As filed with the Securities and Exchange Commission
on July 11, 2000
Securities Act File No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue, 16th Floor, New York, New York 10017
(Address of Principal Executive Offices: Number,
Street, City, State, Zip Code)
(212) 875-3500
(Registrant's Area Code and Telephone Number)
-------------
Hal Liebes, Esq., Senior Vice President
The Emerging Markets Telecommunications Fund, Inc.
466 Lexington Avenue, 16th Floor
New York, New York 10017
(Name and Address of Agent for Service)
with copies to:
Daniel Schloendorn, Esq.
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Approximate Date of Proposed Public Offering:
As soon as practicable after
this Registration Statement becomes effective
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
===============================================================================
TITLE OF PROPOSED PROPOSED
SECURITIES MAXIMUM MAXIMUM AMOUNT OF
BEING AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE(1) FEE
------------------------------------------------------------------------------
Common Stock
($0.001 par 8,051,982 $14.8115 $119,261,931.393 $31,485.149
value)
===============================================================================
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended,
based on the average of the high and low sales prices reported on the New
York Stock Exchange on June 30, 2000.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
o Cover Sheet
o Contents of Registration Statement
o Form N-14 Cross Reference Sheet
o Letter to Shareholders of The Emerging Markets Telecommunications Fund,
Inc.
o Letter to Shareholders of The Emerging Markets Infrastructure Fund, Inc.
o Notice of Annual Meeting of Shareholders of The Emerging Markets
Telecommunications Fund, Inc.
o Notice of Special Meeting of Shareholders of The Emerging Markets
Infrastructure Fund, Inc.
o Part A - Proxy Statement/Prospectus
o Part B - Statement of Additional Information
o Part C - Other Information
o Signature Page
o Exhibits
CROSS REFERENCE SHEET
PART A Item No. and Caption Proxy Statement/Prospectus Caption
- --------------------------- -----------------------------------
1. Beginning of Registration Statement Cover Page
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover Page Cover Page; Table of Contents
of Prospectus Contents
3. Fee Table, Synopsis Information, and Synopsis; Risk Factors and Special
Risk Factors Considerations; Comparison of
Investment Objectives and Policies
4. Information about the Transactions Synopsis - The Proposed Merger;
Information about the Merger;
Additional Information about the Funds
5. Information about the Registrant Synopsis; Risk Factors and Special
Considerations; Comparison of
Investment Objectives and Policies;
Additional Information about the Funds
6. Information about the Company Being Synopsis; Risk Factors and Special
Acquired Considerations; Comparison of
Investment Objectives and Policies;
Additional Information about the Funds
7. Voting Information Notice of Meeting of Shareholders;
General; Required Vote
8. Interest of Certain Persons and Experts Additional Information about the Funds
9. Additional Information Required for (Not Applicable)
Reoffering by Persons Deemed to be
Underwriters
PART B Item No. and Caption Statement of Additional Information Caption
- --------------------------- -------------------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information about the Comparison of Risk Factors and
Registrant Special Considerations (in Part A);
Comparison of Investment Objectives
and Policies; Additional Information
about the Funds (in Part A); Tax
Considerations
13. Additional Information about the Comparison of Risk Factors and
Company Being Acquired Special Considerations (in Part A);
Comparison of Investment Objectives
and Policies; Additional Information
about the Funds (in Part A); Tax
Considerations
14. Financial Statements Financial Statements
PART C
- ------
15 - 17 Information required to be included
in Part C is set forth under the
appropriate Item, so numbered, in
Part C of this Registration Statement.
PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
466 Lexington Avenue, 16th Floor
New York, New York 10017
_______, 2000
Dear Shareholder:
We are pleased to invite you to the annual meeting of shareholders of The
Emerging Markets Telecommunications Fund, Inc., a Maryland corporation. The
Emerging Markets Telecommunications Fund, Inc. is sometimes referred to as "ETF"
or the "Fund."
The annual meeting is scheduled to be held at 2:00 p.m., Eastern time, on
Friday, September 15, 2000, at the offices of Credit Suisse Asset Management,
LLC, 466 Lexington Avenue, 16th Floor, New York, New York 10017. Shareholders
who are unable to attend this meeting are strongly encouraged to vote by proxy,
which is customary in corporate meetings of this kind. A Proxy
Statement/Prospectus regarding the meeting, a proxy card(s) for your vote at the
meeting and an envelope - postage prepaid - in which to return your proxy card
are enclosed. At the annual meeting you will be asked to vote on five matters.
First, you will be asked to vote on a Merger Agreement and Plan of
Reorganization, or the Merger Agreement, whereby The Emerging Markets
Infrastructure Fund, Inc., sometimes referred to as "EMG," will merge with and
into ETF in accordance with the Maryland General Corporation Law. As a result of
the merger:
o EMG will no longer exist,
o ETF will be the surviving corporation, and
o each share of common stock of EMG will convert into an equivalent
dollar amount (to the nearest one ten-thousandth of one cent) of
full shares of common stock of ETF, based on the net asset value per
share of each fund.
ETF will not issue any fractional shares to EMG shareholders. ETF's
transfer agent will aggregate all fractional shares, sell the resulting full
shares on the New York Stock Exchange at the current market price for the shares
and remit the cash proceeds to shareholders of EMG. The currently issued and
outstanding shares of ETF will remain issued and outstanding.
Both ETF and EMG are closed-end, non-diversified management investment
companies listed on the New York Stock Exchange. Both funds seek long-term
capital appreciation by investing primarily in emerging countries' securities.
While ETF generally invests in equity securities of telecommunication companies,
EMG generally invests in equity securities of infrastructure companies in
emerging countries. In addition, ETF may invest in equity or debt securities of
corporate or government issuers in developed countries. The current investment
objective and policies of ETF will continue unchanged if the merger occurs.
The Board of Directors of ETF believes that combining the two funds will
benefit Fund shareholders by providing the potential for:
o economies of scale,
o greater investment flexibility,
o a lower operating expense ratio,
o improved diversification of portfolio equity holdings enabling ETF
to mitigate risks, and
o enhanced market liquidity of ETF's shares.
The proposed merger and investment policies of the funds are described in
more detail in the combined Proxy Statement/Prospectus.
Second, you will be asked to approve a new investment advisory agreement
with Credit Suisse Asset Management, LLC, or CSAM. The new investment advisory
agreement will be substantially the same as the current investment advisory
agreement except for changes in the calculation of the investment advisory fees.
Currently, the investment advisory fees are based on ETF's average weekly net
assets. Under the new investment advisory agreement, investment advisory fees
will instead be based on the lower of the average weekly stock price (market
value) of ETF's outstanding shares or the Fund's average weekly net assets. By
revising the fee structure, ETF is expected to:
o reduce investment advisory fees, thereby lowering its overall
expense ratio, and
o more closely align the interests of CSAM with shareholder interests
which are aimed at enhancing ETF's market value.
Third, you will be asked to elect two (2) management nominees standing for
re-election to ETF's Board of Directors, James J. Cattano and William W. Priest,
Jr.
Fourth, you will be asked to ratify the selection of Pricewaterhouse
Coopers LLP as ETF's independent public accountants for the fiscal year ending
May 31, 2001.
Fifth, you will be asked to vote upon a shareholder proposal requesting
that, within 60 days after passage of this proposal, ETF's Board of Directors
presents for shareholder approval and supports a program to permit ETF
shareholders to realize net asset value for their shares.
THE BOARD OF DIRECTORS OF YOUR FUND BELIEVES THAT THE PROPOSED MERGER, THE
NEW INVESTMENT ADVISORY AGREEMENT, THE RE-ELECTION OF THE TWO DIRECTORS AND THE
RATIFICATION OF THE INDEPENDENT PUBLIC ACCOUNTANTS ARE IN THE BEST INTERESTS OF
THE SHAREHOLDERS AND RECOMMENDS THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY
AND THEN VOTE "FOR" PROPOSALS 1, 2, 3 AND 4. THE BOARD OF DIRECTORS BELIEVES
THAT THE SHAREHOLDER PROPOSAL IS NOT IN THE BEST INTERESTS OF THE SHAREHOLDERS
AND RECOMMENDS THAT YOU VOTE "AGAINST" PROPOSAL 5.
Please note that EMG intends to make a tender offer to acquire up to 50%
of its shares of common stock at a price per share equal to 95% of EMG's net
asset value per share as of the end of the tender offer period, and prior to the
consummation of the merger. This tender offer will
not occur unless the shareholders of both funds approve the Merger Agreement and
all other conditions to the consummation of the merger are satisfied or waived.
Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. If we do not receive
your signed proxy card(s) after a reasonable amount of time, you may receive a
telephone call from our proxy solicitor, Shareholder Communications Corporation,
reminding you to vote your shares.
Respectfully,
William W. Priest, Jr.
Chairman of the Board of Directors
YOU ARE URGED TO SIGN THE PROXY CARD(S) AND RETURN THE CARD(S) IN THE
POSTAGE-PAID ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT
REGARDLESS OF THE SIZE OF YOUR SHAREHOLDINGS.
THE EMERGING MARKETS INFRASTRUCTURE FUND, INC.
466 Lexington Avenue, 16th Floor
New York, New York 10017
_______, 2000
Dear Shareholder:
We are pleased to invite you to a special meeting of shareholders of The
Emerging Markets Infrastructure Fund, Inc., a Maryland corporation. The Emerging
Markets Infrastructure Fund, Inc. is sometimes referred to as "EMG" or the
"Fund."
The special meeting is scheduled to be held at 3:00 p.m., Eastern time, on
Friday, September 15, 2000, at the offices of Credit Suisse Asset Management,
LLC, 466 Lexington Avenue, 16th Floor, New York, New York 10017. Shareholders
who are unable to attend this meeting are strongly encouraged to vote by proxy,
which is customary in corporate meetings of this kind. A Proxy
Statement/Prospectus regarding the meeting, a proxy card(s) for your vote at the
meeting and an envelope - postage prepaid - in which to return your proxy card
are enclosed. At the special meeting you will be asked to vote on one matter.
You will be asked to vote on a Merger Agreement and Plan of
Reorganization, or the Merger Agreement, whereby EMG will merge with and into
The Emerging Markets Telecommunications Fund, Inc., sometimes referred to as
"ETF," in accordance with the Maryland General Corporation Law. As a result of
the merger:
o EMG will no longer exist,
o ETF will be the surviving corporation, and
o each share of common stock of EMG will convert into an equivalent
dollar amount (to the nearest one ten-thousandth of one cent) of
full shares of common stock of ETF, based on the net asset value per
share of each fund.
ETF will not issue any fractional shares to EMG shareholders. ETF's
transfer agent will aggregate all fractional shares, sell the resulting full
shares on the New York Stock Exchange at the current market price for the shares
and remit the cash proceeds to EMG's shareholders.
The currently issued and outstanding shares of ETF will remain issued and
outstanding. Although the ETF shares received in the merger will have the same
total net asset value as the EMG shares you held immediately before the merger
(disregarding fractional shares), their stock price (market value) will be less
than that of your EMG shares, assuming current market discount levels persist.
Both ETF and EMG are closed-end, non-diversified management investment
companies listed on the New York Stock Exchange. Both funds seek long-term
capital appreciation by investing primarily in emerging countries' securities.
While ETF generally invests in equity securities of telecommunication companies
in emerging countries, EMG generally invests in equity securities of
infrastructure companies in emerging countries. In addition, ETF may invest
in equity or debt securities of corporate or government issuers in developed
countries. The current investment objective and policies of ETF will continue
unchanged if the merger occurs.
The Board of Directors of EMG believes that combining the two funds will
benefit Fund shareholders by providing the potential for:
o economies of scale,
o greater investment flexibility,
o a lower operating expense ratio,
o improved diversification of portfolio equity holdings enabling ETF
to mitigate risks, and
o enhanced market liquidity of ETF's shares.
The proposed merger and the investment policies of the funds are described
in more detail in the combined Proxy Statement/Prospectus.
Please note that EMG intends to make a tender offer, or Tender Offer, to
acquire up to 50% of its shares of common stock at a price per share equal to
95% of EMG's net asset value per share as of the end of the tender offer period,
and prior to the consummation of the merger. The Tender Offer will not occur
unless the shareholders of both funds approve the Merger Agreement and all other
conditions to the consummation of the merger are satisfied or waived. A separate
shareholder vote on the Tender Offer is not required and is not being solicited.
An Offer to Purchase and a related Letter of Transmittal will be mailed to EMG
shareholders in the near future. The Tender Offer will only be made by these
materials. Shareholders are urged to read carefully these materials when they
are received as they will contain important information regarding the Tender
Offer. The offer to purchase shares will not be made to, and tenders pursuant to
the Offer to Purchase will not be accepted from or on behalf of, shareholders in
any jurisdiction in which making or accepting the offer to purchase would
violate that jurisdiction's laws.
ETF shareholders are also being asked to approve a new investment advisory
agreement with Credit Suisse Asset Management, LLC, or CSAM. The new agreement
will be substantially the same as the current agreement except for changes in
the calculation of the investment advisory fees. Currently, the investment
advisory fees are based on ETF's average weekly net assets. Under the new
agreement, investment advisory fees will instead be based on the lower of the
average weekly stock price (market value) of ETF's outstanding shares or the
Fund's average weekly net assets. By revising the fee structure, ETF is expected
to:
o reduce investment advisory fees, thereby lowering its overall
expense ratio, and
o more closely align the interests of CSAM with the interests of ETF
shareholders which are aimed at enhancing ETF's market value.
If the Merger Agreement is approved and concluded, as shareholders of ETF
you will benefit from the advisory fee structure changes. You are not being
asked to vote separately on this matter.
THE BOARD OF DIRECTORS OF YOUR FUND BELIEVES THAT THE PROPOSED MERGER IS
IN THE BEST INTERESTS OF THE SHAREHOLDERS AND RECOMMENDS THAT YOU READ THE
ENCLOSED MATERIALS CAREFULLY AND THEN VOTE "FOR" THE MERGER PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. If we do not receive
your signed proxy card(s) after a reasonable amount of time, you may receive a
telephone call from our proxy solicitor, Shareholder Communications Corporation,
reminding you to vote your shares.
Respectfully,
William W. Priest, Jr.
Chairman of the Board of Directors
YOU ARE URGED TO SIGN THE PROXY CARD(S) AND RETURN THE CARD(S) IN THE
POSTAGE-PAID ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT
REGARDLESS OF THE SIZE OF YOUR SHAREHOLDINGS.
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
NOTICE OF annual MEETING OF SHAREHOLDERS
To the Shareholders of The Emerging Markets Telecommunications Fund, Inc.:
Please take notice that the annual meeting of shareholders of The Emerging
Markets Telecommunications Fund, Inc. (sometimes referred to as "ETF"), a
Maryland corporation, will be held at the offices of Credit Suisse Asset
Management, LLC, 466 Lexington Avenue, 16th Floor, New York, New York 10017, on
Friday, September 15, 2000, at 2:00 p.m., Eastern time, for the following
purposes:
1. To consider and vote upon the approval of a Merger Agreement and Plan of
Reorganization dated June ___, 2000 whereby The Emerging Markets
Infrastructure Fund, Inc. (sometimes referred to as "EMG"), a Maryland
corporation, will merge with and into ETF in accordance with the Maryland
General Corporation Law;
2. To consider and vote upon the approval of a new investment advisory
agreement with Credit Suisse Asset Management, LLC;
3. To consider and vote upon the election of two management nominees standing
for re-election to ETF's Board of Directors, James J. Cattano and William
W. Priest, Jr.;
4. To consider and vote upon the ratification of the selection of
PricewaterhouseCoopers LLP as ETF's independent public accountants; and
5. To consider and vote upon a shareholder proposal requesting that ETF's
Board of Directors present a program for shareholder approval to permit
ETF shareholders to realize net asset value for their shares.
The appointed proxies will vote in their discretion on any other business
that may properly come before the annual meeting or any adjournments thereof.
Holders of record of shares of common stock of ETF at the close of
business on June 30, 2000 are entitled to vote at the annual meeting and at any
postponements or adjournments thereof. EMG shareholders must approve the merger
as well.
The persons named as proxies may propose one or more adjournments of the
annual meeting if the necessary quorum to transact business or the vote required
to approve or reject any proposal is not obtained at the meeting. Any such
adjournment will require the affirmative vote of the holders of a majority of
ETF's shares present in person or by proxy at the annual meeting. The persons
named as proxies will vote those proxies which they are entitled to vote on any
such proposal in accordance with their best judgment in the interest of ETF.
The enclosed proxy is being solicited on behalf of the Board of Directors
of ETF.
By Order of the Board of Directors,
Michael A. Pignataro, Chief Financial Officer and Secretary
________, 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S)
MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM
AT THE MEETING. IF YOU CAN ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES IN
PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
THE EMERGING MARKETS INFRASTRUCTURE FUND, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of The Emerging Markets Infrastructure Fund, Inc.:
Please take notice that a special meeting of shareholders of The Emerging
Markets Infrastructure Fund, Inc. (sometimes referred to as "EMG"), a Maryland
corporation, will be held at the offices of Credit Suisse Asset Management, LLC,
466 Lexington Avenue, 16th Floor, New York, New York 10017, on Friday, September
15, 2000, at 3:00 p.m., Eastern time, for the following purpose:
To consider and vote upon the approval of a Merger Agreement and Plan of
Reorganization dated June ___, 2000 whereby EMG will merge with and into
The Emerging Markets Telecommunications Fund, Inc. (sometimes referred to
as "ETF"), a Maryland corporation, in accordance with the Maryland General
Corporation Law.
The appointed proxies will vote in their discretion on any other business
that may properly come before the special meeting or any adjournments thereof.
Holders of record of shares of common stock of EMG at the close of
business on June 30, 2000 are entitled to vote at the special meeting and at any
postponements or adjournments thereof. ETF shareholders must approve the merger
as well.
The persons named as proxies may propose one or more adjournments of the
special meeting if the necessary quorum to transact business or the vote
required to approve or reject any proposal is not obtained at the meeting. Any
such adjournment will require the affirmative vote of the holders of a majority
of EMG's shares present in person or by proxy at the special meeting. The
persons named as proxies will vote those proxies which they are entitled to vote
on any such proposal in accordance with their best judgment in the interest of
EMG.
