<PAGE>
As filed with the U.S. Securities and Exchange Commission on May 26, 1995
Securities Act File No. 33-
Investment Company Act File No. 811-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ___
[ ] Post-Effective Amendment No. ___
and/or
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No. ___
THE PERU FUND, INC.
(Exact name of Registrant as Specified in Charter)
c/o Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
(Address of Principal Executive Offices -- Number, Street,
City, State, Zip Code)
Registrant's Telephone Number, including Area Code: (212) 326-6200
JURIS PADEGS, ESQ.
c/o Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
With Copies to:
ROSE F. DIMARTINO, ESQ. LEONARD B. MACKEY, JR., ESQ.
Willkie Farr & Gallagher Rogers & Wells
One Citicorp Center 200 Park Avenue
153 East 53rd Street New York, New York 10166
New York, New York 10022
Page 1 of __ Pages
Exhibit Index appears at Page __
<PAGE>
Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box . . . . . . . . . [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Per Aggregate Offering Amount of Registration
Being Registered Registered(1) Share(2) Price(2) Fee
------------------- ------------- ------------------ ------------------ ----------------------
<S> <C> <C> <C> <C>
Common Stock
$.01 par value 115,000 shares $15.00 $1,725,000 $594.83
</TABLE>
(1) Includes 15,000 shares of Common Stock that the Underwriters may
purchase to cover overallotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment that specifically states that this Registration Statement
will 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 Section 8(a), may determine.
<PAGE>
THE PERU FUND, INC.
Form N-2
Cross-Reference Sheet
Parts A and B of Prospectus*
Items in Parts A
and B of Form N-2 Location in Prospectus
- ----------------- ----------------------
1 Outside Front Cover . . . . . . . Front Cover Page
2 Inside Front and Outside Back Front Cover Page; Outside
Cover Page Back Cover Page
3 Fee Table and Synopsis . . . . . . Prospectus Summary;
Fee Table
4 Financial Highlights . . . . . . . Not Applicable
5 Plan of Distribution . . . . . . . Prospectus Summary;
Underwriting
6 Selling Shareholders . . . . . . . Not Applicable
7 Use of Proceeds . . . . . . . . . Prospectus Summary; Use of
Proceeds
8 General Description of Registrant Front Cover Page; Prospectus
Summary; The Fund; Investment
Objective and Policies;
Investment Restrictions; Risk
Factors; Net Asset Value;
Appendix A
9 Management . . . . . . . . . . . . Prospectus Summary;
Investment Manager; Directors
and Officers; Dividend Paying
Agent, Transfer Agent and
Registrar; Custodian
10 Capital Stock, Long-Term Debt
and Other Securities . . . . . . . Dividends and Distributions;
Dividend Reinvestment and Cash
Purchase Plan; Taxation;
Common Stock
11 Defaults and Arrears on
Senior Securities . . . . . . . . Not Applicable
12 Legal Proceedings . . . . . . . . Not Applicable
13 Table of Contents of the Statement
of Additional Information . . . . Not Applicable
14 Cover Page . . . . . . . . . . . . Not Applicable
15 Table of Contents . . . . . . . . Not Applicable
16 General Information and History . The Fund
<PAGE>
17 Investment Objective and Policies Investment Objective and
Policies; Appendix A
18 Management . . . . . . . . . . . . Investment Manager; Directors
and Officers
19 Control Persons and Principal
Holders of Securities . . . . . . Not Applicable
20 Investment Advisory and Other Investment Manager; Dividend
Services Paying Agent, Transfer Agent
and Registrar; Custodian
21 Brokerage Allocation and Other Portfolio Transactions and
Practices Brokerage
22 Tax Status . . . . . . . . . . . . Taxation
23 Financial Statements . . . . . . . Experts; Report of
Independent Accountants; The
Peru Fund, Inc. Statement of
Assets and Liabilities
_____________________________
* Pursuant to General Instruction H of Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus to be used
in connection with the U.S. Offering and the International Offering, as
described herein. The Prospectus to be used in connection with the U.S.
Offering (the "U.S. Prospectus") is set forth in full following this
Explanatory Note. The Prospectus to be used in connection with the
International Offering is identical to the U.S. Prospectus except that the
outside and inside front covers and the section entitled "Underwriting" are
replaced with the alternate version included herein following the U.S.
Prospectus.
<PAGE>
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 SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 26, 1995
100,000 Shares
The Peru Fund, Inc.
Common Stock
The Peru Fund, Inc. (the "Fund") is a newly organized, non-diversified,
closed-end management investment company. The Fund's investment objective is
long-term capital appreciation through investment in equity and debt
securities of Peruvian issuers. After the initial investment period, the
Fund's policy will be to invest, under normal market conditions, at least 65%
of its assets in equity securities of Peruvian issuers. The Fund's holdings
of Peruvian debt securities, which will consist of securities issued or
guaranteed by the government of Peru or Peruvian companies, and certain
related repurchase agreements, will be acquired for the purpose of seeking
long-term capital appreciation and will be limited to 30% of its assets. The
Fund may invest up to 25% of its assets in securities that are purchased in
direct placement transactions and that are neither listed on an exchange nor
traded over-the-counter. Pending investment in Peru, which is expected to be
completed within one year after the date of this Prospectus, the Fund will
invest in U.S. dollar-denominated debt instruments. No assurance can be given
that the Fund's investment objective will be achieved.
Investment in Peru involves certain special considerations, such as
political and economic uncertainty, fluctuations of currency exchange rates,
the price volatility, limited liquidity and small size of the Peruvian
securities markets, high rates of inflation, exchange controls and other
considerations, which are not normally involved in investments in the United
States and which may be deemed to involve a high degree of risk of loss. The
Fund's Peruvian debt securities holdings should be considered high risk debt
securities that are predominantly speculative. See "Investment Objective and
Policies" and "Risk Factors."
The Fund is offering an aggregate of 100,000 shares of its common stock,
$0.01 par value per share (the "Common Stock"), in the United States and
outside the United States (the "Offerings"). Of the 100,000 Shares being
offered, ______ Shares (the "U.S. Shares") are initially being offered for
sale in the United States (the "U.S. Offering") by a group of underwriters
(the "U.S. Underwriters") and ______ shares are being offered for sale outside
the United States (the "International Shares") by a group of international
managers (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters").
Scudder, Stevens & Clark, Inc. will manage the Fund. The Investment
Manager is a leading global investment manager that has been active in
international investment for over 40 years and in emerging markets investment
for over 20 years. As of December 31, 1994, the Investment Manager and its
affiliates had in excess of $90 billion under their supervision, more than $20
billion of which was invested in non-U.S. securities. See "Investment
Manager." The address of the Fund is 345 Park Avenue, New York, New York
10154, and its telephone number is (212) 326-6200. This Prospectus sets forth
concisely the information about the Fund that a prospective investor should
know before purchasing shares. Investors are advised to read this Prospectus
and to retain it for future reference.
The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "__." Prior to the
Offerings, there has been no public market for the Common Stock. Shares of
closed-end investment companies have frequently traded at discounts from their
net asset values. This characteristic of closed-end investment companies is a
risk separate and distinct from the risk that the Fund's net asset value may
decrease, and may be greater for investors expecting to sell shares of a
closed-end investment company soon after the completion of an initial public
offering of the company's shares. See "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Proceeds to
Price to Public (1) Sales Load (1) Fund (2)
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . . . . . . . . . . $15.00 $ $
Total (3) . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000 $ $
Total Assuming Full Exercise of
Over-allotment Options (3) . . . . . . . . . . . . . . . $1,725,000 $ $
</TABLE>
(Notes on following page)
The U.S. Shares are being offered by the U.S. Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the U.S.
Underwriters, and subject to their right to reject orders in whole or in part.
It is expected that the delivery of the U.S. Shares will be made in New York
City on or about __________ __,1995.
PaineWebber Incorporated
The date of this Prospectus is ________, 1995
<PAGE>
(1) The "Price to Public" and "Sales Load" per share will be reduced in certain
circumstances to $_____ and $_____, respectively, for purchases in single
transactions of between ______ and ______ Shares, inclusive, and to $
and $ , respectively, for purchases in single transactions of
or more Shares. Purchasers acquiring Shares at a reduced price will be
restricted from transferring such Shares for a period of up to 90 days
after the closing of the Offerings. See "Underwriting."
(2) Before deducting offering and organizational expenses payable by the Fund
estimated at $________ (including an aggregate of $_________ to be paid to
the Underwriters in partial reimbursement of their expenses) and
$_________, respectively. Offering expenses will be deducted from net
proceeds and organizational expenses will be capitalized and amortized
against income over a period of five years.
(3) Assuming exercise in full of the 45-day options granted by the Fund to the
Underwriters to purchase, in the aggregate, up to 15,000 additional shares
of Common Stock, on the same terms, solely to cover over-allotments. See
"Underwriting."
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
Unless otherwise specified, all references to "billion" are to one thousand
million, to "U.S. dollars," "dollars", "US$" or "$" are to United States
dollars; all references to "Nuevos Soles" or "NS" are to Nuevos Soles, which
is the legal tender currency of Peru.
The exchange rate in Peru for the sale of U.S. dollars as quoted by
________ on _______, 1995 was NS_____ =US$1.00. No representation is made
that the Nuevos Soles or U.S. dollars in this Prospectus could have been or
could be converted into U.S. dollars or Nuevos Soles, as the case may be, at
any particular rate or at all. The predecessor currency to the Nuevo Sol, the
inti, depreciated considerably relative to the U.S. dollar in the several
years prior to the introduction of the Nuevo Sol in 1991. Reference should be
made to "Risk Factors Currency Fluctuations" for a better understanding of the
significance, in U.S. dollar terms, of amounts set forth in this Prospectus in
Nuevos Soles and of amounts and comparisons based on, or computed by reference
to, such currency.
Unless otherwise indicated, U.S. dollar equivalent information for
information in Peruvian currency for a period is based on the average of the
daily exchange rates for the days in the period as calculated by the
International Monetary Fund (the "IMF"), and U.S. dollar equivalent
information for information in Peruvian currency as of a date is based on the
IMF exchange rate for such date.
Certain numbers and percentages of this Prospectus have been rounded for
ease of presentation, which may result in amounts not totalling precisely.
<PAGE>1
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
The Fund . . . The Peru Fund, Inc. (the "Fund") is a non-diversified,
closed-end management investment company, registered under
the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund is designed for investors that wish to
participate in the potential growth of the economy of
Peru, through investment in a professionally managed
portfolio of securities of Peruvian issuers. See "The
Fund." The Fund is the first vehicle for investing
primarily in Peruvian securities to be publicly offered in
the United States. For information about the Peruvian
securities market and the Peruvian economy, see "The
Peruvian Securities Market" and "The Republic of Peru."
Investment
Objective and
Policies The Fund's investment objective is long-term capital
appreciation through investment in equity and debt
securities of Peruvian issuers. Under normal market
conditions, the Fund will invest substantially all,
but not less than 65%, of its assets in equity and
debt securities of Peruvian issuers. The Fund
intends its portfolio of Peruvian securities to
consist principally of Peruvian equity securities and
after the initial investment period, which is
expected to be completed within one year after the
date of this Prospectus, the Fund's policy will be to
invest, under normal market conditions, at least 65%
of its assets in equity securities of Peruvian
issuers. The Fund defines Peruvian issuers to be
issuers (a) that are organized under the laws of
Peru, (b) that derive 50% or more of their total
revenues or profits from goods produced or sold,
investments made or services performed in Peru or
that have 50% or more of their assets situated in
Peru or (c) the securities of which are traded
principally on a Peruvian stock exchange or over-the-
counter market, as well as debt securities issued or
guaranteed by the government of the Republic of Peru
("Peruvian Government Securities"). The Fund will
limit its Peruvian debt holdings to 30% of its
assets. The Fund's holdings of debt securities will
be acquired for the purpose of seeking long-term
capital appreciation. In addition, the Fund may
invest up to 25% of its total assets in securities
that are purchased in direct placement transactions
and that are neither listed on an exchange nor traded
over-the-counter.
Equity securities are defined as common and preferred
stock, debt securities convertible into common stock,
common stock purchase warrants or rights and partnership
interests and depositary receipts representing such stock
and other securities. Debt securities include bonds,
notes or debentures of any maturity issued or guaranteed
by
<PAGE>2
the government of the Republic of Peru or Peruvian
companies, and repurchase agreements relating to Peruvian
securities. At present, most, if not all, Peruvian
Government Securities and debt securities of Peruvian
companies are comparable to securities rated below
investment grade by Standard & Poor's ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's").
The Fund will limit its holdings of debt securities that
are comparable in quality to securities rated below
investment grade by Standard & Poor's or Moody's at the
time of purchase to 25% of its assets and will limit its
holdings of debt securities that are not paying interest
or are in payment default at the time of purchase to 20%
of its assets.
The Fund is subject to certain investment policies and
restrictions described under "Investment Objective and
Policies" and "Investment Restrictions." The Fund may, in
appropriate circumstances as the Investment Manager
determines, commit up to 20% of its assets to the
completion of forward currency contracts to hedge against
currency fluctuation and devaluation, and may write
options on up to 25% of its total assets. The Fund may
utilize up to 25% of its total assets to purchase options
on securities and securities indices. The Fund's options
and forward currency contracts will be entered into for
hedging or other appropriate risk management purposes and
not for speculation. The Fund may invest up to 25% of its
total assets in securities that, at the time of purchase,
are illiquid, which are securities that cannot be disposed
of by the Fund within seven days in the ordinary course of
business at approximately the amount at which the Fund has
valued the securities. See "Investment Objective and
Policies" and "Risk Factors."
The Offerings . The Fund is offering a total of 100,000 shares (the
"Shares") of common stock, $0.01 par value per share
(the "Common Stock"), in concurrent offerings in the
United States and outside the United States (the
"Offerings"). Of the 100,000 Shares being offered,
___________ Shares (the "U.S. Shares") are being
offered for sale in the United States (the "U.S.
Offering") through a group of underwriters led by
PaineWebber Incorporated (the "U.S. Underwriters")
and ___________ Shares (the "International Shares")
are being offered for sale outside the United States
(the "International Offering") through a group of
international managers led by PaineWebber
International (U.K.) Ltd. (the "International
Managers"). In connection with the U.S. Offering,
the U.S. Shares may be offered in Canada in private
transactions. The U.S. Underwriters and the
International Managers (collectively, the
"Underwriters") also have been granted options to
purchase, in the aggregate, up to 15,000 additional
shares of Common Stock to cover over-allotments. The
Fund's agreements with the U.S.
<PAGE>3
Underwriters and the International Managers may be
terminated by the U.S. Underwriters or the International
Managers if, in the judgment of the U.S. Underwriters or
the International Managers, certain events occur that make
it impractical or inadvisable to proceed with the
Offerings. See "Underwriting."
The U.S. Underwriters and the International Managers
propose to offer the Shares directly to the public at the
public offering price set forth on the cover page hereof,
except that the price will be reduced in certain
circumstances to $ per Share for purchases in single
transactions of between and Shares,
inclusive, and to $_____ per Share for purchases in single
transactions of ________ or more Shares.
Purchasers acquiring Shares at such reduced price will be
deemed to have agreed not to sell such Shares for a period
of up to 90 days from the date of this Prospectus. There
is no limit on the number of Shares that may be purchased
at a reduced price, except that the Fund will comply with
the distribution requirements of the New York Stock
Exchange with respect to the Shares so purchased.
Investment Manager Scudder, Stevens & Clark, Inc. (the "Investment
Manager"), an investment counsel firm established in
1919, will act as investment manager and
administrator of the Fund. The organization of the
Fund has been sponsored by the Investment Manager.
The Investment Manager is a leading global investment
manager that has been active in international
investment for over 40 years and in emerging markets
investments for over 20 years. As of December 31,
1994, the Investment Manager had more than $90
billion in assets under its supervision, more than
$20 billion of which was invested in non-U.S.
securities and approximately $ billion of which was
invested in securities in emerging countries. As of
that date, its clients included eight closed-end U.S.
investment companies with assets aggregating over
$1.5 billion and over 50 open-end U.S. investment
company portfolios with assets aggregating over $36
billion.
Under its agreement with the Investment Manager, the Fund
will pay the Investment Manager an annual fee for
investment management and administrative services in the
amount of ___% of the Fund's average weekly net assets.
The fee payable by the Fund to the Investment Manager is
higher than that paid by most U.S. investment companies
investing exclusively in securities of U.S. issuers,
although it is generally comparable to those paid by other
closed-end investment companies of comparable size that
invest primarily in the securities of a single foreign
country. See "Investment Manager."
<PAGE>4
Investment in Peru Management of the Fund believes that a number of
factors affecting Peru over time could result in
attractive opportunities for long-term capital
appreciation. Those factors are described below.
There can be no guarantee that any one or more of
these factors will not be adversely affected by
political, economic or diplomatic developments in
Peru or that the Investment Manager's current view of
the favorable investment climate in Peru will prove
to have been correct. See "Risk Factors."
Improved Political Stability. Political stability is an
important component in the assessment of any emerging
market. Political stability has improved in Peru as a
result of (a) a reduction in terrorism during President
Alberto Fujimori's first term in office, (b) President
Fujimori's peaceful re-election as president in April 1995
and (c) President Fujimori's political party winning a
majority in Congress during the recent elections.
Renewed Economic Growth. Under the government of
President Fujimori, Peru's economy grew by 6.4% in 1993
and 12.9% in 1994. The strong revival of economic
activity has resulted in improved corporate profitability
and an increase in Peru's stock prices.
Decline in Inflation. Inflation in Peru has declined
sharply during the last four years from 7,500% in 1990 to
15.4% in 1994. The decline in inflation in other Latin
American countries generally has been beneficial for stock
and bond prices.
Privatization. Like many of its neighbors, Peru has
embraced a comprehensive privatization program that is
designed to remove the Peruvian government as the owner of
many of Peru's businesses. Privatization in other Latin
American countries has generally led to positive
investment returns because private sector owners seek to
lower costs and increase revenues in order to increase
profits. Increased profitability among newly privatized
entities has generally resulted in higher stock prices in
other countries in Latin America.
Services Agreement PaineWebber Incorporated provides certain shareholder
and other services for the Fund and receives an
annual fee of __% of the Fund's average weekly net
assets for providing such services. See "Investment
Manager - Services Agreement."
Listing . . . . New York Stock Exchange.
Symbol . . . . [ ]
<PAGE>5
Risk Factors . Investment in Peruvian Securities. The Fund is newly
organized and is the first publicly-offered U.S.
investment company organized to invest primarily in
Peruvian securities. The Fund's investments in
securities of Peruvian issuers, including and the
government of the Republic of Peru (the "Peruvian
Government") involve certain considerations not
typically associated with investing in securities of
U.S. companies or the U.S. government, including (1)
political and economic uncertainty, (2) currency
devaluations and fluctuations of currency exchange
rates, (3) the price volatility, limited liquidity
and small size of the Peruvian securities markets and
(4) exchange controls. See "Risk Factors."
Reference is also made to "The Peruvian Securities
Market" and "The Republic of Peru."
Political and Economic Situation. During the past several
decades, Peru has had a history of political instability
that included military coups d' tat and different
governmental regimes with changing policies. Past
governments have frequently played an interventionist role
in the nation's economy and social structure. Among other
things, past governments have imposed controls on prices,
exchange rates, local and foreign investment and
international trade, have restricted the ability of
companies to dismiss employees and have expropriated
private sector assets. As in the case of all foreign
investments, the Fund's investments in Peru could be
affected adversely in the future by increases in taxes or
by political, economic or diplomatic developments.
Terrorism. For the past decade, Peru has experienced
significant levels of terrorist activity. Although
President Fujimori's government has made substantial
progress in suppressing terrorist activity, some instances
of terrorism continue to occur and there can be no
assurance that the Peruvian Government can sustain the
progress achieved in combatting terrorist activity.
Currency Fluctuations. The Fund will invest in securities
denominated in Nuevos Soles, and substantially all of the
Fund's income from equity investments will be received or
realized in Nuevos Soles. Accordingly, changes in the
value of the Nuevo Sol against the U.S. dollar will result
in corresponding changes in the U.S. dollar value of the
Fund's assets denominated in Nuevos Soles and will change
the U.S. dollar value of income and gains derived in
Nuevos Soles.
Market Characteristics. The number of Peruvian equity
securities currently available for investment by the Fund
is very limited due to, among other things, the small size
of the Peruvian equity market, low
<PAGE>6
volume of equity trading and other factors. Such factors
may adversely affect the rate at which the Fund can invest
in Peruvian equity securities within a short period of
time, as well as the Fund's performance. In addition, the
Peruvian securities market is less developed than the
securities markets of many other countries for which
U.S.-registered closed-end funds exist. There is a low
level of regulation of the markets for Peruvian securities
and the activities of investors in such markets. In
addition, enforcement of the regulatory provisions that do
exist has been extremely limited.
Inflation. Peru has experienced very substantial, and in
some periods extremely high and variable, rates of
inflation. Inflation and rapid changes in inflation have
had and may continue to have significant effects both on
the Peruvian economy and on the Peruvian securities and
foreign exchange markets.
Availability of Information. Although Peruvian generally
accepted accounting, auditing and financial reporting
standards and practices are similar in some respects to
those employed in the United States, they are not
equivalent and differ significantly in certain fundamental
areas, most notably the treatment of inflation accounting.
Moreover, equity research on companies is not as common in
Peru as it is in the United States. Therefore, less
information may be available with respect to Peruvian
securities than with respect to securities of U.S.
issuers.
High Risk Securities. The Fund may invest up to 25% of
its total assets in high risk debt securities that are
predominantly speculative. Such securities are generally
considered to have a credit quality below investment grade
and to involve major risk exposure to adverse conditions.
Strategic Transactions. The Fund is
permitted to use certain investment strategies to hedge
various market risks such as movements in interest rates,
currency exchange rates or overall stock prices. Such
strategies can have significant risks. The Fund's ability
to use such strategies successfully will depend on, among
other things, the Investment Manager's ability to predict
pertinent market movements, which cannot be assured. In
addition, many of these strategies are not available to be
used by the Fund at the present time to a significant
extent with respect to Peruvian securities and may not
become available for extensive use in the future.
