850 (13 funds)*
Ronaldo A. da Frota Nogueira,.............. $ 11,200 N/A N/A $49,775
Director $ 11,200 (4 funds)
Dr. Susan Kaufman Purcell,................. $ 12,700 N/A N/A $37,900
Director $ 12,700 (3 funds)
</TABLE>
- ---------------
* This does not include membership on the Board of Scudder Classic Growth Fund
which commenced operations on September 9, 1996.
REQUIRED VOTE
Election of each of the listed nominees for Director requires the
affirmative vote of a majority of the votes cast at the Meeting in person or by
proxy. Each Fund's Directors recommend that stockholders vote in favor of each
of the Fund's nominees.
36
<PAGE> 46
RATIFICATION OR REJECTION OF THE SELECTION OF
INDEPENDENT ACCOUNTANTS
At a meeting held on July 29, 1997, the Board of Directors of each Fund,
including a majority of the Non-interested Directors, selected Coopers & Lybrand
L.L.P. to act as independent accountants for the fiscal year ending April 30,
1998 for the Acquired Fund and selected Price Waterhouse LLP to act as
independent accountants for the fiscal year ending October 31, 1997 for the
Acquiring Fund. Price Waterhouse LLP and Coopers & Lybrand L.L.P. are
independent accountants and have each advised the respective Fund that they have
no direct financial interest or material indirect financial interest in such
Fund. One or more representatives of Price Waterhouse LLP and Coopers & Lybrand
L.L.P. are expected to be present at the Meeting and will have an opportunity to
make a statement if they so desire. Such representatives are expected to be
available to respond to appropriate questions posed by stockholders or
management.
The financial statements of the Acquired Fund for the fiscal year ended
April 30, 1997 included in the Fund's annual and semiannual reports to
stockholders and its filings with the Commission were audited by Coopers &
Lybrand L.L.P.
The financial statements of the Acquiring Fund for the fiscal year ended
October 31, 1996 and the six month period ended April 30, 1997 were audited by
Price Waterhouse LLP.
REQUIRED VOTE
Ratification of the selection of independent accountants requires the
affirmative vote of a majority of the votes cast at the Meeting in person or by
proxy. The Acquiring Fund's Directors recommend that stockholders of the
Acquiring Fund ratify the selection of Price Waterhouse LLP as independent
accountants. The Acquired Fund's Directors recommend that stockholders of the
Acquired Fund ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants.
37
<PAGE> 47
ADDITIONAL INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share of
Acquiring Fund Stock and Acquired Fund Stock outstanding throughout each period
presented. This information is derived from the financial and accounting records
of each Fund.
The Financial Highlights of the Acquiring Fund have been audited by Price
Waterhouse LLP, independent accountants, whose reports thereon were unqualified.
The reports of independent accountants of the Acquiring Fund for the fiscal year
ended October 31, 1996 and the six month period ended April 30, 1997 are
incorporated by reference into the Statement of Additional Information.
The Financial Highlights of the Acquired Fund have been audited by Coopers
& Lybrand L.L.P., independent accountants, whose report thereon was unqualified.
The report of independent accountants of the Acquired Fund for the fiscal year
ended April 30, 1997 is incorporated by reference into the Statement of
Additional Information.
The information should be read in conjunction with the financial statements
and notes contained in each Fund's Annual Report which are available from the
Fund's Transfer Agent, State Street Bank and Trust Company, upon request.
38
<PAGE> 48
ACQUIRING FUND FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each period(a)and other performance information derived from the
financial statements and market price data.
<TABLE>
<CAPTION>
FOR THE
PERIOD
JULY 31, 1992
FOR THE (COMMENCEMENT
PERIOD OF
NOVEMBER 1, OPERATIONS)
1996 TO YEARS ENDED OCTOBER 31, TO OCTOBER
APRIL 30, ------------------------------------- 31,
1997 1996 1995 1994 1993 1992
----------- ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................ $ 15.61 $11.20 $13.41 $16.22 $13.45 $ 13.83(b)
------ ------ ------ ------ ------ ------
Net investment income............. .72 1.59 1.55 1.51 1.53 .25
Net realized and unrealized gain
(loss) on investment
transactions................... 1.29 4.32 (2.08) (2.45) 2.74 (.50)
------ ------ ------ ------ ------ ------
Total from investment operations.... 2.01 5.91 (.53) (.94) 4.27 (.25)
------ ------ ------ ------ ------ ------
Less distributions from:
From net investment income........ (.75) (1.50) (1.30) (1.51) (1.49) (.13)
From net realized gains on
investment transactions........ (.80) -- (.15) (.33) (.01) --
In excess of net realized gains... -- -- -- (.03) -- --
Tax return of capital............. -- (.23) -- --
Total distributions................. (1.55) (1.50) (1.68) (1.87) (1.50) (.13)
------ ------ ------ ------ ------ ------
Net asset value, end of period...... $ 16.07 $15.61 $11.20 $13.41 $16.22 $ 13.45
====== ====== ====== ====== ====== ======
Market value, end of period......... $ 14.75 $13.88 $12.13 $13.25 $15.63 $ 15.00
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN
Per share market value (%).......... 17.82** 27.93 5.78 (3.52) 15.47 .88**
Per share net asset value (%)(c).... 14.09** 55.81 (3.46) (5.94) 33.69 (1.89)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($
millions)......................... 98 95 67 79 95 77
Ratio of operating expenses
(excluding interest) to average
net assets (%).................... 1.67* 1.79 1.96 1.83 2.00 2.05*
Ratio of net investment income to
average net assets (%)............ 8.98* 11.66 13.59 10.42 10.71 7.14*
Portfolio turnover rate (%)......... 347.28*(d) 322.3(d) 365.9(d) 161.1 93.3 1.8*
</TABLE>
- ---------------
* Annualized
** Not annualized
(a)Based on monthly average shares outstanding during each period.
(b)Beginning per share amount reflects $15.00 initial public offering price net
of underwriting discount and offering expenses ($1.17 per share).
(c)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.
(d)Economic and market conditions necessitated more active trading, resulting in
a higher portfolio turnover rate.
39
<PAGE> 49
ACQUIRED FUND FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each period(a) and other performance information derived from the
financial statements and market price data.
<TABLE>
<CAPTION>
FOR THE
PERIOD
APRIL 11,
1994
(COMMENCEMENT
OF
YEARS ENDED APRIL 30, OPERATIONS)
---------------------------- TO APRIL 30,
1997 1996 1995 1994
------ ------ ------ -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............... $14.66 $12.11 $13.91 $ 14.20(b)
------ ------ ------ ------
Income from investment operations:
Net investment income............................ 1.27 1.34 1.36 .03
Net realized and unrealized gain (loss) on
investment transactions....................... 2.66 2.60 (1.54) (.32)
------ ------ ------ ------
Total from investment operations................... 3.93 3.94 (.18) (.29)
------ ------ ------ ------
Less distributions from:
Net investment income............................ (1.31) (1.39) (1.24) --
------ ------ ------ ------
Net realized gains on investment transactions.... (1.34) -- (.38) --
------ ------ ------ ------
Total distributions................................ (2.65) (1.39) (1.62) --
------ ------ ------ ------
Net asset value, end of period..................... $15.94 $14.66 $12.11 $ 13.91
------ ------ ------ ------
Market value, end of period........................ $14.38 $13.13 $12.75 $ 14.00
------ ------ ------ ------
TOTAL RETURN
Per share market value (%)......................... 30.02 14.40 3.17 (6.67)**
Per share net asset value (%)(c)................... 29.08 34.53 (1.37) (2.04)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)............. 54 50 41 47
Ratio of operating expenses to average net assets
(%).............................................. 2.11 2.28 2.30 2.74*
Ratio of net investment income to average net
assets (%)....................................... 7.98 9.98 9.94 3.73*
Portfolio turnover rate (%)........................ 443.3(d) 375.6(d) 232.8 266.3*
</TABLE>
- ---------------
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the period.
(b) Beginning per share amount reflects $15.00 initial public offering price net
of underwriting discount and offering expenses ($0.80 per share).
(c) 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.
(d) Economic and market conditions necessitated more active trading, resulting
in a higher portfolio turnover rate.
40
<PAGE> 50
GENERAL INFORMATION AND HISTORY
The Acquiring Fund and the Acquired Fund are both non-diversified,
closed-end management investment companies organized under the laws of the State
of Maryland on May 5, 1992 and on January 21, 1994, respectively. Both of the
Funds are registered under the 1940 Act. The principal office of the Acquiring
Fund and the Acquired Fund is located at 345 Park Avenue, New York, New York
10154 and their telephone number is (212) 326-6200.
In July 1992, the Acquiring Fund issued 5.75 million Shares, $.01 par value
per share, pursuant to the initial public offering thereof and commenced
operations.
In April 1994, the Acquired Fund issued 3.4 million shares of common stock,
$.01 par value per share, pursuant to the initial public offering thereof and
commenced operations.
The following table sets forth the number of outstanding shares of each
Fund as of July 31, 1997.
<TABLE>
<CAPTION>
(a) (b)
AMOUNT AMOUNT
HELD OUTSTANDING
BY FUND FOR EXCLUSIVE OF
AMOUNT ITS OWN AMOUNT SHOWN
TITLE OF CLASS AUTHORIZED ACCOUNT UNDER(a)
- ---------------------------------------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Acquiring Fund Shares of Common Stock..................... 100,000,000 None 6,140,840
Acquired Fund Shares of Common Stock...................... 100,000,000 None 3,419,143
</TABLE>
The shares of the Acquiring Fund are listed and trade on the NYSE under the
symbol LBF. The shares of the Acquired Fund are listed and trade on the NYSE
under the symbol SWI. The following tables set forth the high and low sales
prices for each Fund's Shares as reported on the consolidated transaction
reporting system for the periods indicated.
PER SHARE DATA FOR ACQUIRING FUND COMMON STOCK TRADED ON THE NYSE
<TABLE>
<CAPTION>
HIGH SALES NET ASSET PREMIUM LOW SALES NET ASSET PREMIUM
PERIOD PRICE VALUE (DISCOUNT) PRICE VALUE (DISCOUNT)
- ------------------------------------------ ---------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nov. 1 - Jan 31, 1995..................... $ 13.500 $ 13.24 2.0% $10.125 $ 10.08 0.4%
Feb. 1 - Apr. 30, 1995.................... $ 12.000 $ 10.95 9.6% $10.500 $ 9.85 6.6%
May 1 - Jul. 31, 1995..................... $ 12.875 $ 11.81 9.0% $11.375 $ 10.64 6.9%
Aug. 1 - Oct. 31, 1995.................... $ 12.500 $ 11.83 5.7% $11.125 $ 11.37 - 2.2%
Nov. 1 - Jan 31, 1996..................... $ 14.000 $ 13.38 4.6% $11.625 $ 12.01 - 3.2%
Feb. 1 - Apr. 30, 1996.................... $ 14.000 $ 13.31 5.2% $12.750 $ 12.21 4.4%
May 1 - Jul. 31, 1996..................... $ 13.875 $ 14.14 - 1.9% $12.750 $ 13.20 - 3.4%
Aug. 1 - Oct. 31, 1996.................... $ 14.875 $ 16.35 - 9.0% $13.375 $ 14.44 - 7.4%
Nov. 1 - Jan 31, 1997..................... $ 15.250 $ 16.63 - 8.3% $13.875 $ 15.89 -12.7%
Feb. 1 - Apr. 30, 1997.................... $ 15.250 $ 17.02 -10.4% $14.500 $ 16.32 -11.2%
May 1 - Jul. 31, 1997..................... $ 16.875 $ 17.01 - 0.8% $14.625 $ 16.30 -10.3%
</TABLE>
41
<PAGE> 51
PER SHARE DATA FOR ACQUIRED FUND COMMON STOCK TRADED ON THE NYSE
<TABLE>
<CAPTION>
HIGH SALES NET ASSET PREMIUM LOW SALES NET ASSET PREMIUM
PERIOD PRICE VALUE (DISCOUNT) PRICE VALUE (DISCOUNT)
- ------------------------------------------ ---------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
May 1 - Jul. 31, 1995..................... $ 13.375 $ 12.16 10.0% $12.750 $ 12.07 5.6%
Aug. 1 - Oct. 31, 1995.................... $ 13.375 $ 12.60 6.2% $12.250 $ 12.77 - 4.1%
Nov. 1 - Jan 31, 1996..................... $ 14.125 $ 14.80 - 4.6% $11.750 $ 13.57 -13.4%
Feb. 1 - Apr. 30, 1996.................... $ 14.250 $ 15.06 - 5.4% $12.625 $ 14.01 - 9.9%
May 1 - Jul. 31, 1996..................... $ 13.750 $ 15.49 -11.2% $12.875 $ 14.63 -12.0%
Aug. 1 - Oct. 31, 1996.................... $ 14.500 $ 16.80 -13.7% $13.250 $ 15.27 -13.2%
Nov. 1 - Jan 31, 1997..................... $ 15.875 $ 15.89 - 0.1% $14.000 $ 16.62 -15.8%
Feb. 1 - Apr. 30, 1997.................... $ 15.500 $ 16.89 - 8.2% $13.625 $ 16.02 -15.0%
May 1 - Jul. 31, 1997..................... $ 15.688 $ 17.09 - 8.2% $14.125 $ 16.20 -12.8%
</TABLE>
During the period since the inception of the Funds, the Acquiring Fund's
Common Stock and the Acquired Fund's Common Stock have traded at premiums and
discounts to net asset value. Although there is no reason to believe that this
pattern should be affected by the Reorganization, it is not possible to state
whether shares of the Acquiring Fund will trade at a premium or discount to net
asset value following the Reorganization, or the extent of any such premium or
discount.
On July 31, 1997, the closing sale prices of shares of the Acquiring Fund
and shares of the Acquired Fund were $16.375 and $15.375, respectively. These
prices represent a discount to net asset value of the Acquiring Fund of 2.9% and
a discount to net asset value of the Acquired Fund of 9.1%.
42
<PAGE> 52
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Funds are substantially similar. In
addition, except as noted below, the Funds currently have substantially similar
investment policies. No significant differences exist regarding the quality of
investments permitted for either Fund. The primary difference between the Funds
at present is that while SWIOF is permitted to invest throughout the world,
LADIF focuses its investments in Latin American countries, and is required to
invest a greater percentage of its assets in U.S. dollar-denominated debt
securities than SWIOF. As of July 31, 1997, 91% of LADIF's total assets were
invested in U.S. dollar denominated securities and 64% of SWIOF's total assets
were so invested. Further, while LADIF currently may not invest in equity
securities, SWIOF may invest up to 20% of its assets in emerging country equity
securities, such as common stocks. In addition, SWIOF currently may borrow from
banks only for temporary or emergency purposes, including for clearance of
transactions, share repurchases, tender offers or payments of dividends to
stockholders, in an amount not exceeding 5% of the value of the Fund's total
assets, including the amount borrowed, while LADIF is authorized to borrow money
from banks and other entities in an amount equal to up to 33 1/3% of the Fund's
total assets, including the amount borrowed, less all liabilities and
indebtedness other than the borrowing, and may use the proceeds of the
borrowings for investment purposes.
SWIOF'S investment objective is high income, and to the extent consistent
with that objective, the Fund will also seek capital appreciation. Under normal
market conditions, SWIOF invests in a portfolio of income securities of issuers
located in developed and developing countries throughout the world. SWIOF may
also invest up to 35% of its assets in securities that are not considered income
securities, such as common stock, warrants that are not part of a unit with
income securities and preferred stock that is non-dividend paying. In no event
will more than 20% of SWIOF's assets (measured at the time of investment) be
invested in emerging country equity securities. Under normal market conditions,
a significant portion of the Fund's assets are invested in emerging markets with
at least 65% of the Fund's assets invested in no fewer than 3 countries, one of
which may be the United States. SWIOF has a policy of limiting to 25% the
portion of its assets invested in issuers in any foreign country other than
Argentina, Brazil, Mexico and Venezuela. For these countries, the limitation is
35% of the Fund's assets. The Fund invests at least 50% of its assets in
securities denominated in U.S. dollars. Not more than 25% of its assets may be
invested in securities denominated or indexed to any one foreign currency.
LADIF'S primary investment objective is to seek high current income with
capital appreciation as a secondary investment objective. LADIF invests
principally in debt obligations of public and private entities located in Latin
America. Under normal market conditions, at least 85% of the Fund's total assets
will be invested in U.S. dollar-denominated Latin American debt instruments, and
at least 65% of the Fund's income is derived from such investments. LADIF has a
policy of limiting to 15% the portion of its total assets invested in issuers in
any Latin American country other than Argentina, Brazil, Chile, Mexico and
Venezuela. For these countries, the limitation is 40% of the Fund's total
assets. In addition, no more than 25% of the Fund's total assets may be invested
in securities issued by the government of any one Latin American country and its
agencies and instrumentalities.
Post-Reorganization Policies. As stated above (see "Comparison of the
Acquiring Fund and the Acquired Fund -- Investment Objectives and Policies"
above), the Board of Directors of LADIF has approved changes to certain
investment policies of LADIF to become effective upon the closing of the
Reorganization. As a result of those changes, LADIF will have substantially the
same investment policies as SWIOF currently has, except that LADIF will retain
its borrowing policy. Consequently, the second immediately preceding paragraph
(other than its first sentence) is a more accurate description of the policies
of the combined Fund than the immediately preceding paragraph (except for its
first sentence). In addition, the remainder of this section of the Proxy
Statement -- Prospectus will set forth the policies of the combined Fund
assuming the Reorganization is accomplished.
Each Fund seeks to reduce risk through diversification, credit analysis and
monitoring of current developments and trends in both the economy and financial
markets. The Investment Adviser uses various means to research the stability
and/or potential for improvement of various issuers in connection with the
purchase of their securities by each Fund. Evaluation of each issuer may include
the analysis of financial
43
<PAGE> 53
performance, debt structure, economic factors and the administrative structure
of the issuer. Additionally, the priority of liens and the overall structure of
the particular issue may be factors which will determine suitability for
purchase. Further investigation may be performed and may include, among other
things, discussions with project management, corporate officers and industry
experts, as well as site inspections, area analysis, and project and financial
projection analysis. All purchases and sales also may be subject to the review
of market data, economic projections and the performance of the financial
markets. Certain economic indicators also may be monitored. Additionally, the
Investment Adviser may vary the average maturity of each Fund's portfolio
securities, or may engage in hedging transactions, based upon the Investment
Adviser's assessment of economic and market conditions.
Each Fund is classified as non-diversified within the meaning of the 1940
Act, which means that each Fund is not limited by such Act in the proportion of
its assets that it may invest in securities of a single issuer. However, the
Funds' investments will be limited so as to qualify each Fund as a "regulated
investment company" for purposes of the Code. To qualify, among other
requirements, each Fund will limit its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market value of its
total assets will be invested in the securities (other than U.S. Government
securities) of a single issuer and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its total assets
will be invested in the securities (other than U.S. Government securities) of a
single issuer and the Acquired Fund will not own more than 10% of the
outstanding voting securities of a single issuer. A fund which elects to be
classified as "diversified" under the 1940 Act must satisfy the foregoing 5%
requirement and 10% requirement with respect to 75% of its total assets. To the
extent that each Fund assumes large positions in the securities of a small
number of issuers, its net asset value may fluctuate to a greater extent than
that of a diversified company as a result of changes in the financial condition
or in the market's assessment of the issuers.
Under normal market conditions, at least 65% of the Acquiring Fund's total
assets will be invested in a portfolio of Income Securities (as defined below)
of issuers located in developed and developing countries throughout the world.
The Acquiring Fund may also invest to a limited extent in emerging country
equity securities.
Because, in the view of the Acquiring Fund's Investment Adviser,
opportunities to achieve high income and capital appreciation are now available
and may continue to be available in emerging markets, the Acquiring Fund expects
to invest, under normal market conditions, a significant portion of its assets
in emerging countries. The Investment Adviser believes that certain recent
changes in political, economic and financial factors in some emerging countries
create the potential for capital appreciation, over the long term, in securities
of issuers in these markets. These factors, which in some emerging countries
have been followed by rapid growth, include political change, including
movements from military or totalitarian governments towards democratically
elected governments; economic deregulation, including such free-market policies
as tax reform, tariff reduction, privatization of state-owned business, and
reduction of governmental control over industrial production; and financial
liberalization, including more responsible fiscal and monetary policies, the
removal of restrictions on the free movement of capital in and out of the
country, and the emergence of securities markets. The Investment Adviser further
believes that such factors may lead to improvements in a country's
infrastructure, thereby increasing the country's industrial capacity. There can
be no assurance, however, that the foregoing factors will occur in any
particular emerging country or that they will produce the anticipated results.
It is the Investment Adviser's belief that many emerging countries exhibit
one or more characteristics that make investment in those countries attractive
and that economic growth and growth in stock market capitalization may create an
environment for improving performance in stock and bond markets. The Investment
Adviser also believes economic expansion in emerging markets may be led by
forces which include the increasing importance of domestic consumption in
certain emerging country economies and increased foreign investment from
companies seeking lower cost production facilities. Emerging countries with low
wage rates may have a significant comparative advantage in the global market
place and thus may attract companies relocating from the higher production cost
environments of North America, Western Europe and Japan, resulting in the
development of new manufacturing facilities. Other characteristics, including
high economic
44
<PAGE> 54
growth rates, falling rates of inflation, falling interest rates, and improving
credit ratings, may also contribute to attracting new foreign investment for
capital improvement or manufacturing, and potentially to improving performance
of stock and bond markets. The Investment Adviser believes that it may identify
various opportunities for potential gain to the extent that it can identify
issuers likely to experience improved credit quality.
As used in this Joint Proxy Statement -- Prospectus, the term "emerging
country" means any country that the World Bank has determined to have a low or
middle income economy. Over 160 countries, generally including every nation in
the world other than the United States, Canada, Japan, Australia, New Zealand
and most nations located in Western Europe, currently come within the definition
of an emerging country. With respect to investments made in emerging countries,
the Acquiring Fund will focus its investments in those emerging countries in
which it believes the economies are developing strongly and in which the markets
are becoming more sophisticated. The Acquiring Fund will consider an issuer to
be located in an emerging country if: (1) the principal securities trading
market for the issuer's securities is in an emerging country, (2) the issuer
alone or on a consolidated basis derives 50% or more of its annual revenue from
goods produced, investments made or services performed in emerging countries or
has at least 50% of its assets situated in emerging countries, or (3) the issuer
is organized under the laws of an emerging country. If an issuer qualifies as an
issuer in more than one emerging country under the definition above, the
Investment Adviser will determine the emerging country in which such issuer is
located. The Investment Adviser will utilize various tests to determine the
country in which an issuer is located. It is expected that these tests will
change from time to time; however, among the factors which are expected to be
considered by the Investment Adviser in determining an issuer's location are (1)
the location of its subsidiaries and physical facilities, (2) the location of
its personnel and management and (3) its source of revenues and expenditures.
Because the Investment Adviser believes that under current market conditions
attractive opportunities to realize the Acquiring Fund's investment objectives
consistent with the Acquiring Fund's investment restrictions exist in Latin
America, the Acquiring Fund has been invested to a large extent in securities of
Latin American issuers. Accordingly, the Acquiring Fund will be more subject to
economic, political, regulatory and other developments that may adversely affect
issuers in Latin American countries generally than if the Fund did not invest to
a large extent in Latin American issuers. The Investment Adviser will continue
to monitor developing opportunities around the world and over time the amount of
the Fund's assets invested in Latin America may diminish. To attempt to limit
the Acquiring Fund's exposure to economic, political, regulatory and other
developments that may adversely affect issuers in the same country, the
Acquiring Fund will limit to 25% (measured at the time of investment) the
portion of its assets invested in issuers in any one foreign country other than
Argentina, Brazil, Mexico and Venezuela, in which cases the limitation per
country is 35% of Acquiring Fund assets. Under normal market conditions, at
least 65% of the Acquiring Fund's assets will be invested in no fewer than three
countries, one of which may include the United States.
Although the Acquiring Fund will seek investment opportunities throughout
the world, the Acquiring Fund will invest at least 50% of its assets (measured
at the time of investment) in U.S. dollar-denominated securities. Therefore, no
more than 50% (measured at the time of investment) of the Acquiring Fund's
assets may be invested in securities denominated in foreign currencies. Further,
no more than 25% of the Acquiring Fund's assets (measured at the time of
investment) may be invested in securities denominated in or indexed to any one
foreign currency. The Acquiring Fund is subject to no restrictions on the
maturities of the Income Securities it holds; those maturities may range from
overnight to 30 years or more.
The Acquiring Fund may invest in Income Securities issued by governmental
and corporate issuers in such proportion as the Investment Adviser from time to
time considers appropriate. Income Securities in which the Acquiring Fund may
invest may take the form of (i) bonds, notes, bills, debentures, convertible
securities, preferred stock that is dividend paying, warrants issued as part of
a unit with other income securities, stripped income securities, zero coupon and
payment-in-kind securities, bank debt obligations, loan participations and
assignments and trust interests, (ii) other income securities issued or
guaranteed by governments, government agencies or instrumentalities,
supranational entities, which include international organizations designated or
backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies
("supranational organizations"),
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central banks, commercial banks or private issuers, (iii) interests issued by
entities organized for the purpose of restructuring the credit, interest rate,
currency or other investment characteristics of any of the foregoing and (iv)
repurchase agreements with respect to any of the foregoing (collectively,
"Income Securities"). The Acquiring Fund's investments in Income Securities may
include both fixed and floating rate obligations. Floating rate securities tend
to be less volatile in response to changes in interest rates than are longer
term fixed rate securities. Determinations whether a particular issuer's
securities come within the definition of an Income Security or the country in
which an issuer is primarily located will be made by the Investment Adviser on
the basis of publicly available information and inquiries made to the issuer.
The Acquiring Fund may invest up to 35% of its portfolio in assets other
than Income Securities. Such assets include emerging country equity securities,
such as common stock, warrants that are not part of a unit with Income
Securities, preferred stock that is non-dividend-paying, ADRs and EDRs;
Strategic Transactions; Highly Liquid Investments (each as defined below); and
cash. Although the Acquiring Fund does not expect to invest greater than 10% of
its assets in equity securities, as the Acquiring Fund's Investment Adviser
identifies available opportunities, the portion of the Acquiring Fund's assets
invested in equity securities may be increased. In no event however will more
than 20% of the Acquiring Fund's assets (measured at the time of investment) be
invested in emerging country equity securities. Further, as noted above, the
Acquiring Fund will invest in equity securities only if they are issued by
issuers located in emerging countries. To the extent the Acquiring Fund invests
in non-income producing equity securities, the amount of current income received
by the Acquiring Fund may be diminished. For temporary or emergency purposes the
Fund may invest without limit in Highly Liquid Instruments (as defined below).
It is impossible to predict how long such alternative strategies would be
utilized.
The Acquiring Fund may invest without limitation in illiquid securities,
which are securities that cannot be disposed of by the Acquiring Fund within
seven days in the ordinary course of business at approximately the amount at
which the Acquiring Fund has valued the securities. Illiquid securities may
include (1) repurchase agreements having maturities greater than seven days; (2)
partnership interests; (3) joint venture interests; (4) investments in new and
early stage companies; and (5) securities subject to restrictions on resale.
The Acquiring Fund, however, will invest no more than 35% of its assets
(measured at the time of investment) in securities that, in the opinion of the
Investment Adviser, have no trading market and, with respect to Income
Securities, which have remaining maturities at the time of purchase greater than
one year. Moreover, no more than 5% of the Acquiring Fund's total assets
(measured at the time of investment) will be invested in such securities of any
single issuer. For this purpose, securities will not be deemed to have no
trading market and Income Securities will be deemed to have a maturity of not
more than one year if the Acquiring Fund (1) has the right to require that the
securities be listed on an exchange within one year or (2) has the right to
require the issuer or a third party to acquire such security from the Acquiring
Fund within a one-year period and, with respect to such issuer or third party,
the Investment Adviser has made a determination that it is creditworthy of such
obligation. These securities may be acquired in negotiated transactions or
otherwise. Securities that are Rule 144A Securities (see "Rule 144A Securities"
below), which in some cases may be considered illiquid, are not considered to be
securities with no trading market for purposes of this limitation.
CERTAIN INVESTMENT SECURITIES
Certain of the securities in which the Acquiring Fund may invest are
described in further detail below:
BRADY BONDS
Brady Bonds are securities created through the exchange of existing
commercial bank loans to certain emerging country public entities for new bonds
in connection with debt restructurings under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Bonds may be collateralized or uncollateralized, are issued
in various currencies (primarily the U.S. dollar) and are actively traded in the
over-the-counter secondary market.
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Dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal due at maturity by U.S. Treasury zero coupon bonds having the same
maturity as the bonds. Interest payments on these Brady Bonds generally are
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is equal to at least one year of rolling interest payments or, in
the case of floating rate bonds, initially is equal to at least one year's
rolling interest payments based on the applicable interest rate at that time and
is adjusted at regular intervals thereafter. Certain Brady Bonds are entitled to
"value recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady Bonds
are often viewed as having three or four valuation components; the
collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In the event of a default with
respect to collateralized Brady Bonds as a result of which the payment
obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of Brady Bonds and the
history of defaults by emerging country public and private entities with respect
to their commercial bank loans, investments in Brady Bonds may be viewed as
speculative. The Fund may also invest in securities of issuers organized solely
for the purpose of restructuring the investment characteristics of other
securities (including Brady Bonds) in which the Fund may invest. For example,
the Fund may invest in a security that restructures a collateralized Brady Bond
in such a manner that the Fund's investment will not benefit from such
collateralization and thus will be subject to greater risks. See "Investment
Objectives and Policies -- Restructured Securities".
Brady Bonds of several emerging countries (for example, Mexico, Argentina,
Venezuela, the Philippines, Nigeria, Costa Rica, Uruguay) have at times
experienced price appreciation. The Investment Manager believes that similar
appreciation is possible for other emerging countries that may undertake Brady
Plan restructuring. There can be no assurance, however, that other emerging
countries will undertake Brady Plan restructuring or that such restructuring
will produce price appreciation.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between a borrower and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans ("Assignments") from third parties.
Participations typically will result in the Fund having a contractual
relationship only with the Lender and not with the borrower. The Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender and may not benefit from set-off between the
Lender and the borrower. The Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the
Investment Adviser to be creditworthy.
When the Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and may be more limited than, those
held by the assigning Lender.
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The Fund may have difficulty disposing of Assignments and Participations.
Because no liquid market for certain of these obligations typically exists, the
Fund anticipates that these obligations could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market will have an
adverse effect on the Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations may also make it more difficult for the Fund to assign a value to
those securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.
RESTRUCTURED SECURITIES
Included among the issuers of Income Securities in which the Fund may
invest are entities organized and operated solely for the purpose of
restructuring the credit, interest rate, currency or other investment
characteristics of various securities. This type of restructuring involves the
deposit with or purchase by an entity, such as a corporation or trust, of
specified instruments (such as Brady Bonds and commercial bank loans) and the
issuance by the entity of one or more classes of securities ("Restructured
Securities") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued Restructured Securities to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; Restructured Securities of the type in
which the Fund anticipates investing typically involve no credit enhancement.
The Fund is permitted to invest in a class of Restructured Securities that
is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Restructured Securities typically have higher yields and
present greater risks than unsubordinated Restructured Securities. Although the
Fund's purchase of certain types of Restructured Securities would have a similar
economic effect to that of borrowing, the purchase will not be deemed to be
leverage for purposes of the limitations placed on the extent of the Fund's
assets that may be used for borrowing. See "Certain Investment
Practices -- Borrowing".
Certain issuers of Restructured Securities may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's investment in
these Restructured Securities may be limited by the restrictions contained in
the 1940 Act described below under "Investment Objectives and Policies --
Investment in Other Funds".
SPECIALIZED OPPORTUNITIES
The Fund may, from time to time, participate in "Specialized
Opportunities," which for purposes of this Prospectus are investments in: (1)
privately-held companies; (2) companies that have recently conducted initial
public offerings of their shares; (3) smaller publicly-held companies (that is,
any company with a market capitalization of less than $500 million, except that
the Fund's Board of Directors may, in the future, reevaluate and increase or
decrease the maximum market capitalization for qualification as a smaller
company); (4) joint ventures; (5) private placements and joint venture
participations; and (6) companies with private market values perceived by the
Investment Adviser to be substantially in excess of their publicly-traded
values.
Among the Specialized Opportunities in which the Fund may invest are
securities that are sold in direct placement transactions privately negotiated
between their issuers and their purchasers and that are neither listed on an
exchange nor traded over-the-counter ("Direct Placement Obligations"). In many
cases, Direct Placement Obligations are subject to contractual or legal
restrictions on transfer. As a result of the absence of a public trading market,
Direct Placement Obligations may in turn be less liquid and more difficult to
value than publicly traded securities. Although Direct Placement Obligations may
be resold in privately negotiated transactions, the prices realized from the
sales could, due to illiquidity, be less than those originally paid by the Fund
or less than their fair value. In addition, issuers whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their securities were publicly
traded. If any Direct Placement Obligations held by the Fund are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the
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expenses of registration. Although private placements entail certain risks, the
Investment Adviser believes that such investments offer attractive potential
returns in terms of yield or in that capital gains might be realized in
subsequent public or private sale.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, which typically take the
form of bonds, debentures, notes, preferred stock or other securities that may
be converted into, or exchanged for, a prescribed amount of common stock of the
same or a different issuer within a particular period of time at a specified
price or formula. A convertible security entitles its holder to receive interest
generally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
nonconvertible debt securities, ordinarily providing a stable flow of income and
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Investments in convertible securities generally entail less risk
than investments in common stock, although the extent to which the risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security.
Convertible securities have several unique investment characteristics such as:
(1) higher yields than common stocks, but lower yields than comparable
nonconvertible securities; (2) a lesser degree of fluctuation in value than the
underlying stock since they have fixed income characteristics; and (3) the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison to the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
The Fund may hold convertible securities as an equity investment upon
conversion. A convertible security might be subject to redemption at the option
of the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption,
the Fund may be required to permit the issuer to redeem the security, convert it
into the underlying common stock or sell it to a third party. Any of these
actions could have an adverse effect on the Fund's ability to achieve its
investment objectives.
WARRANTS
The Fund may invest in warrants, which are securities permitting, but not
obligating, their holders to subscribe for other securities or commodities. The
Fund may invest in warrants for debt securities or warrants for equity
securities that are acquired as units with debt instruments. Warrants do not
carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not represent
any rights in the assets of the issuer. As a result, an investment in warrants
may be considered to be more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities or commodities and a warrant ceases
to
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have value if it is not exercised prior to its expiration date. The Fund may
retain in its portfolio any securities received upon the exercise of a warrant
and may also retain in its portfolio any warrant acquired as a unit with a debt
instrument if the warrant begins to trade separately from the related debt
instrument.
PRIVATIZATION PROGRAMS
The governments of several foreign countries have, to varying degrees, been
engaged in programs of selling part or all of their interests in
government-owned or -controlled enterprises. The Investment Adviser believes
that these privatization programs may offer investors opportunities for
significant capital appreciation and anticipates that the Fund may from time to
time participate in these programs. 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, no
assurance can be given that governments will continue to divest companies they
own or control or that privatization proposals will be successful.
RULE 144A SECURITIES
From time to time, the Fund may hold securities that are not registered
under the Securities Act but that can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act ("Rule 144A
Securities"). Certain Rule 144A Securities may be considered to be not readily
marketable. The Fund's purchase of Rule 144A Securities could have the effect of
decreasing the level of its portfolio marketability to the extent that qualified
institutional buyers become uninterested for a time in purchasing Rule 144A
Securities held by the Fund. The ability to sell to qualified institutional
buyers under Rule 144A from time to time cannot be predicted.
INDEXED SECURITIES
The Fund may invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"). The interest rate or (unlike most fixed-income
securities) the principal amount payable at maturity of an indexed security may
be increased or decreased, depending on changes in the value of the reference
instrument. Indexed securities may be positively or negatively indexed, so that
appreciation of the reference instrument may produce an increase or a decrease
in the interest rate or value of the security at maturity. In addition, the
change in the interest rate or value of the security at maturity may be some
multiple of the change in the value of the reference instrument. Thus, in
addition to the credit risk of the security's issuer, the Fund will bear the
market risk of the reference instrument.
STRIPPED INCOME SECURITIES
Stripped income securities are obligations representing an interest in all
or a portion of the income or principal components of an underlying or related
security, a pool of securities or other assets. In the most extreme case, one
class will receive all of the interest (the interest-only or "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The market values of stripped income securities tend to be more volatile
in response to changes in interest rates than are conventional income
securities.
ZERO COUPON, DEEP DISCOUNT AND PAYMENT-IN-KIND SECURITIES
The Fund may invest in "zero coupon" and other deep discount securities of
governmental or private issuers, including certain Brady Bonds and other
Sovereign Debt. Zero coupon securities generally pay no cash interest (or
dividends in the case of preferred stock) to their holders prior to maturity.
Payment-in-kind securities allow the lender, at its option, to make current
interest payments on such securities either in cash or in additional securities.
Accordingly, such securities usually are issued and traded at a deep discount
from their face or par value and generally are subject to greater fluctuations
of market value in response to changing interest rates than securities of
comparable maturities and credit quality that pay cash interest (or dividends in
the case of preferred stock) on a current basis.
Although the Fund will receive no payments on its zero coupon securities,
and may receive no cash payments on its payment-in-kind securities, prior to
their maturity or disposition, it will be required for federal income tax
purposes generally to include in its dividends each year an amount equal to the
annual income that accrues on its zero coupon securities and any non-cash
"interest" it receives on its payment-in-kind securities. Such dividends will be
paid from the cash assets of the Fund, from borrowings or by liquidation of
portfolio
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securities, if necessary, at a time that the Fund otherwise would not have done
so. To the extent the Fund is required to liquidate thinly traded securities,
the Fund may be able to sell such securities only at prices lower than if such
securities were more widely traded. The risks associated with holding securities
that are not readily marketable may be accentuated at such time. To the extent
the proceeds from any such dispositions are used by the Fund to pay
distributions, the Fund will not be able to purchase additional income-producing
securities with such proceeds, and as a result its current income ultimately may
be reduced.
FLOATING AND VARIABLE RATE INCOME SECURITIES
Income Securities may provide for floating or variable rate interest or
dividend payments. The floating or variable rate may be determined by reference
to a known lending rate, such as a bank's prime rate, a certificate of deposit
rate or the London Inter Bank Offered Rates (LIBOR). Alternatively, the rate may
be determined through an auction or remarketing process. The rate also may be
indexed to changes in the values of interest rate or securities indexes,
currency exchange rates or other commodities. The amount by which the rate paid
on an income security may increase or decrease may be subject to periodic or
lifetime caps. Floating and variable rate income securities include securities
whose rates vary inversely with changes in market rates of interest. Such
securities may also pay a rate of interest determined by applying a multiple to
the variable rate. The extent of increases and decreases in the value of
securities whose rates vary inversely with changes in market rates of interest
generally will be larger than comparable changes in the value of an equal
principal amount of a fixed rate security having similar credit quality,
redemption provisions and maturity.
PREMIUM SECURITIES
The Fund may invest in income securities bearing coupon rates higher than
prevailing market rates. Such "premium" securities are typically purchased at
prices greater than the principal amounts payable on maturity. The Fund will not
amortize the premium paid for such securities in calculating its net investment
income. As a result, in such cases the purchase of such securities provides the
Fund a higher level of investment income distributable to stockholders on a
current basis than if the Fund purchased securities bearing current market rates
of interest. If securities purchased by the Fund at a premium are called or sold
prior to maturity, the Fund will recognize a capital loss to the extent the call
or sale price is less than the purchase price. Additionally, the Fund will
recognize a capital loss if it holds such securities to maturity.
BORROWING AND OTHER FORMS OF LEVERAGE
The Fund is authorized to borrow money from banks and other entities in an
amount equal to up to 33 1/3% of the Fund's total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowing, and
may use the proceeds of the borrowings for investment purposes. Borrowings
create leverage, which is a speculative characteristic. Although the Fund
intends to borrow frequently, it will do so only when the Investment Adviser
believes that borrowing will benefit the Fund after taking into account
considerations such as the costs of the borrowing and the likely investment
returns on the securities purchased with the borrowed monies. The extent to
which the Fund will borrow will depend upon the availability of credit. No
assurance can be given that the Fund will be able to borrow on terms acceptable
to the Fund and the Investment Adviser.
Borrowing by the Fund will create an opportunity for increased net income
but, at the same time, will involve special risk considerations. Leveraging
resulting from borrowing will magnify declines as well as increases in the net
asset value of the Common Stock and in the net yield on the Fund's portfolio.
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. To the extent the income derived from the assets
obtained with borrowed funds exceeds the interest and other expenses that the
Fund will have to pay, the Fund's net income will be greater than if borrowing
were not used. Conversely, however, if the income from the assets obtained with
borrowed funds is not sufficient to cover the cost of borrowing, the net income
of the Fund will be less than if borrowings were not used, and therefore the
amount available for distribution to the Fund's shareholders as dividends will
be reduced.
The Fund expects that all of its borrowings will be made on a secured
basis. The Fund's custodian will either segregate the assets securing the Fund's
borrowings for the benefit of the Fund's lenders or arrangements will be made
with a suitable sub-custodian, which may include a lender. If the assets used to
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secure the borrowing decrease in value, the Fund may be required to pledge
additional collateral to the lender in the form of cash or securities to avoid
liquidation of those assets. The rights of any lenders to the Fund to receive
payments of interest on and repayments of principal of borrowings will be senior
to the rights of the Fund's shareholders, and the terms of the Fund's borrowings
may contain provisions that limit certain activities of the Fund and could
result in precluding the purchase of instruments that the Fund would otherwise
purchase.
The Fund may enter into reverse repurchase agreements with any member bank
of the Federal Reserve System and any broker-dealer or any foreign bank that has
been determined by the Investment Adviser to be creditworthy. Under a reverse
repurchase agreement, the Fund would sell securities and agree to repurchase
them at a mutually agreed date and price. At the time the Fund enters into a
reverse repurchase agreement, it will establish and maintain a segregated
account, with its custodian or a designated sub-custodian, containing cash or
liquid obligations having a value not less than the repurchase price (including
accrued interest). Reverse repurchase agreements involve the risk that the
market value of the securities purchased with the proceeds of the sale of
securities received by the Fund may decline below the price of the securities
the Fund is obligated to repurchase. In the event the buyer of securities under
a reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's obligation to repurchase the securities, and the
Fund's use of the proceeds of the reverse repurchase agreement may effectively
be restricted pending the decision. Reverse repurchase agreements will be
treated as borrowings for purposes of calculating the Fund's borrowing
limitation.
The Fund may, in addition to engaging in the transactions described above,
borrow money from banks for temporary or emergency purposes (including, for
example, clearance of transactions, share repurchases, tender offers or payments
of dividends to shareholders) in an amount not exceeding 5% of the value of the
Fund's total assets (including the amount borrowed).
HIGHLY LIQUID INSTRUMENTS
The Fund may hold and/or invest in cash and/or Highly Liquid Instruments
for cash management purposes, pending investment in accordance with the Fund's
investment objectives and policies and to meet operating expenses. In addition,
for temporary or emergency purposes the Fund may invest without limitation in
Highly Liquid Instruments. The Fund may do so when, due to political, market or
other factors broadly affecting debt markets in one or more foreign countries,
the Investment Adviser determines that either opportunities for high income in
those markets may be significantly limited or that significant diminution in
value of the securities traded in those markets is likely to occur. To the
extent that the Fund invests in Highly Liquid Instruments, it may not achieve
its investment objectives.
Highly Liquid Instruments are short-term (less than twelve months to
maturity) securities denominated in dollars or in another currency and rated
investment grade or deemed to be of equivalent quality which consist of: (1)
obligations issued or guaranteed by (a) the U.S. Government, or a foreign
government, or its agencies or instrumentalities, or (b) international
organizations designated or supported by multiple foreign governmental entities
to promote economic reconstruction or development ("supranational entities");
(2) finance company obligations, corporate commercial paper and other commercial
obligations; (3) obligations (including certificates of deposit, time deposits,
demand deposits and bankers' acceptances) of banks subject to the restriction
that the Fund may not invest more than 25% of its total assets in bank
securities; and (4) repurchase agreements with respect to securities in which
the Fund may invest. The banks whose obligations may be purchased by the Fund
and the banks and broker-dealers with which the Fund may enter into repurchase
agreements include any member bank of the Federal Reserve System and any
broker-dealer or any foreign bank that has been determined by the Investment
Adviser to be creditworthy.
Repurchase agreements are contracts pursuant to which the seller of a
security agrees at the time of sale to repurchase the security at an agreed upon
price and date. The Fund may enter into repurchase commitments with any party
deemed creditworthy by the Investment Adviser, including foreign banks and
broker/dealers, if the transaction is entered into for investment purposes and
the counterparty's creditworthiness is at least equal to that of issuers of
securities which the Fund may purchase. Such transactions may not provide the
Fund with collateral marked-to-market during the terms of the commitment.
Repurchase agreements may involve risks in the event of
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insolvency or other default by the seller, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
INVESTMENTS IN OTHER FUNDS
The Fund may invest in investment funds, other than those for which the
Investment Adviser serves as investment adviser and/or sponsor, that invest
principally in securities in which the Fund is authorized to invest. Under the
1940 Act, the Fund may invest a maximum of 10% of its total assets in the
securities of other investment companies. In addition, under the 1940 Act, not
more than 5% of the Fund's total assets may be invested in the securities of any
one investment company, and the Fund may not own more than 3% of the outstanding
voting securities of any investment company. To the extent the Fund invests in
other investment funds, the Fund's stockholders will incur certain duplicative
fees and expenses, including investment advisory fees. The Fund's investment in
certain investment funds will result in special U.S. federal income tax
consequences described below under "Taxes -- General".
DEPOSITARY RECEIPTS
The Fund may hold securities of U.S. and foreign issuers in the form of
American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") or
European Depositary Receipts ("EDRs"). These securities may not necessarily be
denominated in the same currency as the securities for which they may be
exchanged. ADRs and ADSs typically are issued by an American bank or trust
company which evidences ownership of underlying securities issued by a foreign
corporation. Generally, ADRs and ADSs in registered form are designed for use in
U.S. securities markets. For purposes of the Fund's investment policies, the
Fund's investments in ADRs and ADSs will be deemed to be investments in the
equity securities representing securities of foreign issuers into which they may
be converted.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depositary may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depositary usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depositary of an unsponsored facility
frequently is under no obligation to distribute stockholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of stockholder meetings and voting
instructions, and to provide stockholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Fund may invest in both sponsored and unsponsored ADRs.
EDRs, which sometimes are referred to as Continental Depository Receipts
("CDRs"), are receipts issued in Europe, typically by foreign banks and trust
companies, that evidence ownership of either foreign or U.S. securities.
Generally, EDRs and CDRs, in bearer form, are designed for use in European
securities markets.
OTHER INVESTMENT POLICIES
The Acquiring Fund may engage in a number of investment practices,
including those described below. The Acquiring Fund is under no obligation to
use any of the practices at any given time or under any particular economic
condition. In addition, no assurance can be given that the use of any practice
will have its intended result or that the use of any practice is or will be
available to the Acquiring Fund.
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WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued basis, or may purchase or
sell securities for delayed delivery. In when-issued or delayed delivery
transactions, delivery of the securities occurs beyond normal settlement
periods, but no payment or delivery will be made by the Fund prior to the actual
delivery or payment by the other party to the transaction. When-issued
securities purchased by the Fund may include securities purchased on a "when, as
and if issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. The Fund will not accrue income with
respect to a when-issued or delayed delivery security prior to the security's
stated delivery date. The Fund will establish with its custodian, or a
designated sub-custodian, a segregated account consisting of cash or liquid
securities, in an amount equal to the amount of the Fund's when-issued and
delayed delivery purchase commitments.