The enclosed proxy is being solicited on behalf of the Board of Directors
of EMG.
By Order of the Board of Directors,
Michael A. Pignataro, Chief Financial Officer and Secretary
________, 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S)
MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM
AT THE MEETING. IF YOU CAN ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES IN
PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
SUBJECT TO COMPLETION - DATED JULY 7, 2000
THE EMERGING MARKETS INFRASTRUCTURE FUND, INC.
466 LEXINGTON AVENUE, 16th FLOOR
NEW YORK, NEW YORK 10017
(212) 875-3500
TO BE MERGED WITH AND INTO
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
466 LEXINGTON AVENUE, 16th FLOOR
NEW YORK, NEW YORK 10017
(212) 875-3500
PROXY STATEMENT
MEETINGS OF SHAREHOLDERS
TO BE HELD SEPTEMBER 15, 2000
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC. PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of the
Emerging Markets Infrastructure Fund and the Emerging Markets Telecommunications
Fund for use at the annual meeting of shareholders of the Emerging Markets
Telecommunications Fund and at a special meeting of shareholders of the Emerging
Markets Infrastructure Fund to be held on Friday, September 15, 2000 at 2:00
p.m., Eastern time, with respect to the Emerging Markets Telecommunications
Fund, and at 3:00 p.m., Eastern time, with respect to the Emerging Markets
Infrastructure Fund, and at any and all postponements or adjournments thereof.
The Emerging Markets Telecommunications Fund is sometimes referred to in this
Proxy Statement/Prospectus as "ETF," the Emerging Markets Infrastructure Fund is
sometimes referred to in this Proxy Statement/Prospectus as "EMG" and ETF and
EMG are sometimes collectively referred to as the "Funds" and individually, as
the context may require, as the "Fund." The approximate mailing date of this
Proxy Statement/Prospectus is August 4, 2000.
Purpose of the Meetings. At each of the meetings, shareholders of the
Funds will be asked to approve a Merger Agreement and Plan of Reorganization
dated June , 2000 whereby EMG will merge with and into ETF, in accordance with
the Maryland General Corporation Law. The Merger Agreement and Plan of
Reorganization is referred to in this Proxy Statement/Prospectus as the "Plan."
Specifics of the Proposed Merger. As a result of the merger:
o EMG will no longer exist,
o ETF will be the surviving corporation, and
o each share of common stock of EMG will convert into an
equivalent dollar amount (to the nearest one ten-thousandth of
one cent) of full shares of
common stock of ETF, based on the net asset value per share of
each Fund.
ETF will not issue any fractional shares to EMG shareholders. ETF's
transfer agent will aggregate all fractional shares, sell the resulting full
shares on the New York Stock Exchange, or the NYSE, at the current market price
for the shares and remit the cash proceeds to EMG shareholders in proportion to
their fractional shares. The currently issued and outstanding shares of ETF will
remain issued and outstanding. EMG shareholders will recognize no gain or loss
as a result of the merger, except with respect to any cash proceeds received
from the sale of fractional ETF shares. These shareholders will be treated for
federal income tax purposes as if they received fractional share interests and
then sold such interests for cash.
In connection with the merger, ETF will issue that number of shares that
have an aggregate net asset value equal to the aggregate net asset value of the
outstanding shares of EMG (disregarding fractional shares).
Each EMG shareholder, in connection with the merger, will receive full
shares of ETF having an aggregate net asset value (disregarding fractional
shares) equal to the aggregate net asset value of the shareholder's EMG shares
before the merger. While the total net asset value of shares received by each
EMG shareholder in the merger (disregarding fractional shares) will be the same
as before the merger, the market value of ETF shares that a EMG shareholder
receives in the merger will be less than the market value of EMG shares that
such shareholder owns immediately before the merger, assuming current market
discount levels persist.
EMG Tender Offer. The Board of Directors of EMG has determined that it is
in the best interests of that Fund to make a tender offer, which is referred to
in this Proxy Statement/Prospectus as the "Tender Offer," to acquire up to 50%
of its shares of common stock at a price per share equal to 95% of its net asset
value per share as of the end of the tender offer period. The Tender Offer will
be conditioned upon the approval of the Plan by the shareholders of both Funds
and will not occur unless these approvals are obtained and all other conditions
to the consummation of the merger are satisfied or waived. The Tender Offer will
be made pursuant to an Offer to Purchase that is being sent to the shareholders
of record of EMG on or about August ______, 2000. For more information about the
Tender Offer, see "Information About The Merger -- History of The Emerging
Markets Infrastructure Fund's Discount."
Future ETF Tender Offers. The Board of Directors of ETF has approved the
overall terms of a self-tender program that ETF intends to launch in the
calendar year 2001, which terms include the following: (i) ETF will make a
tender offer to acquire at least 15% of its outstanding shares during each
calendar year of the program; and (ii) the per share purchase price will be at
least 95% of ETF's net asset value per share. Implementation of the program is
conditioned on approval of the merger.
Information About The Funds. Both ETF and EMG are closed-end,
non-diversified management investment companies listed on the New York Stock
Exchange. Both funds seek long-term capital appreciation by investing primarily
in securities of companies in emerging countries. While ETF generally invests in
equity securities of telecommunication companies in emerging countries, EMG
generally invests in equity securities of infrastructure companies in
2
emerging countries. In addition, ETF may invest in equity or debt securities of
corporate or government issuers in developed countries, and in certain
short-term and medium-term debt instruments. The current investment objective
and policies of ETF will continue unchanged if the merger occurs.
The terms and conditions of the merger and related transactions are more
fully described in this Proxy Statement/Prospectus and in the Plan, a copy of
which is attached as Exhibit A.
This Proxy Statement/Prospectus serves as a prospectus for shares of ETF
under the Securities Act of 1933, which is referred to in this Proxy
Statement/Prospectus as the "Securities Act," in connection with the issuance of
ETF common shares in the merger.
Assuming the shareholders of the Funds approve the merger, the Funds will
jointly file articles of merger, or the Articles of Merger, with the State
Department of Assessments and Taxation of Maryland, or the Department. The
merger will become effective when the Department accepts for record the Articles
of Merger or at such later time, which may not exceed 30 days after the Articles
of Merger are accepted for record, as specified in the Articles of Merger. The
date when the Articles of Merger are accepted for record, or the later date, is
referred to in this Proxy Statement/Prospectus as the "Effective Date." EMG, as
soon as practicable after the Effective Date, will terminate its registration
under the Investment Company Act of 1940, which is referred to in this Proxy
Statement/Prospectus as the "Investment Company Act."
You should retain this Proxy Statement/Prospectus for future reference as
it sets forth concisely information about ETF and EMG that you should know
before voting on the proposals described below.
A Statement of Additional Information, which is referred to in this Proxy
Statement/Prospectus as the "SAI," dated _____, 2000, which contains additional
information about the merger and the Funds has been filed with the Securities
and Exchange Commission, or SEC. The SAI, the financial statements of ETF for
the fiscal year ended May 31, 1999 and the unaudited financial statements of ETF
for the six months ended November 30, 1999 and the financial statements of EMG
for the fiscal year ended November 30, 1999 and the unaudited financial
statements of EMG for the six months ended May 31, 2000 are incorporated by
reference into this Proxy Statement/Prospectus. A copy of these documents is
available upon request and without charge by writing to Shareholder
Communications Corporation, 17 State Street, New York, New York 10004, or by
calling 1-(800) 403-7916. You may ask questions about the Funds by calling
1-(800) 403-7916. ETF has provided the information included in this Proxy
Statement/Prospectus regarding that Fund. EMG has provided the information
included in this Proxy Statement/Prospectus regarding that Fund.
ETF's shares of common stock are listed on the NYSE under the symbol
"ETF". EMG's shares of common stock are listed on the NYSE under the symbol
"EMG". After the Effective Date, shares of common stock of ETF will continue to
be listed on the NYSE under the symbol "ETF". Reports, proxy materials and other
information concerning each Fund may be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
3
The SEC has not approved or disapproved these securities or determined if
this Proxy Statement/Prospectus is truthful or complete. To state otherwise is a
crime.
The date of this Proxy Statement/Prospectus is , 2000
4
TABLE OF CONTENTS
Page
GENERAL................................................................7
PROPOSAL 1 (BOTH FUNDS): APPROVAL OF THE MERGER AGREEMENT AND
PLAN OF REORGANIZATION PURSUANT TO WHICH THE EMERGING MARKETS
INFRASTRUCTURE FUND WILL MERGE WITH AND INTO THE EMERGING
MARKETS TELECOMMUNICATIONS FUND........................................9
EXPENSE TABLE...................................................17
FINANCIAL HIGHLIGHTS............................................19
RISK FACTORS AND SPECIAL CONSIDERATIONS.........................23
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES................31
UNITED STATES FEDERAL INCOME TAXES..............................39
INFORMATION ABOUT THE MERGER....................................41
ADDITIONAL INFORMATION ABOUT THE FUNDS..........................49
MANAGEMENT OF THE FUNDS.........................................60
EXPERTS.........................................................69
REQUIRED VOTE...................................................69
LEGAL PROCEEDINGS...............................................69
LEGAL OPINIONS..................................................69
PROPOSAL 2 (EMERGING MARKETS TELECOMMUNICATIONS FUND SHAREHOLDERS
ONLY): APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT..................70
BACKGROUND......................................................70
BOARD RECOMMENDATION............................................70
BOARD CONSIDERATIONS; REASONS FOR THE NEW INVESTMENT ADVISORY
AGREEMENT.......................................................70
INFORMATION CONCERNING CREDIT SUISSE GROUP AND CSAM.............71
DESCRIPTION OF CURRENT INVESTMENT ADVISORY AGREEMENT............71
THE NEW INVESTMENT ADVISORY AGREEMENT...........................72
DIFFERENCES BETWEEN THE CURRENT AND THE NEW INVESTMENT ADVISORY
AGREEMENT.......................................................73
5
REQUIRED SHAREHOLDER VOTE.......................................73
PROPOSAL 3 (EMERGING MARKETS TELECOMMUNICATIONS FUND SHAREHOLDERS
ONLY): RE-ELECTION OF DIRECTORS.......................................74
BACKGROUND......................................................74
REQUIRED SHAREHOLDER VOTE.......................................76
PROPOSAL 4 (EMERGING MARKETS TELECOMMUNICATIONS FUND SHAREHOLDERS
ONLY): RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS....77
BACKGROUND......................................................77
REQUIRED SHAREHOLDER VOTE.......................................77
PROPOSAL 5 (EMERGING MARKETS TELECOMMUNICATIONS FUND SHAREHOLDERS
ONLY): SHAREHOLDER PROPOSAL REQUESTING THAT ETF'S BOARD OF DIRECTORS
PRESENT FOR SHAREHOLDER APPROVAL A PROGRAM TO PERMIT ETF SHAREHOLDERS TO
REALIZE NET ASSET VALUE FOR THEIR SHARES..............................78
BACKGROUND......................................................78
SHAREHOLDER PROPOSAL............................................78
SUPPORTING STATEMENTS...........................................78
REQUIRED SHAREHOLDER VOTE.......................................78
OPPOSING STATEMENT OF THE BOARDS OF DIRECTORS...................79
ADDITIONAL INFORMATION................................................80
EXHIBIT A - FORM OF MERGER AGREEMENT AND PLAN OF REORGANIZATION......A-1
EXHIBIT B - FORM OF NEW CSAM INVESTMENT ADVISORY AGREEMENT...........B-1
6
GENERAL
This Proxy Statement/Prospectus is furnished to the shareholders of the
Funds in connection with the solicitation of proxies on behalf of the Boards of
Directors of ETF and EMG. The Board of Directors of each Fund is soliciting
proxies for use at the meetings. The mailing address for both Funds is 466
Lexington Avenue, 16th Floor, New York, New York 10017.
This Proxy Statement/Prospectus, the Notice of Meeting to Shareholders and
the proxy card(s) are first being mailed to shareholders on or about August 4,
2000 or as soon as practicable thereafter. Any shareholder who gives a proxy
has the power to revoke the proxy either:
o by mail, addressed to the Secretary of the respective Fund, at
the Fund's mailing address, or
o in person at the special meeting
by executing a superseding proxy or by submitting a notice of revocation to the
respective Fund. All properly executed proxies received in time for the meetings
will be voted as specified in the proxy or, if no specification is made, in
favor of each proposal for that Fund referred to in the Proxy
Statement/Prospectus.
Shareholders of ETF and EMG will be asked to vote on Proposal 1 -- the
approval of the Plan. Shareholders of ETF will also be asked to vote on Proposal
2 -- the approval of the new investment advisory agreement that provides for a
reduced advisory fee to CSAM -- Proposal 3 -- the re-election of James J.
Cattano and William W. Priest, Jr. to ETF's Board of Directors -- Proposal 4 --
the ratification of the selection of PricewaterhouseCoopers LLP as ETF's
independent public accountants-- and Proposal 5 -- a shareholder proposal
requesting that ETF's Board of Directors present for shareholder approval a
program to permit ETF shareholders to realize net asset value for their shares.
The presence, either in person or by proxy, of the holders of a majority
of the outstanding shares of common stock entitled to vote at a meeting of a
Fund, will constitute a quorum for the transaction of business by such Fund. For
purposes of determining the presence of a quorum for transacting business at a
meeting, abstentions and broker "non-votes" will be treated as shares that are
present. Broker non-votes are proxies received by a Fund from brokers or
nominees, indicating that the broker or nominee has neither received
instructions from the beneficial owner or other persons entitled to vote nor has
the discretionary power to vote on a particular matter. Shareholders are urged
to forward their voting instructions promptly.
Proposal 1 requires the affirmative vote of a majority of the outstanding
shares of common stock of each Fund.
Proposal 2 to be submitted at the annual meeting of shareholders of ETF
requires the affirmative vote of a "majority of outstanding voting securities"
of ETF. A "majority of outstanding voting securities" is defined under the
Investment Company Act to mean the lesser of
o 67% of the shares of a fund's common stock represented at a
meeting at which more than 50% of the outstanding shares of
that fund's common stock are represented, or
7
o more than 50% of the outstanding shares of common stock.
Proposal 3 to be submitted at the annual meeting of shareholders of ETF
requires the affirmative vote of a plurality of the votes cast at such meeting
in person or by proxy. Proposals 4 and 5 to be submitted at the annual meeting
of shareholders of ETF require the affirmative vote of a majority of the votes
cast at such meeting in person or by proxy.
Abstentions and broker non-votes will have the effect of a "no" vote for
each of Proposals 1 and 2 and will have no effect on Proposals 3, 4 and 5.
Proxy solicitations will be made primarily by mail, but solicitations may
also be made by telephone, telegraph or personal interviews conducted by
officers or employees of the Funds, CSAM, the investment adviser to the Funds,
Bear Stearns Funds Management Inc., the U.S. administrator to the Funds, or
Shareholder Communications Corporation, a proxy solicitation firm retained by
each Fund and entitled to receive a fee of approximately $7,500 per Fund and
reimbursement for its reasonable expenses. The Funds will bear costs of
solicitation, including:
o printing and mailing of this Proxy Statement/Prospectus and
accompanying material,
o the reimbursement of brokerage firms and others for their
expenses in forwarding solicitation material to the beneficial
owners of each Fund's shares,
o payment to Shareholder Communications Corporation, for its
services in soliciting proxies, and
o supplementary solicitations to submit proxies.
Only shareholders of record of each Fund at the close of business on June
30, 2000, the Record Date, are entitled to vote. An outstanding share of each
Fund is entitled to one vote on all matters voted upon at a meeting of the
shareholders of that Fund. As of June 30, 2000, there were approximately
7,100,820 shares of ETF outstanding, and approximately 11,175,955 shares of EMG
outstanding.
ETF and EMG provide periodic reports to all of their shareholders. These
reports highlight relevant information including investment results and a review
of portfolio changes for each Fund. You may receive a copy of the most recent
annual report for ETF or EMG and a copy of any more recent interim report,
without charge, by calling 1-(800)-403-7916 or writing to Shareholder
Communications Corporation, 17 State Street, New York, New York 10004.
The Boards of Directors of the Funds know of no business other than the
proposals described above which will be presented for consideration at the
meetings. If any other matter is properly presented, it is the intention of the
persons named in the enclosed proxy to vote on that matter in their discretion.
8
PROPOSAL 1 (BOTH FUNDS): APPROVAL OF THE MERGER AGREEMENT AND PLAN OF
REORGANIZATION PURSUANT TO WHICH THE EMERGING MARKETS INFRASTRUCTURE FUND WILL
MERGE WITH AND INTO THE EMERGING MARKETS TELECOMMUNICATIONS FUND
On May 8, 2000, the Boards of Directors of ETF and EMG, including a
majority of the directors of each Fund who are not "interested persons" of the
respective Fund, or the Non-interested Directors, unanimously:
o declared the merger of EMG with and into ETF advisable,
o approved entering into the Plan, and
o recommended that the Plan be approved by the shareholders of
each Fund.
For more information about the merger, see "Information about the Merger."
The Plan is subject to the approval of the shareholders of both Funds and
certain other conditions. It provides for the merger, which is referred to in
this Proxy Statement/Prospectus as the "Merger," of EMG with and into ETF, both
Maryland corporations, in accordance with the Maryland General Corporation Law,
or MGCL. As a result of the Merger:
o EMG will no longer exist,
o ETF will be the surviving corporation, and
o each share of common stock of EMG will convert into an
equivalent dollar amount (to the nearest one ten-thousandth of
one cent) of full shares of common stock of ETF, based on the
net asset value per share of each Fund calculated at 4:00 p.m.
on the business day preceding the Effective Date.
ETF will not issue any fractional shares to EMG shareholders. ETF's
transfer agent will aggregate all fractional shares, sell the resulting full
shares on the NYSE at the current market price for the shares and remit the cash
proceeds to shareholders of EMG in proportion to their fractional shares. ETF's
shares outstanding as of the Effective Date will remain issued and outstanding.
In connection with the Merger, ETF will issue that number of shares that have an
aggregate net asset value equal to the aggregate net asset value of the
outstanding shares of EMG (disregarding fractional shares). EMG will terminate
its registration under the Investment Company Act after the Merger.