Restrictions on Transfer. Purchasers acquiring Shares at
a reduced price will be deemed to have agreed not to sell
such Shares for a period of up to 90 days from the date of
this Prospectus. There is no
<PAGE>7
limit on the number of Shares that may be purchased at
a reduced price, except that the Fund will comply with the
distribution requirements of the New York Stock Exchange
with respect to the Shares not so purchased. To the
extent investors subject to the transfer restriction sell
their Shares once such restriction is no longer
applicable, the market price of the Common Stock may be
adversely affected. In addition, the transfer restriction
will reduce the number of Shares available for sale in the
secondary market during any restricted period.
Certificates evidencing Shares purchased at a reduced
price will bear a legend stating the transfer restrictions.
Net Asset Value Discount. Shares of closed-end investment
companies that invest primarily in equities in particular
foreign countries frequently trade at a discount from net
asset value. This characteristic is a risk separate and
distinct from the risk that the Fund's net asset value may
decrease. This risk may be greater for investors
expecting to sell their shares in a relatively short
period after completion of the Offerings. Accordingly,
the Common Stock of the Fund is designed primarily for
long-term investors and should not be considered a vehicle
for trading purposes. See "Common Stock - Future Actions
Relating to a Discount in the Price of the Fund's Shares."
Non-Diversification. The Fund is classified as a "non-
diversified" investment company under the 1940 Act, which
means that the Fund is not limited by the 1940 Act as to
the proportion of its assets that may be invested in the
securities of a single issuer. The Fund intends, however,
to comply with the diversification requirements imposed by
the U.S. Internal Revenue Code of 1986, as amended (the
"Code"). See "Taxation." As a non-diversified investment
company, the Fund may invest a greater proportion of its
assets in the obligations of a smaller number of issuers
and, as a result, may be subject to greater risk with
respect to portfolio securities.
See "Risk Factors."
Anti-Takeover Provisions. Certain provisions of the
Fund's Articles of Incorporation may have the effect of
inhibiting the Fund's possible conversion to open-end
status and limiting the ability of other persons to
acquire control of the Fund. In certain circumstances,
these provisions might also inhibit the ability of
shareholders to sell their shares at a premium over
prevailing market prices. The Fund's Board of Directors
has determined that these provisions are in the best
interests of shareholders generally. See "Common Stock."
<PAGE>8
Estimated Expenses The Fund's annual operating expenses, including
investment management fees, are estimated to be
approximately US$ , exclusive of
organizational expenses estimated at an aggregate of
US$ to be amortized over a period of 60
months. Estimated offering expenses of US$
will be charged to additional paid-in capital. The
Fund's expense ratio will be higher than that of U.S
investment companies of comparable size which invest
in U.S. securities, although such fees and expenses
are believed by the Fund's management to be
appropriate in light of (i) the specialized nature of
the Fund, (ii) the aggregate management and
administrative fees paid by and expenses of other
closed-end investment companies with similar
investment objectives and policies, and (iii) the
effort and resources that will be required in order
to pursue the Fund's investment objective and
policies. See "Estimated Expenses."
Taxation . . . The Fund intends to qualify and elect to be treated as a
regulated investment company for U.S. federal income tax
purposes. As such, it will generally not be subject to
U.S. federal income tax on income and gains that are
distributed to shareholders. [The Fund will be subject to
Peruvian withholding taxes on dividends, capital gains and
interest from certain obligations.] These taxes may be
deductible or creditable in whole or in part by
shareholders of the Fund for U.S. federal income tax
purposes. See "Taxation" and "The Peruvian Securities
Market - The Lima Stock Market - Transaction Costs."
Non-U.S. Investors In general, distributions of net investment income
(including any net short-term capital gains) on the
Shares to non-U.S. investors that are not otherwise
subject to U.S. federal income taxation will be
subject to a 30% U.S. federal withholding tax, which
may be reduced by an applicable tax treaty. Non-U.S.
investors are advised to consult their own tax
advisers with respect to the tax consequences to them
of an investment in the Fund. See "Taxation - United
States Federal Income Taxes - Foreign Shareholders."
Custodian and Dividend
Paying Agent,
Transfer Agent
and Registrar ________________ will act as custodian for the Fund.
The custodian may employ sub-custodians approved by
the Fund's Board of Directors in accordance with
regulations of the SEC. __________________ is the
Fund's dividend paying agent and is the transfer
agent and registrar for the Common Stock.
<PAGE>9
FEE TABLE
The following table lists the costs and expenses an investor will incur
either directly or indirectly as a shareholder of the Fund, based on the sales
load that will be incurred at the time of purchase and an estimate of the
Fund's operating expenses:
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price) %
Dividend Reinvestment and Cash Purchase
Plan Fees . . . . . . . . . . . None
Annual Expenses (as a percentage of net
assets attributable to Common Stock)
Investment Management and Administration Fees %
Servicing Fees . . . . . . . . %
Other Expenses (estimated) . . %
------
Total Annual Expenses (estimated) %
The nature of the services for which the Fund pays management and
administration fees and servicing fees is described below under the caption
"Investment Manager." As of the date of this Prospectus, the Fund has not
commenced investment operations. The amount set forth in "Other Expenses" is,
therefore, based on estimated amounts for the current fiscal year. "Other
Expenses" in the above table include fees for custodial fees, legal and
accounting fees, printing costs, the costs involved in communicating with
shareholders of the Fund and the costs of regulatory compliance and
maintaining corporate existence and the listing of shares of the Common Stock
on the New York Stock Exchange (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 Fund. These amounts are based upon
payment by an investor of the sales load, payment by the Fund of operating
expenses at the levels set out in the table above and the specific assumptions
stated below.
<PAGE>10
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:
1 Year 3 Years 5 Years 10 Years
$__ $__ $__ $__
This example should not be considered a representation of future expenses
of the Fund and actual expenses may be greater or less than those shown. The
above example is intended to assist an investor in understanding various costs
and expenses that an investor in the Fund will bear directly or indirectly.
Moreover, while the example assumes a 5% annual return, the 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; Dividend Reinvestment and Cash Purchase Plan."
THE FUND
The Fund is a non-diversified, closed-end management investment company
registered under the 1940 Act that was incorporated under the laws of the
State of Maryland on May 24, 1995. The Fund is designed for investors that
wish to participate in the potential growth of the economy of Peru, through
investment in a professionally managed portfolio of securities of Peruvian
issuers. The Fund is the first vehicle for investing primarily in Peruvian
securities to be publicly offered in the United States.
The Fund's Investment Manager is Scudder, Stevens & Clark, Inc., a U.S.
investment counsel firm, which sponsored the organization of the Fund and
provided the Fund's initial capital. The Investment Manager is a leading
global investment manager that has been active in international investment for
over 40 years and in emerging markets investment for over 20 years. See
"Investment Manager."
The Fund's principal office is located at 345 Park Avenue, New York, New
York 10154, and its telephone number is (212) 326-6200.
USE OF PROCEEDS
The net proceeds of the Offerings, estimated to be $ (assuming no
exercise of the over-allotment options), will be invested in accordance with
the policies set forth under "Investment Objective and Policies." Initially,
the proceeds will be invested in high quality short- and medium-term U.S.
dollar-denominated debt instruments. The Fund expects to invest in securities
of Peruvian issuers promptly, as investment opportunities are identified by
the Investment Manager. However, because of the relatively small market
capitalization (US$ billion as of , 1995) and low trading volume
(US$ million average daily trading value for the first [five] months of
1995) of the Peruvian securities market, the Fund will invest over a period of
time intended to minimize market
<PAGE>11
impact. To this end, the Fund expects to take up to one year from the date of
this Prospectus to invest at least 65% of its total assets in securities of
Peruvian issuers.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation.
The Fund seeks to achieve this objective by investing in equity and debt
securities of Peruvian issuers. This objective is fundamental and may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. As used in this Prospectus, a "majority of the
Fund's outstanding voting securities" means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding shares. There
can be no assurance that the Fund's investment objective will be achieved.
The Fund's policy, under normal market conditions, is to invest
substantially all, but not less than 65%, of its total assets in equity and
debt securities of Peruvian issuers. The Fund intends its portfolio of
Peruvian securities to consist principally of Peruvian equity securities and,
after the initial investment period, the Fund's policy will be to invest,
under normal market conditions, at least 65% of its total assets in equity
securities of Peruvian issuers. The Fund defines Peruvian issuers to be
issuers (a) that are organized under the laws of Peru, (b) that derive 50% or
more of their total revenues or profits from goods produced or sold,
investments made or services performed in Peru or that have 50% or more of
their assets situated in Peru or (c) the securities of which are traded
principally on a Peruvian stock exchange or over-the-counter market, as well
as Peruvian Government Securities. The Fund intends to limit its holdings of
debt securities of the Peruvian Government, Peruvian privately or publicly
held companies, and repurchase agreements relating to such debt securities to
30% of its assets and will acquire such securities for the purpose of seeking
long-term capital appreciation. Peruvian debt securities may appreciate in
value due to, among other things, improvements in the credit quality of the
issuers, changes in interest rates or introduction of a Brady Plan (see "Brady
Bonds" below).
Equity securities are defined as common and preferred stock, debt
securities convertible into common stock, common stock purchase warrants or
rights and partnership interests and depositary receipts representing such
stock and other securities. Debt securities include bonds, notes or
debentures of any maturity issued or guaranteed by the government of the
Republic of Peru or Peruvian companies, and repurchase agreements relating to
Peruvian securities. At present, most, if not all, Peruvian Government
Securities and debt securities of Peruvian companies are comparable to
securities rated below investment grade by Standard & Poor's or Moody's. The
Fund will limit its holdings of debt securities that are comparable in quality
to securities rated below investment grade by Standard & Poor's or Moody's to
25% of its assets and will limit its holdings of debt securities that are
comparable in quality to securities rated C or below by Standard & Poor's or
Moody's to 20% of its assets. Debt securities comparable to securities rated
C or below, which may not be paying interest currently or may be in payment
default, are regarded as highly speculative with regard to the issuer's
capacity to pay interest and repay principal in accordance with the terms of
the obligation and involve major risk to adverse conditions.
<PAGE>12
The Fund intends to invest its assets in a broad spectrum of Peruvian
industries. In selecting industries and companies for investment, the
Investment Manager will consider overall growth prospects, competitive
position in domestic and export markets, technology, research and development,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, capital resources, government regulation, management,
price of the securities and other factors. It is expected that the Fund will
invest principally in securities of established companies, although
investments may be made in securities of new or little-known companies.
The Fund will not invest in illiquid securities if immediately after such
investment more than 25% of the value of the Fund's total assets would be
invested in such securities. For this purpose, illiquid securities are
securities that cannot be disposed of by the Fund within seven days in the
ordinary course of business at approximately the amount at which the Fund has
valued the securities and 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; (5)
securities subject to restrictions on resale and (6) Direct Placement
Obligations (as defined below).
Consistent with provisions of the 1940 Act and any administrative
exemptions granted by the U.S. Securities and Exchange Commission (the "SEC"),
the Fund may invest in the securities of other investment companies that
invest in securities of Peruvian issuers. Absent special relief from the SEC,
the Fund may invest up to 10% of its assets in the aggregate in shares of
other investment companies and up to 5% of its assets in any one investment
company, as long as that investment does not represent more than 3% of the
voting stock of the acquired investment company. As a shareholder in any
investment company, the Fund will bear its ratable share of the company's
expenses, and would remain subject to payment of the Fund's management and
administrative fees with respect to assets so invested.
Since the Fund is a non-diversified investment company, there is no
restriction on the percentage of the Fund's total assets that may be invested
at any time in the securities of any one issuer other than the diversification
requirements under the Fund's investment restrictions, which prevent the Fund
from purchasing a security that would result in more than 25% of the Fund's
assets being invested in a single industry or in a single issuer and the
diversification requirements applicable to regulated investment companies
under the Code. See "Investment Restrictions" and "Taxation United States
Income Taxes." While the relatively greater concentration in securities of
fewer issuers permitted to the Fund reduces diversification of risk and could
result in greater fluctuation in the Fund's net asset value, it is a natural
concomitant of the current state of the Peruvian equity market where
securities of a relatively few companies account for a greater share of the
total capitalization of the market and trading in those securities represents
a greater share of the total trading in the market than is the case in the
United States. See "The Peruvian Securities Market The Secondary Markets."
The Fund intends to purchase and hold securities for long-term capital
appreciation and does not expect to trade in securities for short-term gain.
Accordingly, it is anticipated that the annual portfolio turnover rate
normally will not exceed 100%. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the
average monthly value of the
<PAGE>13
Fund's portfolio securities. For purposes of this calculation, portfolio
securities exclude all securities having a maturity when purchased of one year
or less.
Direct Placement Obligations
The Fund may invest up to 25% of its total assets in 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
expenses of registration. Although private placements entail certain risks,
the Investment Manager believes that such investments offer attractive
potential returns in terms of yield or in that capital gains might be realized
in a subsequent public or private resale.
Temporary Investments
Pending initial investment in Peruvian securities, the Fund will invest
the net proceeds of the Offerings in U.S. dollar-denominated instruments such
as: short-term (less than 12 months to maturity) and medium-term (not greater
than five years to maturity) (a) obligations issued or guaranteed by (i) the
U.S. government, its agencies or instrumentalities or (ii) international
organizations designated or supported by multiple foreign governmental
entities to promote economic reconstruction or development ("supranational
entities"); (b) finance company, corporate commercial paper and other short-
term commercial obligations, in each case rated or issued by companies with
similar securities outstanding that are rated Prime 1 or Aa or better by
Moody's or A-1 or AA or better by Standard & Poor's or, if unrated, of
comparable quality as determined by the Investment Manager; (c) short-term
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances) of banks; and (d) repurchase agreements with respect
to such securities. Time deposits held by the Fund may be subject to
penalties for early withdrawal and will not be negotiable. The banks whose
obligations may be purchased by the Fund and the banks and broker-dealers with
whom the Fund may enter into repurchase agreements include any member bank of
the U.S. Federal Reserve System, and any broker-dealer or any foreign bank
whose creditworthiness has been determined by the Investment Manager to be at
least equal to that of issuers of commercial paper rated within the two
highest grades assigned by Moody's or Standard & Poor's. The Fund may also
invest a portion of its assets in these debt securities for cash management
purposes, as reserves for anticipated expenditures and may, for temporary
defensive purposes, invest up to 100% of its assets in these debt securities.
The Fund may assume a temporary defensive posture when, due to political,
market or other factors affecting the Peruvian securities market, the
Investment Manager determines that opportunities for capital appreciation in
that market would be significantly limited.
<PAGE>14
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).
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 Peruvian
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. Limitations on the
portion of the Fund's assets that may be used in connection with the
investment strategies described below are set out in Appendix A to this
Prospectus.
Subject to the constraints described above, 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, and enter into various currency
transactions such as currency forward contracts, currency futures contracts or
options on currencies or currency futures (collectively, these transactions
are referred to in this Prospectus 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 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. 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 Manager's ability to predict pertinent market movements, which
cannot be assured. Strategic Transactions will be purchased, sold or entered
into only for hedging or risk 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. A discussion of various Strategic
Transactions, including applicable requirements of the U.S. Commodity Futures
Trading Commission and the requirement to segregate assets with respect to
these transactions, appears in Appendix A to this Prospectus.
Repurchase Agreements
Repurchase agreements are contracts under which the seller of a security
agrees at the time of sale to repurchase the security at an agreed upon price
and date. Such resale price reflects an agreed upon interest rate effective
for the period the security is held by the purchaser and is unrelated to the
interest rate on the instrument. The staff of the SEC views repurchase
agreements as loans collateralized by the underlying security. When the Fund
enters into a repurchase agreement, the
<PAGE>15
seller will be required to maintain the value of the securities subject to the
repurchase agreement, marked to market daily, at not less than their
repurchase price. Repurchase agreements may involve risks in the event of
insolvency or other default by the seller, including possible delays and
expenses in liquidating or restrictions on the Fund's ability to dispose of
the underlying security, decline in its value and loss of interest. The
Investment Manager intends to monitor the seller's compliance with its
obligation to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price, and also to review the
creditworthiness of the Fund's counterparts in such transactions.
Borrowing
The Fund may not borrow for the purpose of leverage. However, the Fund
is authorized to borrow money for temporary or emergency purposes, such as to
obtain amounts necessary to make distributions for qualification as a
regulated investment company or to avoid imposition of an excise tax under
U.S. tax laws or to pay Fund expenses outside Peru, as well as for the
clearance of transactions or for the purpose of repurchasing shares of the
Fund's Common Stock, in an aggregate amount not exceeding 33-1/3% of its total
assets (not including the amount borrowed). Borrowings by the Fund increase
exposure to capital risk and are subject to interest costs. Additional
investments will not be made when borrowings exceed 5% of the Fund's assets.
Loan Participations and Assignments
The Fund may invest in fixed and floating rate loans ("Loans") made to
Peruvian issuers 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 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 Manager 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.
<PAGE>16
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.
Brady Bonds
Peru is expected to implement a Brady Plan debt restructuring as early as
199_, and if so, the Fund may invest in Peruvian Brady Bonds. Brady Bonds of
several emerging countries (for example, Mexico, Argentina, Venezuela, the
Philippines, Nigeria, Costa Rica, Uruguay) have at times experienced price
appreciation. There can be no assurance, however, that Peru will effectuate a
Brady Plan restructuring, that such Plan will have features similar to those
of plans for other emerging countries or that any such restructuring would
produce price appreciation.
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, may be
issued in various currencies (primarily the U.S. dollar) and may be actively
traded in the over-the-counter secondary market.
Brady Bonds that have been issued in connection with debt restructurings
to date 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 Peruvian Brady Bonds) in which
the Fund may invest. For example, the Fund may invest in a security that
restructures a collateralized Peruvian Brady Bond in such a manner that the
Fund's investment will not benefit from such collateralization and thus will
be subject to greater risk.
<PAGE>17
Lending of Portfolio Securities
In order to generate income that could be used to defray Fund operating
expenses, the Fund may lend securities in its portfolio representing up to 25%
of its total assets, taken at market value, to securities firms and financial
institutions, provided that each loan is secured continuously by collateral in
the form of cash or U.S. government securities adjusted daily to have a market
value at least equal to the current market value of the securities loaned.
Such loans are terminable at any time, and the Fund will receive any interest
or dividends paid on the loaned securities. In addition, it is anticipated
that the Fund may share with the borrower 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, as with other extensions of credit,
consists of possible delay in 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 Manager will consider
all relevant factors and circumstances, including the creditworthiness of the
borrower. The Fund currently does not intend to lend its portfolio
securities, although it may do so in the future.
Delayed Delivery Transactions
The Fund may purchase and sell securities on a delayed delivery basis,
which calls for the purchase (or sale) of securities at an agreed-upon price
on a specified future date. In such transactions, delivery of the securities
occurs beyond the normal settlement periods, but no payment or delivery is
made by, and no interest accrues to, the Fund prior to the actual delivery or
payment by the other party to the transaction. Due to fluctuations in the
value of securities purchased or sold on a delayed delivery basis, the returns
obtained on such securities may be higher or lower than the returns available
in the market on the dates when the investments are actually delivered to the
buyers. The Fund will establish a segregated account consisting of cash, U.S.
government securities or other high-grade debt obligations in an amount equal
to the amount of its delayed delivery commitments.
Depositary Receipts
The Fund may hold securities of U.S. and foreign issuers in the form of
American Depositary Receipts ("ADRs") 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 typically
are issued by an American bank or trust company which evidences ownership of
underlying securities issued by a foreign corporation. Generally, ADRs 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 will be
deemed to be investments in the equity securities representing securities of
foreign issuers for which they may be exchanged.
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
<PAGE>18
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 shareholder 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 depositary.
The deposit agreement sets out the rights and responsibilities of the issuer,
the depositary 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 depositary), although ADR
holders continue to bear certain other costs (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositaries agree to
distribute notices of shareholder meetings and voting instructions, and to
provide shareholder 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 Depositary 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.
INVESTMENT RESTRICTIONS
The Fund's investment objective of long-term capital appreciation and the
following restrictions are the Fund's only fundamental policies that is,
policies which cannot be changed without the approval of the holders of the
majority of the Fund's outstanding voting securities. If a percentage
restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from
changing values will not be considered a violation.
The Fund may not:
1. Purchase securities on margin, except such short-term credits as may
be necessary for clearance of transactions and the maintenance of margin with
respect to options, futures and forward contracts.
2. Make short sales of securities or maintain a short position except,
with the approval of the Board of Directors, the Fund may utilize up to 10% of
its assets to make short sales "against the box" or short sales that meet
current SEC collateralization requirements.
3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow for temporary or emergency purposes, as well as for
the clearance of transactions or for the purpose of repurchasing shares of the
Fund's Common Stock in an aggregate amount not exceeding 33-1/3% (taken at the
lower of cost or current value) of its total assets (not including the amount
borrowed), and may also pledge its assets to secure such borrowings. For the
purposes of this
<PAGE>19
investment restriction, collateral arrangements with respect to the writing of
options or the purchase or sale of futures contracts or related options or
forward currency contracts are not deemed a pledge of assets or the issuance
of a senior security.
4. Invest more than 25% of the total value of its assets in a
particular industry; provided, however, that this restriction shall not be
deemed to prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of rights distributed to the Fund by the issuer,
except that no such purchase may be made if, as a result, the Fund will fail
to meet the diversification requirements of the Code. This restriction does
not apply to securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities, but will apply to Peruvian Government
Securities and other non-U.S. government obligations unless the SEC permits
their exclusion.
5. Buy or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities that
are secured by real estate or commodities and securities of companies that
invest or deal in real estate or commodities, may purchase and sell futures
contracts and related options, may enter into forward currency exchange
contracts, may purchase and write options on securities and securities indices
and may purchase and sell options on currencies.