Securities purchased by the Fund on a when-issued or delayed delivery basis
may expose the Fund to risk because the securities may experience fluctuations
in value prior to their delivery. Purchasing securities on a when-issued or
delayed delivery basis can involve the additional risk that the return available
in the market when the delivery takes place may be higher than that obtained in
the transaction itself. This characteristic of when-issued and delayed delivery
securities could result in exaggerated movements in the Fund's net asset value.
STRATEGIC TRANSACTIONS
The Fund is authorized, but not required, to use various investment
strategies described below to hedge various market risks (such as interest
rates, currency exchange rates and broad or specific market movements) to manage
the effective maturity or duration of fixed-income securities or to seek to
increase the Fund's income or gain. Although these strategies are generally
accepted as portfolio management techniques and are regularly used by some
investment companies and other institutional investors, many of these strategies
may not at the present time be used by the Fund to a significant extent with
respect to emerging country securities and may not become available for
extensive use in the future. Techniques and instruments may change, however,
over time as new instruments and strategies are developed or regulatory changes
occur.
The Fund may purchase and sell exchange listed and over-the-counter put and
call options on securities, financial futures and securities indices and other
financial instruments, enter into financial futures contracts, 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, these transactions are referred to as "Strategic
Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of those securities for investment
purposes, to manage the effective maturity, duration and interest rate exposure
of the Fund's portfolio, to protect against changes in currency exchange rates
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to enhance potential gain, although no more than 5% of the Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. The Fund may use any or all types of Strategic Transactions at any
time; no particular strategy will dictate the use of one transaction rather than
another, as use of any Strategic Transaction will be a function of numerous
variables including market conditions. The ability of the Fund to utilize
Strategic Transactions successfully will depend on, in addition to the factors
described above, the Investment Adviser's ability to predict pertinent market
movements, which cannot be assured. Strategic Transactions involving financial
futures and options on financial futures will be purchased, sold or entered into
only for hedging, risk management or portfolio management purposes and not for
speculative purposes. The use of certain Strategic Transactions will require
that the Fund segregate liquid high grade assets to the extent the Fund's
obligations are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency.
SHORT SALES
With respect to no more than 10% of the Fund's total assets, the Fund may
from time to time sell securities short. A short sale is a transaction in which
the Fund would sell securities it does not own (but has
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borrowed) in anticipation of a decline in the market price of the securities.
When the Fund makes a short sale, the proceeds it receives from the sale will be
held on behalf of a broker until the Fund replaces the borrowed securities. To
deliver the securities to the buyer, the Fund will need to arrange through a
broker to borrow the securities and, in so doing, the Fund will become obligated
to replace the securities borrowed at their market price at the time of
replacement, whatever that price may be. The Fund may have to pay a premium to
borrow the securities and must pay any dividends or interest payable on the
securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash or liquid securities. In addition, the Fund will place in a
segregated account with its custodian, or designated sub-custodian, an amount of
cash or liquid securities equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash or liquid securities deposited as collateral with the broker in connection
with the short sale (not including the proceeds of the short sale). Until it
replaces the borrowed securities, the Fund will maintain the segregated account
daily at a level so that (1) the amount deposited in the account plus the amount
deposited with the broker (not including the proceeds from the short sale) will
equal the current market value of the securities sold short and (2) the amount
deposited in the account plus the amount deposited with the broker (not
including the proceeds from the short sale) will not be less than the market
value of the securities at the time they were sold short.
Short sales by the Fund involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
LENDING OF PORTFOLIO SECURITIES
The Fund may lend securities in its portfolio representing up to 30% of its
total assets, taken at market value, to securities firms and financial
institutions. Each such loan must be secured continuously by collateral in the
form of cash, U.S. Government securities or a letter of credit, adjusted daily
to have a market value at least equal to the current market value of the
securities loaned. The loans will be terminable at any time, and the Fund will
receive any interest or dividends paid on the loaned securities. In addition,
the Fund anticipates that it may share with the borrower and the Fund's
custodian or a designated sub-custodian some of the income received on the
collateral for the loan, or the Fund will be paid a premium for the loan. The
risk in lending portfolio securities, like that associated with other extensions
of credit, consists of possible delay in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.
In determining whether the Fund will lend securities, the Investment Adviser
will consider all relevant factors and circumstances, including the
creditworthiness of the borrower.
SYNTHETIC INVESTMENTS
In certain circumstances, the Fund may wish to obtain the price performance
of a security without actually purchasing the security in circumstances where,
for example, the security is illiquid, or is unavailable for direct investment
or available only on less attractive terms. In such circumstances, the Fund may
invest in synthetic or derivative alternative investments ("Synthetic
Investments") that are based upon or otherwise relate to the economic
performance of the underlying securities. Synthetic Investments may include swap
transactions, notes or units with variable redemption amounts, and other similar
instruments and contracts. Synthetic Investments typically do not represent
beneficial ownership of the underlying security, usually are not collateralized
or otherwise secured by the counterparty and may or may not have any credit
enhancements attached to them. Accordingly, Synthetic Investments involve
exposure not only to the creditworthiness of the issuer of the underlying
security, changes in exchange rates and future governmental actions taken by the
jurisdiction in which the underlying security is issued, but also to the
creditworthiness and legal standing of the counterparties involved. In addition,
Synthetic Investments typically are illiquid.
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INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of each Fund and may
not be changed without the approval of the holders of a majority of each Fund's
outstanding voting securities (which, for this purpose and under the 1940 Act,
means the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares).
Neither Fund may:
1. purchase securities on margin, except those short-term credits as
may be necessary for clearance of transactions and the maintenance of
margin with respect to Strategic Transactions;
2. make short sales of securities or maintain a short position except
in accordance with the guidelines set out in the Fund's prospectus;
3. buy or sell commodities or commodity contracts or real estate or
interests in real estate, except that the Fund (a) may purchase and sell
securities that are (i) secured by real estate, (ii) secured by, represent
the right to acquire, or whose investment return is dependent upon the
price of, a commodity or (iii) issued by companies that invest or deal in
real estate or commodities and (b) may engage in Strategic Transactions as
described in the Fund's Prospectus;
4. make loans, except through investing in Loans and Participations,
lending portfolio securities and entering into repurchase agreements,
provided that for purposes of this restriction the acquisition of bonds,
debentures or other debt instruments or interests therein and investment in
government obligations, short-term commercial paper, certificates of
deposit and bankers' acceptances will not be deemed to be the making of a
loan; and
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 law.
Additional fundamental investment restrictions of the Acquired Fund provide
that the Acquired Fund may not:
A. issue senior securities (including borrowing money from banks and
other entities and reverse repurchase agreements), except that (a)
short-term credits necessary for settlement of securities transactions will
not be considered borrowings or senior securities, and (b) the Fund may
borrow up to 5% of its total assets (including the amount borrowed) for
temporary or emergency purposes; and
B. invest more than 25% of the total value of its assets in the
securities of issuers in a single industry, except that this restriction
will 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.
For purposes of investment restriction A above, collateral arrangements
with respect to the writing of options or the purchase or sale of futures
contracts will not be deemed a pledge of assets or the issuance of senior
securities. For purposes of investment restriction B above, the term industry
will be deemed to include (1) the government of any country other than the
United States, but not the U.S. Government and (2) all supranational
organizations, as a group.
Additional fundamental investment restrictions of the Acquiring Fund
provide that the Acquiring Fund may not:
1. issue senior securities (including borrowing money from banks and
other entities and reverse repurchase agreements) in excess of 33 1/3% of
its total assets (including the amount of senior securities issued but
excluding any liabilities and indebtedness not constituting senior
securities), except that the Fund may borrow up to an additional 5% of its
total assets (including the amount borrowed) for temporary or emergency
purposes;
2. invest more than 25% of the total value of its assets in the
securities of issuers in a single industry, except that (a) this limitation
will not be applicable to the purchase of U.S. Government Securities and
(b) this limitation will not be applicable to the purchase of securities of
issuers whose primary business
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activity is in the oil or telecommunications industry or to the purchase of
securities issued by the government of any one Latin American* country and
its agencies and instrumentalities, so long as the Fund's Board of
Directors determines, on the basis of factors such as liquidity,
availability of investments and anticipated returns, that the Fund's
ability to achieve its investment objectives would be materially adversely
affected if the Fund were not permitted to invest more than 25% of its
total assets in those securities, and so long as the Fund notifies its
stockholders of any decision by the Board of Directors to permit or cease
to permit the Fund to invest more than 25% of its total assets in those
securities, such notice to include a discussion of any increased investment
risks to which the Fund may be subjected as a result of the Board of
Directors' determination; and
3. make investments for the purpose of exercising control or
management.
Additional investment restrictions adopted by the Acquired Fund, which may
be changed by its Board of Directors, provide that the Acquired Fund may not:
1. invest more than 10% of its total assets in the securities of any
single issuer, except that this restriction does not apply to investments
in Sovereign Debt; and
2. invest more than 20% of its total assets in Income Securities
issued by U.S. issuers that have a credit rating below investment grade or
that have no credit rating but which are deemed by the Investment Adviser
to be of comparable quality.
If a percentage restriction on investment policies or the investment on use
of assets set forth above is adhered to at the time a transaction is effected,
later changes in percentages resulting from changing values will not be
considered a violation.
DIRECTORS AND OFFICERS
The Acquiring Fund and the Acquired Fund have the same seven Directors,
four of whom are not "interested persons," as defined in the 1940 Act, of either
Fund. The Directors are responsible for the overall supervision of the
operations of the Funds and perform various duties imposed on the directors of
investment companies by the 1940 Act and under applicable Maryland law. The
Acquiring Fund and the Acquired Fund also have the same executive officers. For
further information regarding the Directors and officers of each Fund, see
"Election of Directors".
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS
See "Approval of New Investment Management Agreements" for information
relating to the proposal for each Fund to execute a new investment management
agreement with Scudder Kemper. The following information relates to the current
Investment Management and Administration Agreements.
The Investment Adviser provides the Acquiring Fund and the Acquired Fund
with investment advisory, management and administrative services. The Investment
Adviser, or Scudder, acts as the investment adviser for over 50 investment
company portfolios. The Investment Adviser also offers private account
management and portfolio analysis services to individuals and institutions. As
of April 30, 1997, the Investment Adviser had a total of approximately $115
billion in investment company and private account assets under management,
including accounts of certain affiliates of the Investment Adviser. The
principal business address of the Investment Adviser is 345 Park Avenue, New
York, New York 10154.
The Investment Advisory Management and Administration Agreements between
the Investment Adviser and each of the Funds (the "Investment Advisory
Agreements") provide that, subject to the direction of the Board of Directors of
each Fund, the Investment Adviser is responsible for the actual management of
each
- ---------------
* If the proposal relating to the Reorganization is approved, the reference to
"Latin American" in this restriction would be deleted (see "The
Reorganization -- Change of LADIF's Name; Amendment of Fundamental Policy on
Industry Concentration" above).
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Fund's portfolio. The responsibility for making decisions to buy, sell or hold a
particular security rests with the Investment Adviser, subject to review by the
Board of Directors.
The Investment Adviser provides the portfolio management for the Acquiring
Fund and the Acquired Fund. Such portfolio management considers analyses from
various sources (including brokerage firms with which each Fund does business),
makes the necessary investment decisions, and places orders for transactions
accordingly. The Investment Adviser also is responsible for the performance of
certain administrative and management services for each of the Funds.
For the services provided by the Investment Adviser under the Investment
Advisory Agreements, each Fund currently pays a monthly fee at an annual rate of
1.20% of its average weekly net assets (i.e., the average weekly value of its
total assets, minus the sum of its accrued liabilities). For purposes of this
calculation, average weekly net assets is determined at the end of each month on
the basis of the average net assets of each Fund for each week during the month.
The assets for each weekly period are determined by averaging the net assets at
the last business day of a week with the net assets at the last business day of
the prior week. Under each Fund's Investment Advisory Agreement for the last
three fiscal years, the Acquired Fund paid the Investment Adviser $650,255,
$549,956 and $557,307, and the Acquiring Fund paid the Investment Adviser
$984,043, $814,827 and $1,020,217.
The Investment Advisory Agreements obligate the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Acquiring Fund and the Acquired
Fund connected with investment and economic research, trading and investment
management of each Fund, as well as the compensation of all Directors of each
Fund who are affiliated persons of the Investment Adviser or any of its
affiliates. Each Fund pays all other expenses incurred in its operation,
including, among other things, expenses for legal and auditing services, taxes,
costs of printing proxies, listing fees, stock certificates and stockholder
reports, charges of the custodian and the transfer agent and registrar, expenses
of portfolio transactions, fees and expenses in connection with the issuance,
offering, distribution, sale or underwriting of securities issued by each Fund,
Commission fees, fees and expenses of unaffiliated Directors, accounting and
pricing costs (including the weekly calculation of the net asset value),
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, mailing and other expenses properly payable by each
Fund.
Unless earlier terminated as described below, the Investment Advisory
Agreements with the Acquiring Fund and the Acquired Fund will remain in effect
from year to year if approved annually (a) by each Fund's Board of Directors or
by a majority of the outstanding shares of each Fund and (b) by a majority of
the Directors who are not parties to such contract or interested persons (as
defined in the 1940 Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the stockholders of each Fund.
PORTFOLIO MANAGEMENT
LADIF is managed by a team of Scudder investment professionals who each
play an important role in the portfolio's management process. Team members work
together to develop investment strategies and select securities for the
portfolio. They are supported by Scudder's staff of economists, research
analysts, traders, and other investment specialists who work in Scudder's
offices across the United States and abroad. Scudder believes the team approach
benefits Fund investors by bringing together many disciplines and leveraging
Scudder's extensive resources.
The Lead Portfolio Manager of LADIF is Isabel Saltzman, who joined Scudder
in 1990. The Lead Portfolio Manager of SWIOF is Susan Gray, who joined Scudder
in 1987 and who sets the investment strategy for the Fund. After the
Reorganization Ms. Gray and Ms. Saltzman will be co-Lead Portfolio Managers of
the combined Fund, sharing responsibility for the day-to-day management of the
portfolio. Joyce E. Cornell, Portfolio Manager of SWIOF, is responsible for
managing the equity component of the Fund's portfolio. Ms. Cornell, who joined
Scudder in 1991, has nine years of experience as a securities analyst.
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PORTFOLIO TRANSACTIONS
Subject to policies established by each Fund's Board of Directors, the
Investment Adviser is primarily responsible for the execution of each Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for each Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), size
of order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive commission rates, the
Funds do not necessarily pay the lowest commission or spread available.
The Funds have no obligation to deal with any broker or dealer in execution
of transactions in portfolio securities. Subject to obtaining the best price and
execution, securities firms which provided supplemental investment research to
the Investment Adviser may receive orders for transactions by the Funds.
Information so received will be in addition to and not in lieu of the services
required to be performed by the Investment Adviser under the Investment Advisory
Agreements and the expenses of the Investment Adviser will not necessarily be
reduced as a result of the receipt of such supplemental information.
BROKERAGE COMMISSIONS ON THE PORTFOLIO TRANSACTIONS
To the maximum extent feasible the Investment Adviser places orders for
portfolio transactions through Scudder Investor Services, Inc. (the
"Distributor") (a corporation registered as a broker/dealer and a subsidiary of
the Investment Adviser), which in turn places orders on behalf of the Funds with
issuers, underwriters or other brokers and dealers. The Distributor receives no
commissions, fees or other remuneration from the Funds for this service.
Allocation of portfolio transactions is supervised by the Investment Adviser.
PORTFOLIO TURNOVER
The Funds may dispose of securities without regard to the time they have
been held when such action, for defensive or other reasons, appears advisable to
the Investment Adviser. A 100% annual turnover rate would occur if all of the
Acquiring Fund's securities were replaced one time during a period of one year.
Portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of the Acquiring
Fund's portfolio securities. For purposes of the calculation, portfolio
securities exclude all debt securities having a maturity when purchased of one
year or less. In periods when there are rapid changes in economic conditions or
security price levels or when investment strategy is changed significantly,
portfolio turnover may be significantly higher than during times of economic and
market price stability, when investment strategy remains relatively constant.
Higher portfolio turnover rates can result in corresponding increases in
transaction costs. Portfolio turnover may also result in the recognition of
capital gains which may be distributed to stockholders. The rate of portfolio
turnover will not be a limiting factor when the Investment Adviser deems it
appropriate to purchase or sell securities for the Fund.
NET ASSET VALUE
Net asset value per share of Common Stock of the Acquiring Fund and the
Acquired Fund is determined for publication after 4:00 p.m., New York time, on
the last business day of each week. For purposes of determining the net asset
value of a share of Common Stock, the value of the securities held by the Funds
plus any cash or other assets (including interest and dividends accumulated but
not yet received) minus all liabilities (including accrued expenses) is divided
by the total number of shares of Common Stock outstanding at such time.
Expenses, including the fees payable to the Investment Adviser, are accrued
daily.
An exchange-traded equity security (not subject to resale restrictions) 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"). If there are no bid and asked
quotations, the security is valued at the most recent bid quotation. An unlisted
equity security which is traded on the Nasdaq Stock Market or the Nasdaq
National Market is valued at the most recent sale price. If there are no such
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sales, the security is valued at the most recent bid quotation. The value of an
equity security not quoted on the Nasdaq Stock Market or the Nasdaq National
Market but traded in another over-the-counter market, is the most recent sale
price. If there are no such sales, the security is valued at the Calculated
Mean. If there is no Calculated Mean, the security is valued at the most recent
bid quotation.
Debt securities other than short-term securities, are valued at prices
supplied by the Fund's pricing agent which reflect broker/dealer supplied
valuations and electronic data processing technique. Money market instruments
purchased with an original maturity of sixty days or less and maturing at par
are valued by the amortized cost method, which the Board 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 no such bid quotation is
available, the Investment Adviser may calculate the price of that debt security,
subject to limitations established by the Fund's Board of Directors.
Option contracts on securities, currencies, futures and other financial
instruments traded on an exchange are valued at their most recent sale price on
the exchange. If no sales are reported, the value is the Calculated Mean, or if
the Calculated Mean is not available, the most recent bid quotation in the case
of purchased options, or the most recent asked quotation in the case of written
options. Option contracts traded over-the-counter are valued at the most recent
bid quotation in the case of purchased options and at the most recent asked
quotation in the case of written options. Futures contracts are valued at the
most recent settlement price Foreign currency forward contracts are valued at
the value of the underlying currency at the prevailing currency exchange rates.
If a security is traded on more than one exchange, or on one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's valuation committee (the "Valuation
Committee"), the value of an asset as determined in accordance with these
procedures does not represent the fair market value of the asset, the value of
the 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 the fair 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 assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rates.
The Funds determine and make available by telephone in the United States
(800-349-4281) daily the net asset value of their Common Stock. In addition, the
Funds determine and make available for publication the net asset value of their
Common Stock weekly. Currently, the net asset values of shares of the Funds are
published in Barron's, the Monday edition of The Wall Street Journal and the
Sunday edition of The New York Times.
DESCRIPTION OF CAPITAL STOCK
The Funds are each authorized to issue 100,000,000 shares of capital stock,
par value $.01 per share, all of which shares are initially classified as Common
Stock. Each Fund's Board of Directors is authorized, however, to classify or
reclassify any unissued shares of capital stock by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption.
Shares of Common Stock, when issued and outstanding, will be fully paid and
non-assessable. Stockholders are entitled to share pro rata in the net assets of
each Fund available for distribution to stockholders upon liquidation of a Fund.
Stockholders are entitled to one vote for each share held.
Each Fund will send unaudited reports at least semi-annually and audited
financial statements to all of its stockholders.
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CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
Each Fund's Articles of Incorporation include identical provisions that
could have the effect of limiting the ability of other entities or persons to
acquire control of each Fund or to change the composition of its Board of
Directors and could have the effect of depriving stockholders of an opportunity
to sell their shares at a premium over prevailing market prices by discouraging
a third party from seeking to obtain control of the Fund. For a description of
these provisions of the Acquiring Fund, which are identical to those of the
Acquired Fund, see "The Reorganization -- Certain Provisions in the Acquiring
Fund's Articles of Incorporation."
Reference should be made to the Funds' Articles of Incorporation on file
with the Commission for the full text of these provisions.
CUSTODIAN
The Acquiring Fund's and the Acquired Fund's securities and cash will be
held under a Custodial Agreement with Brown Brothers Harriman & Co., 40 Water
Street, New York, NY 10004.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend paying agent and registrar for the shares of
Common Stock of the Acquiring Fund and the Acquired Fund is State Street Bank
and Trust Company, 225 Franklin Street, Boston, Massachusetts 02101.
LEGAL OPINIONS
Certain legal matters in connection with the Acquiring Fund Shares to be
issued pursuant to the Reorganization will be passed upon by Willkie Farr &
Gallagher, New York, New York. Willkie Farr & Gallagher will rely as to matters
of Maryland law on the opinion of Venable, Baetjer and Howard, LLP, Baltimore,
Maryland.
OTHER MATTERS TO COME BEFORE THE MEETING
The Funds do not intend to present any other business at the Meeting, nor
are they aware that any stockholder intends to do so. If, however, any other
matters are properly brought before the Meeting, the persons named in the
accompanying proxy card(s) will vote thereon in accordance with their judgment.
EACH FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT AND THE MOST
RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT, IF ANY, TO A STOCKHOLDER
UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO A FUND BY CALLING
800-349-4281 FROM WITHIN THE UNITED STATES AND 01-617-295-9079 FROM OUTSIDE THE
UNITED STATES OR BY WRITING TO THE APPROPRIATE FUND, 345 PARK AVENUE, NEW YORK,
NEW YORK 10154.
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APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 10th day of September, 1997, by and between The Latin America Dollar Income
Fund, Inc., a Maryland corporation ("LADIF"), and Scudder World Income
Opportunities Fund, Inc., a Maryland corporation ("SWIOF").
PLAN OF REORGANIZATION
The reorganization will comprise the acquisition by LADIF of substantially
all of the assets, and the assumption of substantially all of the liabilities,
of SWIOF in exchange solely for an equal aggregate net asset value of LADIF's
shares of common stock, with a par value of $0.01 per share (the "LADIF Common
Stock"), and the subsequent distribution to SWIOF stockholders in liquidation of
SWIOF of all of the LADIF Common Stock received in exchange for their
corresponding shares of common stock of SWIOF, with a par value of $0.01 per
share (the "SWIOF Common Stock"), upon and subject to the terms hereinafter set
forth (the "Reorganization").
In the course of the Reorganization, LADIF Common Stock will be distributed
to SWIOF stockholders as follows: each holder of SWIOF Common Stock will be
entitled to receive the number of shares of LADIF Common Stock to be received by
SWIOF having an aggregate net asset value equal to the aggregate net asset value
of the SWIOF Common Stock owned by such stockholder on the Exchange Date (as
defined in Section 7 of this Agreement). In consideration therefor, on the
Exchange Date LADIF shall assume substantially all of SWIOF's obligations and
liabilities then existing, whether absolute, accrued, contingent or otherwise.
It is intended that the Reorganization described in this Plan shall be a
reorganization within the meaning of Section 368(a)(l)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
As promptly as practicable after the liquidation of SWIOF pursuant to the
Reorganization, SWIOF shall be dissolved in accordance with the laws of the
State of Maryland and will terminate its registration under the Investment
Company Act of 1940, as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of the
premises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, SWIOF and LADIF hereby agree as follows:
1. Representations and Warranties of SWIOF. SWIOF represents and warrants
to, and agrees with, LADIF that:
(a) SWIOF is a corporation duly organized, validly existing and in
good standing in conformity with the laws of the State of Maryland, and has
the power to own all of its assets and to perform its obligations under
this Agreement. SWIOF has all necessary Federal, state and local
authorizations to carry on its business as it is now being conducted and to
perform its obligations under this Agreement.
(b) SWIOF is duly registered under the 1940 Act as a non-diversified,
closed-end management investment company (File No. 811-8316) and such
registration has not been revoked or rescinded and is in full force and
effect. SWIOF has elected to qualify and has qualified as a regulated
investment company under Sections 851-855 of the Code as of its taxable
year ended April 30, 1997, has been a regulated investment company at all
times since its inception and meets the requirements for and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon the liquidation of SWIOF.
(c) As used in this Agreement, the term "Investments" shall mean (i)
the investments of SWIOF shown on the schedule of its investments as of the
Valuation Time (as defined in Section 3(c) of this
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Agreement) furnished to LADIF, with such additions thereto and deletions
therefrom as may have arisen in the course of SWIOF's business up to the
Valuation Time; and (ii) all other assets owned by SWIOF or liabilities
incurred as of the Valuation Time, except that SWIOF shall retain cash,
bank deposits or cash equivalent securities in an estimated amount
necessary to (1) discharge its unpaid liabilities on its books at the
Valuation Time (including, but not limited to, its income dividends and
capital gains distributions, if any, payable for the period prior to the
Valuation Time), and (2) pay such contingent and other liabilities as the
Board of Directors of SWIOF reasonably shall deem to exist against SWIOF,
if any, at the Valuation Time, for which contingent and other appropriate
liability reserves shall be established on SWIOF's books. SWIOF also shall
retain any and all rights which it may have over and against any other
person which may have accrued up to the Valuation Time. Any unexpended
portion of the foregoing funds so retained by SWIOF shall be disbursed by
SWIOF pro rata to its stockholders upon dissolution of SWIOF as a final
liquidating dividend.
(d) SWIOF has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance
of this Agreement has been duly authorized by all necessary action of its
Board of Directors, and, subject to the approval of this Agreement and the
Reorganization by SWIOF stockholders, this Agreement constitutes a valid
and binding agreement enforceable against SWIOF in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and to general equity principles.
(e) LADIF has been furnished with a statement of assets, liabilities
and capital and a schedule of investments of SWIOF, each as of April 30,
1997, said financial statements having been audited by Coopers & Lybrand
LLP, independent public accountants, have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis and
fairly present the financial position of SWIOF as of the date thereof. An
unaudited statement of assets, liabilities and capital of SWIOF and an
unaudited schedule of investments of SWIOF, each as of the Valuation Time,
will be furnished to LADIF at or prior to the Exchange Date for the purpose
of determining the number of shares of LADIF Common Stock to be issued
pursuant to Section 4 of this Agreement; and such unaudited statements will
fairly present the financial position of SWIOF as of the Valuation Time in
conformity with generally accepted accounting principles applied on a
consistent basis.
(f) There are no material legal, administrative or other proceedings
pending or, to the knowledge of SWIOF, threatened against SWIOF which
assert liability on the part of SWIOF or which materially affect its
financial condition or its ability to consummate the Reorganization. SWIOF
is not charged with or, to the best of its knowledge, threatened with any
violation or investigation of any possible violation of any provisions of
any Federal, state or local law or regulation or administrative ruling
relating to any aspect of its business.
(g) There are no material contracts outstanding to which SWIOF is a
party that have not been disclosed in the N-14 Registration Statement (as
defined in subsection (m) below) or will not otherwise be disclosed to
LADIF prior to the Valuation Time.
(h) SWIOF is not a party to or obligated under any provision of its
Articles of Incorporation, as amended, or its by-laws, as amended, or any
contract or other commitment or obligation, and is not subject to any order
or decree that would be violated by its execution of or performance of its
obligations under this Agreement.
(i) SWIOF has no known liabilities of a material amount, contingent or
otherwise, other than those shown on its statements of assets, liabilities
and capital referred to above, those incurred in the ordinary course of its
business as an investment company since April 30, 1997 and those incurred
in connection with the Reorganization. As of the Valuation Time, SWIOF will
advise LADIF in writing of all known liabilities, contingent or otherwise,
whether or not incurred in the ordinary course of business, existing or
accrued as of such time.
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(j) SWIOF has filed, or has obtained extensions to file, all Federal,
state and local tax returns that are required to be filed by it, and has
paid or has obtained extensions to pay, all Federal, state and local taxes
shown on said returns to be due and owing and all assessments received by
it, up to and including the taxable year in which the Exchange Date occurs.
All tax liabilities of SWIOF have adequately been provided for on its
books, and no tax deficiency or liability of SWIOF has been asserted and no
question with respect thereto has been raised by the Internal Revenue
Service or by any state or local tax authority for taxes in excess of those
already paid, up to and including the taxable year in which the Exchange
Date occurs.
(k) At both the Valuation Time and the Exchange Date, SWIOF will have
full right, power and authority to sell, assign, transfer and deliver the
Investments. At the Exchange Date, subject only to the delivery of the
Investments as contemplated by this Agreement, SWIOF will have good and
marketable title to all of the Investments, and LADIF will acquire all of
the Investments free and clear of any encumbrances, liens or security
interests and without any restrictions upon the transfer thereof (except
those imposed by the Federal, state or foreign securities laws and those
imperfections of title or encumbrances as do not materially detract from
the value or use of the Investments or materially affect title thereto).
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by SWIOF of the
Reorganization, except such as may be required under the Securities Act of
1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934 (the
"1934 Act"), and the 1940 Act or state securities laws (which term as used
herein shall include the laws of the District of Columbia and Puerto Rico)
and except for the filing of Articles of Transfer with the Maryland State
Department of Assessment and Taxation.
(m) The registration statement filed by LADIF on Form N-14 relating to
the LADIF Common Stock to be issued pursuant to this Agreement, and any
supplement or amendment thereto or to the documents therein (as amended,
the "N-14 Registration Statement"), on the effective date of the N-14
Registration Statement, at the time of the stockholders' meetings referred
to in Section 6(a) of this Agreement and on the Exchange Date, insofar as
it relates to SWIOF (i) complied or will comply in all material respects
with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder, and (ii) did not or will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; and the prospectus and statement of additional information
included therein did not or will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and
warranties in this subsection shall apply only to statements in or
omissions from the N-14 Registration Statement made in reliance upon and in
conformity with information furnished by SWIOF for use in the N-14
Registration Statement.
(n) SWIOF is authorized to issue 100,000,000 shares of capital stock,
par value $0.01 per share, each outstanding share of which is fully paid,
nonassessable and has full voting rights.
(o) All of the issued and outstanding shares of SWIOF Common Stock
were offered for sale and sold in conformity with all applicable Federal
and state securities laws.
(p) The books and records of SWIOF made available to LADIF and/or its
counsel are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of SWIOF.
(q) SWIOF will not sell or otherwise dispose of any of the shares of
LADIF to be received in the Reorganization, except in distribution to the
stockholders of SWIOF.
(r) Since April 30, 1997, there has not been any material adverse
change in SWIOF's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by SWIOF of indebtedness maturing more than one year from the
date such indebtedness was incurred, except as otherwise disclosed to and
accepted by LADIF. For purposes of this subpara-
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graph (r), a decline in net asset value per share or the total assets of
SWIOF in the ordinary course of business shall not constitute a material
adverse change.
(s) The information to be furnished by SWIOF for use in no-action
letters, applications for exemptive orders and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all
material respects with Federal securities and other laws and regulations
thereunder applicable thereto.
(t) The Board of Directors of SWIOF, including a majority of the
directors who are not "interested persons" of SWIOF (as defined by the 1940
Act), have determined that this Agreement and the transactions contemplated
hereby are in the best interests of SWIOF and that the interests of the
SWIOF stockholders would not be diluted as a result of such transactions.
2. Representations and Warranties of LADIF. LADIF represents and warrants
to, and agrees with, SWIOF that:
(a) LADIF is a corporation duly organized, validly existing and in
good standing in conformity with the laws of the State of Maryland, and has
the power to own all of its assets and to perform its obligations under
this Agreement. LADIF has all necessary Federal, state and local
authorizations to carry on its business as it is now being conducted and to
perform its obligations under this Agreement.
(b) LADIF is duly registered under the 1940 Act as a non-diversified,
closed-end management investment company (File No. 811-6671), and such
registration has not been revoked or rescinded and is in full force and
effect. LADIF has elected to qualify and has qualified as a regulated
investment company under Sections 851-855 of the Code as of its taxable
year ending October 31, 1996, and has been a regulated investment company
at all times since its inception.
(c) SWIOF has been furnished with a statement of assets, liabilities
and capital and a schedule of investments of LADIF, each as of April 30,
1997, said financial statements having been audited by Price Waterhouse
LLP, independent accountants, have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis and
fairly present the financial position of LADIF as of the date thereof. An
unaudited statement of assets, liabilities and capital of LADIF and an
unaudited schedule of investments of LADIF, each as of the Valuation Time,
will be furnished to SWIOF at or prior to the Exchange Date for the purpose
of determining the number of shares of LADIF Common Stock to be issued
pursuant to Section 4 of this Agreement; and such unaudited financial
statements will fairly present the financial position of LADIF as of the
Valuation Time in conformity with generally accepted accounting principles
applied on a consistent basis.
(d) LADIF has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance
of this Agreement has been duly authorized by all necessary action of its
Board of Directors, and, subject to the approval of the issuance of the
LADIF Common Stock in the Reorganization by the LADIF stockholders, this
Agreement constitutes a valid and binding agreement enforceable in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating to
or affecting creditors' rights generally and to general equity principles.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of LADIF, threatened against LADIF which
assert liability on the part of LADIF or which materially affect its
financial condition or its ability to consummate the Reorganization. LADIF
is not charged with or, to the best of its knowledge, threatened with any
violation or investigation of any possible violation of any provisions of
any Federal, state or local law or regulation or administrative ruling
relating to any aspect of its business.
(f) LADIF is not a party to or obligated under any provision of its
Articles of Incorporation, as amended, or its by-laws, as amended, or any
contract or other commitment or obligation, and is not subject to any order
or decree which would be violated by its execution of or performance of its
obligations under this Agreement.
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(g) There are no material contracts outstanding to which LADIF is a
party that have not been disclosed in the N-14 Registration Statement or
will not otherwise be disclosed to SWIOF prior to the Valuation Time.
(h) LADIF has no known liabilities of a material amount, contingent or
otherwise, other than those shown on LADIF's statements of assets,
liabilities and capital referred to above, those incurred in the ordinary
course of its business as an investment company since April 30, 1997 and
those incurred in connection with the Reorganization. As of the Valuation
Time, LADIF will advise SWIOF in writing of all known liabilities,
contingent or otherwise, whether or not incurred in the ordinary course of
business, existing or accrued as of such time.
(i) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by LADIF of the
Reorganization, except such as may be required under the 1933 Act, the 1934
Act, the 1940 Act or state securities laws and except for the filing of
Articles of Transfer with the Maryland State Department of Assessment and
Taxation.
(j) The N-14 Registration Statement, on its effective date, at the
time of the stockholders' meetings referred to in Section 6(a) of this
Agreement and at the Exchange Date, insofar as it relates to LADIF (i)
complied or will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
prospectus and statement of additional information included therein did not
or will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
subsection only shall apply to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with
information furnished by LADIF for use in the N-14 Registration Statement.
(k) LADIF is authorized to issue 100,000,000 shares of capital stock,
par value $0.01 per share, each outstanding share of which is fully paid,
nonassessable and has full voting rights.
(l) The LADIF Common Stock to be issued to SWIOF pursuant to this
Agreement will have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued and will be
fully paid and nonassessable and will have full voting rights, no personal
liability will attach to the ownership thereof, and no stockholder of LADIF
will have any preemptive right of subscription or purchase in respect
thereof.
(m) At or prior to the Exchange Date, the LADIF Common Stock to be
transferred to SWIOF on the Exchange Date will be duly qualified for
offering to the public in all states of the United States where such
qualification is required, and there are a sufficient number of such shares
registered under the 1933 Act and with each pertinent state securities
commission to permit the transfers contemplated by this Agreement to be
consummated.
(n) Since April 30, 1997, there has not been any material adverse
change in LADIF's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business. For
purposes of this subparagraph (n), a decline in net asset value per share
or the total assets of LADIF in the ordinary course of business shall not
constitute a material adverse change.
(o) The Board of Directors of LADIF, including a majority of the
directors who are not "interested persons" of LADIF (as defined by the 1940
Act), have determined that this Agreement and the transactions contemplated
hereby are in the best interests of LADIF and that the interests of the
LADIF stockholders would not be diluted as a result of such transactions.
(p) The information to be furnished by LADIF for use in no-action
letters, applications for exemptive orders and other documents that may be
necessary in connection with the transactions
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contemplated hereby shall be accurate and complete in all material respects
and shall comply in all material respects with Federal securities and other
laws and regulations thereunder applicable thereto.
(q) LADIF has filed, or has obtained extensions to file, all Federal,
state and local tax returns that are required to be filed by it, and has
paid or has obtained extensions to pay, all Federal, state and local taxes
shown on said returns to be due and owing and all assessments received by
it, up to and including the taxable year in which the Exchange Date occurs.
All tax liabilities of LADIF have adequately been provided for on its
books, and no tax deficiency or liability of LADIF has been asserted and no
question with respect thereto has been raised by the Internal Revenue
Service or by any state or local tax authority for taxes in excess of those
already paid, up to and including the taxable year in which the Exchange
Date occurs.
(o) All of the issued and outstanding shares of LADIF Common Stock
were offered for sale and sold in conformity with all applicable Federal
and state securities laws.
(p) The books and records of LADIF made available to SWIOF and/or its
counsel are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of LADIF.
3. The Reorganization. (a) Subject to the requisite approvals of the
stockholders of each of SWIOF and LADIF being given, and to the other terms and
conditions contained herein, SWIOF agrees to convey, transfer and deliver to
LADIF for the benefit of LADIF, and LADIF agrees to acquire from SWIOF for the
benefit of LADIF, on the Exchange Date all of the Investments (including
interest accrued as of the Valuation Time on debt instruments) of SWIOF, and
assume substantially all of the liabilities of SWIOF, in exchange solely for
that number of shares of LADIF Common Stock provided in Section 4 of this
Agreement; provided, however, that LADIF shall have no obligation to acquire any
Investment or assume any liability that it is not permitted to acquire or assume
pursuant to the terms of its current investment policies as described in the
N-14 Registration Statement. Pursuant to this Agreement, as soon as practicable
SWIOF will distribute all LADIF Common Stock received by it to its stockholders
in exchange for their corresponding SWIOF Common Stock. Such distribution shall
be accomplished by the opening of stockholder accounts on the stock ledger
records of LADIF in the amounts due the stockholders of SWIOF based on their
respective holdings in SWIOF as of the Valuation Time.
(b) SWIOF will pay or cause to be paid to LADIF any interest it receives on
or after the Exchange Date with respect to the Investments transferred to LADIF
hereunder.
(c) The Valuation Time shall be 4:00 P.M., New York time, on November 7,
1997, or such earlier or later day and time as mutually may be agreed upon in
writing (the "Valuation Time").
(d) LADIF will acquire substantially all of the assets of, and assume
substantially all of the known liabilities of, SWIOF, except that recourse for
such liabilities will be limited to LADIF. The known liabilities of SWIOF as of
the Valuation Time shall be confirmed in writing to LADIF by SWIOF pursuant to
Section 1(j) of this Agreement.
4. Issuance and Valuation of LADIF Common Stock in the Reorganization. (a)
Shares of LADIF Common Stock of an aggregate net asset value equal (to the
nearest one ten thousandth of one cent) to the value of the assets of SWIOF
acquired, determined as hereinafter provided, reduced by the amount of
liabilities assumed by LADIF, shall be issued by LADIF in exchange for such
assets of SWIOF. The assets of SWIOF and LADIF shall be determined in accordance
with LADIF's procedures as in effect as of the Valuation Time, and no formula
will be used to adjust the net asset value so determined of either SWIOF or
LADIF to take into account differences in realized and unrealized gains and
losses. Values in all cases shall be determined as of the Valuation Time. The
value of the Investments of SWIOF to be transferred to LADIF shall be determined
by LADIF pursuant to the procedures utilized by LADIF in valuing its own assets
and determining its own liabilities for purposes of the Reorganization. Such
valuation and determination shall be made by LADIF in cooperation with SWIOF and
shall be confirmed in writing to SWIOF by LADIF. The net asset value per share
of the LADIF Common Stock shall be determined in accordance with such procedures
and LADIF shall certify the computations involved. LADIF shall issue to SWIOF
separate
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certificates or share deposit receipts for the LADIF Common Stock registered in
the name of SWIOF. SWIOF then shall distribute the LADIF Common Stock to the
corresponding stockholders of SWIOF Common Stock by redelivering the
certificates or share deposit receipts evidencing ownership of the LADIF Common
Stock to State Street Bank & Trust Company, as the transfer agent and registrar
for the LADIF Common Stock. With respect to any SWIOF stockholder holding
certificates evidencing ownership of the SWIOF Common Stock as of the Exchange
Date, and subject to LADIF being informed thereof in writing by SWIOF, LADIF
will not permit such stockholder to receive new certificates evidencing
ownership of the LADIF Common Stock, to receive dividends payable to the holders
of record of LADIF Common Stock as of any date subsequent to the Exchange Date,
or pledge such LADIF Common Stock, in any case, until notified by SWIOF or its
agent that such stockholder has surrendered his or her outstanding certificates
evidencing ownership of the SWIOF Common Stock or, in the event of lost
certificates, posted adequate bond. SWIOF, at its own expense, will request its
stockholders to surrender their outstanding certificates evidencing ownership of
the SWIOF Common Stock, as the case may be, or post adequate bond therefor.
Dividends payable on LADIF Common Stock to holders of record as of any date
after the Exchange Date and prior to the exchange of certificates by an SWIOF
stockholder shall be paid to such stockholder, without interest, at the time
such stockholder surrenders his or her SWIOF Common Stock certificates for
exchange.
(b) No certificates or scrip representing less than one share of LADIF
Common Stock shall be issued upon the surrender for exchange of certificated
SWIOF Common Stock. In lieu of any such fractional share, each holder of
certificated SWIOF Common Stock who would otherwise have been entitled to a
fraction of a share of LADIF Common Stock shall be paid upon surrender of such
certificates cash (without interest) in an amount equal to the net asset value
of such fractional share. Shares of SWIOF Common Stock that are registered in
book entry form only shall be issued fractional shares of LADIF Common Stock in
the Reorganization.
5. Payment of Expenses. (a) With respect to expenses incurred in
connection with the Reorganization, LADIF and SWIOF shall expense their
respective expenses incurred in connection with the Reorganization, including,
but not limited to, all costs related to the preparation and distribution of the
N-14 Registration Statement and the fees of counsel, and pay such expenses prior
to the Exchange Date. Such fees and expenses shall include legal, accounting and
state securities or blue sky fees, printing costs, filing fees, stock exchange
fees, portfolio transfer taxes (if any), and any similar expenses incurred in
connection with the Reorganization. Neither SWIOF nor LADIF shall pay any
expenses of its respective stockholders arising out of or in connection with the
Reorganization. The aggregate amount of estimated expenses of the Reorganization
other than those borne by the Funds' investment manager will be allocated to
SWIOF and LADIF based on their respective asset size.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
(c) SWIOF and LADIF each represents and warrants to the other that there
are no brokers or finders entitled to receive any payments in connection with
the transactions provided for in this Agreement.
6. Covenants of SWIOF and LADIF. (a) SWIOF agrees to call a meeting of its
stockholders as soon as is practicable after the effective date of the N-14
Registration Statement for the purpose of considering the Reorganization. LADIF
agrees to call a meeting of its stockholders as soon as is practicable after the
effective date of the N-14 Registration Statement for the purpose of considering
the (i) issuance of the LADIF Common Stock in the Reorganization, (ii) the
amendment of LADIF's name and (iii) the amendment of LADIF's fundamental
investment policy with respect to issuer concentration, each as described in
this Agreement.
(b) SWIOF and LADIF each covenants to operate its respective business as
presently conducted between the date hereof and the Exchange Date.
(c) SWIOF agrees that following the consummation of the Reorganization, it
will liquidate and dissolve in accordance with the laws of the State of Maryland
and any other applicable law, it will not make any distributions of any LADIF
Common Stock other than to the stockholders of SWIOF and without first paying
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or adequately providing for the payment of all of SWIOF's liabilities not
assumed by LADIF, if any, and on and after the Exchange Date it shall not
conduct any business except in connection with its liquidation and dissolution.
(d) SWIOF undertakes that if the Reorganization is consummated, it will
file an application pursuant to Section 8(f) of the 1940 Act for an order
declaring that SWIOF has ceased to be a registered investment company.
(e) SWIOF and LADIF jointly will file the N-14 Registration Statement with
the Securities and Exchange Commission (the "Commission") and will use their
best efforts to provide that the N-14 Registration Statement becomes effective
as promptly as practicable. SWIOF and LADIF agree to cooperate fully with each
other, and each will furnish to the other the information relating to itself to
be set forth in the N-14 Registration Statement as required by the 1933 Act,
1934 Act, the 1940 Act, and the rules and regulations thereunder and the state
securities or blue sky laws.
(f) LADIF agrees to advise SWIOF promptly in writing if at any time prior
to the Exchange Date the assets of SWIOF include any assets which LADIF will not
be permitted, or reasonably believes to be unsuitable for it, to acquire,
including without limitation any security which, prior to its acquisition by
SWIOF, LADIF has informed SWIOF is unsuitable for LADIF to acquire. Moreover,
LADIF has no plan or intention to sell or otherwise dispose of the assets of
SWIOF to be acquired in the Reorganization, except for dispositions made in the
ordinary course of business.
(g) SWIOF and LADIF each agrees that by the Exchange Date all of its
Federal and other tax returns and reports required to be filed on or before such
date shall have been filed and all taxes shown as due on said returns either
have been paid or adequate liability reserves have been provided for the payment
of such taxes. In connection with this covenant, SWIOF and LADIF agree to
cooperate with each other in filing any tax return, amended return or claim for
refund, determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. LADIF agrees to retain for a period of ten years following the Exchange
Date all returns, schedules and work papers and all material records or other
documents relating to tax matters of SWIOF for its taxable period first ending
after the Exchange Date and for all prior taxable periods. Any information
obtained under this subsection shall be kept confidential except as otherwise
may be necessary in connection with the filing of returns or claims for refund
or in conducting an audit or other proceeding. After the Exchange Date, SWIOF
shall prepare, or cause it agents to prepare, any Federal, state or local tax
returns, including any Forms 1099, required to be filed by SWIOF with respect to
SWIOF's final taxable year ending with its complete liquidation and for any
prior periods or taxable years and further shall cause such tax returns and
Forms 1099 to be duly filed with the appropriate taxing authorities.
Notwithstanding the aforementioned provisions of this subsection, any expenses
incurred by SWIOF (other than for payment of taxes) in connection with the
preparation and filing of said tax returns and Forms 1099 after the Exchange
Date shall be borne by SWIOF to the extent such expenses have been accrued by
SWIOF in the ordinary course without regard to the Reorganization; any excess
expenses shall be borne by Scudder, Stevens & Clark, Inc. at the time such tax
returns and Forms 1099 are prepared.
(h) SWIOF and LADIF each agrees to mail to each of its respective
stockholders of record entitled to vote at the meeting of stockholders at which
action is to be considered regarding this Agreement and the Reorganization, in
sufficient time to comply with requirements as to notice thereof, a combined
Proxy Statement and Prospectus which complies in all material respects with the
applicable provisions of Section 14(a) of the 1934 Act and Section 20(a) of the
1940 Act, and the rules and regulations, respectively, thereunder.
(i) Following the consummation of the Reorganization, LADIF expects to stay
in existence and continue its business as a closed-end management investment
company registered under the 1940 Act.
7. Exchange Date. (a) Delivery of the assets of SWIOF to be transferred,
together with any other Investments, and the LADIF Common Stock to be issued,
shall be made at the offices of Willkie Farr & Gallagher, One Citicorp Center,
153 East 53rd Street, New York, New York 10022, at 4:30 P.M. on the Valuation
Date, or at such other place, time and date agreed to by SWIOF and LADIF, the
date and time
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upon which such delivery is to take place being referred to herein as the
"Exchange Date." To the extent that any Investments, for any reason, are not
transferable on the Exchange Date, SWIOF shall cause such Investments to be
transferred to LADIF's account with Brown Brothers Harriman & Co. at the
earliest practicable date thereafter.
(b) SWIOF will deliver to LADIF on the Exchange Date confirmations or other
adequate evidence as to the tax basis of each of the Investments delivered to
LADIF hereunder, certified by Coopers & Lybrand LLP.