In addition, as a consequence of the Merger, each shareholder of EMG will
become a shareholder of ETF. On the Effective Date, each shareholder of EMG will
receive full shares of common stock of ETF having an aggregate net asset value
(disregarding fractional shares) equal to the aggregate net asset value of such
shareholder's shares held in EMG as of the close of business on the Business Day
preceding the Effective Date. A "Business Day" is any day on which the NYSE is
open for trading.
A copy of the Plan is attached to this Proxy Statement/Prospectus as
Exhibit A, and the description of the Plan included in this Prospectus/Proxy
Statement is qualified in its entirety by reference to Exhibit A.
9
The following provides a more detailed discussion about the Merger, each
Fund and additional information that you may find helpful in deciding how to
vote on the Merger Agreement.
10
SYNOPSIS
This summary highlights important information included in this Proxy
Statement/Prospectus. This summary is qualified by reference to the more
complete information included elsewhere in this Proxy Statement/Prospectus and
the Plan. Shareholders of the Funds should read this entire Proxy
Statement/Prospectus carefully.
The Proposed Merger. The Boards of Directors of ETF and EMG, including the
Non-interested Directors of each Fund, have unanimously approved the Plan. The
Plan provides for the merger of EMG with and into ETF. If approved, the Merger
is expected to be consummated shortly after the completion of the Tender Offer.
As a result of the Merger:
o each share of common stock of EMG will convert into an
equivalent dollar amount (to the nearest one ten-thousandth of
one cent) of full shares of common stock of ETF, based on the
net asset value per share of each Fund calculated at 4:00 pm
on the Business Day preceding the Effective Date;
o each shareholder of EMG will become a shareholder of ETF and
will receive, on the Effective Date, that number of full
shares of common stock of ETF having an aggregate net asset
value equal to the aggregate net asset value of such
shareholder's shares held in EMG (disregarding fractional
shares) as of the close of business on the Business Day
preceding the Effective Date; and
o ETF will not issue any fractional shares to EMG shareholders.
ETF's transfer agent will aggregate all fractional shares,
sell the resulting full shares on the NYSE at the current
market price for the shares and remit the cash proceeds to
shareholders of EMG in proportion to their fractional shares.
The Board of Directors of EMG also has determined that it is in the best
interests of that Fund to make a Tender Offer to acquire up to 50% of its shares
of common stock at a price per share equal to 95% of its net asset value per
share as of the end of the Tender Offer period. The Tender Offer will be
conditioned upon the approval of the Plan by the shareholders of both Funds and
will not occur unless these approvals are obtained and all other conditions to
the consummation of the Merger are satisfied or waived. For more information
about the Tender Offer, see "Information About the Merger -- History of the
Emerging Markets Infrastructure Fund's Discount."
In addition, the Board of Directors of ETF has approved a self-tender
program that the Fund intends to launch in the calendar year 2001. The basic
terms of the self-tender program include the following:
o ETF will make a tender offer to acquire at least 15% of its
outstanding shares during each calendar year of the program,
and
o the per share purchase price will be at least 95% of the
Fund's net asset value per share.
The implementation of this program is conditioned on the approval of the
Merger. For more information about this program, see "Additional Information
About The Funds - Discount to Net Asset Value."
11
For the reasons set forth below under "Information about the Merger -
Reasons for the Merger," the Boards of Directors of ETF and EMG, including the
Non-interested Directors of each Fund, have unanimously concluded that:
o the Merger is in the best interests of each respective Fund,
and
o the interests of existing shareholders of each respective Fund
will not be diluted as a result of the transactions
contemplated by the Plan.
Accordingly, the Board of Directors of each Fund recommends approval of
the Merger. If the Merger is not approved, each Fund will continue as a separate
investment company, and the Board of Directors of each Fund will consider such
other alternatives as it determines to be in the best interests of its
shareholders.
The Merger is subject to the receipt of regulatory approvals. These
approvals have been requested, although there can be no assurance when or if
they will be obtained.
Form of Organization. Both Funds are closed-end, non-diversified
management investment companies registered under the Investment Company Act. ETF
was organized as a Maryland corporation in 1992 and EMG was organized as a
Maryland corporation in 1993. Each Fund's Board of Directors is responsible for
the management of the business and affairs of each Fund, including the
supervision of the duties performed by each Fund's investment manager.
Investment Objectives and Policies. Each Fund seeks long-term capital
appreciation as its objective. The Funds seek their objectives by investing
primarily in equity securities of companies in emerging markets. For a
description of emerging markets equity securities, see "Comparison of Investment
Objectives and Policies." Under normal conditions, ETF invests at least 65% of
its total assets in equity securities of telecommunications companies in
emerging countries, while EMG invests at least 70% of its total assets in equity
securities of infrastructure companies in emerging countries. Each of the
foregoing investment objectives and policies are fundamental, and can only be
changed with the approval of the holders of a majority of each Fund's
outstanding voting securities as defined under the Investment Company Act.
Although both Funds intend to focus their investments in listed equity
securities, ETF may invest up to 25% of its assets in, and EMG may invest up to
30% of its assets in, unlisted equity securities, including investments in new
and early stage companies. To the extent not invested as indicated above, ETF
may also invest its assets in corporate or government debt securities of
emerging market issuers. Both Funds may also invest in certain high quality
short- and medium-term debt instruments deemed to be Temporary Investments. For
a definition of Temporary Investments, see "Comparison of Investment Objectives
and Policies."
The preceding summary of the Funds' investment objectives and certain
policies should be considered in conjunction with the discussion below under
"Risk Factors and Special Considerations" and "Comparison of Investment
Objectives and Policies."
Fees and Expenses--The Emerging Markets Telecommunications Fund. CSAM,
formerly known as BEA Associates, serves as ETF's investment adviser. As
compensation for its advisory services, CSAM is contractually entitled to
receive from the Fund an annual fee, calculated weekly and paid quarterly, equal
to:
12
o 1.25% of the first $100 million of the Fund's average weekly
net assets,
o 1.125% of the next $100 million of the Fund's average weekly
net assets, and
o 1.00% of the Fund's average weekly net assets in excess of
$200 million.
For the fiscal year ended May 31, 2000, CSAM earned $1,524,224 for
advisory services. CSAM also provides certain administrative services to the
Fund and is reimbursed by the Fund for costs incurred on behalf of the Fund (up
to $20,000 per annum). For the fiscal year ended May 31, 2000, CSAM was
reimbursed $14,040 for administrative services rendered to the Fund.
On July 24, 2000, ETF's Board of Directors approved a new investment
advisory agreement with CSAM, subject to shareholder approval. The new
investment advisory agreement with CSAM will be substantially similar to the
Fund's current investment advisory agreement except that the calculation of the
investment advisory fees will be based on the lower of the average weekly market
value of ETF's outstanding shares or ETF's average weekly net asset value. ETF
shareholders are being asked to approve the new investment advisory agreement.
CSAM has voluntarily agreed to waive any fees in excess of the foregoing
amounts, commencing July 1, 2000 and continuing through the date of ETF's annual
meeting of shareholders. For more information about the new investment advisory
agreement, see "Proposal 2 (Emerging Markets Telecommunications Fund
Shareholders Only): Approval of New Investment Advisory Agreement."
Bear Stearns Funds Management Inc., or BSFM, serves as ETF's U.S.
administrator. The Fund pays BSFM a monthly fee for its services. This fee is
computed weekly at an annual rate of 0.12% of the Fund's average weekly net
assets. For the fiscal year ended May 31, 2000, BSFM earned $151,157 for
administrative services.
Fleet National Bank, or Fleet, and CELFIN Administradora de Fondos de
Inversion de Capital Extranjero S.A., or Celfin, serve as ETF's Brazilian and
Chilean administrators, respectively. For the fiscal year ended May 31, 2000,
Celfin earned $54,670 for administration services. Fleet was paid its fee out of
the custody fee payable to Brown Brothers Harriman & Co., ETF's accounting agent
and custodian.
For the fiscal year ended May 31, 2000, ETF's total expense ratio was
2.24%. The Fund's total expense ratio is the ratio of total annual operating
expenses to average net assets, including taxes.
Fees and Expenses--The Emerging Markets Infrastructure Fund. CSAM also
serves as EMG's investment adviser. As compensation for its advisory services,
CSAM is contractually entitled to receive from the Fund an annual fee,
calculated weekly and paid quarterly, equal to 1.30% of the Fund's average
weekly net assets.
For the fiscal year ended November 30, 1999, CSAM earned $1,922,776 for
advisory services. CSAM also provides certain administrative services to the
Fund and is reimbursed by the Fund for costs incurred on behalf of the Fund (up
to $20,000 per annum). For the fiscal year ended November 30, 1999, the Fund
reimbursed CSAM $19,998 for administrative services rendered to the Fund.
EMG's Board of Directors recently approved a proposal by CSAM to base the
investment advisory fees on the lower of the average weekly market value of the
Fund's outstanding shares or the
13
Fund's average weekly net asset value. This new fee structure became effective
on July 1, 2000 through a voluntary fee waiver by CSAM. If the Merger does not
occur, EMG's Board of Directors will submit a new investment advisory agreement,
reflecting the change in fee calculation, at the next shareholders' meeting. For
information regarding submission of a new investment advisory agreement
containing a similar new fee structure to ETF shareholders reflecting the same
change, see "Proposal 2 (Emerging Markets Telecommunications Fund Shareholders
Only): Approval of a New Investment Advisory Agreement."
BSFM also serves as EMG's U.S. administrator. The Fund pays BSFM a monthly
fee that is computed weekly at an annual rate of 0.12% of the Fund's average
weekly net assets. For the fiscal year ended November 30, 1999, BSFM earned
$177,488 for administrative services.
Fleet and Celfin also serve as EMG's Brazilian and Chilean administrators,
respectively. For the fiscal year ended November 30, 1999, Celfin earned $64,999
for administrative services. Fleet was paid its fee out of the custody fee
payable to Brown Brothers Harriman & Co., EMG's accounting agent and custodian.
For the fiscal year ended November 30, 1999, EMG's total expense ratio was
2.33%, and is currently 2.45% based on the operating expenses for the first six
months of 2000. The Fund's total expense ratio is the ratio of total annual
operating expenses to the average net assets, including taxes.
The expense ratio of ETF is projected to be approximately 1.70% after
giving effect to the Merger and assuming that the new investment advisory
agreement is approved and the Tender Offer is fully subscribed. The actual
expense ratios for ETF for the current and future fiscal years, if the Merger
occurs, may be higher or lower than this projection and depend upon ETF's
performance, general stock market and economic conditions, net asset levels,
stock price and other factors.
See "Expense Table" below for the current expenses of each Fund and pro
forma expenses following the Merger.
Unrealized Capital Gains. As of May 31, 2000, ETF had approximately
$7,677,708 of unrealized capital gains, representing approximately 5.89% of its
net assets. As of that same date, EMG had approximately $380,968 of unrealized
capital losses, representing approximately 0.25% of its net assets. As of May
31, 2000, ETF had approximately $14,940,420 of capital loss carryforwards. EMG
had approximately $48,668,543 of capital loss carryforwards as of November 30,
1999.
Both Funds will pay their shareholders a cash distribution of
substantially all undistributed 2000 net investment income prior to the
Effective Date. It is expected that any undistributed realized net capital
gains, including any that EMG may realize as a result of disposing of portfolio
securities to raise funds to finance the Tender Offer, will be offset through
the utilization of capital loss carryforwards prior to the Effective Date.
Federal Income Tax Consequences of the Merger. As a condition to the
closing of the Merger, both Funds will receive an opinion of Willkie Farr &
Gallagher, counsel to the Funds and CSAM, stating that the Merger will
constitute a tax-free reorganization within the meaning of Section 368(a)(1) of
the Internal Revenue Code of 1986, or the Code. Accordingly, neither EMG, ETF
nor the shareholders of either Fund will recognize any gain or loss as a result
of the Merger, except with
14
respect to the shareholders of EMG who receive cash proceeds from the sale of
fractional share interests. These shareholders will be treated for federal
income tax purposes as if they received such fractional share interests and then
sold such interests for cash. The holding period and the aggregate tax basis of
ETF shares (including fractional shares) received by a EMG shareholder will be
the same as the holding period and aggregate tax basis of the shares of EMG
previously held by the shareholder. The holding period and the aggregate tax
basis of the assets received by ETF in the Merger will be the same as the
holding period and the tax basis of such assets in the hands of EMG immediately
before the Merger. For more information about the tax consequences of the
Merger, see "Information about the Merger - Tax Considerations."
Discount from Net Asset Value. Shares of closed-end funds frequently trade
at a market price that is less than the value of the fund's net assets. The
possibility that shares of ETF will trade at a discount from its net asset value
is a risk separate and distinct from the risk that the Fund's net asset value
will decrease. Except for limited periods of time, ETF's shares have traded in
the market at a discount, and, as of May 15, 2000, the last trading day
immediately before the announcement of the Merger and the Tender Offer, and July
__, 2000, traded at a market price discount of 22.17% and ____%, respectively.
Similarly, EMG shares have traded in the market at a discount and, as of those
same dates, traded at a market price discount of 22.16% and ____%, respectively.
Recently, EMG's market discount has narrowed substantially. Management
believes that this narrowing is largely attributable to market activity
following the announcement of the Tender Offer and other initiatives described
in this Proxy Statement/Prospectus. In contrast, as of the date of this Proxy
Statement/Prospectus, ETF's market discount remains at or near higher historical
levels. If this pattern continues, the total market value of ETF shares issued
to EMG shareholders on the Effective Date will be less than the total market
value of EMG shares outstanding immediately prior to the Effective Date,
although their total net asset values will be the same (disregarding fractional
shares). While the current disparity of market discounts would cause EMG
shareholders to receive shares in the Merger with a lower aggregate market
value, shareholders should consider that, over time, there has not been a
significant disparity between the two Fund's market discount levels.
Accordingly, the Boards' recommendations are based on long-term average market
discount levels. In other words, the initiatives described in this Proxy
Statement/Prospectus have led to a situation that the Boards believe is a
temporary aberration, but which could cause a EMG shareholder to receive assets
(ETF shares) that are less valuable, from a market value perspective only, than
the assets (EMG shares) owned immediately prior to the transaction. Over time,
the deviations in market discounts between the Funds have not been significant,
and, although there can be no assurance, the Board of Directors of ETF believes
that the initiatives described in this Proxy Statement/Prospectus should have
the effect of reducing the discount at which ETF shares trade. The discount
level of the Funds may be different at the time the Merger occurs. For more
information, see "Additional Information about the Funds - Discount to Net Asset
Value."
Expenses of the Merger. In evaluating the proposed Merger, CSAM has
estimated the amount of expenses the Funds would incur, including NYSE listing
fees, SEC registration fees, financial adviser fees, legal and accounting fees
and proxy and distribution costs and expenses incurred in connection with the
Tender Offer. The estimated total expenses pertaining to the Merger and the
Tender Offer are $ . The aggregate amount of estimated expenses of the Merger
will be allocated equally between the Funds, including the SEC registration fees
and the fees for listing additional shares of ETF on the NYSE. However, EMG will
be responsible for the estimated expenses of the Tender Offer, and each Fund
will be responsible for its pro rata share of the financial advisory
15
fees. This pro rata share will be based on a fraction, the numerator of which is
the net assets of the respective Fund as of February 1, 2000 and the denominator
of which is the net assets, as of such date, of all the closed-end funds advised
by CSAM who have engaged PaineWebber Incorporated, or PaineWebber, as the
financial adviser.
The expenses of the Merger are expected to result in a reduction in net
asset value per ETF share of approximately $_____, and a reduction in net asset
value per EMG share of approximately $______. The expenses related to the Tender
Offer, estimated at $________, will reduce the net asset value per share of EMG
by approximately $_________.
16
EXPENSE TABLE
PRO FORMA
EMERGING MARKETS EMERGING MARKETS POST-MERGER
TELECOMMUNICATIONS INFRASTRUCTURE AND TENDER
FUND FUND OFFER (1)
-------------- ---------------- ------------
SHAREHOLDER
TRANSACTION EXPENSES
Sales Load (as a percentage NONE NONE NONE
of offering price)
Dividend Reinvestment and $5(2) $5(2) $5(2)
Cash Purchase Plan Fees
ANNUAL FUND OPERATING
EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS) (3)
Investment Management and 1.40% 1.48% 1.05%(5)
Administration Fees (4)
Interest Payments on 0% 0% 0%
Borrowed Funds
Other Expenses 0.71% 0.72% 0.65%
Total Annual Expenses 2.11% 2.20% 1.70%
- -----------------
(1) Assumes that the Tender Offer is fully subscribed.
(2) For cash purchases.
(3) The percentages in the above table expressing annual fund operating
expenses are based on The Emerging Markets Telecommunications Fund's
operating expenses for the fiscal year ended May 31, 2000 and The Emerging
Markets Infrastructure's Fund's operating expenses for the fiscal year
ended November 30, 1999. "Other Expenses" include fees for shareholder
services, custody, legal and accounting services, printing costs, the
costs involved in communication with shareholders and the costs of
regulatory compliance, maintaining corporate existence and the listing of
the shares of common stock on the NYSE. These figures do not reflect the
expenses of the Merger or the Tender Offer.
(4) CSAM is contractually entitled to receive 1.25% of the first $100 million
of ETF's average weekly net assets, 1.125% of the next $100 million and
1.00% of amounts in excess of $200 million and 1.30% of EMG's average
weekly net assets. As of July 1, 2000, the investment advisory fees paid
to CSAM by both Funds are based on the Fund's market capitalization rather
than net assets whenever the stock price is less than net asset value. For
more information about each Fund's investment management and
administrative fees, see "Synopsis-Fees and Expenses - The Emerging
Markets Telecommunications Fund" and "Synopsis-Fees and Expenses-The
Emerging Markets Infrastructure Fund."
(5) Assumes approval of Proposal 2.
Example. The purpose of the following example is to help you understand
the costs and expenses you may bear as an investor. This example is based on the
level of total annual operating expenses for each Fund listed in the table
above, the total expenses relating to a $10,000 investment, assuming a 5% annual
return and reinvestment of all dividends and distributions. Shareholders do not
pay these expenses directly; they are paid by the Funds before
17
they distribute net investment income to shareholders. This example should not
be considered a representation of future expenses, and actual expenses may be
greater or less than those shown. Federal regulations require the example to
assume a 5% annual return, but actual annual returns will vary.