6. Make loans, provided that the Fund may (a) acquire debt securities
as described herein, (b) enter into repurchase agreements (repurchase
agreements with a maturity of longer than seven days together with securities
that are not readily marketable being limited to 25% of the Fund's total
assets) and (c) lend portfolio securities in an amount not to exceed 25% of
the Fund's total assets.
7. 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.
The following additional restrictions are not fundamental policies of the
Fund and may be changed by the Board of Directors.
The Fund may not:
8. Purchase any security (other than obligations of the U.S.
government, its agencies or instrumentalities or of the Peruvian Government,
its agencies or instrumentalities) if as a result more than 25% of the Fund's
total assets (taken at current value) would then be invested in securities of
a single issuer. The exercise of stock subscription rights or conversion
rights is not deemed to be a purchase for purposes of this restriction.
9. Make investments for the purpose of exercising control or
management. Substantial stock ownership may occasionally confer on the Fund
the ability to influence policies of portfolio companies. In addition, the
Fund's management may consult with and advise the managements of portfolio
companies with respect to the operating and financial policies of such
companies.
10. Participate on a joint and several basis in any trading account in
securities.
<PAGE>20
RISK FACTORS
The Fund is a closed-end investment company designed for long-term
investment and investors should not consider it a trading vehicle. See
"Investment Objective and Policies." Shares of closed-end investment
companies frequently trade at a discount from net asset value, but may trade
at a premium. The Fund cannot predict whether its shares will trade at, below
or above net asset value. The Fund's investment in securities of Peruvian
companies and the Peruvian Government involves certain considerations not
typically associated with investing in securities of U.S. companies or the
U.S. government, including those discussed below, and therefore should be
considered more speculative than investment in U.S. securities.
Political and Economic Situation
During the past several decades, Peru has had a history of political
instability that included military coups d' tat and different governmental
regimes with changing policies. Past governments have frequently played an
interventionist role in the nation's economy and social structure. Among
other things, past governments have imposed controls on prices, exchange
rates, local and foreign investment and international trade, have restricted
the ability of companies to dismiss employees and have expropriated private
sector assets.
Since President Fujimori took office in July 1990, his government has
implemented a broad-based reform of Peru's political system, economy and
social conditions, aimed at stabilizing the economy, restructuring the
national government by reducing bureaucracy, promoting private investment,
developing and strengthening free markets, institutionalizing effective
democratic representation, and enacting programs for the strengthening of
basic services related to education, health, housing and infrastructure. The
dissolution of Congress which took place in April 1992 was followed by the
reestablishment of a democratically elected Congressional body and the
enactment and ratification of a new Constitution. Under President Fujimori,
inflation as measured by the Lima consumer price index has decreased from
7,650% in 1990 to 39.5% in 1993 and, after an initial decline, the country's
gross domestic product ("GDP") increased by 7.0% in 1993 and % in 1994.
Notwithstanding the progress achieved in restructuring Peru's political
institutions and revitalizing the economy, there can be no assurance that
President Fujimori's government, or any successor government, can sustain the
progress achieved. In addition, although current government policies appear
to enjoy popular support, as evidenced by recent election results, it is
possible that such support could be eroded as a result of certain effects of
current programs. For example, privatizations may result in layoffs due to
the reduction in the work force of privatized companies. As in the case of
all foreign investments, the Fund's investments in Peru could in the future be
adversely affected by increases in taxes or by political, economic or
diplomatic developments.
Terrorism and Other Considerations
For the past decade, Peru has experienced significant levels of terrorist
activity, with Sendero Luminoso (the Shining Path or "SL") and the Movimiento
Revolucionario Tupac Amar (the
<PAGE>21
"MRTA") having escalated their acts of violence against the government and the
private sector in the late 1980s and early 1990s. According to Peruvian
government estimates, terrorist activity in Peru during the last fourteen
years has resulted in an estimated 25,000 deaths and damage to property and
the economy estimated at US$25 billion.
President Fujimori's government has made substantial progress in
suppressing SL and MRTA terrorist activity, including the arrest of the leader
and the principal second level of leadership in each terrorist group and
approximately 2,000 others. In addition, approximately 3,000 additional
persons have surrendered to and aided the government under an amnesty law.
Notwithstanding the success achieved, some incidents of terrorist activity
continue to occur and there can be no assurance that President Fujimori's
government, or any successor government, can sustain the progress achieved in
combatting terrorist activity. Furthermore, the threat of terrorist attacks
has imposed heavy security costs on Peruvian businesses, and there can be no
assurance that such costs will not increase in coming years.
Further, in the past, Peru has had strained relations with Bolivia, Chile
and Ecuador, and a long-standing border dispute with Ecuador has recently
erupted into violence. From time to time, the government of Peru has been
subject to international criticism due to its inability to stem the export of
drugs from the country, its human rights record and the suspension of the
constitution. Certain countries have in the past and may in the future
suspend financial assistance to Peru or withdraw assets from Peru if these or
similar types of situations persist or recur.
Currency Fluctuations
The Fund will invest in securities denominated in Nuevos Soles, and
substantially all of the Fund's income from equity investments will be
received or realized in Nuevos Soles. However, the Fund will be required to
compute and distribute its income in U.S. dollars, and the computation of
income will be made on the date of its receipt by the Fund at the currency
exchange rate in effect on that date. Accordingly, changes in the value of
the Nuevo Sol against the U.S. dollar will result in corresponding changes in
the U.S. dollar value of the Fund's assets denominated in Nuevos Soles and
will change the U.S. dollar value of income and gains derived in Nuevos Soles.
If the value of the Nuevo Sol falls relative to the U.S. dollar between
receipt of income and the making of Fund distributions, the Fund could be
required to liquidate an increased amount of securities in order to make
distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution requirements. In addition, if the value of the Nuevo Sol falls
relative to the U.S. dollar between the time the Fund incurs expenses in U.S.
dollars and the time expenses are paid, the amount of Nuevos Soles required to
be converted into U.S. dollars in order to pay expenses will be greater than
the equivalent amount in Nuevos Soles of such expenses at the time they were
incurred.
In September 1991, the Nuevo Sol replaced the inti as the official
currency of Peru. In February 1985, the inti had replaced the original Sol.
Between 1978 and 1985, the Sol was gradually devalued through a crawling-peg
system of mini-devaluations. Multiple exchange rates were utilized in the
late 1980s in an attempt to favor manufacturing exports but were abandoned in
1990 in favor of a single-rate system. The Central Bank of Peru has adopted a
policy of non-intervention in the exchange rate market and currently the
dollar is used almost interchangeably with the Nuevo Sol. In
<PAGE>22
1992, 1993 and 1994, the Nuevo Sol depreciated in relation to the U.S. dollar
from the previous year by ___%, ___% and ___%, respectively.
Market Characteristics
The number of Peruvian equity securities currently available for
investment by the Fund is very limited due to, among other things, the small
size of the Peruvian equity market, low volume of equity trading and other
factors. The aggregate market capitalization of the equity securities listed
on the Lima Stock Exchange, the largest of Peru's two stock exchanges, was
approximately US$8.5 billion at December 31, 1994 and had decreased to
approximately U.S.$___ billion at _______ __, 1995. For the year ended
December 31, 1994, the average daily equity trading value on the Lima Stock
Exchange was US$___ million, with an annual aggregate trading value of
approximately US$___ million. For the ___-month period ended ____, 1995, the
average daily trading value and aggregate trading value of equity securities
were US$____ million and US$____ million, respectively.
Although Peruvian companies list all of their capital stock, in most
cases a controlling block is retained by company insiders with only a portion
available for active trading by the public. As of December 31, 1994, ___
companies had common or preferred stock listed on the Lima Stock Exchange.
The top 20 companies in terms of trading value for the year ended December 31,
1994 represented ___% of the total trading on the Lima Stock Exchange for that
period. The 20 largest companies in terms of market capitalization
represented ____% of the total market capitalization of the Lima Stock
Exchange at December 31, 1994. The ten largest companies in terms of market
capitalization represented ___% of the total market capitalization of the Lima
Stock Exchange for the ____-month period ended _____, 1995.
The limited liquidity of the Peruvian equity markets may also affect the
Fund's ability to acquire or dispose of securities at a price and a time that
it wishes to do so. Accordingly, in periods of rising market prices, the Fund
may be unable to participate in such price increases fully to the extent that
it is unable to acquire desired portfolio positions quickly; conversely, the
Fund's inability to dispose fully and promptly of positions in declining
markets will cause its net asset value to decline as the value of unsold
positions is marked to lower prices. There are no market making activities
for equity securities listed on the Lima Stock Exchange.
The Fund's net assets upon completion of the Offerings will represent
___% (___% if the over-allotment options are exercised in full) of the
aggregate market capitalization of equity securities listed on the Lima Stock
Exchange at December 31, 1994. The net proceeds of the Offerings will
represent ____% (____% if the over-allotment options are exercised in full) of
the aggregate annual trading value of equity securities listed on the Lima
Stock Exchange for 1994. The Lima Stock Exchange, in addition to being
substantially smaller and less liquid than the major securities markets in the
United States, is substantially more volatile than U.S. securities markets.
The Lima Stock Exchange composite stock price index (base ____ __, ___ = 100),
on an inflation-adjusted basis, increased ___% in 199__. In 199_, however,
the price index on an adjusted basis declined from ____ to ____, representing
a __% decrease.
<PAGE>23
The volatility during these and prior periods reflects, among other
things, the impact of changes in inflation and in Peruvian Government economic
policies. See "Currency Fluctuations" and "Inflation." Macroeconomic factors
impact the prices for equity securities independent of financial and business
developments of particular companies. In light of the volatility of the
Peruvian equity markets, there can be no assurance that any particular level
of prices will be sustained.
Like many Latin American stock markets, the Lima Stock Exchange declined
substantially in the wake of the Mexican peso devaluation. The Exchange index
has declined approximately __% since December 31, 1994.
Compliance with the diversification requirements of the Code for the
Fund's qualification as a regulated investment company may, in view of the
limited number of liquid equity securities currently available for investment,
result in a larger portion of the Fund's assets being invested, at certain
times, in debt securities, including U.S. dollar-denominated non-Peruvian
securities, than would be the case in the absence of these requirements.
The factors described above, which result in a limited supply of
available equity investments, may adversely affect the rate at which the Fund
can invest in Peruvian equity securities within a short period of time, as
well as the Fund's performance. As more investors, including other investment
funds, participate in the Peruvian securities market, available opportunities
for investment may be further reduced.
In addition to its small size, illiquidity and volatility, the Peruvian
securities market is less developed than the securities markets of many other
countries for which U.S.-registered closed-end funds exist. There is a low
level of regulation of the markets for Peruvian securities and the activities
of investors in such markets, and the enforcement of those regulatory
provisions that do exist has been extremely limited. The prices at which the
Fund may acquire investments may be affected by the market's anticipation of
the Fund's investing, trading on material non-public information and
securities transactions by brokers in anticipation of transactions by the Fund
in particular securities. Brokerage commissions and other transaction costs
and related taxes on securities transactions in Peru are generally higher than
in the United States. See "The Peruvian Securities Markets - The Lima Stock
Exchange - Transaction Costs" and "Taxation - Peruvian Taxes."
Inflation
Peru has experienced very substantial, and in some periods extremely high
and variable, rates of inflation. Annual inflation, as measured by
_______________, averaged 29.2% during the 1970s, accelerated in the 1980s and
reached 7,500% in 1990. The current administration of President Fujimori
initiated radical economic policies and inflation declined to 139.2% in 1991,
56.7% in 1992, 39.5% in 1993, and __% in 1994. Inflation and rapid changes in
inflation rates have had and may continue to have significant effects both on
the Peruvian economy and on the Peruvian securities and foreign exchange
markets. See "Market Characteristics" and "The Republic of Peru - Gross
Domestic Product" and "- Prices, Wages and Employment."
<PAGE>24
There can be no assurance that the recent economic measures referred to
above will be any more successful than previous programs in reducing inflation
in the long term. For a fuller discussion of inflation in Peru and the
current administration's economic reforms, see "The Republic of Peru - Prices,
Wages and Employment."
Exchange Controls
Under current law, foreign investors may remit profits out of Peru
without restriction. There can be no guarantee, however, that limits on the
Fund's ability to remit profits will not be imposed in the future. If for any
reason the Fund were unable to distribute substantially all of its investment
company taxable income, as defined under the Code, within applicable time
periods due to the imposition of foreign exchange controls, the Fund would
cease to qualify for the favorable tax treatment afforded to regulated
investment companies under the Code and would thereby become subject to U.S.
federal income tax on all of its income and gains. The inability to make
requisite distributions could also subject the Fund to U.S. federal excise
taxes that would not otherwise be incurred. Although the Fund is authorized
to borrow in order to avoid such consequences, willing lenders on acceptable
terms may not be available. See "Investment Restrictions." The payment of
additional U.S. taxes resulting from the inability of the Fund to make
necessary distributions and the payment of interest on amounts borrowed to
finance necessary distributions would adversely affect the Fund's performance.
See "Taxation - United States Income Taxes." There can be no assurance that
other exchange controls applicable to the Fund will not be imposed in the
future, nor as to the duration or impact of such restrictions if imposed.
Furthermore, expropriation, confiscatory taxation, nationalization, political,
economic or social instability or diplomatic developments could adversely
affect the assets of the Fund held in Peru.
Availability of Information
Although Peruvian generally accepted accounting, auditing and financial
reporting standards and practices are similar in some respects to those
employed in the United States, they are not equivalent and differ
significantly in certain fundamental areas, most notably the treatment of
inflation accounting. Moreover, equity research on companies is not as common
in Peru as it is in the United States. As a consequence, fewer research
reports are available on Peruvian companies than on U.S. companies.
Therefore, less information may be available with respect to Peruvian
securities than with respect to securities of U.S. issuers.
Peruvian Debt Securities
Peruvian debt securities that the Fund may acquire include bonds, notes
and debentures of any maturity issued or guaranteed by the Peruvian
Government, its agencies and instrumentalities, banks and other companies,
which the Investment Manager determines to be suitable investments for the
Fund (including repurchase agreements with respect to such obligations).
Investments in Peruvian Government Securities and in debt securities
issued or guaranteed by supranational organizations or by Peruvian government
owned, controlled or sponsored entities, including the central bank
(collectively, "Peruvian Sovereign Debt") involve special risks. Peruvian
<PAGE>25
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 Peruvian
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 Peruvian entity may not contest payments
to the holders of Peruvian Sovereign Debt in the event of default under
commercial bank loan agreements. In addition, there is no bankruptcy
proceeding with respect to Peruvian Sovereign Debt on which a Peruvian
sovereign entity has defaulted and the Fund may be unable to collect all or
any part of its investment in a particular issue. [A substantial portion of
the Peruvian Sovereign Debt in which the Fund will invest is issued as part of
debt restructurings and such debt is to be considered speculative.]
High Risk Securities
At any one time, up to 25% of the Fund's assets may be invested in high
risk debt securities, which are predominantly speculative. Such securities
are generally considered to have a credit quality rating below investment
grade by internationally recognized credit rating organizations such as
Moody's and Standard & Poor's and frequently are unrated. Non-investment
grade securities (that is, rated Ba1 or lower by Moody's or BB+ or lower by
Standard & Poor's) and unrated securities of comparable quality are regarded
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations
and involve major risk exposure to adverse conditions. Securities rated Ba1
or lower by Moody's or BB+ or lower by Standard & Poor's are considered to be
speculative and to involve major risk exposures to adverse conditions.
Certain of the securities in which the Fund may invest, which may not be
paying interest currently or may be in payment default, may be comparable to
securities rated as low as C or below by Moody's or Standard & Poor's. 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.
Unlisted Securities
Although the Fund expects to invest primarily in listed securities of
established Peruvian companies, it may invest up to 25% of its total assets in
unlisted securities of Peruvian companies which are not readily marketable and
which may involve a high degree of business and financial risk that can result
in substantial losses. Because of the absence of a trading market for these
investments, the Fund may take longer to liquidate these positions than would
be the case for publicly-traded securities and the Fund may not be able to
realize their value upon resale. The absence of a liquid trading market may
also affect the procedures for valuation of such securities for financial
reporting purposes and in calculating the Fund's net asset value. See "Net
Asset Value." Further, companies whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements
applicable to companies whose securities are publicly traded.
<PAGE>26
Illiquid Investments
Investment of the Fund's assets in illiquid securities may restrict the
ability of the Fund to dispose of such securities in a timely fashion and for
a fair price, which could in turn result in substantial losses to the Fund.
The risks associated with illiquidity will be particularly acute in situations
in which the Fund's operations require cash, such as when the Fund tenders for
shares of Common Stock or pays distributions, and could result in the Fund's
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.
Strategic Transactions
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Investment Manager's view as to certain market movements is incorrect, the
risk that the use of the Strategic Transactions could result in losses greater
than if they had not been used. Use of put and call options could result in
losses to the Fund, force the purchase or sale of portfolio securities at
inopportune times or for purchase prices higher than (in the case of put
options) or sale prices lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund could realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions could result in the Fund's incurring losses as a
result of the imposition of exchange controls, suspension of settlements, or
the inability to deliver or receive a specified currency. The use of options
and futures transactions entails certain special risks. The variable degree
of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Fund, for example, could
create the possibility that losses on the hedging instrument were greater than
gains in the value of the Fund's position. In addition, futures and options
markets could not be liquid in all circumstances and certain over-the-counter
options might have no markets. As a result, in certain markets, the Fund
might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time it should tend to limit any potential
gain that might result from an increase in value of the position. Finally,
the daily variation margin requirements for futures contracts would create a
greater ongoing potential financial risk than would purchases of options, in
which case the exposure is limited to the cost of the initial premium. Losses
resulting from the use of Strategic Transactions would reduce the Fund's net
asset value, and the losses could be greater than if the Strategic
Transactions had not been used. Additional information regarding the risks
and special considerations associated with Strategic Transactions appears in
Appendix A to this Prospectus.
Net Asset Value Discount
Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic of shares of a closed-end fund is a
risk separate and distinct from the risk that a fund's net asset value will
decrease. The risk of purchasing shares of a closed-end investment company
which might trade at a discount from net asset value is more pronounced for
investors who purchase shares in the initial public offering and expect to
sell their shares in a relatively short period of time. For those investors,
realization of a gain or loss on their investment is likely to be more
<PAGE>27
dependent upon the existence of a market premium or discount than upon the
Fund's performance. If, at any time during or after the fifth full calendar
year following the Offerings, shares of the Fund's Common Stock publicly trade
for a substantial period of time at a substantial discount from the Fund's
then current net asset value per share, the Board of Directors of the Fund
will consider taking various actions designed to eliminate the discount.
There can be no assurance, however, that such actions will be taken or, if
taken, will result in shares of the Fund trading at a price equal to or
approximating their net asset value. See "Common Stock Future Actions
Relating to a Discount in the Price of the Fund's Shares."
Repurchase Agreements
The use of repurchase agreements involves certain risks not associated
with direct investment in securities. For example, if the seller of
securities under a repurchase agreement (in which the Fund acts as buyer)
defaults on its obligation to repurchase the underlying securities at the
agreed-upon repurchase price at a time when the value of such securities has
declined, the Fund may incur a loss upon their disposition. In each case, if
the defaulting seller were to become involved in insolvency proceedings, the
Fund's exercise of its rights under the relevant repurchase agreement could be
subject to certain costs or delays pending court action.
While the Investment Manager recognizes these risks, it is expected that
they can be controlled by the Investment Manager by evaluating initially and
monitoring the creditworthiness of the institutions with which it enters into
repurchase agreements. In repurchase agreements, when the Fund is effectively
acting as a lender, the Investment Manager will continuously monitor the value
of the underlying securities to help ensure that their value always equals or
exceeds the repurchase price.
Non-Diversification
The Fund is classified as a "non-diversified" investment company under
the 1940 Act, which means the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. However, the Fund intends to conduct its operations so as to qualify
as a "regulated investment company" for purposes of the Code, which will
generally relieve the Fund of any liability for U.S. federal income tax to the
extent that its earnings are distributed to shareholders. See "Taxation." To
so qualify, among other requirements, the Fund intends to 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 the Fund's total assets will be invested
in the securities of a single issuer or a group of related issuers, and (ii)
at least 50% of the market value of the Fund's assets will be represented by
cash, U.S. government securities or other securities, with such other
securities of any one issuer limited for these purposes to an amount not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer. Because the Fund, as a non-
diversified investment company, may invest in a smaller number of individual
issuers than a diversified investment company, an investment in the Fund may,
under certain circumstances, present greater risk to an investor than an
investment in a diversified company.
<PAGE>28
Non-U.S. Investors
In general, distributions of net investment income and net short-term
capital gains on the shares to non-U.S. investors that are not otherwise
subject to U.S. federal income taxation will be subject to a 30% U.S. federal
withholding tax, which may be reduced by an applicable tax treaty. Non-U.S.
investors are advised to consult their own tax advisers with respect to the
tax consequences to them of an investment in the Fund. See "Taxation-United
States Federal Income Taxes-Foreign Shareholders."
Restrictions on Transfer
Purchasers acquiring Shares at a reduced price will be deemed to have
agreed not to sell such Shares for a period of up to 90 days from the date of
this Prospectus. There is no limit on the number of Shares that may be
purchased at a reduced price, except that the Fund will comply with the
distribution requirements of the New York Stock Exchange with respect to the
Shares not so purchased. To the extent investors subject to the transfer
restriction sell their Shares once such restriction is no longer applicable,
the market price of the Common Stock may be adversely affected. In addition,
the transfer restriction will reduce the number of Shares available for sale
in the secondary market during any restricted period. Certificates evidencing
Shares purchased at a reduced price will bear a legend stating the transfer
restrictions. See "Underwriting."