(c) LADIF shall have made prior arrangements for the delivery on the
Exchange Date of the Investments to Brown Brothers Harriman & Co. as the
custodian for LADIF.
(d) As soon as practicable after the close of business on the Exchange
Date, SWIOF shall deliver to LADIF a list of the names and addresses of all of
the stockholders of record of SWIOF on the Exchange Date and the number of
shares of SWIOF Common Stock owned by each such stockholder, certified by its
transfer agent for the SWIOF Common Stock, as applicable, or by its President to
the best of their knowledge and belief.
8. SWIOF Conditions. The obligations of SWIOF hereunder shall be subject
to the following conditions:
(a) That (i) the issuance of the LADIF Common Stock in the
Reorganization, the change of LADIF's name and the modification of LADIF's
fundamental investment policy with respect to issuer concentration, as well
as the modification of any other fundamental investment policy determined
by the Board of Directors of LADIF required to be modified in connection
with the Reorganization shall have been approved by the requisite vote of
the LADIF stockholders as described in the N-14 Registration Statement and
(ii) this Agreement shall have been adopted, and the Reorganization shall
have been approved, by the affirmative vote of the holders of more than
fifty percent of the SWIOF Common Stock issued and outstanding and entitled
to vote thereon.
(b) That LADIF shall have modified its investment policies to be
substantially similar to those of SWIOF on the date of execution of this
Agreement and that those modifications remain in full force and effect on
the Exchange Date.
(c) That LADIF shall have furnished to SWIOF a statement of LADIF's
assets, liabilities and capital, with values determined as provided in
Section 4 of this Agreement, together with a schedule of its investments,
all as of the Valuation Time, certified on LADIF's behalf by its President
(or any Vice President) and its Treasurer, and a certificate signed by
LADIF's President (or any Vice President) and its Treasurer, dated as of
the Exchange Date, certifying that as of the Valuation Time and as of the
Exchange Date there has been no material adverse change in the financial
position of LADIF since October 31, 1996, other than changes in its
portfolio securities since that date or changes in the market value of its
portfolio securities.
(d) That LADIF shall have furnished to SWIOF a certificate signed by
LADIF's President (or any Vice President) and its Treasurer, dated as of
the Exchange Date, certifying that all representations and warranties of
LADIF made in this Agreement are true and correct in all material respects
with the same effect as if made at and as of the Exchange Date, and that
LADIF has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to such
date.
(e) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(f) That SWIOF shall have received an opinion of Venable, Baetjer and
Howard, LLP, Maryland counsel to LADIF, in form satisfactory to SWIOF and
dated the Exchange Date, to the effect that (i) LADIF is a corporation duly
organized, validly existing and in good standing in conformity with the
laws of the State of Maryland; (ii) the LADIF Common Stock to be delivered
to SWIOF stockholders as provided for by this Agreement is duly authorized
and, upon delivery, will be validly issued and outstanding and fully paid
and nonassessable by LADIF, and no stockholder of LADIF has any
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preemptive right to subscription or purchase in respect thereof (pursuant
to the Articles of Incorporation, as amended, or the by-laws of LADIF or,
to the best of such counsel's knowledge, otherwise); (iii) this Agreement
has been duly authorized, executed and delivered by LADIF; (iv) the
execution and delivery of this Agreement did not, and the consummation of
the Reorganization will not, violate the Articles of Incorporation, as
amended, or the by-laws of LADIF; (v) no consent, approval, authorization
or order of any Maryland court or governmental authority is required for
the consummation by LADIF of the Reorganization, except such as have been
obtained under Maryland law and assuming the effectiveness of the Articles
of Transfer; provided, however, that such counsel need express no opinion
with regard to the state securities laws of the State of Maryland; and (vi)
such opinion shall be rendered to Willkie Farr & Gallagher, and may be
relied upon by Willkie Farr & Gallagher in connection with the rendering of
its opinion to SWIOF. In connection with the rendering of the opinion set
forth above, Venable, Baetjer and Howard, LLP shall provide a letter
stating that SWIOF and Willkie Farr & Gallagher are permitted to rely upon
the Venable, Baetjer and Howard, LLP opinion previously rendered to
Shareholder Communications Corporation as to matters of Maryland law
relating to the utilization of televoting procedures by LADIF.
(g) That SWIOF shall have received an opinion of Willkie Farr &
Gallagher, as counsel to LADIF, in form satisfactory to SWIOF and dated the
Exchange Date, to the effect that (i) no consent, approval, authorization
or order of any U.S. Federal court or governmental authority is required
for the consummation by SWIOF and LADIF of the Reorganization, except such
as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and
the published rules and regulations of the Commission thereunder and such
as may be required under state securities or blue sky laws; (ii) the N-14
Registration Statement has become effective under the 1933 Act, no stop
order suspending the effectiveness of the N-14 Registration Statement has
been issued and, to the knowledge of such counsel, no proceedings for that
purpose have been instituted or are pending or contemplated under the 1933
Act, and the N-14 Registration Statement, and each amendment or supplement
thereto, as of their respective effective dates, appear on their face to be
appropriately responsive in all material respects to the requirements of
the 1933 Act, the 1934 Act and the 1940 Act and the published rules and
regulations of the Commission thereunder; (iii) the descriptions in the
N-14 Registration Statement of statutes, legal and governmental proceedings
and contracts and other documents, to the extent that such descriptions
relate to matters of law are accurate and fairly present the information
required to be shown; (iv) such counsel do not know of any statutes, legal
or governmental proceedings or contracts or other documents related to the
Reorganization of a character required to be described in the N-14
Registration Statement that are not described therein or, if required to be
filed, filed as required; (v) the execution and delivery of this Agreement
does not, and the consummation of the Reorganization will not, violate any
material provision of any agreement (known to such counsel) to which LADIF
is a party or by which LADIF is bound; (vi) LADIF, to the knowledge of such
counsel, is not required to qualify to do business as a foreign corporation
in any jurisdiction except as may be required by state securities or blue
sky laws, and except where it has so qualified or the failure so to qualify
would not have a material adverse effect on LADIF, or its stockholders;
(vii) such counsel does not have actual knowledge of any material suit,
action or legal or administrative proceeding pending or threatened against
LADIF, the unfavorable outcome of which would materially and adversely
affect LADIF; (viii) all corporate actions required to be taken by LADIF to
authorize this Agreement and to effect the Reorganization have been duly
authorized by all necessary corporate actions on the part of LADIF and (ix)
this Agreement represents a valid and binding contract, enforceable against
LADIF in accordance with its terms, subject to the effects of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating to
or affecting creditors' rights generally and to general equity principles.
Such counsel also shall state that they have participated in
conferences with officers and other representatives of SWIOF and LADIF at
which the contents of the N-14 Registration Statement and related matters
were discussed and, although they are not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the N-14 Registration Statement (except to the
extent indicated in their opinion), on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of officers and other
representatives of the
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LADIF), they do not believe that the proxy statement forming a part of the
N-14 Registration Statement, as of its date, as of the date of the LADIF
stockholder meeting, and as of the Exchange Date, contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein regarding LADIF or necessary, in the light of the
circumstances under which they were made, to make the statements therein
regarding LADIF not misleading; and such counsel need not express any
opinion or belief as to the financial statements, other financial data,
statistical data or information relating to LADIF contained or incorporated
by reference in the N-14 Registration Statement. In giving the opinion set
forth above, Willkie Farr & Gallagher may state that it is relying on
certificates of officers of LADIF with regard to matters of fact and
certain certificates and written statements of governmental officials with
respect to the good standing of LADIF and on the opinion of Venable,
Baetjer and Howard, LLP as to matters of Maryland law. In giving the
opinion set forth above, Willkie Farr & Gallagher may state that it is
relying on the opinion of counsel to Shareholders Communications
Corporation as to matters of Maryland law relating to the utilization of
televoting procedures by LADIF.
(h) That SWIOF shall have received either (a) a private letter ruling
from the Internal Revenue Service or (b) an opinion of Willkie Farr &
Gallagher, to the effect that for Federal income tax purposes (i) the
transfer of substantially all of the Investments of SWIOF to LADIF and the
assumption of substantially all of the liabilities of SWIOF by LADIF in
exchange solely for LADIF Common Stock as provided in this Agreement will
constitute a reorganization within the meaning of Section 368(a)(1)(D) of
the Code; (ii) in accordance with Section 361(a) of the Code, no gain or
loss will be recognized to SWIOF as a result of the Reorganization; (iii)
no gain or loss will be recognized to LADIF as a result of the
Reorganization; (iv) in accordance with Section 354(a)(1) of the Code, no
gain or loss will be recognized to the stockholders of SWIOF on the
distribution to them by SWIOF of LADIF Common Stock in exchange for their
corresponding SWIOF Common Stock, and in accordance with Section 356(a) of
the Code gain, if any, will be recognized with respect to any cash or
property other than LADIF Common Stock received; (v) in accordance with
Section 1032 of the Code, no gain or loss will be recognized by the
stockholders of LADIF upon the issuance of LADIF Common Stock and the
distribution of such LADIF Common Stock to SWIOF stockholders in the
Reorganization; (vi) in accordance with Section 362(b) of the Code, the
basis to LADIF of the Investments will be the same as the basis of the
Investments in the hands of SWIOF immediately prior to the consummation of
the Reorganization, except for any necessary adjustment on account of cash
or property received; (vii) in accordance with Section 1223 of the Code, a
stockholder's holding period for his LADIF Common Stock will be determined
by including the period for which he or she held the SWIOF Common Stock
exchanged therefor, provided that he or she held such SWIOF shares as a
capital asset; (viii) in accordance with Section 1223 of the Code, LADIF's
holding period with respect to the Investments will include the period for
which such Investments were held by SWIOF; and (ix) no gain or loss will be
recognized to SWIOF or its stockholders upon the liquidation of SWIOF in
connection with the Reorganization. In addition, such opinion shall state
that, without any independent investigation having been made with respect
to the qualification of either SWIOF or LADIF as a regulated investment
company under the Code and based upon certain representations by SWIOF and
LADIF, the status of SWIOF and LADIF as regulated investment companies
under Sections 851-855 of the Code will not be affected as a result of the
Reorganization, except that upon the liquidation of SWIOF in connection
with the Reorganization its regulated investment company status will
terminate.
(i) That all proceedings taken by LADIF and its counsel in connection
with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to SWIOF.
(j) That the N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of LADIF, contemplated by the
Commission.
(k) That LADIF shall have received from Price Waterhouse LLP a letter
dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Exchange Date, in form
and substance satisfactory to LADIF, to the effect that (i) they are
independent accountants with respect to LADIF within the meaning of the
1933 Act and the applicable published
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rules and regulations thereunder; (ii) in their opinion, the financial
statements and financial highlights of LADIF included or incorporated by
reference in the N-14 Registration Statement and reported on by them comply
as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder; (iii) on the basis of limited procedures agreed upon by LADIF
and described in such letter (but not an examination in accordance with
generally accepted auditing standards) consisting of inquiries of certain
officials of LADIF responsible for financial and accounting matters,
nothing came to their attention that caused them to believe that (a) there
had been any changes in assets, liabilities, net assets and shares
oustanding as compared with amounts as of LADIF's most recent audited
fiscal year end or the corresponding period in LADIF's most recent audited
fiscal year, other than changes occurring in the ordinary course of
business, and (b) based on such limited procedures, there is no change in
their report on the most recent audited financial statements of LADIF; and
(iv) on the basis of limited procedures agreed upon by LADIF and described
in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to LADIF appearing
in the N-14 Registration Statement, which information is expressed in
dollars (or percentages derived from such dollars) (with the exception of
performance comparisons, if any), if any, has been obtained from the
accounting records of LADIF or from schedules prepared by officials of
LADIF having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations
made therefrom.
(l) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall have been instituted or threatened
which would materially adversely affect the financial condition of LADIF or
would prohibit the Reorganization.
(m) That SWIOF shall have received from the Commission such orders or
interpretations as Willkie Farr & Gallagher, as counsel to SWIOF, deems
reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall
be in full force and effect.
(n) In addition, SWIOF shall have received from Price Waterhouse LLP a
letter addressed to LADIF and SWIOF on the Exchange Date, in form and
substance satisfactory to LADIF and SWIOF, relating to the calculations of
the projected expense ratio appearing in the N-14 Registration Statement
and the calculation of the net asset value per share of SWIOF as of the
Valuation Date and on a basis of limited procedures to be agreed upon by
LADIF, SWIOF and Price Waterhouse, LLP (but not an examination in
accordance with generally accepted auditing standards).
(o) LADIF shall have executed the Articles of Transfer.
9. LADIF Conditions. The obligations of LADIF hereunder shall be subject
to the following conditions:
(a) That (i) the issuance of the LADIF Common Stock in the
Reorganization, the change of LADIF's name and the modification of LADIF's
fundamental investment policy with respect to issuer concentration, as well
as the modification of any other fundamental investment policy determined
by the Board of Directors of LADIF required to be modified in connection
with the Reorganization shall have been approved by the requisite vote of
the LADIF stockholders as described in the N-14 Registration Statement and
(ii) this Agreement shall have been adopted, and the Reorganization shall
have been approved, by the affirmative vote of the holders of more than
fifty percent of the SWIOF Common Stock issued and outstanding and entitled
to vote thereon.
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(b) That LADIF shall have modified its investment policies to be
substantially similar to those of SWIOF on the date of execution of this
Agreement and that those modifications remain in full force and effect on
the Exchange Date.
(c) That SWIOF shall have furnished to LADIF a statement of SWIOF's
assets, liabilities and capital, with values determined as provided in
Section 4 of this Agreement, together with a schedule of investments with
their respective dates of acquisition and tax costs, all as of the
Valuation Time, certified on SWIOF's behalf by its President (or any Vice
President) and its Treasurer, and a certificate of both such officers,
dated the Exchange Date, certifying that there has been no material adverse
change in the financial position of SWIOF since April 30, 1997, other than
changes in the Investments since that date or changes in the market value
of the Investments.
(d) That SWIOF shall have furnished to LADIF a certificate signed by
SWIOF's President (or any Vice President) and its Treasurer, dated the
Exchange Date, certifying that as of the Valuation Time and as of the
Exchange Date all representations and warranties of SWIOF made in this
Agreement are true and correct in all material respects as if made at and
as of such date and SWIOF has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied at
or prior to such date.
(e) That SWIOF shall have delivered to LADIF a letter from Coopers &
Lybrand LLP, dated the Exchange Date, stating that such firm has performed
a limited review of the Federal, state and local income tax returns of
SWIOF for the period ended April 30, 1997 (which returns originally were
prepared and filed by SWIOF), and that based on such limited review,
nothing came to their attention which caused them to believe that such
returns did not properly reflect, in all material respects, the Federal,
state and local income taxes of SWIOF for the period covered thereby; and
that for the period from April 30, 1997 to and including the Exchange Date
such firm has performed a limited review to ascertain the amount of
applicable Federal, state and local taxes, and has determined that either
such amount has been paid or reserves established for payment of such
taxes, this review to be based on unaudited financial data; and that based
on such limited review, nothing has come to their attention which caused
them to believe that the taxes paid or reserves set aside for payment of
such taxes were not adequate in all material respects for the satisfaction
of Federal, state and local taxes for the period from April 30, 1997 to and
including the Exchange Date and for any taxable year of SWIOF ending upon
the liquidation of SWIOF or that SWIOF would not continue to qualify as a
regulated investment company for Federal income tax purposes.
(f) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(g) That LADIF shall have received an opinion of Venable, Baetjer and
Howard, LLP, Maryland counsel to SWIOF, in form satisfactory to LADIF and
dated the Exchange Date, to the effect that (i) SWIOF is a corporation duly
organized, validly existing and in good standing in conformity with the
laws of the State of Maryland; (ii) this Agreement has been duly
authorized, executed and delivered by SWIOF; (iii) SWIOF has the corporate
power to sell, assign, transfer and deliver the assets transferred by it
hereunder and, upon consummation of the Reorganization in accordance with
the terms of this Agreement, SWIOF will have duly transferred such assets
and liabilities in accordance with this Agreement; (iv) the execution and
delivery of this Agreement does not, and the consummation of the
Reorganization will not, violate the Articles of Incorporation, as amended,
or the by-laws of SWIOF; (v) no consent, approval, authorization or order
of any Maryland court or governmental authority is required for the
consummation by SWIOF of the Reorganization, except such as have been
obtained under Maryland law and assuming the effectiveness of the Articles
of Transfer; provided, however, that such counsel need express no opinion
with regard to the state securities laws of the State of Maryland; and (vi)
such opinion shall be rendered to Willkie Farr & Gallagher, and may be
relied upon by Willkie Farr & Gallagher in connection with the rendering of
its opinion to LADIF. In connection with the rendering of the opinion set
forth above, Venable, Baetjer and Howard, LLP shall provide a letter
stating that LADIF and Willkie Farr & Gallagher are permitted to rely upon
the Venable, Baetjer and Howard,
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LLP opinion previously rendered to Shareholder Communications Corporation
as to matters of Maryland law relating to the utilization of televoting
procedures by SWIOF.
(h) That LADIF shall have received an opinion of Willkie Farr &
Gallagher, as counsel to SWIOF, in form satisfactory to LADIF and dated the
Exchange Date, with respect to the matters specified in Section 8(g) of
this Agreement (except that references therein to LADIF shall be changed to
SWIOF) and such other matters as LADIF reasonably may deem necessary or
desirable.
(i) That LADIF shall have received a private letter ruling from the
Internal Revenue Service or opinion of Willkie Farr & Gallagher with
respect to the matters specified in Section 8(h) of this Agreement.
(j) That LADIF shall have received from Coopers & Lybrand LLP a letter
dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Exchange Date, in form
and substance satisfactory to LADIF, to the effect that (i) they are
independent accountants with respect to SWIOF within the meaning of the
1933 Act and the applicable published rules and regulations thereunder;
(ii) in their opinion, the financial statements and financial highlights of
SWIOF included or incorporated by reference in the N-14 Registration
Statement and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and
the published rules and regulations thereunder; (iii) on the basis of
limited procedures agreed upon by LADIF and described in such letter (but
not an examination in accordance with generally accepted auditing
standards) consisting of inquiries of certain officials of SWIOF
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) there had been any changes
in assets, liabilities, net assets, net investment income and shares
outstanding as compared with amounts as of SWIOF's most recent audited
fiscal year end or the corresponding period in SWIOF's most recent audited
fiscal year, other than changes occurring in the ordinary course of
business, and (b) based on such limited procedures, there is no change in
their report on the most recent audited financial statements of SWIOF; and
(iv) on the basis of limited procedures agreed upon by LADIF and described
in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to SWIOF appearing
in the N-14 Registration Statement, which information is expressed in
dollars (or percentages derived from such dollars) (with the exception of
performance comparisons, if any), if any, has been obtained from the
accounting records of SWIOF or from schedules prepared by officials of
SWIOF having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations
made therefrom.
(k) That the Investments to be transferred to LADIF shall not include
any assets or liabilities which LADIF, by reason of charter limitations or
otherwise, may not properly acquire or assume.
(l) That the N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of SWIOF, contemplated by the
Commission.
(m) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall have been instituted or threatened
which would materially adversely affect the financial condition of SWIOF or
would prohibit the Reorganization.
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(n) That LADIF shall have received from the Commission such orders or
interpretations as Willkie Farr & Gallagher, as counsel to LADIF, deems
reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall
be in full force and effect.
(o) That all proceedings taken by SWIOF and its counsel in connection
with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to LADIF.
(p) That prior to the Exchange Date, SWIOF shall have declared a
dividend or dividends which, together with all previous such dividends,
shall have the effect of distributing to its stockholders all of its net
investment company taxable income for the period from May 1, 1996 to and
including the Exchange Date, if any (computed without regard to any
deduction or dividends paid), and all of its net capital gain, if any,
realized for the period from May 1, 1996 to and including the Exchange
Date.
(q) In addition, LADIF shall have received from Price Waterhouse LLP a
letter addressed to LADIF and SWIOF on the Exchange Date, in form and
substance satisfactory to LADIF and SWIOF, to the effect that on the basis
of limited procedures agreed upon by the LADIF and SWIOF (but not an
examination in accordance with generally accepted auditing standards) (i)
the data utilized in the calculations of the projected expense ratio
appearing in the N-14 Registration Statement agree with underlying
accounting records of LADIF and SWIOF or to written estimates by management
of LADIF or SWIOF, as the case may be and were found to be mathematically
correct and (ii) the calculations of the net asset values per share of
LADIF and SWIOF as of the Valuation Date were determined in accordance with
generally accepted accounting practices and the portfolio valuation
practices of LADIF.
(r) SWIOF shall have executed the Articles of Transfer.
10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated and the Reorganization abandoned
at any time (whether before or after adoption thereof by the stockholders
of SWIOF and or the approval of the issuance of the LADIF Common Stock by
the LADIF stockholders) prior to the Exchange Date, (i) by mutual written
consent of the Boards of Directors of SWIOF and LADIF; (ii) by the Board of
Directors of SWIOF if any condition of SWIOF's obligations set forth in
Section 8 of this Agreement has not been fulfilled or waived by the Board
of Directors of SWIOF; or (iii) by the Board of Directors of LADIF if any
condition of LADIF's obligations set forth in Section 9 of this Agreement
has not been fulfilled or waived by the Board of Directors of LADIF.
(b) If the transactions contemplated by this Agreement have not been
consummated by April 30, 1998, this Agreement automatically shall terminate
on that date, unless a later date is mutually agreed to by the Boards of
Directors of SWIOF and LADIF.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect,
and there shall not be any liability on the part of either SWIOF or LADIF
or persons who are their directors, trustees, officers, agents or
stockholders in respect of this Agreement.
(d) At any time prior to the Exchange Date, any of the terms or
conditions of this Agreement (other than Section 8(g) or Section 9(h) may
be waived by the Board of Directors of either SWIOF or LADIF, respectively
(whichever is entitled to the benefit thereof), if, in the judgment of such
Board after consultation with its counsel, such action or waiver will not
have a material adverse effect on the benefits intended under this
Agreement to their respective stockholders, on behalf of which such action
is taken.
(e) The respective representations and warranties contained in
Sections 1 and 2 of this Agreement shall expire with, and be terminated by,
the consummation of the Reorganization, and neither SWIOF nor LADIF nor any
of their officers, directors or trustees, agents or stockholders shall have
any liability with respect to such representations or warranties after the
Exchange Date. This provision shall not protect any officer, director or
trustee, agent or stockholder of SWIOF or LADIF against any liability to
I-15
<PAGE> 86
the entity for which that officer, director or trustee, agent or
stockholder so acts or to its stockholders to which that officer, director
or trustee, agent or stockholder otherwise would be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties in the conduct of such office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Exchange Date and shall impose any
terms or conditions which are determined by action of the Boards of
Directors of SWIOF and LADIF to be acceptable, such terms and conditions
shall be binding as if a part of this Agreement without further vote or
approval of the stockholders of SWIOF and LADIF, unless such terms and
conditions shall result in a change in the method of computing the number
of shares of LADIF Common Stock to be issued to SWIOF in which event,
unless such terms and conditions shall have been included in the proxy
solicitation materials furnished to the stockholders of SWIOF and LADIF
prior to the meeting at which the Reorganization shall have been approved
by the SWIOF stockholders or in at which the issuance of the LADIF Common
Stock was approved by the LADIF stockholders, this Agreement shall not be
consummated and shall terminate unless SWIOF and LADIF promptly shall call
special meetings of stockholders at which such conditions so imposed shall
be submitted for approval.
11. Indemnification. (a) SWIOF hereby agrees to indemnify and hold LADIF
harmless from all loss, liability and expense (including reasonable counsel fees
and expenses in connection with the contest of any claim) which LADIF may incur
or sustain by reason of the fact that (i) LADIF shall be required to pay any
corporate obligation of SWIOF, whether consisting of tax deficiencies or
otherwise, based upon a claim or claims against SWIOF which were omitted or not
fairly reflected in the financial statements to be delivered to LADIF in
connection with the Reorganization; (ii) any covenant has been breached in any
material respect; or (iii) any claim is made alleging that (a) the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or (b) the Proxy Statement and
Prospectus delivered to the stockholders of SWIOF and forming a part of the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such claim is based on written information furnished to SWIOF
by LADIF.
(b) LADIF hereby agrees to indemnify and hold SWIOF harmless from all loss,
liability and expenses (including reasonable counsel fees and expenses in
connection with the contest of any claim) which SWIOF may incur or sustain by
reason of the fact that (i) any covenant has been breached in any material
respect or (ii) any claim is made alleging that (a) the N-14 Registration
Statement included any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein, not misleading or (b) the Proxy Statement and Prospectus
delivered to the stockholders of LADIF and forming a part of the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such claim is based on written information furnished to LADIF
by SWIOF.
(c) In the event that any claim is made against LADIF in respect of which
indemnity may be sought by LADIF from SWIOF under Section 11(a) of this
Agreement, or in the event that any claim is made against SWIOF in respect of
which indemnity may be sought by SWIOF from LADIF under Section 11(b) of this
Agreement, then the party seeking indemnification (the "Indemnified Party"),
with reasonable promptness and before payment of such claim, shall give written
notice of such claim to the other party (the "Indemnifying Party"). If no
objection as to the validity of the claim is made in writing to the Indemnified
Party by the Indemnifying Party within thirty (30) days after the giving of
notice hereunder, then the Indemnified Party may pay such claim and shall be
entitled to reimbursement therefor, pursuant to this Agreement. If, prior to the
termination of such thirty-day period, objection in writing as to the validity
of such claim is made to the Indemnified Party, the Indemnified Party shall
withhold payment thereof until the validity of such claim is established (i) to
the satisfaction of the Indemnifying Party, or (ii) by a final determination of
a court of competent jurisdiction, whereupon the Indemnified Party may pay such
claim and shall be entitled to reimbursement thereof, pursuant to this
Agreement, or (iii) with respect to any tax claims,
I-16
<PAGE> 87
within seven calendar days following the earlier of (A) an agreement between
SWIOF and LADIF that an indemnity amount is payable, (B) an assessment of a tax
by a taxing authority, or (C) a "determination" as defined in Section 1313(a) of
the Code. For purposes of this Section 11, the term "assessment" shall have the
same meaning as used in Chapter 63 of the Code and Treasury Regulations
thereunder, or any comparable provision under the laws of the appropriate taxing
authority. In the event of any objection by the Indemnifying Party, the
Indemnifying Party promptly shall investigate the claim, and if it is not
satisfied with the validity thereof, the Indemnifying Party shall conduct the
defense against such claim. All costs and expenses incurred by the Indemnifying
Party in connection with such investigation and defense of such claim shall be
borne by it. These indemnification provisions are in addition to, and not in
limitation of, any other rights the parties may have under applicable law.
12. Other Matters. (a) Pursuant to Rule 145 under the 1933 Act, and in
connection with the issuance of any shares to any person who at the time of the
Reorganization is, to its knowledge, an affiliate of a party to the
Reorganization pursuant to Rule 145(c), LADIF will cause to be affixed upon the
certificate(s) issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO [SCUDDER GLOBAL HIGH INCOME FUND, INC./THE LATIN AMERICA
DOLLAR INCOME FUND, INC.], SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to LADIF's transfer
agent with respect to such shares. SWIOF will provide LADIF on the Exchange Date
with the name of any SWIOF stockholder who is to the knowledge of SWIOF an
affiliate of it on such date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to SWIOF or LADIF,
in either case at c/o Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York,
New York 10154, Attn: Bruce Goldfarb, Vice President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes the
only understanding with respect to the Reorganization, may not be changed except
by a letter of agreement signed by each party and shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said state.
(e) This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
(f) This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
I-17
<PAGE> 88
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed on its behalf by its duly authorized officers all as of the date first
written above.
<TABLE>
<S> <C>
SCUDDER WORLD INCOME OPPORTUNITIES
FUND, INC.
Attest:
By: /s/ KATHRYN L. QUIRK By: /s/ LYNN S. BIRDSONG
------------------------------- -------------------------------
Name: Kathryn L. Quirk Name: Lynn. S. Birdsong
Title: Vice President Title: President
THE LATIN AMERICA DOLLAR INCOME
FUND, INC.
Attest:
By: /s/ KATHRYN L. QUIRK By: /s/ LYNN S. BIRDSONG
------------------------------- -------------------------------
Name: Kathryn L. Quirk Name: Lynn S. Birdsong
Title: Vice President Title: President
</TABLE>
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<PAGE> 89
APPENDIX II
INVESTMENT ADVISORY, MANAGEMENT
AND ADMINISTRATION AGREEMENT
AGREEMENT, dated and effective as of between THE LATIN AMERICA
DOLLAR INCOME FUND, INC.* a Maryland corporation (herein referred to as the
"Fund"), and SCUDDER KEMPER INVESTMENTS, INC., a Delaware corporation (herein
referred to as the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed by the parties as follows:
1. The Manager hereby undertakes and agrees, upon the terms and
conditions herein set forth, (i) to make investment decisions for the Fund,
to prepare and make available to the Fund research and statistical data in
connection therewith and to supervise the acquisition and disposition of
securities by the Fund, including the selection of brokers or dealers to
carry out the transactions, all in accordance with the Fund's investment
objectives and policies and in accordance with guidelines and directions
from the Fund's Board of Directors; (ii) to assist the Fund as it may
reasonably request in the conduct of the Fund's business, subject to the
direction and control of the Fund's Board of Directors; (iii) to maintain
or cause to be maintained for the Fund all books, records, reports and any
other information required under the Investment Company Act of 1940, as
amended (the "1940 Act"), to the extent that such books, records and
reports and other information are not maintained or furnished by the
custodian or other agents of the Fund; (iv) to furnish at the Manager's
expense for the use of the Fund such office space and facilities as the
Fund may require for its reasonable needs in the City of New York and to
furnish at the Manager's expense clerical services in the United States
related to research, statistical and investment work; (v) to render to the
Fund administrative services such as preparing reports to and meeting
materials for the Fund's Board of Directors and reports and notices to
stockholders, preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory
organizations, including preliminary and definitive proxy materials and
post-effective amendments to the Fund's registration statement on Form N-2
under the Securities Act of 1933, as amended, and 1940 Act, as amended from
time to time, providing assistance in certain accounting and tax matters
and investor and public relations, monitoring the valuation of portfolio
securities, assisting in the calculation of net asset value and calculation
and payment of distributions to stockholders, and overseeing arrangements
with the Fund's custodian, including the maintenance of books and records
of the Fund; and (vi) to pay the reasonable salaries, fees and expenses of
such of the Fund's officers and employees (including the Fund's shares of
payroll taxes) and any fees and expenses of such of the Fund's directors as
are directors, officers or employees of the Manager; provided, however,
that the Fund, and not the Manager, shall bear travel expenses (or an
appropriate portion thereof) of directors and officers of the Fund who are
directors, officers or employees of the Manager to the extent that such
expenses relate to attendance at meetings of the Board of Directors of the
Fund or any committees thereof or advisers thereto. The Manager shall bear
all expenses arising out of its duties hereunder but shall not be
responsible for any expenses of the Fund other than those specifically
allocated to the Manager in this paragraph 1. In particular, but without
limiting the generality of the foregoing, the Manager shall not be
responsible, except to the extent of the reasonable compensation of such of
the Fund's employees as are directors, officers or employees of the Manager
whose services may be involved, for the following expenses of the Fund:
organization and certain offering expenses of the Fund (including
out-of-pocket expenses, but not including overhead or employee costs of the
Manager or of any one or more organizations retained as an advisor or
consultant to the Fund); fees payable to the Manager and to any advisor or
consultants, including an advisory board, if applicable; legal expenses;
auditing and accounting expenses; telephone, telex, facsimile, postage and
other communication expenses; taxes and governmental
- ---------------
*If the Reorganization is consummated, the name of the Fund in the Agreement
will be "Scudder Global High Income Fund, Inc."
II-1
<PAGE> 90
fees; stock exchange listing fees; fees, dues and expenses incurred by the
Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's custodians, subcustodians,
transfer agents and registrars; payment for portfolio pricing or valuation
services to pricing agents, accountants, bankers and other specialists, if
any; expenses of preparing share certificates and other expenses in
connection with the issuance, offering, distribution, sale or underwriting
of securities issued by the Fund; expenses of registering or qualifying
securities of the Fund for sale; expenses relating to investor and public
relations; freight, insurance and other charges in connection with the
shipment of the Fund's portfolio securities; brokerage commissions or other
costs of acquiring or disposing of any portfolio securities of the Fund;
expenses of preparing and distributing reports, notices and dividends to
stockholders; costs of stationery; costs of stockholders' and other
meetings; litigation expenses; or expenses relating to the Fund's dividend
reinvestment and cash purchase plan (except for brokerage expenses paid by
participants in such plan).
2. As exclusive licensee of the rights to use and sublicense the use
of the "Scudder," "Scudder, Stevens & Clark," and "Scudder Kemper
Investments, Inc." trademarks (together, the "Scudder Marks"), the Manager
hereby grants the Fund a nonexclusive right and sublicense to use (i) the
"Scudder" name and mark as part of the Fund's name (the "Fund Name"), and
(ii) the Scudder Marks in connection with the Fund's investment products
and services, in each case only for so long as this Agreement, any other
investment management agreement between the Fund and the Manager (or any
organization which shall have succeeded to the Manager's business as
investment manager (the "Manager's Successor")), or any extension, renewal
or amendment hereof or thereof remains in effect, and only for so long as
the Manager is a licensee of the Scudder Marks, provided, however, that the
Manager agrees to use its best efforts to maintain its license to use and
sublicense the Scudder Marks. The Fund agrees that it shall have no right
to sublicense or assign rights to use the Scudder Marks, shall acquire no
interest in the Scudder Marks other than the rights granted herein, that
all of the Fund's uses of the Scudder Marks shall inure to the benefit of
Scudder Trust Company as owner and licensor of the Scudder Marks (the
"Trademark Owner"), and that the Fund shall not challenge the validity of
the Scudder Marks or the Trademark Owner's ownership thereof. The Fund
further agrees that all services and products it offers in connection with
the Scudder Marks shall meet commercially reasonable standards of quality,
as may be determined by the Manager or the Trademark Owner from time to
time, provided that the Manager acknowledges that the services and products
the Fund rendered during the one-year period preceding the date of this
Agreement are acceptable. At your reasonable request, the Fund shall
cooperate with the Manager and the Trademark Owner and shall execute and
deliver any and all documents necessary to maintain and protect (including
but not limited to in connection with any trademark infringement action)
the Scudder Marks and/or enter the Fund as a registered user thereof. At
such time as this Agreement or any other investment management agreement
shall no longer be in effect between the Manager (or the Manager's
Successor) and the Fund, or the Manager no longer is a licensee of the
Scudder Marks, the Fund shall (to the extent that, and as soon as, it
lawfully can) cease to use the Fund Name or any other name indicating that
it is advised by, managed by or otherwise connected with the Manager (or
the Manager's Successor) or the Trademark Owner. In no event shall the Fund
use the Scudder Marks or any other name or mark confusingly similar thereto
(including, but not limited to, any name or mark that includes the name
"Scudder") if this Agreement or any other investment advisory agreement
between the Manager (or the Manager's Successor) and the Fund is
terminated.
3. The Fund agrees to pay to the Manager in United States dollars, as
full compensation for the services to be rendered and expenses to be borne
by the Manager hereunder, a monthly fee which, on an annual basis, is equal
to 1.20% per annum of the value of the Fund's average weekly net assets.
Each payment of a monthly fee to the Manager shall be made within the ten
days next following the day as of which such payment is so computed. Upon
any termination of this Agreement before the end of a month, the fee for
such part of that month shall be prorated according to the proportion that
such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement.
II-2
<PAGE> 91
The value of the net assets of the Fund shall be determined pursuant
to the applicable provisions of the Articles of Incorporation and By-laws
of the Fund, as amended from time to time.
4. The Manager agrees that it will not make a short sale of any
capital stock of the Fund or purchase any share of the capital stock of the
Fund otherwise than for investment.
5. In executing transactions for the Fund and selecting brokers or
dealers, the Manager shall use its best efforts to seek the best overall
terms available. In assessing the best overall terms available for any Fund
transaction, the Manager shall consider on a continuing basis all factors
it deems relevant, including, but not limited to, breadth of the market in
the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction. In selecting brokers or dealers to
execute a particular transaction and in evaluating the best overall terms
available, the Manager may consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Fund and/or other accounts over which the Manager or
an affiliate exercises investment discretion.
6. Nothing herein shall be construed as prohibiting the Manager from
providing investment advisory services to, or entering into investment
advisory agreements with, other clients (including other registered
investment companies), including clients which may invest in securities
issued by issuers in Latin American countries, or from utilizing (in
providing such services) information furnished to the Manager by advisors
and consultants to the Fund and others; nor shall anything herein be
construed as constituting the Manager as an agent of the Fund.
Whenever the Fund and one or more other accounts or investment
companies advised by the Manager have available funds for investment,
investments suitable and appropriate for each shall be allocated in
accordance with procedures believed by the Manager to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by the Manager to be equitable. The Fund recognizes that in
some cases this procedure may adversely affect the size of the position
that may be acquired or disposed of for the Fund. In addition, the Fund
acknowledges that the persons employed by the Manager to assist in the
performance of the Manager's duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit
or restrict the right of the Manager or any affiliate of the Manager to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
7. The Manager may rely on information reasonably believed by it to be
accurate and reliable. Neither the Manager nor its officers, directors,
employees or agents shall be subject to any liability for any act or
omission, error of judgment or mistake of law, or for any loss suffered by
the Fund, in the course of, connected with or arising out of any services
to be rendered hereunder, except by reason of willful misfeasance, bad
faith, or gross negligence on the part of the Manager in the performance of
its duties or by reason of reckless disregard on the part of the Manager of
its obligations and duties under this Agreement. Any person, even though
also employed by the Manager, who may be or become an employee of the Fund
and paid by the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Fund
and not as an employee or agent of the Manager.
8. This Agreement shall remain in effect until the date which is one
year from the day and year first written above, and shall continue in
effect thereafter, but only so long as such continuance is specifically
approved at least annually by the affirmative vote of (i) a majority of the
members of the Fund's Board of Directors who are not parties to this
agreement or interested persons of any party to this agreement, or of any
entity regularly furnishing investment advisory services with respect to
the Fund pursuant to an agreement with any party to this agreement, cast in
person at a meeting called for the purpose of voting on such approval, and
(ii) a majority of the Fund's Board of Directors or the holders of a
majority of the outstanding voting securities of the Fund. This Agreement
may nevertheless be terminated at any time without penalty, on 60 days'
written notice, by the Fund's Board of Directors, by vote of holders of a
majority of the outstanding voting securities of the Fund, or by the
Manager.
II-3
<PAGE> 92
This Agreement shall automatically be terminated in the event of its
assignment, provided that an assignment to a corporate successor to all or
substantially all of the Manager's business or to a wholly-owned subsidiary
of such corporate successor which does not result in a change of actual
control or management of the Manager's business shall not be deemed to be
an assignment for the purposes of this Agreement. Any notice to the Fund or
the Manager shall be deemed given when received by the addressee.
9. This Agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by either party hereto, except as permitted
under the 1940 Act or rules and regulations adopted thereunder. It may be
amended by mutual agreement, but only after authorization of such amendment
by the affirmative vote of (i) the holders of a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the members of the
Fund's Board of Directors who are not parties to this agreement or
interested persons of any party to this agreement, or of any entity
regularly furnishing investment advisory services with respect to the Fund
pursuant to an agreement with any party to this agreement, cast in person
at a meeting called for the purpose of voting on such approval.
10. This Agreement shall be construed in accordance with the laws of
the State of New York, without giving effect to the conflicts of laws
principles thereof, provided, however, that nothing herein shall be
construed as being inconsistent with the 1940 Act. As used herein, the
terms "interested person," "assignment," and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
1940 Act.
11. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this agreement to produce or account for
more than one such counterpart.
12. This Agreement supersedes all prior investment advisory,
management, and/or administration agreements in effect between the Fund and
the Manager.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
officers thereunto duly authorized as of the day and year first written above.
THE LATIN AMERICA DOLLAR
INCOME FUND, INC.
By:
-------------------------------------------------
Title: President
SCUDDER, KEMPER INVESTMENTS, INC.
By:
-------------------------------------------------
Title: Managing Director
II-4
<PAGE> 93
APPENDIX III
INVESTMENT ADVISORY, MANAGEMENT
AND ADMINISTRATION AGREEMENT
AGREEMENT, dated and effective as of between SCUDDER WORLD INCOME
OPPORTUNITIES FUND, INC., a Maryland corporation (herein referred to as the
"Fund"), and SCUDDER KEMPER INVESTMENTS, INC., a Delaware corporation (herein
referred to as the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed by the parties as follows:
1. The Manager hereby undertakes and agrees, upon the terms and
conditions herein set forth, (i) to make investment decisions for the Fund,
to prepare and make available to the Fund research and statistical data in
connection therewith and to supervise the acquisition and disposition of
securities by the Fund, including the selection of brokers or dealers to
carry out the transactions, all in accordance with the Fund's investment
objectives and policies and in accordance with guidelines and directions
from the Fund's Board of Directors; (ii) to assist the Fund as it may
reasonably request in the conduct of the Fund's business, subject to the
direction and control of the Fund's Board of Directors; (iii) to maintain
or cause to be maintained for the Fund all books, records, reports and any
other information required under the Investment Company Act of 1940, as
amended (the "1940 Act"), to the extent that such books, records and
reports and other information are not maintained or furnished by the
custodian or other agents of the Fund; (iv) to furnish at the Manager's
expense for the use of the Fund such office space and facilities as the
Fund may require for its reasonable needs in the City of New York and to
furnish at the Manager's expense clerical services in the United States
related to research, statistical and investment work; (v) to render to the
Fund administrative services such as preparing reports to and meeting
materials for the Fund's Board of Directors and reports and notices to
stockholders, preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory
organizations, including preliminary and definitive proxy materials and
post-effective amendments to the Fund's registration statement on Form N-2
under the Securities Act of 1933, as amended, and 1940 Act, as amended from
time to time, providing assistance in certain accounting and tax matters
and investor and public relations, monitoring the valuation of portfolio
securities, assisting in the calculation of net asset value and calculation
and payment of distributions to stockholders, and overseeing arrangements
with the Fund's custodian, including the maintenance of books and records
of the Fund; and (vi) to pay the reasonable salaries, fees and expenses of
such of the Fund's officers and employees (including the Fund's shares of
payroll taxes) and any fees and expenses of such of the Fund's directors as
are directors, officers or employees of the Manager; provided, however,
that the Fund, and not the Manager, shall bear travel expenses (or an
appropriate portion thereof) of directors and officers of the Fund who are
directors, officers or employees of the Manager to the extent that such
expenses relate to attendance at meetings of the Board of Directors of the
Fund or any committees thereof or advisers thereto. The Manager shall bear
all expenses arising out of its duties hereunder but shall not be
responsible for any expenses of the Fund other than those specifically
allocated to the Manager in this paragraph 1. In particular, but without
limiting the generality of the foregoing, the Manager shall not be
responsible, except to the extent of the reasonable compensation of such of
the Fund's employees as are directors, officers or employees of the Manager
whose services may be involved, for the following expenses of the Fund:
organization and certain offering expenses of the Fund (including
out-of-pocket expenses, but not including overhead or employee costs of the
Manager or of any one or more organizations retained as an advisor or
consultant to the Fund); fees payable to the Manager and to any advisor or
consultants, including an advisory board, if applicable; legal expenses;
auditing and accounting expenses; telephone, telex, facsimile, postage and
other communication expenses; taxes and governmental fees; stock exchange
listing fees; fees, dues and expenses incurred by the Fund in connection
with membership in investment company trade organizations; fees and
expenses of the Fund's custodians, subcustodians, transfer agents and
registrars; payment for portfolio pricing or valuation services to pricing
III-1
<PAGE> 94
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and other expenses in connection with the
issuance, offering, distribution, sale or underwriting of securities issued
by the Fund; expenses of registering or qualifying securities of the Fund
for sale; expenses relating to investor and public relations; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; brokerage commissions or other costs of acquiring or
disposing of any portfolio securities of the Fund; expenses of preparing
and distributing reports, notices and dividends to stockholders; costs of
stationery; costs of stockholders' and other meetings; litigation expenses;
or expenses relating to the Fund's dividend reinvestment and cash purchase
plan (except for brokerage expenses paid by participants in such plan).
2. As exclusive licensee of the rights to use and sublicense the use
of the "Scudder," "Scudder, Stevens & Clark," and "Scudder Kemper
Investments, Inc." trademarks (together, the "Scudder Marks"), the Manager
hereby grants the Fund a nonexclusive right and sublicense to use (i) the
"Scudder" name and mark as part of the Fund's name (the "Fund Name"), and
(ii) the Scudder Marks in connection with the Fund's investment products
and services, in each case only for so long as this Agreement, any other
investment management agreement between the Fund and the Manager (or any
organization which shall have succeeded to the Manager's business as
investment manager (the "Manager's Successor")), or any extension, renewal
or amendment hereof or thereof remains in effect, and only for so long as
the Manager is a licensee of the Scudder Marks, provided, however, that the
Manager agrees to use its best efforts to maintain its license to use and
sublicense the Scudder Marks. The Fund agrees that it shall have no right
to sublicense or assign rights to use the Scudder Marks, shall acquire no
interest in the Scudder Marks other than the rights granted herein, that
all of the Fund's uses of the Scudder Marks shall inure to the benefit of
Scudder Trust Company as owner and licensor of the Scudder Marks (the
"Trademark Owner"), and that the Fund shall not challenge the validity of
the Scudder Marks or the Trademark Owner's ownership thereof. The Fund
further agrees that all services and products it offers in connection with
the Scudder Marks shall meet commercially reasonable standards of quality,
as may be determined by the Manager or the Trademark Owner from time to
time, provided that the Manager acknowledges that the services and products
the Fund rendered during the one-year period preceding the date of this
Agreement are acceptable. At your reasonable request, the Fund shall
cooperate with the Manager and the Trademark Owner and shall execute and
deliver any and all documents necessary to maintain and protect (including
but not limited to in connection with any trademark infringement action)
the Scudder Marks and/or enter the Fund as a registered user thereof. At
such time as this Agreement or any other investment management agreement
shall no longer be in effect between the Manager (or the Manager's
Successor) and the Fund, or the Manager no longer is a licensee of the
Scudder Marks, the Fund shall (to the extent that, and as soon as, it
lawfully can) cease to use the Fund Name or any other name indicating that
it is advised by, managed by or otherwise connected with the Manager (or
the Manager's Successor) or the Trademark Owner. In no event shall the Fund
use the Scudder Marks or any other name or mark confusingly similar thereto
(including, but not limited to, any name or mark that includes the name
"Scudder") if this Agreement or any other investment advisory agreement
between the Manager (or the Manager's Successor) and the Fund is
terminated.
3. The Fund agrees to pay to the Manager in United States dollars, as
full compensation for the services to be rendered and expenses to be borne
by the Manager hereunder, a monthly fee which, on an annual basis, is equal
to 1.20% per annum of the value of the Fund's average weekly net assets.
Each payment of a monthly fee to the Manager shall be made within the ten
days next following the day as of which such payment is so computed. Upon
any termination of this Agreement before the end of a month, the fee for
such part of that month shall be prorated according to the proportion that
such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement.
The value of the net assets of the Fund shall be determined pursuant
to the applicable provisions of the Articles of Incorporation and By-laws
of the Fund, as amended from time to time.
4. The Manager agrees that it will not make a short sale of any
capital stock of the Fund or purchase any share of the capital stock of the
Fund otherwise than for investment.
III-2
<PAGE> 95
5. In executing transactions for the Fund and selecting brokers or
dealers, the Manager shall use its best efforts to seek the best overall
terms available. In assessing the best overall terms available for any Fund
transaction, the Manager shall consider on a continuing basis all factors
it deems relevant, including, but not limited to, breadth of the market in
the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction. In selecting brokers or dealers to
execute a particular transaction and in evaluating the best overall terms
available, the Manager may consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Fund and/or other accounts over which the Manager or
an affiliate exercises investment discretion.