The Emerging The Emerging
Markets Markets
Telecommunications Infrastructure Pro Forma
Fund Fund Post-Merger
------------------ -------------------- -----------
1 Year $214 $223 $173
3 Years $661 $688 $536
5 Years $1,134 $1,180 $923
10 Years $2,441 $2,334 $2,009
Performance. The table below provides performance data for period ended
May 31, 2000 for ETF and the period ended November 30, 1999 for EMG based on
each Fund's net asset value and market value. Past performance is not a
guarantee of future results, and it is not possible to predict whether or how
investment performance will be affected by the Merger. The seven-year comparison
has been included to illustrate the comparative performance of both Funds during
a period which closely approximates the period during which both Funds were in
existence and EMG was fully invested.
THE EMERGING MARKETS THE EMERGING MARKETS
TELECOMMUNICATIONS FUND INFRASTRUCTURE FUND
----------------------- --------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------- ---------- -------
Net Asset One Year 51.40% 51.40% 34.40% 34.40%
Value
Three Year 29.64% 9.03% 3.40% 1.12%
Five Year 70.12% 11.20% (1.06)% (0.21)%
Seven Year 64.65% 8.08% N/A N/A
Since
inception(1) 178.32% 13.76% 0.94% 0.16%
Market Value One Year 37.58% 37.58% 30.93% 30.93%
Three Year 18.18% 5.71% (9.73)% (3.35)%
Five Year 35.38% 6.22% (17.28)% 3.72%
Seven Year (4.06)% (0.64)% N/A N/A
Since
inception(1) 103.14% 9.33% (29.56)% (5.75)%
- -----------------
(1) ETF commenced operations on June 25, 1992. EMG commenced operations on
December 29, 1993.
18
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand the financial
performance of ETF and EMG. This information is derived from financial and
accounting records of each Fund.
This information has been audited, except as noted, by
PricewaterhouseCoopers LLP, the Funds' independent auditors, whose reports,
along with the Funds' financial statements, are incorporated herein by reference
and included in the Funds' Annual Reports to Shareholders. The Annual Reports
may be obtained without charge, by writing to Shareholder Communications
Corporation, 17 State Street, New York, New York 10004, or by calling 1-(800)
403-7916.
19
The Emerging Markets Telecommunications Fund, Inc.
Financial Highlights
===============================================================================
- -------------------------------------------------------------------------------
The following table includes per share operating performance data for a share of
common stock outstanding, total investment return, ratios to average net assets
and other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
- -------------------------------------------------------------------------------
For the Fiscal Years Ended May 31,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
(unaudited)
------ ------ ------ ------ ------ ------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period....................... $12.12 $ 16.36 $ 21.53 $ 20.94 $ 19.20 $20.90
------ -------- -------- ------- -------- ------
Net investment income/(loss)... (0.20)# (0.04)# (0.06) 0.10 0.27 0.11
Net realized and unrealized
gain/(loss) on investments
and foreign currency related
transactions................. 6.14 (2.41)# (1.40) 2.86 1.91 0.01
------ -------- -------- ------- -------- ------
Net increase/(decrease) in net
assets resulting from
operations................... 5.94 (2.45) (1.46) 2.96 2.18 0.12
------ -------- -------- ------- -------- ------
Dividends and distributions to
shareholders:
Net investment income........ -- -- (0.09) (0.27) (0.04) (0.04)
Net realized gain on
investments and foreign
currency related
transactions................ -- (1.96) (3.62) (2.10) (0.40) (1.78)
Total dividends and
distributions to shareholders -- (1.96) (3.71) (2.37) (0.44) (1.82)
------ -------- -------- ------- -------- ------
Anti-dilutive impact due to
shares of beneficial
interest repurchased......... 0.29 0.17 -- -- -- --
------ -------- -------- ------- -------- ------
Net asset value, end of period. $18.35 $ 12.12 $ 16.36 $ 21.53 $ 20.94 $ 19.20
====== ======== ======== ======= ======== =======
Market value, end of period.... $13.50 $ 9.813 $ 13.000 $ 17.375 $ 17.375 $ 17.750
====== ======== ======== ======= ======== =======
Total investment return (a).... 37.58% (9.99)% (4.57)% 14.31% 0.21% (13.94)%
====== ======== ======== ======= ======== =======
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period (000
omitted)..................... $130,300 $94,026 $138,023 $181,627 $176,628 $161,925
Ratio of expenses to average
net assets (b)............. 2.24% 2.09% 2.32% 1.90% 1.77% 1.89%
Ratio of expenses to average
net assets, excluding taxes.. 2.04% 2.01% 1.82% 1.82% -- --
Ratio of net investment
income/(loss) to average
net assets.................. (1.15)% (0.33)% (0.29)% 0.52% 1.40% 0.53%
Portfolio turnover rate......... 113.75% 179.66% 162.58% 42.14% 27.71% 14.29%
20
For Years Ended May 31, For the Period June 25,
----------------------- 1992* through
1994 May 31, 1993
----------------------- -----------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......................... $ 14.95 $ 13.84**
--------------------- --------------------
Net investment income/(loss)................................. 0.13 0.16
Net realized and unrealized gain/(loss) on investments and
foreign currency related transactions...................... 7.03+ 1..20
--------------------- --------------------
Net increase/(decrease) in net assets resulting from
operations................................................. 7.16 1.36
--------------------- --------------------
Dividends and distributions to shareholders:
Net investment income...................................... (0.15) (0.14)
--------------------- --------------------
Net realized gain on investments and foreign currency
related transactions...................................... (1.06) (0.11)
--------------------- --------------------
Total dividends and distributions to shareholders............ (1.21) (0.25)
--------------------- --------------------
Anti-dilutive impact due to shares of beneficial interest
repurchased................................................ -- --
--------------------- --------------------
Net asset value, end of period............................... $ 20.90 $ 14.95
===================== ====================
Market value, end of period.................................. $ 22.750 $ 14.500
===================== ====================
Total investment return (a).................................. 64.74% 5.85%
===================== ====================
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)...................... $ 176,253 $125,338
Ratio of expenses to average net assets (b) ................. 1.81% 1.99%(c)
Ratio of expenses to average net assets, excluding taxes..... -- --
Ratio of net investment income to average net assets......... 0.63% 2.02%(c)
Portfolio turnover rate...................................... 43.98% 22.55%
- -----------------
* Commencement of investment operations.
** Initial public offering price of $15.00 per share less underwriting discount
of $1.05 per share and offering expenses of $0.11 per share.
+ Includes a $0.03 per share increase to the Fund's net asset value per share
resulting from the anti-dilutive impact of shares issued pursuant to the
Fund's automatic dividend reinvestment plan in January 1997.
# Based on average shares outstanding.
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of dividends and
distributions, if any, at actual prices pursuant to the Fund's dividend
reinvestment program. Total investment return does not reflect brokerage
commissions or initial underwriting discounts and has not been annualized.
(b) Ratios shown are inclusive of Brazilian transaction and Chilean repatriation
taxes, if any.
(c) Annualized.
21
The Emerging Markets Infrastructure Fund, Inc.
Financial Highlights
================================================================================
- --------------------------------------------------------------------------------
The following table includes per share operating performance data for a share of
common stock outstanding, total investment return, ratios to average net assets
and other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
- --------------------------------------------------------------------------------
For the For the
Six Period
Months December
Ended 29, 1993*
May 31, For the Fiscal Years Ended November 30, through
-------- ---------------------------------------------------------- November
2000 1999 1998 1997 1996 1995 30, 1994
-------- -------- -------- ------- ------ ------ -----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............ $ 9.60 $ 14.69 $ 13.39 $ 11.60 $ 14.17 $ 13.89**
------ ------- -------- -------- --------- ---------- --------
Net investment income/(loss).................... (0.05)+ 0.08 0.07 0.12 0.07 (0.01)
Net realized and unrealized gain/(loss) on
investments and foreign currency related
transactions.................................. 2.97 (4.71) 1.32 1.76 (2.59) 0.29
------ ------- -------- -------- --------- ---------- --------
Net increase/(decrease) in net assets resulting
from operations............................... 2.92 (4.63) 1.39 1.88 (2.52) 0.28
------ ------- -------- -------- --------- ---------- --------
Dividends and distributions to shareholders:
Net investment income......................... (0.16) (0.03) (0.09) (0.09) (0.03) --
Net realized gain on investments and foreign
currency related transactions................ -- (0.43) -- -- (0.02) --
------ ------- -------- -------- --------- ---------- --------
Total dividends and distributions to shareholders (0.16) (0.46) (0.09) (0.09) (0.05) --
------ ------- -------- -------- --------- ---------- --------
Anti-dilutive effect of Tender Offer............ 0.14 -- -- -- -- --
Anti-dilutive effect of the Share Repurchase
Program....................................... 0.17 -- -- -- -- --
------ ------- -------- -------- --------- ---------- --------
Total anti-dilutive effect of Tender Offer and
the Share Repurchase Program.................. 0.31 -- -- -- -- --
====== ======= ======== ======== ========= ========== ========
Net asset value, end of period.................. $ 12.67 $ 9.60 $14.69 $ 13.39 $ 11.60 $ 14.17
====== ======= ======== ======== ========= ========== ========
Market value, end of period..................... $ 9.563 $ 7.440 $11.250 $ 10.750 $ 9.750 $ 11.88
====== ======= ======== ======== ========= ========== ========
Total investment return (a)..................... 30.93% (29.60)% 5.46% 11.11% (17.49)% (14.87)%
====== ======= ======== ======== ========= ========== ========
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)......... $150,362 $ 154,670 $236,536 $ 215,735 $186,921 $228,171
Ratio of expenses to average net assets #....... 2.33% 2.07% 2.02% 1.81% 1.83% 2.02%(b)
Ratio of expenses to average net assets, 2.31% 1.91% 1.83% -- -- 1.96%(b)
excluding taxes...............................
Ratio of net investment income/(loss) to average (0.40)% 0.72% 0.46% 0.90% 0.65% (0.13)%(b)
net assets....................................
Portfolio turnover rate......................... 109.09% 169.85% 108.68% 23.89% 13.73% 24.63%
- -------------------------------------------------------------------------------------------------------------------------------
* Commencement of investment operations.
** Initial public offering price of $15.00 per share less underwriting discount
of $1.05 per share and offering expenses of $0.06 per share.
+ Based on average shares outstanding.
# Ratios shown are inclusive of Brazilian transaction and Chilean repatriation
taxes, if any.
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of dividends and
distributions, if any, at actual prices pursuant to the Fund's dividend
reinvestment program. Total investment return does not reflect brokerage
commissions or initial underwriting discounts and has not been annualized.
(b) Annualized.
22
RISK FACTORS AND SPECIAL CONSIDERATIONS
Both ETF and EMG invest in equity securities of companies in emerging
countries and, accordingly, are subject to many of the same investment risks.
ETF and EMG, however, are also subject to certain risks which are specific to
the telecommunications and infrastructure industry, respectively. The investment
risks of each of the Funds are described below.
Telecommunications Companies
Telecommunications companies are undergoing significant change due to
varying and evolving levels of governmental regulation or deregulation and other
factors. As a result, competitive pressures are intense and the securities of
such companies may be subject to rapid price volatility. In addition, telephone
services are experiencing increasing competition from cellular telephone
services. All telecommunications companies are subject to the additional risk
that technological innovations will make their products and services obsolete.
While telephone companies may pay an above average dividend, ETF's investment
decisions are based upon capital appreciation potential rather than income
considerations.
In virtually every country, certain aspects of the telecommunications
industry are subject to some government regulation. The nature and scope of such
regulation generally is subject to political forces and market considerations,
the effect of which cannot be predicted. Such regulation can have significant
effects upon the operations of a telecommunications venture. It is difficult to
predict the directions, types or effects of future telecommunications-related
regulation.
Telecommunications regulation typically limits rates charged, returns
earned, providers of services, types of services, ownership, areas served and
terms for dealing with competitors and customers. Telecommunications regulation
generally has tended to be less stringent for newer services than for
traditional telephone service, although there can be no assurances that such
newer services will not be heavily regulated in the future. Regulation may also
limit the use of new technologies and hamper efficient depreciation of existing
assets. If regulation limits the use of new technologies by established carriers
or forces cross-subsidies, large private networks may emerge. Service providers
may also be subject to regulations regarding ownership and control, providers of
services, subscription rates and technical standards.
Infrastructure Companies
Infrastructure companies in emerging countries are undergoing significant
change due to varying and evolving levels of governmental regulation or
deregulation and other factors. Competitive pressures are intense and the
securities of such companies may be subject to increased share price volatility.
In addition, certain infrastructure companies are subject to the risk that
technological innovations will make their services obsolete. While certain
infrastructure companies in a number of emerging countries may pay an above
average dividend, EMG's investment decisions are based upon capital appreciation
potential rather than income considerations.
In virtually every country, certain industries providing infrastructure
services, including those engaged in the generation, transmission or
distribution of electricity or gas,
23
telecommunications and transportation, are subject to governmental regulation.
The nature and scope of such regulation generally is subject to political forces
and market considerations, the effect of which cannot be predicted. Certain
governments have taken measures to foster infrastructure companies because of
the importance of these companies to the development of their economies.
However, government regulation of certain infrastructure companies, such as
telecommunications companies, typically limits rates charged, returns earned,
providers of services, types of services, ownership, areas served and terms for
dealing with competitors and customers. Regulation may also limit the use of new
technologies and hamper efficient depreciation of existing assets. Government
regulation can have significant effects upon the operations of an infrastructure
company. It is not possible to predict the directions, type or effects of future
regulation, any of which could have a material adverse effect on EMG and its
investments.
Investment Controls
Foreign investment in the securities of emerging countries issuers is
restricted or controlled to varying degrees. These restrictions or controls at
times may limit or preclude foreign investment in certain emerging countries
issuers and increase the costs and expenses of the Funds. For example, certain
countries:
o require governmental approval prior to investment by foreign
persons,
o limit the amount of investment by foreign persons in a particular
company,
o limit investment by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than
the classes available for purchase by domiciliaries of the
countries, and/or
o impose additional taxes on foreign investors.
Certain emerging countries may also restrict investment opportunities in
issuers in industries deemed important to national interests. Some countries may
require governmental approval for the repatriation of investment income, capital
or the proceeds of sales of securities by foreign investors. In addition, if
there is a deterioration in a country's balance of payments or for other
reasons, a country may impose temporary restrictions on foreign capital
remittances abroad.
Delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as restrictions on the Funds' investments could
adversely affect the Funds. Investing in local markets in emerging countries may
require the Funds to adopt special procedures, seek local governmental approvals
or take other actions, each of which may involve additional costs to the Funds.
If for any reason the Funds were unable to distribute substantially all of their
investment company taxable income (as defined for U.S. tax purposes) within
applicable time periods, the Funds would cease to qualify for the favorable tax
treatment afforded to regulated investment companies under the Code. For more
information, see "Taxation" in the SAI.
24
Market Illiquidity; Volatility; Smaller Market Capitalization
The securities markets of emerging countries are substantially smaller,
less liquid and more volatile than the major securities markets around the
world. A limited number of persons may hold a high proportion of the shares of
many emerging countries companies, which may limit the number of shares
available for investment by the Funds. A limited number of issuers in most, if
not all, emerging countries' securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of emerging countries securities markets may also affect
each Fund's ability to acquire or dispose of securities at the price and time it
wishes to do so. In addition, certain emerging countries' securities markets are
susceptible to the influence of large investors trading significant blocks of
securities or large dispositions of securities resulting from the failure to
meet margin calls when due.
In addition to their smaller size, lesser liquidity and greater
volatility, emerging countries' securities markets are less developed than U.S.
securities markets. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a low level of
monitoring and regulation of the markets and the activities of investors in such
markets and the enforcement of existing regulations has been extremely limited.
Consequently:
o other market participants' anticipation of a Fund's investing,
o trading by persons with material, non-public information, and
o securities transactions by brokers in anticipation of
transactions by a Fund in particular securities
can affect the prices for investments acquired by a Fund. Commissions and other
transaction costs on most, if not all, emerging countries securities exchanges
are generally higher than in the United States.
Currency Devaluations and Fluctuations
The Funds normally invest principally in securities denominated in
currencies of emerging countries. CSAM generally does not seek to hedge against
declines in the value of the Funds' non-dollar denominated portfolio securities
resulting from currency devaluations or fluctuations. Accordingly, a change in
the value of currencies in which each Fund's investments are denominated against
the U.S. dollar will result in a corresponding change in the U.S. dollar value
of each Fund's assets. This change will also affect each Fund's income and net
asset value. The Funds compute income on the date of its receipt by the
respective Fund at the exchange rate in effect with respect to the relevant
currency on that date. Each Fund pays most expenses and makes distributions
necessary to maintain its status as a regulated investment company for U.S.
federal income tax purposes in U.S. dollars. In order to pay such expenses and
make such distributions each Fund may have to liquidate securities denominated
in one or more of the currencies of the emerging countries in which each Fund
invests. If the value of a currency in which the securities so liquidated are
denominated declines relative to the U.S. dollar between the time when the
income or a dollar-denominated expense item is accrued and date
25
when the expense is paid or the distribution is made, the Fund may have to
liquidate more investment securities than would otherwise have been the case.
There can be no assurance that the Funds will be able to liquidate securities
for these purposes, but the Funds are permitted to borrow money to pay expenses
outside of the emerging countries and to make distributions required to maintain
their status as regulated investment companies for U.S. tax purposes.
Many of the currencies of emerging countries have experienced steady
devaluations relative to the U.S. dollar, and major adjustments have at times
been made in certain of these currencies.