INVESTMENT MANAGER
The Fund's advisory structure is an arrangement for providing investment
advice and management to pursue the Fund's investment objective of long-term
capital appreciation. The Investment Manager is Scudder, Stevens & Clark,
Inc., a U.S. investment counsel firm. The Fund may retain the services of
other advisers or consultants with respect to the Peruvian securities market
when the Fund's Board of Directors determines it to be appropriate.
The Investment Manager
The Investment Manager, Scudder, Stevens & Clark, Inc., an investment
counsel firm whose address is 345 Park Avenue, New York, New York 10154, acts
as investment manager and administrator for the Fund. The Investment Manager,
a leading global investment manager with offices throughout the United States
and subsidiaries in London, Hong Kong and Tokyo, is one of the most
experienced investment counsel firms in the United States. The Investment
Manager was established in 1919 as a partnership and was restructured as a
Delaware corporation in 1985. The principal source of the Investment
Manager's income is professional fees received from providing continuing
investment advice. The Investment Manager's affiliate, Scudder Investor
Services, Inc., acts as principal underwriter, without sales commissions or
underwriting fees, for shares of registered open-end investment companies.
The Investment Manager provides investment counsel for many individuals and
institutions, including insurance companies, colleges, industrial corporations
and financial and banking organizations.
<PAGE>29
The Investment Manager has been active in international investment for
over 40 years and in emerging markets investment for over 20 years. As of
December 31, 1994, the Investment Manager and its affiliates had in excess of
$90 billion under their supervision, more than $20 billion of which was
invested in non-U.S. securities and approximately $__ billion of which was
invested in securities of emerging countries. As of that date, the Investment
Manager's clients included eight closed-end U.S. investment companies with
assets aggregating over $1.5 billion, and over 50 open-end U.S. investment
company portfolios with assets aggregating over $36 billion. The Investment
Manager's investment company clients include, in addition to the Fund: Scudder
World Income Opportunities Fund, Inc., which commenced operations in 1994 and
invests primarily in income securities issued directly or indirectly by
corporate and sovereign entities through the world; The Latin America Dollar
Income Fund, Inc., which commenced operations in 1992 and invests primarily in
dollar-denominated debt instruments issued by private and public entities
located in Latin America; The Argentina Fund, Inc., which commenced operations
in 1991 and invests primarily in equity securities of Argentine companies; The
Brazil Fund, Inc., which commenced operations in 1988 and invests primarily in
equity securities of Brazilian companies; The First Iberian Fund, Inc., which
commenced operations in 1988 and invests primarily in equity securities of
Spanish and Portuguese companies; Scudder International Fund, Inc. ("Scudder
International"), which specializes in foreign securities and was initially
incorporated in Canada in 1953 as the first foreign investment company
registered with the SEC; The Korea Fund, Inc., which was organized in 1984 and
invests primarily in equity securities listed on the Korea Stock Exchange;
Scudder Global Fund (an investment portfolio of Scudder Global Fund, Inc.
("Scudder Global")), which was organized in 1986 and invests in non-U.S.
securities as well as securities of U.S. companies; Scudder New Asia Fund,
Inc., which commenced operations in 1987 and invests primarily in equity
securities of Asian companies; Scudder New Europe Fund, Inc., which commenced
operations in 1990 and invests primarily in securities of European companies;
Scudder Global Small Company Fund (an investment portfolio of Scudder Global),
which commenced operations in 1991 and invests globally in equity securities
of small companies; Scudder Gold Fund (an investment portfolio of Scudder
Mutual Funds, Inc.), organized in 1988, which invests globally in gold-related
securities and gold; Scudder Latin American Fund (an investment portfolio of
Scudder International) which commenced operations in 1992 and invests in
equity securities of Latin America issuers; Scudder International Bond Fund
(an investment portfolio of Scudder Global), which commenced operations in
1988 and invests in high grade bonds denominated primarily in currencies other
than the U.S. dollar; The Japan Fund, Inc., which commenced operations in 1962
and invests primarily in securities of Japanese companies; Scudder Pacific
Opportunities Fund, Inc. (an investment portfolio of Scudder International),
which commenced operations in 1992 and invests in equity securities of Pacific
Basin issuers, excluding Japan; Scudder Short Term Global Income Fund (an
investment portfolio of Scudder Global), which commenced operations in 1991
and invests globally in a portfolio of fixed income securities with an average
life not exceeding three years; and Scudder Emerging Markets Income Fund (an
investment portfolio of Scudder Global), which commenced operations in 1993
and invests in high-yielding debt securities issued in emerging markets.
The Investment Manager also provides investment advisory services to the
mutual funds with assets aggregating over $__ billion that comprise the AARP
Investment Program from Scudder. With respect to this program, the Investment
Manager manages a total of eight investment company portfolios pursuing a
variety of investment objectives, including money market returns, growth,
<PAGE>30
income and tax-free income. The Investment Manager also manages global and
emerging market equity and fixed-income accounts for several large pension
plans.
The Investment Manager maintains a research department with more than 50
professionals who conduct ongoing studies of the factors that affect various
industries, companies and individual securities in the United States as well
as abroad. The Fund is managed by a team of investment professionals each of
whom plays an important role in the Fund's management process. Team members
work closely together to develop investment strategies and select securities
for the Fund's portfolio. They are supported by the Investment Manager's
staff of economists, research analysts, traders and other investment
specialists who work in the Investment Manager's offices in the United States
and abroad. The Investment Manager believes its team approach benefits Fund
investors by bringing together many disciplines and leveraging the Investment
Manager's extensive resources.
Lead portfolio manager William F. Truscott will set the Fund's investment
strategy and oversee its daily operations. Mr. Truscott joined the Investment
Manager in 1992 and has 10 years of experience in the financial industry. Mr.
Truscott is also the lead portfolio manager of The Argentina Fund, Inc. and is
a portfolio manager of Scudder Latin America Fund. Tara Kenney, portfolio
manager, will contribute expertise in the selection of portfolio investments
through specialized economic and geopolitical analyses. Ms. Kenney has served
as a Vice President of the Investment Manager since ______ 1995. From 1987 to
1995, Ms. Kenney was employed at Bankers Trust Company, where she was
primarily responsible for the origination and execution of corporate finance
transactions in Latin America. Nicholas Bratt, a Managing Director of the
Investment Manager, sets the Fund's general investment strategies. Mr. Bratt
has over 20 years of international investing experience.
In managing the Fund, the Investment Manager will utilize reports,
statistics and other investment information from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and for clients of the Investment Manager. Investment decisions,
however, will be based primarily on investigations and critical analyses by
its own research specialists and portfolio managers.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Investment Manager. Investment decisions for the Fund
and other clients will be made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, tax aspects, availability of cash for investment and the size of
their investments generally. Frequently, a particular security may be bought
or sold for only one client or in different amounts and at different times for
more than one but less than all clients. Likewise, a particular security may
be bought for one or more clients when one or more other clients are selling
the security. In addition, purchases or sales of the same security may be
made for two or more clients on the same day. In such event, such
transactions will be allocated among the clients in a manner believed by the
Investment Manager to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Investment Manager in the interest
of the most favorable net results to the Fund.
<PAGE>31
See "Directors and Officers" for information as to the directors and
officers of the Fund who are directors or officers of the Investment Manager
and as to the board of directors of the Investment Manager.
Investment Advisory, Management and Administration Agreement
Under the Investment Advisory, Management and Administration Agreement
between the Fund and the Investment Manager (the "Management Agreement"), the
Investment Manager will make investment decisions, make available research and
statistical data and supervise the acquisition and disposition of securities
by the Fund, all in accordance with the Fund's investment objective and
policies and under the direction and control of the Fund's Board of Directors.
The Investment Manager will maintain or cause to be maintained for the Fund
all books, records and reports and any other information required under the
1940 Act to the extent such books, records and reports and other information
are not maintained or furnished by the Fund's custodian or other agents, will
supply the Fund with office space in New York and will furnish clerical
services in the United States related to research, statistical and investment
work.
In addition, the Investment Manager renders 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 SEC and other regulatory and self-regulatory
organizations, including preliminary and definitive proxy materials, providing
assistance in certain accounting and tax matters, monitoring the valuation of
portfolio securities, 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.
The Investment Manager will also pay the reasonable salaries and expenses of
such of the Fund's officers and employees and any fees and expenses of such of
the Fund's directors as are directors, officers or employees of the Investment
Manager, except that the Fund 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 the attendance at meetings of the Fund's Board of Directors
or any committees thereof or advisers thereto. Under the Management
Agreement, the Investment Manager may render similar services to others.
The Fund will pay or cause to be paid, for the Fund's account, all of its
other expenses, including (to the extent not covered in the preceding
paragraph) organization and certain offering expenses (but not overhead or
employee costs of the Investment Manager or other advisers or consultants);
fees payable to the Investment Manager and any other advisers and 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 in connection with
membership in investment company trade organizations; fees and expenses of the
Fund's custodian, subcustodians, transfer agent and registrar; 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
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
<PAGE>32
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 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.
For the investment management, research and administrative services it
provides to the Fund, the Investment Manager will receive a monthly fee in
U.S. dollars which, on an annual basis, is equal to % per annum of the
Fund's average weekly net assets. This fee is higher than aggregate advisory
and administration fees paid by most other investment companies (which
includes money market funds), primarily because investing in Peruvian
securities requires the Investment Manager to devote additional time and incur
added expense in developing specialized resources, including research
facilities. The fees payable to the Investment Manager are believed by the
Fund's management to be appropriate in light of the specialized nature of the
Fund, the aggregate management and administrative fees paid by and expenses of
other closed-end investment companies with similar investment objectives and
policies and the efforts and resources that will be required in order to
pursue the Fund's investment objective and policies.
Under the Management Agreement, the Investment Manager is permitted to
provide investment advisory services to other clients, including clients that
may invest in securities of Peruvian issuers and, in providing such services,
may use information furnished by the Investment Manager to the Fund.
Conversely, information furnished by others to the Investment Manager may be
useful to the Investment Manager in providing services to the Fund.
The Management Agreement is effective initially for two years commencing
on the day that the Fund's Registration Statement of which this Prospectus is
a part is declared effective by the SEC and its term continues in effect from
year to year thereafter if such continuance is specifically approved, at least
annually, by a vote of a majority of the members of the Board of Directors who
are not interested persons of the Investment Manager or the Fund, cast in
person at a meeting called for the purpose of voting on such approval, and by
a majority vote either of the Fund's Board of Directors or of the Fund's
outstanding voting securities. The Management Agreement may be terminated at
any time without penalty, on 60 days' written notice, by the Fund or by the
Investment Manager. The Management Agreement automatically terminates in the
event of its assignment (as defined under the 1940 Act).
The Management Agreement provides that the Investment Manager shall not
be liable for any act or omission, error of judgment or mistake of law or for
any loss suffered by the Fund in connection with matters to which the
Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment
Manager in the performance of its duties or from reckless disregard by the
Investment Manager of its obligations and duties under the Management
Agreement.
<PAGE>33
Personal Investments by Employees of the Investment Manager
Employees of the Investment Manager are permitted to make personal
securities transactions, subject to requirements and restrictions set forth in
the Investment Manager's Code of Ethics. The Code of Ethics contains
provisions and requirements designed to identify and address certain conflicts
of interest between personal investment activities and the interests of
investment advisory clients such as the Fund. Among other things, the Code of
Ethics, which generally complies with standards recommended by the Investment
Company Institute's Advisory Group on Personal Investing, prohibits certain
types of transactions absent prior approval, imposes time periods during which
personal transactions may not be made in certain securities, and requires the
submission of duplicate broker confirmations and monthly reporting of
securities transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment advisory
process. Exceptions to these and other provisions of the Code of Ethics may
be granted in particular circumstances after review by appropriate personnel.
Services Agreement
The Fund employs PaineWebber Incorporated to provide certain consulting
and support services (not including advice or recommendations regarding the
purchase or sale of portfolio securities) designed to publicize the Fund's
features and benefits to brokers and their clients in order to facilitate the
liquidity of the Fund and minimize potential trading discounts from net asset
value. Such services include periodic conference calls, producing and
distributing internal and external publications, presentations at retail
systems meetings and responding to broker and client inquiries. PaineWebber
Incorporated also makes available to its brokers and customers market price
and net asset value information regarding the Fund. At the request of the
Fund, PaineWebber Incorporated provides advice and consultation with respect
to tender offers and share repurchases. As compensation for these services,
the Fund pays PaineWebber Incorporated a fee calculated at an annual rate of
__% of the Fund's average weekly net assets. Any such agreement would be in
effect for an initial period of one year and could be renewed annually
thereafter. The Fund's Board of Directors has approved the agreement as being
in the best interests of the Fund and its shareholders. PaineWebber
Incorporated is a Representative of the U.S. Underwriters of the U.S.
Offering of its Common Stock.
DIRECTORS AND OFFICERS
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Fund's Board of Directors approves
all significant agreements between the Fund and the persons or companies that
furnish services to the Fund, including agreements with the Investment
Manager, the shareholder servicing agent and the Fund's custodian and transfer
agent. The day-to-day operations of the Fund are delegated to the Investment
Manager. The names of the directors and principal officers of the Fund are
set forth below, together with their positions and their principal occupations
during the past five years and, in the case of the directors, their positions
with
<PAGE>34
certain other international organizations and publicly held companies. The
directors and officers of the Fund may also serve in similar capacities for
other funds managed by the Investment Manager.
Principal Occupation
Name and Address Position With the Fund and Other Affiliations
---------------- ---------------------- ----------------------
*Kathryn L. Chairman of the Managing Director,
Quirk(1) Board, President Scudder, Stevens &
and Director Clark, Inc.
*Jerard K. Director Managing Director
Hartman(1) and Director,
Scudder, Stevens &
Clark, Inc.
[Other directors
to be added by
amendment]
Edward J. Treasurer and Principal, Scudder,
O'Connell(1) Secretary Stevens & Clark,
Inc.
William F. Vice President Principal, Scudder,
Truscott(1) Stevens & Clark,
Inc.
Tara Kenney(1) Vice President Vice President,
Scudder, Stevens &
Clark, Inc.
<PAGE>35
Nicholas Bratt(1) Vice President Managing Director,
Scudder, Stevens &
Clark, Inc.
______________________
* "Interested person" within the meaning of the 1940 Act. Ms. Quirk and Mr.
Hartman are interested persons of the Fund by virtue of their positions with
the Investment Manager.
(1) Address: 345 Park Avenue, New York, NY 10154.
While the Fund is a Maryland corporation, Messrs. ______________ and
____________ 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 upon such Directors
within the United States or to realize judgments of courts of the United
States predicated upon civil liabilities of such Directors under the federal
securities laws of the United States. The 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.
Daniel Pierce is the Chairman of the Board and Edmond D. Villani is the
President and Director of the Investment Manager. The other members of the
Board of Directors of the Investment Manager are Stephen R. Beckwith, Lynn S.
Birdsong, Nicholas Bratt, Linda C. Coughlin, Cuyler W. Findlay, Jerard K.
Hartman, Dudley H. Ladd, Douglas M. Loudon, John T. Packard, Juris Padegs,
Cornelia M. Small and David B. Watts. All the outstanding voting and non-
voting securities of the Investment Manager are held of record by Messrs.
Villani, Beckwith, Pierce and Padegs, in their capacity as the representatives
of the beneficial owners of such securities pursuant to a Security Holders
Agreement, under which such representatives have the right to reallocate
shares among the beneficial owners from time to time, at net book value in
cash transactions. Messrs. Villani, Bratt, Padegs and Hartman, David S. Lee
and Ms. Quirk own voting and non-voting stock in the Investment Manager, and
as a Principal of the Investment Manager, Mr. O'Connell owns non-voting stock.
The officers of the Fund conduct and supervise the daily business
operations of the Fund, while the directors, in addition to their functions
set forth under "Investment Manager," review such actions and decide on
general policy. The Fund intends to pay each of its directors who is not an
affiliated person of the Investment Manager, in addition to certain out-of-
pocket expenses, an annual fee of $______, plus $____ for each directors' or
audit committee meeting and for each meeting held for the purpose of
considering arrangements between the Fund and the Investment Manager or any of
its affiliates, and $_____ for each other committee meeting attended. Those
directors who are affiliated persons of the Investment Manager will also be
reimbursed by the Fund for travel expenses relating to attendance at meetings
of the Fund's Board of Directors or any committees thereof or advisers
thereto.
<PAGE>36
The Fund's Board of Directors has an Executive Committee, which may
exercise the powers of the Board to conduct the current and ordinary business
of the Fund while the Board is not in session. The current members of the
Executive Committee are Messrs. ________ and ________ The Fund also has an
Audit Committee composed currently of each of the non-interested directors of
the Fund.
Commencing with the first annual meeting of stockholders, the Board of
Directors will be divided into three classes, having terms of one, two and
three years, respectively. At the annual meeting of shareholders in each year
thereafter, the term of one class will expire and directors will be elected to
serve in that class for a term of three years. See "Common Stock."
The Articles of Incorporation and By-Laws of the Fund provide that the
Fund will indemnify directors and officers and may indemnify employees or
agents of the Fund against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
the Fund to the fullest extent permitted by law. In addition, the Fund's
Articles of Incorporation provide that the Fund's directors and officers will
not be liable to shareholders for money damages, except in limited
circumstances. However, nothing in the Articles of Incorporation or the By-
Laws of the Fund protects or indemnifies a director, officer, employee or
agent against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
ESTIMATED EXPENSES
On the basis of the anticipated size of the Fund immediately following
the Offerings, and assuming no exercise of the over-allotment options, the
Investment Manager estimates that the Fund's annual normal operating expenses,
including management and administration fees but excluding amortization of
organization expenses, will be approximately $______________. While the
foregoing estimate has been made in good faith on the basis of information as
to current prices available to the Investment Manager, including estimates
furnished by the Fund's agents, there can be no assurance, given the nature of
the Fund as the first U.S.-registered investment company investing primarily
in Peruvian securities, that actual annual operating expenses will not be
substantially more or less than such estimate.
The Fund's estimated annual operating expenses are higher than annual
normal operating expenses of most other U.S. investment companies of
comparable size, because the fees payable to the Investment Manager
(reflecting the specialized nature of the Fund, the nature of the advisory and
administrative effort involved and the requirement for Peruvian research) are
substantially higher than advisory, administrative and related fees paid by
most other U.S. investment companies (which includes money market funds) and
because the fees charged by certain of the Fund's agents are higher
(reflecting communications and other costs associated with an investment
company investing in Peru, rather than in the United States) than fees charged
by such agents for services to a more typical U.S. investment company
investing in the United States. The estimated annual operating expenses are,
however, comparable to annual operating expenses paid by recently organized
closed-end investment companies that invest primarily in securities within a
single country or geographic region outside the United States.
<PAGE>37
Costs incurred by the Fund in connection with its organization, estimated
at $___________ will be deferred and amortized on a straight-line basis over
five years, starting at the commencement of the Fund's operations. The
expenses of the Offerings, estimated to be $____________, will be charged to
additional paid-in capital upon commencement of the Fund's operations.
THE PERUVIAN SECURITIES MARKET
[TO BE SUPPLIED BY AMENDMENT]
THE REPUBLIC OF PERU
[TO BE SUPPLIED BY AMENDMENT]
[MAP OF PERU]
PORTFOLIO TRANSACTIONS AND BROKERAGE
To the maximum extent feasible, the Investment Manager places orders for
portfolio transactions through its wholly-owned subsidiary, Scudder Investor
Services, Inc. ("SIS"), which in turn places orders on behalf of the Fund with
issuers, underwriters or other brokers and dealers. SIS receives no
commission, fees or other remuneration from the Fund for this service.
Allocation of brokerage is supervised by the Investment Manager.
The primary objective of the Investment Manager in placing orders for the
purchase and sale of securities for the Fund's portfolio is to obtain the most
favorable net results, taking into account such factors as price, commission,
when applicable (which is negotiable in the case of U.S. national securities
exchange transactions but which is generally fixed in the case of foreign
exchange transactions), size of order, difficulty of execution and skill
required of the broker/dealer involved in the transaction. The Fund may
utilize broker/dealers affiliated with certain Underwriters, in connection
with the purchase or sale of securities in accordance with rules or exemptive
orders adopted by the SEC when the Investment Manager believes that the charge
for the transaction does not exceed usual and customary levels. In addition,
the Fund may purchase securities for which such broker/dealers have acted as
agent to or for issuers in the placement of the securities, consistent with
applicable rules adopted by the SEC or regulatory authorization, if necessary.
<PAGE>38
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Investment Manager's practice to place such
orders with brokers and dealers who supply market quotations to the Fund or
its agents for portfolio evaluation purposes, or who supply research, market
and statistical information to the Fund or the Investment Manager. The term
"research, market and statistical information" includes advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, and furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and
the performance of accounts.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Investment Manager,
such information, in the Investment Manager's opinion, is only supplementary
to the Investment Manager's own research effort, since the information must
still be analyzed, weighed and reviewed by the Investment Manager's staff.
Such information may be useful to the Investment Manager in providing services
to clients other than the Fund, and not all such information is used by the
Investment Manager in connection with the Fund. Conversely, such information
provided to the Investment Manager by brokers and dealers through whom other
clients of the Investment Manager effect securities transactions may be useful
to the Investment Manager in providing services to the Fund.
NET ASSET VALUE
The net asset value of shares of the Fund will be determined no less
frequently than weekly, on the last business day of each week and at such
other times as the Fund's Board of Directors may determine as of the close of
regular trading on the NYSE by dividing the value of the total assets of the
Fund, less all liabilities, by the total number of shares outstanding.