6. Nothing herein shall be construed as prohibiting the Manager from
providing investment advisory services to, or entering into investment
advisory agreements with, other clients (including other registered
investment companies), including clients which may invest in securities
issued by issuers in emerging market countries, or from utilizing (in
providing such services) information furnished to the Manager by advisors
and consultants to the Fund and others; nor shall anything herein be
construed as constituting the Manager as an agent of the Fund.
Whenever the Fund and one or more other accounts or investment
companies advised by the Manager have available funds for investment,
investments suitable and appropriate for each shall be allocated in
accordance with procedures believed by the Manager to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by the Manager to be equitable. The Fund recognizes that in
some cases this procedure may adversely affect the size of the position
that may be acquired or disposed of for the Fund. In addition, the Fund
acknowledges that the persons employed by the Manager to assist in the
performance of the Manager's duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit
or restrict the right of the Manager or any affiliate of the Manager to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
7. The Manager may rely on information reasonably believed by it to be
accurate and reliable. Neither the Manager nor its officers, directors,
employees or agents shall be subject to any liability for any act or
omission, error of judgment or mistake of law, or for any loss suffered by
the Fund, in the course of, connected with or arising out of any services
to be rendered hereunder, except by reason of willful misfeasance, bad
faith, or gross negligence on the part of the Manager in the performance of
its duties or by reason of reckless disregard on the part of the Manager of
its obligations and duties under this Agreement. Any person, even though
also employed by the Manager, who may be or become an employee of the Fund
and paid by the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Fund
and not as an employee or agent of the Manager.
8. This Agreement shall remain in effect for a period of two years
from the date hereof, and shall continue in effect thereafter, but only so
long as such continuance is specifically approved at least annually by the
affirmative vote of (i) a majority of the members of the Fund's Board of
Directors who are not parties to this agreement or interested persons of
any party to this agreement, or of any entity regularly furnishing
investment advisory services with respect to the Fund pursuant to an
agreement with any party to this agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (ii) a majority of
the Fund's Board of Directors or the holders of a majority of the
outstanding voting securities of the Fund. This Agreement may nevertheless
be terminated at any time without penalty, on 60 days' written notice, by
the Fund's Board of Directors, by vote of holders of a majority of the
outstanding voting securities of the Fund, or by the Manager.
This Agreement shall automatically be terminated in the event of its
assignment, provided that an assignment to a corporate successor to all or
substantially all of the Manager's business or to a wholly-owned subsidiary
of such corporate successor which does not result in a change of actual
control or management of the Manager's business shall not be deemed to be
an assignment for the purposes of this
III-3
<PAGE> 96
Agreement. Any notice to the Fund or the Manager shall be deemed given when
received by the addressee.
9. This Agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by either party hereto, except as permitted
under the 1940 Act or rules and regulations adopted thereunder. It may be
amended by mutual agreement, but only after authorization of such amendment
by the affirmative vote of (i) the holders of a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the members of the
Fund's Board of Directors who are not parties to this agreement or
interested persons of any party to this agreement, or of any entity
regularly furnishing investment advisory services with respect to the Fund
pursuant to an agreement with any party to this agreement, cast in person
at a meeting called for the purpose of voting on such approval.
10. This Agreement shall be construed in accordance with the laws of
the State of New York, without giving effect to the conflicts of laws
principles thereof, provided, however, that nothing herein shall be
construed as being inconsistent with the 1940 Act. As used herein, the
terms "interested person," "assignment," and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
1940 Act.
11. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this agreement to produce or account for
more than one such counterpart.
12. This Agreement supersedes all prior investment advisory,
management, and/or administration agreements in effect between the Fund and
the Manager.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
officers thereunto duly authorized as of the day and year first written above.
SCUDDER WORLD INCOME
OPPORTUNITIES FUND, INC.
By:
-------------------------------------------------
Title: President
SCUDDER, KEMPER INVESTMENTS, INC.
By:
-------------------------------------------------
Title: Managing Director
III-4
<PAGE> 97
APPENDIX IV
INVESTMENT OBJECTIVES AND ADVISORY FEES
FOR FUNDS ADVISED BY SCUDDER, STEVENS & CLARK, INC.
<TABLE>
<CAPTION>
PROGRAM
FUND OBJECTIVE FEE RATE ASSETS*
- ----------------------------- ---------------------------------------------------------- ------------------- --------------
<S> <C> <C> <C>
GLOBAL INCOME
Scudder Global Bond Fund Total return with an emphasis on current income by 0.750% to $ 217,403,907
investing primarily in high-grade bonds denominated in $1 billion
foreign currencies and the U.S. dollar. 0.700%
thereafter+
Scudder International Bond Income primarily by investing in high-grade international 0.850% to $ 235,993,183
Fund bonds and protection and possible enhancement of principal $1 billion
value by actively managing currency, bond market and 0.800% thereafter
maturity exposure and by security selection.
Scudder Emerging Markets High current income and, secondarily, long-term capital 1.000% of $ 304,607,984
Income Fund appreciation by investing primarily in high-yielding debt net assets
securities issued in emerging markets.
CLOSED-END FUNDS
The Argentina Fund, Inc. Long-term capital appreciation through investment Adviser: $ 117,596,046
primarily in equity securities of Argentine issuers. Effective 11/1/97:
1.100% of
net assets
Sub-Adviser:
Paid by Adviser.
0.160% of
net assets
The Brazil Fund, Inc. Long-term capital appreciation through investment 1.200% to $ 417,981,869
primarily in equity securities of Brazilian issuers. $150 million
1.050% next
$150 million
1.000% thereafter
Effective 10/29/97:
1.200% to
$150 million
1.050% next
$150 million
1.000% next
$200 million
0.900% thereafter
Administrator:
Receives an annual
fee of $50,000
- ---------------
* Program assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
+ Subject to waivers and/or expense limitations.
</TABLE>
IV-1
<PAGE> 98
<TABLE>
<CAPTION>
PROGRAM
FUND OBJECTIVE FEE RATE ASSETS*
- ----------------------------- ---------------------------------------------------------- ------------------- --------------
<S> <C> <C> <C>
The Korea Fund, Inc. Long-term capital appreciation through investment Adviser: $ 661,690,073
primarily in equity securities of Korean companies. 1.150% to
$50 million
1.100% next
$50 million
1.000% next
$250 million
0.950% next
$400 million
0.900% thereafter
Sub-Adviser -
Daewoo:
Paid by Adviser.
0.2875% to
$50 million
0.275% next
$50 million
0.250% next
$250 million
0.2375% next
$400 million
0.225% thereafter
The Latin America Dollar High level of current income and, secondarily, capital 1.200% of $ 94,748,606
Income Fund, Inc. appreciation through investment principally in net assets
dollar-denominated Latin American debt instruments.
Montgomery Street Income High level of current income consistent with prudent 0.500% to $ 198,465,822
Securities, Inc. investment risks through a diversified portfolio primarily $150 million
of debt securities. 0.450% next
$50 million
0.400% thereafter
Scudder New Asia Fund, Inc. Long-term capital appreciation through investment 1.250% to $ 133,363,686
primarily in equity securities of Asian companies. $75 million
1.150% next
$125 million
1.100% thereafter
Scudder New Europe Fund, Long-term capital appreciation through investment 1.250% to $ 266,418,730
Inc. primarily in equity securities of companies traded on $75 million
smaller or emerging European markets and companies that 1.150% next
are viewed as likely to benefit from changes and $125 million
developments throughout Europe. 1.100% thereafter
Scudder Spain and Portugal Long-term capital appreciation through investment Adviser: $ 75,127,194
Fund, Inc. primarily in equity securities of Spanish & Portuguese 1.000% of
issuers. net assets
Administrator:
0.200% of
net assets
Scudder World Income High income and, consistent therewith, capital 1.200% of $ 54,488,637
Opportunities Fund, Inc. appreciation. net assets
- ---------------
* Program assets are shown as of a Fund's most recent fiscal year end unless otherwise indicated.
</TABLE>
IV-2
<PAGE> 99
The shares of common stock of both Funds are listed on the New York Stock
Exchange (the "NYSE"), and reports, proxy statements and other information
concerning the Funds can be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
FOR ADDITIONAL INFORMATION PLEASE CONTACT
SHAREHOLDER COMMUNICATIONS CORPORATION
17 STATE STREET
NEW YORK, NEW YORK 10004
1-800-733-8481
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary.............................................................................. 3
Comparison of the Acquiring Fund and the Acquired Fund............................... 6
Risk Factors......................................................................... 9
The Meetings......................................................................... 12
The Reorganization................................................................... 13
Approval of New Investment Management Agreements..................................... 25
Election of Directors................................................................ 31
Ratification or Rejection of the Selection of Independent Accountants................ 37
Additional Information About the Funds............................................... 38
Investment Objectives and Policies................................................... 43
Investment Restrictions.............................................................. 56
Directors and Officers............................................................... 57
Investment Advisory and Management Arrangements...................................... 57
Portfolio Transactions............................................................... 59
Net Asset Value...................................................................... 59
Description of Capital Stock......................................................... 60
Custodian............................................................................ 61
Transfer Agent, Dividend Disbursing Agent and Registrar.............................. 61
Legal Opinions....................................................................... 61
Other Matters to Come Before the Meeting............................................. 61
Appendix I Agreement and Plan of Reorganization...................................... I-1
Appendix II Acquiring Fund's Investment Advisory, Management and Administration
Agreement.......................................................................... II-1
Appendix III Acquired Fund's Investment Advisory, Management and Administration
Agreement.......................................................................... III-1
Appendix IV Investment Objectives and Advisory Fees for Funds Advised by Scudder,
Stevens & Clark, Inc. ............................................................. IV-1
</TABLE>
<PAGE> 100
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE A PROSPECTUS.
SUBJECT TO COMPLETION -- DATED SEPTEMBER 11, 1997
STATEMENT OF ADDITIONAL INFORMATION
ACQUISITION OF THE ASSETS OF
SCUDDER WORLD INCOME OPPORTUNITIES FUND, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(212) 326-6200
BY AND IN EXCHANGE FOR SHARES OF
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(212) 326-6200
This Statement of Additional Information, relating specifically to, among
other matters, the proposed acquisition of substantially all of the assets of
Scudder World Income Opportunities Fund, Inc. ("SWIOF" or the "Acquired Fund")
by The Latin America Dollar Income Fund, Inc. ("LADIF" or the "Acquiring Fund",
and together with SWIOF or the Acquired Fund, the "Funds") in exchange for
shares of the Acquiring Fund and the assumption by the Acquiring Fund of
substantially all of the liabilities of the Acquired Fund (the
"Reorganization"), includes the following described documents, each of which
accompanies this Statement of Additional Information and is incorporated herein
by reference.
1. Annual Report of SWIOF for the fiscal year ended April 30, 1997.
2. Annual Report of LADIF for the fiscal year ended October 31, 1996.
3. Semi-Annual Report of LADIF for the fiscal period ended April 30,
1997.
4. Pro Forma Financial Statements.
This Statement of Additional Information is not a prospectus. A related
Joint Proxy Statement -- Prospectus, dated , 1997 may be obtained
without charge by calling or writing either the Acquiring Fund or the Acquired
Fund at the telephone numbers or addresses set forth above or by calling
800-349-4281 from within the United States and 01-617-295-3079 from outside the
United States. This Statement of Additional Information should be read in
conjunction with the Joint Proxy Statement -- Prospectus dated , 1997
(the "Prospectus").
The Date of this Statement of Additional Information is , 1997.
<PAGE> 101
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TAXES................................................................................. 2
General.......................................................................... 2
FINANCIAL STATEMENTS.................................................................. 4
Pro Forma Financial Information.................................................. 4
</TABLE>
<PAGE> 102
TAXES
GENERAL
The Funds have qualified since they commenced investment operations and
intend to continue to qualify for the special tax treatment afforded regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as a regulated investment company, each Fund must, among
other things: (1) derive in each of its taxable years at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of stock or securities, or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies; (2) derive in each of its
taxable years less than 30% of its gross income from the sale or other
disposition of (a) stock or securities held for less than three months, (b)
options, futures or forward contracts held for less than three months (other
than options, futures, or forward contracts on foreign currencies) and (c)
foreign currencies (or options, futures, or forward contracts on foreign
currencies) held for less than three months, but only if such currencies (or
options, futures, or forward contracts) are not directly related to the Fund's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities); and (3) diversify its holdings so that,
at the end of each quarter of its taxable years (a) at least 50% of the value of
the Fund's assets is represented by cash and cash items, securities of other
regulated investment companies, U.S. Government Securities and other securities,
with such other securities limited for purposes of this calculation in respect
of any one issuer to an amount not greater than 5% of the value of the Fund's
assets and not greater than 10% of the outstanding voting securities of such
issuer and (b) not more than 25% of the value of its total assets is invested in
securities of any one issuer (other than U.S. Government Securities or the
securities of other regulated investment companies).
Although the 30% test will limit the extent to which a Fund may sell
securities held for less than three months and effect short sales of securities
held for less than three months, this requirement has been repealed for taxable
years of a Fund beginning after August 5, 1997.
As regulated investment companies, the Funds are not subject to U.S.
federal income tax on their net investment income (that is, taxable income other
than their net realized long-term and short-term capital gains) and their net
realized long-term and short-term capital gains, if any, that they distribute to
their stockholders, so long as they distribute an amount equal to 90% of their
investment company taxable income (that is, 90% of their taxable income reduced
by the excess, if any, of their net capital gains, which consists of the excess
of net realized long-term capital gains over their net realized short-term
capital losses (including any capital loss carryovers), plus or minus certain
other adjustments for the taxable year). The Funds are subject to tax at regular
corporate rates on any income or gains that they do not distribute and will also
be subject to tax at corporate rates with respect to all income in any year that
they fail to qualify as a regulated investment company or fail to meet the 90%
distribution requirement. Any dividend declared by a Fund in October, November
or December of any calendar year and payable to stockholders of record on a
specified date in such a month will be deemed to have been received by each
stockholder on December 31 of such calendar year and to have been paid by the
Fund not later than such December 31 so long as the dividend is actually paid by
the Fund during January of the following calendar year.
The Funds currently distribute annually to their stockholders substantially
all of their investment company taxable income. Each Fund's Board of Directors
will determine annually whether to distribute any net capital gains. The Funds
currently distribute annually any net capital gain to their stockholders. Such
"capital gain dividends" are taxable to stockholders as long-term capital gain,
regardless of how long the stockholder has held the Fund's shares. Each Fund
will provide information relating to that portion of a capital gain dividend
that may be treated by stockholders as eligible for the reduced capital gains
rate for capital assets held for more than 18 months.
To the extent that a Fund retains any part of such net capital gains for
investment, it will be subject to U.S. federal income tax (currently at a rate
of 35%) on the amount retained. In that event, the Funds expect to designate the
retained amount as undistributed capital gains in a notice to its stockholders
who (1) if
2
<PAGE> 103
subject to U.S. federal income tax on long-term capital gains, will be required
to include in income for such tax purposes, as long-term capital gains, their
proportionate shares of such undistributed amount, (2) will be entitled to
credit their proportionate shares of the 35% tax paid by the Fund on such
undistributed amount against their U.S. federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed their liabilities, if
any, and (3) will be entitled to increase their tax basis, for U.S. federal
income tax purposes, in their shares of Common Stock by an amount equal to 65%
of the amount of undistributed capital gains included in their income.
Generally, dividends from net investment income are taxable to shareholders
as ordinary income. Certain realized gains or losses on the sale or retirement
of foreign bonds held by the Funds, to the extent attributable to fluctuations
in currency exchange rates, as well as certain other gains or losses
attributable to exchange rate fluctuations, must be treated as ordinary income
or loss. Such income or loss may increase or decrease the income available for
distribution to shareholders. If, under the rules governing the tax treatment of
foreign currency gains and losses, a Fund's income available for distribution is
decreased, a portion of the dividends declared by the Fund may be treated for
federal income tax purposes as a nontaxable return of capital distribution.
Generally, a shareholder's tax basis in shares of a fund will be reduced to the
extent that an amount distributed to the shareholder is treated as a return of
capital.
The Code imposes a 4% nondeductible excise tax on a Fund to the extent such
Fund does not distribute by the end of any calendar year at least 98% of its
ordinary income for that year and 98% of the net amount of its capital gains
(both long-term and short-term), adjusted for certain ordinary losses, for the
one-year period ending, in general, on October 31 of that year. For this
purpose, however, any income or gain retained by the Fund that is subject to
corporate income tax will be considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any or overdistribution
from the previous year.
The Funds may be subject to certain taxes imposed by foreign countries with
respect to dividends, interest, capital gains and other income. If a Fund
qualifies as a regulated investment company, if certain distribution
requirements are satisfied and if more than 50% in value of the Fund's assets at
the close of any taxable year consists of stocks or securities of foreign
corporations, which for this purpose should include obligations issued by
foreign governmental issuers, the Fund may elect to treat any foreign income
taxes paid by it (if such taxes are treated as income taxes under U.S. income
tax principles) as paid by its stockholders. Each Fund expects to qualify for
and may make this election. For any year that the Fund makes such an election,
the Fund will report to its stockholders, in writing, the amount per share of
such foreign income taxes that must be included in each stockholder's gross
income and the amount that the stockholder may deduct from his or her taxable
income or credit against his or her U.S. tax liabilities. In general, a
stockholder may elect each year whether to claim deductions or credits for
foreign taxes, although a noncorporate stockholders may not claim the deduction
they do not itemize deductions.
The Acquiring Fund may invest in zero coupon securities having an original
issue discount (i.e., the discount represented by the excess of the stated
redemption price at maturity over the issue price). Each year, the Acquiring
Fund will be required to accrue as income a portion of this original issue
discount even though the Acquiring Fund may receive no cash payment of interest
with respect to these securities. The Acquiring Fund will be required to
distribute substantially all of its income (including accrued original issue
discount) in order to meet the 90% distribution requirement and the 4% excise
tax distribution requirement, even though that may result in a distribution in
excess of the amount of cash the Acquiring Fund actually receives.
A Fund's short sales against the box, if any, and transactions, if any, in
foreign currencies, forward contracts, options and futures contracts (including
options, futures contracts and forward contracts on foreign currencies) will be
subject to special provisions of the Code that, among other things, may affect
the character of gains and losses recognized by the Fund (i.e., may affect
whether gains or losses are ordinary or capital), accelerate recognition of
income to the Fund, defer Fund losses and cause the Fund to be subject to
hyperinflationary currency rules. These rules could therefore affect the
character, amount and timing of distributions to stockholders. These provisions
also (i) will require a Fund to mark-to-market certain types of its positions
(i.e., treat them as if they were closed out) and (ii) may cause the Fund to
recognize income
3
<PAGE> 104
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes. Each Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment so that (a) neither the Fund nor its stockholders
will be treated as receiving a materially greater amount of capital gains or
distributions than actually realized or received, (b) the Fund will be able to
use substantially all of its losses for the fiscal years in which the losses
actually occur and (c) the Fund will continue to qualify as a regulated
investment company.
Exchange control regulations, to the extent imposed by emerging countries,
could restrict repatriations of investment income and capital or the proceeds of
securities sales by foreign investors such as the Acquiring Fund and may limit
the Acquiring Fund's ability to pay sufficient dividends and distributions to
satisfy the distribution requirements for avoiding income and excise taxes.
If a Fund did not qualify as a regulated investment company for any taxable
year (1) it would be subject to U.S. federal income tax at regular corporate
rates on its taxable income (which would be computed without a deduction of
distributions paid to stockholders), (2) its distributions to stockholders out
of its current or accumulated earnings and profits would be taxable to
stockholders as ordinary dividend income (even if derived from long-term capital
gains) and (3) foreign taxes and taxes paid by the Fund on any undistributed
long-term capital gains would not "pass through" to stockholders.
If a stockholder has failed to furnish a correct taxpayer identification
number, has failed to report fully dividend or interest income, or has failed to
certify that he or she has provided a correct taxpayer identification number and
that he or she is not subject to "backup withholding," the stockholder may be
subject to a 31% backup withholding tax with respect to (i) taxable dividends
and distributions and (ii) other taxable proceeds received from a Fund. An
individual's taxpayer identification number is his or her social security
number. Certain stockholders specified in the Code may be exempt from backup
withholding. The backup withholding tax is not an additional tax and may be
credited against a taxpayer's federal income tax liability.
------------------------------
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Stockholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes.
FINANCIAL STATEMENTS
The Acquired Annual Report for the fiscal year ended April 30, 1997 and the
Acquiring Fund's Annual Report for the fiscal year ended October 31, 1996 and
Semi-Annual Report for the fiscal period ended April 30, 1997 (each a "Report"),
which either accompany this Statement of Additional Information or have
previously been provided to the person to whom the Prospectus is being sent, are
incorporated by reference herein. The Funds will furnish a copy of the Reports
without charge by calling Scudder at 800-349-4281 from within the United States
and 01-617-295-3079 from outside of the United States.
PRO FORMA FINANCIAL INFORMATION
The following tables set forth the unaudited pro forma condensed balance
sheet and the unaudited pro forma condensed income statement of the Funds as of
and for the period ending April 30, 1997 and as adjusted to give effect to the
Reorganization pursuant to which the Acquiring Fund would acquire substantially
all of the assets of the Acquired Fund in exchange for the issuance of shares of
the Acquiring Fund and the assumption by the Acquiring Fund of substantially all
of the Acquired Fund's liabilities.
4
<PAGE> 105
PRO FORMA CONDENSED BALANCE SHEET
AS OF APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING
ACQUIRING ACQUIRED PRO FORMA FUND
FUND FUND ADJUSTMENTS (AS
(ACTUAL) (ACTUAL) (1)(2) ADJUSTED)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Investments, at value...................... $91,051,473 $56,633,319 $147,684,792
Cash....................................... 1,282 483 1,765
Other assets less liabilities.............. 7,414,366 (2,145,165) (6,540,939) (1,271,739)
Net assets................................. $98,467,121 $54,488,637 $(6,540,939) $146,414,818
Shares Outstanding......................... 6,128,593 3,419,143 (367,512) 9,180,224
Net asset value per share:................. $16.07 $15.94 $15.95
</TABLE>
- ---------------
(1) See note (1) to Pro Forma Capitalization table contained in the Fund's Joint
Proxy Statement-Prospectus as to time of Reorganization. Assumes
distributions of ordinary income and capital gains, accrual of estimated
Reorganization related expenses of $225,000, elimination of Deferred
Organization Costs (which will be paid to the Acquired Fund by Scudder) and
$320,000 of estimated reduction of operating expense.
(2) See note (2) to Pro Forma Capitalization table contained in the Fund's Joint
Proxy Statement-Prospectus. Based on the issuance of 3,051,631 additional
Acquiring Fund Shares and the cancellation of 3,419,143 Acquired Fund
Shares.
PRO FORMA CONDENSED INCOME STATEMENT
FOR THE 12 MONTH PERIOD ENDED APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING ACQUIRED PRO FORMA ACQUIRING
FUND FUND ADJUSTMENTS FUND
(ACTUAL) (ACTUAL) (2) (AS ADJUSTED)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Investment Income:
Interest income............................ $11,497,398 $ 5,484,920 -- $ 16,982,318
Dividend income............................ 662,567 -- -- 662,567
---------- ---------- -------- ----------
Total Investment Income............ 12,159,965 5,484,920 -- 17,644,885
Expenses
Management fees......................... 1,124,828 650,255 -- 1,775,083
All other expenses...................... 1,511,669 496,754 (320,000) 1,688,423
---------- ---------- -------- ----------
Total expenses..................... 2,636,497 1,147,009 (320,000) 3,463,506
---------- ---------- -------- ----------
Net investment income........................ 9,523,468 4,337,911 320,000 14,181,379
---------- ---------- -------- ----------
Realized Net Gain (Loss) on Investments:
Net realized gain from investments......... 21,093,695 10,309,864 -- 31,403,559
Net unrealized appreciation (depreciation)
of investments.......................... 467,963 (1,200,389) -- (732,426)
---------- ---------- -------- ----------
Net increase in net assets from operations... $31,085,126 $13,447,386 $ 320,000 $ 44,852,512
========== ========== ======== ==========
</TABLE>
- ---------------
(1) The Acquiring Fund was organized in May 5, 1992, and commenced operations on
July 31, 1992. The Acquired Fund was organized in January 21, 1994 and
commenced operations on April 11, 1994.
(2) Represents estimated reduction in operating expenses, including director
fees, stockholder services, audit, legal, custodian, stock exchange and
report printing.
5
<PAGE> 106
THE LATIN AMERICA DOLLAR INCOME FUND, INC. & SCUDDER WORLD INCOME OPPORTUNITIES
FUND, INC.
COMBINING INVESTMENT PORTFOLIOS
AS OF APRIL 30, 1997
<TABLE>
<CAPTION>
WORLD LATIN
INCOME AMERICA COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT(a) AMOUNT(a) AMOUNT(a)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REPURCHASE
AGREEMENT -- 3.2% 2,208,000 2,568,000 4,776,000
- ------------------------------------------------------------------------------------
U.S. GOVERNMENT
AGENCY OBLIGATION -- 3.4% 3,000,000 2,000,000 5,000,000
- ------------------------------------------------------------------------------------
BONDS -- 89.8%
ARGENTINA -- 22.4% 238,161 357,239 595,400
2,575,112 7,319,594 9,894,706
2,425,000 7,881,250 10,306,250
3,250,000 7,750,000 11,000,000
625,000 4,250,000 4,875,000
1,250,000 1,250,000
BRAZIL -- 26.0% 2,827,500 2,175,000 5,002,500
6,187,500 7,425,000 13,612,500
1,000,000 4,250,000 5,250,000
3,782,500 8,965,209 12,747,709
3,500,000 5,250,000 8,750,000
BULGARIA -- 1.7+A99% 2,000,000 2,000,000
<CAPTION>
WORLD LATIN
INCOME AMERICA COMBINED
MARKET MARKET MARKET
VALUE($) VALUE($) VALUE($)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE
AGREEMENT -- 3.2% Repurchase Agreement with Donaldson, Lufkin & 2,208,000 2,568,000 4,776,000
Jenrette dated
4/30/97 at 5.375%. collaterlized by a $1,545000
U.S. Treasury Note, 11.25% 2/15/97
---------------------------------------
2,208,000 2,568,000 4,776,000
Total Repurchase Agreement
---------------------------------------
- ------------------------------------------------------------------------------------
U.S. GOVERNMENT
AGENCY OBLIGATION -- 3.4% Student Loan Marketing Association Discount Note, 3,000,000 2,000,000 5,000,000
5/1/97
---------------------------------------
3,000,000 2,000,000 5,000,000
Total U.S. Government Agency Obligation
---------------------------------------
- ------------------------------------------------------------------------------------
BONDS -- 89.8%
ARGENTINA -- 22.4% Argentine Republic 10 year Floating Rate Note, 232,419 348,627 581,046
5.627%, 4/1/00
Argentine Republic Bonos de Consolidacion de 2,494,424 7,090,244 9,584,668
Deudas Previsionales 2, Variable Rate Interest
Bond, 5.5%, 4/1/01
Argentine Republic Floating Rate Bond, Series L, 2,224,938 7,231,047 9,455,985
LIBOR plus .8125%, 6.75%, 3/31/05
Argentine Republic Discount Floating Rate Note, 2,685,313 6,403,438 9,088,751
Series L, 6.375%, 3/31/23
Argentine Republic Collateralized Par Bond, 407,813 2,773,125 3,180,938
Series L, Step-up Coupon, 5.5%, 3/31/23
Letras del Tesoro Discount Note, 8/15/97 1,228,000 1,228,000
---------------------------------------
9,272,907 23,845,481 33,119,388
---------------------------------------
BRAZIL -- 26.0% Federative Republic of Brazil IDU Floating Rate 2,773,778 2,133,675 4,907,453
Bond, LIBOR plus .8125%, 6.5%, 1/1/01
Federative Republic of Brazil Eligible Interest 5,576,484 6,691,781 12,268,265
Bond, LIBOR plus .8125%, 6.875%, 4/15/06
Federative Republic of Brazil New Money Floating 848,750 3,607,188 4,455,938
Rate Bond, LIBOR plus .875%, 6.5625%, 4/15/09
Federative Republic of Brazil C Bond, 4.5%, with 2,865,244 6,791,146 9,656,390
3.5% Interest Capitalization, 4/15/14
Federative Republic of Brazil Collateralized 2,813,125 4,219,688 7,032,813
Floating Rate Discount Bond, LIBOR plus .8125%,
6/875%, 4/15/24
---------------------------------------
14,877,381 23,443,478 38,320,859
---------------------------------------
BULGARIA -- 1.7+A99% Republic of Bulgaria Past Due Interest Bond, 1,255,000 1,255,000
LIBOR plus .8125%, 6.5625%, 7/28/11
</TABLE>
6
<PAGE> 107
THE LATIN AMERICA DOLLAR INCOME FUND, INC. & SCUDDER WORLD INCOME OPPORTUNITIES
FUND, INC.
COMBINING INVESTMENT PORTFOLIOS
AS OF APRIL 30, 1997 -- (CONTINUED)
<TABLE>
<CAPTION>
WORLD LATIN
INCOME AMERICA COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT(a) AMOUNT(a) AMOUNT(a)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1,500,000 1,500,000
750,000 750,000
CHILE -- 3.2% CLP 142,555,000 CLP 305,475,000 CLP 448,030,000
CLP 311,175,000 CLP 622,350,000 CLP 933,525,000
CLP 207,400,000 CLP 414,800,000 CLP 622,200,000
COSTA RICA -- 3.2% 2,000,000 2,000,000
3,800,000 3,800,000
EGYPT -- 0.2% EGP 847,500 EGP 847,500
GREECE -- 1.5% GRD 303,300,000 GRD 303,300,000
GRD 304,638,750 GRD 304,638,750
JAMAICA -- 2.7% 4,500,000 4,500,000
MEXICO -- 11.0% 1,000,000 1,000,000
1,750,000 1,000,000 2,750,000
250,000 250,000
500,000 5,750,000 6,250,000
250,000 250,000
2,500,000 3,250,000 5,750,000
<CAPTION>
WORLD LATIN
INCOME AMERICA COMBINED
MARKET MARKET MARKET
VALUE($) VALUE($) VALUE($)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Republic of Bulgaria Floating Rate Interest 714,375 714,375
Reduction Step up Coupon Collateralized Bond
"A", 2.25%, 7/28/12
Republic of Bulgaria Collateralized Discount Bond 482,813 482,813
Tranche A, LIBOR plus .8125%, 6.5625%, 7/28/24
--------------------------------------
2,452,188 2,452,188
--------------------------------------
CHILE -- 3.2% Citibank Time Deposit linked to Chilean Peso, 340,690 730,050 1,070,740
13%, 5/28/97
Citibank Time Deposit linked to Chilean Peso, 740,775 1,481,550 2,222,325
10.7%, 4/1/98
Citibank Time Deposit linked to Chilean Peso, 493,750 987,500 1,481,250
10.7%, 4/2/98
--------------------------------------
1,575,215 3,199,100 4,774,315
--------------------------------------
COSTA RICA -- 3.2% Banco Central de Costa Rica Principal Bond Series 1,660,000 1,660,000
A 6.25%, 5/21/10
Banco Central de Costa Rica Principal Bond Series 3,002,000 3,002,000
B 6.25%, 5/21/15
--------------------------------------
4,662,000 4,662,000
--------------------------------------
EGYPT -- 0.2% Citibank Time Deposit linked to Egyptian Pound, 249,875 249,875
7/7/97
--------------------------------------
249,875 249,875
--------------------------------------
GREECE -- 1.5% Bankers Trust Co. Time Deposit linked to Greek 1,103,792 1,103,792
Drachma, 9.31%, 5/14/97
Deutsche Bank Time Deposit linked to Greek 1,108,664 1,108,664
Drachma, 9.45%, 5/14/97
--------------------------------------
2,212,456 2,212,456
--------------------------------------
JAMAICA -- 2.7% Government of Jamaica Refinancing Agreement, 4,050,000 4,050,000
Tranche B Floating Rate Bond, LIBOR plus .8125%,
6.3125%, 11/15/04
--------------------------------------
4,050,000 4,050,000
--------------------------------------
MEXICO -- 11.0% Nacional Financiera S.N.C., 9.375%, 7/15/02 980,000 980,000
United Mexican States Floating Rate Discount 1,548,750 885,000 2,433,750
Note, (Detachable Oil Priced Indexed Value
Recovery Series B, 6.375%, 12/31/19
United Mexican States Floating Rate Discount 221,250 221,250
Note, (Detachable Oil Priced Indexed Value
Recovery Series C, 6.375%, 12/31/19
United Mexican States Collateralized Floating 442,500 5,088,750 5,531,250
Rate (Detachable Oil Priced Indexed Value
Recovery Discount Bond, Series A, LIBOR plus
.8125%, 6.867%, 12/31/19
United Mexican States Collateralized Floating 221,250 221,250
Rate Discount Bond, Seris D, LIBOR plus .8125%,
6.352%, 12/31/19
United Mexican States Collateralized Par Bond, 1,812,500 2,356,250 4,168,750
(Detachable Oil Priced Indexed Value Recovery
Rights), Series B, 6.25%, 12/31/19
</TABLE>
7
<PAGE> 108
THE LATIN AMERICA DOLLAR INCOME FUND, INC. & SCUDDER WORLD INCOME OPPORTUNITIES
FUND, INC.
COMBINING INVESTMENT PORTFOLIOS
AS OF APRIL 30, 1997 -- (CONTINUED)
<TABLE>
<CAPTION>
WORLD LATIN
INCOME AMERICA COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT(a) AMOUNT(a) AMOUNT(a)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
750,000 3,000,000 3,750,000
MOROCCO -- 1.6% 2,400,000 2,400,000
DEM 500,000 DEM 500,000
POLAND -- 0.8% 3,846,250 3,846,250
RUSSIA -- 2.3% 5,750,000 5,750,000
SOUTH AFRICA -- 1.9% 12,248,500 12,248,500
VENEZUELA -- 11.3% 1,500,000 1,500,000
1,428,571 1,428,571
1,428,571 3,809,524 5,238,095
2,250,000 8,750,000 11,000,000
<CAPTION>
WORLD LATIN
INCOME AMERICA COMBINED
MARKET MARKET MARKET
VALUE($) VALUE($) VALUE($)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United Mexican States Collateralized Par Bond, 543,750 2,175,000 2,718,750
Series A, 6.25%, 12/31/19
--------------------------------------
4,790,000 11,485,000 16,275,000
--------------------------------------
MOROCCO -- 1.6% Kingdom of Morocco, Restructuring and 2,109,000 2,109,000
Consolidation Agreement, Tranche A, 6.375%,
1/1/09
Kingdom of Morocco, 11.5%, 1/29/09 303,882 303,882
--------------------------------------
2,412,882 2,412,882
--------------------------------------
POLAND -- 0.8% ING Groep NV Time Deposit linked to Polish Zloty, 1,213,279 1,213,279
21.25%, 9/22/97
--------------------------------------
1,213,279 1,213,279
--------------------------------------
RUSSIA -- 2.3% Russian Federation (When issued), 12/15/20 3,356,563 3,356,563
--------------------------------------
3,356,563 3,356,563
--------------------------------------
SOUTH AFRICA -- 1.9% J.P. Morgan & Co. Time Deposit linked to South 2,753,710 2,753,710
African Rand, 16.25%, 6/11/97
--------------------------------------
2,753,710 2,753,710
--------------------------------------
VENEZUELA -- 11.3% Republic of Venezuela Collateralized Par Bond, 1,089,375 1,089,375
Series A, 6.75%, 3/31/20
Republic of Venezuela Front Loaded Interest 1,271,429 1,271,429
Reduction Bond, Series A, 6.75%, 3/31/07
Republic of Venezuela Front Loaded Interest 1,271,429 3,390,476 4,661,905
Reduction Bond, Series B, 6.75%, 3/31/07
Republic of Venezuela Floating Rate Debt 1,988,438 7,732,810 9,721,248
Conversion Bond, Series DL, LIBOR plus .875%,
6.5%, 12/18/07
--------------------------------------
4,349,242 12,394,715 16,743,957
--------------------------------------
49,515,698 83,080,774 132,596,472
Total Bonds
--------------------------------------
- ------------------------------------------------------------------------------------
CONVERTIBLE BOND -- 0.1%
MALAYSIA 125,000 125,000
CONVERTIBLE BOND -- 0.1%
MALAYSIA Telekom Malaysia Bhd., 4%, 10/3/04 111,875 111,875
--------------------------------------
111,875 111,875
Total Convertible Bond
--------------------------------------
<CAPTION>
COMBINED
SHARES SHARES SHARES
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ARGENTINA -- 2.3% 274,190 274,190
ARGENTINA -- 2.3% Nortel Inversora "A" (ADR) 3,402,699 3,402,699
--------------------------------------
3,402,699 3,402,699
Total Preferred Stock
--------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 109
THE LATIN AMERICA DOLLAR INCOME FUND, INC. & SCUDDER WORLD INCOME OPPORTUNITIES
FUND, INC.
COMBINING INVESTMENT PORTFOLIOS
AS OF APRIL 30, 1997 -- (CONTINUED)
<TABLE>
<CAPTION>
COMBINED
SHARES SHARES SHARES
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK -- 1.2%
VENEZUELA 417,283 417,283
- ------------------------------------------------------------------------------------
<CAPTION>
WORLD LATIN
INCOME AMERICA COMBINED
MARKET MARKET MARKET
VALUE($) VALUE($) VALUE($)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK -- 1.2%
VENEZUELA Alambres y Cables Venezolanos "C" 1,797,750 1,797,750
---------------------------------------
1,797,750 1,797,750
Total Common Stock
---------------------------------------
- ------------------------------------------------------------------------------------
56,633,323 91,051,473 147,684,796
TOTAL PORTFOLIO -- 100.0%
---------------------------------------
</TABLE>
(a) Principal amount is stated in U.S. dollars unless otherwise specified.
CURRENCY ABBREVIATIONS
<TABLE>
<S> <C>
CLP Chilean Peso
DEM German Deutsche Marks
EGP Egyptian Pound
GRD Greek Drachma
PLZ Polish Zloty
ZYR South African Rand
</TABLE>
9
<PAGE> 110
PART C -- OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article Twelve of the Articles of Incorporation and Article 10 of the Acquiring
Fund's Bylaws provide for indemnification. Directors and officers of the
Acquiring Fund shall not be liable for monetary damages as a director or
officer, except to the extent such exemption is not permitted by law. The
indemnification provisions provide specifically that the Acquiring Fund shall
indemnify each director or officer to the maximum extent permitted by the 1940
Act, the Securities Act, and by Maryland law in effect from time to time.
Insofar as indemnification for liabilities arising under the Securities Act
may be provided to directors, officers and controlling persons of the Acquiring
Fund, pursuant to the foregoing provisions or otherwise, the Acquiring Fund 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 Acquiring Fund of expenses
incurred or paid by a director, officer or controlling person of the Acquiring
Fund 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 Acquiring Fund 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 whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
ITEM 16. EXHIBITS
<TABLE>
<C> <S> <C>
(1)(a) -- Articles of Incorporation
(2) -- By-Laws
(3) -- Not applicable
(4) -- Agreement and Plan of Reorganization
(5) -- Not applicable
(6) -- Form of Current Investment Advisory, Management and Administration Agreement
(7) -- Not Applicable
(8) -- Not applicable
(9) -- Form of Custodian Agreement
(10) -- Not applicable
(11)(a) -- Opinion and consent of Willkie Farr & Gallagher*
(b) -- Opinion and consent of Venable, Baetjer and Howard, LLP*
(12) -- Opinion and Consent of Willkie Farr & Gallagher with respect to tax matters*
(13)(a) -- Form of Transfer Agency Agreement
(b) -- Terms and Conditions of Dividend Reinvestment and Cash Purchase Plan
(14)(a) -- Consent of Coopers & Lybrand L.L.P.
(b) -- Consent of Price Waterhouse LLP
(15) -- Not applicable
(16) -- Powers of Attorney*
(17) -- Form of Proxy Cards*
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a apart of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act, each
post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
C-1
<PAGE> 111
SIGNATURES
As required by the Securities Act of 1933, this amendment to the
registration statement has been signed on behalf of the Registrant, in the City
of New York, and State of New York, on the 11th day of September, 1997.
THE LATIN AMERICA DOLLAR
INCOME FUND, INC.
By: /s/ LYNN S. BIRDSONG
------------------------------
Lynn S. Birdsong
President
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS AMENDMENT TO THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
/s/ LYNN S. BIRDSONG President and Director September 11, 1997
- ---------------------------------------- (Principal Executive
Lynn S. Birdsong Officer)
/s/ EDMOND D. VILLANI Chairman of the Board and September 11, 1997
- ---------------------------------------- Director
Edmond D. Villani
/s/ PAMELA A. MCGRATH Treasurer (Principal Financial September 11, 1997
- ---------------------------------------- and
Pamela A. McGrath Accounting Officer)
/s/ ROBERT J. BOYD Director September 11, 1997
- ----------------------------------------
Robert J. Boyd
/s/ ROBERT J. CALLANDER Director September 11, 1997
- ----------------------------------------
Robert J. Callander
/s/ GEORGE M. LOVEJOY, JR. Director September 11, 1997
- ----------------------------------------
George M. Lovejoy, Jr.
/s/ RONALDO A. DA FROTA NOGUEIRA Director September 11, 1997
- ----------------------------------------
Ronaldo A. da Frota Nogueira
/s/ SUSAN KAUFMAN PURCELL Director September 11, 1997
- ----------------------------------------
Susan Kaufman Purcell
</TABLE>
C-2
<PAGE> 1
EXHIBIT (1)(a)
ARTICLES OF INCORPORATION
OF
LATIN AMERICA SOVEREIGN BOND FUND, INC.
FIRST: Incorporator. The undersigned, Josephine Boccia Link, whose post
office address is c/o Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022-4669, being at least eighteen years of
age, forms a corporation under the Maryland General Corporation Law (the
"MGCL").
SECOND: Name. The name of the corporation is Latin America Sovereign Bond
Fund, Inc. (the "Corporation").
THIRD: Corporate Purposes. The purpose for which the Corporation is
formed is to operate as and carry on the business of a closed-end management
investment company registered under the Investment Company Act of 1940, as
amended.
FOURTH: Address and Resident Agent. The post office address of the
principal office of the Corporation in the State of Maryland is c/o The
Corporation Trust Incorporated, First Maryland Building, 32 South Street,
Baltimore, Maryland 21202. The name and address of the resident agent of the
Corporation in the State of Maryland is c/o The Corporation Trust Incorporated,
First Maryland Building, 32 South Street, Baltimore, Maryland 21202.
FIFTH: Capital Stock.
(a) The total number of shares of capital stock which the Corporation shall
have authority to issue is one hundred million (100,000,000) shares, all of the
one class called Common Stock of one cent ($0.01) par value each, having an
aggregate par value of $1,000,000.
(b) The Corporation may issue fractional shares. Any fractional share shall
carry proportionately the rights of a whole share including, without limitation,
the right to vote and the right to receive dividends. A fractional share shall
not, however, have the right to receive a certificate evidencing it.
(c) All persons who shall acquire stock in the Corporation shall acquire
the stock subject to the provisions of these Articles of Incorporation and the
By-Laws of the Corporation, as from time to time amended.
(d) The Board of Directors shall have authority to classify and reclassify
any authorized but unissued shares of capital stock from time to time by setting
or changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of the capital stock.
(e) Notwithstanding any provision of law requiring any action to be taken
or authorized by the affirmative vote of the holders of a greater proportion of
the votes of all classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or authorized by the affirmative
vote of a majority of the total number of votes entitled to be cast thereon,
except as otherwise provided in these Articles of Incorporation.
SIXTH: Board of Directors.
(a) The initial number of directors of the Corporation shall be three. The
number of Directors of the Corporation may be increased or decreased from time
to time in the manner provided in the By-Laws of the Corporation, provided that
the number of Directors shall not be less than the minimum number prescribed by
the MGCL, 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
<PAGE> 2
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 and until their successors are
elected and have qualified. The Directors chosen to succeed those whose terms
are expiring will be identified as being of the same class as the Directors whom
they succeed. The term of office of one class of Directors will expire each
year. 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 equal 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:
Juris Padegs
Kathryn L. Quirk
Paul J. Elmlinger
SEVENTH: Management of the Affairs of the Corporation.
(a) All corporate powers and authority of the Corporation (except as
conferred on or reserved to the stockholders by statute, by these Articles of
Incorporation or by the By-Laws) shall be vested in and exercised by the Board
of Directors.
(b) The Board of Directors shall have the exclusive power to make, alter or
repeal the By-Laws of the Corporation except as otherwise provided by the Board
of Directors in the By-Laws or as required by the Investment Company Act of
1940, as amended.
(c) The Board of Directors shall have the power from time to time to
authorize payment of compensation to the directors for services to the
Corporation, including fees for attendance at meetings of the Board of Directors
and of committees.
(d) The Board of Directors shall have the power from time to time to
determine whether and to what extent, and at what times and places and under
what conditions and regulations, the accounts and books of the Corporation
(other than the stock ledger) shall be open to the inspection of stockholders;
and no stockholder shall have any right to inspect any account, book or document
of the Corporation except at such time as is conferred by statute or the By-Laws
or authorized by resolution of the Board of Directors or of the stockholders.
(e) Both stockholders and directors shall have the power, if the By-Laws so
provide, to hold their meetings and to have one or more offices, within or
without the State of Maryland, and to keep the books of the Corporation (except
as otherwise required by statute) outside the State of Maryland, at such places
as from time to time may be designated by the By-Laws or the Board of Directors.
(f) The Board of Directors shall have the power, without the assent or vote
of the stockholders, to authorize the issuance from time to time of shares of
the stock of any class of the Corporation, whether now or hereafter authorized,
and securities convertible into shares of stock of the Corporation of any class
or classes, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable.
(g) The Board of Directors shall have the power, without the assent or vote
of the stockholders, to authorize and issue obligations of the Corporation,
secured and unsecured, as the Board of Directors may determine, and to authorize
and cause to be executed mortgages and liens upon the real or personal property
of the Corporation.
(h) The Board of Directors shall have the power, notwithstanding anything
in these Articles of Incorporation to the contrary, to establish in its absolute
discretion the basis or method for determining the
2
<PAGE> 3
value of the assets belonging to any class, the amount of the liabilities
belonging to any class and the net asset value of each share of any class of the
Corporation's stock.
(i) The Board of Directors shall have the power to determine in accordance
with generally accepted accounting principles and practices what constitutes net
profits, earnings, surplus or net assets in excess of capital, and to determine
what accounting periods shall be used by the Corporation for any purpose; to set
apart out of any funds of the Corporation reserves for such purposes as it shall
determine and to abolish the same; to declare and pay any dividends and
distributions in cash, securities or other property from surplus or any funds
legally available therefor, at such intervals as it shall determine; to declare
dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for dividends or
any other distributions on any basis, including dates occurring less frequently
than the effectiveness of declarations thereof.
(j) The Board of Directors shall have the power, in addition to the powers
and authorities granted herein and by statute expressly conferred upon it, to
exercise all powers and do all acts that may be exercised or done by the
Corporation pursuant to the provisions of the laws of the State of Maryland,
these Articles of Incorporation and the By-Laws of the Corporation.
(k) Any determination made in good faith, and in accordance with accepted
accounting practices, if applicable, by or pursuant to the direction of the
Board of Directors, with respect to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which the reserves or
charges have been created has been paid or discharged or is then or thereafter
required to be paid or discharged), as to the value or liquidity of any security
owned by the Corporation, the determination of the net asset value of shares of
any class of the Corporation's capital stock, or as to any other matters
relating to the issuance, sale or other acquisition or disposition of securities
or shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors whether any transaction constitutes
a purchase of securities on "margin," a sale of securities "short," or an
underwriting of the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of these Articles of Incorporation shall be effective to
(i) require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the Investment Company Act of 1940, as amended, or of any
valid rule, regulation or order of the Securities and Exchange Commission under
those Acts or (ii) protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
EIGHTH: Special Vote of Stockholders.