Currency Hedging
CSAM generally does not seek to hedge against a decline in the value of
either Fund's non-dollar-denominated portfolio securities resulting from
currency devaluations or fluctuations. The Funds will be subject to risk of
changes in the value of the emerging countries currencies in which their assets
are denominated in relation to the U.S. dollar unless they engage in currency
hedging transactions. If suitable hedging instruments are available on a timely
basis and on acceptable terms, CSAM may, in its discretion, hedge all or part of
the value of the Funds' non-dollar-denominated portfolio securities, although it
is not obligated to do so. The Funds may, from time to time, seek to protect,
during the period prior to the remittance, the value of the amount of interest,
dividends and net realized capital gains received or to be received in a local
currency that they intend to remit out of a emerging country. The Funds seek
this protection by investing in U.S. dollar-denominated debt securities of the
emerging country and/or participating in the forward currency market for the
purchase of U.S. dollars in that country. There can be no guarantee that efforts
to hedge against a currency devaluation or fluctuation will be effective or that
suitable U.S. dollar-denominated investments will be available at the time when
CSAM wishes to use them to hedge amounts to be remitted. Moreover, shareholders
should be aware that:
o dollar-denominated securities may not be available in some or
all emerging countries,
o the forward currency market for the purchase of U.S. dollars
in most, if not all, emerging countries is not highly
developed, and
o in certain emerging countries no forward market for foreign
currencies currently exists or such market may be closed to
investment by the Funds.
Inflation
Many emerging countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging countries.
In an attempt to control inflation, wage and price controls have been imposed at
times in certain countries.
26
Economic and Political Risks
The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in several respects, including:
o general development,
o wealth distribution,
o rate of inflation,
o volatility of the rate of growth of gross domestic product,
o capital reinvestment,
o resource self-sufficiency, and
o balance of payments position
Governments of many emerging countries have exercised and continue to
exercise substantial influence over many aspects of the private sector. In some
cases, the government owns or controls many companies, including some of the
largest in the country. As a result, government actions in the future could have
a significant effect on economic conditions in a emerging country, which, in
turn, may adversely affect companies in the private sector, general market
conditions and prices and yields of certain of the securities in each Fund's
portfolio. Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other developments, such as military coups,
have occurred in the past in certain emerging countries. These conditions or
events could adversely affect the assets of each Fund held in particular
emerging countries should they recur. Each Fund may also experience greater
difficulty in its ability to protect and enforce its rights against governmental
and private entities in certain emerging countries.
Since 1982, some emerging countries, including Argentina, Brazil, Chile
and Mexico, have experienced difficulty servicing their sovereign debt
obligations. As a result, some of these countries have entered into agreements
to restructure these debts, in particular commercial bank loans, typically by
rescheduling principal payments, reducing interest rates and principal amounts
and extending new credit to finance interest payments on existing debt. Some
emerging countries governmental issuers have not made payments of interest on or
principal of their debt obligations as such payments have come due. Obligations
arising from past restructuring agreements have affected, and those arising from
future restructuring agreements may affect, the economic performance and
political and social stability of certain emerging countries.
Reporting Standards
Companies in emerging countries are subject to accounting, auditing and
financial standards and requirements that differ, in some cases significantly,
from those applicable to U.S. companies. The assets and profits appearing on the
financial statements of a company in an emerging country may not reflect its
financial position or results of operations in the way they
27
would be reflected had such financial statements been prepared in accordance
with U.S. generally accepted accounting principles. In addition, for companies
that keep accounting records in local currency, inflation accounting rules in
some emerging countries require, for both tax and accounting purposes, that
certain assets and liabilities be restated on the company's balance sheet in
order to express items in terms of currency of constant purchasing power.
Inflation accounting may indirectly generate losses or profits. Consequently,
data concerning securities of issuers in emerging countries may be materially
affected by restatements for inflation and may not accurately reflect the real
conditions of companies and securities markets. There is often substantially
less publicly available information about emerging countries companies and the
governments of emerging countries than there is about U.S. companies and the
U.S. Government. These risks are generally magnified in the case of investments
in non-publicly traded securities.
Privatizations
The Funds anticipate investment in telecommunications and infrastructure
companies, as applicable, that have been or will be transferred from government
to private ownership. Many of these telecommunications and infrastructure
companies have underdeveloped or obsolete technologies and equipment. It is
impossible to predict whether any further privatizations will take place or what
the terms or effects of such privatizations may be. There can be no assurance
that any privatizations will be undertaken or, if undertaken, that such plans
will be successfully completed or even completed at all. There also can be no
assurance that, if a privatization is undertaken on a private placement basis,
the Funds will have the opportunity to participate in the investing consortium.
Investors should also be aware that changes in governments or economic factors
could result in a change in an emerging country's policies on privatization.
Taxation
Taxation of dividends, interest and capital gains received by
non-residents varies among emerging countries and, in some cases, is
comparatively high. In addition, emerging countries typically have less
well-defined tax laws and procedures and such laws may permit retroactive
taxation so that the Funds could in the future become subject to local tax
liability that the Funds may not have reasonably anticipated in conducting their
investment activities or valuing their assets.
Litigation
The Funds and their shareholders may encounter substantial difficulties in
obtaining and enforcing judgments against non-U.S. resident individuals and
companies.
28
Fraudulent Securities
It is possible, particularly in emerging countries markets, that the Funds
may purchase securities that may subsequently be found to be fraudulent or
counterfeit and as a consequence could result in losses.
Settlement Risks
Settlement systems in emerging countries markets are generally less well
organized than in developed markets. Supervisory authorities may also be unable
to apply standards which are comparable with those in developed markets. Thus
there may be risks that settlement may be delayed and that cash or securities
belonging to the Funds may be in jeopardy because of failures of or defects in
the systems. In particular, market practice may require that payment shall be
made before receipt of the security which is being purchased or that delivery of
a security must be made before payment is received. In such cases, default by a
broker or bank through whom the relevant transaction is effected might result in
losses for the Funds. The Funds will seek, where possible, to use reputable
financial institutions to reduce this risk. However, there can be no certainty
that the Funds will be able to use banks or brokers with reputable financial
status to reduce this risk. Moreover, there can be no certainty that the Funds
will be successful in eliminating this risk, particularly as banks or brokers
operating in emerging countries markets frequently lack the substance or
financial resources of those in more developed countries. There may also be a
danger that, because of uncertainties in the operation of settlement systems in
individual markets, competing claims may arise in respect of securities held by
or to be transferred to the Fund.
Investments in Non-Publicly Traded Securities
Although the Funds invest primarily in equity securities of publicly
traded companies in emerging countries, they may, subject to local investment
limitations, invest in unlisted emerging countries equity securities, including
investments in new and early stage companies. Investments in unlisted equity
securities may involve a high degree of business and financial risk and may
result in substantial losses. ETF may invest up to 25% of its assets, and EMG
may invest up to 30% of its assets, in unlisted equity securities. Currently, no
liquid trading market exists for these investments, and, as such, the Funds may
take longer to liquidate these positions than publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized on such sales could be less than those originally paid by
the Funds. Further, companies whose securities are not publicly traded may not
be subject to the disclosure and other investor protection requirements
applicable to companies with publicly traded securities.
Market Value and Net Asset Value
Shares of closed-end investment companies frequently trade at a discount
from net asset value. Trading at a discount is a risk separate and distinct from
the risk that the net asset value of each Fund will decrease. The risk of
purchasing shares of a closed-end fund that might trade at a discount is more
pronounced for shareholders who wish to sell their shares in a relatively short
period of time because for those shareholders, realization of a gain or loss on
their investments is
29
likely to be more dependent upon the existence of a premium or discount than
upon portfolio performance. Although each Fund's shares have at times been
traded in the market above net asset value, since the commencement of its
operations, each Fund's shares have generally traded in the market at a discount
to net asset value. Neither Fund's shares are subject to redemption. Investors
desiring liquidity may, subject to applicable securities laws, trade their
shares in a Fund on any exchange where such shares are then listed at the then
current market value, which may differ from the then current net asset value.
Non-Diversified Status
Both Funds are classified as non-diversified investment companies under
the Investment Company Act. Non-diversified investment companies are not limited
by the Investment Company Act in the proportion of assets that may be invested
in the securities of a single issuer. Both Funds, however, are subject to local
laws which limit investments in a single issuer and the diversification
requirements imposed by the Code for qualification as a regulated investment
company. As a non-diversified investment company, each 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 its portfolio
securities.
Charter Provisions
Certain provisions of each Fund's Articles of Incorporation and By-Laws
may inhibit that Fund's possible conversion to open-end status and limit the
ability of other persons to acquire control of that Fund's Board of Directors.
In certain circumstances, these provisions might also inhibit the ability of
shareholders to sell their shares at a premium over prevailing market prices.
Operating Expenses
Each Fund's annual operating expenses are higher than those of many other
investment companies of comparable size. However, management of each Fund
believes these operating expenses are comparable to expenses of other closed-end
management investment companies that invest primarily in the securities of
countries in a single geographic region.
30
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
Organization. ETF and EMG are both closed-end, non-diversified management
investment companies registered under the Investment Company Act. Both Funds are
organized as corporations under the laws of the State of Maryland. Each Fund is
managed and advised by CSAM, formerly known as BEA Associates. The shares of
common stock of each Fund are listed and trade on the NYSE under the symbols
"ETF" and "EMG", respectively. After the Merger, ETF's shares will continue to
be traded on the NYSE under the symbol "ETF", while EMG's shares will be
delisted and EMG will cease to exist.
The shares of common stock of each Fund have equal non-cumulative voting
rights and equal rights with respect to dividends, assets and dissolution. Each
Fund's shares of common stock are fully paid and non-assessable and have no
preemptive, conversion or other subscription rights. Fluctuations in the market
price of the Fund's shares is the principal investment risk of an investment in
either Fund. Portfolio management, market conditions, investment policies and
other factors affect such fluctuations. Although the investment objectives,
policies and restrictions of the Funds are similar, there are differences
between them, as discussed below. There can be no assurance that either Fund
will achieve its stated objective.
Investment Objectives. Long-term capital appreciation is the principal
investment objective of each Fund. ETF seeks to achieve this investment
objective by investing primarily in equity securities of emerging countries
telecommunications companies and companies that provide other essential services
in the development of an emerging country's infrastructure. EMG seeks to achieve
this investment objective by investing primarily in equity securities of
infrastructure companies in emerging countries and companies that manufacture
products on behalf of or service infrastructure companies in emerging countries.
The investment objective of each Fund is a fundamental policy of each Fund and
cannot be changed without the approval of the holders of a "majority of each
Fund's outstanding voting securities," as defined above under "General."
No assurance can be given that either Fund's investment objective will be
achieved.
Comparison of Investment Policies. ETF's policy, under normal market
conditions, is to invest at least 65% of its total assets in equity securities
of telecommunications companies in emerging markets. ETF may also invest a
substantial portion of its remaining assets, up to 25% of its total assets under
normal market conditions, in equity securities of companies that provide other
essential services in the development of an emerging country's infrastructure
and will benefit from macroeconomic growth in an emerging country, but whose
growth is not directly linked to favorable changes in commodity prices.
EMG's policy, under normal market conditions, is to invest at least 70% of
its total assets in equity securities of infrastructure companies in emerging
countries. EMG may also invest up to 30% of its total assets in equity
securities of companies that manufacture products on behalf of or service
infrastructure companies in emerging countries.
The policies and the investment limitations enumerated above are described
in the SAI under the caption "Investment Restrictions" and are fundamental and
may not be changed
31
without the approval of a majority of each Fund's outstanding voting securities.
All other policies and percentage limitations of each Fund as described below
may be modified by that Fund's Board of Directors if, in the reasonable exercise
of its business judgment, it determines that modification is necessary or
appropriate to carry out that Fund's investment objective.
ETF may also seek to invest in equity securities of telecommunications
companies in developed countries when these securities, in the opinion of CSAM,
have investment characteristics similar to emerging country telecommunications
companies. In determining if the securities of a telecommunications company in a
developed country have investment characteristics similar to those of emerging
country telecommunications companies, CSAM will consider whether the potential
for growth in such company is similar to that of telecommunications companies in
emerging countries, based on analysis and comparison of such factors as earnings
potential, ratio of revenue per employee and revenue per telephone line, the
density of telephone lines per household, management performance and other
pertinent measurements.
Both Funds define emerging countries as countries which are generally
considered to be emerging or developing by the International Bank for
Reconstruction and Development (more commonly referred to as the World Bank) and
the International Finance Corporation, as well as countries that are classified
by the United Nations or otherwise regarded by its authorities as emerging or
developing, at the time of the investment. The countries that are not considered
emerging countries include: Australia; Austria; Belgium; Canada; Denmark;
Finland; France; Germany; Ireland; Italy; Japan; Luxembourg; Netherlands, New
Zealand; Norway; Spain; Sweden; Switzerland; United Kingdom; and the United
States.
An emerging country equity security is defined as:
o common stock and preferred stock (including convertible
preferred stock),
o bonds, notes and debentures convertible into common or
preferred stock,
o stock purchase warrants and rights,
o equity interests in trusts and partnerships, and
o American, Global or other types of Depositary Receipts of
companies: (i) the principal securities trading market for
which is an emerging country; (ii) whose principal trading
market is in any country, provided that, alone or on a
consolidated basis, they derive 50% or more of their annual
revenue from either goods produced, sales made or services
performed in emerging countries; or (iii) that are organized
under the laws of, and with a principal office in, an emerging
country.
Determinations as to eligibility will be made by the Funds based on publicly
available information and inquiries made to the companies. (See "Risk Factors
and Special Considerations" for a discussion of the nature of information
publicly available for non-U.S. companies.)
32
In addition, ETF's definition of emerging country equity securities also
includes securities of companies that may have characteristics and business
relationships common to companies in a country or countries other than an
emerging country. As a result, the value of the securities of such companies may
reflect economic and market forces applicable to other countries, as well as to
an emerging country.
Many of the companies in which the Funds invest may be in the early stages
of their growth cycle and/or may have only recently been privatized.
Accordingly, the Funds anticipate that certain investments (up to 25% of its
total assets in the case of ETF and 30% of its total assets in the case of EMG,
at the time of purchase) will be in equity securities of closely-held companies
or private placements of public companies, where CSAM anticipates that a liquid
market will develop for these securities within a period of two to five years
from the date such securities are acquired by such Fund. Securities that are not
publicly traded in the United States but that can be sold to "qualified
institutional buyers" pursuant to Rule 144A under the Securities Act, will not
be subject to these percentage limitations if the Fund's Board of Directors
determines on an ongoing basis that an adequate trading market exists for these
securities. The Board of Directors of either Fund may adopt guidelines and
delegate to CSAM the function of determining and monitoring the liquidity of
Rule 144A securities, although the Board of Directors will retain ultimate
responsibility for any determination regarding an adequate market for Rule 144A
securities.
The governments of some emerging countries have been engaged in
"privatization" programs which involve the sale of part or all of their stakes
in government owned or controlled enterprises. CSAM believes that privatizations
may offer shareholders opportunities for significant capital appreciation and
intends to invest assets of each Fund in privatizations in appropriate
circumstances. In certain emerging countries, the ability of foreign entities,
such as the Funds, to participate in privatizations may be limited by local law.
In addition, the terms on which the Funds may be permitted to participate may be
less advantageous than those for local investors. There can be no assurance that
the governments of emerging countries will continue to sell companies currently
owned or controlled by them or that privatization programs will be successful.
To the extent its assets are not invested as described above, ETF may
invest the remainder of its assets in:
o debt securities denominated in the currency of an emerging
country or issued or guaranteed by an emerging country company
or the government of an emerging country,
o equity or debt securities of corporate or governmental issuers
located in developed countries, and
o short-term and medium-term debt securities of the type
described below under "Temporary Investments."
ETF's assets may be invested in debt securities when CSAM believes that,
based upon factors such as relative interest rate levels and foreign exchange
rates, such debt securities offer
33
opportunities for long-term capital appreciation. The debt securities in which
ETF may invest include:
o bonds,
o notes,
o bank deposits and bank obligations (including certificates of
deposit, time deposits and bankers' acceptances),
o commercial paper,
o repurchase agreements, and
o assignments of loans and loan participations.
In addition, for temporary defensive purposes, ETF and EMG may invest less
than 65% and 70%, respectively, of their total assets in equity securities of
telecommunications and infrastructure companies, respectively, in emerging
countries, in which case the Funds may invest in debt securities of the kind
described under "Temporary Investments" below. In addition, ETF may acquire
assignments of, and participations in, loans.
Temporary Investments. During periods in which CSAM believes changes in
economic, financial or political conditions make it advisable, the Funds may for
temporary defensive purposes reduce their holdings in equity and other
securities and invest in certain short-term (less than twelve months to
maturity) and medium-term (not greater than five years to maturity) debt
securities or hold cash.
Each Fund may invest in the following short-term instruments:
o obligations of the U.S. Government, its agencies or
instrumentalities (including repurchase agreements with
respect to these securities),
o bank obligations (including certificates of deposit, time
deposits and bankers' acceptances) of U.S. banks and foreign
banks denominated in any currency,
o floating rate securities and other instruments denominated in
any currency issued by international development agencies,
banks and other financial institutions, governments and their
agencies and instrumentalities, and corporations located in
countries that are members of the Organization for Economic
Cooperation and Development,
o obligations of U.S. corporations that are rated no lower than
A-2 by Standard & Poor's Rating Group or P-2 by Moody's
Investor Services or the equivalent by another rating service
or, if unrated, deemed to be of equivalent quality by CSAM,
and
34
o shares of money market funds that are authorized to invest in short-term
instruments described above.
Currency Transactions. CSAM generally does not seek to hedge against
declines in the value of the Funds' non-dollar-denominated portfolio securities
resulting from currency devaluations or fluctuations. If suitable hedging
instruments are available on a timely basis and on acceptable terms, CSAM may,
in its discretion, hedge all or part of the value of the Funds'
non-dollar-denominated portfolio securities, although it is not obligated to do
so. Each Fund will be subject to the risk of changes in value of the currencies
of the emerging countries in which their assets are denominated, unless they
engage in hedging transactions. For a more detailed description of each Fund's
currency transactions, see "Comparison of Investment Objectives and
Policies--Currency Transactions" in the SAI.
Currency Convertibility. Neither Fund intends to invest in any security in
a country where the currency is not freely convertible to U.S. dollars, unless
that Fund has obtained the necessary governmental licensing to convert such
currency or other appropriately licensed or sanctioned contractual guarantee to
protect such investment against loss of that currency's external value, or that
Fund has a reasonable expectation at the time the investment is made that such
governmental licensing or other appropriately licensed or sanctioned guarantee
would be obtained or that the currency in which the security is quoted would be
freely convertible at the time of any proposed sale of the security by that
Fund.