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 question (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 sales, the security is valued at the high or "inside" 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 techniques. Short-term securities
with remaining maturities of sixty days or less 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,
<PAGE>39
the Investment Manager 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 the above
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. Further, if the value of an asset of the Fund cannot be
determined in accordance with the above procedures, the value of the asset
shall be 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 Nuevos Soles, the value of these assets in terms of U.S. dollars is
calculated by converting Nuevos Soles into U.S. dollars at the prevailing
currency exchange rates.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
The Fund intends to distribute to shareholders, at least annually,
substantially all of its net investment income and expects to distribute
annually any net long-term capital gains in excess of net short-term capital
losses (including any capital loss carryover). Generally, net investment
income for this purpose is income other than net realized long- and short-term
capital gains net of expenses and may also include certain foreign currency
related gains and losses.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), each shareholder will be deemed to have elected, unless State Street
Bank and Trust Company, the Plan Agent, is otherwise instructed by the
shareholder in writing, to have all distributions, net of any applicable U.S.
withholding tax, automatically reinvested by the Plan Agent in Common Stock
pursuant to the Plan. Shareholders who do not participate in the Plan will
receive all distributions in cash paid by check in U.S. dollars mailed
directly to the shareholders by State Street Bank and Trust Company, as
dividend paying agent. Shareholders who do not wish to have distributions
automatically reinvested should
<PAGE>40
notify the Fund c/o the Plan Agent for The Peru Fund, Inc., 225 Franklin
Street, Boston, Massachusetts 02101.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Fund's Board of Directors declares an income dividend or a
capital gains distribution payable either in the Fund's Common Stock or in
cash, as shareholders may have elected, nonparticipants in the Plan will
receive cash and participants in the Plan will receive Common Stock to be
issued by the Fund. If the market price per share on the valuation date
equals or exceeds net asset value per share on that date, the 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 Fund
shares at such time, participants in the Plan will be deemed to have elected
to receive shares of stock from the Fund, valued at market price on the
valuation date. If the Fund should declare an income dividend or capital
gains distribution payable only in cash, the Plan Agent will, as agent for the
participants, buy shares of Common Stock in the open market, on the NYSE or
elsewhere, for the participants' accounts, except that the Plan Agent will
endeavor to terminate purchases in the open market and cause the Fund to
satisfy the remainder of the dividend or distribution by the Fund's issuing
shares of Common Stock if, following the commencement of the purchases, the
market value of the shares exceeds the net asset value. Remaining shares will
be issued by the Fund at a price equal to the greater of (a) net asset value
or (b) 95% of the then current market price. In a case where the Plan Agent
has terminated open market purchases and caused the issuance of remaining
shares by the Fund, the number of shares received by the participant in
respect of the cash dividend or distribution will be based on the weighted
average of prices for shares purchased in the open market and the price at
which the Fund issues remaining shares. To the extent that, before the Plan
Agent has completed its purchases, the market price exceeds the net asset
value of the Common Stock, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Common Stock, resulting in
the acquisition of fewer shares than if the dividend or capital gains
distribution had been paid in Common Stock issued by the Fund at net asset
value. The Plan Agent will apply all cash received as a dividend or capital
gains distribution to purchase Common Stock on the open market as soon as
practicable after the payment date of the dividend or capital gains
distribution, but in no event later than 30 days after such date, except when
necessary to comply with applicable provisions of the U.S. federal securities
laws.
Participants have the option of making additional cash payments to the
Plan Agent, semiannually, in any amount from $100 to $3,000, for investment in
the Fund's Common Stock. The Plan Agent will use all such funds received from
participants to purchase Fund shares 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, it is
suggested that participants send in voluntary cash payments to be received by
the Plan Agent approximately 10 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 such payment is to be invested.
<PAGE>41
The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in an account, including
information needed by shareholders for personal and tax records. Shares in
the account of each Plan participant will be held by the Plan Agent in the
name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.
In the case of shareholders, 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 Plan on the basis of the number of shares certified
from time to time by the shareholder as representing the total amount
registered in the shareholder's name and held for the account of beneficial
owners who are to participate in the Plan.
There is no charge to 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 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. However, participants will pay a proportionate
share of brokerage commissions incurred with respect to the Plan Agent's open
market purchases in connection with voluntary cash payments made by the
participant or reinvestment of any dividends or capital gains distributions
payable only in cash.
With respect to purchases from voluntary cash payments, the Plan Agent
will charge $1.00 for each such purchase for a participant, plus a
proportionate share of the brokerage commissions. Brokerage charges for
purchasing small amounts of stock for individual accounts through the 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 obtainable.
The receipt of dividends and distributions under the Plan will not
relieve participants of any income tax (including withholding tax) which may
be payable on such dividends or distributions. See "Taxation - United States
Income Taxes."
Experience under the Plan may indicate that changes in the Plan are
desirable. Accordingly, the Fund and the Plan Agent reserve the right to
terminate the 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 Plan at least 30 days before the record date for such dividend
or distribution. The Plan also may be amended by the Fund or the Plan Agent,
but (except when necessary or appropriate to comply with applicable law, rules
or policies of a regulatory authority) only by at least 30 days' written
notice to participants in the Plan. All correspondence concerning the Plan
should be directed to the Plan Agent at 225 Franklin Street, Boston,
Massachusetts 02101.
<PAGE>42
TAXATION
The following discussion is a summary of certain U.S. federal income and
Peruvian tax considerations relating to the Fund and to the purchase,
ownership and disposition of shares of Common Stock. Each prospective
shareholder is urged to consult his own tax adviser with respect to the
specific U.S. federal, state, local and foreign tax consequences of investing
in the Fund. The summary is based on the laws and regulations in effect on
the date of this Prospectus, which are subject to change.
United States Income Taxes
General
The Fund intends to qualify and elect to be treated as a regulated
investment company under the Code, although no assurance can be given that the
Fund will meet the tests for such status. To qualify as a regulated
investment company, the Fund must, among other things: (a) derive in each
taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of stock or securities, or foreign currencies, or 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; (b) derive in each taxable year less than 30%
of its gross income from the sale or other disposition of (i) stock or
securities held less than three months, (ii) options, futures, or forward
contracts held less than three months (other than options, futures, or forward
contracts on foreign currencies), and (iii) foreign currencies (or options,
futures, or forward contracts on foreign currencies) held 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 stocks or securities (or options and futures with respect to
stocks or securities); and (c) diversify its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, 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
(ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. government securities or the
securities of other regulated investment companies) or of two or more issuers
which the taxpayer controls and which are determined to be engaged in the same
or similar trades or businesses or related trades or businesses. The Fund
anticipates that all of its foreign currency gains will be directly related to
its principal business of investing in stock and securities.
The 30% test will limit the extent to which the Fund may sell securities
held for less than three months and effect short sales of securities held for
less than three months.
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its net investment income (i.e., taxable income other
than its net realized long- and short-term capital gains) and its net realized
long-term and short-term capital gains, if any, that it distributes to
<PAGE>43
its shareholders, provided that an amount equal to at least 90% of its
investment company taxable income (i.e., 90% of its taxable income reduced by
the excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers),
plus or minus certain other section 852 adjustments for the taxable year is
distributed. The Fund will be subject to tax at corporate rates with respect
to all income in any year that it fails to qualify as a regulated investment
company or fails to meet this distribution requirement. Any dividend declared
by the Fund in October, November or December of any calendar year and payable
to shareholders of record on a specified date in such a month shall be deemed
to have been received by each shareholder on December 31 of such calendar year
and to have been paid by the Fund not later than such December 31 provided
such dividend is actually paid by the Fund during January of the following
calendar year.
The Fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income. The Board of Directors of the
Fund will determine annually whether to distribute any net realized long-term
capital gains in excess of any net realized short-term capital losses
(including in such losses any capital loss carryovers from prior years). The
Fund presently expects to distribute annually any such excess to its
shareholders. To the extent that the Fund retains any part of such excess for
investment, it will be subject to U.S. federal income tax (currently at a rate
of 35%) on the amount retained. If any such amount is retained, the Fund
expects to designate such amount as undistributed capital gains in a notice to
its shareholders who (1) if 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 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 65% of the amount of undistributed capital gains included in their income.
The Code imposes a 4% nondeductible excise tax on the Fund to the extent
the 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- 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 underdistribution
or overdistribution from the previous year. To avoid application of the
excise tax, the Fund intends to pay dividends and make distributions as are
necessary.
Exchange control regulations, if enacted in the future, could restrict
repatriations of investment income and capital or the proceeds of securities
sales by foreign investors such as the Fund and may limit the Fund's ability
to pay sufficient dividends and distributions to satisfy the distribution
requirements for avoiding income and excise taxes.
The Fund will maintain accounts and calculate income in U.S. dollars.
The Fund's transactions in foreign currencies, forward contracts, options,
futures contracts (including options and
<PAGE>44
futures contacts on foreign currencies) will be subject to special provisions
of the Code that, among other things, may affect the character of gains and
losses realized 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 may cause the Fund to be subject to hyperinflationary currency
rules. These rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) may cause the Fund to recognize
income 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. The Fund intends to monitor its
transactions, make the appropriate tax elections and make the appropriate
entries in its books and records when it acquires any foreign currency,
forward contract, option, futures contract, or hedged investment in order to
mitigate the effect of these rules and prevent disqualification of the Fund as
a regulated investment company.
If the 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 shareholders), (2) its distributions to
shareholders out of its current or accumulated earnings and profits would be
taxable to shareholders 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
shareholders.
If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to the stock, such dividends will be
included in the Fund's gross income not as of the date received but as of the
later of (1) the date on which the stock became ex-dividend with respect to
the dividends (that is, the date on which a buyer of the stock would not be
entitled to receive the declared, but unpaid, dividends) or (2) the date on
which the Fund acquired the stock. As a result, in seeking to satisfy the
excise as well as income distribution requirements described above, the Fund
may need to pay dividends based on anticipated earnings, and shareholders may
receive dividends in an earlier year than would otherwise have been the case.
If the Fund purchases shares in certain foreign investment entities,
called "passive foreign investment companies ("PFICs"), the Fund may be
subject to U.S. federal income tax on a portion of any "excess distribution"
or gain from the disposition of the shares even if the income is distributed
as a taxable dividend by the Fund to its shareholders. Additional charges in
the nature of interest may be imposed on either the Fund or its shareholders
with respect to deferred taxes arising from the distributions or gains. If
the Fund were to invest in a PFIC (and if the PFIC made the necessary
information available) and the Fund elected to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements, the Fund
would be required to include in income each year a portion of the ordinary
earnings and net capital gains of the PFIC, even if not distributed to the
Fund, and the amounts would be subject to the distribution requirements for
avoiding U.S. federal income and excise taxes described above.
In the past, legislation has been proposed before the U.S. Congress that
would unify and, in certain cases, modify the antideferral rules contained in
various provisions of the Code, including the
<PAGE>45
PFIC provisions, related to the taxation of U.S. shareholders of foreign
corporations. It is impossible to predict if or when the legislation will
become law and, if it is so enacted, what form it will ultimately take.
On April 1, 1992, the Internal Revenue Service released proposed
regulations providing a mark-to-market election for regulated investment
companies. If the proposed regulations are promulgated as final regulations
in their current form and if the Fund makes a mark-to-market election, the
Fund will be treated as having sold and repurchased all of its PFIC stock at
the end of each year. In that case, the Fund will recognize gain (but not
loss) and might be required to recognize income in excess of the distributions
it receives from the PFIC and the proceeds from dispositions of PFIC stock.
These regulations would be effective for taxable years ending after
promulgation of the regulations as final regulations.
Distributions
Dividends paid out of the Fund's net investment income and distributions
of net realized short-term capital gains will be taxable to a U.S. shareholder
as ordinary income, whether received in cash or reinvested in shares of Common
Stock. Distributions of net capital gains, if any, will be taxable as long-
term capital gains, whether received in cash or reinvested in shares,
regardless of how long the shareholder has held the Fund's shares. Dividends
and distributions paid by the Fund will generally not qualify for the
deduction for dividends received by corporations. Distributions in excess of
the Fund's current and accumulated earnings and profits will, as to each of
the Fund's shareholders, be treated as a tax-free return of capital to the
extent of the shareholder's basis in his shares of Common Stock, and as a
capital gain thereafter if the shareholder held his Fund shares as capital
assets.
Shareholders receiving dividends or distributions in the form of
additional shares of Common Stock pursuant to the Plan should be treated for
U.S. federal income tax purposes as receiving a distribution in an amount
equal to the amount of cash that the shareholders receiving cash dividends or
distributions will receive, and should have a cost basis in the shares
received equal to such amount.
Investors should consider the tax implications of buying shares of Common
Stock shortly prior to a dividend or capital gain distribution. The price of
shares purchased at that time may reflect the amount of the forthcoming
dividend or distribution, and the dividend or distribution will nevertheless
be taxable to the purchasing shareholder although the dividend or distribution
may reduce the market value of the shares.
Sale of Shares
Upon the sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss equal to the difference between the amount realized and
the shareholder's basis in the shares. Such gain or loss will be a capital
gain or loss if the shares are capital assets in the shareholder's hands, and
will be long-term if the shares are held for more than one year. Any loss
realized on a sale or exchange will be disallowed to the extent that the
shares disposed of are replaced, including, for example, replacement through
the Plan, within a 61-day period beginning 30 days before and ending
<PAGE>46
30 days after the disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of the Fund's shares held by the
shareholder for six months or less will be treated as a long-term capital loss
for U.S. income tax purposes to the extent of any distributions of long-term
capital gains received by the shareholder (and any amounts retained by the
Fund that were designated as undistributed capital gains) with respect to such
shares.
Foreign Taxes
The Fund will be subject to certain taxes imposed by Peru with respect to
dividends, capital gains and interest income. See "Peruvian Taxes" below. If
the Fund qualifies as a regulated investment company, if certain distribution
requirements are satisfied and if more than 50% in value of the Fund's total
assets at the close of the Fund's taxable year consists of stocks or
securities of foreign corporations, the Fund may elect to treat any foreign
income taxes paid by it that can be treated as income taxes under U.S. income
tax regulations as paid by its shareholders. The Fund expects to qualify for
and make this election (although it may not so qualify for its first taxable
year of operations). For any year that the Fund makes such an election, an
amount equal to the foreign income taxes paid by the Fund that can be treated
as income taxes under U.S. income tax principles will be included in the
income of its shareholders and each shareholder will be entitled (subject to
certain limitations) to credit the amount included in his income against his
U.S. federal income tax liabilities, if any, or to deduct such amount from his
U.S. taxable income, if any. Shortly after any year for which it makes such
an election, the Fund will report to its shareholders, in writing, the amount
per share of such foreign income taxes that must be included in each
shareholder's gross income and the amount that will be available for deduction
or credit. In general, a shareholder may elect each year whether to claim
deductions or credits for foreign taxes. No deductions for foreign taxes may
be claimed, however, by non-corporate shareholders (including certain foreign
shareholders as described below) who do not itemize deductions. If a
shareholder elects to credit foreign taxes, the amount of credit that may be
claimed in any year may not exceed the same proportion of the U.S. federal
income tax against which such credit is taken that the shareholder's taxable
income from foreign sources (but not in excess of the shareholder's entire
taxable income) bears to his entire taxable income. This limitation may be
applied separately to certain categories of income and the related foreign
taxes. For purposes of this limitation, a shareholder's proportionate share
of such foreign income taxes and the portion of dividends paid to the
shareholder that represents income derived by the Fund from sources outside
the United States will be treated as foreign source income.
Foreign Shareholders
U.S. taxation of a shareholder who, as to the United States, is a non-
resident alien individual, a foreign trust or estate, foreign corporation, or
foreign partnership ("Foreign Shareholder") depends, in part, on whether the
income from the Fund is "effectively connected" with a U.S. trade or business
carried on by the shareholder. If the income from the Fund is not
"effectively connected" with a U.S. trade or business carried on by the
Foreign Shareholder, dividends of net investment income and net realized
short-term capital gains, whether received in cash or reinvested in shares,
will be subject to a U.S. withholding tax of 30% (or lower treaty rate).
Foreign Shareholders may also be subject to U.S. withholding tax at the rate
of 30% (or lower treaty rate) on the income resulting from the
<PAGE>47
Fund's election (described above) to treat any foreign income taxes paid by it
as paid by its shareholders, but may not be able to claim a credit or
deduction for the foreign income taxes treated as having been paid by them.
Distributions of net capital gains, amounts retained by the Fund which are
designated as undistributed capital gains, and any gain realized upon the sale
of the Fund's shares will not ordinarily be subject to U.S. taxation. If,
however, the Foreign Shareholder is a non-resident alien individual who is
physically present in the United States for more than 182 days during the
taxable year and, in the case of gain realized upon the sale of the Fund's
shares, either the gain is attributable to an office or fixed place of
business maintained by the shareholder in the United States or the shareholder
has a "tax home" in the United States, such distributions or gain will be
subject to a U.S. tax of 30% (or lower treaty rate). This rule only applies,
however, in exceptional cases because any individual present in the United
States for more than 182 days during the taxable year is generally treated as
a resident for U.S. federal income tax purposes, in which case he would be
subject to U.S. federal income tax on his worldwide income at the graduated
rates applicable to U.S. citizens, rather than the 30% withholding rate. In
the case of a Foreign Shareholder who is a non-resident alien individual, the
Fund may be required to withhold U.S. federal income tax at a rate of 31% of
distributions of net capital gains unless an Internal Revenue Service Form W-8
is provided. See "Backup Withholding" below. A determination by the Fund not
to distribute long-term capital gains may reduce a foreign investor's overall
return from an investment in the Fund, since the Fund will incur a U.S.
federal tax liability with respect to retained long-term capital gains,
thereby reducing the amount of cash held by the Fund that is available for
distribution, and the foreign investor may not be able to claim a credit or
deduction with respect to such taxes but may be able to apply for a refund of
such taxes. Foreign shareholders who are not subject to U.S. federal income
tax on net capital gains can obtain a refund of their proportionate share of
the 35% tax paid by the Fund by filing a U.S. federal income tax return.
If the income from the Fund is "effectively connected" with a U.S. trade
or business carried on by a Foreign Shareholder, then distributions of net
investment income, net short-term and net long-term capital gains, amounts
retained by the Fund that are designated as undistributed capital gains and
any gains realized upon the sale of shares of the Fund, will be subject to
U.S. federal income tax at the graduated rates applicable to U.S. citizens,
residents and domestic corporations, whether received in cash or reinvested in
shares.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
above. Shareholders may be required to provide appropriate documentation to
establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (1)
whether their income from the Fund is effectively connected with a U.S. trade
or business carried on by them, (2) whether they may claim the benefits of an
applicable tax treaty and (3) any other tax consequences to them of an
investment in the Fund.
Backup Withholding
The Fund may be required to withhold for U.S. federal income tax purposes
31% of the dividends and distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the
<PAGE>48
Internal Revenue Service that they are subject to backup withholding.
Corporate shareholders and other shareholders specified in the Code are or may
be exempt from backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's U.S.
federal income tax liability.
Notices
Shareholders will be notified annually as to the U.S. federal income tax
status of the dividends, distributions and deemed distributions made by the
Fund to its shareholders. Shareholders will also receive, if appropriate,
various written notices after the close of the Fund's taxable year regarding
the U.S. federal income tax status of certain dividends and distributions that
were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding taxable year.
Distributions from the Fund may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund or the
possible effect of changes in applicable tax laws.
Peruvian Taxes
The following discussion of Peruvian tax is based upon the advice of
, Peruvian counsel for the Fund.
[to be provided by amendment]
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($.01 par value). Common Stock, when issued, will be fully paid and
nonassessable. All shares of Common Stock are equal as to dividends,
distributions and voting privileges and have no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of Common
Stock is entitled to its proportion of the Fund's assets after debts and
expenses. There are no cumulative voting rights for the election of
directors.
The Fund has no present intention of offering additional shares, except
that additional shares may be issued under the Plan. See "Dividends and
Distributions; Dividend Reinvestment and Cash Purchase Plan." Other offerings
of its shares, if made, will require approval of the Fund's Board of
Directors. Any additional offering will be subject to the requirements of the
1940 Act that shares may not be sold at a price below the then current net
asset value (exclusive of underwriting discounts and commissions) except in
connection with an offering to existing shareholders or with the consent of a
majority of the Fund's outstanding shares.
<PAGE>49
Future Actions Relating to a Discount in the Price of the Fund's Shares
Shares of closed-end investment companies have frequently traded at
discounts from net asset values. Among the factors that may be expected to
affect whether shares of the Common Stock trade at, above or below net asset
value are portfolio investment results, changes in interest rates and currency
exchange rates, the general performance of foreign country securities, supply
and demand for the Common Stock and investor perception of the Fund's overall
attractiveness as compared with alternative investments. The Fund cannot
predict whether the Common Stock will trade at, above or below net asset
value.
The Fund's By-Laws provide that if, at any time during or after the fifth
full calendar year following the Offerings, shares of the Fund's Common Stock
publicly trade for a substantial period of time at a substantial discount from
the Fund's then current net asset value per share, the Board of Directors of
the Fund will consider, at its next regularly scheduled meeting, taking
various actions designed to eliminate the discount. The actions considered by
the Board of Directors may include periodic repurchases of shares or
recommending to shareholders amendments to the Fund's Articles of
Incorporation to convert the Fund to an open-end investment company. The
Board would consider all relevant factors in determining whether to take any
such actions, including the impact of such actions on the Fund's status as a
regulated investment company under the Code and the availability of cash to
finance these repurchases in view of the restrictions on the Fund's ability to
borrow. There can be no assurance that the Fund will convert to an open-end
investment company or that share repurchases will be made or that, if made,
they will reduce or eliminate market discount. The Fund does not currently
contemplate repurchasing any of its shares. If the Fund were to repurchase
shares through issuer tender offers, however, the application of current law
would limit the frequency of such tender offers to quarterly. Should any such
repurchases be made in the future, it is expected that they would be made at
prices at or below the current net asset value per share. Any such
repurchases would cause the Fund's total assets to decrease, which may have
the effect of increasing the Fund's expense ratio.
In considering whether to recommend to shareholders the conversion of the
Fund to an open-end investment company, the Board 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 SEC 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 on
this basis it would be able to effect any such conversion or whether, if
relief from the SEC's position were required, it 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 (a) the holders of a majority of the Fund's
outstanding voting securities (if such amendment were approved by 75% of the
Continuing Directors (as defined below) or (b) 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
<PAGE>50
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
(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. Shareholders of an open-end
investment company may require the company to redeem their shares at any time
(except in certain circumstances as authorized by or under the 1940 Act) at
the net asset value of the shares, less such redemption charge, if any, as
might be in effect at the time of a redemption.