(a) Except as otherwise provided in this Article EIGHTH, at least 75% of
the votes entitled to be cast by stockholders, in addition to the affirmative
vote of 75% of the entire 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 a
majority of the votes entitled to be cast by stockholders shall be required
to approve such action;
(ii) any stockholder proposal as to specific investment decisions made
or to be made with respect to the Corporation's assets;
3
<PAGE> 4
(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 a majority of the votes entitled to be cast by
stockholders shall be required to approve such action; 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, in which case
paragraph (c) below shall apply:
(A) The Business Combination shall have been approved by a vote of
at least 75% of the Continuing Directors.
(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:
(1) 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 (a) within the two-year period
immediately prior to the first public announcement of the proposal of
the Business Combination (the "Announcement Date"), or (b)(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
(2) 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 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, as amended, 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).
4
<PAGE> 5
(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;
(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 (1) sales of any securities
of the Corporation in connection with a public offering thereof, (2)
issuances of any securities of the Corporation pursuant to a dividend
reinvestment plan adopted by the Corporation and (3) 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 (as
hereinafter defined) of an Interested Party and has been a member of the
Board of Directors for a period of at least 12 months (or since the
Corporation's commencement of operations if that period is less than 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
(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 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.
(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, as amended, on
which such stock is listed, or, if such
5
<PAGE> 6
stock is not listed on any such exchange, the highest closing sale price
(if such stock is a National Market System security) or the highest
closing bid quotation (if such stock is not a National Market System
security) 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 System (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 in good faith
by 75% of the Continuing Directors; 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 in good
faith by 75% of the Continuing Directors.
(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.
(c) If any Business Combination described in paragraph (b)(i)(A) or (B) (if
the transfer or other disposition constitutes a transfer of all or substantially
all of the assets of the Corporation) is approved by a vote of 75% of the
Continuing Directors or all of the conditions in paragraph (a)(iv)(B), (C), (D),
(E) and (F) are satisfied, the affirmative vote of a majority of the votes
entitled to be cast by stockholders shall be required to approve such action. If
any other Business Combination is approved by a vote of 75% of the Continuing
Directors or all of the conditions in paragraph (a)(iv)(B), (C), (D), (E) and
(F) are satisfied, no stockholder vote shall be required to approve such action
unless otherwise provided in the charter or required by law.
NINTH: Pre-Emptive Rights. No holder of the Common Stock of the
Corporation or of any other class of stock or securities which may hereafter be
created shall be entitled as such, as a matter of right, to subscribe for or
purchase any part of any new or additional issue of stock of any class, or of
rights or options to purchase any stock, or of securities convertible into, or
carrying rights or options to purchase, stock of any class, whether now or
hereafter authorized or whether issued for money, for a consideration other than
money or by way of a dividend or otherwise, and all such rights are hereby
waived by each holder of Common Stock and of any other class of stock which may
hereafter be created.
TENTH: Reservation of Right to Amend. From time to time any of the
provisions of this Charter may be amended, altered or repealed (including any
amendment which alters the contract rights, as expressly set forth in the
charter, of any of the outstanding stock and substantially adversely affects the
stockholders rights) 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 (paragraphs (a) and
(b)), 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 EIGHTH and this Article TENTH may be amended, altered or repealed only
upon the vote of at least 75% of the votes entitled to be cast by stockholders
and the vote of at least 75% of the entire Board of Directors. The provisions of
Articles THIRD, SIXTH (paragraphs (a) and (b)), NINTH and ELEVENTH may be
amended, altered or repealed only upon the vote of at least 75% of
6
<PAGE> 7
the votes entitled to be cast by stockholders and the vote of at least 75% of
the entire Board of Directors, unless 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. The duration of the Corporation shall be perpetual.
TWELFTH: Limitation of Liability; Indemnification.
(a) To the fullest extent that limitations on the liability of directors
and officers are permitted by the MGCL, no director or officer of the
Corporation shall have any liability to the Corporation or its stockholders for
damages. This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation whether or not such
person is a director or officer at the time of any proceeding in which liability
is asserted.
(b) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted under the MGCL. The Corporation shall indemnify and
advance expenses to its officers to the same extent as its directors and may do
so to such further extent as is consistent with law. The Board of Directors may
by By-Law, resolution or agreement make further provision for indemnification of
directors, officers, employees and agents to the fullest extent permitted under
the MGCL.
(c) No provision of these Articles of Incorporation shall be effective to
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he 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.
(d) References to the MGCL in this Article TWELFTH are to that law as from
time to time amended. No amendment to the Corporation's Articles of
Incorporation shall affect any right of any person under this Article TWELFTH
based on any event, omission or proceeding prior to the amendment.
IN WITNESS WHEREOF, the undersigned has signed these Articles of
Incorporation and acknowledges them to be her act.
/s/ JOSEPHINE BOCCIA LINK
------------------------------------
Josephine Boccia Link
Date: May 5, 1992
7
<PAGE> 8
STATE OF MARYLAND
DEPARTMENT OF ASSESSMENTS
AND TAXATION
301 WEST PRESTON STREET BALTIMORE, MARYLAND 21201
DATE: JULY 02, 1992
THIS IS TO ADVISE YOU THAT YOUR ARTICLES OF AMENDMENT WITH A NAME CHANGE
FOR LATIN AMERICA SOVEREIGN BOND FUND, INC. CHANGING TO THE LATIN AMERICA DOLLAR
INCOME FUND, INC. WERE RECEIVED AND APPROVED FOR RECORD ON JULY 2, 1992 AT 2:02
PM.
FEE PAID: 116.00
[SEAL]
JOSEPH V. STEWART
Charter Specialist
<PAGE> 9
LATIN AMERICA SOVEREIGN BOND FUND, INC.
ARTICLES OF AMENDMENT
(UNDER SECTION 2-603 OF CORPORATIONS
AND ASSOCIATIONS ARTICLE)
Latin America Sovereign Bond Fund, Inc., a Maryland corporation having its
principal office in the State of Maryland, c/o The Corporation Trust
Incorporated, First Maryland Building, 32 South Street, Baltimore, Maryland
21202 (hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by striking out
Article Second of the Articles of Incorporation and inserting in lieu thereof
the following:
SECOND: Name: the name of the corporation is THE LATIN AMERICA DOLLAR
INCOME FUND, INC. (The "Corporation").
SECOND: The Board of Directors of the Corporation, by means of unanimous
written consent, adopted a resolution approving the foregoing amendment to the
Charter.
THIRD: There was no stock outstanding or subscribed for entitled to be
voted on the Charter amendment at the time of approval.
IN WITNESS WHEREOF, Latin America Sovereign Bond Fund, Inc. has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Assistant Secretary on , .
LATIN AMERICA SOVEREIGN BOND FUND, INC.
By:
-------------------------------------------------
Lynn S. Birdsong, President
Witness:
- ----------------------------------
Kathryn L. Quirk
Assistant Secretary
THE UNDERSIGNED, President of LATIN AMERICA SOVEREIGN BOND FUND, INC., who
executed on behalf of said corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects, and that this statement is made under the penalties of perjury.
----------------------------------------------------
Lynn S. Birdsong
President
<PAGE> 10
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
On July 28, 1992, the Board of Directors of The Latin America Dollar Income
Fund approved the following resolution amending the By-Laws of the Fund:
RESOLVED, that pursuant to the provisions of Section 11.1 of the
Fund's By-Laws, the first sentence of Section 12.1 of the Fund's By-Laws is
hereby amended to read as follows (additions are underlined, deletions are
struckout):
SECTION 12.1. ACTIONS RELATING TO DISCOUNT IN PRICE OF THE
CORPORATION'S SHARES. In the event that at any time during or after the
fifth second year following the initial public offering of shares of the
Corporation's Common Stock such shares publicly trade for a substantial
period of time at a substantial discount from the Corporation's then
current net asset value per share, the Board of Directors shall, at its
next regularly scheduled meeting, consider taking actions designed to
eliminate such discount.
The Board of Directors of The Latin America Dollar Income Fund, Inc.
approved the following amendment to the Fund's By-Laws on February 23, 1993:
RESOLVED, that pursuant to the provisions of Section 11.1 of the
Fund's By-Laws, the first sentence of Section 2.1 of the Fund's By-Laws is
hereby amended to read as follows (additions are underlined, deletions are
struckout):
SECTION 2.1. ANNUAL MEETINGS. An annual meeting of stockholders
for the election of Directors and the transaction of such other business
as may properly come before the meeting shall be held in April October.
<PAGE> 1
EXHIBIT (2)
LATIN AMERICA SOVEREIGN BOND FUND, INC.
A MARYLAND CORPORATION
BY-LAWS
MAY 5, 1992
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL............................ 1
Section 1.1. Principal Offices..................................................... 1
Section 1.2. Seal.................................................................. 1
ARTICLE II. STOCKHOLDERS................................................................ 1
Section 2.1. Annual Meetings....................................................... 1
Section 2.2. Special Meetings...................................................... 1
Section 2.3. Notice of Meetings.................................................... 1
Section 2.4. Notice of Stockholder Business........................................ 2
Section 2.5. Quorum................................................................ 2
Section 2.6. Voting................................................................ 2
Section 2.7. Stockholders Entitled to Vote......................................... 2
Section 2.8. Proxies............................................................... 3
Section 2.9. Voting and Inspectors................................................. 3
Section 2.10. Action Without Meeting................................................ 3
ARTICLE III. BOARD OF DIRECTORS......................................................... 3
Section 3.1. Powers................................................................ 3
Section 3.2. Power to Issue and Sell Stock......................................... 3
Section 3.3. Power to Declare Dividends............................................ 3
Section 3.4. Number and Term....................................................... 3
Section 3.5. Director Nominations.................................................. 4
Section 3.6. Election.............................................................. 5
Section 3.7. Vacancies and Newly Created Directorships............................. 5
Section 3.8. Removal............................................................... 5
Section 3.9. Annual and Regular Meetings........................................... 5
Section 3.10. Special Meetings...................................................... 5
Section 3.11. Waiver of Notice...................................................... 5
Section 3.12. Quorum and Voting..................................................... 5
Section 3.13. Action Without a Meeting.............................................. 5
Section 3.14. Compensation of Directors............................................. 6
ARTICLE IV. COMMITTEES.................................................................. 6
Section 4.1. Organization.......................................................... 6
Section 4.2. Executive Committee................................................... 6
Section 4.3. Other Committees...................................................... 6
Section 4.4. Proceedings and Quorum................................................ 6
ARTICLE V. OFFICERS..................................................................... 6
Section 5.1. General............................................................... 6
Section 5.2. Election, Tenure and Qualifications................................... 6
Section 5.3. Removal and Resignation............................................... 7
Section 5.4. Chairman of the Board................................................. 7
Section 5.5. Vice Chairman of the Board............................................ 7
Section 5.6. President............................................................. 7
Section 5.7. Vice President........................................................ 7
Section 5.8. Treasurer and Assistant Treasurers.................................... 7
Section 5.9. Secretary and Assistant Secretaries................................... 7
Section 5.10. Subordinate Officers.................................................. 8
Section 5.11. Remuneration.......................................................... 8
Section 5.12. Surety Bonds.......................................................... 8
ARTICLE VI. NET ASSET VALUE............................................................. 8
Section 6.1. Valuation of Assets................................................... 8
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE VII. CAPITAL STOCK.............................................................. 8
Section 7.1. Certificates of Stock................................................. 8
Section 7.2. Transfer of Shares.................................................... 8
Section 7.3. Stock Ledgers......................................................... 8
Section 7.4. Transfer Agents and Registrars........................................ 8
Section 7.5. Fixing of Record Date................................................. 9
Section 7.6. Lost, Stolen or Destroyed Certificates................................ 9
ARTICLE VIII. FISCAL YEAR AND ACCOUNTANT................................................ 9
Section 8.1. Fiscal Year........................................................... 9
Section 8.2. Accountant............................................................ 9
ARTICLE IX. CUSTODY OF SECURITIES....................................................... 9
Section 9.1. Employment of a Custodian............................................. 9
Section 9.2. Termination of Custodian Agreement.................................... 9
ARTICLE X. INDEMNIFICATION AND INSURANCE................................................ 10
Section 10.1. Indemnification of Directors, Officers and Members of the Advisory
Board................................................................. 10
Section 10.2. Insurance of Officers, Directors, Members of the Advisory Board,
Employees and Agents.................................................. 10
ARTICLE XI. AMENDMENTS.................................................................. 10
Section 11.1. General............................................................... 10
ARTICLE XII. SPECIAL PROVISIONS......................................................... 11
Section 12.1. Actions Relating to Discount in Price of the Corporation's Shares..... 11
Section 12.2. Advisory Board........................................................ 11
</TABLE>
ii
<PAGE> 4
BY-LAWS
OF
LATIN AMERICA SOVEREIGN BOND FUND, INC.
(A MARYLAND CORPORATION)
ARTICLE I.
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
SECTION 1.1. PRINCIPAL OFFICES. The principal office of Latin America
Sovereign Bond 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.
ARTICLE II.
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETINGS. An annual meeting of stockholders for the
election of Directors and the transaction of such other business as may properly
come before the meeting shall be held in April. The meeting will be held at such
place within the United States as the Board of Directors shall select. The first
annual stockholders' meeting shall be held in April 1993 unless otherwise
determined by the Board of Directors.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of stockholders may be
called at any time by the President, by a majority of the Board of Directors or
by the Chairman of the Board, if any, and shall be held at such time and place
and may conduct such business as may be provided herein and as may be stated in
the notice of the meeting.
Special meetings of the stockholders shall also be called by the Secretary
upon the written request of the holders of shares entitled to not less than 25%
of all the votes entitled to be cast at such meeting, provided that (a) such
request shall state the purposes of such meeting and the matters proposed to be
acted on, and (b) the stockholders requesting such meeting shall have paid to
the Corporation the reasonably estimated cost of preparing and mailing the
notice thereof, which the Secretary shall determine and specify to such
stockholders. No special meeting shall be called upon the request of
stockholders to consider any matter which is substantially the same as a matter
voted upon at any special meeting of the stockholders held during the preceding
12 months, unless requested by the holders of a majority of all shares entitled
to be voted at such meeting.
SECTION 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.
<PAGE> 5
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 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 meeting except in accordance with
the procedures set forth in this Section 2.4. The Chairman of the annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 2.4, and if he should so
determine, he shall so declare to the meeting that any such business not
properly brought before the meeting shall not be considered or transacted.
SECTION 2.5. QUORUM. The presence at any stockholders' meeting, in person
or by proxy, of stockholders entitled to cast a majority of the votes entitled
to be cast thereat shall be necessary and sufficient to constitute a quorum for
the transaction of business. In the absence of a quorum, the holders of a
majority of shares entitled to vote at the meeting and present in person or by
proxy, or, if no stockholder entitled to vote is present in person or by proxy,
any officer present entitled to preside or act as Secretary of such meeting, may
adjourn the meeting sine die or from time to time without further notice to a
date not more than 120 days after the original record date. Any business that
might have been transacted at the meeting originally called may be transacted at
any such adjourned meeting at which a quorum is present.
SECTION 2.6. 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 7.5 of
Article VII hereof. Except as otherwise specifically provided in the Articles of
Incorporation or these By-Laws or as required by law, as amended from time to
time, all matters shall be decided by a vote of the majority of the votes
validly cast. The vote upon any question shall be by ballot whenever requested
by any person entitled to vote, but, unless such a request is made, voting may
be conducted in any way approved by the meeting.
SECTION 2.7. STOCKHOLDERS ENTITLED TO VOTE. If the Board of Directors
sets a record date for the determination of stockholders entitled to notice of
or to vote at any stockholders' meeting in accordance with Section 7.5 of
Article VII hereof, each stockholder of the Corporation shall be entitled to
vote, in person or by proxy, each share of stock standing in his name on the
books of the Corporation on such record date. If no record date has been fixed,
the record date for the determination of stockholders entitled to notice of or
to vote at a meeting of stockholders shall be determined in accordance with the
Maryland General Corporation Law (the "MGCL").
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<PAGE> 6
SECTION 2.8. PROXIES. The right to vote by proxy shall exist only if the
instrument authorizing such proxy to act shall have been signed by the
stockholder or by his duly authorized attorney. Unless a proxy provides
otherwise, it is not valid more than eleven months after its date. Proxies shall
be delivered prior to the meeting to the Secretary of the Corporation or to the
person acting as Secretary of the meeting before being voted. A proxy purporting
to be executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise.
SECTION 2.9. VOTING AND INSPECTORS. At any election of Directors, the
Chairman of the meeting may appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Director shall be appointed as such
an inspector.
SECTION 2.10. ACTION WITHOUT MEETING. Any action to be taken by
stockholders may be taken without a meeting if (a) all stockholders entitled to
vote on the matter consent to the action in writing, (b) all stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent and (c) said consents and waivers are filed with
the records of the meetings of stockholders. Such consent shall be treated for
all purposes as a vote at the meeting.
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 Articles of Incorporation 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 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 U.S. Securities and Exchange Commission (the "SEC")
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 SEC may
prescribe.
(c) Notwithstanding the above provisions of this Section 3.3, the Board of
Directors may at any time declare and distribute pro rata among the stockholders
a stock dividend out of the Corporation's authorized but unissued shares of
stock to the extent permitted by applicable law, including any shares previously
purchased by the Corporation, provided that such dividend shall not be
distributed in shares of any class with respect to any shares of a different
class unless approved in accordance with the MGCL.
SECTION 3.4. NUMBER AND TERM. The Board of Directors shall consist of not
fewer than three, nor more than twelve Directors, as specified by resolution of
the majority of the entire Board of Directors, provided that at least 40% of the
entire Board of Directors shall be persons who are not interested persons of the
Corporation
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as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
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 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. The Directors
chosen to succeed those whose terms are expiring will be identified as being of
the same class as the Directors whom they succeed. The term of office of one
class of Directors will expire each year. 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
equal as possible, but in no event shall a decrease in the number of Directors
shorten the term of any incumbent Director.
SECTION 3.5. DIRECTOR NOMINATIONS.
(a) Only persons who are nominated in accordance with the procedures set
forth in this Section 3.5 shall be eligible for election or re-election as
Directors. Nominations of persons for election or re-election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors or by any stockholder of the Corporation
who is entitled to vote for the election of such nominee at the meeting and who
complies with the notice procedures set forth in this Section 3.5.
(b) Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice delivered in writing
to the Secretary of the Corporation. To be timely, any such notice by a
stockholder must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than 60 days prior to the
meeting; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, any such
notice by a stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which notice of the date
of the meeting was given or such public disclosure was made.
(c) Any such notice by a stockholder shall set forth (i) as to each person
whom the stockholder proposes to nominate for election or re-election as a
Director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the capital stock of the Corporation which are
beneficially owned by such person and (D) any other information relating to such
person that is required to be disclosed in solicitations of proxies for the
election of Directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, 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 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
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<PAGE> 8
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 shares present in
person or by proxy and entitled to vote 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; provided, however, that, if a vacancy is filled
during such time as shares of the Corporation are outstanding, immediately after
filling such vacancy, at least two-thirds ( 2/3) of the Directors then holding
office shall have been elected to such office by the stockholders of the
Corporation. In the event that at any time, other than the time preceding the
first annual stockholders' meeting, less than a majority of the Directors of the
Corporation holding office at that time were elected by the stockholders, a
meeting of the stockholders shall be held promptly and in any event within 60
days for the purpose of electing Directors to fill any existing vacancies in the
Board of Directors unless the SEC shall by order extend such period.
SECTION 3.8. REMOVAL. A Director may be removed from office only for
cause and only by the vote of 75% of the votes entitled to be cast for the
election of Directors.
SECTION 3.9. ANNUAL AND REGULAR MEETINGS. The annual meeting of the Board
of Directors for choosing officers and transacting other proper business shall
be held immediately after the annual stockholders' meeting at the place of such
meeting. The Board of Directors from time to time may provide by resolution for
the holding of regular meetings and fix their time and place within or outside
the State of Maryland. Notice of such annual and regular meetings need not be in
writing, provided that written notice of any change in the time or place of such
meetings shall be sent promptly, in the manner provided in Section 3.10 of this
Article III for notice of special meetings, to each Director not present at the
meeting at which such change was made. Members of the Board of Directors or any
committee designated thereby may participate in a meeting of such Board or
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time and participation by such means shall constitute presence in
person at a meeting.
SECTION 3.10. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place and for any purpose when called by
the Chairman of the Board or by a majority of the Directors. Notice of special
meetings, stating the time and place, shall be (a) mailed to each Director at
his residence or regular place of business at least three days before the day on
which a special meeting is to be held or (b) delivered to him personally or
transmitted to him by telegraph, cable or other communication leaving a visual
record at least one day before the meeting.
SECTION 3.11. WAIVER OF NOTICE. No notice of any meeting need be given to
any Director who is present at the meeting or who waives notice of such meeting
in writing (which waiver shall be filed with the records of such meeting),
whether before or after the time of the meeting.
SECTION 3.12. QUORUM AND VOTING. At all meetings of the Board of
Directors, the presence of a majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. In the absence of a quorum,
a majority of the Directors present may adjourn the meeting, from time to time,
until a quorum shall be present. The action of a majority of the Directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by law, by the Articles of Incorporation or by these By-Laws;
provided, however, that no action shall be taken without the affirmative vote of
75% of the Directors with respect to the election of officers and the
compensation of directors and officers.
SECTION 3.13. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent to
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<PAGE> 9
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 Corporation for their services as may from
time to time be determined by resolution of the Board of Directors.
ARTICLE IV.
COMMITTEES
SECTION 4.1. ORGANIZATION. The Board may designate one or more
committees, including an Executive Committee, that shall consist of not less
than two 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.
SECTION 4.2. EXECUTIVE COMMITTEE. Unless otherwise provided by resolution
of the Board of Directors, when the Board of Directors is not in session the
Executive Committee shall have and may exercise all powers of the Board of
Directors in the management of the business and affairs of the Corporation that
may lawfully be exercised by an Executive Committee, including, without
limitation, to appoint and remove members of any Advisory Board of the
Corporation. The Chairman of the Board, if any, and the President of the
Corporation, if he is a director of the Corporation, 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.
SECTION 5.2. ELECTION, TENURE AND QUALIFICATIONS. The officers of the
Corporation, except those appointed as provided in Section 5.10 of this Article
V, shall be elected by the Board of Directors at its first meeting or at such
meetings as shall be held prior to its first annual meeting, and thereafter
annually at its annual meeting. If any officers are 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.
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SECTION 5.3. REMOVAL AND RESIGNATION. Whenever in the Board's judgment
the best interest of the Corporation will be served thereby, any officer may be
removed from office by the vote of a majority of the members of the Board of
Directors given at a regular meeting or any special meeting called for such
purpose. Any officer may resign his office at any time by delivering a written
resignation to the Board of Directors, the President, the Secretary or any
Assistant Secretary. Unless otherwise specified therein, such resignation shall
take effect upon delivery.
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. In addition, the Chairman of the Board shall be ex officio a
non-voting member of all committees of the Board of Directors of which he is not
an appointed voting member. 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 there be such an officer, shall consult with the Chairman as to the policies
of the Corporation and as to the agendas to be presented at the meetings of the
Board of Directors. In the absence of the Chairman of the Board and the
President, he shall preside at meetings of the Board of Directors. He shall have
such powers and perform such other duties as may be assigned to him from time to
time by the Chairman.
SECTION 5.6. PRESIDENT. The President shall be the chief executive
officer of the Corporation and, in the absence of the Chairman of the Board or
if no Chairman of the Board has been chosen, he shall preside at all
stockholders' meetings and at all meetings of the Board of Directors and shall
in general exercise the powers and perform the duties of the Chairman of the
Board. Subject to the supervision of the Board of Directors, he shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers, employees and agents. Except as the Board
of Directors may otherwise order, he may sign in the name and on behalf of the
Corporation all deeds, bonds, contracts or agreements. He shall exercise such
other powers and perform such other duties as from time to time may be assigned
to him by the Board of Directors.
SECTION 5.7. VICE PRESIDENT. The Board of Directors may from time to time
elect one or more Vice Presidents who shall have such powers and perform such
duties as from time to time may be assigned to them by the Board of Directors or
the President. At the request, or in the absence or disability, of the
President, the Vice President (or, if there are two or more Vice Presidents,
then the senior of the Vice Presidents present and able to act) may perform all
the duties of the President and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
SECTION 5.8. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall be
the principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. He shall render to the
Board of Directors, whenever directed by the Board, an account of the financial
condition of the Corporation and of all his transactions as Treasurer; and as
soon as possible after the close of each financial year he shall make and submit
to the Board of Directors a like report for such financial year. He shall
perform all acts incidental to the Office of Treasurer, subject to the control
of the Board of Directors.
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.
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SECTION 5.10. SUBORDINATE OFFICERS. The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more 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 SEC) 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 the Board of Directors. Such method shall be
reduced to writing and maintained in the Corporation's permanent records.
ARTICLE VII.
CAPITAL STOCK
SECTION 7.1. CERTIFICATES OF STOCK. The interest of each stockholder of
the Corporation shall be evidenced in such form as the Board of Directors may
from time to time prescribe. No certificate shall be valid unless it is signed
by the Chairman of the Board, the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
of the Corporation and sealed with its seal, or bears the facsimile signatures
of such officers and a facsimile of such seal.
SECTION 7.2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same number of shares of
the same class, duly endorsed or accompanied by proper instruments of assignment
and transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require. The shares of stock of the
Corporation may be freely transferred, and the Board of Directors may, from time
to time, adopt rules and regulations with reference to the method of transfer of
the shares of stock of the Corporation.
SECTION 7.3. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the 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. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made, all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned.
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SECTION 7.5. FIXING OF RECORD DATE. The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, provided that
(1) such record date may not be prior to the close of business on the day the
record date is fixed and shall be within 90 days prior to the date on which the
particular action requiring such determination will be taken; and (2) in the
case of a meeting of stockholders, the record date shall be at least 10 days
before the date of the meeting.
SECTION 7.6. LOST, STOLEN OR DESTROYED CERTIFICATES. Before issuing a new
certificate for stock of the Corporation alleged to have been lost, stolen or
destroyed, the Board of Directors or any officer authorized by the Board may, in
its discretion, require the owner of the lost, stolen or destroyed certificate
(or his legal representative) to give the Corporation a bond or other indemnity,
in such form and in such amount as the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the Board or any such
officer, sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VIII.
FISCAL YEAR AND ACCOUNTANT
SECTION 8.1. FISCAL YEAR. The fiscal year of the Corporation shall,
unless otherwise ordered by the Board of Directors, be twelve calendar months
ending on the 31st day of October.
SECTION 8.2. ACCOUNTANT.
(a) The Corporation shall employ an independent public accountant or a firm
of independent public accountants of national reputation as its Accountant to
examine the accounts of the Corporation and to sign and certify financial
statements filed by the Corporation. The Accountants' certificates and reports
shall be addressed both to the Board of Directors and to the stockholders. The
employment of the Accountant shall be conditioned upon the right of the
Corporation to terminate the employment forthwith without any penalty by vote of
a majority of the outstanding voting securities at any stockholders' meeting
called for that purpose.
(b) A majority of the members of the Board of Directors who are not
"interested persons" (as such term is defined in the 1940 Act) of the
Corporation shall select the Accountant at any meeting held in a manner
consistent with the 1940 Act and the rules and regulations thereunder. Such
selection shall be submitted for ratification or rejection at the next
succeeding annual stockholders' meeting. If the stockholders shall reject such
selection at such meeting, the Accountant shall be selected by majority vote of
the Corporation's outstanding voting securities, either at the meeting at which
the rejection occurred or at a subsequent meeting of stockholders called for
that purpose.
(c) Any vacancy occurring between annual meetings, due to the resignation
of the Accountant, may be filled by the vote of a majority of the members of the
Board of Directors who are not "interested persons".
ARTICLE IX.
CUSTODY OF SECURITIES
SECTION 9.1. EMPLOYMENT OF A CUSTODIAN. The Corporation shall place and
at all times maintain in the custody of a Custodian (including any sub-custodian
for the Custodian) all funds, securities and similar investments owned by the
Corporation. The Custodian (and any sub-custodian) shall be an institution
conforming to the requirements of Section 17(f) of the 1940 Act and the rules of
the SEC thereunder. The Custodian shall be appointed from time to time by the
Board of Directors, which shall fix its remuneration.
SECTION 9.2. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of the
Custodian Agreement or inability of the Custodian to continue to serve, the
Board of Directors shall promptly appoint a successor
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Custodian, but in the event that no successor Custodian can be found who has the
required qualifications and is willing to serve, the Board of Directors shall
call as promptly as possible a special meeting of the stockholders to determine
whether the Corporation shall function without a Custodian or shall be
liquidated. If so directed by vote of the holders of a majority of the
outstanding shares of stock entitled to vote of the Corporation, the Custodian
shall deliver and pay over all property of the Corporation held by it as
specified in such vote.
ARTICLE X.
INDEMNIFICATION AND INSURANCE
SECTION 10.1. INDEMNIFICATION OF DIRECTORS, OFFICERS AND MEMBERS OF THE
ADVISORY BOARD. To the maximum extent permitted by the 1940 Act, the Securities
Act of 1933, as amended (the "1933 Act") (as such statutes are now or
hereinafter in force), and by Maryland law in effect from time to time, the
Corporation shall indemnify, and shall pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (i) any individual who is a
present or former Director, officer or member of the Advisory Board of the
Corporation or (ii) any individual who serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director or officer of such corporation or other enterprise or as a partner
or trustee of such partnership, joint venture, trust, employee benefit plan or
other enterprise at the request of the Corporation. The Corporation may, with
the approval of its Board of Directors, provide such indemnification and
advancement of expenses to a person who served a predecessor of the Corporation
in any of the capacities described in (i) or (ii) above and to any employee or
agent of the Corporation or a predecessor of the Corporation. Indemnification or
advancement shall be made only as authorized for a specific proceeding upon (i)
a determination that indemnification of or advancement to such person is proper
in the circumstances because he has met the applicable standard of conduct for
indemnification or applicable requirement for advancement and (ii) such other
authorizations and determinations as may be required by law to be made by (A)
the Board of Directors of the Corporation by the vote of a majority of a quorum
consisting of Directors who are neither "interested persons" of the Corporation
as defined in the 1940 Act nor parties to such proceeding or, if such quorum
cannot be obtained, by a majority vote of a committee of the Board of Directors
consisting solely of two or more such Directors who are duly designated to act
in the matter by a majority vote of the full Board of Directors; or (B)
independent legal counsel in a written opinion, which counsel shall be selected
in accordance with such procedures as may be required by law, provided, however,
that such counsel shall make only such determinations and authorizations as are
permitted by law to be made by independent counsel; or (C) the stockholders of
the Corporation acting in accordance with the Articles of Incorporation and
these By-Laws and applicable law.
Neither the amendment nor repeal of this Article X nor the adoption or
amendment of any other provision of these By-Laws or the Articles of
Incorporation inconsistent with this Article X, shall apply to or affect in any
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption.
SECTION 10.2. INSURANCE OF OFFICERS, DIRECTORS, MEMBERS OF THE ADVISORY
BOARD, EMPLOYEES AND AGENTS. To the maximum extent permitted by the 1940 Act,
the 1933 Act (as such statutes are now or hereinafter in force) and by Maryland
law in effect from time to time, the Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, member of
the Advisory Board, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a Director, officer, employee, partner,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in or arising out of his position.
ARTICLE XI.
AMENDMENTS
SECTION 11.1. GENERAL. Except as provided in the next succeeding sentence
and in the Articles of Incorporation, all By-Laws of the Corporation, whether
adopted by the Board of Directors or the stockholders, shall be subject to
amendment, alteration or repeal, and new By-Laws may be made, by the affirmative
vote of
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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,
3.5 and 3.8 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) the
Board of Directors, including 75% of the Continuing Directors (as such term is
defined in Article EIGHTH of the Corporation's Articles of Incorporation).
ARTICLE XII.
SPECIAL PROVISIONS
SECTION 12.1. ACTIONS RELATING TO DISCOUNT IN PRICE OF THE CORPORATION'S
SHARES. In the event that at any time during or after the fifth year following
the initial public offering of shares of the Corporation's Common Stock such
shares publicly trade for a substantial period of time at a substantial discount
from the Corporation's then current net asset value per share, the Board of
Directors shall, at its next regularly scheduled meeting, consider taking
actions designed to eliminate such discount. The actions considered by the Board
of Directors may include periodic repurchases by the Corporation of its shares
of Common Stock or an amendment to the Corporation's Articles of Incorporation
to make the Corporation's Common Stock a "redeemable security" (as such term is
defined in the 1940 Act), subject in all events to compliance with all
applicable provisions of the Corporation's Articles of Incorporation, these
By-Laws, the MGCL and the 1940 Act.
SECTION 12.2. ADVISORY BOARD. The Board of Directors of the Corporation
may establish an advisory board (the "Advisory Board"), the majority of whose
members will be independent advisers, to provide consulting services regarding
economic and political trends and developments affecting Latin America. Meetings
of the Advisory Board will be held at the request of the Corporation or Scudder,
Stevens & Clark, Inc., the Corporation's investment manager (the "Investment
Manager"), or, when the Board of Directors deems it appropriate, in conjunction
with a meeting of the Board of Directors of the Corporation. The members of the
Advisory Board shall also be available to consult individually with
representatives of the Corporation or the Investment Manager. The Advisory Board
will possess no authority or responsibility with respect to the Corporation's
investments, management or operation and will make no recommendations as to
investments made or contemplated by the Corporation. Advisory Board members will
receive a fee for their services as determined by the Board of Directors, and
will be entitled to reimbursement for travel and out-of-pocket expenses incurred
in connection with Advisory Board meetings.
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EXHIBIT 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of the 10th day of September, 1997, by and between The Latin America Dollar
Income Fund, Inc., a Maryland corporation ("LADIF"), and Scudder World Income
Opportunities Fund, Inc., a Maryland corporation ("SWIOF").
PLAN OF REORGANIZATION
The reorganization will comprise the acquisition by LADIF of
substantially all of the assets, and the assumption of substantially all of the
liabilities, of SWIOF in exchange solely for an equal aggregate net asset value
of LADIF's shares of common stock, with a par value of $0.01 per share (the
"LADIF Common Stock"), and the subsequent distribution to SWIOF stockholders in
liquidation of SWIOF of all of the LADIF Common Stock received in exchange for
their corresponding shares of common stock of SWIOF, with a par value of $0.01
per share (the "SWIOF Common Stock"), upon and subject to the terms hereinafter
set forth (the "Reorganization").
In the course of the Reorganization, LADIF Common Stock will be
distributed to SWIOF stockholders as follows: each holder of SWIOF Common Stock
will be entitled to receive the number of shares of LADIF Common Stock to be
received by SWIOF having an aggregate net asset value equal to the aggregate net
asset value of the SWIOF Common Stock owned by such stockholder on the Exchange
Date (as defined in Section 7 of this Agreement). In consideration therefor, on
the Exchange Date LADIF shall assume substantially all of SWIOF's obligations
and liabilities then existing, whether absolute, accrued, contingent or
otherwise. It is intended that the Reorganization described in this Plan shall
be a reorganization within the meaning of Section 368(a)(l)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
As promptly as practicable after the liquidation of SWIOF pursuant
to the Reorganization, SWIOF shall be dissolved in accordance with the laws of
the State of Maryland and will terminate its registration under the Investment
Company Act of 1940, as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of
the premises and the covenants and agreements hereinafter set forth, and
intending to be legally bound, SWIOF and LADIF hereby agree as follows:
1. Representations and Warranties of SWIOF. SWIOF represents and
warrants to, and agrees with, LADIF that:
(a) SWIOF is a corporation duly organized, validly existing and in
good standing in conformity with the laws of the State of Maryland, and has the
power to own all of its assets and to perform its obligations under this
Agreement. SWIOF has all necessary Federal, state and local authorizations to
carry on its business as it is now being conducted and to perform its
obligations under this Agreement.
<PAGE> 2
(b) SWIOF is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-8316)
and such registration has not been revoked or rescinded and is in full force and
effect. SWIOF has elected to qualify and has qualified as a regulated investment
company under Sections 851-855 of the Code as of its taxable year ended April
30, 1997, has been a regulated investment company at all times since its
inception and meets the requirements for and intends to continue to qualify as a
regulated investment company for its taxable year ending upon the liquidation of
SWIOF.
(c) As used in this Agreement, the term "Investments" shall mean (i)
the investments of SWIOF shown on the schedule of its investments as of the
Valuation Time (as defined in Section 3(c) of this Agreement) furnished to
LADIF, with such additions thereto and deletions therefrom as may have arisen in
the course of SWIOF's business up to the Valuation Time; and (ii) all other
assets owned by SWIOF or liabilities incurred as of the Valuation Time, except
that SWIOF shall retain cash, bank deposits or cash equivalent securities in an
estimated amount necessary to (1) discharge its unpaid liabilities on its books
at the Valuation Time (including, but not limited to, its income dividends and
capital gains distributions, if any, payable for the period prior to the
Valuation Time), and (2) pay such contingent and other liabilities as the Board
of Directors of SWIOF reasonably shall deem to exist against SWIOF, if any, at
the Valuation Time, for which contingent and other appropriate liability
reserves shall be established on SWIOF's books. SWIOF also shall retain any and
all rights which it may have over and against any other person which may have
accrued up to the Valuation Time. Any unexpended portion of the foregoing funds
so retained by SWIOF shall be disbursed by SWIOF pro rata to its stockholders
upon dissolution of SWIOF as a final liquidating dividend.
(d) SWIOF has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement has been duly authorized by all necessary action of its Board of
Directors, and, subject to the approval of this Agreement and the Reorganization
by SWIOF stockholders, this Agreement constitutes a valid and binding agreement
enforceable against SWIOF in accordance with its terms, subject to the effects
of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and to general equity
principles.
(e) LADIF has been furnished with a statement of assets, liabilities
and capital and a schedule of investments of SWIOF, each as of April 30, 1997,
said financial statements having been audited by Coopers & Lybrand LLP,
independent public accountants, have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis and fairly present
the financial position of SWIOF as of the date thereof. An unaudited statement
of assets, liabilities and capital of SWIOF and an unaudited schedule of
investments of SWIOF, each as of the Valuation Time, will be furnished to LADIF
at or prior to the Exchange Date for the purpose of determining the number of
shares of LADIF Common Stock to be issued pursuant to Section 4 of this
Agreement; and such unaudited statements will fairly present the financial
position of SWIOF as of the Valuation Time in conformity with generally accepted
accounting principles applied on a consistent basis.
(f) There are no material legal, administrative or other proceedings
pending or, to the knowledge of SWIOF, threatened against SWIOF which assert
liability on the part of SWIOF or
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which materially affect its financial condition or its ability to consummate the
Reorganization. SWIOF is not charged with or, to the best of its knowledge,
threatened with any violation or investigation of any possible violation of any
provisions of any Federal, state or local law or regulation or administrative
ruling relating to any aspect of its business.
(g) There are no material contracts outstanding to which SWIOF is a
party that have not been disclosed in the N-14 Registration Statement (as
defined in subsection (m) below) or will not otherwise be disclosed to LADIF
prior to the Valuation Time.
(h) SWIOF is not a party to or obligated under any provision of its
Articles of Incorporation, as amended, or its by-laws, as amended, or any
contract or other commitment or obligation, and is not subject to any order or
decree that would be violated by its execution of or performance of its
obligations under this Agreement.
(i) SWIOF has no known liabilities of a material amount, contingent
or otherwise, other than those shown on its statements of assets, liabilities
and capital referred to above, those incurred in the ordinary course of its
business as an investment company since April 30, 1997 and those incurred in
connection with the Reorganization. As of the Valuation Time, SWIOF will advise
LADIF in writing of all known liabilities, contingent or otherwise, whether or
not incurred in the ordinary course of business, existing or accrued as of such
time.
(j) SWIOF has filed, or has obtained extensions to file, all
Federal, state and local tax returns that are required to be filed by it, and
has paid or has obtained extensions to pay, all Federal, state and local taxes
shown on said returns to be due and owing and all assessments received by it, up
to and including the taxable year in which the Exchange Date occurs. All tax
liabilities of SWIOF have adequately been provided for on its books, and no tax
deficiency or liability of SWIOF has been asserted and no question with respect
thereto has been raised by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid, up to and including the
taxable year in which the Exchange Date occurs.
(k) At both the Valuation Time and the Exchange Date, SWIOF will
have full right, power and authority to sell, assign, transfer and deliver the
Investments. At the Exchange Date, subject only to the delivery of the
Investments as contemplated by this Agreement, SWIOF will have good and
marketable title to all of the Investments, and LADIF will acquire all of the
Investments free and clear of any encumbrances, liens or security interests and
without any restrictions upon the transfer thereof (except those imposed by the
Federal, state or foreign securities laws and those imperfections of title or
encumbrances as do not materially detract from the value or use of the
Investments or materially affect title thereto).
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by SWIOF of the
Reorganization, except such as may be required under the Securities Act of 1933,
as amended (the "1933 Act"), the Securities Exchange Act of 1934 (the "1934
Act"), and the 1940 Act or state securities laws (which term as used herein
shall include the laws of the District of Columbia and Puerto Rico) and except
for the filing of Articles of Transfer with the Maryland State Department of
Assessment and Taxation.
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(m) The registration statement filed by LADIF on Form N-14 relating
to the LADIF Common Stock to be issued pursuant to this Agreement, and any
supplement or amendment thereto or to the documents therein (as amended, the
"N-14 Registration Statement"), on the effective date of the N-14 Registration
Statement, at the time of the stockholders' meetings referred to in Section 6(a)
of this Agreement and on the Exchange Date, insofar as it relates to SWIOF (i)
complied or will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and
(ii) did not or will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and the prospectus and statement of
additional information included therein did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the representations and
warranties in this subsection shall apply only to statements in or omissions
from the N-14 Registration Statement made in reliance upon and in conformity
with information furnished by SWIOF for use in the N-14 Registration Statement.
(n) SWIOF is authorized to issue 100,000,000 shares of capital
stock, par value $0.01 per share, each outstanding share of which is fully paid,
nonassessable and has full voting rights.
(o) All of the issued and outstanding shares of SWIOF Common Stock
were offered for sale and sold in conformity with all applicable Federal and
state securities laws.
(p) The books and records of SWIOF made available to LADIF and/or
its counsel are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of SWIOF.
(q) SWIOF will not sell or otherwise dispose of any of the shares of
LADIF to be received in the Reorganization, except in distribution to the
stockholders of SWIOF.
(r) Since April 30, 1997, there has not been any material adverse
change in SWIOF's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence by
SWIOF of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and accepted by
LADIF. For purposes of this subparagraph (r), a decline in net asset value per
share or the total assets of SWIOF in the ordinary course of business shall not
constitute a material adverse change.
(s) The information to be furnished by SWIOF for use in no-action
letters, applications for exemptive orders and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations thereunder
applicable thereto.
(t) The Board of Directors of SWIOF, including a majority of the
directors who are not "interested persons" of SWIOF (as defined by the 1940
Act), have determined that this Agreement and the transactions contemplated
hereby are in the best interests of SWIOF and that the interests of the SWIOF
stockholders would not be diluted as a result of such transactions.
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2. Representations and Warranties of LADIF. LADIF represents and
warrants to, and agrees with, SWIOF that:
(a) LADIF is a corporation duly organized, validly existing and in
good standing in conformity with the laws of the State of Maryland, and has the
power to own all of its assets and to perform its obligations under this
Agreement. LADIF has all necessary Federal, state and local authorizations to
carry on its business as it is now being conducted and to perform its
obligations under this Agreement.
(b) LADIF is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-6671),
and such registration has not been revoked or rescinded and is in full force and
effect. LADIF has elected to qualify and has qualified as a regulated investment
company under Sections 851-855 of the Code as of its taxable year ending October
31, 1996, and has been a regulated investment company at all times since its
inception.
(c) SWIOF has been furnished with a statement of assets, liabilities
and capital and a schedule of investments of LADIF, each as of April 30, 1997,
said financial statements having been audited by Price Waterhouse LLP,
independent accountants, have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis and fairly present
the financial position of LADIF as of the date thereof. An unaudited statement
of assets, liabilities and capital of LADIF and an unaudited schedule of
investments of LADIF, each as of the Valuation Time, will be furnished to SWIOF
at or prior to the Exchange Date for the purpose of determining the number of
shares of LADIF Common Stock to be issued pursuant to Section 4 of this
Agreement; and such unaudited financial statements will fairly present the
financial position of LADIF as of the Valuation Time in conformity with
generally accepted accounting principles applied on a consistent basis.
(d) LADIF has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement has been duly authorized by all necessary action of its Board of
Directors, and, subject to the approval of the issuance of the LADIF Common
Stock in the Reorganization by the LADIF stockholders, this Agreement
constitutes a valid and binding agreement enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights generally
and to general equity principles.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of LADIF, threatened against LADIF which assert
liability on the part of LADIF or which materially affect its financial
condition or its ability to consummate the Reorganization. LADIF is not charged
with or, to the best of its knowledge, threatened with any violation or
investigation of any possible violation of any provisions of any Federal, state
or local law or regulation or administrative ruling relating to any aspect of
its business.
(f) LADIF is not a party to or obligated under any provision of its
Articles of Incorporation, as amended, or its by-laws, as amended, or any
contract or other commitment or
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obligation, and is not subject to any order or decree which would be violated by
its execution of or performance of its obligations under this Agreement.
(g) There are no material contracts outstanding to which LADIF is a
party that have not been disclosed in the N-14 Registration Statement or will
not otherwise be disclosed to SWIOF prior to the Valuation Time.
(h) LADIF has no known liabilities of a material amount, contingent
or otherwise, other than those shown on LADIF's statements of assets,
liabilities and capital referred to above, those incurred in the ordinary course
of its business as an investment company since April 30, 1997 and those incurred
in connection with the Reorganization. As of the Valuation Time, LADIF will
advise SWIOF in writing of all known liabilities, contingent or otherwise,
whether or not incurred in the ordinary course of business, existing or accrued
as of such time.
(i) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by LADIF of the
Reorganization, except such as may be required under the 1933 Act, the 1934 Act,
the 1940 Act or state securities laws and except for the filing of Articles of
Transfer with the Maryland State Department of Assessment and Taxation.
(j) The N-14 Registration Statement, on its effective date, at the
time of the stockholders' meetings referred to in Section 6(a) of this Agreement
and at the Exchange Date, insofar as it relates to LADIF (i) complied or will
comply in all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder and (ii) did not
or will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the prospectus and statement of additional
information included therein did not or will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection only shall apply to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with information
furnished by LADIF for use in the N-14 Registration Statement.
(k) LADIF is authorized to issue 100,000,000 shares of capital
stock, par value $0.01 per share, each outstanding share of which is fully paid,
nonassessable and has full voting rights.
(l) The LADIF Common Stock to be issued to SWIOF pursuant to this
Agreement will have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be legally and validly issued and will be fully paid and
nonassessable and will have full voting rights, no personal liability will
attach to the ownership thereof, and no stockholder of LADIF will have any
preemptive right of subscription or purchase in respect thereof.
(m) At or prior to the Exchange Date, the LADIF Common Stock to be
transferred to SWIOF on the Exchange Date will be duly qualified for offering to
the public in all states of the United States where such qualification is
required, and there are a sufficient number of such shares registered under the
1933 Act and with each pertinent state securities commission to permit the
transfers contemplated by this Agreement to be consummated.
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(n) Since April 30, 1997, there has not been any material adverse
change in LADIF's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business. For purposes of this
subparagraph (n), a decline in net asset value per share or the total assets of
LADIF in the ordinary course of business shall not constitute a material adverse
change.
(o) The Board of Directors of LADIF, including a majority of the
directors who are not "interested persons" of LADIF (as defined by the 1940
Act), have determined that this Agreement and the transactions contemplated
hereby are in the best interests of LADIF and that the interests of the LADIF
stockholders would not be diluted as a result of such transactions.