Depositary Receipts. Both Funds may invest indirectly in securities of
emerging country issuers through sponsored or unsponsored American Depositary
Receipts, or ADRs, Global Depositary Receipts, or GDRs, and other types of
Depositary Receipts (which, together with ADRs and GDRs, are referred to in this
Proxy Statement/Prospectus as "Depositary Receipts"). Depositary Receipts may
not necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the stock of
unsponsored Depositary Receipts are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the Depositary Receipts. ADRs
are Depositary Receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs and other types of Depositary Receipts are typically issued by
foreign banks or trust companies, although they also may be issued by U.S. banks
or trust companies, and evidence ownership of underlying securities issued by
either a foreign or a United States corporation. Generally, Depositary Receipts
in registered form are designed for use in the United States securities markets
and Depositary Receipts in bearer form are designed for use in securities
markets outside the United States. For purposes of the Funds' investment
policies, the Funds' investments in ADRs, GDRs and other types of Depositary
Receipts will be deemed to be investments in the underlying securities.
Portfolio Turnover Rate. Neither Fund engages in the trading of securities
for the purpose of realizing short-term profits, but adjusts its portfolio as it
deems advisable in view of prevailing or anticipated market conditions to
accomplish its investment objective. It is not anticipated that the annual
portfolio turnover rate of ETF following the Merger will exceed 85%. A high rate
of portfolio turnover involves correspondingly greater brokerage commission
expenses than a lower rate, which expenses must be borne by the Fund and its
shareholders. High
35
portfolio turnover may also result in the realization of substantial net
short-term capital gains and any distributions resulting from such gains will be
taxable at ordinary income rates for U.S. federal income tax purposes. ETF's
portfolio turnover rates for the fiscal years ended May 31, 1999 and 1998 were
179.66% and 162.58%, respectively. EMG's portfolio turnover rates for the fiscal
years ended November 30, 1999 and 1998 were 109.09% and 169.85%, respectively.
The higher EMG portfolio turnover rate for the fiscal year ended November 30,
1998 is attributable to the Fund's increased investment activity in Asia during
that year. The portfolio turnover rate is calculated by dividing the lesser of
sales or purchases of portfolio securities by the average monthly value of the
Fund's portfolio securities. For purposes of this calculation, portfolio
securities exclude purchases and sales of debt securities having a maturity at
the date of purchase of one year or less.
Borrowing. Borrowing increases exposure to capital risk, and borrowed
funds are subject to interest costs that may offset or exceed the return earned
on investment of the amounts borrowed. Nevertheless both Funds are authorized to
borrow money from banks for the following reasons:
o for temporary or emergency purposes,
o for such short-term credits as may be necessary for the
clearance or settlement of transactions,
o to finance repurchases of its shares in amounts not exceeding
10% (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed),
o to pay any dividends required to be distributed to maintain
the Fund's qualification as a regulated investment company
under the Code or otherwise avoid taxation under the Code, or
o to pay Fund expenses outside of the emerging countries, and
not for the purpose of leveraging.
Additional investments will not be made when borrowings exceed 5% of the Fund's
total assets. The Fund may pledge its assets to secure such borrowings. For the
purpose of this investment restriction, collateral arrangements with respect to
the writing of options or the purchase or sale of future contracts or related
options or forward currency contracts are not deemed a pledge of assets or the
issuance of a senior security.
Fundamental Policies. Each Fund has "fundamental" investment policies
which may not be changed without the prior approval of the holders of a majority
of each Fund's outstanding voting securities (as defined under the Investment
Company Act), and "nonfundamental" investment policies which may be modified by
each Fund's Board of Directors if, in the reasonable exercise of its business
judgment, the Board determines that modification is necessary or appropriate to
carry out that Fund's investment objective. Following is a description of the
Funds' current fundamental investment policies which are substantially similar:
36
1. Neither Fund may invest more than 25% of the total value of its
assets in a particular industry. This restriction does not apply to
investments in U.S. Government securities.
2. Neither Fund may issue senior securities, borrow money or pledge
its assets, except that either Fund may borrow from a lender for the
reasons specified above under "--Borrowing."
3. Neither Fund may lend money to other persons except through the
purchase of debt obligations, loans or participation interests in loans,
and the entering into of repurchase agreements or reverse repurchase
agreements consistent with applicable regulatory requirements, in each
case consistent with the Fund's investment objective and policies.
4. Neither Fund may make short sales of securities or maintain a
short position in any security.
5. Neither Fund may purchase securities on margin, except such
short-term credits as may be necessary or routine for the clearance or
settlement of transactions and the maintenance of margin with respect to
forward contracts or other hedging securities.
6. Neither Fund may underwrite securities of other issuers, except
insofar as either Fund may be deemed an underwriter under the Securities
Act in selling portfolio securities.
7. Neither Fund may purchase or sell commodities or real estate,
except that either Fund may invest in securities secured by real estate or
interests in real estate or in securities issued by companies, including
real estate investment trusts, that invest in real estate or interests in
real estate, and may purchase and sell forward contracts on foreign
currencies to the extent permitted under applicable law.
8. Neither Fund may make investments for the purpose of exercising
control over, or management of, the issuers of any securities.
In addition to the foregoing restrictions, each Fund is subject to
investment limitations, portfolio diversification requirements and other
restrictions imposed by certain emerging countries in which it invests.
Under the Investment Company Act, neither Fund may:
o invest more than 5% of its total assets in the securities of
any one investment company, nor
o acquire more than 3% of the outstanding voting securities of
any such company.
In addition, the Funds may not invest more than 10% of their total assets
in securities issued by all investment companies. As a shareholder in any
investment company, each Fund
37
will bear its ratable share of that investment company's expenses, and would
remain subject to payment of the company's advisory, sub-advisory and
administrative fees with respect to assets so invested.
38
UNITED STATES FEDERAL INCOME TAXES
The following is a brief summary of certain United States federal income
tax issues that apply to each Fund. Shareholders should consult their own tax
advisers with regard to the federal tax consequences of the purchase, ownership
and disposition of each Fund's shares, as well as tax consequences arising under
the laws of any state, foreign country, or other taxing jurisdiction.
Each Fund has qualified, and intends to continue to qualify and elect to
be treated, as a regulated investment company, or RIC, for each taxable year
under Subchapter M of the Code. A RIC generally is not subject to federal income
tax on income and gains distributed in a timely manner to its shareholders.
Each Fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income. The Board of Directors of each
Fund will determine annually whether to distribute any net realized long-term
capital gains in excess of net realized short-term capital losses, including any
capital loss carryovers. The Funds currently expect to distribute any excess
annually to their shareholders. However, if either Fund retains for investment
an amount equal to its net long-term capital gains in excess of its net
short-term capital losses and capital loss carryovers, it will be subject to a
corporate tax, currently at a rate of 35%, on the amount retained. In that
event, that Fund expects to designate such retained amounts as undistributed
capital gains in a notice to its shareholders who:
o will be required to include in income for United States
federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount,
o will be entitled to credit their proportionate shares of the
35% tax paid by that Fund on the undistributed amount against
their United States federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed their
liabilities, if any, and
o will be entitled to increase their tax basis, for United
States federal income tax purposes, in their shares by an
amount equal to 65% of the amount of undistributed capital
gains included in the shareholder's income.
Income received by the Funds from sources within countries other than the
United States may be subject to withholding and other taxes imposed by such
countries, which will reduce the amount available for distribution to
shareholders. If more than 50% of the value of either Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, that
Fund will be eligible and intends to elect to "pass-through" to shareholders the
amount of foreign income and similar taxes it has paid. Pursuant to this
election, shareholders of the electing Fund will be required to include in gross
income (in addition to the full amount of the taxable dividends actually
received) their pro rata share of the foreign taxes paid by that Fund. Each such
shareholder will also be entitled either to deduct (as an itemized deduction)
its pro rata share of foreign taxes in computing its taxable income or to claim
a foreign tax credit against its U.S. federal income tax liability, subject to
limitations. No deduction for foreign taxes may be
39
claimed by a shareholder who does not itemize deductions, but such a shareholder
may be eligible to claim the foreign tax credit. The deduction for foreign taxes
is not allowable in computing alternative minimum taxable income. Each
shareholder will be notified within 60 days after the close of that Fund's
taxable year whether the foreign taxes paid by the Fund will "pass through" for
that year.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of each Fund's income flows through to its shareholders. Any gains
from the sale of securities by either Fund will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency-denominated debt securities, receivables and payables, will be
treated as ordinary income derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source passive income (as
defined for purposes of the foreign tax credit), including the foreign source
passive income passed through by each Fund. Because of the limitation,
shareholders taxable in the United States may be unable to claim a credit for
the full amount of their proportionate share of the foreign taxes paid by each
Fund. The foreign tax credit also cannot be used to offset more than 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals.
Shareholders will be notified annually by each Fund as to the United
States federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its shareholders. Furthermore, shareholders
will also receive, if appropriate, various written notices after the close of
each Fund's taxable year regarding the United States federal income tax status
of certain dividends, distributions and deemed distributions that were paid, or
that are treated as having been paid, by that Fund to its shareholders during
the preceding taxable year. For a more detailed discussion of tax matters
affecting each Fund and its shareholders, see "Taxation" in the SAI.
40
INFORMATION ABOUT THE MERGER
General. Under the Plan, EMG will merge with and into ETF on the Effective
Date. As a result of the Merger and on the Effective Date:
o EMG will no longer exist, and
o ETF will be the surviving corporation.
EMG will then:
o deregister as an investment company under the Investment
Company Act,
o cease its separate existence under Maryland law,
o remove its shares of common stock from listing on the NYSE,
and
o withdraw from registration under the Securities Exchange Act
of 1934, or the Securities Exchange Act.
Each share of outstanding stock of EMG will convert into an equivalent
dollar amount of full shares of stock of ETF, based on the net asset value per
share of each Fund calculated at 4:00 p.m. on the Business Day preceding the
Effective Date. ETF will not issue any fractional shares to EMG shareholders.
ETF's transfer agent will aggregate all fractional shares, sell the resulting
full shares on the NYSE at the current market price for the shares and remit the
cash proceeds to shareholders of EMG in proportion to their fractional shares.
No sales charge or fee of any kind will be charged to EMG shareholders in
connection with their receipt of ETF common stock in the Merger.
If approved, the Merger is expected to occur shortly after the completion
of the Tender Offer. Under Maryland law, shareholders of a corporation whose
shares are traded publicly on a national securities exchange, such as the Funds'
shares, are not entitled to demand the fair value of their shares upon a merger;
therefore, the shareholders of the Funds will be bound by the terms of the
Merger. However, any shareholder of either Fund may sell his or her shares of
common stock at any time prior to the Merger on the NYSE.
The Plan may be terminated and the Merger abandoned, whether before or
after approval by the Funds' shareholders, at any time prior to the Effective
Date:
o by the mutual written consent of the Board of Directors of
each Fund, or
o by either Fund if the conditions to that Fund's obligations
under the Plan have not been satisfied or waived.
If the Merger has not been consummated by December 31, 2000, the Plan
automatically terminates on that date, unless a later date is mutually agreed
upon by the Board of Directors of each Fund.
41
Reasons for the Merger. The Board of Directors of each Fund considered and
unanimously approved the proposed Merger at separate meetings of each Board held
on May 8, 2000. All of the Directors of each Fund were present at the meeting in
person. For the reasons discussed below, the Board of Directors of each Fund,
including Non-interested Directors of each Fund, after consideration of the
potential benefits of the Merger to the shareholders of that Fund and the
expenses expected to be incurred by that Fund in connection with the Merger,
unanimously determined that:
o the interests of the existing shareholders of that Fund will
not be diluted as a result of the proposed Merger, and
o the proposed Merger is in the best interests of that Fund.
Each Board of Directors has, over the years, discussed the significance of
the existence of the discount to net asset value at which each Fund's shares
have traded on the NYSE and the impact on shareholders of the discount. Each
Board has discussed and considered various alternative strategies to address the
discount, including instituting share repurchases, combining with other funds,
converting to an open-end format, or liquidating. The Directors of each Fund,
however, have consistently concluded that it was in the best interests of each
Fund and its shareholders to maintain the current closed-end format, because, in
the view of the Boards and of CSAM, the closed-end format is the most
appropriate investment vehicle for participating in the equities markets of
emerging countries. In CSAM's view, many attractive equity investment
opportunities in emerging countries have been and continue to be found in the
small-capitalization and less liquid sectors of those markets. The Board of
Directors of each Fund believes that the long-term performance of each Fund
supports this view.
In the context of each Board's ongoing consideration of the impact of the
market price discount on each Fund and its shareholders, the Non-interested
Directors of each Fund retained PaineWebber, as financial adviser, to assist in
this process and requested that PaineWebber evaluate possible alternatives to
address these concerns and otherwise enhance shareholder value. The Boards
further requested that, in evaluating the possible alternatives, PaineWebber
take into consideration the interests of all shareholders.
The alternatives available to the Funds, including a full range of
alternatives that has been reviewed in the past discussions of the discount
issue, were considered at meetings of each Board of Directors held on February
8, 2000, April 6, 2000 and May 8, 2000. After consideration of these
alternatives, PaineWebber proposed, and the Board of Directors of each Fund
approved, the course of action described below. Morrison & Foerster, counsel to
the Non-interested Directors of the Funds, assisted the Non-interested Directors
in their consideration of these matters. Willkie Farr & Gallagher, counsel for
the Funds and CSAM, also assisted both Funds in their consideration of these
matters.
IN THE JUDGMENT OF THE BOARD OF DIRECTORS OF EACH FUND, THE MERGER SERVES
THE BEST INTERESTS OF EACH FUND AND ITS SHAREHOLDERS.
In deciding to approve the course of action described below, the
Non-interested Directors considered many factors, including but not limited to,
market information, analyses and advice,
42
provided to them by PaineWebber. In addition, in considering the merits of the
proposed Merger, the Boards also considered the larger asset size of the
combined Fund relative to each constituent Fund standing alone, the newly
revised fee structure and the potential for economies of scale that may result
from the larger asset size of the combined Fund. Based on data presented by
PaineWebber and CSAM, the Board of Directors of each Fund believes that a
combination of the Funds may result in a total operating expense ratio that will
be lower than the total operating expense ratio of either Fund currently.
The Boards also considered whether a larger asset base would provide
benefits in portfolio management. After the Merger, ETF may be better able to
diversify portfolio equity holdings and thereby mitigate risks, while
participating in more equity investment opportunities. In addition, a larger
asset size could result in a more liquid trading market for shares of ETF than
either Fund currently enjoys separately, which might have a positive impact on
the discount at which each Fund's shares have tended to trade. Further, the
Merger itself should focus the attention of a wider circle of securities
analysts on ETF, and after the Merger, may facilitate securities analysts'
following of this Fund because the Merger may eliminate confusion in the
marketplace that results from two funds with a similar objective, similar
policies and similar names managed by the same adviser.
There can be no guarantee that any of these potential beneficial results
will be realized.
The Board of Directors of each Fund, in declaring advisable and
recommending the proposed Merger, also considered the following:
(1) the capabilities and resources of CSAM and its affiliates in the
areas of investment management and shareholder servicing;
(2) expense ratios and information regarding fees and expenses of the
Funds, both currently and on a pro forma basis;
(3) the terms and conditions of the Merger and whether it would result
in dilution of the interests of each Fund and its existing
shareholders;
(4) the compatibility of each Fund's portfolio securities, investment
objective, policies and restrictions;
(5) the tax consequences to each Fund and its shareholders in connection
with the Merger; and
(6) the anticipated expenses of the Merger.
In reviewing issues relating to the structure of the Merger and the
selection of the surviving corporation in the Merger, each Board also considered
information provided to them by CSAM and PaineWebber concerning:
o the comparative performance records of the two Funds,
o public and market perception of the two Funds,
43
o the relative size of the two Funds,
o the investment policies, strategies and personnel CSAM intends
to utilize in managing the merged fund, and
o PaineWebber's recommendation that ETF be the surviving
corporation.
In evaluating the comparative fee and expense structures of the two Funds,
the Boards noted that CSAM has agreed, effective July 1, 2000, to voluntarily
waive that portion of the investment advisory fee payable by ETF to the level
that would be obtained if the fee was based on the average weekly market value
of the Fund's outstanding shares rather than the average weekly net asset value,
whenever the Fund's shares are trading at a discount to net asset value. The
Board of Directors of ETF recommends that the shareholders of the Fund approve a
new investment advisory agreement which will formalize this new fee calculation.
For more information about the new investment advisory agreement, see "Proposal
2 (Emerging Markets Telecommunications Fund Shareholders Only):
Approval of New Investment Advisory Agreement."
Finally, each Board considered the impact of the breakpoint in the
investment advisory fee for ETF in the context of the surviving Fund's larger
asset base. Assuming the Tender Offer is fully subscribed and based on the
market value of ETF and the net asset values of each Fund as of June 30, 2000,
the blended investment advisory fee using the breakpoint would be 0.89% of the
surviving Fund's net assets.
Based on the factors discussed above, the Board of Directors of each Fund
concluded that the expenses of the Merger are outweighed by the benefits that
are anticipated to be derived from the Merger. In addition, the Boards of each
Fund, including the Non-interested Directors of each Fund, have unanimously
concluded that:
o the Merger is in the best interests of each respective Fund,
and
o the interests of existing shareholders of each respective Fund
will not be diluted as a result of the transactions
contemplated by the Plan.
Terms of the Merger Agreement. The following is a summary of the
significant terms of the Plan. This summary is qualified in its entirety by
reference to the Plan, attached hereto as Exhibit A.
At the Effective Date, each share of common stock of EMG will convert into
an equivalent dollar amount (to the nearest one ten-thousandth of one cent) of
full shares of ETF common stock, based on the net asset value per share of each
Fund calculated at 4:00 p.m. on the Business Day preceding the Effective Date.
ETF will not issue any fractional shares to EMG shareholders. ETF's transfer
agent will aggregate all fractional shares, sell the resulting full shares on
the NYSE at the current market price for the shares and remit the cash proceeds
to shareholders of EMG in proportion to their fractional shares.
44
For purposes of valuing assets in connection with the Merger, the assets
of EMG will be valued pursuant to the principles and procedures consistently
utilized by ETF, which principles and procedures are also utilized by EMG in
valuing its own assets and determining its own liabilities. As a result, it is
not expected that ETF's valuation procedures as applied to EMG's portfolio
securities will result in any difference from the valuation that would have
resulted from the application of EMG's valuation procedures to such securities.