Under rules recently adopted by the SEC, a closed-end investment company
registered under the 1940 Act is permitted to repurchase its shares at fixed
intervals in accordance with appropriate safeguards for the protection of the
company's shareholders. Although the Fund has no current intention of
operating under these rules, the Fund reserves the right to do so in the
future, so long as (1) the Fund's Board of Directors has determined that the
action would be in the best interests of the Fund's shareholders and (2) the
Fund's shareholders approve the action. In addition, the Fund's repurchasing
its shares at fixed intervals would necessitate changes being made to certain
provisions of the Fund's Articles of Incorporation and By-Laws, which
provisions would limit the Fund's ability to take such action at the present
time.
Special Voting Provisions
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 person to
acquire control of the Fund, to cause it to engage in certain transactions or
to modify its structure. Commencing with the first annual meeting of
stockholders, the Fund's Board of Directors will be divided into three
classes, having initial terms of one, two and three years, respectively. At
the annual meeting of stockholders in each year thereafter, 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 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
<PAGE>51
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 shareholder proposal as
to specific investment decisions made or to be made with respect to the Fund's
assets.
A 75% shareholder 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 shareholders 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 with respect to which a shareholder
vote is required under Maryland law and no shareholder vote will be required
to approve the transaction if it is any other Business Combination. In
addition, a 75% shareholder 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 shareholders of the Fund will be required to approve the transaction.
The voting provisions described above could have the effect of depriving
shareholders 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
shareholders 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
Peruvian issuers, up to 25% of which may be illiquid. 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 shareholders'
meetings if the Fund has not received sufficient prior notice of the matters.
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
____________________ is the Fund's dividend paying agent and is the
transfer agent and registrar for the Fund's Common Stock.
<PAGE>52
CUSTODIAN
____________________________________________ is Custodian for the Fund.
The custodian may employ sub-custodians approved by the Fund's Board of
Directors in accordance with regulations of the SEC.
UNDERWRITING
The U.S. Underwriters named below, acting through PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York, as their
representative (the "U.S. Representative"), have severally agreed, subject to
the terms and conditions of an underwriting agreement (the "U.S. Underwriting
Agreement"), to purchase from the Fund the number of U.S. Shares set forth
below opposite their respective names. As described below, a portion of the
U.S. Shares may be offered in Canada in private transactions. The U.S.
Underwriters are committed to purchase all of such U.S. Shares if any are
purchased.
Number of
U.S.
U.S. Underwriters Shares
----------------- ---------
PaineWebber Incorporated
-------
Total
=======
The Fund also has entered into an underwriting agreement (the
"International Underwriting Agreement") for the purchase of International
Shares by the International Managers outside the United States and Canada.
The International Managers named below, who are represented by PaineWebber
International (U.K.) Ltd., 1 Finsbury Avenue London EC2N 2PA (the
"International Managers"), have severally agreed, subject to the terms and
conditions of the International Underwriting Agreement, to purchase from the
Fund the number of International Shares set forth below opposite their
respective names. The International Managers are committed to purchase all of
such International Shares if any are purchased.
Number of
International Managers International Shares
---------------------- --------------------
PaineWebber International (U.K.) Ltd.
----------
Total
==========
The U.S. Underwriters and the International Managers have entered into an
agreement (the "Agreement Between U.S. Underwriters and International
Managers") providing for the coordination of their activities under the
direction of PaineWebber Incorporated, acting on behalf of the U.S.
Underwriters and PaineWebber International (U.K.) Ltd., acting on behalf of
the International
<PAGE>53
Managers. Pursuant to the Agreement Between U.S. Underwriters and
International Managers, the U.S. Underwriters will not offer to sell U.S.
Shares to anyone other than a United States person or, subject to the
limitations described below, a Canadian person, and the International Managers
will not offer to sell International Shares to any United States person or
Canadian person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
Between U.S. Underwriters and International Managers. Pursuant to the
Agreement Between U.S. Underwriters and International Managers, sales may be
made between the U.S. Underwriters and the International Managers of such
number of U.S. Shares or International Shares as may be mutually agreed. The
per share price of any Shares so sold shall be the initial public offering
price less an amount not greater than the per share amount of the concession
to dealers.
As part of the U.S. Offering, U.S. Shares may be offered in Canada in
private transactions. Each U.S. Underwriter and International Manager has
represented that it has not offered to sell or sold, and has agreed not to
offer to sell or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof. Each U.S. Underwriter has further agreed to send any
dealer who purchases from it any shares of Common Stock a notice stating in
substance that, by purchasing such Common Stock, such dealer represents and
agrees that it has not offered to sell or sold and will not offer to sell or
sell, directly or indirectly, any such Common Stock in Canada in contravention
of the securities laws of Canada or any province or territory thereof, and
that such dealer will deliver to any other dealer to whom it sells any of such
Common Stock a notice to the foregoing effect.
The U.S. Underwriters and the International Managers propose to offer
part of the Shares directly to the public at the public offering price set
forth on the cover page hereof, except that the price generally will be
reduced to $_______ per Share for purchases in single transactions of between
___ and ___ Shares, inclusive, and to $ __ per Share for purchases in single
transactions of ______ or more Shares. The Underwriters may allow to selected
dealers a concession of not more than $. per share, except that for
purchases of between ___ and ___ Shares such concession shall be $ .__ and
for purchases of _______ or more Shares such concession shall be $. . The
U.S. Underwriters and International Managers may allow, and such dealers may
reallow, a concession of not more than $. to certain dealers.
Any purchaser who purchases at least ______ Shares in a single
transaction at a reduced price as described above will, by making such
purchase, be deemed to have agreed to not sell such Shares for a period of 90
days from the date of this Prospectus, provided that PaineWebber Incorporated
may elect to terminate such period by waiving the restrictions on transfers as
of an earlier date. In order not to be subject to the foregoing restriction
on transfer, purchasers of between and Shares, inclusive, in a
single transaction may elect to purchase such Shares at a price of $ per
Share and purchasers of more than _____ Shares in a single transaction may
elect to purchase such Shares at a price of $_____ per Share. There is no
restriction on the number of Shares that may be purchased subject to such
transfer restriction, except that the Fund will comply with the distribution
requirements of the NYSE with respect to the Shares not so purchased.
Certificates evidencing Shares purchased at a reduced price will bear a legend
stating the transfer restriction.
The term "single transaction," as used in this Prospectus, refers to a
single purchase by an individual or to concurrent purchases, which in the
aggregate are at least equal to the prescribed amount, by an individual, his
or her spouse and their children under the age of 21 years purchasing Shares
for his, her or their own account and to single transactions by a trustee or
other fiduciary
<PAGE>54
purchasing Shares for a single trust estate or single fiduciary account
although more than one beneficiary is involved. The term "single transaction"
also includes purchases by any "company," as that term is defined in the 1940
Act, and clients of an investment adviser, but does not include purchases by
any such company which has not been in existence for at least six months or
which has no purpose other than the purchase of Shares of the Fund or shares
of other registered investment companies at a discount; provided, however,
that it shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit card holders
of a company, policy holders of an insurance company or non-investment
advisory customers of a bank.
During the time that the U.S. Underwriters and the International Managers
will be soliciting indications of interest, the Fund and the U.S. Underwriters
and the International Managers will evaluate the market for the Shares as well
as the market for the Fund's contemplated investments. If changes in existing
market and other conditions make it impractical or inadvisable in the judgment
of the U.S. Underwriters or the International Managers to proceed with the
Offerings, the Offerings will not be made.
The U.S. Underwriters and the International Managers have been granted
options by the Fund, expiring 45 days from the date of this Prospectus, to
purchase an aggregate of 15,000 additional shares of Common Stock, at the same
price per share as the initial 100,000 Shares to be purchased by the U.S.
Underwriters and the International Managers, solely to cover over-allotments.
In the event the U.S. Underwriters or the International Managers exercise
their respective options, each U.S. Underwriter or International Manager, as
the case may be, will have a firm commitment, subject to certain conditions,
to purchase the number of additional shares of Common Stock proportionate to
its initial commitment.
Prior to the Offerings, there has been no public market for the Fund's
Common Stock. The Common Stock has been approved for listing, subject to
notice of issuance, on the NYSE under the symbol "[ ]". In order to meet the
requirements for listing, the U.S. Underwriters will undertake to sell lots of
100 or more Shares to a minimum number of beneficial owners in the United
States, as prescribed by the NYSE.
The Fund has agreed to pay the U.S. Underwriters and International
Managers $ in the aggregate as partial reimbursement of expenses
incurred in connection with the Offerings.
The Fund and the Investment Manager have agreed to indemnify the U.S.
Underwriters and the International Managers against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Fund has agreed not to offer or sell any additional shares of Common
Stock for a period of [180] days after the date of each of the U.S.
Underwriting Agreement and the International Underwriting Agreement without
the prior written consent of the U.S. Underwriters and the International
Managers, except for the sale of Shares to U.S. Underwriters or International
Managers pursuant to the U.S. Underwriting Agreement or the International
Underwriting Agreement, respectively, and except pursuant to the Plan.
Each International Manager has agreed that it has not offered or sold,
and for so long as Part III of the Companies Act of 1985 of the United Kingdom
remains in force, will not offer or sell, in the United Kingdom, by means of
any document, any Shares other than to persons whose ordinary
<PAGE>55
business it is to buy or sell shares or debentures, whether as principal or
agent (except in circumstances which do not constitute an offer to the public
within the meaning of the Companies Act of 1985). In addition, each
International Manager has agreed that it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 of the United
Kingdom (the "FSA") with respect to anything done by it in relation to the
Shares in, from or otherwise involving the United Kingdom.
Each International Manager has further agreed that it has not issued or
caused to be issued and that it will not issue or cause to be issued in the
United Kingdom any investment advertisement (within the meaning of the FSA)
relating to the Shares or (subject to and upon Part V of the FSA coming into
operation) any advertisement offering the Shares, which advertisement is a
primary or secondary offer within the meaning of the FSA, except, in any such
case, in compliance with provisions applicable under the FSA and any
regulations promulgated thereunder, and, in particular, it has not given and
will not give copies of the Prospectus to any person in the United Kingdom who
does not fall within Article 9(3) of the Financial Services Act of 1986
(Investment Advertisements) (Exemptions) Order 1988.
The U.S. Underwriters and International Managers have taken certain
actions to discourage short-term trading of Shares during a period of time
following the initial offering date. Included in these actions is the
withholding of the concession to dealers in connection with Shares which were
sold by such dealers and which are repurchased for the account of the U.S.
Underwriters or the International Managers during such period. In addition,
physical delivery of certificates representing Shares is required to transfer
ownership of such Shares.
The U.S. Underwriting Agreement and the International Underwriting
Agreement each provide that it may be terminated at or prior to the closing
date for the purchase of the Shares if, in the judgment of the U.S.
Underwriters or the International Managers, as the case may be, certain events
occur that make it impracticable or inadvisable to proceed with the Offerings.
The U.S. Underwriting Agreement and the International Underwriting Agreement
also may each be terminated if any of the conditions specified in each of the
U.S. Underwriting Agreement and the International Underwriting Agreement has
not been fulfilled when and as required by each such Agreement. In the event
of a termination of the U.S. Underwriting Agreement and the International
Underwriting Agreement, the Shares offered hereby would not be issued or sold
by the Fund and the U.S. Underwriters and International Managers would not be
required to purchase any of the Shares or to proceed with the Offerings. In
such event transactions in which investors enter purchase orders for Shares in
connection with the Offerings and transactions in which investors enter
purchase and sell orders for Shares on a when-issued basis on the NYSE or
otherwise would be cancelled without settlement or delivery of the Shares.
The Fund anticipates that certain of the U.S. Underwriters and the
International Managers, subsequent to the completion of the Offerings, may
from time to time act as brokers or dealers in connection with the execution
of portfolio transactions for the Fund. Such U.S. Underwriters and
International Managers may also, during the pendency of the Offerings, act as
a broker with respect to such transactions. See "Portfolio Transactions."
<PAGE>56
OFFICIAL DOCUMENTS
All of the documents referred to herein as the source of statistical
information are public official documents of the Republic of Peru, its
Ministries, the Central Bank of Peru, the Peruvian Securities Commission or
the Lima Stock Exchange, the IMF, the World Bank or of certain non-profit
research organizations.
EXPERTS
The financial statement of the Fund included in the Prospectus has been
so included in reliance on the report of [Coopers & Lybrand L.L.P.],
independent accountants, as experts in auditing and accounting.
VALIDITY OF SHARES
The validity of the shares offered hereby will be passed on for the Fund
by Willkie Farr & Gallagher, New York, New York, and for the Underwriters by
Rogers & Wells, New York, New York. Matters of Peruvian law will be passed on
for the Fund and the Underwriters by _______________, Lima, Peru. Counsel for
the Fund and the Underwriters will rely, as to matters of Maryland law, on
Venable, Baetjer and Howard, Baltimore, Maryland.
FURTHER INFORMATION
Further information concerning these securities and their issuer may be
found in the Registration Statement of which this Prospectus constitutes a
part on file with the SEC.
<PAGE>57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
of The Peru Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
The Peru Fund, Inc. as of _________ __, 1995. This financial statement is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the statement
of assets and liabilities. Our procedures included confirmation of cash held
by the Fund's custodian as of _____________ __, 1995. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of assets and
liabilities presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of The Peru
Fund, Inc. as of _________ __, 1995 in conformity with generally accepted
accounting principles.
[ ]
Boston, Massachusetts
_____________ __, 1995
<PAGE>58
THE PERU FUND, INC. (Note 1)
STATEMENT OF ASSETS AND LIABILITIES
__________ __, 1995
ASSETS
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . $
Deferred organization expenses (Note 2) . . . .
Deferred offering costs (Note 2) . . . . . . . .
Total assets . . . . . . . . . . . . . . .
LIABILITIES
Liabilities (Note 2):
Payable to Investment Manager . . . . . . . . .
Accrued organization and offering expenses . . .
Total liabilities . . . . . . . . . . . . .
Net assets . . . . . . . . . . . . . . . .
NET ASSETS
Net assets consist of:
Common Stock, $.01 par value per share, authorized
100,000,000 shares, _____ shares issued and
outstanding . . . . . . . . . . . . . . . . . $
Additional paid-in capital . . . . . . . . . . .
Net assets . . . . . . . . . . . . . . . .
Net Asset Value Per Share ($ ______
shares outstanding) . . . . . . . . . . . . $
Notes to Statement of Assets and Liabilities
NOTE 1
The Fund was incorporated as a Maryland corporation on May 24, 1995, and
has had no operations to date other than matters relating to its organization
and registration as a non-diversified, closed-end management investment
company under the Investment Company Act of 1940, as amended, and the sale and
issuance of _____ shares of its Common Stock for $________ to Scudder, Stevens
& Clark, Inc. (the "Investment Manager"). The books and records of the Fund
will be maintained in U.S. dollars.
<PAGE>59
NOTE 2
Costs incurred by the Fund in connection with its organization, estimated
at $_________, will be deferred and amortized on a straight-line basis for a
five year period beginning at the commencement of operations of the Fund.
Costs relating to the public offering of the Fund's shares estimated to be
approximately $_________, which include $__________ to be paid to the
Underwriters in partial reimbursement of their expenses, will be payable from
the proceeds of the offerings and charged to additional paid-in capital at the
time of the issuance of such shares. Amounts payable to the Investment
Manager represent reimbursement for certain organizational and offering costs
paid to date.
<PAGE>A-1
APPENDIX A
STRATEGIC TRANSACTIONS
A detailed discussion of various Strategic Transactions (as defined
below) that may be pursued by Scudder, Stevens & Clark, Inc. (the "Investment
Manager") on behalf of The Peru Fund, Inc. (the "Fund") follows below. The
Fund will not be obligated, however, to pursue any of the Strategic
Transactions discussed below and makes no representation as to the
availability of these techniques at this time or at any time in the future.
"Strategic Transactions," as used in this Appendix A, refers to the purchase
and sale of exchange listed and over-the-counter ("OTC") put and call options
on securities, financial futures and securities indices and other financial
instruments, entering into financial futures contracts and entering into
various currency transactions such as currency forward contracts, currency
futures contracts or options on currencies or currency futures. Many of the
Strategic Transactions are not currently available in Peru or with respect to
securities of Peruvian issuers. To the extent that such transactions become
available in the future, the Fund will be permitted to use them upon 30 days'
notice to the Fund's shareholders.
General Characteristics of Options
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
To hedge against adverse market shifts, the Fund may utilize up to 25% of
its assets to purchase put and call options on securities held in its
portfolio and options on securities indices. A put option gives the purchaser
of the option, upon payment of a premium, the right to sell, and the writer
the obligation to buy, the underlying security, commodity, index, currency or
other instrument at the exercise price. The Fund's purchase of a put option
on a security, for example, might be designed to protect its holdings in the
underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Fund the right to sell
the instrument at the option exercise price. A call option, upon payment of a
premium, gives the purchaser of the option the right to buy, and the seller
the obligation to sell, the underlying instrument at the exercise price. The
Fund's purchase of a call option on a security, financial future, index,
currency or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase the instrument. An
"American" style put or call option may be exercised at any time during the
option period, whereas a "European" style put or call option may be exercised
only upon expiration or during a fixed period prior to expiration. The Fund
is authorized to purchase and sell exchange listed options and OTC options.
Exchange listed options are issued by a regulated intermediary such as The
Options Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the
<PAGE>A-2
parties to the options. The discussion below uses the OCC as an example, but
is also applicable to other financial intermediaries.
OCC issued and exchange listed options, with certain exceptions,
generally settle by physical delivery of the underlying security or currency,
although in the future, cash settlement may become available. Index options
are cash settled for the net amount, if any, by which the option is "in-the-
money" (that is, the value of the underlying instrument exceeds, in the case
of a call option, or is less than, in the case of a put option, the exercise
price of the option) at the time the option is exercised. Frequently, rather
than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of
the new option.
The Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of
a liquid option market on an exchange are: (1) insufficient trading interest
in certain options; (2) restrictions on transactions imposed by an exchange;
(3) trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities, including
reaching daily price limits; (4) interruption of the normal operations of the
OCC or an exchange; (5) inadequacy of the facilities of an exchange or the OCC
to handle current trading volume; or (6) a decision by one or more exchanges
to discontinue the trading of options (or a particular class or series of
options), in which event the relevant market for that option on that exchange
would cease to exist, although outstanding options on that exchange would
generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent
that the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties"
and individually referred to as a "Counterparty") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options,
which generally have standardized terms and performance mechanics, all of the
terms of an OTC option, including such terms as method of settlement, term,
exercise price, premium, guaranties and security, are set by negotiation of
the parties. The Fund will only sell OTC options (other than OTC currency
options) that are subject to a buy-back provision permitting the Fund to
require the Counterparty to sell the option back to the Fund at a formula
price within seven days. The Fund expects generally to enter into OTC options
that have cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, no central clearing or guaranty
function is involved in an OTC option. As a result, if a Counterparty fails
to make or take delivery of the security, currency or other instrument
underlying an OTC option it has entered into with the Fund or fails to make a
cash settlement payment due in accordance with the terms of that option, the
Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. Thus, the Investment
<PAGE>A-3
Manager must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to determine the
likelihood that the terms of the OTC option will be met. The Fund will enter
into OTC option transactions only with U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York as "primary dealers," or
broker-dealers, domestic or foreign banks, or other financial institutions
that have received (or the guarantors of the obligations of which have
received) a short-term credit rating of P-1 from Moody's Investors Service,
Inc. ("Moody's) or A-1 from Standard & Poor's ("Standard & Poor's") or an
equivalent rating from any other internationally recognized credit rating
organization ("IRSRO"). In the absence of a change in the current position of
the staff of the U.S. Securities and Exchange Commission (the "SEC"), OTC
options purchased by the Fund and the amount of the Fund's obligation pursuant
to an OTC option sold by the Fund (the cost of the sell-back plus the in-the-
money amount, if any) will be deemed illiquid.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in the Fund's portfolio
or will increase the Fund's income. The sale of put options can also provide
income.
The Fund may purchase and sell call options on its portfolio securities
that are traded on U.S. and foreign securities exchanges and in the OTC
markets, and on securities indices, currencies and futures contracts. All
calls sold by the Fund must be "covered" (that is, the Fund must own the
securities or futures contract subject to the call) or must meet the asset
segregation requirements described below for so long as the call is
outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund will expose the Fund during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or instrument and may require
the Fund to hold a security or instrument that it might otherwise have sold.
The Fund may purchase and sell put options on securities (whether or not it
holds the securities in its portfolio) and on securities indices, currencies
and futures contracts. As a matter of policy, the value of the underlying
securities on which options may be written at any one time will not exceed 25%
of the total assets of the Fund.
General Characteristics of Futures
The Fund may trade financial futures contracts or purchase or sell put
and call options on those contracts as a hedge against anticipated currency or
market changes and for risk management purposes. Futures are generally bought
and sold on the commodities exchanges on which they are listed with payment of
initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at
a specific future time for a specified price (or, with respect to certain
instruments, the net cash amount). Options on futures contracts are similar
to options on securities except that an option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract and obligates the seller to deliver that position.
<PAGE>A-4
The Fund's use of financial futures and options on them will in all cases
be designed to meet applicable regulatory requirements and in particular the
rules and regulations of the U.S. Commodity Futures Trading Commission and
will be entered into only for hedging or risk management purposes.
Maintaining a futures contract or selling an option on it will typically
require the Fund to deposit with a financial intermediary as security for its
obligations an amount of cash or other specified assets ("initial margin")
that generally is from 1% to 10% of the face amount of the contract (but may
be higher in some circumstances). Additional cash or assets ("variation
margin") may be required to be deposited thereafter daily as the mark-to-
market value of the contract fluctuates. The purchase of an option on
financial futures involves payment of a premium for the option without any
further obligation on the part of the Fund. If the Fund exercises an option
on a futures contract it will be obligated to post initial margin (and
potential variation margin) for the resulting futures position just as it
would for any position. Futures contracts and options on them are generally
settled by entering into an offsetting transaction, but no assurance can be
given that a position can be offset prior to settlement or that delivery will
occur.