(p) The information to be furnished by LADIF for use in no-action
letters, applications for exemptive orders and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations thereunder
applicable thereto.
(q) LADIF has filed, or has obtained extensions to file, all
Federal, state and local tax returns that are required to be filed by it, and
has paid or has obtained extensions to pay, all Federal, state and local taxes
shown on said returns to be due and owing and all assessments received by it, up
to and including the taxable year in which the Exchange Date occurs. All tax
liabilities of LADIF have adequately been provided for on its books, and no tax
deficiency or liability of LADIF has been asserted and no question with respect
thereto has been raised by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid, up to and including the
taxable year in which the Exchange Date occurs.
(o) All of the issued and outstanding shares of LADIF Common Stock
were offered for sale and sold in conformity with all applicable Federal and
state securities laws.
(p) The books and records of LADIF made available to SWIOF and/or
its counsel are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of LADIF.
3. The Reorganization. (a) Subject to the requisite approvals of the
stockholders of each of SWIOF and LADIF being given, and to the other terms and
conditions contained herein, SWIOF agrees to convey, transfer and deliver to
LADIF for the benefit of LADIF, and LADIF agrees to acquire from SWIOF for the
benefit of LADIF, on the Exchange Date all of the Investments (including
interest accrued as of the Valuation Time on debt instruments) of SWIOF, and
assume substantially all of the liabilities of SWIOF, in exchange solely for
that number of shares of LADIF Common Stock provided in Section 4 of this
Agreement; provided, however, that LADIF shall have no obligation to acquire any
Investment or assume any liability that it is not permitted to acquire or assume
pursuant to the terms of its current investment policies as described in the
N-14 Registration Statement. Pursuant to this Agreement, as soon as practicable
SWIOF will distribute all LADIF Common Stock received by it to its stockholders
in exchange for their corresponding SWIOF Common Stock. Such distribution shall
be accomplished by the
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<PAGE> 8
opening of stockholder accounts on the stock ledger records of LADIF in the
amounts due the stockholders of SWIOF based on their respective holdings in
SWIOF as of the Valuation Time.
(b) SWIOF will pay or cause to be paid to LADIF any interest it
receives on or after the Exchange Date with respect to the Investments
transferred to LADIF hereunder.
(c) The Valuation Time shall be 4:00 P.M., New York time, on
November 7, 1997 or such earlier or later day and time as mutually may be
agreed upon in writing (the "Valuation Time").
(d) LADIF will acquire substantially all of the assets of, and
assume substantially all of the known liabilities of, SWIOF, except that
recourse for such liabilities will be limited to LADIF. The known liabilities of
SWIOF as of the Valuation Time shall be confirmed in writing to LADIF by SWIOF
pursuant to Section 1(j) of this Agreement.
4. Issuance and Valuation of LADIF Common Stock in the
Reorganization. (a) Shares of LADIF Common Stock of an aggregate net asset value
equal (to the nearest one ten thousandth of one cent) to the value of the assets
of SWIOF acquired, determined as hereinafter provided, reduced by the amount of
liabilities assumed by LADIF, shall be issued by LADIF in exchange for such
assets of SWIOF. The assets of SWIOF and LADIF shall be determined in accordance
with LADIF's procedures as in effect as of the Valuation Time, and no formula
will be used to adjust the net asset value so determined of either SWIOF or
LADIF to take into account differences in realized and unrealized gains and
losses. Values in all cases shall be determined as of the Valuation Time. The
value of the Investments of SWIOF to be transferred to LADIF shall be determined
by LADIF pursuant to the procedures utilized by LADIF in valuing its own assets
and determining its own liabilities for purposes of the Reorganization. Such
valuation and determination shall be made by LADIF in cooperation with SWIOF and
shall be confirmed in writing to SWIOF by LADIF. The net asset value per share
of the LADIF Common Stock shall be determined in accordance with such procedures
and LADIF shall certify the computations involved. LADIF shall issue to SWIOF
separate certificates or share deposit receipts for the LADIF Common Stock
registered in the name of SWIOF. SWIOF then shall distribute the LADIF Common
Stock to the corresponding stockholders of SWIOF Common Stock by redelivering
the certificates or share deposit receipts evidencing ownership of the LADIF
Common Stock to State Street Bank & Trust Company, as the transfer agent and
registrar for the LADIF Common Stock. With respect to any SWIOF stockholder
holding certificates evidencing ownership of the SWIOF Common Stock as of the
Exchange Date, and subject to LADIF being informed thereof in writing by SWIOF,
LADIF will not permit such stockholder to receive new certificates evidencing
ownership of the LADIF Common Stock, to receive dividends payable to the holders
of record of LADIF Common Stock as of any date subsequent to the Exchange Date,
or pledge such LADIF Common Stock, in any case, until notified by SWIOF or its
agent that such stockholder has surrendered his or her outstanding certificates
evidencing ownership of the SWIOF Common Stock or, in the event of lost
certificates, posted adequate bond. SWIOF, at its own expense, will request its
stockholders to surrender their outstanding certificates evidencing ownership of
the SWIOF Common Stock, as the case may be, or post adequate bond therefor.
Dividends payable on LADIF Common Stock to holders of record as of any date
after the Exchange Date and prior to the exchange of certificates by an SWIOF
stockholder shall be paid to
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<PAGE> 9
such stockholder, without interest, at the time such stockholder surrenders his
or her SWIOF Common Stock certificates for exchange.
(b) No certificates or scrip representing less than one share of
LADIF Common Stock shall be issued upon the surrender for exchange of
certificated SWIOF Common Stock. In lieu of any such fractional share, each
holder of certificated SWIOF Common Stock who would otherwise have been entitled
to a fraction of a share of LADIF Common Stock shall be paid upon surrender of
such certificates cash (without interest) in an amount equal to the net asset
value of such fractional share. Shares of SWIOF Common Stock that are registered
in book entry form only shall be issued fractional shares of LADIF Common Stock
in the Reorganization.
5. Payment of Expenses. (a) With respect to expenses incurred in
connection with the Reorganization, LADIF and SWIOF shall expense their
respective expenses incurred in connection with the Reorganization, including,
but not limited to, all costs related to the preparation and distribution of the
N-14 Registration Statement and the fees of counsel, and pay such expenses prior
to the Exchange Date. Such fees and expenses shall include legal, accounting and
state securities or blue sky fees, printing costs, filing fees, stock exchange
fees, portfolio transfer taxes (if any), and any similar expenses incurred in
connection with the Reorganization. Neither SWIOF nor LADIF shall pay any
expenses of its respective stockholders arising out of or in connection with the
Reorganization. The aggregate amount of estimated expenses of the
Reorganization, other than those borne by the Funds' investment manager,
will be allocated to SWIOF and LADIF based on their respective asset size.
(b) If for any reason the Reorganization is not consummated, no
party shall be liable to any other party for any damages resulting therefrom,
including, without limitation, consequential damages.
(c) SWIOF and LADIF each represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for in this Agreement.
6. Covenants of SWIOF and LADIF. (a) SWIOF agrees to call a meeting
of its stockholders as soon as is practicable after the effective date of the
N-14 Registration Statement for the purpose of considering the Reorganization.
LADIF agrees to call a meeting of its stockholders as soon as is practicable
after the effective date of the N-14 Registration Statement for the purpose of
considering the (i) issuance of the LADIF Common Stock in the Reorganization,
(ii) the amendment of LADIF's name and (iii) the amendment of LADIF's
fundamental investment policy with respect to issuer concentration, each as
described in this Agreement.
(b) SWIOF and LADIF each covenants to operate its respective
business as presently conducted between the date hereof and the Exchange Date.
(c) SWIOF agrees that following the consummation of the
Reorganization, it will liquidate and dissolve in accordance with the laws of
the State of Maryland and any other
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<PAGE> 10
applicable law, it will not make any distributions of any LADIF Common Stock
other than to the stockholders of SWIOF and without first paying or adequately
providing for the payment of all of SWIOF's liabilities not assumed by LADIF, if
any, and on and after the Exchange Date it shall not conduct any business except
in connection with its liquidation and dissolution.
(d) SWIOF undertakes that if the Reorganization is consummated, it
will file an application pursuant to Section 8(f) of the 1940 Act for an order
declaring that SWIOF has ceased to be a registered investment company.
(e) SWIOF and LADIF jointly will file the N-14 Registration
Statement with the Securities and Exchange Commission (the "Commission") and
will use their best efforts to provide that the N-14 Registration Statement
becomes effective as promptly as practicable. SWIOF and LADIF agree to cooperate
fully with each other, and each will furnish to the other the information
relating to itself to be set forth in the N-14 Registration Statement as
required by the 1933 Act, 1934 Act, the 1940 Act, and the rules and regulations
thereunder and the state securities or blue sky laws.
(f) LADIF agrees to advise SWIOF promptly in writing if at any time
prior to the Exchange Date the assets of SWIOF include any assets which LADIF
will not be permitted, or reasonably believes to be unsuitable for it, to
acquire, including without limitation any security which, prior to its
acquisition by SWIOF, LADIF has informed SWIOF is unsuitable for LADIF to
acquire. Moreover, LADIF has no plan or intention to sell or otherwise dispose
of the assets of SWIOF to be acquired in the Reorganization, except for
dispositions made in the ordinary course of business.
(g) SWIOF and LADIF each agrees that by the Exchange Date all of its
Federal and other tax returns and reports required to be filed on or before such
date shall have been filed and all taxes shown as due on said returns either
have been paid or adequate liability reserves have been provided for the payment
of such taxes. In connection with this covenant, SWIOF and LADIF agree to
cooperate with each other in filing any tax return, amended return or claim for
refund, determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. LADIF agrees to retain for a period of ten years following the Exchange
Date all returns, schedules and work papers and all material records or other
documents relating to tax matters of SWIOF for its taxable period first ending
after the Exchange Date and for all prior taxable periods. Any information
obtained under this subsection shall be kept confidential except as otherwise
may be necessary in connection with the filing of returns or claims for refund
or in conducting an audit or other proceeding. After the Exchange Date, SWIOF
shall prepare, or cause it agents to prepare, any Federal, state or local tax
returns, including any Forms 1099, required to be filed by SWIOF with respect to
SWIOF's final taxable year ending with its complete liquidation and for any
prior periods or taxable years and further shall cause such tax returns and
Forms 1099 to be duly filed with the appropriate taxing authorities.
Notwithstanding the aforementioned provisions of this subsection, any expenses
incurred by SWIOF (other than for payment of taxes) in connection with the
preparation and filing of said tax returns and Forms 1099 after the Exchange
Date shall be borne by SWIOF to the extent such expenses have been accrued by
SWIOF in the ordinary course without regard to the
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<PAGE> 11
Reorganization; any excess expenses shall be borne by Scudder, Stevens & Clark,
Inc. at the time such tax returns and Forms 1099 are prepared.
(h) SWIOF and LADIF each agrees to mail to each of its respective
stockholders of record entitled to vote at the meeting of stockholders at which
action is to be considered regarding this Agreement and the Reorganization, in
sufficient time to comply with requirements as to notice thereof, a combined
Proxy Statement and Prospectus which complies in all material respects with the
applicable provisions of Section 14(a) of the 1934 Act and Section 20(a) of the
1940 Act, and the rules and regulations, respectively, thereunder.
(i) Following the consummation of the Reorganization, LADIF expects
to stay in existence and continue its business as a closed-end management
investment company registered under the 1940 Act.
7. Exchange Date. (a) Delivery of the assets of SWIOF to be
transferred, together with any other Investments, and the LADIF Common Stock to
be issued, shall be made at the offices of Willkie Farr & Gallagher, One
Citicorp Center, 153 East 53rd Street, New York, New York 10022, at 4:30 P.M. on
the Valuation Date, or at such other place, time and date agreed to by SWIOF and
LADIF, the date and time upon which such delivery is to take place being
referred to herein as the "Exchange Date." To the extent that any Investments,
for any reason, are not transferable on the Exchange Date, SWIOF shall cause
such Investments to be transferred to LADIF's account with Brown Brothers
Harriman & Co. at the earliest practicable date thereafter.
(b) SWIOF will deliver to LADIF on the Exchange Date confirmations
or other adequate evidence as to the tax basis of each of the Investments
delivered to LADIF hereunder, certified by Coopers & Lybrand LLP.
(c) LADIF shall have made prior arrangements for the delivery on the
Exchange Date of the Investments to Brown Brothers Harriman & Co. as the
custodian for LADIF.
(d) As soon as practicable after the close of business on the
Exchange Date, SWIOF shall deliver to LADIF a list of the names and addresses of
all of the stockholders of record of SWIOF on the Exchange Date and the number
of shares of SWIOF Common Stock owned by each such stockholder, certified by its
transfer agent for the SWIOF Common Stock, as applicable, or by its President to
the best of their knowledge and belief.
8. SWIOF Conditions. The obligations of SWIOF hereunder shall be
subject to the following conditions:
(a) That (i) the issuance of the LADIF Common Stock in the
Reorganization, the change of LADIF's name and the modification of LADIF's
fundamental investment policy with respect to issuer concentration, as well as
the modification of any other fundamental investment policy determined by the
Board of Directors of LADIF required to be modified in connection with the
Reorganization shall have been approved by the requisite vote of the LADIF
stockholders as described in the N-14 Registration Statement and (ii) this
Agreement shall have been adopted, and the Reorganization shall have been
approved, by the affirmative vote of the holders of more than fifty percent of
the SWIOF Common Stock issued and outstanding and entitled to vote thereon.
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<PAGE> 12
(b) That LADIF shall have modified its investment policies to be
substantially similar to those of SWIOF on the date of execution of this
Agreement and that those modifications remain in full force and effect on the
Exchange Date.
(c) That LADIF shall have furnished to SWIOF a statement of LADIF's
assets, liabilities and capital, with values determined as provided in Section 4
of this Agreement, together with a schedule of its investments, all as of the
Valuation Time, certified on LADIF's behalf by its President (or any Vice
President) and its Treasurer, and a certificate signed by LADIF's President (or
any Vice President) and its Treasurer, dated as of the Exchange Date, certifying
that as of the Valuation Time and as of the Exchange Date there has been no
material adverse change in the financial position of LADIF since October 31,
1996, other than changes in its portfolio securities since that date or changes
in the market value of its portfolio securities.
(d) That LADIF shall have furnished to SWIOF a certificate signed by
LADIF's President (or any Vice President) and its Treasurer, dated as of the
Exchange Date, certifying that all representations and warranties of LADIF made
in this Agreement are true and correct in all material respects with the same
effect as if made at and as of the Exchange Date, and that LADIF has complied
with all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to such date.
(e) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(f) That SWIOF shall have received an opinion of Venable, Baetjer
and Howard, LLP, Maryland counsel to LADIF, in form satisfactory to SWIOF and
dated the Exchange Date, to the effect that (i) LADIF is a corporation duly
organized, validly existing and in good standing in conformity with the laws of
the State of Maryland; (ii) the LADIF Common Stock to be delivered to SWIOF
stockholders as provided for by this Agreement is duly authorized and, upon
delivery, will be validly issued and outstanding and fully paid and
nonassessable by LADIF, and no stockholder of LADIF has any preemptive right to
subscription or purchase in respect thereof (pursuant to the Articles of
Incorporation, as amended, or the by-laws of LADIF or, to the best of such
counsel's knowledge, otherwise); (iii) this Agreement has been duly authorized,
executed and delivered by LADIF; (iv) the execution and delivery of this
Agreement did not, and the consummation of the Reorganization will not, violate
the Articles of Incorporation, as amended, or the by-laws of LADIF; (v) no
consent, approval, authorization or order of any Maryland court or governmental
authority is required for the consummation by LADIF of the Reorganization,
except such as have been obtained under Maryland law and assuming the
effectiveness of the Articles of Transfer; provided, however, that such counsel
need express no opinion with regard to the state securities laws of the State of
Maryland; and (vi) such opinion shall be rendered to Willkie Farr & Gallagher,
and may be relied upon by Willkie Farr & Gallagher in connection with the
rendering of its opinion to SWIOF. In connection with the rendering of the
opinion set forth above, Venable, Baetjer and Howard, LLP shall provide a letter
stating that SWIOF and Willkie Farr & Gallagher are permitted to rely upon the
Venable, Baetjer and Howard, LLP opinion previously rendered to Shareholder
Communications Corporation as to matters of Maryland law relating to the
utilization of televoting procedures by LADIF.
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(g) That SWIOF shall have received an opinion of Willkie Farr &
Gallagher, as counsel to LADIF, in form satisfactory to SWIOF and dated the
Exchange Date, to the effect that (i) no consent, approval, authorization or
order of any U.S. Federal court or governmental authority is required for the
consummation by SWIOF and LADIF of the Reorganization, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and the published
rules and regulations of the Commission thereunder and such as may be required
under state securities or blue sky laws; (ii) the N-14 Registration Statement
has become effective under the 1933 Act, no stop order suspending the
effectiveness of the N-14 Registration Statement has been issued and, to the
knowledge of such counsel, no proceedings for that purpose have been instituted
or are pending or contemplated under the 1933 Act, and the N-14 Registration
Statement, and each amendment or supplement thereto, as of their respective
effective dates, appear on their face to be appropriately responsive in all
material respects to the requirements of the 1933 Act, the 1934 Act and the 1940
Act and the published rules and regulations of the Commission thereunder; (iii)
the descriptions in the N-14 Registration Statement of statutes, legal and
governmental proceedings and contracts and other documents, to the extent that
such descriptions relate to matters of law are accurate and fairly present the
information required to be shown; (iv) such counsel do not know of any statutes,
legal or governmental proceedings or contracts or other documents related to the
Reorganization of a character required to be described in the N-14 Registration
Statement that are not described therein or, if required to be filed, filed as
required; (v) the execution and delivery of this Agreement does not, and the
consummation of the Reorganization will not, violate any material provision of
any agreement (known to such counsel) to which LADIF is a party or by which
LADIF is bound; (vi) LADIF, to the knowledge of such counsel, is not required to
qualify to do business as a foreign corporation in any jurisdiction except as
may be required by state securities or blue sky laws, and except where it has so
qualified or the failure so to qualify would not have a material adverse effect
on LADIF, or its stockholders; (vii) such counsel does not have actual knowledge
of any material suit, action or legal or administrative proceeding pending or
threatened against LADIF, the unfavorable outcome of which would materially and
adversely affect LADIF; (viii) all corporate actions required to be taken by
LADIF to authorize this Agreement and to effect the Reorganization have been
duly authorized by all necessary corporate actions on the part of LADIF and (ix)
this Agreement represents a valid and binding contract, enforceable against
LADIF in accordance with its terms, subject to the effects of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and to general equity principles.
Such counsel also shall state that they have participated in
conferences with officers and other representatives of SWIOF and LADIF at which
the contents of the N-14 Registration Statement and related matters were
discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the N-14 Registration Statement (except to the extent indicated in
their opinion), on the basis of the foregoing (relying as to materiality to a
large extent upon the opinions of officers and other representatives of the
LADIF), they do not believe that the proxy statement forming a part of the N-14
Registration Statement, as of its date, as of the date of the LADIF stockholder
meeting, and as of the Exchange Date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
regarding LADIF or necessary, in the light of the circumstances under which they
were made, to make the statements therein regarding LADIF not
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misleading; and such counsel need not express any opinion or belief as to the
financial statements, other financial data, statistical data or information
relating to LADIF contained or incorporated by reference in the N-14
Registration Statement. In giving the opinion set forth above, Willkie Farr &
Gallagher may state that it is relying on certificates of officers of LADIF with
regard to matters of fact and certain certificates and written statements of
governmental officials with respect to the good standing of LADIF and on the
opinion of Venable, Baetjer and Howard, LLP as to matters of Maryland law. In
giving the opinion set forth above, Willkie Farr & Gallagher may state that it
is relying on the opinion of counsel to Shareholders Communications Corporation
as to matters of Maryland law relating to the utilization of televoting
procedures by LADIF.
(h) That SWIOF shall have received either (a) a private letter
ruling from the Internal Revenue Service or (b) an opinion of Willkie Farr &
Gallagher, to the effect that for Federal income tax purposes (i) the transfer
of substantially all of the Investments of SWIOF to LADIF and the assumption of
substantially all of the liabilities of SWIOF by LADIF in exchange solely for
LADIF Common Stock as provided in this Agreement will constitute a
reorganization within the meaning of Section 368(a)(1)(D) of the Code; (ii) in
accordance with Section 361(a) of the Code, no gain or loss will be recognized
to SWIOF as a result of the Reorganization; (iii) no gain or loss will be
recognized to LADIF as a result of the Reorganization; (iv) in accordance with
Section 354(a)(1) of the Code, no gain or loss will be recognized to the
stockholders of SWIOF on the distribution to them by SWIOF of LADIF Common Stock
in exchange for their corresponding SWIOF Common Stock, and in accordance with
Section 356(a) of the Code gain, if any, will be recognized with respect to any
cash or property other than LADIF Common Stock received; (v) in accordance with
Section 1032 of the Code, no gain or loss will be recognized by the stockholders
of LADIF upon the issuance of LADIF Common Stock and the distribution of such
LADIF Common Stock to SWIOF stockholders in the Reorganization; (vi) in
accordance with Section 362(b) of the Code, the basis to LADIF of the
Investments will be the same as the basis of the Investments in the hands of
SWIOF immediately prior to the consummation of the Reorganization, except for
any necessary adjustment on account of cash or property received; (vii) in
accordance with Section 1223 of the Code, a stockholder's holding period for his
LADIF Common Stock will be determined by including the period for which he or
she held the SWIOF Common Stock exchanged therefor, provided that he or she held
such SWIOF shares as a capital asset; (viii) in accordance with Section 1223 of
the Code, LADIF's holding period with respect to the Investments will include
the period for which such Investments were held by SWIOF; and (ix) no gain or
loss will be recognized to SWIOF or its stockholders upon the liquidation of
SWIOF in connection with the Reorganization. In addition, such opinion shall
state that, without any independent investigation having been made with respect
to the qualification of either SWIOF or LADIF as a regulated investment company
under the Code and based upon certain representations by SWIOF and LADIF, the
status of SWIOF and LADIF as regulated investment companies under Sections
851-855 of the Code will not be affected as a result of the Reorganization,
except that upon the liquidation of SWIOF in connection with the Reorganization
its regulated investment company status will terminate.
(i) That all proceedings taken by LADIF and its counsel in
connection with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to SWIOF.
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(j) That the N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of LADIF, contemplated by the Commission.
(k) That LADIF shall have received from Price Waterhouse LLP a
letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Exchange Date, in form and
substance satifactory to LADIF, to the effect that (i) they are independent
accountants with respect to LADIF within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder; (ii) in their opinion,
the financial statements and financial highlights of LADIF included or
incorporated by reference in the N-14 Registration Statement and reported on by
them comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations thereunder;
(iii) on the basis of limited procedures agreed upon by SWIOF and described in
such letter (but not an examination in accordance with generally accepted
auditing standards) consisting of inquiries of certain officials of LADIF
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) there had been any changes in
assets, liabilities, net assets and shares outstanding as compared with amounts
as of LADIF's most recent audited fiscal year end or the corresponding period in
LADIF's most recent audited fiscal year, other than changes occurring in the
ordinary course of business, and (b) based on such limited procedures, there is
no change in their report on the most recent audited financial statements of
LADIF; and (iv) on the basis of limited procedures agreed upon by LADIF and
described in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to LADIF appearing in the
N-14 Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records of
LADIF or from schedules prepared by officials of LADIF having responsibility for
financial and reporting matters and such information is in agreement with such
records, schedules or computations made therefrom.
(l) That the Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the 1940 Act, nor instituted or
threatened to institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall have been instituted or threatened
which would materially adversely affect the financial condition of LADIF or
would prohibit the Reorganization.
(m) That SWIOF shall have received from the Commission such orders
or interpretations as Willkie Farr & Gallagher, as counsel to SWIOF, deems
reasonably necessary or desirable under
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<PAGE> 16
the 1933 Act and the 1940 Act in connection with the Reorganization, provided
that such counsel shall have requested such orders as promptly as practicable,
and all such orders shall be in full force and effect.
(n) In addition, SWIOF shall have received from Price Waterhouse LLP
a letter addressed to LADIF and SWIOF on the Exchange Date, in form and
substance satisfactory to LADIF and SWIOF, relating to the calculations of the
projected expense ratio appearing in the N-14 Registration Statement and the
calculation of the net asset value per share of SWIOF as of the Valuation Date
and on a basis of limited procedures to be agreed upon by LADIF, SWIOF and Price
Waterhouse, LLP (but not an examination in accordance with generally accepted
auditing standards).
(o) LADIF shall have executed the Articles of Transfer.
9. LADIF Conditions. The obligations of LADIF hereunder shall be
subject to the following conditions:
(a) That (i) the issuance of the LADIF Common Stock in the
Reorganization, the change of LADIF's name and the modification of LADIF's
fundamental investment policy with respect to issuer concentration, as well as
the modification of any other fundamental investment policy determined by the
Board of Directors of LADIF required to be modified in connection with the
Reorganization shall have been approved by the requisite vote of the LADIF
stockholders as described in the N-14 Registration Statement and (ii) this
Agreement shall have been adopted, and the Reorganization shall have been
approved, by the affirmative vote of the holders of more than fifty percent of
the SWIOF Common Stock issued and outstanding and entitled to vote thereon.
(b) That LADIF shall have modified its investment policies to be
substantially similar to those of SWIOF on the date of execution of this
Agreement and that those modifications remain in full force and effect on the
Exchange Date.
(c) That SWIOF shall have furnished to LADIF a statement of SWIOF's
assets, liabilities and capital, with values determined as provided in Section 4
of this Agreement, together with a schedule of investments with their respective
dates of acquisition and tax costs, all as of the Valuation Time, certified on
SWIOF's behalf by its President (or any Vice President) and its Treasurer, and a
certificate of both such officers, dated the Exchange Date, certifying that
there has been no material adverse change in the financial position of SWIOF
since April 30, 1997, other than changes in the Investments since that date or
changes in the market value of the Investments.
(d) That SWIOF shall have furnished to LADIF a certificate signed by
SWIOF's President (or any Vice President) and its Treasurer, dated the Exchange
Date, certifying that as of the Valuation Time and as of the Exchange Date all
representations and warranties of SWIOF made in this Agreement are true and
correct in all material respects as if made at and as of such date and
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<PAGE> 17
SWIOF has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to such date.
(e) That SWIOF shall have delivered to LADIF a letter from Coopers &
Lybrand LLP, dated the Exchange Date, stating that such firm has performed a
limited review of the Federal, state and local income tax returns of SWIOF for
the period ended April 30, 1997 (which returns originally were prepared and
filed by SWIOF), and that based on such limited review, nothing came to their
attention which caused them to believe that such returns did not properly
reflect, in all material respects, the Federal, state and local income taxes of
SWIOF for the period covered thereby; and that for the period from April 30,
1997 to and including the Exchange Date such firm has performed a limited review
to ascertain the amount of applicable Federal, state and local taxes, and has
determined that either such amount has been paid or reserves established for
payment of such taxes, this review to be based on unaudited financial data; and
that based on such limited review, nothing has come to their attention which
caused them to believe that the taxes paid or reserves set aside for payment of
such taxes were not adequate in all material respects for the satisfaction of
Federal, state and local taxes for the period from April 30, 1997 to and
including the Exchange Date and for any taxable year of SWIOF ending upon the
liquidation of SWIOF or that SWIOF would not continue to qualify as a regulated
investment company for Federal income tax purposes.
(f) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(g) That LADIF shall have received an opinion of Venable, Baetjer
and Howard, LLP, Maryland counsel to SWIOF, in form satisfactory to LADIF and
dated the Exchange Date, to the effect that (i) SWIOF is a corporation duly
organized, validly existing and in good standing in conformity with the laws of
the State of Maryland; (ii) this Agreement has been duly authorized, executed
and delivered by SWIOF; (iii) SWIOF has the corporate power to sell, assign,
transfer and deliver the assets transferred by it hereunder and, upon
consummation of the Reorganization in accordance with the terms of this
Agreement, SWIOF will have duly transferred such assets and liabilities in
accordance with this Agreement; (iv) the execution and delivery of this
Agreement does not, and the consummation of the Reorganization will not, violate
the Articles of Incorporation, as amended, or the by-laws of SWIOF; (v) no
consent, approval, authorization or order of any Maryland court or governmental
authority is required for the consummation by SWIOF of the Reorganization,
except such as have been obtained under Maryland law and assuming the
effectiveness of the Articles of Transfer; provided, however, that such counsel
need express no opinion with regard to the state securities laws of the State of
Maryland; and (vi) such opinion shall be rendered to Willkie Farr & Gallagher,
and may be relied upon by Willkie Farr & Gallagher in connection with the
rendering of its opinion to LADIF. In connection with the rendering of the
opinion set forth above, Venable, Baetjer and Howard, LLP shall provide a letter
stating that LADIF and Willkie Farr & Gallagher are permitted to rely upon the
Venable, Baetjer and Howard, LLP opinion previously rendered to Shareholder
Communications Corporation as to matters of Maryland law relating to the
utilization of televoting procedures by SWIOF.
(h) That LADIF shall have received an opinion of Willkie Farr &
Gallagher, as counsel to SWIOF, in form satisfactory to LADIF and dated the
Exchange Date, with respect to the matters
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<PAGE> 18
specified in Section 8(g) of this Agreement (except that references therein to
LADIF shall be changed to SWIOF) and such other matters as LADIF reasonably may
deem necessary or desirable.
(i) That LADIF shall have received a private letter ruling from the
Internal Revenue Service or opinion of Willkie Farr & Gallagher with respect to
the matters specified in Section 8(h) of this Agreement.
(j) That LADIF shall have received from Coopers & Lybrand LLP a
letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Exchange Date, in form and
substance satisfactory to LADIF, to the effect that (i) they are independent
accountants with respect to SWIOF within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder; (ii) in their opinion,
the financial statements and financial highlights of SWIOF included or
incorporated by reference in the N-14 Registration Statement and reported on by
them comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations thereunder;
(iii) on the basis of limited procedures agreed upon by LADIF and described in
such letter (but not an examination in accordance with generally accepted
auditing standards) consisting of inquiries of certain officials of SWIOF
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) there had been any changes in
assets, liabilities, net assets and shares outstanding as compared with amounts
as of SWIOF's most recent audited fiscal year end or the corresponding period in
SWIOF's most recent audited fiscal year, other than changes occurring in the
ordinary course of business, and (b) based on such limited procedures, there is
no change in their report on the most recent audited financial statements of
SWIOF; and (iv) on the basis of limited procedures agreed upon by LADIF and
described in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to SWIOF appearing in the
N-14 Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records of
SWIOF or from schedules prepared by officials of SWIOF having responsibility for
financial and reporting matters and such information is in agreement with such
records, schedules or computations made therefrom.
(k) That the Investments to be transferred to LADIF shall not
include any assets or liabilities which LADIF, by reason of charter limitations
or otherwise, may not properly acquire or assume.
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<PAGE> 19
(l) That the N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of SWIOF, contemplated by the Commission.
(m) That the Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the 1940 Act, nor instituted or
threatened to institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall have been instituted or threatened
which would materially adversely affect the financial condition of SWIOF or
would prohibit the Reorganization.
(n) That LADIF shall have received from the Commission such orders
or interpretations as Willkie Farr & Gallagher, as counsel to LADIF, deems
reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall be
in full force and effect.
(o) That all proceedings taken by SWIOF and its counsel in
connection with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to LADIF.
(p) That prior to the Exchange Date, SWIOF shall have declared a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to its stockholders all of its net investment
company taxable income for the period from May 1, 1996 to and including the
Exchange Date, if any (computed without regard to any deduction or dividends
paid), and all of its net capital gain, if any, realized for the period from May
1, 1996 to and including the Exchange Date.
(q) In addition, LADIF shall have received from Price Waterhouse LLP
a letter addressed to LADIF and SWIOF on the Exchange Date, in form and
substance satisfactory to LADIF and SWIOF, to the effect that on the basis of
limited procedures agreed upon by the LADIF and SWIOF (but not an examination in
accordance with generally accepted auditing standards) (i) the data utilized in
the calculations of the projected expense ratio appearing in the N-14
Registration Statement agree with underlying accounting records of LADIF and
SWIOF or to written estimates by management of LADIF or SWIOF, as the case may
be and were found to be mathematically correct and (ii) the calculations of the
net asset values per share of LADIF and SWIOF as of the Valuation Date were
determined in accordance with generally accepted accounting practices and the
portfolio valuation practices of LADIF.
(r) SWIOF shall have executed the Articles of Transfer.
10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated and the Reorganization abandoned at
any time (whether before or after adoption thereof by the stockholders of SWIOF
and or the approval of the issuance of the LADIF Common Stock by the LADIF
stockholders) prior to the Exchange Date, (i) by mutual written
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<PAGE> 20
consent of the Boards of Directors of SWIOF and LADIF; (ii) by the Board of
Directors of SWIOF if any condition of SWIOF's obligations set forth in Section
8 of this Agreement has not been fulfilled or waived by the Board of Directors
of SWIOF; or (iii) by the Board of Directors of LADIF if any condition of
LADIF's obligations set forth in Section 9 of this Agreement has not been
fulfilled or waived by the Board of Directors of LADIF.
(b) If the transactions contemplated by this Agreement have not been
consummated by April 30, 1998, this Agreement automatically shall terminate on
that date, unless a later date is mutually agreed to by the Boards of Directors
of SWIOF and LADIF.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either SWIOF or LADIF or persons
who are their directors, trustees, officers, agents or stockholders in respect
of this Agreement.
(d) At any time prior to the Exchange Date, any of the terms or
conditions of this Agreement (other than Section 8(g) or Section 9(h) may be
waived by the Board of Directors of either SWIOF or LADIF, respectively
(whichever is entitled to the benefit thereof), if, in the judgment of such
Board after consultation with its counsel, such action or waiver will not have a
material adverse effect on the benefits intended under this Agreement to their
respective stockholders, on behalf of which such action is taken.
(e) The respective representations and warranties contained in
Sections 1 and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and neither SWIOF nor LADIF nor any of their
officers, directors or trustees, agents or stockholders shall have any liability
with respect to such representations or warranties after the Exchange Date. This
provision shall not protect any officer, director or trustee, agent or
stockholder of SWIOF or LADIF against any liability to the entity for which that
officer, director or trustee, agent or stockholder so acts or to its
stockholders to which that officer, director or trustee, agent or stockholder
otherwise would be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties in the conduct of such office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Exchange Date and shall impose any terms
or conditions which are determined by action of the Boards of Directors of SWIOF
and LADIF to be acceptable, such terms and conditions shall be binding as if a
part of this Agreement without further vote or approval of the stockholders of
SWIOF and LADIF, unless such terms and conditions shall result in a change in
the method of computing the number of shares of LADIF Common Stock to be issued
to SWIOF in which event, unless such terms and conditions shall have been
included in the proxy solicitation materials furnished to the stockholders of
SWIOF and LADIF prior to the meeting at which the Reorganization shall have been
approved by the SWIOF stockholders or in at which the issuance of the LADIF
Common Stock was approved by the LADIF stockholders, this Agreement shall not be
consummated and shall terminate unless SWIOF and LADIF promptly shall call
special meetings of stockholders at which such conditions so imposed shall be
submitted for approval.
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<PAGE> 21
11. Indemnification. (a) SWIOF hereby agrees to indemnify and hold
LADIF harmless from all loss, liability and expense (including reasonable
counsel fees and expenses in connection with the contest of any claim) which
LADIF may incur or sustain by reason of the fact that (i) LADIF shall be
required to pay any corporate obligation of SWIOF, whether consisting of tax
deficiencies or otherwise, based upon a claim or claims against SWIOF which were
omitted or not fairly reflected in the financial statements to be delivered to
LADIF in connection with the Reorganization; (ii) any covenant has been breached
in any material respect; or (iii) any claim is made alleging that (a) the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or (b) the Proxy Statement and
Prospectus delivered to the stockholders of SWIOF and forming a part of the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such claim is based on written information furnished to SWIOF
by LADIF.
(b) LADIF hereby agrees to indemnify and hold SWIOF harmless from
all loss, liability and expenses (including reasonable counsel fees and expenses
in connection with the contest of any claim) which SWIOF may incur or sustain by
reason of the fact that (i) any covenant has been breached in any material
respect or (ii) any claim is made alleging that (a) the N-14 Registration
Statement included any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein, not misleading or (b) the Proxy Statement and Prospectus
delivered to the stockholders of LADIF and forming a part of the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such claim is based on written information furnished to LADIF
by SWIOF.
(c) In the event that any claim is made against LADIF in respect of
which indemnity may be sought by LADIF from SWIOF under Section 11(a) of this
Agreement, or in the event that any claim is made against SWIOF in respect of
which indemnity may be sought by SWIOF from LADIF under Section 11(b) of this
Agreement, then the party seeking indemnification (the "Indemnified Party"),
with reasonable promptness and before payment of such claim, shall give written
notice of such claim to the other party (the "Indemnifying Party"). If no
objection as to the validity of the claim is made in writing to the Indemnified
Party by the Indemnifying Party within thirty (30) days after the giving of
notice hereunder, then the Indemnified Party may pay such claim and shall be
entitled to reimbursement therefor, pursuant to this Agreement. If, prior to the
termination of such thirty-day period, objection in writing as to the validity
of such claim is made to the Indemnified Party, the Indemnified Party shall
withhold payment thereof until the validity of such claim is established (i) to
the satisfaction of the Indemnifying Party, or (ii) by a final determination of
a court of competent jurisdiction, whereupon the Indemnified Party may pay such
claim and shall be entitled to reimbursement thereof, pursuant to this
Agreement, or (iii) with respect to any tax claims, within seven calendar days
following the earlier of (A) an agreement between SWIOF and LADIF that an
indemnity amount is payable, (B) an assessment of a tax by a taxing authority,
or (C) a "determination" as defined in Section 1313(a) of the Code. For purposes
of this Section 11, the term "assessment" shall have the same meaning as used in
Chapter 63 of the Code and Treasury Regulations thereunder, or any comparable
provision under
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<PAGE> 22
the laws of the appropriate taxing authority. In the event of any objection by
the Indemnifying Party, the Indemnifying Party promptly shall investigate the
claim, and if it is not satisfied with the validity thereof, the Indemnifying
Party shall conduct the defense against such claim. All costs and expenses
incurred by the Indemnifying Party in connection with such investigation and
defense of such claim shall be borne by it. These indemnification provisions are
in addition to, and not in limitation of, any other rights the parties may have
under applicable law.
12. Other Matters. (a) Pursuant to Rule 145 under the 1933 Act, and
in connection with the issuance of any shares to any person who at the time of
the Reorganization is, to its knowledge, an affiliate of a party to the
Reorganization pursuant to Rule 145(c), LADIF will cause to be affixed upon the
certificate(s) issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO [SCUDDER GLOBAL HIGH INCOME FUND, INC./THE
LATIN AMERICA DOLLAR INCOME FUND, INC.], SUCH REGISTRATION IS NOT
REQUIRED.
and, further, that stop transfer instructions will be issued to LADIF's transfer
agent with respect to such shares. SWIOF will provide LADIF on the Exchange Date
with the name of any SWIOF stockholder who is to the knowledge of SWIOF an
affiliate of it on such date.
(b) All covenants, agreements, representations and warranties made
under this Agreement and any certificates delivered pursuant to this Agreement
shall be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any
provision of this Agreement shall be in writing and shall be deemed to have been
given if delivered or mailed, first class postage prepaid, addressed to SWIOF or
LADIF, in either case at c/o Scudder, Stevens & Clark, Inc., 345 Park Avenue,
New York, New York 10154, Attn: Bruce Goldfarb, Vice President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes the
only understanding with respect to the Reorganization, may not be changed except
by a letter of agreement signed by each party and shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said state.
(e) This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be deemed to be an original
but all such counterparts together shall constitute but one instrument.
(f) This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations
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<PAGE> 23
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
[Balance of page intentionally blank.]
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<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed on its behalf by its duly authorized officers all as of the date first
written above.
SCUDDER WORLD INCOME
OPPORTUNITIES FUND, INC.
Attest:
/s/ Kathryn L. Quirk /s/ Lynn S. Birdsong
By:_______________________________ By:_______________________________
Name: Kathryn L. Quirk Name: Lynn S. Birdsong
Title: Vice President Title: President
THE LATIN AMERICA DOLLAR INCOME
FUND, INC.
Attest:
/s/ Kathryn L. Quirk /s/ Lynn S. Birdsong
By:_______________________________ By:_______________________________
Name: Kathryn L. Quirk Name: Lynn S. Birdsong
Title: Vice President Title: President
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<PAGE> 1
EXHIBIT (6)
INVESTMENT ADVISORY, MANAGEMENT
AND ADMINISTRATION AGREEMENT
Agreement, dated as of July 24, 1992 between THE LATIN AMERICA DOLLAR
INCOME FUND, INC., a corporation organized under the laws of the State of
Maryland (herein referred to as the "Fund"), and SCUDDER, STEVENS & CLARK, INC.,
a corporation organized under the laws of the State of Delaware (herein referred
to as the "Investment Manager").
WITNESSETH: That, in consideration of the mutual covenants herein
contained, it is agreed by the parties as follows:
1. The Investment Manager hereby undertakes and agrees, upon the
terms and conditions herein set forth (i) to make investment decisions for
the Fund, to prepare and make available to the Fund research and
statistical data in connection therewith and to supervise the acquisition
and disposition of securities by the Fund, including the selection of
brokers or dealers to carry out the transactions, all in accordance with
the Fund's investment objectives and policies and in accordance with
guidelines and directions from the Fund's Board of Directors; (ii) to
maintain or cause to be maintained for the Fund all books, records and
reports and any other information required under the Investment Company Act
of 1940, as amended (the "1940 Act"), to the extent that such books,
records and reports and other information are not maintained by the Fund's
custodian or other agents of the Fund; (iii) to furnish at the Investment
Manager's expense for the use of the Fund such office space and facilities
as the Fund may require for its reasonable needs in the City of New York
and to furnish at the Investment Manager's expense clerical services in the
United States related to research, statistical and investment work; (iv) to
render to the Fund administrative services which shall include preparing
reports to and meeting materials for the Fund's Board of Directors and
reports and notices to stockholders, preparing and making filings with the
Securities and Exchange Commission (the "SEC") and other regulatory and
self-regulatory organizations, including preliminary and definitive proxy
materials and post-effective amendments to the Fund's Registration
Statement, providing assistance in certain accounting and tax matters and
investor and public relations, monitoring the valuation of portfolio
securities, assisting in the calculation of net asset value and calculation
and payment of distributions to stockholders, and overseeing arrangements
with the Fund's custodian, including the maintenance of books and records
of the Fund; (v) to assist the Fund as it may reasonably request in the
conduct of the Fund's business, subject to the direction and control of the
Fund's Board of Directors; and (vi) to pay the reasonable salaries, fees
and expenses of such of the Fund's officers and employees (including the
Fund's share of payroll taxes) and any fees and expenses of such of the
Fund's directors as are directors, officers or employees of the Investment
Manager; provided, however, that the Fund, and not the Investment Manager,
shall bear travel expenses (or an appropriate portion thereof) of directors
and officers of the Fund who are directors, officers or employees of the
Investment Manager to the extent that such expenses relate to attendance at
meetings of the Board of Directors of the Fund or any committees thereof or
advisors thereto. The Investment Manager shall bear all expenses arising
out of its duties hereunder but shall not be responsible for any expenses
of the Fund other than those specifically allocated to the Investment
Manager in this paragraph. In particular, but without limiting the
generality of the foregoing, the Investment Manager shall not be
responsible, except to the extent of the reasonable compensation of such of
the Fund's employees as are directors, officers or employees of the
Investment Manager whose services may be involved, for the following
expenses of the Fund: organization and certain offering expenses of the
Fund (including out-of-pocket expenses, but not including overhead or
employee costs of the Investment Manager or of any one or more
organizations retained as an advisor or consultant to the Fund); fees
payable to the Investment Manager and to any advisors or consultants; legal
expenses; auditing and accounting expenses; telephone, telex, facsimile,
postage and other communications expenses; taxes and governmental fees;
stock exchange listing fees; fees, dues and expenses incurred by the Fund
in connection with membership in investment company trade organizations;
fees and expenses of the Fund's custodians, sub-custodians, transfer agents
and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any;
expenses of preparing share certificates and other expenses in connection
with the issuance, offering, distribution, sale or underwriting of
securities issued
<PAGE> 2
by the Fund; expenses relating to investor and public relations; expenses
of registering or qualifying securities of the Fund for sale; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; brokerage commissions or other costs of acquiring or
disposing of any portfolio securities of the Fund; expenses of preparing
and distributing reports, notices and dividends to stockholders; expenses
of the Fund's dividend reinvestment and cash purchase plan (except for
brokerage expenses paid by participants in such plan); costs of stationery;
any litigation expenses; and costs of stockholders' and other meetings.
2. The Fund agrees to pay in United States dollars to the Investment
Manager, as full compensation for the services to be rendered and expenses
to be borne by the Investment Manager hereunder, a monthly fee which, on an
annual basis, is equal to 1.20% per annum of the value of the Fund's
average weekly net assets. Each payment of a monthly fee to the Investment
Manager shall be made within the ten days next following the day as of
which such payment is so computed.
3. The Investment Manager agrees that it will not make a short sale
of any capital stock of the Fund, or purchase any share of the capital
stock of the Fund otherwise than for investment.
4. Nothing herein shall be construed as prohibiting the Investment
Manager from providing investment advisory services to, or entering into
investment advisory agreements with, other clients (including other
registered investment companies), including clients which may invest in
securities of Latin American issuers, or from utilizing (in providing such
services) information furnished to the Investment Manager by advisors and
consultants to the Fund and others; nor shall anything herein be construed
as constituting the Investment Manager an agent of the Fund.
5. The Investment Manager may rely on information reasonably believed
by it to be accurate and reliable. Neither the Investment Manager nor its
officers, directors, employees or agents shall be subject to any liability
for any act or omission, error of judgment or mistake of law, or for any
loss suffered by the Fund, in the course of, connected with or arising out
of any services to be rendered hereunder, except by reason of willful
misfeasance, bad faith or gross negligence on the part of the Investment
Manager in the performance of its duties or by reason of reckless disregard
on the part of the Investment Manager of its obligations and duties under
this Agreement. Any person, even though also employed by the Investment
Manager, who may be or become an employee of the Fund and paid by the Fund
shall be deemed, when acting within the scope of his employment by the
Fund, to be acting in such employment solely for the Fund and not as an
employee or agent of the Investment Manager.
6. This Agreement shall remain in effect for a period of two years
from the date the Fund's Registration Statement on Form N-2 is declared
effective by the SEC, and shall continue in effect thereafter, but only so
long as such continuance is specifically approved at least annually by the
affirmative vote of (i) a majority of the members of the Fund's Board of
Directors who are not interested persons of the Fund or of the Investment
Manager cast in person at a meeting called for the purpose of voting on
such approval, and (ii) a majority of the Fund's Board of Directors or the
holders of a majority of the outstanding voting securities of the Fund.
This Agreement may nevertheless be terminated at any time without penalty,
on 60 days' written notice, by the Fund's Board of Directors, by vote of
holders of a majority of the outstanding voting securities of the Fund or
by the Investment Manager. Any such notice shall be deemed given when
received by the addressee. This Agreement shall automatically be terminated
in the event of its assignment.
7. This Agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by either party hereto, except as permitted
under the 1940 Act or rules and regulations adopted under the 1940 Act. It
may be amended by mutual agreement, but only after authorization of such
amendment by the affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Fund, and (ii) a majority of the
members of the Fund's Board of Directors who are not interested persons of
the Fund or of the Investment Manager, cast in person at a meeting called
for the purpose of voting on such approval.
2
<PAGE> 3
8. This Agreement shall be construed in accordance with the laws of
the State of New York, provided, however, that nothing herein shall be
construed as being inconsistent with the 1940 Act. As used herein, the
terms "interested person," "assignment," and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
1940 Act.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
officers thereunto duly authorized as of the day and year first written above.