The net asset value per share of ETF common stock will be determined in
accordance with these principles and procedures, and ETF will certify the
computations involved. The net asset value per share of each Fund will not be
adjusted to take into account differences in unrealized gains and losses.
ETF will issue separate certificates or share deposit receipts for ETF
common stock to shareholders of EMG. ETF will deliver these certificates or
share deposit receipts representing shares of ETF common stock to Fleet National
Bank c/o EquiServe, L.P., as the transfer agent and registrar for ETF common
stock. ETF will not permit any EMG shareholder to receive new certificates
representing shares of ETF common stock until this shareholder has surrendered
his or her outstanding certificates representing shares of the common stock of
EMG or, in the event of lost certificates, posted adequate bond. EMG will
request its shareholders to surrender their outstanding certificates
representing shares of the common stock of EMG or post adequate bond therefor.
Dividends payable to holders of record of shares of ETF as of any date after the
Effective Date and prior to the exchange of certificates by any shareholder of
EMG will be paid to such shareholder, without interest; however, such dividends
will not be paid unless and until such shareholder surrenders his or her stock
certificates of EMG for exchange.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON
CONSUMMATION OF THE MERGER, SHAREHOLDERS OF THE EMERGING MARKETS INFRASTRUCTURE
FUND WILL BE FURNISHED WITH INSTRUCTIONS FOR EXCHANGING THEIR STOCK CERTIFICATES
FOR EMERGING MARKETS TELECOMMUNICATIONS FUND STOCK CERTIFICATES.
No fractional shares of ETF will be issued to EMG shareholders. In lieu
thereof, ETF's transfer agent will aggregate all fractional shares of ETF and
sell the resulting full shares on the NYSE at the current market price for
shares of ETF for the account of all holders of fractional interests, and each
such holder will receive such holder's pro rata share of the proceeds of such
sale, without interest, upon surrender of such holder's EMG common stock
certificates.
The net asset value of the ETF shares (disregarding fractional shares)
received by EMG shareholders will be equal to the aggregate net asset value of
the EMG shares exchanged. When fractional shares are taken into consideration,
the net asset value of the ETF shares received by EMG shareholders will be
slightly lower than the net asset value of the EMG shares exchanged because
fractional shares of ETF will be sold at the current market price, and not at
the net asset value, for ETF shares.
The Plan provides, among other things, that the Merger will not take place
without:
o the requisite approval of the shareholders of ETF and EMG, and
45
o the effectiveness of a Registration Statement on Form N-14.
The Plan may be terminated at any time prior to the Effective Date by
mutual agreement of each Fund's Board of Directors or by either Fund if the
other has violated a condition of the Plan. The Plan will automatically
terminate after December 31, 2000 if the Merger has not been consummated, unless
such time is extended by mutual agreement of the Board of Directors of each
Fund.
The Plan may be amended, modified or supplemented by mutual agreement of
EMG and ETF. However, no amendments which would have the effect of changing the
provisions for determining the number of shares issued to EMG shareholders will
be permitted following the special meeting unless those shareholders consent to
the amendment.
Expenses of the Merger. In evaluating the proposed Merger, CSAM has
estimated the amount of expenses the Funds would incur, including NYSE listing
fees, SEC registration fees, financial adviser fees, legal and accounting fees
and proxy and distribution costs and expenses incurred in connection with the
Tender Offer. The estimated total expenses pertaining to the Merger and the
Tender Offer are $_________. For more information about the expenses of the
Merger, See "Synopsis-Expenses of the Merger."
The expenses of the Merger are expected to result in a reduction in net
asset value per ETF share of approximately $_____, and a reduction in net asset
value per EMG share of approximately $______. The expenses related to the Tender
Offer, estimated at $________, will reduce the net asset value per share of EMG
by approximately $_________.
Tax Considerations. The Plan and Merger are conditioned upon the receipt
by the Funds of an opinion from Willkie Farr & Gallagher, substantially to the
effect that, based upon the facts, assumptions and representations of the
parties, for federal income tax purposes:
o the Merger will constitute a tax-free "reorganization" within
the meaning of Section 368(a)(1) of the Code, and each Fund
will be "a party to a reorganization" within the meaning of
Section 368(b) of the Code,
o no gain or loss will be recognized by either Fund as a result
of the Merger,
o the basis of the assets of EMG in the hands of ETF will be the
same as the basis of such assets to EMG immediately prior to
the Merger,
o the holding period of the assets of EMG in the hands of ETF
will include the period during which such assets were held by
EMG,
o no gain or loss will be recognized by the shareholders of EMG
upon the conversion of their EMG shares into ETF common stock
except with respect to cash received upon the sale of
fractional share interests,
46
o the basis of ETF shares received by the shareholders of EMG
will be the same as the basis of the shares (including
fractional share interests) of EMG exchanged therefor,
o the holding period of ETF shares (including fractional share
interests) received by the shareholders of EMG will include
the holding period during which the shares of EMG exchanged
therefor were held, provided that at the time of the exchange
the shares of EMG were held as capital assets in the hands of
the shareholders of EMG, and
o cash received for fractional shares will generate gain or loss
to shareholders receiving such cash.
While EMG is not aware of any adverse state or local tax consequences of
the proposed Merger, it has not requested any ruling or opinion with respect to
such consequences and shareholders may wish to consult their own tax advisers
with respect to such matters.
History of the Emerging Markets Infrastructure Fund's Discount. EMG's
shares have generally traded at a discount to their net asset value per share
since shortly after its commencement of operations. See "Additional Information
about the Funds-Discount to Net Asset Value." The Board of Directors of EMG has
considered a number of actions in response to this discount.
In October 1998, the Board of Directors of each Fund engaged in a share
repurchase program of up to 15% of that Fund's outstanding common stock. In
February 1999, EMG's Board authorized significant enhancements to this share
repurchase program, including repurchases of 10% of the Fund's outstanding
shares on a rolling 12-month basis (rather than an annual basis) and permitting
repurchases of the Fund's outstanding shares (subject to the 15% annual limit)
whenever the discount to net asset value is 15% or more. EMG's Board authorized
another share repurchase program for not less than 10% nor more than 15% of the
Fund's outstanding common stock in October 1999 after repurchasing the full
amount of shares authorized under the first share repurchase program. Both share
repurchase programs were intended to provide additional liquidity to those
shareholders who elected to sell their shares and to enhance the net asset value
of the shares held by shareholders who maintained their investment.
In May 1999, EMG's Board of Directors approved a self tender. Pursuant to
this self tender, EMG acquired 3,011,714 shares of its common stock,
representing approximately 20% of its then outstanding shares for a cash
purchase price equal to 95% of EMG's net asset value per share on June 25, 1999,
the date of the closing of the tender offer.
In May 2000, the Board of Directors of EMG, in recognition of the fact
that the Fund's shares have traded at a discount to their net asset value and
after consulting PaineWebber, determined that it was in the best interests of
the Fund to initiate the Tender Offer to acquire up to 50% of its shares of
common stock at a price per share equal to 95% of the Fund's net asset
47
value per share as of the end of the Tender Offer period. This Tender Offer is
conditioned upon the approval of the Plan by the shareholders of both Funds and
will not occur if these approvals are not obtained.
On June 27, 2000, the Board of Directors of ETF approved the overall terms
of a self-tender program that the Fund intends to launch in the calendar year
2001, which terms include the following: (i) the Fund will make a tender offer
to acquire at least 15% of its outstanding shares during each calendar year of
the program; and (ii) the per share purchase price will be at least 95% of the
Fund's net asset value per share. Implementation of the program is conditioned
on approval of the Merger.
The Directors have reserved the right to decide on the timing and the
terms of specific tenders, subject to adherence to the terms described above.
The Board of Directors of ETF intends to continue the self-tender program
indefinitely, subject to changes in economic or market conditions or other
factors. For example, a sustained reduction in the market discounts at which
ETF's shares are trading, a risk of material adverse tax consequences or a risk
of ETF becoming subject to delisting may lead its Board to conclude in the
future that it is appropriate to suspend the self-tender program. In addition,
the self-tender program is likely to reduce ETF's asset levels over time. Absent
substantial appreciation in ETF's portfolio or opportunities to raise additional
funds, this could lead to higher expense ratios, the absence of reasonable
diversification or investment opportunities, or other factors that adversely
affect ETF and, possibly, the continued viability of ETF as a closed-end fund.
ETF's Board will evaluate the program from time to time in light of its effects
on ETF.
ETF's Board of Directors views this self-tender program as a further
enhancement to the actions previously announced by ETF to enhance shareholder
value, which, in addition to the Merger, includes the modification of the CSAM
investment advisory agreement pursuant to which the advisory fee will be based
on the Fund's stock price (market value) rather than net asset value whenever
its shares are trading at a discount, and the payment of 50% of the Directors'
annual retainer in shares of the Fund.
48
ADDITIONAL INFORMATION ABOUT THE FUNDS
Description of Securities to be Issued. The authorized stock of ETF
consists of 100,000,000 shares of common stock, U.S.$0.001 par value. Shares of
ETF entitle its holders to one vote per share. Holders of ETF's common stock are
entitled to share equally in dividends authorized by the Fund's Board of
Directors payable to the holders of such common stock and in the net assets of
ETF available for distribution to holders of such common stock. Shares have
noncumulative voting rights and no conversion, preemptive or other subscription
rights, and are not redeemable. The outstanding shares of common stock of ETF
are fully paid and non-assessable. In the event of liquidation, each share of
common stock is entitled to its proportion of the Fund's assets after payment of
debts and expenses. ETF holds shareholder meetings annually.
The following table shows information about the common stock of each Fund
as of June 30, 2000.
(4)
Amount Issued
(3) and Outstanding
(1) (2) Amount held by Fund for Exclusive of Amount
Title of Class Amount Authorized its Own Account Shown Under (3)
-------------- ----------------- ---------------- ---------------
EMERGING MARKETS Common Stock, $0.001 par 100,000,000 None 7,100,820
TELECOMMUNICATIONS FUND value
EMERGING MARKETS INFRASTRUCTURE Common Stock, $0.001 par 100,000,000 None 11,175,955
FUND value
The shares of common stock of ETF and EMG are listed and trade on the NYSE
under the symbols "ETF" and "EMG", respectively. As of , 2000, the net asset
value of ETF common stock was $_____, and the market price per share was $_____.
As of that same date, the net asset value of EMG common stock was $_____, and
the market price per share was $_______.
Discount to Net Asset Value. Shares of closed-end investment companies,
such as the Funds, have frequently traded at a discount from net asset value.
This characteristic is a risk separate and distinct from the risk that the
Funds' net asset values may decrease, and this risk may be greater for
shareholders expecting to sell their shares in a relatively short period. THE
SHARES OF COMMON STOCK OF THE FUNDS SHOULD THUS BE VIEWED AS BEING DESIGNED
PRIMARILY FOR LONG-TERM INVESTORS AND SHOULD NOT BE CONSIDERED A VEHICLE FOR
TRADING PURPOSES.
During the period since the inception of the Funds, the common stock of
both Funds has generally traded at a discount to net asset value, and does so
currently. It is not possible to state whether shares of ETF will trade at a
premium or discount to net asset value following the
49
Merger, or the extent of any such premium or discount. The Directors of both
Funds have regularly considered, and the Directors of ETF will continue to
consider, the respective Fund's market price discount and the effect of the
discount on the Fund and its shareholders.
50
PER SHARE DATA FOR THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
COMMON STOCK TRADED ON THE NYSE
DISCOUNT
PERIOD MARKET PRICE NET ASSET VALUE AS % OF NAV
------------ --------------- -----------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
- ----------------------------------------------------------------------------
1998
First Quarter..... $15.0000 $11.8750 $18.16 $14.91 20.36% 11.72%
Second Quarter.... 15.0000 12.0625 18.29 15.35 22.42 18.33
Third Quarter..... 13.7500 7.6875 17.28 10.92 28.12 19.10
Fourth Quarter.... 11.1250 8.0625 13.41 10.36 22.95 16.96
1999
First Quarter..... 9.8750 8.8125 12.01 10.66 20.48 11.95
Second Quarter.... 11.1250 9.3125 13.63 11.36 20.36 10.64
Third Quarter..... 11.3125 10.2500 14.16 12.91 23.20 16.45
Fourth Quarter.... 16.1250 10.2500 20.89 13.14 25.10 17.64
2000
First Quarter..... 20.0625 15.1250 25.21 19.52 20.48 11.95
Second Quarter.... 18.2500 12.7500 22.58 17.17 26.95 18.14
Third Quarter.....
(through ____, 2000)
51
PER SHARE DATA FOR THE EMERGING MARKETS INFRASTRUCTURE FUND, INC.
COMMON STOCK TRADED ON THE NYSE
PERIOD DISCOUNT
MARKET PRICE NET ASSET VALUE AS % OF NAV
------------ --------------- -----------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
- --------------------------------------------------------------------------------
1998
First Quarter..... $12.4375 $10.625 $15.28 $13.19 20.72% 14.50%
Second Quarter.... 12.2500 9.125 15.06 12.05 25.36 19.33
Third Quarter..... 10.5625 5.500 13.44 8.23 30.48 20.60
Fourth Quarter.... 7.8750 5.750 9.97 8.00 27.97 20.60
1999
First Quarter..... 8.1250 6.9375 9.97 9.03 24.56 15.63
Second Quarter.... 9.6250 8.0000 11.48 9.77 20.77 14.44
Third Quarter..... 9.4375 8.4375 11.97 11.02 40.99 18.88
Fourth Quarter.... 11.2500 8.2500 15.07 10.85 26.36 21.73
2000
First Quarter..... 13.5625 11.0625 17.31 14.63 25.50 19.48
Second Quarter.... 13.0000 10.8125 16.57 13.00 24.56 14.35
Third Quarter.....
(through ____, 2000)
52
Capitalization. The following table shows on an unaudited basis the
capitalization of ETF and EMG as of May 31, 2000 and on a pro forma basis as of
that same date giving effect to the Tender Offer and the Merger(1):
(in thousands, except per share values)
EMERGING
EMERGING MARKETS MARKETS PRO FORMA
TELECOMMUNICATIONS INFRASTRUCTURE PRO FORMA FOR TENDER
FUND FUND ADJUSTMENTS OFFER AND
MERGER
- --------------------------------------------------------------------------------
Net assets $130,300,455 $152,360,458 $(77,038,466) $205,622,447
Net asset value $18.35 $13.63 $18.35
per share(2)
Shares outstanding(3) 7,100,819 11,175,955 11,205,560
- --------------------------
(1) Assumes that the Tender Offer was fully subscribed and that the Tender
Offer and the Merger each had been consummated on May 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of ETF common stock shareholders of EMG will receive on the date the
Merger takes place, and the foregoing should not be relied upon to reflect
the number of shares of ETF common stock that actually will be received on
or after such date. Assumes distributions of ordinary income and accrual
of estimated Tender Offer and Merger expenses of $_________.
(2) Net asset value per share after Tender Offer- and Merger-related expenses
and distribution of ordinary income.
(3) Assumes the issuance of 4,104,741 shares in exchange for the net assets of
EMG (assuming the Tender Offer is fully subscribed). The number of shares
issued was based on the net asset value of each Fund, net of estimated
Tender Offer and Merger expenses and distributions, on May 31, 2000.
53
Dividends and Other Distributions. Each Fund intends to distribute
dividends from its net investment income and any net realized capital gains
after utilization of capital loss carryforwards annually to prevent application
of a federal excise tax. An additional distribution may be made if necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year in which it is declared. Dividends
and distributions of each Fund are invested in shares of the Fund at market
value and credited to the shareholder's account on the settlement date which is
usually three Business Days from the purchase date or, at the shareholder's
election, paid in cash.
If the Merger is approved by each Fund's shareholders, then as soon as
practicable before the Effective Date, each Fund will pay its shareholders a
cash distribution of all undistributed 2000 net investment income. It is
expected that any undistributed realized net capital gains, including any that
EMG may realize as a result of disposing of portfolio securities to raise funds
to finance the Tender Offer, will be offset through the utilization of capital
loss carryforwards prior to the Effective Date.
Portfolio Valuation. Investments of each Fund are stated at value in each
Fund's financial statements. All securities for which market quotations are
readily available are valued at the last sales price or lacking any sales, at
the closing price last quoted for the securities (but if bid and asked
quotations are available, at the mean between the current bid and asked prices).
Securities that are traded over-the-counter are valued at the mean between the
current bid and the asked prices, if available. All other securities and assets
are valued at fair value as determined in good faith by each Fund's Board of
Directors. Short-term investments having a maturity of 60 days or less are
valued on the basis of amortized cost. The Board of Directors of each Fund has
established general guidelines for calculating fair value of securities that are
not readily marketable. At May 31, 2000, ETF held 11.03% of its net assets in
securities valued in good faith by the Board of Directors with an aggregate cost
of $15,396,542 and fair value of 14,373,700, and EMG held 6.97% of its net
assets in securities valued in good faith by its Board of Directors with an
aggregate cost of $12,551,543 and fair value of $10,625,469. The net asset value
per share of each Fund is calculated on each Business Day.
For purposes of valuing assets in connection with the Merger, the assets
of EMG will be valued pursuant to the principles and procedures consistently
utilized by ETF, which principles and procedures are also utilized by EMG in
valuing its own assets and determining its own liabilities. As a result, it is
not expected that ETF's valuation procedures as applied to EMG's portfolio
securities will result in any difference from the valuation that would have
resulted from the application of EMG's valuation procedures to such securities.
Portfolio Transactions. The Funds may utilize Celfin, CS First Boston
Corporation and other affiliates of Credit Suisse, in connection with the
purchase or sale of securities in accordance with rules or exemptive orders
promulgated by the SEC when CSAM believes that the charge for the transaction
does not exceed usual and customary levels. For a more detailed discussion of
each Fund's brokerage allocation practice, see "Portfolio Transactions" in the
SAI.
54
Dividend Reinvestment and Cash Purchase Plan. Each Fund operates a
Dividend Reinvestment and Cash Purchase Plan, the InvestLinkSM Program, or the
Program, sponsored and administered by Fleet National Bank c/o EquiServe, L.P.,
pursuant to which Fund dividends and distributions, net of any applicable U.S.
withholding tax, are reinvested in shares of the Fund. Fleet National Bank c/o
EquiServe, L.P., serves as the Program Administrator for the shareholders in
administering the Program.