The Fund may enter into futures contracts and related options for "bona
fide hedging" purposes. The segregation requirements with respect to futures
and options on them are described below.
Options on Securities Indices and Other Financial Indices
The Fund may purchase and sell call and put options on securities indices
and other financial indices and in so doing can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. The Fund may utilize up to 25% of
its assets to purchase put and call options on securities held in its
portfolio and options on securities indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, options on indices settle by cash settlement, that is,
an option on an index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the index upon which the
option is based exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option (except if, in the case of an OTC
option, physical delivery is specified). This amount of cash is equal to the
excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions
The Fund may engage in currency transactions with Counterparties to hedge
the value of portfolio securities denominated in particular currencies against
fluctuations in relative value. Currency transactions include currency
forward contracts, exchange listed currency futures and exchange listed and
OTC options on currencies. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a
<PAGE>A-5
future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. The Fund will not enter into such forward contracts if, as a
result, the Fund will have more than 20% of the value of its total assets
committed to the completion of such contracts. The Fund may enter into
currency transactions with Counterparties that have received a credit rating
of P-1 or A-1 by Moody's or Standard & Poor's, respectively, or that have an
equivalent rating from an IRSRO or (except for OTC currency options) are
determined to be of equivalent credit quality by the Investment Manager.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options and options on futures will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of the Fund, which will generally arise in
connection with the purchase or sale of the Fund's portfolio securities or the
receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency. The Fund will not enter into a transaction
to hedge currency exposure to an extent greater, after netting all
transactions intended wholly or partially to offset other transactions, than
the aggregate market value (at the time of entering into the transaction) of
the securities held in the Fund's portfolio that are denominated or generally
quoted in or currently convertible into the currency, other than with respect
to proxy hedging as described below.
The Fund may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund
expects to have portfolio exposure. To reduce the effect of currency
fluctuations on the value of existing or anticipated holdings of portfolio
securities, the Fund may also engage in proxy hedging. Proxy hedging is often
used when the currency to which the Fund's portfolio is exposed is difficult
to hedge or to hedge against the dollar. Proxy hedging entails entering into
a forward contract to sell a currency, the changes in the value of which are
generally considered to be linked to a currency or currencies in which some or
all of the Fund's portfolio securities are or are expected to be denominated,
and to buy dollars. The amount of the contract would not exceed the value of
the Fund's securities denominated in linked currencies. Currency hedging
involves some of the same risks and considerations as other transactions with
similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, the risk exists that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If the Fund
enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
The Fund's activities involving forward currency contracts may be limited
by the requirements of the U.S. Internal Revenue Code of 1986, as amended, for
qualification as a regulated investment company.
Risks of Currency Transactions
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic
<PAGE>A-6
planning and policy, purchases and sales of currency and related instruments
can be adversely affected by government exchange controls, limitations or
restrictions on repatriation of currency, and manipulations or exchange
restrictions imposed by governments. These forms of governmental actions can
result in losses to the Fund if it is unable to deliver or receive currency or
monies in settlement of obligations and could also cause hedges it has entered
into to be rendered useless, resulting in full currency exposure as well as
incurring transaction costs. Buyers and sellers of currency futures are
subject to the same risks that apply to the use of futures generally.
Further, settlement of a currency futures contract for the purchase of most
currencies must occur at a bank based in the issuing nation. Trading options
on currency futures is relatively new, and the ability to establish and close
out positions on these options is subject to the maintenance of a liquid
market that may not always be available. Currency exchange rates may
fluctuate based on factors extrinsic to that country's economy.
Combined Transactions
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts) and any combination of futures, options
and currency transactions, instead of a single Strategic Transaction, as part
of a single or combined strategy when, in the judgment of the Investment
Manager, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions will normally be
entered into by the Fund based on the Investment Manager's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve the
desired portfolio management goal, it is possible that the combination will
instead increase the risks or hinder achievement of the portfolio management
objective.
Risks of Strategic Transactions Outside the United States
When conducted outside the United States, Strategic Transactions may not
be regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and will be subject to the risk of
governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of positions taken as
part of non-U.S. Strategic Transactions also could be adversely affected by:
(1) other complex foreign political, legal and economic factors; (2) lesser
availability of data on which to make trading decisions than in the United
States; (3) delays in the Fund's ability to act upon economic events occurring
in foreign markets during non-business hours in the United States; (4) the
imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States; and (5) lower trading volume
and liquidity.
Use of Segregated and Other Special Accounts
Many Strategic Transactions require, among other things, that the Fund
segregate liquid high grade debt obligations with its custodian, or a
designated sub-custodian, to the extent the Fund's obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation
by the Fund to pay or
<PAGE>A-7
deliver securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade debt
obligations at least equal to the current amount of the obligation must be
segregated with the custodian or sub-custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. A call option written by the
Fund, for example, will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade debt obligations sufficient
to purchase and deliver the securities if the call is exercised. A call
option sold by the Fund on an index will require the Fund to own portfolio
securities that correlate with the index or to segregate liquid high grade
debt obligations equal to the excess of the index value over the exercise
price on a current basis. A put option written by the Fund will require the
Fund to segregate liquid high grade debt obligations equal to the exercise
price. Except when the Fund enters into a forward contract for the purchase
or sale of a security denominated in a foreign currency, which requires no
segregation, a currency contract that obligates the Fund to buy or sell a
foreign currency will generally require the Fund to hold an amount of that
currency or liquid securities denominated in that currency equal to the Fund's
obligations or to segregate liquid high grade debt obligations equal to the
amount of the Fund's obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices, and OCC issued and exchange listed
index options will generally provide for cash settlement. As a result, when
the Fund sells these instruments it will only segregate an amount of assets
equal to its accrued net obligations, as payment or delivery of amounts in
excess of the net amount is not required. These amounts will equal 100% of
the exercise price in the case of a put, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call option. In
addition, when the Fund sells a call option on an index at a time when the in-
the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value
to the excess. OCC issued and exchange listed options sold by the Fund other
than those described above generally settle with physical delivery, and the
Fund will segregate an amount of assets equal to the full value of the option.
OTC options settling with physical delivery or with an election of either
physical delivery or cash settlement will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option on a futures contract, the
Fund must deposit initial margin and, in some instances, daily variation
margin in addition to segregating assets sufficient to meet its obligations to
purchase or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract. These assets may consist of
cash, cash equivalents or liquid debt securities.
Strategic Transactions may be covered by means other than those described
above when consistent with applicable regulatory policies. The Fund may also
enter into offsetting transactions so that its combined position, coupled with
any segregated assets, equals its net outstanding obligation in related
options and Strategic Transactions. The Fund could purchase a put option, for
example, if the strike price of that option is the same or higher than the
strike price of a put option sold by the Fund. Moreover, instead of
segregating assets if the Fund holds a futures or forward contract, the Fund
could purchase a put option on the same futures or forward contract with a
strike price as high or
<PAGE>A-8
higher than the price of the contract held. Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at
the time of or after the primary transaction, no segregation is required, but
if it terminates prior to that time, assets equal to any remaining obligation
would need to be segregated.
<PAGE>
No dealer, salesman or
other person has been
authorized to give any
information or to make any
representation not contained in
this Prospectus and, if given
or made, such information or 100,000 Shares
representation must not be
relied upon as having been
authorized by the Fund, the
Investment Manager or any The Peru Fund, Inc.
Underwriter. This Prospectus
does not constitute an offer to
sell or a solicitation of an
offer to buy any of the
securities offered hereby in
any jurisdiction to any person Common Stock
to whom it is unlawful to make
such offer or solicitation in
such jurisdiction. Neither the
delivery of this Prospectus nor
any sale made hereunder shall,
under any circumstances, create
any implication that the
information contained herein is
correct as of any time
subsequent to the date hereof
or that there has been no
change in the affairs of the P R O S P E C T U S
Fund since such date.
TABLE OF CONTENTS
Page
Prospectus Summary . . . .
Fee Table . . . . . . . . . PaineWebber Incorporated
The Fund . . . . . . . . .
Use of Proceeds . . . . . .
Investment Objective and
Policies . . . . . . . . .
Investment Restrictions . .
Risk Factors . . . . . . .
Investment Manager . . . .
Directors and Officers . . , 1995
Estimated Expenses . . . .
The Peruvian Securities Market
The Republic of Peru . . .
Portfolio Transactions and
Brokerage . . . . . . . . .
Net Asset Value . . . . . .
Dividends and Distributions;
Dividend
Reinvestment and Cash
Purchase Plan . . . . . . .
Taxation . . . . . . . . .
Common Stock . . . . . . .
Dividend Paying Agent, Transfer
Agent
and Registrar . . . . . .
Custodian . . . . . . . . .
Underwriting . . . . . . .
Official Documents . . . .
Experts . . . . . . . . . .
Validity of Shares . . . .
Further Information . . . .
Report of Independent
Accountants . . . . . . . .
The Peru Fund, Inc. Statement
of Assets and
Liabilities . . . . . . .
Notes to Statement of Assets
and Liabilities
Appendix A . . . . . . . .
Until , 1995,
all dealers effecting
transactions in the registered
securities, whether or not
participating in this
distribution, may be required
to deliver a Prospectus. This
delivery requirement is in
addition to the obligation of
dealers to deliver a Prospectus
when acting as Underwriters and
with respect to their unsold
allotments or subscriptions.
<PAGE>
[Alternate Page]
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 SUCH STATE.
<PAGE>
[Alternate Page]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 26, 1995
100,000 Shares
The Peru Fund, Inc.
Common Stock
The Peru Fund, Inc. (the "Fund") is a newly organized, non-diversified,
closed-end management investment company. The Fund's investment objective is
long-term capital appreciation through investment in equity and debt
securities of Peruvian issuers. After the initial investment period, the
Fund's policy will be to invest, under normal market conditions, at least 65%
of its assets in equity securities of Peruvian issuers. The Fund's holdings
of Peruvian debt securities, which will consist of securities issued or
guaranteed by the government of Peru or Peruvian companies and certain related
repurchase agreements, will be acquired for the purpose of seeking long-term
capital appreciation and will be limited to 30% of its assets. The Fund may
invest up to 25% of its assets in securities that are purchased in direct
placement transactions and that are neither listed on an exchange nor traded
over-the-counter. Pending investment in Peru, which is expected to be
completed within one year after the date of this Prospectus, the Fund will
invest in U.S. dollar-denominated debt instruments. No assurance can be given
that the Fund's investment objective will be achieved.
Investment in Peru involves certain special considerations, such as
political and economic uncertainty, fluctuations of currency exchange rates,
the price volatility, limited liquidity and small size of the Peruvian
securities markets, high rates of inflation, exchange controls and other
considerations, which are not normally involved in investments in the United
States and which may be deemed to involve a high degree of risk of loss. The
Fund's Peruvian debt securities holdings should be considered high risk debt
securities that are predominantly speculative. See "Investment Objective and
Policies" and "Risk Factors."
The Fund is offering an aggregate of 100,000 shares of its common stock,
$0.01 par value per share (the "Common Stock"), in the United States and
outside the United States (the "Offerings"). Of the 100,000 Shares being
offered, ______ Shares (the "International Shares") are initially being
offered for sale outside the United States (the "International Shares") by a
group of international managers (the "International Managers") and ______
shares are being offered for sale in the United States (the "U.S. Offering")
by a group of underwriters (the "U.S. Underwriters") and, together with the
International Managers, the "Underwriters").
Scudder, Stevens & Clark, Inc. will manage the Fund. The Investment
Manager is a leading global investment manager that has been active in
international investment for over 40 years and in emerging markets investment
for over 20 years. As of December 31, 1994, the Investment Manager and its
affiliates had in excess of $90 billion under their supervision, more than $20
billion of which was invested in non-U.S. securities. See "Investment
Manager." The address of the Fund is 345 Park Avenue, New York, New York
10154, and its telephone number is (212) 326-6200. This Prospectus sets forth
concisely the information about the Fund that a prospective investor should
know before purchasing shares. Investors are advised to read this Prospectus
and to retain it for future reference.
The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "__." Prior to the
Offerings, there has been no public market for the Common Stock. Shares of
closed-end investment companies have frequently traded at discounts from their
net asset values. This characteristic of closed-end investment companies is a
risk separate and distinct from the risk that the Fund's net asset value may
decrease, and may be greater for investors expecting to sell shares of a
closed-end investment company soon after the completion of an initial public
offering of the company's shares. See "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Proceeds to
Price to Public (1) Sales Load (1) Fund (2)
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . . . . . . . . . . $15.00 $ $
Total (3) . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000 $ $
Total Assuming Full Exercise of
Over-allotment Options (3) . . . . . . . . . . . . . . . $1,725,000 $ $
</TABLE>
(Notes on following page)
The International Shares are being offered by the International Managers,
subject to prior sale, when, as and if delivered to and accepted by the
International Managers, and subject to their right to reject orders in whole
or in part. It is expected that the delivery of the International Shares will
be made in New York City on or about __________ __,1995.
PaineWebber International (U.K.) Ltd.
The date of this Prospectus is ________, 1995
<PAGE>
[Alternate Page]
(1) The "Price to Public" and "Sales Load" per share will be reduced in certain
circumstances to $_____ and $_____, respectively, for purchases in single
transactions of between ____ and ____ Shares, inclusive, and to $ and
$ , respectively, for purchases in single transactions of or
more Shares. Purchasers acquiring Shares at a reduced price will be
restricted from transferring such Shares for a period of up to 90 days
after the closing of the Offerings. See "Underwriting."
(2) Before deducting offering and organizational expenses payable by the Fund
estimated at $________ (including an aggregate of $_________ to be paid to
the Underwriters in partial reimbursement of their expenses) and
$_________, respectively. Offering expenses will be deducted from net
proceeds and organizational expenses will be capitalized and amortized
against income over a period of five years.
(3) Assuming exercise in full of the 45-day options granted by the Fund to the
Underwriters to purchase, in the aggregate, up to 15,000 additional shares
of Common Stock, on the same terms, solely to cover over-allotments. See
"Underwriting."
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The International Shares may not be offered or sold, directly or
indirectly, in the United States or Canada or to any U.S. or Canadian Person,
as part of the distribution of the International Shares. For a further
description of certain restrictions on the offering and sale of the
International Shares, see "Underwriting."
Unless otherwise specified, all references to "billion" are to one thousand
million, to "U.S. dollars," "dollars", "US$" or "$" are to United States
dollars; all references to "Nuevos Soles" or "NS" are to Nuevos Soles, which
is the legal tender currency of Peru.
The exchange rate in Peru for the sale of U.S. dollars as quoted by
________ on _______, 1995 was NS_____ =US$1.00. No representation is made
that the Nuevos Soles or U.S. dollars in this Prospectus could have been or
could be converted into U.S. dollars or Nuevos Soles, as the case may be, at
any particular rate or at all. The predecessor currency to the Nuevo Sol, the
inti, depreciated considerably relative to the U.S. dollar in the several
years prior to the introduction of the Nuevo Sol in 1991. Reference should be
made to "Risk Factors Currency Fluctuations" for a better understanding of the
significance, in U.S. dollar terms, of amounts set forth in this Prospectus in
Nuevos Soles and of amounts and comparisons based on, or computed by reference
to, such currency.
Unless otherwise indicated, U.S. dollar equivalent information for
information in Peruvian currency for a period is based on the average of the
daily exchange rates for the days in the period as calculated by the
International Monetary Fund (the "IMF"), and U.S. dollar equivalent
information for information in Peruvian currency as of a date is based on the
IMF exchange rate for such date.
Certain numbers and percentages of this Prospectus have been rounded for
ease of presentation, which may result in amounts not totalling precisely.
<PAGE>
[Alternate Page]
No dealer, salesman or other
person has been authorized to
give any information or to make
any representation not
contained in this Prospectus
and, if given or made, such
information or representation 100,000 Shares
must not be relied upon as
having been authorized by the
Fund, the Investment Manager or
any Underwriter. This The Peru Fund, Inc.
Prospectus does not constitute
an offer to sell or a
solicitation of an offer to buy
any of the securities offered
hereby in any jurisdiction to
any person to whom it is Common Stock
unlawful to make such offer or
solicitation in such
jurisdiction. Neither the
delivery of this Prospectus nor
any sale made hereunder shall,
under any circumstances, create
any implication that the
information contained herein is
correct as of any time
subsequent to the date hereof
or that there has been no
change in the affairs of the P R O S P E C T U S
Fund since such date.
TABLE OF CONTENTS
Page
Prospectus Summary . . . .
Fee Table . . . . . . . . . PaineWebber International
The Fund . . . . . . . . . (U.K.) Ltd.
Use of Proceeds . . . . . .
Investment Objective and
Policies . . . . . . . . .
Investment Restrictions . .
Risk Factors . . . . . . .
Investment Manager . . . .
Directors and Officers . .
Estimated Expenses . . . . , 1995
The Peruvian Securities Market
The Republic of Peru . . .
Portfolio Transactions and
Brokerage . . . . . . . . .
Net Asset Value . . . . . .
Dividends and Distributions;
Dividend
Reinvestment and Cash
Purchase Plan . . . . . . .
Taxation . . . . . . . . .
Common Stock . . . . . . .
Dividend Paying Agent, Transfer
Agent and Registrar . . . .
Custodian . . . . . . . . .
Underwriting . . . . . . .
Official Documents . . . .
Experts . . . . . . . . . .
Validity of Shares . . . .
Further Information . . . .
Report of Independent
Accountants . . . . . . . .
The Peru Fund, Inc. Statement
of Assets and
Liabilities . . . . . . .
Notes to Statement of Assets
and Liabilities . . . . . .
Appendix A . . . . . . . .
Until , 1995,
all dealers effecting
transactions in the registered
securities, whether or not
participating in this
distribution, may be required
to deliver a Prospectus. This
delivery requirement is in
addition to the obligation of
dealers to deliver a Prospectus
when acting as Underwriters and
with respect to their unsold
allotments or subscriptions.
<PAGE>C-1
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
Parts A and B:
Report of Independent Accountants*
The Peru Fund, Inc.
Statement of Assets and Liabilities*
Part C
None
(2) Exhibits
(a) Articles of Incorporation of Registrant
(b) By-Laws of Registrant
(c) Not applicable
(d) Not applicable
(e) Dividend Reinvestment and Cash Purchase Plan*
(f) Not applicable
(g) Form of Investment Advisory, Management and Administration
Agreement*
(h)(1) Form of U.S. Underwriting Agreement*
(h)(2) Form of International Underwriting Agreement*
(h)(3) Form of Master Agreement among U.S. Underwriters*
(h)(4) Form of Agreement among International Managers*
(h)(5) Form of Agreement between the U.S. Underwriters and
International Managers*
(i) Not applicable
(j) Form of Custodian Agreement*
(k)(1) Form of Transfer Agency Agreement*
(k)(2) Form of Shareholder Servicing Agreement*
(l)(1) Opinion and consent of Willkie Farr & Gallagher*
<PAGE>C-2
(l)(2) Opinion and consent of Venable, Baetjer and Howard, Maryland
counsel*
(m) Not applicable
(n)(1) Opinion and consent of accountants*
(n)(2) Opinion and consent of_____________ (Peruvian counsel)*
(o) Not applicable
(p) Form of Purchase Agreement*
(q) Not applicable
- ------------------
* To be filed by amendment.
Item 25. Marketing Arrangements
See Exhibits (h)(1), (2), (3), (4) and (5) to be filed by amendment.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Registration
Statement:
SEC Registration fees.............................. $ 594.83
NASD fees.......................................... $ 672.50
New York Stock Exchange listing fee................ $ *
Printing (other than stock certificates)
and related delivery expenses.................... $ *
Engraving and printing stock certificates.......... $ *
Fees and expenses of qualification under
state securities laws (including fees of counsel)
Legal fees and expenses............................ $ *
Accounting fees and expenses....................... $ *
Travel and related out-of-pocket
expenses and miscellaneous....................... $ *
Total......................................... $ *
- ---------------------
* To be supplied by amendment.
<PAGE>C-3
Item 27. Persons Controlled by or Under Common Control with Registrant
Upon consummation of the initial public offering of the shares of
common stock, par value $.01 per share (the "Common Stock") of The Peru Fund,
Inc. ("Registrant"), it is anticipated that no person will be controlled by or
under common control with Registrant. As of the effective date of
Registrant's Registration Statement, all of Registrant's outstanding shares of
Common Stock will be owned by Scudder, Stevens & Clark, Inc.
Item 28. Number of Holders of Securities
The Common Stock will be held by one record holder as of the
effective date of this Registration Statement.
Item 29. Indemnification
It is the policy of Registrant to indemnify officers, directors,
employees and other agents to the maximum extent permitted by Section 2-418 of
the Maryland General Corporation Law (set forth below).
Section 2-418 of the Maryland General Corporation Law reads as follows:
2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
(a) In this section the following words have the meaning indicated.
(1) "Director" means any person who is or was a director of a
corporation and any person who, while a director of a corporation, is or
was serving at the request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or
employee benefit plan.
(2) "Corporation" includes any domestic or foreign predecessor
entity of a corporation in a merger, consolidation, or other transaction
in which the predecessor's existence ceased upon consummation of the
transaction.
(3) "Expenses" include attorney's fees.
(4) "Official Capacity" means the following:
(i) When used with respect to a director, the office of
director in the corporation; and
(ii) When used with respect to a person other than a director
as contemplated in subsection (j), the elective
<PAGE>C-4
or appointive office in the corporation held by the officer, or the
employment or agency relationship undertaken by the employee or
agent in behalf of the corporation.
(iii) "Official Capacity" does not include service for any
other foreign or domestic corporation or any partnership, joint
venture, trust, other enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, or
investigative.