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
By:
- --------------------------------------------------------------------------------
Name:
Title:
SCUDDER, STEVENS & CLARK, INC.
By:
- --------------------------------------------------------------------------------
Name:
Title:
3
<PAGE> 1
EXHIBIT (9)
CUSTODIAN AGREEMENT
DATED AS OF
MARCH 2, 1995
BETWEEN
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
AND
BROWN BROTHERS HARRIMAN & CO.
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I. APPOINTMENT OF CUSTODIAN.................................................... 1
ARTICLE II. POWERS AND DUTIES OF CUSTODIAN............................................. 1
2.1. Safekeeping................................................................... 1
2.2. Manner of Holding Securities.................................................. 1
2.3. Registered Name; Nominee...................................................... 1
2.4. Purchases by the Fund......................................................... 2
2.5. Exchanges of Securities....................................................... 2
2.6. Sales of Securities........................................................... 3
2.7. Depositary Receipts........................................................... 3
2.8. Exercise of Rights; Tender Offers............................................. 3
2.9. Stock Dividends, Rights, Etc.................................................. 3
2.10. Options and Swaps............................................................. 3
2.11. Futures and Forward Contracts................................................. 4
2.12. Borrowings.................................................................... 4
2.13. Bank Accounts................................................................. 4
2.14. Interest-Bearing Deposits..................................................... 5
2.15. Foreign Exchange Transactions................................................. 5
2.16. Securities Loans.............................................................. 6
2.17. Collections................................................................... 6
2.18. Dividends, Distributions and Redemptions...................................... 6
2.19. Proxies; Communications Relating to Portfolio Securities...................... 6
2.20. Bills......................................................................... 7
2.21. Nondiscretionary Details...................................................... 7
2.22. Deposit of Fund Assets in Securities Systems.................................. 7
2.23. Other Transfers............................................................... 8
2.24. Establishment of Segregated Accounts.......................................... 8
2.25. Custodian Advances............................................................ 8
ARTICLE III. PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS AND RELATED MATTERS.............
9
3.1. Proper Instructions and Special Instructions.................................. 9
3.2. Authorized Persons............................................................ 9
3.3. Persons Having Access to Assets of the Fund................................... 9
3.4. Actions of Custodian Based on Proper Instructions and Special Instructions.... 10
ARTICLE IV. SUBCUSTODIANS.............................................................. 10
4.1. Domestic Subcustodians........................................................ 10
4.2. Foreign Subcustodians and Interim Subcustodians............................... 10
4.3. Termination of a Subcustodian................................................. 11
4.4. Agents........................................................................ 11
ARTICLE V. STANDARD OF CARE; INDEMNIFICATION........................................... 12
5.1. Standard of Care.............................................................. 12
5.2. Liability of Custodian for Actions of Other Persons........................... 12
5.3. Indemnification............................................................... 13
5.4. Investment Limitations........................................................ 14
5.5. Fund's Right to Proceed....................................................... 14
ARTICLE VI. RECORDS.................................................................... 14
6.1. Preparation of Reports........................................................ 14
6.2. Custodian's Books and Records................................................. 14
6.3. Opinion of Fund's Independent Certified Public Accountants.................... 15
6.4. Reports of Custodian's Independent Certified Public Accountants............... 15
</TABLE>
i
<PAGE> 3
<TABLE>
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6.5. Calculation of Net Asset Value................................................ 15
6.6. Information Regarding Foreign Subcustodians and Foreign Depositories.......... 17
ARTICLE VII. CUSTODIAN FEES............................................................ 17
ARTICLE VIII. TERMINATION.............................................................. 18
ARTICLE IX. MISCELLANEOUS.............................................................. 18
9.1. Execution of Documents........................................................ 18
9.2. Entire Agreement.............................................................. 18
9.3. Waivers and Amendments........................................................ 18
9.4. Captions...................................................................... 18
9.5. Governing Law................................................................. 18
9.6. Notices....................................................................... 19
9.7. Successors and Assigns........................................................ 19
9.8. Counterparts.................................................................. 19
9.9. Representative Capacity; Nonrecourse Obligations.............................. 19
Appendix A Procedures Relating to Custodian's Security Interest
Appendix B Subcustodians, Foreign Countries, and Foreign Depositories
Appendix C Sources of Price Quotations
</TABLE>
ii
<PAGE> 4
FORM OF CUSTODIAN AGREEMENT
CUSTODIAN AGREEMENT dated as of March 2, 1995, between The Latin America
Dollar Income Fund, Inc. (the "Fund"), a Maryland corporation, and Brown
Brothers Harriman & Co. (the "Custodian"), a New York limited partnership.
In consideration of the mutual covenants and agreements herein contained,
the parties hereto agree as follows:
ARTICLE I.
APPOINTMENT OF CUSTODIAN
The Fund hereby employs and appoints the Custodian as a custodian for the
term of and subject to the provisions of this Agreement. The Fund agrees to
deliver to the Custodian all securities, cash and other assets owned by it, and
all payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Fund from time to time, and
the cash consideration received by it for such new or treasury shares of capital
stock of the Fund as may be issued or sold from time to time.
The Custodian shall not be under any duty or obligation to require the Fund
to deliver to it any securities, cash or other assets owned by the Fund and
shall have no responsibility or liability for or on account of securities, cash
or other assets not so delivered. The Fund will deposit with the Custodian
copies of the Articles of Incorporation and By-Laws (or comparable documents) of
the Fund and all amendments thereto, and copies of such votes and other
proceedings of the Fund as may be necessary for or convenient to the Custodian
in the performance of its duties.
ARTICLE II.
POWERS AND DUTIES OF CUSTODIAN
The Custodian shall have and perform, or cause to be performed in
accordance with this Agreement, the powers and duties set forth in this Article
II. Pursuant to and in accordance with Article IV, the Custodian may appoint one
or more Subcustodians (as that term is defined in Article IV) to exercise the
powers and perform the duties of the Custodian set forth in this Article II and,
except as the context shall otherwise require, references to the Custodian in
this Article II shall include any Subcustodian so appointed.
2.1. SAFEKEEPING. The Custodian shall keep safely the cash, securities
and other assets of the Fund that have been delivered to the Custodian and from
time to time shall accept delivery of cash, securities and other assets for
safekeeping.
2.2. MANNER OF HOLDING SECURITIES. (a) The Custodian shall hold
securities of the Fund (i) by physical possession of the share certificates or
other instruments representing such securities in registered or bearer form, or
the broker's receipts or confirmations for forward contracts, futures contracts,
options and similar contracts and securities, or (ii) in book-entry form by a
Securities System (as that term is defined in section 2.22) or (iii) by a
Foreign Depository (as that term is defined in section 4.2(a)).
(b) The Custodian shall identify securities and other assets held by it
hereunder as being held for the account of the Fund and shall require each
Subcustodian to identify securities and other assets held by such Subcustodian
as being held for the account of the Custodian for the Fund (or, if authorized
by Special Instructions, for customers of the Custodian) or for the account of
another Subcustodian for the Fund (or, if authorized by Special Instructions,
for customers of such Subcustodian); provided that if assets are held for the
account of the Custodian or a Subcustodian for customers of the Custodian or
such Subcustodian, the records of the Custodian shall at all times indicate the
Fund and other customers of the Custodian for which such assets are held in such
account and their respective interests therein.
2.3. REGISTERED NAME; NOMINEE. (a) The Custodian shall hold registered
securities and other assets of the Fund (i) in the name of the Custodian
(including any Subcustodian), the Fund, a Securities System, a
<PAGE> 5
Foreign Depository or any nominee of any such person or (ii) in street
certificate form, so-called, and in any case with or without any indication of
fiduciary capacity, provided that such securities and other assets of the Fund
are held in an account of the Custodian containing only assets of the Fund or
only assets held as fiduciary or custodian for customers.
(b) Except with respect to securities or other assets which under local
custom and practice generally accepted by Institutional Clients are held in the
investor's name, the Custodian shall not hold registered securities or other
assets in the name of the Fund, and shall require each Subcustodian not to hold
registered securities or other assets in the name of the Fund, unless the
Custodian or such Subcustodian promptly notifies the Fund that such registered
securities are being held in the Fund's name and causes the Securities System,
Foreign Depository, issuer or other relevant person to direct all correspondence
and payments to the address of the Custodian or such Subcustodian, as the case
may be.
2.4. PURCHASES BY THE FUND. Upon receipt of Proper Instructions (as that
term is defined in section 3.1(a)) and insofar as funds are available for the
purpose (or as funds are otherwise provided by the Custodian at its discretion
pursuant to section 2.25), the Custodian shall pay for and receive securities or
other assets purchased for the account of the Fund, payment being made only upon
receipt of the securities or other assets (a) by the Custodian, or (b) by credit
to an account which the Custodian may have with a Securities System, clearing
corporation of a national securities exchange, Foreign Depository or other
financial institution approved by the Fund. Notwithstanding the foregoing, upon
receipt of Proper Instructions: (i) in the case of repurchase agreements entered
into by the Fund in a transaction involving a Securities System or a Foreign
Depository, the Custodian may release funds to the Securities System or Foreign
Depository prior to the receipt of advice from the Securities System or Foreign
Depository that the securities underlying such repurchase agreement have been
transferred by book entry into the Account (as defined in section 2.22) of the
Custodian maintained with such Securities System or similar account with a
Foreign Depository, provided that the instructions of the Custodian to the
Securities System or Foreign Depository require that the Securities System or
Foreign Depository, as the case may be, may make payment of such funds to the
other party to the repurchase agreement only upon transfer by book-entry of the
securities underlying the repurchase agreement into the Account, (ii) in the
case of futures and forward contracts, options and similar securities, foreign
currency purchased from third parties, time deposits, foreign currency call
account deposits, and other bank deposits, and transactions pursuant to sections
2.10, 2.11, 2.13, 2.14 and 2.15, the Custodian may make payment therefor prior
to delivery of the contract, currency, option or security without receiving an
instrument evidencing said contract, currency, option, security or deposit, and
(iii) in the case of the purchase of securities or other assets the settlement
of which occurs outside the United States of America, the Custodian may make
payment therefor and receive delivery thereof in accordance with local custom
and practice generally accepted by Institutional Clients (as defined below) in
the country in which settlement occurs, provided that in every case the
Custodian shall be subject to the standard of care set forth in Article V and to
any Special Instructions given in accordance with section 3.1(b). Except in the
cases provided for in the immediately preceding sentence, in any case where
payment for purchase of securities or other assets for the account of the Fund
is made by the Custodian in advance of receipt of the securities or other assets
so purchased in the absence of Proper Instructions to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities or other
assets to the same extent as if the securities or other assets had been received
by the Custodian. For purposes of this Agreement, "Institutional Clients" means
U.S. registered investment companies, or major, U.S.-based commercial banks,
insurance companies, pension funds or substantially similar financial
institutions which, as a substantial part of their business operations, purchase
or sell securities and make use of custodial services.
2.5. EXCHANGES OF SECURITIES. Upon receipt of Proper Instructions, the
Custodian shall exchange securities held by it for the account of the Fund for
other securities in connection with any reorganization, recapitalization,
split-up of shares, change of par value, conversion or other event, and to
deposit any such securities in accordance with the terms of any reorganization
or protective plan. Without Proper Instructions, the Custodian may surrender
securities in temporary form for definitive securities, may surrender securities
for transfer into a name or nominee name as permitted in section 2.3, and may
surrender securities for a different
2
<PAGE> 6
number of certificates or instruments representing the same number of shares or
same principal amount of indebtedness, provided that the securities to be issued
are to be delivered to the Custodian.
2.6. SALES OF SECURITIES. Upon receipt of Proper Instructions, the
Custodian shall make delivery of securities or other assets which have been sold
for the account of the Fund, but only against payment therefor (a) in cash, by a
certified check, bank cashier's check, bank credit, or bank wire transfer, or
(b) by credit to the account of the Custodian with a Securities System, clearing
corporation of a national securities exchange, Foreign Depository or other
financial institution approved by the Fund by Proper Instructions. However, (i)
in the case of delivery of physical certificates or instruments representing
securities, the Custodian may make delivery to the broker acting as agent for
the buyer of the securities, against receipt therefor, for examination in
accordance with "street delivery" custom, provided that the Custodian shall have
taken reasonable steps to ensure prompt collection of the payment for, or the
return of, such securities by the broker or its clearing agent and (ii) in the
case of the sale of securities or other assets the settlement of which occurs
outside the United States of America, such securities shall be delivered and
paid for in accordance with local custom and practice generally accepted by
Institutional Clients in the country in which settlement occurs, provided that
in every case the Custodian shall be subject to the standard of care set forth
in Article V and to any Special Instructions given in accordance with section
3.1(b). Except in the cases provided for in the immediately preceding sentence,
in any case where delivery of securities or other assets for the account of the
Fund is made by the Custodian in advance of receipt of payment for the
securities or other assets so sold in the absence of Proper Instructions to so
deliver in advance, the Custodian shall be absolutely liable to the Fund for
such payment to the same extent as if such payment had been received by the
Custodian.
2.7. DEPOSITARY RECEIPTS. Upon receipt of Proper Instructions, the
Custodian shall surrender securities to the depositary used by an issuer of
American Depositary Receipts, European Depositary Receipts, Global Depositary
Receipts, International Depositary Receipts and other types of Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the Custodian that the depositary has
acknowledged receipt of instructions to issue ADRs with respect to such
securities in the name of the Custodian, or a nominee of the Custodian, for
delivery to the Custodian in Boston, Massachusetts, or at such other place as
the Custodian may from time to time designate.
Upon receipt of Proper Instructions, the Custodian shall surrender ADRs to
the issuer thereof against a written receipt therefor adequately describing the
ADRs surrendered and written evidence satisfactory to the Custodian that the
issuer of the ADRs has acknowledged receipt of instructions to cause its
depositary to deliver the securities underlying such ADRs to the Custodian.
2.8. EXERCISE OF RIGHTS; TENDER OFFERS. Upon receipt of Proper
Instructions, the Custodian shall (a) deliver to the issuer or trustee thereof,
or to the agent of either, warrants, puts, calls, futures contracts, options,
rights or similar securities for the purpose of being exercised or sold,
provided that the new securities and cash, if any, acquired by such action are
to be delivered to the Custodian, and (b) deposit securities upon invitations
for tenders of securities, provided that the consideration is to be paid or
delivered or the tendered securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the Custodian
shall take all necessary action, unless otherwise directed to the contrary by
Proper Instructions, to comply with the terms of all mandatory or compulsory
exchanges, calls, tenders, redemptions or similar rights of security ownership
of which the Custodian receives notice or otherwise becomes aware, and shall
promptly notify the Fund of any such action in writing by facsimile transmission
or in such other manner as the Fund and the Custodian may agree in writing.
2.9. STOCK DIVIDENDS, RIGHTS, ETC. The Custodian shall receive and
collect all stock dividends, rights and other items of like nature and shall
deal with the same as it would other deposited assets or as directed in Proper
Instructions.
2.10. OPTIONS AND SWAPS. Upon receipt of Proper Instructions or
instructions from a third party properly given under any Procedural Agreement,
the Custodian shall (a) receive and retain confirmations or other documents (to
the extent confirmations or other documents are provided to the Custodian)
evidencing the purchase, sale or writing of an option or swap of any type on or
in respect of a security, securities index,
3
<PAGE> 7
currency or similar form of property by the Fund; (b) deposit and maintain in a
segregated account, either physically or by book-entry in a Securities System or
Foreign Depository or with a broker, dealer or other party designated by the
Fund, securities, cash or other assets in connection with options transactions
or swap agreements entered into by the Fund; (c) transfer securities, cash or
other assets to a Securities System, Foreign Depository, broker, dealer or other
party or organization, as margin (including variation margin) or other security
for the Fund's obligations in respect of an option or swap; and (d) pay, release
and/or transfer such securities, cash or other assets only in accordance with a
notice or other communication evidencing the expiration, termination, exercise
of any such option or default under any such option or swap furnished by The
Options Clearing Corporation, the securities or options exchange on which such
option is traded, or such other organization, party, broker or dealer as may be
responsible for handling such options or swap transactions or have authority to
give such notice or communication under a Procedural Agreement. Subject to the
standard of care set forth in Article V (and to its safekeeping duties set forth
in Section 2.1), the Custodian shall not be responsible for the sufficiency of
assets held in any segregated account established and maintained in accordance
with Proper Instructions or instructions from a third party properly given under
any Procedural Agreement or for the performance by the Fund or any third party
of its obligations under any Procedural Agreement. For purposes of this
Agreement, a "Procedural Agreement" is a procedural agreement relating to
options, swaps (including caps, floors and similar arrangements), futures
contracts, forward contracts or borrowings by the Fund to which the Fund, the
Custodian and a third party are parties.
2.11. FUTURES AND FORWARD CONTRACTS. Upon receipt of Proper Instructions
or instructions from a third party properly given under any Procedural
Agreement, the Custodian shall (a) receive and retain confirmations or other
documents (to the extent confirmations or other documents are provided to the
Custodian) evidencing the purchase or sale of a futures contract or an option on
a futures contract by the Fund or the entry into a forward contract by the Fund;
(b) deposit and maintain in a segregated account, either physically or by book
entry in a Securities System or Foreign Depository, for the benefit of any
futures commission merchant, or pay to such futures commission merchant,
securities, cash or other assets designated by the Fund as initial, maintenance
or variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written, purchased or sold by the Fund or any forward
contracts entered into, in accordance with the provisions of any Procedural
Agreement designed to comply with the rules of the Commodity Futures Trading
Commission and/or any contract market, or any similar organization or
organizations on which such contracts or options are traded; and (c) pay,
release and/or transfer securities, cash or other assets into or out of such
margin accounts only in accordance with any such agreements or rules. Subject to
the standard of care set forth in Article V, the Custodian shall not be
responsible for the sufficiency of assets held in any such margin account
established and maintained in accordance with Proper Instructions or
instructions from a third party properly given under any Procedural Agreement or
for the performance by the Fund or any third party of its obligations under any
Procedural Agreement.
2.12. BORROWINGS. Upon receipt of Proper Instructions or instructions
from a third party properly given under any Procedural Agreement, the Custodian
shall deliver securities of the Fund to lenders or their agents, or otherwise
establish a segregated account as agreed to by the Fund and the Custodian, as
collateral for borrowings effected by the Fund, but only against receipt of the
amounts borrowed (or to adjust the amount of such collateral in accordance with
the Procedural Agreement), provided that if such collateral is held in book-
entry form by a Securities System or Foreign Depository, such collateral may be
transferred by book-entry to such lender or its agent against receipt by the
Custodian of an undertaking by such lender to pay such borrowed money to or upon
the order of the Fund on the next business day following such transfer of
collateral.
2.13. BANK ACCOUNTS. The Custodian shall open and operate one or more
accounts in the name of the Fund on the Custodian's books subject only to draft
or order by the Custodian. All funds received by the Custodian from or for the
account of the Fund shall be deposited in said account(s). The responsibilities
of the Custodian to the Fund for deposits accepted on the Custodian's books
shall be that of a U.S. bank for a similar deposit.
4
<PAGE> 8
Upon receipt of Proper Instructions, the Custodian may open and operate
additional accounts in such other banks or trust companies, including any
Subcustodian, as may be designated by the Fund in such instructions (any such
bank or trust company other than the Custodian so designated by the Fund being
referred to hereafter as a "Banking Institution"), provided that any such
account shall be in the name of the Custodian for the account of the Fund (or,
if authorized by Special Instructions, for the account of the Custodian's
customers generally) and subject only to the Custodian's draft or order;
provided that if assets are held in such an account for the account of the
Custodian's customers generally, the records of the Custodian shall at all times
indicate the Fund and other customers for which such assets are held in such
account and their respective interests therein. Such accounts may be opened with
Banking Institutions in the United States and in other countries and may be
denominated in U.S. Dollars or such other currencies as the Fund may determine.
So long as the Custodian exercises reasonable care and diligence in executing
Proper Instructions, the Custodian shall have no responsibility for the failure
of any Banking Institution to make payment from such an account upon demand.
2.14. INTEREST-BEARING DEPOSITS. The Custodian shall place
interest-bearing fixed term and call deposits with such banks and in such
amounts as the Fund may authorize pursuant to Proper Instructions. Such deposits
may be placed with the Custodian or with Subcustodians or other Banking
Institutions as the Fund may determine. Deposits may be denominated in U.S.
Dollars or other currencies, as the Fund may determine, and need not be
evidenced by the issuance or delivery of a certificate to the Custodian,
provided that the Custodian shall include in its records with respect to the
assets of the Fund, appropriate notation as to the amount and currency of each
such deposit, the accepting Banking Institution and all other appropriate
details, and shall retain such forms of advice or receipt evidencing such
deposits as may be forwarded to the Custodian by the Banking Institution in
question. The responsibility of the Custodian for such deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit. With
respect to interest-bearing deposits other than those accepted on the
Custodian's books, (a) the Custodian shall be responsible for the collection of
income as set forth in Section 2.17, and (b) so long as the Custodian exercises
reasonable care and diligence in executing Proper Instructions, the Custodian
shall have no responsibility for the failure of any Banking Institution to make
payment in accordance with the terms of such an account. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable steps as the Fund deems
necessary or appropriate to cause such deposits to be insured to the maximum
extent possible by the Federal Deposit Insurance Corporation and any other
applicable deposit insurers.
2.15. FOREIGN EXCHANGE TRANSACTIONS. (a) Upon receipt of Proper
Instructions, the Custodian shall settle foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future delivery on behalf
and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may direct pursuant to Proper Instructions. The
Custodian shall be responsible for the transmission of cash and instructions to
and from the currency broker or Banking Institution with which the contract or
option is made, the safekeeping of all certificates and other documents and
agreements received by the Custodian evidencing or relating to such foreign
exchange transactions and the maintenance of proper records as set forth in
Section 6.2. In connection with such transactions, upon receipt of Proper
Instructions, the Custodian shall be authorized to make free outgoing payments
of cash in the form of U.S. Dollars or foreign currency without receiving
confirmation of a foreign exchange contract or option or confirmation that the
countervalue currency completing the foreign exchange contract has been
delivered or that the option has been delivered or received. The Custodian shall
have no authority to select third party foreign exchange dealers and, so long as
the Custodian exercises reasonable care and diligence in executing Proper
Instructions, shall have no responsibility for the failure of any such dealer to
settle any such contract or option in accordance with its terms. The Fund shall
reimburse the Custodian for any interest charges or reasonable out-of-pocket
expenses incurred by the Custodian resulting from the failure or delay of third
party foreign exchange dealers to deliver foreign exchange, other than interest
charges and expenses occasioned by or resulting from the negligence, misfeasance
or misconduct of the Custodian.
(b) The Custodian shall not be obligated to enter into foreign exchange
transactions as principal. However, if the Custodian has made available to the
Fund its services as principal in foreign exchange transactions, upon receipt of
Proper Instructions, the Custodian shall enter into foreign exchange contracts
or
5
<PAGE> 9
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
responsibility of the Custodian with respect to foreign exchange contracts and
options executed with the Custodian as principal shall be that of a U.S. bank
with respect to a similar contract or option.
2.16. SECURITIES LOANS. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund, in connection with loans of
securities by the Fund, to the borrower thereof in accordance with the terms of
a written securities lending agreement to which the Fund is a party or which is
otherwise approved by the Fund.
2.17. COLLECTIONS. The Custodian shall promptly collect, receive and
deposit in the account or accounts referred to in Section 2.13 all income,
payments of principal and other payments with respect to the securities and
other assets held hereunder, promptly endorse and deliver any instruments
required to effect such collections and in connection therewith deliver the
certificates or other instruments representing securities to the issuer thereof
or its agent when securities are called, redeemed, retired or otherwise become
payable; provided that the payment is to be made in such form and manner and at
such time, which may be after delivery by the Custodian of the instrument
representing the security, as is in accordance with the terms of the instrument
representing the security, such Proper Instructions as the Custodian may
receive, governmental regulations, the rules of the Securities System or Foreign
Depository in which such security is held or, with respect to securities
referred to in clause (iii) of the second sentence of Section 2.4, in accordance
with local custom and practice generally accepted by Institutional Clients in
the market where payment or delivery occurs, but in all events subject to the
standard of care set forth in Article V. The Custodian shall promptly execute
ownership and other certificates and affidavits for all federal, state and
foreign tax purposes in connection with receipt of income or other payments with
respect to securities or other assets of the Fund or in connection with transfer
of securities or other assets. Pursuant to Proper Instructions, the Custodian
shall take such other actions, which may involve an investment decision, as the
Fund may request with respect to the collection or receipt of funds or the
transfer of securities. Except in the cases provided for in the first sentence
of this section, in any case where delivery of securities for the account of the
Fund is made by the Custodian in advance of receipt of payment with respect to
such securities in the absence of Proper Instructions to so deliver in advance,
the Custodian shall be absolutely liable to the Fund for such payment to the
same extent as if such payment had been received by the Custodian. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and the Custodian may agree in writing if any amount
payable with respect to securities or other assets of the Fund is not received
by the Custodian when due.
2.18. DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. Upon receipt of Proper
Instructions, or upon receipt of instructions from the Fund's shareholder
servicing agent or agent with comparable duties (the "Shareholder Servicing
Agent") (given by such person or persons and in such manner on behalf of the
Shareholder Servicing Agent as the Fund shall have authorized by Proper
Instructions), the Custodian shall release funds or securities, insofar as
available, to the Shareholder Servicing Agent or as such Shareholder Servicing
Agent shall otherwise instruct (a) for the payment of dividends or other
distributions to Fund shareholders or (b) for payment to the Fund shareholders
who have delivered to such Shareholder Servicing Agent a request for repurchase
or redemption of their shares of capital stock of the Fund.
2.19. PROXIES; COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. The
Custodian shall, as promptly as is appropriate under the circumstances, deliver
or mail to the Fund all forms of proxies and all notices of meetings and any
other notices, announcements or information (including, without limitation,
information relating to pendency of calls and maturities of securities and
expirations of rights in connection therewith, notices of exercise of call and
put options written by the Fund, and notices of the maturity of futures
contracts (and options thereon) purchased or sold by the Fund) affecting or
relating to securities owned by the Fund that are received by the Custodian.
Upon receipt of Proper Instructions, the Custodian shall execute and deliver or
cause its nominee to execute and deliver such proxies or other authorizations as
may be required. Neither the Custodian nor its nominees shall vote upon any of
such securities or execute any proxy to vote thereon or give any consent or take
any other action with respect to securities or other assets of the Fund (except
as otherwise herein provided) unless ordered to do so by Proper Instructions.
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<PAGE> 10
The Custodian shall notify the Fund on or before ex-date (or if later
within 24 hours after receipt by the Custodian of the notice of such corporate
action) of all corporate actions affecting portfolio securities of the Fund
received by the Custodian from the issuers of the securities involved, from
third parties proposing a corporate action, from subcustodians, or from commonly
utilized sources (including proprietary sources) providing corporate action
information, a list of which will be provided by the Custodian to the Fund from
time to time upon request. Information as to corporate actions shall include
information as to dividends, distributions, stock splits, stock dividends,
rights offerings, conversions, exchanges, tender offers, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
ex-, record and pay dates and the amounts or other terms thereof. If the Fund
desires to take action with respect to any corporate action, the Fund shall
notify the Custodian within such period as will give the Custodian (including
any Subcustodian) a sufficient amount of time to take such action.
2.20. BILLS. Upon receipt of Proper Instructions, the Custodian shall pay
or cause to be paid, insofar as funds are available for the purpose, bills,
statements, or other obligations of the Fund (including but not limited to
interest charges, taxes, advisory fees, compensation to Fund officers and
employees, and other operating expenses of the Fund).
2.21. NONDISCRETIONARY DETAILS. Without the necessity of express
authorization from the Fund, the Custodian shall (a) attend to all
nondiscretionary details in connection with the sale, exchange, substitution,
purchase, transfer or other dealings with securities, cash or other assets of
the Fund held by the Custodian except as otherwise directed from time to time by
the Board of Directors of the Fund, and (b) make payments to itself or others
for minor expenses of handling securities or other assets and for other similar
items relating to the Custodian's duties under this Agreement, provided that all
such payments shall be accounted for to the Fund.
2.22. DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain securities owned by the Fund in (a) The Depository Trust
Company, (b) the Participants Trust Company, (c) any book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31
CFR Part 350, or the book-entry regulations of federal agencies substantially in
the form of Subpart O, or (d) any other domestic clearing agency registered with
the Securities and Exchange Commission (the "SEC") under Section 17A of the
Securities Exchange Act of 1934, as amended, which acts as a securities
depository and whose use the Fund has previously approved by Special
Instructions (as that term is defined in section 3.1(b)) (each of the foregoing
being referred to in this Agreement as a "Securities System"). Utilization of a
Securities System shall be in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following provisions:
(i) The Custodian may deposit and/or maintain securities held
hereunder in a Securities System, provided that such securities are
represented in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian, or otherwise for customers;
(ii) The records of the Custodian with respect to securities of the
Fund which are maintained in a securities System shall identify by book
entry those securities belonging to the Fund;
(iii) The Custodian shall pay for securities purchased for the account
of the Fund only upon (A) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (B) the making of
an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer
securities sold for the account of the Fund only upon (1) receipt of advice
from the Securities System that payment for such securities has been
transferred to the Account, and (2) the making of an entry on the records
of the Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities System of transfers of
securities for the account of the Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to the Fund at its
request. The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the account
of the Fund on the next business day;
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<PAGE> 11
(iv) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in
the Securities System; and the Custodian shall send to the Fund such
reports on its own systems of internal accounting control as the Fund may
reasonably request from time to time; and
(v) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any such Securities System on behalf of the Fund as
promptly as practicable and shall take all actions reasonably practicable
to safeguard the securities of the Fund that had been maintained with such
Securities System.
2.23. OTHER TRANSFERS. The Custodian shall deliver securities, cash, and
other assets of the Fund to a Subcustodian as necessary to effect transactions
authorized by Proper Instructions. Upon receipt of Proper Instructions in
writing in advance, the Custodian shall make such other disposition of
securities, cash or other assets of the Fund in a manner other than or for
purposes other than as enumerated in this Agreement, provided that such written
Proper Instructions relating to such disposition shall include a statement of
the purpose for which the delivery is to be made, the amount of funds and/or
securities to be delivered and the name of the person or persons to whom
delivery is to be made.
2.24. ESTABLISHMENT OF SEGREGATED ACCOUNTS. Upon receipt of Proper
Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other assets of the
Fund, including securities maintained by the Custodian in a Securities System,
said account to be maintained (a) for the purposes set forth in sections 2.10,
2.11, 2.12 and 2.15; (b) for the purposes of compliance by the Fund with the
procedures required by Release No. 10666 under the Investment Company Act of
1940, as amended (the "1940 Act"), or any subsequent release or releases of the
SEC relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as set forth, from time to time, in
Special Instructions.
2.25. CUSTODIAN ADVANCES. (a) In the event that the Custodian is directed
by Proper Instructions to make any payment or transfer of funds on behalf of the
Fund for which there would be, at the close of business on the date of such
payment or transfer, insufficient funds held by the Custodian on behalf of the
Fund, the Custodian may, in its discretion without further Proper Instructions,
provide an advance ("Advance") to the Fund in an amount sufficient to allow the
completion of the transaction by reason of which such payment or transfer of
funds is to be made. In addition, in the event the Custodian is directed by
Proper Instructions to make any payment or transfer of funds on behalf of the
Fund as to which it is subsequently determined that the Fund has overdrawn its
cash account with the Custodian as of the close of business on the date of such
payment or transfer, said overdraft shall constitute an Advance. Any Advance
shall be payable on demand by the Custodian, unless otherwise agreed by the Fund
and the Custodian, and shall accrue interest from the date of the Advance to the
date of payment by the Fund at a rate agreed upon in writing from time to time
by the Custodian and the Fund. It is understood that any transaction in respect
of which the Custodian shall have made an Advance, including but not limited to
a foreign exchange contract or other transaction in respect of which the
Custodian is not acting as a principal, is for the account of and at the risk of
the Fund, and not, by reason of such Advance, deemed to be a transaction
undertaken by the Custodian for its own account and risk. The Custodian and the
Fund acknowledge that the purpose of Advances is to finance temporarily the
purchase or sale of securities for prompt delivery or to meet redemptions or
emergency expenses or cash needs that are not reasonably foreseeable by the
Fund. The Custodian shall promptly notify the Fund in writing (an "Notice of
Advance") of any Advance by facsimile transmission or in such other manner as
the Fund and the Custodian may agree in writing. At the request of the
Custodian, the Fund shall pledge, assign and grant to the Custodian a security
interest in certain specified securities of the Fund, as security for Advances
provided to the Fund, under the terms and conditions set forth in Appendix A
attached hereto.
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<PAGE> 12
ARTICLE III.
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
3.1. PROPER INSTRUCTIONS AND SPECIAL INSTRUCTIONS.
(a) Proper Instructions. As used in this Agreement, the term "Proper
Instructions" shall mean: (i) a tested telex from the Fund or the Fund's
investment manager or adviser, or a written request, direction, instruction or
certification (which may be given by facsimile transmission) signed or initialed
on behalf of the Fund by, one or more Authorized Persons (as that term is
defined in section 3.2); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication (other than facsimile
transmission) effected directly between electro-mechanical or electronic devices
or systems (including, without limitation, computers) by the Fund or the Fund's
investment manager or adviser or by one or more Authorized Persons on behalf of
the Fund; provided that communications of the types described in clauses (ii)
and (iii) above purporting to be given by an Authorized Person shall be
considered Proper Instructions only if the Custodian reasonably believes such
communications to have been given by an Authorized Person with respect to the
transaction involved. Instructions given in the form of Proper Instructions
under clause (i) shall be deemed to be Proper Instructions if they are
reasonably believed by the Custodian to be genuine. Proper Instructions in the
form of oral communications shall be confirmed by the Fund in the manner set
forth in clauses (i) or (iii) above, but the lack of such confirmation shall in
no way affect any action taken by the Custodian in reliance upon such oral
instructions prior to the Custodian's receipt of such confirmation. The Fund,
the Custodian and any investment manager or adviser of the Fund each is hereby
authorized to record any telephonic or other oral communications between the
Custodian and any such person. Proper Instructions may relate to specific
transactions or to types or classes of transactions, provided that Proper
Instructions may take the form of standing instructions only if they are in
writing.
(b) Special Instructions. As used in this Agreement, the term "Special
Instructions" shall mean Proper Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of the Fund or any other
person designated by the Treasurer of the Fund in writing, which
countersignature or confirmation shall be (i) included on the instrument
containing the Proper Instructions or on a separate instrument relating thereto,
and (ii) delivered by hand, facsimile transmission, mail or courier service or
in such other manner as the Fund and the Custodian agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
3.2. AUTHORIZED PERSONS. Concurrently with the execution of this
Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian a certificate, duly certified by the Secretary or
Assistant Secretary of the Fund, setting forth: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Proper
Instructions or any other notice, request, direction, instruction, certificate
or instrument on behalf of the Fund (each an "Authorized Person"); and (b) the
names, titles and signatures of those persons authorized to issue Special
Instructions. Such certificate may be accepted and relied upon by the Custodian
as conclusive evidence of the facts set forth therein and shall be considered to
be in full force and effect until delivery to the Custodian of a similar
certificate to the contrary. Upon delivery of a certificate which deletes the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
3.3. PERSONS HAVING ACCESS TO ASSETS OF THE FUND. Notwithstanding
anything to the contrary in this Agreement, the Custodian shall not deliver any
assets of the Fund held by the Custodian to or for the account of any Authorized
Person, director, officer, employee or agent of the Fund, provided that nothing
in this section 3.3 shall prohibit (a) any Authorized Person from giving Proper
Instructions, or any person authorized to issue Special Instructions from
issuing Special Instructions, provided such action does not result in delivery
of or access to assets of the Fund prohibited by this section 3.3; or (b) the
Fund's independent certified public
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<PAGE> 13
accountants from examining or reviewing the assets of the Fund held by the
Custodian. The Fund shall provide a list of such persons to the Custodian, and
the Custodian shall be entitled to rely upon such list and any modifications
thereto that are provided to the Custodian from time to time by the Fund.
3.4. ACTIONS OF CUSTODIAN BASED ON PROPER INSTRUCTIONS AND SPECIAL
INSTRUCTIONS. So long as and to the extent that the Custodian acts in
accordance with Proper Instructions or Special Instructions, as the case may be,
and the terms of this Agreement, the Custodian shall not be responsible for the
title, validity or genuineness of any property, or evidence of title thereof,
received or delivered by it pursuant to this Agreement.
ARTICLE IV.
SUBCUSTODIANS
The Custodian may, from time to time, in accordance with the relevant
provisions of this Article IV, appoint one or more Domestic Subcustodians,
Foreign Subcustodians and Interim Subcustodians (as such terms are defined
below) to act on behalf of the Fund. For purposes of this Agreement, all duly
appointed Domestic Subcustodians, Foreign Subcustodians and Interim
Subcustodians are referred to collectively as "Subcustodians."
4.1. DOMESTIC SUBCUSTODIANS. The Custodian may, at any time and from time
to time, at its own expense, appoint any bank as defined in section 2(a)(5) of
the 1940 Act meeting the requirements of a custodian under section 17(f) of the
1940 Act and the rules and regulations thereunder, to act on behalf of the Fund
as a subcustodian for purposes of holding cash, securities and other assets of
the Fund and performing other functions of the Custodian within the United
States (a "Domestic Subcustodian"), provided that the Custodian shall notify the
Fund in writing of the identity and qualifications of any proposed Domestic
Subcustodian at least 30 days prior to appointment of such Domestic
Subcustodian, and the Fund may, in its sole discretion, by written notice to the
Custodian executed by an Authorized Person disapprove of the appointment of such
Domestic Subcustodian. If following notice by the Custodian to the Fund
regarding appointment of a Domestic Subcustodian and the expiration of 30 days
after the date of such notice, the Fund shall have failed to notify the
Custodian of its disapproval thereof, the Custodian may, in its discretion,
appoint such proposed Domestic Subcustodian as its subcustodian.
4.2. FOREIGN SUBCUSTODIANS AND INTERIM SUBCUSTODIANS.
(a) Foreign Subcustodians. The Custodian may, at any time and from time to
time, at its own expense, appoint: (i) any bank, trust company or other entity
meeting the requirements of an "eligible foreign custodian" under section 17(f)
of the 1940 Act and the rules and regulations thereunder or exempted therefrom
by order of the SEC, or (ii) any bank as defined in section 2(a)(5) of the 1940
Act meeting the requirements of a custodian under section 17(f) of the 1940 Act
and the rules and regulations thereunder to act on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other assets of the
Fund and performing other functions of the Custodian in countries other than the
United States of America (a "Foreign Subcustodian"); provided that prior to the
appointment of any Foreign Subcustodian, the Custodian shall have obtained
written confirmation of the approval of the Board of Directors of the Fund
(which approval may be withheld in the sole discretion of such Board of
Directors) with respect to (A) the identity and qualifications of any proposed
Foreign Subcustodian, (B) the country or countries in which, and the securities
depositories or clearing agencies (meeting the requirements of an "eligible
foreign custodian" under section 17(f) of the 1940 Act and the rules and
regulations thereunder or exempted therefrom by order of the SEC) through which,
any proposed Foreign Subcustodian is authorized to hold Securities, cash and
other assets of the Fund (each a "Foreign Depository") and (C) the form and
terms of the subcustodian agreement to be entered into between such proposed
Foreign Subcustodian and the Custodian. In addition, the Custodian may utilize
directly any Foreign Depository, provided the Board of Directors shall have
approved in writing the use of such Foreign Depository by the Custodian. Each
such duly approved Foreign Subcustodian and the countries where and the Foreign
Depositories through which it may hold securities and other assets of the Fund
and the Foreign Depositories that the Custodian may utilize shall be listed in
Appendix B, as it may be
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amended from time to time in accordance with the provisions of section 9.3. The
Fund shall be responsible for informing the Custodian sufficiently in advance of
a proposed investment which is to be held in a country in which no Foreign
Subcustodian is authorized to act, in order that there shall be sufficient time
for the Custodian to effect the appropriate arrangements with a proposed Foreign
Subcustodian, including obtaining approval as provided in this section 4.2(a).
The Custodian shall not agree to any material amendment to any subcustodian
agreement entered into with a Foreign Subcustodian, or agree to permit any
material changes thereunder, or waive any material rights under such agreement,
except upon prior approval pursuant to Special Instructions. The Custodian shall
promptly provide the Fund with notice of any such amendment, change, or waiver,
whether or not material, including a copy of any such amendment. For purposes of
this subsection, a material amendment, change or waiver means an amendment,
change or waiver that may reasonably be expected to have an adverse effect on
the Fund in any material way, including but not limited to the Fund's or the
Board's obligations under the 1940 Act, including Rule 17f-5 thereunder.
(b) Interim Subcustodians. In the event that the Fund shall invest in a
security or other asset to be held in a country in which no Foreign Subcustodian
is authorized to act (whether because the Custodian has not appointed a Foreign
Subcustodian in such country and entered into a subcustodian agreement with it
or because the Board of Directors of the Fund has not approved the Foreign
Subcustodian appointed by the Custodian in such country and the related
subcustodian agreement), the Custodian shall promptly notify the Fund in writing
by facsimile transmission or in such other manner as the Fund and Custodian
shall agree in writing that no Foreign Subcustodian is approved in such country
and the Custodian shall, upon receipt of Special Instructions, appoint any
person designated by the Fund in such Special Instructions to hold such security
or other asset. Any person appointed as a Subcustodian pursuant to this section
4.2(b) is hereinafter referred to herein as an "Interim Subcustodian." Each
Interim Custodian and the securities or assets of the Fund that it is authorized
to hold shall be set forth in Appendix B.
In the absence of such Special Instructions, such security or other asset
shall be held by such agent as the Custodian may appoint unless and until the
Fund shall instruct the Custodian to move the security or other asset into the
possession of the Custodian or a Subcustodian.
4.3. TERMINATION OF A SUBCUSTODIAN. The Custodian shall (a) cause each
Domestic Subcustodian and Foreign Subcustodian to, and (b) use its best efforts
to cause each Interim Subcustodian to, perform all of its obligations in
accordance with the terms and conditions of the subcustodian agreement between
the Custodian and such Subcustodian. In the event that the Custodian is unable
to cause such Subcustodian to fully perform its obligations thereunder, the
Custodian shall forthwith, upon the receipt of Special Instructions, exercise
its best efforts to recover any Losses (as hereinafter defined) incurred by the
Fund because of such failure to perform from such Subcustodian under the
applicable subcustodian agreement and, if necessary or desirable, terminate such
subcustodian and appoint a replacement Subcustodian in accordance with the
provisions of this Agreement. In addition to the foregoing, the Custodian (i)
may, at any time in its discretion, upon written notification to the Fund,
terminate any Domestic Subcustodian, Foreign Subcustodian or Interim
Subcustodian, and (ii) shall, upon receipt of Special Instructions, terminate
any Subcustodian with respect to the Fund, in each case in accordance with the
termination provisions of the applicable subcustodian agreement.
4.4. AGENTS. The Custodian may at any time or times in its discretion
appoint (and may at any time remove) any other bank, trust company, securities
depository or clearing agency that is itself qualified to act as a custodian
under the 1940 Act and the rules and regulations thereunder, as its agent (an
"Agent") to carry out such of the provisions of this Agreement as the Custodian
may from time to time direct, provided that the appointment of one or more
Agents (other than an agent appointed to the second paragraph of section 4.2(b))
shall not relieve the Custodian of its responsibilities under this Agreement.
Without limiting the foregoing, the Custodian shall be responsible for any
notices, documents or other information, or any securities, cash or other assets
of the Fund, received by any Agent on behalf of the Custodian or the Fund as if
the Custodian had received such items itself.
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ARTICLE V.
STANDARD OF CARE; INDEMNIFICATION
5.1. STANDARD OF CARE.
(a) General Standard of Care. The Custodian shall exercise reasonable care
and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all Losses suffered or incurred
by the Fund resulting from the failure of the Custodian to exercise such
reasonable care and diligence. For purposes of this Agreement, "Losses" means
any losses, damages, and expenses.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, securities depository or securities
system utilized by any such Subcustodian or the Custodian, or any nominee of the
Custodian or any Subcustodian, is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction; or (ii) any act
of God or war or action of any de facto or de jure government or other similar
circumstance beyond the control of the Custodian, unless, in each case, such
delay or nonperformance is caused by the negligence, misfeasance or misconduct
of such person.
(c) Mitigation by Custodian. Upon the occurrence of any event which causes
or may cause any Losses to the Fund (i) the Custodian shall, and shall cause any
applicable Domestic Subcustodian or Foreign Subcustodian to, and (ii) the
Custodian shall use its best efforts to cause any applicable Interim
Subcustodian to, use all commercially reasonable efforts and take all reasonable
steps under the circumstances to mitigate the effects of such event and to avoid
continuing harm to the Fund.
(d) Advice of Counsel. The Custodian shall be entitled to receive and act
upon advice of counsel on all matters. The Custodian shall be without liability
for any action reasonably taken or omitted in good faith pursuant to the advice
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund may agree to, such agreement not to be unreasonably withheld
or delayed; provided that with respect to the performance of any action or
omission of any action upon such advice, the Custodian shall be required to
conform to the standard of care set forth in section 5.1(a).
(e) Expenses. In addition to the liability of the Custodian under this
Article V, the Custodian shall be liable to the Fund for all reasonable costs
and expenses incurred by the Fund in connection with any claim by the Fund
against the Custodian arising from the obligations of the Custodian hereunder
including, without limitation, all reasonable attorneys' fees and expenses
incurred by the Fund in asserting any such claim, and all reasonable expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim, provided that the Fund has recovered from
the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any Losses suffered by the Fund, insofar as such Losses arise from
the performance of the Custodian's duties hereunder by reason of the Custodian's
reliance upon records that were maintained for the Fund by entities other than
the Custodian prior to the Custodian's employment hereunder.
(g) Reliance on Certifications. The Secretary or an Assistant Secretary of
the Fund shall certify to the Custodian the names and signatures of the officers
of the Fund, the name and address of the Shareholder Servicing Agent, and any
instructions or directions to the Custodian by the Fund's Board of Directors or
shareholders. Any such certificate may be accepted and relied upon by the
Custodian as conclusive evidence of the facts set forth therein and may be
considered in full force and effect until receipt of a similar certificate to
the contrary.
5.2. LIABILITY OF CUSTODIAN FOR ACTIONS OF OTHER PERSONS.
(a) Domestic Subcustodians, Foreign Subcustodians and Agents. The
Custodian shall be liable for the actions or omissions of any Domestic
Subcustodian, Foreign Subcustodian or Agent (other than an agent
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<PAGE> 16
appointed pursuant to section 4.2(b)) to the same extent as if such action or
omission were performed by the Custodian itself pursuant to this Agreement. In
the event of any Losses suffered or incurred by the Fund caused by or resulting
from the actions or omissions of any Domestic Subcustodian, Foreign Subcustodian
or Agent (other than an agent appointed pursuant to section 4.2(b)) for which
the Custodian would be directly liable if such actions or omissions were those
of the Custodian, the Custodian shall promptly reimburse the Fund in the amount
of any such Losses.
(b) Interim Subcustodians. Notwithstanding the provisions of section 5.1
to the contrary, the Custodian shall not be liable to the Fund for any Losses
suffered or incurred by the Fund resulting from the actions or omissions of an
Interim Subcustodian or an agent appointed pursuant to section 4.2(b) unless
such Losses are caused by, or result from, the negligence, misfeasance or
misconduct of the Custodian; provided that in the event of any Losses (whether
or not caused by or resulting from the negligence, misfeasance or misconduct of
the Custodian), the Custodian shall take all reasonable steps to enforce such
rights as it may have against such Interim Subcustodian or agent to protect the
interests of the Fund.