(b) (1) A corporation may indemnify any director made a party to
any proceeding by reason of service in that capacity unless it is
established that:
(i) The act or omission of the director was material to the
matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The director actually received an improper personal
benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the director had
reasonable cause to believe that the act or omission was unlawful.
(2) (i) Indemnification may be against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by the director in
connection with the proceeding.
(ii) However, if the proceeding was one by or in the right of the
corporation, indemnification may not be made in respect of any proceeding
in which the director shall have been adjudged to be liable to the
corporation.
(3) (i) The termination of any proceeding by judgment, order or
settlement does not create a presumption that the director did not meet
the requisite standard of conduct set forth in this subsection.
(ii) The termination of any proceeding by conviction, or a plea of
nolo contendere or its equivalent, or an entry of an order of probation
prior to judgment, creates a rebuttable
<PAGE>C-5
presumption that the director did not meet that standard of conduct.
(c) A director may not be indemnified under subsection (b) of this
section in respect of any proceeding charging improper personal benefit to
the director, whether or not involving action in the director's official
capacity, in which the director was adjudged to be liable on the basis
that personal benefit was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on the merits or
otherwise, in the defense of any proceeding referred to in subsection
(b) of this section shall be indemnified against reasonable expenses
incurred by the director in connection with the proceeding.
(2) A court of appropriate jurisdiction upon application of a
director and such notice as the court shall require, may order
indemnification in the following circumstances:
(i) If it determines a director is entitled to reimbursement
under paragraph (1) of this subsection, the court shall order
indemnification, in which case the director shall be entitled to
recover the expenses of securing such reimbursement; or
(ii) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the director has met the standards of
conduct set forth in subsection (b) of this section or has been
adjudged liable under the circumstances described in subsection (c)
of this section, the court may order such indemnification as the
court shall deem proper. However, indemnification with respect to
any proceeding by or in the right of the corporation or in which
liability shall have been adjudged in the circumstances described in
subsection (c) shall be limited to expenses.
(3) A court of appropriate jurisdiction may be the same court in
which the proceeding involving the director's liability took place.
(e) (1) Indemnification under subsection (b) of this section may
not be made by the corporation unless authorized for a specific proceeding
after a determination has been made that indemnification of the director
is permissible in the circumstances because the director has met the
standard of conduct set forth in subsection (b) of this section.
(2) Such determination shall be made:
<PAGE>C-6
(i) By the board of directors by a majority vote of a quorum
consisting of directors not, at the time, parties to the proceeding,
or, if such a quorum cannot be obtained, then by a majority vote of a
committee of the board consisting solely of two or more directors
not, at the time, parties to such proceeding and who were duly
designated to act in the matter by a majority vote of the full board
in which the designated directors who are parties may participate;
(ii) By special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in
subparagraph (i) of this paragraph, or, if the requisite quorum of
the full board cannot be obtained therefor and the committee cannot
be established, by a majority vote of the full board in which
directors who are parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner as the
determination that indemnification is permissible. However, if the
determination that indemnification is permissible is made by special legal
counsel, authorization of indemnification and determination as to
reasonableness of expenses shall be made in the manner specified in
subparagraph (ii) of paragraph (2) of this subsection for selection of
such counsel.
(4) Shares held by directors who are parties to the proceeding may
not be voted on the subject matter under this subsection.
(f) (1) Reasonable expenses incurred by a director who is a party
to a proceeding may be paid or reimbursed by the corporation in advance of
the final disposition of the proceeding upon receipt by the corporation
of:
(i) A written affirmation by the director of the director's
good faith belief that the standard of conduct necessary for
indemnification by the corporation as authorized in this section has
been met; and
(ii) A written undertaking by or on behalf of the director to
repay the amount if it shall ultimately be determined that the
standard of conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph (1)
of this subsection shall be an unlimited general obligation of the
director but need not be secured and may be accepted without reference to
financial ability to make the repayment.
<PAGE>C-7
(3) Payments under this subsection shall be made as provided by the
charter, bylaws, or contract or as specified in subsection (e) of this
section.
(g) The indemnification and advancement of expenses provided or
authorized by this section may not be deemed exclusive of any other
rights, by indemnification or otherwise, to which a director may be
entitled under the charter, the bylaws, a resolution of stockholders or
directors, an agreement or otherwise, both as to action in an official
capacity and as to action in another capacity while holding such office.
(h) This section does not limit the corporation's power to pay or
reimburse expenses incurred by a director in connection with an appearance
as a witness in a proceeding at a time when the director has not been made
a named defendant or respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have requested a
director to serve an employee benefit plan where the performance of
the director's duties to the corporation also imposes duties on, or
otherwise involves services by, the director to the plan or
participants or beneficiaries of the plan;
(2) Excise taxes assessed on a director with respect to an
employee benefit plan pursuant to applicable law shall be deemed
fines; and
(3) Action taken or omitted by the director with respect to an
employee benefit plan in the performance of the director's duties for
a purpose reasonably believed by the director to be in the interest
of the participants and beneficiaries of the plan shall be deemed to
be for a purpose which is not opposed to the best interests of the
corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as and
to the extent provided in subsection (d) of this section for a
director and shall be entitled, to the same extent as a director, to
seek indemnification pursuant to the provision of subsection (d);
(2) A corporation may indemnify and advance expenses to an
officer, employee, or agent of the corporation to the same extent
that it may indemnify directors under this section; and
(3) A corporation, in addition, may indemnify and advance
expenses to an officer, employee, or agent who is
<PAGE>C-8
not a director to such further extent, consistent with law, as may be
provided by its charter, bylaws, general or specific action of its
board of directors, or contract.
(k) (1) A corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, or agent of
the corporation, or who, while a director, officer, employee, or agent of
the corporation, is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust, other
enterprise, or employee benefit plan against any liability asserted
against and incurred by such person in any such capacity or arising out of
such person's position, whether or not the corporation would have the
power to indemnity against liability under the provision of this section.
(2) A corporation may provide similar protection, including a trust
fund, letter of credit, or surety bond, not inconsistent with this
section.
(3) The insurance or similar protection may be provided by a
subsidiary or an affiliate of the corporation.
(l) Any indemnification of, or advance of expenses to, a director in
accordance with this section, if arising out of a proceeding by or in the
right of the corporation, shall be reported in writing to the stockholders
with the notice of the next stockholders' meeting or prior to the meeting.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the U.S. Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a director, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of 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.
In accordance with Investment Company Act Release No. 11,330
(Sept. 2, 1980), Registrant will indemnify its directors, officers, investment
manager and principal underwriters only if (1) a final decision on the merits
was issued by the court or other
<PAGE>C-9
body before whom the proceeding was brought that the person to be indemnified
(the "indemnitee") was not liable by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office ("disabling conduct") or (2) a reasonable determination is made,
based upon a review of the facts, that the indemnitee was not liable by reason
of disabling conduct, by (a) the vote of a majority of a quorum of directors
who are neither "interested persons" of Registrant as defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended (the "1940 Act"),
nor parties to the proceeding ("disinterested, non-party directors"), or
(b) an independent legal counsel in a written opinion. Registrant will
advance attorney's fees or other expenses incurred by its directors, officers,
investment manager or principal underwriters in defending a proceeding, upon
the undertaking by or on behalf of the indemnitee to repay the advance unless
it is ultimately determined that he is entitled to indemnification and, as a
condition to the advance (1) the indemnitee provides a security for his
undertaking, (2) Registrant is insured against losses arising by reason of any
lawful advances, or (3) a majority of a quorum of disinterested, non-party
directors of Registrant, or an independent legal counsel in a written opinion,
determines, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the indemnitee
ultimately will be found entitled to indemnification.
Item 30. Business and Other Connections of the Investment Manager
Information as to the directors and officers of Scudder, Stevens &
Clark, Inc. is included in its Form ADV (Investment Advisers Act Registration
No. 801-252) filed with the U.S. Securities and Exchange Commission and is
incorporated herein by reference thereto.
Item 31. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained as
follows: journals, ledgers, securities records and other original records are
maintained principally at the offices of Scudder, Stevens & Clark, Inc., 345
Park Avenue, New York, New York 10154, and at the offices of
, Registrant's custodian.
Item 32. Management Services
Not Applicable.
Item 33. Undertakings
(a) Registrant undertakes to suspend offering of the shares of
Common Stock covered by this Registration Statement until it amends the
Prospectus contained in this Registration Statement if (i) subsequent to
the effective date of this
<PAGE>C-10
Registration Statement, its net asset value per share declines more
than 10 percent from its net asset value per share as of the effective
date of this Registration Statement or (ii) its net asset value
increases to an amount greater than its net proceeds as stated in the
Prospectus contained in this Registration Statement.
(b) Registrant undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A under the
Securities Act and contained in the form of Prospectus filed by Registrant
under Rule 497(h) under the Securities Act will be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus will be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the securities at that
time will be deemed to be the initial bona fide offering thereof.
<PAGE>C-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 26th day of May, 1995.
THE PERU FUND, INC.
By: /s/ Kathryn L. Quirk
Kathryn L. Quirk
Chairman of the Board
and President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Kathryn L. Quirk Chairman of the May 26, 1995
Kathryn L. Quirk Board, President and
Director (Principal
Executive Officer)
/s/ Jerard K. Hartman Director May 26, 1995
Jerard K. Hartman
/s/ Edward J. O'Connell Treasurer May 26, 1995
Edward J. O'Connell (Principal
Financial and
Accounting Officer)
<PAGE>C-12
EXHIBIT INDEX
(a) Articles of Incorporation of Registrant
(b) By-Laws of Registrant
(c) Not applicable
(d) Not applicable
(e) Dividend Reinvestment and Cash Purchase Plan*
(f) Not applicable
(g) Form of Investment Advisory, Management and Administration
Agreement*
(h)(1) Form of U.S. Underwriting Agreement*
(h)(2) Form of International Underwriting Agreement*
(h)(3) Form of Master Agreement among U.S. Underwriters*
(h)(4) Form of Agreement among International Managers*
(h)(5) Form of Agreement between the U.S. Underwriters and
International Managers*
(i) Not applicable
(j) Form of Custodian Agreement*
(k)(1) Form of Transfer Agency Agreement*
(k)(2) Form of Shareholder Servicing Agreement*
(l)(1) Opinion and consent of Willkie Farr & Gallagher*
(l)(2) Opinion and consent of Venable, Baetjer and Howard, Maryland
counsel*
(m) Not applicable
(n)(1) Opinion and consent of accountants*
(n)(2) Opinion and consent of_____________ (Peruvian counsel)*
(o) Not applicable
(p) Form of Purchase Agreement*
(q) Not applicable
- ------------------
* To be filed by amendment.
<PAGE>1
ARTICLES OF INCORPORATION
OF
THE PERU FUND, INC.
FIRST: Incorporator. The undersigned, Patricia E. Torrente, 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 The Peru 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.
<PAGE>2
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
<PAGE>3
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
two. 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 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
<PAGE>4
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:
Kathryn L. Quirk
Jerard K. Hartman
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.
<PAGE>5
(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
<PAGE>6
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 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,
<PAGE>7
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
<PAGE>8
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
<PAGE>9
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;
<PAGE>10
(ii) any stockholder proposal as to specific investment
decisions made or to be made with respect to the Corporation's assets;
(iii) any proposal as to the voluntary liquidation or
dissolution of the Corporation unless the Continuing Directors of the
Corporation, by a vote of at least 75% of such Directors, approve such
proposal in which case the affirmative vote of 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
<PAGE>11
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
<PAGE>12
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).
(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:
<PAGE>13
(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
<PAGE>14
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
<PAGE>15
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 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
<PAGE>16
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
<PAGE>17
(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,
<PAGE>18
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 the votes entitled to be cast by stockholders and the
vote of at least 75% of the
<PAGE>19
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,
<PAGE>20
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 his act.
/s/ Patricia E. Torrente
Patricia E. Torrente
Date: May 24, 1995
<PAGE>
- ----------------------------------------------------------------------------
THE PERU FUND, INC.
A Maryland Corporation
BY-LAWS
May 24, 1995
- -----------------------------------------------------------------------------
<PAGE>(i)
TABLE OF CONTENTS
Page
ARTICLE I NAME OF CORPORATION, LOCATION
OF OFFICES AND SEAL..................... 1
Section 1.1. Principal Offices....................... 1
Section 1.2. Seal.................................... 1
ARTICLE II STOCKHOLDERS............................ 2
Section 2.1. Annual Meetings......................... 2
Section 2.2. Special Meetings........................ 2
Section 2.3. Notice of Meetings...................... 3
Section 2.4. Notice of Stockholder Business.......... 3
Section 2.5. Quorum.................................. 5
Section 2.6. Voting.................................. 6
Section 2.7. Stockholders Entitled to Vote........... 6
Section 2.8. Proxies................................. 7
Section 2.9. Voting and Inspectors................... 7
Section 2.10. Action Without Meeting.................. 7
ARTICLE III BOARD OF DIRECTORS...................... 8
Section 3.1. Powers.................................. 8
Section 3.2. Power to Issue and Sell Stock........... 8
Section 3.3. Power to Declare Dividends.............. 8
Section 3.4. Number and Term......................... 9
Section 3.5. Director Nominations.................... 11
Section 3.6. Election................................ 13
Section 3.7. Vacancies and Newly Created
Directorships......................... 13
Section 3.8. Removal................................. 14
Section 3.9. Annual and Regular Meetings............. 14
Section 3.10. Special Meetings........................ 15
Section 3.11. Waiver of Notice........................ 15
Section 3.12. Quorum and Voting....................... 16
Section 3.13. Action Without a Meeting................ 16
Section 3.14. Compensation of Directors............... 16
ARTICLE IV COMMITTEES.............................. 17
Section 4.1. Organization............................ 17
Section 4.2. Executive Committee..................... 17
Section 4.3. Other Committees........................ 17
Section 4.4. Proceedings and Quorum.................. 18
<PAGE>(ii)
ARTICLE V OFFICERS................................ 18
Section 5.1. General................................. 18
Section 5.2. Election, Tenure and Qualifications..... 18
Section 5.3. Removal and Resignation................. 19
Section 5.4. Chairman of the Board.................... 20
Section 5.5. Vice Chairman of the Board............... 20
Section 5.6. President................................ 20
Section 5.7. Vice President........................... 21
Section 5.8. Treasurer and Assistant Treasurers....... 21
Section 5.9. Secretary and Assistant Secretaries...... 22
Section 5.10. Subordinate Officers..................... 23
Section 5.11. Remuneration............................. 23
Section 5.12. Surety Bonds............................. 23
ARTICLE VI NET ASSET VALUE.......................... 24
Section 6.1. Valuation of Assets...................... 24
ARTICLE VII CAPITAL STOCK............................ 24
Section 7.1. Certificates of Stock.................... 24
Section 7.2. Transfer of Shares....................... 25
Section 7.3. Stock Ledgers............................ 25
Section 7.4. Transfer Agents and Registrars........... 25
Section 7.5. Fixing of Record Date.................... 26
Section 7.6. Lost, Stolen or Destroyed Certificates... 26
ARTICLE VIII FISCAL YEAR AND ACCOUNTANT............... 27
Section 8.1. Fiscal Year.............................. 27
Section 8.2. Accountant............................... 27
ARTICLE IX CUSTODY OF SECURITIES.................... 28
Section 9.1. Employment of a Custodian................ 28
Section 9.2. Termination of Custodian Agreement....... 29
ARTICLE X INDEMNIFICATION AND INSURANCE............ 29
Section 10.1. Indemnification of Directors,
Officers and Members of the
Advisory Board......................... 29
Section 10.2. Insurance of Officers, Directors,
Members of the Advisory Board,
Employees and Agents................... 31
<PAGE>(iii)
ARTICLE XI AMENDMENTS............................... 32
Section 11.1. General.................................. 32
ARTICLE XII SPECIAL PROVISIONS....................... 33
Section 12.1. Actions Relating to Discount in
Price of the Corporation's Shares...... 33
Section 12.2. Advisory Board........................... 34
<PAGE>1
BY-LAWS
OF
THE PERU FUND, INC.
(A MARYLAND CORPORATION)
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
Section 1.1. Principal Offices. The principal office of The Peru Fund,
Inc. (the "Corporation") in the State of Maryland shall be located in
Baltimore, Maryland. The Corporation may, in addition, establish and maintain
such other offices and places of business as the Board of Directors may, from
time to time, determine.
Section 1.2. Seal. The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of its
incorporation, and the word "Maryland". The form of the seal shall be subject
to alteration by the Board of Directors and the seal may be used by causing it
or a facsimile to be impressed or affixed or printed or otherwise reproduced.
Any officer or Director of the Corporation shall have authority to affix the
corporate seal of the Corporation to any document requiring the same. If the
Corporation is required to place its corporate seal to a document, it shall be
sufficient to place the word "(seal)" adjacent to the signature of the person
authorized to sign the document on behalf of the Corporation.
<PAGE>2
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 February. 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 February 1996
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
<PAGE>3
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.
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
<PAGE>4
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.
<PAGE>5
(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.
<PAGE>6
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 (except with respect to election of directors which
shall be a plurality of votes cast). The vote upon any question shall be by
ballot whenever requested by any person entitled to vote, but, unless such a
request is made, voting may be conducted in any way approved 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").
<PAGE>7
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
<PAGE>8
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
<PAGE>9
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 two, nor more than twelve Directors, as specified by resolution
of the majority of the entire Board of Directors, provided that at least 40%
of the entire Board of Directors shall be persons who are not interested
persons of the Corporation as defined in the Investment Company Act of 1940,
as amended (the "1940 Act").
<PAGE>10
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
<PAGE>11
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.
<PAGE>12
(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
<PAGE>13
forth in a stockholder's notice of nomination which pertains to the nominee.
(d) If a notice by a stockholder is required to be given pursuant to
this Section 3.5, no person shall be entitled to receive reimbursement from
the Corporation of the expenses of a solicitation of proxies for the election
as a Director of a person named in such notice unless such notice states that
such reimbursement will be sought from the Corporation. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
a nomination was not made in accordance with the procedures prescribed by the
By-Laws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded for all purposes.
Section 3.6. Election. At the first annual meeting of stockholders and
each annual meeting thereafter, the Directors to be elected at that meeting
shall be elected by vote of the holders of a 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,
<PAGE>14
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
<PAGE>15
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.
<PAGE>16
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 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.
<PAGE>17
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
<PAGE>18
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
<PAGE>19
annual meeting, such officers may be chosen at any subsequent regular or
special meeting of the Board. Except as otherwise provided in this Article V,
each officer chosen by the Board of Directors shall hold office until the
next annual meeting of the Board of Directors and until his successor shall
have been elected and qualified. Any person may hold one or more offices of
the Corporation except the same person may not concurrently hold the offices
of President and Vice President. A person who holds more than one office may
not act in more than one capacity to execute, acknowledge or verify an
instrument required by law to be executed, acknowledged or verified. The
Chairman of the Board, if any, shall be elected from among the Directors of
the Corporation and may hold such office only so long as he continues to be a
Director. No other officer need be a Director.
Section 5.3. Removal and Resignation. 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.
<PAGE>20
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
<PAGE>21
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
<PAGE>22
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.
<PAGE>23
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
Section 5.10. Subordinate Officers. The Board of Directors from time
to time may appoint such other officers or agents as it may deem advisable,
each of whom shall have such title, hold office for such period, have such
authority and perform such duties as the Board of Directors may determine.
The Board of Directors from time to time may delegate to one or more 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
<PAGE>24
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.
<PAGE>25
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
<PAGE>26
by one of such registrars of transfers or by both and shall not be valid
unless so countersigned.
Section 7.5. Fixing of Record Date. The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect
of any change, conversion or exchange of stock, or for the purpose of any
other lawful action, provided that (1) such record date may not be prior to
the close of business on the day the record date is fixed and shall be within
90 days prior to the date on which the particular action requiring such
determination will be taken; and (2) in the case of a meeting of 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
<PAGE>27
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
<PAGE>28
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.
<PAGE>29
Section 9.2. Termination of Custodian Agreement. Upon termination of
the Custodian Agreement or inability of the Custodian to continue to serve,
the Board of Directors shall promptly appoint a successor Custodian, but in
the event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine
whether the Corporation shall function without a Custodian or shall be
liquidated. If so directed by vote of the holders of a majority of the
outstanding shares of stock entitled to vote of the Corporation, the Custodian
shall deliver and pay over all property of the Corporation held by it as
specified in such vote.
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.1. Indemnification of Directors, Officers and Members of
the Advisory Board. To the maximum extent permitted by the 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
<PAGE>30
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
<PAGE>31
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.
<PAGE>32
ARTICLE XI
AMENDMENTS
Section 11.1. General. Except as provided in the next succeeding
sentence and in the Articles of Incorporation, all By-Laws of the
Corporation, whether adopted by the Board of Directors or the stockholders,
shall be subject to amendment, alteration or repeal, and new By-Laws may be
made, by the affirmative vote of a majority of either: (a) the holders of
record of the outstanding shares of stock of the Corporation entitled to vote,
at any annual or special meeting, the notice or waiver of notice of which
shall have specified or summarized the proposed amendment, alteration, repeal
or new By-Law; or (b) the Directors, at any regular or special meeting the
notice or waiver of notice of which shall have specified or summarized the
proposed amendment, alteration, repeal or new By-Law. The provisions of
Article II, Section 2.4 and Article III, Sections 3.4, 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).
<PAGE>33
ARTICLE XII
SPECIAL PROVISIONS
Section 12.1. Actions Relating to Discount in
Price of the Corporation's Shares. If, at any time during or after the fifth
full calendar 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 consider, at its next
regularly scheduled meeting, taking various 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
recommending to shareholders amendments 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. The Board of Directors shall
consider all relevant factors in determining whether to take any such actions,
including the impact of such actions on the Fund's status as a regulated
investment company under the Internal Revenue Code of 1986, as amended, and
the availability of cash to finance such repurchases.
<PAGE>34
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
foreign countries generally and emerging market countries in particular.
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.