(c) Securities Systems and Foreign Depositories. Notwithstanding the
provisions of section 5.1 to the contrary, the Custodian shall not be liable to
the Fund for any Losses suffered or incurred by the Fund resulting from the use
by the Custodian or any Subcustodian of a Securities System or Foreign
Depository, unless such Losses are caused by, or result from, the negligence,
misfeasance or misconduct of the Custodian; provided that in the event of any
such Losses, the Custodian shall take all reasonable steps to enforce such
rights as it may have against the Securities System or Foreign Depository, as
the case may be, to protect the interests of the Fund.
(d) Reimbursement of Expenses. The Fund agrees to reimburse the Custodian
for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under this section 5.2,
provided that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Custodian.
5.3. INDEMNIFICATION.
(a) Indemnification Obligations. Subject to the limitations set forth in
this Agreement, the Fund agrees to indemnify and hold harmless the Custodian and
its nominees for all Losses suffered or incurred by the Custodian or its nominee
(including Losses suffered under the Custodian's indemnity obligations to
Subcustodians) caused by or arising from actions taken by the Custodian in the
performance of its duties and obligations under this Agreement, provided that
such indemnity shall not apply to Losses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian or any Subcustodian,
Securities System, Foreign Depository or their respective nominees. In addition,
the Fund agrees to indemnify the Custodian against any liability incurred by
reason of taxes assessed to the Custodian, any Subcustodian, any Securities
System, any Foreign Depository, and their respective nominees, or other Losses
incurred by such persons, resulting from the fact that securities and other
property of the Fund are registered in the name of such persons, provided that
in no event shall such indemnification be applicable to income, franchise or
similar taxes which may be imposed or assessed against such persons.
(b) Notice of Litigation, Right to Prosecute, etc. The Fund shall not be
liable for indemnification under this section 5.3 unless the person seeking
indemnification shall have notified the Fund in writing (i) within such time
after the assertion of any claim as is sufficient for such person to determine
that it will seek indemnification from the Fund in respect of such claim or (ii)
promptly after the commencement of any litigation or proceeding brought against
such person, in respect of which indemnity may be sought; provided that in the
case of clause (i) of this section 5.3(b) the Fund shall not be liable for such
indemnification to the extent the Fund is disadvantaged by any such delay in
notification. With respect to claims in such litigation or proceedings for which
indemnity by the Fund may be sought and subject to applicable law and the ruling
of any court of competent jurisdiction, the Fund shall be entitled to
participate in any such litigation or proceeding and, after written notice from
the Fund to the person seeking indemnification, the Fund may assume the defense
of such litigation or proceeding with counsel of its choice at its own expense
in respect of that portion of the litigation for which the Fund may be subject
to an indemnification obligation, provided that
13
<PAGE> 17
such person shall be entitled to participate in (but not control) at its own
cost and expense, the defense of any such litigation or proceeding if the Fund
has not acknowledged in writing its obligation to indemnify such person with
respect to such litigation or proceeding. If the Fund is not permitted to
participate in or control such litigation or proceeding under applicable law or
by a ruling of a court of competent jurisdiction, such person shall reasonably
prosecute such litigation or proceeding. A person seeking indemnification
hereunder shall not consent to the entry of any judgment or enter into any
settlement of any such litigation or proceeding without providing the Fund with
adequate notice of any such settlement or judgment and without the Fund's prior
written consent, which consent shall not be unreasonably withheld or delayed.
All persons seeking indemnification hereunder shall submit written evidence to
the Fund with respect to any cost or expense for which they are seeking
indemnification in such form and detail as the Fund may reasonably request.
5.4. INVESTMENT LIMITATIONS. If the Custodian has otherwise complied with
the terms and conditions of this Agreement in performing its duties generally,
and more particularly in connection with the purchase, sale or exchange of
securities made by or for the Fund, the Custodian shall not be liable to the
Fund, and the Fund agrees to indemnify the Custodian and its nominees, for any
Losses suffered or incurred by the Custodian and its nominees arising out of any
violation of any investment or other limitation to which the Fund is subject.
5.5. FUND'S RIGHT TO PROCEED. Notwithstanding anything to the contrary
contained herein, the Fund shall have, at its election upon reasonable notice to
the Custodian, the right to enforce, to the extent permitted by any applicable
agreement and applicable law, the Custodian's rights against any Subcustodian,
Securities System, Foreign Depository or other person for Losses caused the Fund
by such Subcustodian, Securities System, Foreign Depository or other person, and
shall be entitled to enforce the rights of the Custodian with respect to any
claim against such Subcustodian, Securities System, Foreign Depository or other
person which the Custodian may have as a consequence of any such Losses, if and
to the extent that the Fund has not been made whole for such Losses. If the
Custodian makes the Fund whole for such Losses, the Custodian shall retain the
ability to enforce its rights directly against such Subcustodian, Securities
System, Foreign Depository or other person. Upon the Fund's election to enforce
any rights of the Custodian under this section 5.5, the Fund shall reasonably
prosecute all actions and proceedings directly relating to the rights of the
Custodian in respect of the Losses incurred by the Fund; provided that, so long
as the Fund has acknowledged in writing its obligation to indemnify the
Custodian under section 5.3 hereof with respect to such claim, the Fund shall
retain the right to settle, compromise and/or terminate any action or proceeding
in respect of the Losses incurred by the Fund without the Custodian's consent;
and provided further that if the Fund has not made an acknowledgement of its
obligation to indemnify the Custodian, the Fund shall not settle, compromise or
terminate any such action or proceeding without the written consent of the
Custodian, which consent shall not be unreasonably withheld or delayed. The
Custodian agrees to cooperate with the Fund and take all actions reasonably
requested by the Fund in connection with the Fund's enforcement of any rights of
the Custodian. The Fund agrees to reimburse the Custodian for all reasonable
out-of-pocket expenses incurred by the Custodian in connection with the
fulfillment of its obligations under this section 5.5, provided that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
ARTICLE VI.
RECORDS
6.1. PREPARATION OF REPORTS. The Custodian shall, as reasonably requested
by the Fund, assist generally in the preparation of reports to Fund
shareholders, regulatory authorities and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall render statements,
including interim monthly and complete quarterly financial statements, or copies
thereof, from time to time as reasonably requested by Proper Instructions.
6.2. CUSTODIAN'S BOOKS AND RECORDS. The Custodian shall maintain complete
and accurate records with respect to securities and other assets held for the
account of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including:
14
<PAGE> 18
(a) journals or other records of original entry containing a detailed and
itemized daily record of all receipts and deliveries of securities (including
certificate and transaction identification numbers, if any), and all receipts
and disbursements of cash; (b) ledgers or other records reflecting (i)
securities in physical possession, (ii) securities in transfer, (iii) securities
borrowed, loaned or collateralizing obligations of the Fund, (iv) monies
borrowed and monies loaned (together with a record of the collateral therefor
and substitutions of collateral), and (v) dividends and interest received; and
(c) cancelled checks and bank records related thereto. The Custodian shall keep
such other books and records of the Fund as the Fund shall reasonably request.
All such books and records maintained by the Custodian shall be maintained in a
form acceptable to the Fund and in compliance with the rules and regulations of
the SEC (including, but not limited to, books and records required to be
maintained under Section 31(a) of the 1940 Act and the rules and regulations
from time to time adopted thereunder), and any other applicable Federal, State
and foreign tax laws and administrative regulations. All such records will be
the property of the Fund and in the event of termination of this Agreement shall
be delivered to the successor custodian.
All books and records maintained by the Custodian pursuant to this
Agreement and any insurance policies and fidelity or similar bonds maintained by
the Custodian shall be made available for inspection and audit at reasonable
times by officers of, attorneys for, and auditors employed by, the Fund and the
Custodian shall promptly provide the Fund with copies of all reports of its
independent auditors regarding the Custodian's controls and procedures.
6.3. OPINION OF FUND'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. The
Custodian shall take all reasonable action as the Fund may request to obtain
from year to year favorable opinions from the Fund's independent certified
public accountants with respect to the Custodian's activities hereunder in
connection with the preparation of any periodic reports to or filings with the
SEC and with respect to any other requirements of the SEC.
6.4. REPORTS OF CUSTODIAN'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
6.5. CALCULATION OF NET ASSET VALUE. The Custodian shall compute and
determine the net asset value per share of capital stock of the Fund as of the
close of regular business on the New York Stock Exchange on each day on which
such Exchange is open, unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with (a) the
provisions of the By-Laws of the Fund and Articles of Incorporation, as they may
from time to time be amended and delivered to the Custodian, (b) the votes of
the Board of Directors of the Fund at the time in force and applicable, as they
may from time to time be delivered to the Custodian, and (c) Proper
Instructions. On each day that the Custodian shall compute the net asset value
per share of the Fund, the Custodian shall provide the Fund with written reports
which permit the Fund to verify that portfolio transactions have been recorded
in accordance with the Fund's instructions.
In computing the net asset value, the Custodian may rely upon any
information furnished by Proper Instructions, including without limitation any
information (i) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account kept by the Custodian, (ii) as
to the existence, status and proper treatment of reserves, if any, authorized by
the Fund, (iii) as to the sources of quotations to be used in computing the net
asset value, including those listed in Appendix C hereto, (iv) as to the fair
value to be assigned to any securities or other assets for which price
quotations are not readily available, and (v) as to the sources of information
with respect to "corporate actions" affecting portfolio securities of the Fund,
including those listed in Appendix C. (Information as to "corporate actions"
shall include information as to dividends, distributions, stock splits, stock
dividends, rights offerings, conversions, exchanges, recapitaliza-
15
<PAGE> 19
tions, mergers, redemptions, calls, maturity dates and similar transactions,
including the ex- and record dates and the amounts or other terms thereof.)
In like manner, the Custodian shall compute and determine the net asset
value as of such other times as the Board of Directors of the Fund, or any
valuation committee thereof, from time to time may reasonably request.
The Custodian shall be held to the standard of care set forth in Article V
with respect to the performance of its responsibilities under this Article VI.
The parties hereto acknowledge, however, that the Custodian's causing an error
or delay in the determination of net asset value may, but does not in and of
itself, constitute negligence, gross negligence or reckless or willful
misconduct. The Custodian's liability for any such negligence, gross negligence
or reckless or willful misconduct which results in an error in determination of
such net asset value shall be limited to the direct, out-of-pocket loss the
Fund, shareholder or former shareholder shall actually incur, measured by the
difference between the actual and the erroneously computed net asset value, and
any expenses incurred by the Fund in connection with correcting the records of
the Fund affected by such error (including charges made by the Fund's registrar
and transfer agent for making such corrections), communicating with shareholders
or former shareholders of the Fund affected by such error or responding to or
defending against any inquiry or proceeding with respect to such error made or
initiated by the SEC or other regulatory or self-regulatory body.
Without limiting the foregoing, the Custodian shall not be held accountable
or liable to the Fund, any shareholder or former shareholder thereof or any
other person for any delays or Losses any of them may suffer or incur resulting
from (A) the Custodian's failure to receive timely and suitable notification
concerning quotations or corporate actions relating to or affecting securities
of the Fund or (B) any errors in the computation of the net asset value based
upon or arising out of quotations or information as to corporate actions if
received by the Custodian either (1) from a source which the Custodian was
authorized pursuant to the second paragraph of this section 6.5 to rely upon, or
(2) from a source which in the Custodian's reasonable judgment was as reliable a
source for such quotations or information as the sources authorized pursuant to
that paragraph. Nevertheless, the Custodian will use its best judgment in
determining whether to verify through other sources any information it has
received as to quotations or corporate actions if the Custodian has reason to
believe that any such information might be incorrect.
In the event of any error or delay in the determination of such net asset
value for which the Custodian may be liable, the Fund and the Custodian will
consult and make good faith efforts to reach agreement on what actions should be
taken in order to mitigate any Losses suffered by the Fund or its present or
former shareholders, in order that the Custodian's exposure to liability shall
be reduced to the extent possible after taking into account all relevant factors
and alternatives. Such actions might include the Fund or the Custodian taking
reasonable steps to collect from any shareholder or former shareholder who has
received any overpayment upon redemption of shares such overpaid amount or to
collect from any shareholder who has underpaid upon a purchase of shares the
amount of such underpayment or to reduce the number of shares issued to such
shareholder. It is understood that in attempting to reach agreement on the
actions to be taken or the amount of the loss which should appropriately be
borne by the Custodian, the Fund and the Custodian will consider such relevant
factors as the amount of the loss involved, the Fund's desire to avoid loss of
shareholder good will, the fact that other persons or entities could have
reasonably expected to have detected the error sooner than the time it was
actually discovered, the appropriateness of limiting or eliminating the benefit
which shareholders or former shareholders might have obtained by reason of the
error, and the possibility that other parties providing services to the Fund
might be induced to absorb a portion of the loss incurred.
Upon written notice from the Fund to the Custodian, the Custodian's
responsibilities under this Section 6.5 shall terminate, but this Agreement
shall otherwise continue in full force and effect. Upon such termination, the
fee schedule provided for under Article VII hereof shall be adjusted by the
parties in such manner as they may agree, and the Custodian will transfer such
of the Fund's books and records, and provide such other reasonable cooperation,
as the Fund may request in connection with the transfer of such
responsibilities.
16
<PAGE> 20
6.6. INFORMATION REGARDING FOREIGN SUBCUSTODIANS AND FOREIGN
DEPOSITORIES. (a) The Custodian shall use reasonable efforts to assist the Fund
in obtaining the following with respect to any country in which any assets of
the Fund are held or proposed to be held:
(1) information concerning whether, and to what extent, applicable
foreign law would restrict the access afforded the Fund's independent
public accountants to books and records kept by a foreign custodian or
foreign securities depository used, or proposed to be used, in that
country;
(2) information concerning whether, and to what extent, applicable
foreign law would restrict the Fund's ability to recover its assets in the
event of the bankruptcy of a foreign custodian or foreign securities
depository used, or proposed to be used, in that country;
(3) information concerning whether, and to what extent, applicable
foreign law would restrict the Fund's ability to recover assets that are
lost while under the control of a foreign custodian or foreign securities
depository used, or proposed to be used, in that country;
(4) information concerning the likelihood of expropriation,
nationalization, freezes or confiscation of the Fund's assets in that
country;
(5) information concerning whether difficulties in converting the
Fund's cash and cash equivalents held in that country into U.S. Dollars are
reasonably foreseeable, including without limitation as a result of
applicable foreign currency exchange regulations;
(6) information concerning the financial strength, general reputation
and standing and ability to perform custodial services of each foreign
custodian or foreign securities depository used, or proposed to be used, in
that country;
(7) information concerning whether each foreign custodian or foreign
securities depository used, or proposed to be used, in that country would
provide a level of safeguards for maintaining the Fund's assets not
materially different from that provided by the Custodian in maintaining the
Fund's securities in the United States;
(8) information concerning whether each foreign custodian or foreign
securities depository used, or proposed to be used, in that country has
offices in the United States in order to facilitate the assertion of
jurisdiction over and enforcement of judgments against such custodian or
depository;
(9) as to each foreign securities depository used, or proposed to be
used, in that country information concerning the number of participants in,
and operating history of, such depository; and
(10) such other information as may be requested by the Fund to ensure
compliance with Rule 17f-5 under the 1940 Act.
(b) During the term of this Agreement, the Custodian shall use reasonable
efforts to provide the Fund with prompt notice of any material changes in the
facts or circumstances upon which any of the foregoing information or statements
were based.
(c) Upon request of the Fund, the Custodian shall deliver to the Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; and (ii) the countries in which and the Foreign
Depositories through which each such Foreign Subcustodian or the Custodian is
then holding cash, securities and other assets of the Fund.
ARTICLE VII.
CUSTODIAN FEES
The Fund shall pay the Custodian a custody fee based on such fee schedule
as may from time to time be agreed upon in writing by the Custodian and the
Fund. Such fee, together with all amounts for which the Custodian is to be
reimbursed in accordance with the following sentence, shall be billed to the
Fund in such a manner as to permit payment either by a direct cash payment to
the Custodian or by placing Fund portfolio
17
<PAGE> 21
transactions with the Custodian resulting in an agreed-upon amount of
commissions being paid to the Custodian within an agreed-upon period of time.
The Custodian shall be entitled to receive reimbursement from the Fund on demand
for its cash disbursements and expenses (including cash disbursements and
expenses of any Subcustodian or Agent for which the Custodian has reimbursed
such Subcustodian or Agent) permitted by this Agreement, but excluding salaries
and usual overhead expenses, upon receipt by the Fund of reasonable evidence
thereof.
ARTICLE VIII.
TERMINATION
This Agreement shall continue in full force and effect until terminated by
either party by an instrument in writing delivered or mailed, postage prepaid,
to the other party, such termination to take effect not sooner than sixty (60)
days after the date of such delivery or mailing. In the event of termination,
the Custodian shall be entitled to receive prior to delivery of the securities,
cash and other assets held by it all accrued fees and unreimbursed expenses the
payment of which is contemplated by Article VII, upon receipt by the Fund of a
statement setting forth such fees and expenses.
In the event of the appointment of a successor custodian, it is agreed that
the cash, securities and other assets owned by the Fund and held by the
Custodian or any Subcustodian or Agent shall be delivered to the successor
custodian, and the Custodian agrees to cooperate with the Fund in execution of
documents and performance of other actions necessary or desirable in order to
substitute the successor custodian for the Custodian under this Agreement.
ARTICLE IX.
MISCELLANEOUS
9.1. EXECUTION OF DOCUMENTS. Upon request, the Fund shall deliver to the
Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement.
9.2. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof.
9.3. WAIVERS AND AMENDMENTS. No provision of this Agreement may be
amended or terminated except by a statement in writing signed by the party
against which enforcement of the amendment or termination is sought, provided
that Appendix B listing the Foreign Subcustodians and Foreign Depositories
approved by the Fund and Appendix C listing quotation and information sources
may be amended from time to time to add or delete one or more of such entities
or sources by delivery to the Custodian of a revised Appendix B or C executed by
an Authorized Person, such amendment to take effect immediately upon execution
of the revised Appendix B or C by the Custodian.
In connection with the operation of this Agreement, the Custodian and the
Fund may agree in writing from time to time on such provisions interpretative of
or in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. No interpretative or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.
9.4. CAPTIONS. The section headings in this Agreement are for the
convenience of the parties and in no way alter, amend, limit or restrict the
contractual obligations of the parties set forth in this Agreement.
9.5. GOVERNING LAW. This instrument shall be governed by and construed in
accordance with the laws of the State of New York.
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<PAGE> 22
9.6. NOTICES. Notices and other writings delivered or mailed postage
prepaid to the Fund addressed to the Fund at 345 Park Avenue, New York, NY 10154
or to such other address as the Fund may have designated to the Custodian in
writing, or to the Custodian at 40 Water Street, Boston, Massachusetts 02109,
Attention: Manager, Securities Department, or to such other address as the
Custodian may have designated to the Fund in writing, shall be deemed to have
been properly delivered or given hereunder to the respective addressee.
9.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that neither party hereto may assign this
Agreement or any of its rights hereunder without the prior written consent of
the other party.
9.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties.
9.9. REPRESENTATIVE CAPACITY; NONRECOURSE OBLIGATIONS. The Custodian
agrees that any claims by it against the Fund under this Agreement may be
satisfied only from the assets of the Fund; that the person executing this
Agreement has executed it on behalf of the Fund and not individually, and that
the obligations of the Fund arising out of this Agreement are not binding upon
such person or the Fund's shareholders individually but are binding only upon
the assets and property of the Fund; and that no shareholders, directors or
officers of the Fund may be held personally liable or responsible for any
obligations of the Fund arising out of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
per pro
-----------------------------------------------
Name:
Title:
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
By:
-------------------------------------------------
Name: Lynn S. Birdsong
Title: President
19
<PAGE> 23
APPENDIX A TO THE
CUSTODIAN AGREEMENT BETWEEN
THE LATIN AMERICA DOLLAR INCOME FUND, INC. AND
BROWN BROTHERS HARRIMAN & CO.
DATED AS OF MARCH 2, 1995
PROCEDURES RELATING TO CUSTODIAN'S SECURITY INTEREST
As security for any Advances (as defined in the Custodian Agreement) of the
Fund, the Fund shall pledge, assign and grant to the Custodian a security
interest in Collateral (as hereinafter defined), under the terms, circumstances
and conditions set forth in this Appendix A.
SECTION 1. DEFINED TERMS. As used in this Appendix A the following terms
shall have the following respective meanings:
(a) "Business Day" shall mean any day that is not a Saturday, a Sunday
or a day on which the Custodian is closed for business.
(b) "Collateral" shall mean those securities having a fair market
value (as determined in accordance with the procedures set forth in the
prospectus for the Fund) equal to the aggregate of all Advance Obligations
of the Fund that are (i) identified in any Pledge Certificate executed on
behalf of the Fund or (ii) designated by the Custodian for the Fund
pursuant to Section 3 of this Appendix A. Such securities shall consist of
marketable securities held by the Custodian on behalf of the Fund or, if no
such marketable securities are held by the Custodian on behalf of the Fund,
such other securities designated by the Fund in the applicable Pledge
Certificate or by the Custodian pursuant to Section 3 of this Appendix A.
(c) "Advance Obligations" shall mean the amount of any outstanding
Advance(s) provided by the Custodian to the Fund together with all accrued
interest thereon.
(d) "Pledge Certificate" shall mean a Pledge Certificate in the form
attached as Exhibit 1 to this Appendix A, executed by a duly authorized
officer of the Fund and delivered by the Fund to the Custodian by facsimile
transmission or in such other manner as the Fund and the Custodian may
agree in writing.
(e) "Release Certificate" shall mean a Release Certificate in the form
attached as Exhibit 2 to this Appendix A, executed by a duly authorized
officer of the Custodian and delivered by the Custodian to the Fund by
facsimile transmission or in such other manner as the Fund and the
Custodian may agree in writing.
(f) "Written Notice" shall mean a written notice executed by a duly
authorized officer of the party delivering the notice and delivered by
facsimile transmission or in such other manner as the Fund and the
Custodian shall agree in writing.
SECTION 2. PLEDGE OF COLLATERAL. To the extent that any Advance
Obligations of the Fund are not satisfied by the close of business on the first
Business Day following the Business Day on which the Fund receives a Written
Notice requesting security for such Advance Obligation and stating the amount of
such Advance Obligation, the Fund shall pledge, assign and grant to the
Custodian a first priority security interest in Collateral specified by the Fund
by delivering to the Custodian a Pledge Certificate executed by the Fund
describing such Collateral. Such Written Notice may, in the discretion of the
Custodian, be included within or accompany the Notice of Advance (as defined in
the Custodian Agreement) relating to the applicable Advance Obligation.
SECTION 3. FAILURE TO PLEDGE COLLATERAL. In the event that the Fund shall
fail (a) to pay the Advance Obligation described in such Written Notice, (b) to
deliver to the Custodian a Pledge Certificate pursuant to Section 2, or (c) to
identify substitute securities pursuant to Section 6 upon the sale or maturity
of any securities identified as Collateral, the Custodian may, by Written Notice
to the Fund, specify Collateral which shall secure the applicable Advance
Obligation. The Fund hereby pledges, assigns and grants to the Custodian
<PAGE> 24
a first priority security interest in any and all Collateral specified in such
Written Notice; provided that such pledge, assignment and grant of security
shall be deemed to be effective only upon receipt by the Fund of such Written
Notice, and provided further that if the Custodian specifies Collateral in which
a first priority security interest has already been granted, the security
interest pledged, assigned and granted hereunder shall be a security interest
that is not a first priority security interest.
SECTION 4. DELIVERY OF ADDITIONAL COLLATERAL. If at any time the
Custodian shall notify the Fund by Written Notice that the fair market value of
the Collateral securing any Advance Obligation is less than the amount of such
Advance Obligation, the Fund shall deliver to the Custodian, within one Business
Day following the Fund's receipt of such Written Notice, an additional Pledge
Certificate describing additional Collateral. If the Fund shall fail to deliver
such additional Pledge Certificate, the Custodian may specify Collateral which
shall secure the unsecured amount of the applicable Advance Obligation in
accordance with Section 3 of this Appendix A.
SECTION 5. RELEASE OF COLLATERAL. Upon payment by the Fund of any Advance
Obligation secured by the pledge of Collateral, the Custodian shall promptly
deliver to the Fund a Release Certificate pursuant to which the Custodian shall
release Collateral from the lien under the applicable Pledge Certificate or
Written Notice pursuant to Section 3 having a fair market value equal to the
amount paid by the Fund on account of such Advance Obligation. In addition, if
at any time the Fund shall notify the Custodian by Written Notice that the Fund
desires that specified Collateral be released and (a) that the fair market value
of the Collateral securing any Advance Obligation exceeds the amount of such
Advance Obligation, or (b) that the Fund has delivered a Pledge Certificate
pursuant to Section 6 substituting Collateral in respect of such Advance
Obligation, the Custodian shall deliver to the Fund, within one Business Day
following the Custodian's receipt of such Written Notice, a Release Certificate
relating to the Collateral specified in such Written Notice.
SECTION 6. SUBSTITUTION OF COLLATERAL. The Fund may substitute securities
for any securities identified as Collateral by delivery to the Custodian of a
Pledge Certificate executed by the Fund, indicating the securities pledged as
Collateral.
SECTION 7. SECURITY FOR FUND ADVANCE OBLIGATIONS. The pledge of
Collateral by the Fund shall secure only Advance Obligations of the Fund. In no
event shall the pledge of Collateral by the Fund be deemed or considered to be
security for any other types of obligations of the Fund to the Custodian or for
the Advance Obligations or other types of obligations of any other fund.
SECTION 8. CUSTODIAN'S REMEDIES. Upon (a) the Fund's failure to pay any
Advance Obligation of the Fund within thirty days after receipt by the Fund of a
Written Notice demanding security therefor, and (b) one Business Day's prior
Written Notice to the Fund, the Custodian may elect to enforce its security
interest in the Collateral securing such Advance Obligation, by taking title to
(at the then prevailing fair market value), or selling in a commercially
reasonable manner, so much of the Collateral as shall be required to pay such
Advance Obligation in full. Notwithstanding the provisions of any applicable
law, including, without limitation, the Uniform Commercial Code, the remedy set
forth in the preceding sentence shall be the only right or remedy to which the
Custodian is entitled with respect to the pledge and security interest granted
pursuant to any Pledge Certificate or Section 3. Without limiting the foregoing,
the Custodian hereby waives and relinquishes all contractual and common law
rights of set-off to which it may now or hereafter be or become entitled with
respect to any obligations of the Fund to the Custodian arising under this
Appendix A to the Custodian Agreement.
2
<PAGE> 25
IN WITNESS WHEREOF, each of the parties has caused this Appendix A to be
executed in its name and behalf on the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
per pro
-----------------------------------------------
Name:
Title:
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
By:
-------------------------------------------------
Name: Lynn S. Birdsong
Title: President
3
<PAGE> 26
EXHIBIT 1
TO
APPENDIX A
PLEDGE CERTIFICATE
This Pledge Certificate is delivered pursuant to the Custodian Agreement
dated as of (the "Agreement"), between (the
"Fund") and Brown Brothers Harriman & Co. (the "Custodian"). Capitalized terms
used herein without definition shall have the respective meanings ascribed to
them in the Agreement. Pursuant to [Section 2 or Section 4] of Appendix A
attached to the Agreement, the Fund hereby pledges, assigns and grants to the
Custodian a first priority security interest in the securities listed on
Schedule A attached to this Pledge Certificate (collectively, the "Pledged
Securities"). Upon delivery of this Pledge Certificate, the Pledged Securities
shall constitute Collateral, and shall secure all Advance Obligations of the
Fund described in that certain Written Notice dated , 19 , delivered by
the Custodian to the Fund. The pledge, assignment and grant of security in the
Pledged Securities hereunder shall be subject in all respects to the terms and
conditions of the Agreement, including, without limitation, Sections 7 and 8 of
Appendix A attached hereto.
IN WITNESS WHEREOF, the Fund has caused this Pledge Certificate to be
executed in its name, on behalf of the Fund this day of , 19 .
By:
-------------------------------------------------
Name:
Title:
<PAGE> 27
SCHEDULE A
TO
PLEDGE CERTIFICATE
<TABLE>
<CAPTION>
TYPE OF CERTIFICATE/CUSIP NUMBER OF
ISSUER SECURITY NUMBERS SHARES
- ------- -------- ----------------- ---------
<S> <C> <C> <C>
</TABLE>
<PAGE> 28
EXHIBIT 2
TO
APPENDIX A
RELEASE CERTIFICATE
This Release Certificate is delivered pursuant to the Custodian Agreement
dated as of , 199 (the "Agreement"), between
(the "Fund") and Brown Brothers Harriman & Co. (the "Custodian"). Capitalized
terms used herein without definition shall have the respective meanings ascribed
to them in the Agreement. Pursuant to Section 5 of Appendix A attached to the
Agreement, the Custodian hereby releases the securities listed on Schedule A
attached to this Release Certificate from the lien under the [Pledge Certificate
dated , 19 or the Written Notice delivered pursuant to Section 3 of
Appendix A dated , 19 ].
IN WITNESS WHEREOF, the Custodian has caused this Release Certificate to be
executed in its name and on its behalf this day of 19 .
BROWN BROTHERS HARRIMAN & CO.
By:
-------------------------------------------------
Name:
Title:
<PAGE> 29
SCHEDULE A
TO
RELEASE CERTIFICATE
<TABLE>
<CAPTION>
TYPE OF CERTIFICATE/CUSIP NUMBER OF
ISSUER SECURITY NUMBERS SHARES
- ------- --------- ----------------- ---------
<S> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT (13)
REGISTRAR,
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
LATIN AMERICAN DOLLAR INCOME FUND, INC.
AND
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
REGISTRAR, TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 20th day of July, 1992, by and between LATIN
AMERICAN DOLLAR INCOME FUND, INC., a New York corporation, having its principal
office and place of business at 345 Park Avenue, New York, New York, 10154, (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its registrar, transfer
agent, dividend disbursing agent, custodian of certain retirement plans and
agent in connection with certain other activities and the Bank desires to accept
such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Bank to act as, and the Bank agrees to act
as registrar, transfer agent for the Fund's authorized and issued shares of its
common stock ("Shares"), dividend disbursing agent, custodian of certain
retirement plans and agent in connection with any dividend reinvestment plan as
set out in the prospectus of the Fund, corresponding to the date of this
Agreement.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Issue and record the appropriate number of Shares as authorized
and hold such Shares in the appropriate Shareholder account;
(ii) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate documentation;
(iii) Execute transactions directly with broker-dealers authorized
by the Fund who shall thereby be deemed to be acting on behalf of the
Fund;
(iv) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(v) Act as agent for Shareholders pursuant to the dividend
reinvestment and cash purchase plan as amended from time to time in
accordance with the terms of the agreement to be entered into between
the Shareholders and the Bank in substantially the form attached as
Exhibit A hereto;
(vi) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and protecting the Bank and the
Fund, and the Bank as its option, may issue replacement certificates in
place of mutilated stock certificates upon presentation thereof and
without such indemnity.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform
all of the customary services of a registrar, transfer agent, dividend
disbursing agent, custodian of certain retirement plans and agent of the
dividend reinvestment and cash purchase plan as described in Article 1
consistent with those requirements in effect as at the date of this
Agreement. The detailed definition, frequency, limitations and associated
costs (if any) set out in the attached fee schedule, include but not
limited to: maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxies, and mailing Shareholder reports to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts where applicable, preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to dividends
and distributions by federal authorities for all registered Shareholders.
<PAGE> 3
(c) The Bank shall provide additional services on behalf of the Fund (i.e.,
escheatment services) which may be agreed upon in writing between the Fund and
the Bank.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this Agreement, the Fund
agrees to pay the Bank an annual maintenance fee as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees
to reimburse the Bank for out-of-pocket expenses, including but not limited to
confirmation production, postage, forms, telephone, microfilm, microfiche,
tabulating proxies, records storage, or advances incurred by the Bank for the
items set out in the fee schedule attached hereto. In addition, any other
expenses incurred by the Bank at the request or with the consent of the Fund,
will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage and the
cost of materials for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to the Bank by the Fund
at least seven (7) days prior to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in good standing
under the laws of the state of New York.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of Incorporation
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is a closed-end, diversified investment company registered under
the Investment Company Act of 1940, as amended.
4.05 To the extent required by federal securities laws a registration
statement under the Securities Act of 1933, as amended is currently effective
and appropriate state securities law filings have been made with respect to all
Shares of the Fund being offered for sale; information to the contrary will
result in immediate notification to the Bank.
4.06 It shall make all required filings under federal and state securities
laws.
2
<PAGE> 4
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain related data ("Customer Data") maintained by the Bank on data
bases under the control and ownership of the Bank ("Data Access Services")
constitute copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to the Bank. The
Fund agrees to treat all Proprietary Information as proprietary to the Bank and
further agrees that it shall not divulge any Proprietary Information to any
person or organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Bank and solely in accordance with the Bank's applicable
user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such information
in accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Article 5. The obligations of this Article shall
survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner to
correct such failure. Organizations from which the Bank may obtain certain data
included in the Data Access Services are solely responsible for the contents of
such data and the Fund agrees to make no claim against the Bank arising out of
the contents of such third-party data, including, but not limited to, the
accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS
AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event the Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time.
3
<PAGE> 5
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the Fund shall indemnify
and hold the Bank harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of the Bank or its agents or subcontractors required
to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are received by
the Bank or its agents or subcontractors, and (ii) have been prepared,
maintained or performed by the Fund or any other person or firm on behalf
of the Fund including but not limited to any previous transfer agent or
registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in
such state.
6.02 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The Bank,
its agents and subcontractors shall be protected and indemnified in acting upon
any paper or document furnished by or on behalf of the Fund, reasonably believed
to be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided the Bank or
its agents or subcontractors by telephone, in person, machine readable input,
telex, CRT data entry or other similar means authorized by the Fund, and shall
not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.04 In order that the indemnification provisions contained in this
Article 6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim or
make any compromise in any case in which the Fund may be required to indemnify
the Bank except with the Fund's prior written consent.
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct of that of its employees.
4
<PAGE> 6
Article 8 Covenants of the Fund and the Bank
8.01 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund
and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.03 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.04 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
8.05 In cases of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge equivalent
to the average of three (3) month's fees.
Article 10 Assignment
10.01 Except as provided in Section 10.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
10.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
10.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
5
<PAGE> 7
Article 11 Amendment
11.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
Article 12 Massachusetts Law to Apply
12.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 13 Force Majeure
13.01 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
Article 14 Consequential Damages
14.01 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
Article 15 Merger of Agreement
15.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
LATIN AMERICAN DOLLAR INCOME FUND,
INC.
BY: /s/ PAMELA A. MCGRATH
---------------------------------
Vice President
ATTEST:
- ---------------------------------
STATE STREET BANK AND TRUST
COMPANY
BY: /s/ RUSSELL E. LOGAN
---------------------------------
Senior Vice President
ATTEST:
/s/ J. CURRAN
- ---------------------------------
Assistant Secretary
6
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Article 1 Terms of Appointment; Duties of the Bank................................... 3
Article 2 Fees and Expenses.......................................................... 4
Article 3 Representations and Warranties of the Bank................................. 4
Article 4 Representations and Warranties of the Fund................................. 4
Article 5 Data Access and Proprietary Information.................................... 5
Article 6 Indemnification............................................................ 6
Article 7 Standard of Care........................................................... 6
Article 8 Covenants of the Fund and the Bank......................................... 7
Article 9 Termination of Agreement................................................... 7
Article 10 Assignment................................................................. 7
Article 11 Amendment.................................................................. 8
Article 12 Massachusetts Law to Apply................................................. 8
Article 13 Force Majeure.............................................................. 8
Article 14 Consequential Damages...................................................... 8
Article 15 Merger of Agreement........................................................ 8
</TABLE>
7
<PAGE> 1
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
Terms and Conditions of Dividend Reinvestment
and Cash Purchase Plan
1. You, State Street Bank and Trust Company, will act as Agent
for me, and will open an account for me under the Dividend Reinvestment and Cash
Purchase Plan (the "Plan") in the same name as my present shares are registered,
and put into effect for me the dividend reinvestment option of the Plan as of
the first record date for a dividend or capital gains distribution, and the cash
purchase option of the Plan as of the next appropriate date as provided in
paragraph 5 below, after you receive the Authorization duly executed by me.
Registered shareholders, as well as brokers and nominees, are eligible to
participate in the Plan.
2. Whenever The Latin America Dollar Income Fund, Inc. (the
"Fund") declares an income dividend or a capital gains distribution payable in
common stock or cash at the option of the shareholders, I hereby elect to take
such dividend or distribution entirely in additional shares of common stock of
the Fund to be issued by the Fund, and you shall automatically receive such
shares, including fractions, for my account. If the market price per share of
the Fund's common stock on the valuation date equals or exceeds the net asset
value per share on the valuation date, the number of additional shares to be
credited to my account shall be determined by dividing the dollar amount of the
dividend or capital gains distribution payable on my shares by the greater of
the following amounts per share of the Fund's common stock on the valuation
date: (a) the net asset value, or (b) 95% of the market price. If the market
price per share of the Fund's common stock on the valuation date is less than
the net asset value per share on the valuation date, the number of additional
shares to be credited to my account shall be determined by dividing the dollar
amount of the dividend or capital gains distribution by the market price per
share on the valuation date. The valuation date will be the payment date for the
dividend or, if such date is not a New York Stock Exchange trading date, then
the next preceding New York Stock Exchange trading date.
3. Should the Fund declare an income dividend or capital gains
distribution payable only in cash, you shall apply the amount of such dividend
or distribution on my shares (less my pro rata share of brokerage commissions
incurred with respect to your open-market purchases in connection with the
reinvestment of such dividend or distribution) to the purchase on the open
market of shares of the Fund's common stock for my account. Such purchases will
be made on or shortly after the payment date for such dividend or distribution,
and in no event more than 45 days after such date except where temporary
curtailment or suspension
<PAGE> 2
of purchase is necessary to comply with applicable provisions of federal
securities law.
4. For all purposes of the Plan: (a) the market price of the
Fund's common stock on a particular date shall be the mean between the highest
and lowest sales prices on the New York Stock Exchange on that date, or, if
there is no sale on such Exchange on that date, then the mean between the
closing bid and asked quotations for such stock on such Exchange on such date
provided, however, that if the valuation date precedes the "ex-dividend" date on
such Exchange for a particular dividend and/or distribution, then the marked
price on such valuation date shall be as determined above, less the per share
amount of the dividend and/or distribution; (b) net asset value per share of the
Fund's common stock on a particular date shall be as determined by or on behalf
of the Fund; and (c) all dividends, distributions and other payments (whether
made in cash or in shares) shall be made net of any applicable withholding tax.
5. I understand that, semi-annually, I have the option of
sending additional funds, in any amount from $100 to $3,000, for the purchase on
the open market of shares of the common stock of the Fund for my account.
Voluntary payments will be invested on or shortly after the 15th of February and
August, and in no event more than 45 days after such dates except where
temporary curtailment or suspension of purchase is necessary to comply with
applicable provisions of federal securities law. Optional cash payments received
from me on or prior to the fifth day preceding the 15th of February or August
will be applied by you to the purchase of additional shares of common stock as
of that investment date. Funds received after the fifth day preceding the 15th
of February or August and prior to the 30th day preceding the next investment
date will be returned to me. No interest will be paid on optional cash payments
held until investment. Consequently, I am strongly urged to make my optional
cash payments shortly before the 15th of February or August. However, I should
allow sufficient time to ensure that my payment is received by you on or prior
to the fifth day preceding the 15th of February or August. Optional cash
payments should be in U.S. funds and be sent by first-class mail, postage
prepaid, only to the following address:
Plan Agent
(The Latin America Dollar Income Fund, Inc.)
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Deliveries to any other address do not constitute valid delivery. I
may withdraw my entire voluntary cash payment by written notice received by you
not less than 48 hours before such payment is to be invested.
-2-
<PAGE> 3
6. Investments of voluntary cash payments and other
open-market purchases provided for above may be made on any securities exchange
where the Fund's common stock is traded, in the over-the-counter market or in
negotiated transactions and may be on such terms as to price, delivery and
otherwise as you shall determine. My funds held by you uninvested will not bear
interest, and it is understood that, in any event, you shall have no liability
in connection with any inability to purchase shares within 45 days after the
initial date of such purchase as herein provided, or with the timing of any
purchases effected. You shall have no responsibility as to the value of the
common stock of the Fund acquired for my account. For the purposes of cash
investments you may commingle my funds with those of other shareholders of the
Fund for whom you similarly act as Agent, and the average price (including
brokerage commissions) of all shares purchased by you as Agent shall be the
price per share allocable to me in connection therewith.
7. You may hold my shares acquired pursuant to my
Authorization, together with the shares of other shareholders of the Fund
acquired pursuant to similar authorizations, in noncertificated form in your
name or that of your nominee. You will forward to me any proxy solicitation
material and will vote any shares so held for me only in accordance with the
proxy returned by me to the Fund. Upon my written request, you will deliver to
me, without charge, a certificate or certificates for the full shares.
8. You will confirm to me each acquisition made for my account
as soon as practicable but not later than 60 days after the date thereof. You
will send to me a statement of account confirming the transaction and itemizing
any previous reinvestment activity for the calendar year. A statement reflecting
the amount of cash received by you will be issued on receipt of each cash
deposit. These statements are the record of the cost of shares and should be
retained for tax purposes. Certificates representing shares will not be issued
to me under the Plan unless I so request in writing or unless my account is
terminated. Although I may from time to time have an undivided fractional
interest (computed to four decimal places) in a share of the Fund, no
certificates for a fractional share will be issued. However, dividends and
distributions on fractional shares will be credited to my account. In the event
of termination of my account under the Plan, you will adjust for any such
undivided fractional interest in cash at the market value of the Fund's shares
at the time of termination less the pro rata expense of any sale required to
make such an adjustment.
9. Any stock dividends or split shares distributed by the Fund
on shares held by you for me will be credited to my account. In the event that
the Fund makes available to its shareholders rights to purchase additional
shares or other securities, the shares held for me under the Plan will be added
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<PAGE> 4
to other shares held by me in calculating the number of rights to be issued to
me.
10. Your service fee for handling capital gains distributions
or income dividends will be paid by the Fund. I will be charged a $1.00 service
fee for each voluntary cash investment and a pro rata share of brokerage
commissions on all open market purchases.
11. I may terminate my account under the Plan by notifying you
in writing. Such termination will be effective immediately if my notice is
received by you not less than ten days prior to any dividend or distribution
record date; otherwise such termination will be effective as soon as practicable
upon completion of the reinvestment of capital gains distributions or income
dividends. The Plan may be terminated by you or the Fund upon notice in writing
mailed to me at least 30 days prior to any record date for the payment of any
dividend or distribution by the Fund. Upon any termination you will cause a
certificate or certificates for the full shares for me under the Plan and cash
adjustment for any fraction to be delivered to me without charge.
12. If I elect by notice to you in writing in advance of such
termination to have you sell part or all of my shares and remit the proceeds to
me, you are authorized to deduct a fee of 5% of the gross proceeds, to a maximum
of $3.50, plus brokerage commissions for this transaction and any transfer
taxes. In such case, certificates for withdrawn shares will not be issued to me,
and you will, within ten (10) business days after receipt of such written
notice, cause such shares to be sold at market rates for my account through an
independent entity chosen by you. It should be noted, however, that the Fund's
share price may fluctuate during the period between a request for sale, its
receipt by you, and the ultimate sale in the open market within 10 business
days. This risk should be evaluated by me when considering whether to request
that you sell my shares. The risk of a price decline is borne solely by me. A
check for the proceeds will not be mailed prior to receipt by you of proceeds of
the sale; settlement occurs five (5) business days after the sale of shares.
Information regarding the redemption of shares will be provided to the Internal
Revenue Service (the "IRS").
13. The reinvestment of dividends and capital gains
distribution does not relieve me of any income tax which may be payable on such
dividends and distributions. You will report to me the taxable amount of
dividends and distributions credited to my account. Foreign shareholders who
elect to have their dividends and distributions reinvested and whose dividends
and distributions are subject to United States income tax withholding will have
their dividends and distributions reinvested net of withholding tax. U.S.
shareholders who elect to have their dividends and distribution reinvested will
have their dividends and distributions reinvested net of the 20% back-up
withholding of tax imposed under the Section 3406(a)(i) of the Internal
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<PAGE> 5
Revenue Code of 1986, as amended, if (i) such shareholder has failed to furnish
to the Fund his taxpayer identification number (the "TIN"), which for an
individual is his social security number; (ii) the IRS has notified the Fund
that the TIN furnished by the shareholder is incorrect; (iii) the IRS notifies
the Fund that the shareholder is subject to back-up withholding; or (iv) the
shareholder has failed to certify, under penalties of perjury, that he is not
subject to back-up withholding. Foreign non-corporate shareholders may also be
subject to 20% back-up withholding of tax with respect to long-term capital
gains distributions if they fail to make certain certifications. Shareholders
have previously been requested by the Fund or their brokers to submit all
information and certifications required in order to exempt them from back-up
withholding if such exemption is available to them.
14. These terms and conditions may be amended or supplemented
by you, as Agent, or the Fund at any time or times but, except when necessary or
appropriate to comply with applicable law or the rules or policies of the
Securities and Exchange Commission, any securities exchange on which shares of
the Fund are listed, or any other regulatory authority, only by mailing to me
appropriate written notice at least 30 days prior to the effective date thereof.
The amendment or supplement shall be deemed to be accepted by me unless, prior
to the effective date thereof, you receive written notice of the termination of
my account under the Plan. Any such amendment may include an appointment by you
in your place and stead of a successor Agent under these terms and conditions,
with full power and authority to perform all or any of the acts to be performed
by the Agent under these terms and conditions. Upon any such appointment of an
Agent for the purpose of receiving dividends and distributions, the Fund will be
authorized to pay such successor Agent, for my account, all dividends and
distributions payable on common stock of the Fund held in my name or under the
Plan for retention or application by such successor Agent as provided in these
terms and conditions. Notwithstanding the above, if for any reason operation of
the Plan in accordance with its terms should be come impracticable or
unreasonable under the circumstances then prevailing, or in the judgment of the
Fund's Board of Directors such operation would not be in the interests of the
Fund's shareholders generally, then the Fund's Board of Directors shall have the
authority to amend, effective immediately, the terms of the Plan to the extent
that such amendment does not adversely affect my interests in any material
respect. Appropriate written notice of such amendment shall be given within 30
days of its effective date.
15. You shall at all times act in good faith and agree to use
your best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement and to comply with applicable law, but
assume no responsibility and shall not be liable for loss or damage due to
errors unless such
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<PAGE> 6
error is caused by your negligence, bad faith, or willful misconduct or that of
your employees.
16. These terms and conditions shall be governed by the laws
of the Commonwealth of Massachusetts.
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<PAGE> 1
EXHIBIT 14(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Scudder World Income
Opportunities Fund, Inc.:
We hereby consent to the incorporation by reference in the Registration
Statement on Form N-14 of Latin America Dollar Income Fund, Inc. of our report
dated June 20, 1997 on our audit of the financial statements and financial
highlights of Scudder World Income Opportunities Fund, Inc., which report is
included in the Annual Report to Shareholders for the fiscal year ended April
30, 1997 which is incorporated by reference in the Registration Statement. We
further consent to the references to our Firm under the captions, "Ratification
or Rejection of the Selection of Independent Accountants" and "Additional
Information About the Funds" in the Registration Statement.
/s/ Coopers & Lybrand, L.L.P.
Boston, Massachusetts COOPERS & LYBRAND, L.L.P.
September 9, 1997
<PAGE> 1
EXHIBIT 14(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus (the Proxy/Prospectus) and the Statement of Additional Information
constituting part of this Registration Statement on Form N-14 (the Registration
Statement) of our reports dated December 17, 1996 and June 18, 1997, relating to
the financial statements and financial highlights appearing in the October 31,
1996 and April 30, 1997 Annual and Semi-Annual Reports, respectively, to
Shareholders of Latin America Dollar Income Fund, Inc.
We further consent to the reference to us under the heading "Financial
Highlights" in the Proxy/Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
September 9, 1997