An interested shareholder may join the Program at any time. Purchases of
shares with funds from a participant's cash payment or automatic account
deduction will begin on the next day on which funds are invested. If a
participant selects the dividend reinvestment option, automatic investment of
dividends generally will begin with the next dividend payable after the Program
Administrator receives his enrollment form. Once in the Program, a person will
remain a participant until he terminates his participation or sells all shares
held in his Program account, or his account is terminated by the Program
Administrator. A participant may change his investment options at any time by
requesting a new enrollment form and returning it to the Program Administrator.
A shareholder whose shares are held by a broker or nominee that does not
provide a dividend reinvestment program may be required to have his shares
registered in his own name to participate in the Program. The receipt of
dividends and distributions in stock under the Program will not relieve
participants of any income tax (including withholding tax) that may be payable
on such dividends or distributions.
Certain distributions of cash attributable to (a) some of the dividends
and interest amounts paid to the Funds and (b) certain capital gains earned by
the Funds that are derived from securities of issuers from emerging countries
are subject to taxes payable by the Funds at the time amounts are remitted. Such
taxes will be borne by the Funds and allocated to all shareholders in proportion
to their interests in the Funds.
If the Board of Directors of a Fund declares an income dividend or a
capital gains distribution payable either in that Fund's common stock or in
cash, as shareholders may have elected, nonparticipants in the Program will
receive cash and participants in the Program will receive shares of common stock
of the Fund purchased on the open market by the Program Administrator. The
number of shares of common stock to be purchased for a participant depends on
the amount of his dividends, cash payments or bank account or payroll
deductions, less applicable fees and commissions, and the purchase price of the
shares. Such purchases will be made by participating brokers as agent for the
participants using normal cash settlement practices. All shares of common stock
purchased through the Program will be allocated to participants as of the
settlement date, which is usually three Business Days from the purchase date.
Participants in the Program also have the option of making additional cash
payments, or bank account deductions, to the Program Administrator for the
purchase of shares of common stock of the Fund, in any amount from $100 up to
$3,000 semi-annually.
A participant will be assessed certain charges in connection with his
participation in the Program. First-time investors will be subject to an initial
service charge which will be deducted
55
from their initial cash deposit. All optional cash deposit investments will be
subject to a service charge. Sales processed through the Program will have a
service fee deducted from the net proceeds, after brokerage commissions. In
addition to these transaction charges, participants will be assessed per share
processing fees which include brokerage commissions. Participants will not be
charged any fee for reinvesting dividends.
All correspondence concerning the Program should be directed to the
Program Administrator at Fleet National Bank c/o EquiServe, L.P., InvestLink
Program, P.O. Box 8040, Boston, MA 02266-8040. For a more complete description
of the Plan, see "Dividend Reinvestment and Cash Purchase Plan" in the SAI.
Corporate Governance Provisions. Both Funds are Maryland corporations and
in many respects have similar charter and by-law provisions.
Special Voting Provisions and Requirements. The Articles of Incorporation
and By-laws of each Fund contain provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Fund, to cause it to engage in certain transactions or to modify its structure.
The Board of Directors of each Fund is divided into three classes each having a
term of three years. Each year, the term of one class expires and the successor
or successors elected to such class will serve for a three-year term. This
provision could delay for up to two years the replacement of a majority of the
Board of Directors.
In addition, conversion of either of the Funds from a closed-end to an
open-end investment company requires the affirmative vote of at least 75% of the
directors and of the holders of 75% of the shares of the respective Fund unless
approved by at least 75% of the Continuing Directors (as defined below). If the
conversion is approved by at least 75% of the Continuing Directors, the
affirmative vote of at least 75% of the directors and of the holders of a
majority of the outstanding shares of each Fund will be required to approve such
conversion. Converting to an open-end investment company could restrict the
ability of either Fund to redeem its shares otherwise than in kind due to the
limited depth of the markets for certain securities in which the Funds may
invest. As a result, there can be no assurance that the Funds could realize the
then market value of the portfolio securities the Funds would be required to
liquidate to meet redemption requests.
The affirmative vote of at least 75% of the directors and of the holders
of at least 75% of the shares of either of the Funds is required to authorize
any of the following transactions:
(i) merger, consolidation or share exchange of either of the Funds with
or into any other person;
(ii) issuance or transfer by either of the Funds (in one or a series of
transactions in any 12-month period) of any securities of either of
the Funds 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 Funds in connection with a public offering, issuances of
securities of either of the Funds pursuant to a dividend
reinvestment plan adopted by the Funds and
56
issuances of securities of either of the Funds upon the exercise of
any stock subscription rights distributed by either of the Funds;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other
disposition by either of the Funds (in one or a series of
transactions in any 12-month period) to or with any person of any
assets of either of the Funds having an aggregate fair market value
of $1,000,000 or more, except for portfolio transactions effected by
either of the Funds in the ordinary course of its business
(transactions within clauses (i) and (ii) and this clause (iii) each
being known individually as a "Business Combination");
(iv) any proposal as to the voluntary liquidation or dissolution of
either of the Funds or any amendment to either of the Funds'
Articles of Incorporation to terminate its existence; and
(v) any shareholder proposal as to specific investment decisions made or
to be made with respect to either Funds' assets.
However, in the case of a Business Combination or a voluntary liquidation
proposal as described in clause (iv) above, a 75% shareholder vote will not be
required 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 either Fund and various other requirements are satisfied. In that event, a
majority of the votes entitled to be cast by EMG's shareholders will be required
to approve such transaction if it is a transaction described in clauses (i) or
(iii) with respect to which a shareholder vote is required under Maryland law or
if it is a transaction described in clause (iv), and no shareholder vote will be
required otherwise. Similarly, in that event, a majority of the votes entitled
to be cast by ETF's shareholders will be required to approve such transaction if
it is a transaction described in clauses (i) or (iv), or if it is a transaction
described in clause (iii) involving a transfer of substantially all of ETF's
assets with respect to which shareholder approval is required under Maryland
law, and no shareholder action will be required otherwise.
Each Fund's By-laws contain provisions the effect of which is to prevent
matters, including nominations of directors, from being considered at
shareholders' meetings where the Fund has not received sufficient prior notice
of the matters.
The provisions described above could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
either Fund in a tender offer or similar transaction. In the opinion of each
Fund's Board of Directors, however, these provisions offer several possible
advantages, including:
o they may require persons seeking control of either Fund to
negotiate with its management regarding the price to be paid
for the shares required to obtain such control,
o they promote continuity and stability, and
57
o they enhance each Fund's ability to pursue long-term
strategies that are consistent with its investment objectives.
The Board of Directors of each Fund has determined that the foregoing voting
requirements, which are generally greater than the minimum requirements under
Maryland law and the Investment Company Act, are in the best interests of
shareholders generally.
A "Continuing Director" is any member of the Board of Directors of either
Fund who:
o is not a person or affiliate of a person (other than an
investment company advised by the Fund's initial investment
adviser or any of its affiliates) who enters or proposes to
enter into a Business Combination with either Fund (such
person or affiliate, an "Interested Party"), and
o who has been a member of the Board of Directors of the
respective Fund for period of at least 12 months, or is a
successor of a Continuing Director who is unaffiliated with an
Interested Party and is recommended to succeed a Continuing
Director by a majority of the Continuing Directors then on the
Board of Directors of the respective Fund.
Removal of Directors. Directors of both Funds may be removed, with or
without cause, only by a vote of the holders of 75% of the shares of the
respective Fund entitled to be voted on that matter.
By-Laws. Each Fund's By-laws provide, among other things, that:
o a majority of the outstanding capital stock of such Fund is
required to request a special meeting of shareholders,
o certain advance notice requirements must be met in order for
shareholders to submit proposals at annual meetings and for
nominations by stockholders for election to the Board of
Directors, and
o the power to amend the By-laws is reserved to the Board of
Directors, except as otherwise required by the Investment
Company Act.
The full text of ETF's Articles of Incorporation and By-Laws are on file
with the SEC and these documents, as may be amended from time to time, will
govern ETF after the Merger.
Interest of Certain Persons. CSAM may be considered to have a financial
interest in the Merger, arising from the fact that the amount of its management
fee under the advisory agreement between CSAM and ETF will increase as the
amount of ETF's assets increases, and the amount of those assets will increase
by virtue of the Merger. However, the combined assets of both Funds, after
giving effect to the Tender Offer (assuming it is fully subscribed), will be
reduced by approximately 48% based on the Funds' net asset values as of June 30,
2000, and CSAM has agreed to voluntarily waive a portion of its advisory fee
payable by ETF as described above under "Information about the Merger - Reasons
for the Merger." In addition, assuming the Tender Offer is fully subscribed and
based on the market value of ETF and the net
58
asset values of the Funds, the blended investment advisory fee, using the
breakpoint, would be 0.89% of the surviving Fund's net assets after giving
effect to the Merger and would reduce the fee payable by ETF. Accordingly,
CSAM's aggregate advisory fees will be reduced as a result of the Merger. For
more information about the reduction in CSAM's aggregate advisory fees, see
"Proposal 2 (Emerging Markets Telecommunications Fund Shareholders Only):
Approval of New Investment Advisory Agreement."
59
MANAGEMENT OF THE FUNDS
Directors and Principal Officers. The business and affairs of each Fund
are managed under the direction of that Fund's Board of Directors, and the day
to day operations are conducted through or under the direction of the officers
of that Fund. Although both Funds are Maryland corporations, Martin M. Torino, a
director of each Fund, is a resident of Argentina, and a substantial portion of
his assets is located outside of the United States. Consequently, it may be
difficult for shareholders to enforce, in United States courts, judgments
against him obtained in such courts predicated on the civil liability provisions
of the United States securities laws. In addition, there is doubt as to the
enforceability in Argentine courts of liabilities predicated solely upon the
United States securities laws, whether or not such liabilities are based upon
judgments of courts in the United States.
Directors and Executive Officers of the Funds are as follows:
Shares Beneficially
Name and Address Owned on June 30, 2000 Position with the Fund
---------------- ---------------------- ----------------------
Dr. Enrique R. Arzac(1) (2)... Director
Columbia University Graduate
School of Business
New York, New York 10028
James J. Cattano(1) (2)....... Director
53 Old Field Point Road
Greenwich, Connecticut 06830
George W. Landau(1) (2)....... Director
Two Grove Isle Drive
Coconut Grove, Florida 33133
Martin M. Torino(1) (2)....... Director
L.N. Alen
986 9th Floor
1001 Buenos Aires, Argentina
William W. Priest, Jr.(1)..... Chairman of the Board
466 Lexington Avenue,
16th Floor
New York, New York 10017
60
Shares Beneficially
Name and Address Owned on June 30, 2000 Position with the Fund
---------------- ---------------------- ----------------------
Richard W. Watt(1)............ President, Chief
466 Lexington Avenue, Investment Officer
16th Floor and Director
New York, New York 10017
Emily Alejos(1)............... Investment Officer
466 Lexington Avenue,
16th Floor
New York, New York 10017
Yarek Aranowicz(1)............ Investment Officer
466 Lexington Avenue,
16th Floor
New York, New York 10017
Robert B. Hrabchak(1)......... Investment Officer
466 Lexington Avenue,
16th Floor
New York, New York 10017
Hal Liebes(1)................. Senior Vice President
466 Lexington Avenue,
14th Floor
New York, New York 10017
Michael A. Pignataro(1)....... Chief Financial
466 Lexington Avenue, Officer and Secretary
14th Floor
New York, New York 10017
- -------------
(1) Also serves in the same capacity for EMG.
(2) Indicates Non-interested Directors of ETF and members of its audit
committee. These directors are also Non-interested Directors of EMG and
members of its audit committee.
(3) Mr. Gordon resigned from the Funds' Boards of Directors effective December
20, 1999.
Dr. Enrique R. Arzac, 58, is a Professor of Finance and Economics at the
Graduate School of Business, Columbia University (1971-present). Dr. Arzac is
also a Director of nine other CSAM-advised investment companies, and he is a
Director of The Adams Express Company and Petroleum and Resources Corporation.
James J. Cattano, 56, is President of Primary Resource Inc. (an
international trading and chemical processing company specializing in the sale
of agricultural and industrial commodities throughout Latin American markets)
(10/96-present). He was President of Atlantic Fertilizer & Chemical Company (an
international trading company specializing in the sale of agricultural
commodities in Latin American markets) (10/91-10/96) and President of Diamond
Fertilizer &
61
Chemical Corporation, a subsidiary of Norsk Hydro A.S. (a Norwegian agriculture,
oil and gas, light metals and petro-chemical company) (1/84-10/91). Mr. Cattano
is also a Director of four other CSAM-advised investment companies.
George W. Landau, 80, is Senior Advisor, Latin America Group, The Coca
Cola Company (since 1988). Ambassador Landau was President of the Americas
Society and Council of the Americas (7/85-10/93). He was the United States
Ambassador to Venezuela (1982-1985), United States Ambassador to Chile
(1977-1982) and United States Ambassador to Paraguay (1972-1977). Ambassador
Landau is also a Director of five other CSAM-advised investment companies, and
he is a Director of Emigrant Savings Bank and GAM Funds, Inc.
Martin M. Torino, 50, is Chairman of the Board of Ingenio y Refineria San
Martin Del Tabacal S.A. since August 1996 and the Executive Director of TAU S.A.
(a commodities trading firm) since November 1990. Mr. Torino was President of
DYAT S.A. (10/93-present) and an Executive Vice President of Louis Dreyfus Sugar
Company, Inc. (a commodities trading firm) from 1984 to 1990. Mr. Torino is also
a Director of four other CSAM-advised investment companies.
William W. Priest, Jr., 58, has been Chairman and Managing Director of
CSAM since May 2000. Prior to May 2000, Mr. Priest was Chairman, Chief Executive
Officer and Executive Director of CSAM and Chairman-Management Committee of
CSAM. He is a Director of fifty-five other CSAM-advised investment companies.
Richard W. Watt, 41, has been a Managing Director of CSAM since July 1996.
He was a Senior Vice President of CSAM (8/95-7/96), the Head of Emerging Markets
Investments and Research at Gartmore Investment Limited (11/92-6/95) and a
Director of Kleinwort Benson International Investment (5/87-10/92). He is a
Director of six other CSAM-advised investment companies.
Emily Alejos, 36, has been a Director of CSAM since January 1999. She was
Vice President of CSAM (4/97-1/99) and Vice President of Bankers Trust Co.
(8/93-3/97). Ms. Alejos is also Chief Investment Officer of The Brazilian Equity
Fund, Inc., The Latin America Equity Fund, Inc. and The Latin America Investment
Fund, Inc. and Investment Officer of The Chile Fund, Inc.
Yarek Aranowicz, 36, has been a Vice President of CSAM since March 1998.
He was a Director of Research for Europe and the Middle East, TransNational
Research Corporation (12/95-2/98) and an Analyst at John Hancock Financial
Services (5/92-6/95). Mr. Aranowicz is also an Investment Officer of The Latin
America Equity Fund, Inc., The Latin America Investment Fund, Inc., The Chile
Fund, Inc. and The Brazilian Equity Fund, Inc.
Robert B. Hrabchak, 36, is currently a Director of CSAM. Mr. Hrabchak was
a Vice President of CSAM (6/97-1/99) and Senior Portfolio Manager, Merrill Lynch
Asset Management, Hong-Kong (1/95-5/97). Mr. Hrabchak was also an Associate at
Salomon Brothers Inc. (4/93-1/95). Mr. Hrabchak is also the Chief Investment
Officer of The Indonesia Fund, Inc.
Hal Liebes, 37, has been a Managing Director and General Counsel of CSAM
since December 1999. He was Director and General Counsel of CSAM (3/97-12/99).
Mr. Liebes was Vice President and Counsel for Lehman Brothers, Inc. (6/96-3/97),
Vice President and Legal
62
Counsel for CSAM (6/95-6/96) and Chief Compliance Officer for CS First Boston
Investment Management (3/94-6/95).
Michael A. Pignataro, 40, has been a Vice President of CSAM since December
1995. He was an Assistant Vice President and the Chief Administrative Officer
for Investment Companies of CSAM (9/89 - 12/95). Mr. Pignataro is also the Chief
Financial Officer and Secretary of The Chile Fund, Inc., The Brazilian Equity
Fund, Inc., The First Israel Fund, Inc., The Latin America Equity Fund, Inc.,
The Latin America Investment Fund, Inc. and The Indonesia Fund, Inc.
Mr. Torino is a resident of Argentina and a substantial portion of his
assets is located in Argentina. Mr. Torino has not appointed an agent for
service of process in the United States.
All the Directors and Officers of ETF are also Directors and Officers of
EMG.
Each Fund pays each of its directors who is not a director, officer,
partner, co-partner or employee of CSAM or any affiliate thereof an annual fee
of $5,000 plus $500 for each Board of Directors meeting attended. In addition,
each Fund will reimburse those directors for travel and out-of-pocket expenses
incurred in connection with Board of Directors meetings. The aggregate
remuneration paid to directors by ETF during the fiscal year ended May 31, 1999
was $42,000, and the aggregate renumeration paid to directors by EMG during the
fiscal year ended November 30, 1999 was $49,500.
On May 8, 2000, the Board of Directors of each of ETF and EMG unanimously
approved a proposal by the Non-interested Directors to partially compensate
Non-interested Directors in shares of the respective Funds. Under this new
policy, the Non-Interested Directors will receive 50% of their annual retainer
in the form of shares purchased by the respective Fund in the open market.
Paying directors' annual retainers in shares is intended to align the interests
of the Non-interested Directors with those of each Fund's shareholders.
The Articles of Incorporation and By-laws of each 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 positions with the
Fund to the fullest extent permitted by law. In addition, each 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 instances.
Each of the Non-interested Directors of the Funds is also party to an
Indemnification Agreement with the Fund or Funds as to which he serves as a
director providing for contractual rights of indemnity and advancement of
expenses. However, nothing in the Articles of Incorporation, the By-laws or the
Indemnification Agreements of either Fund protects or indemnifies a director,
officer, employee or agent against any liability to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office. Insurance obtained by either Fund shall not protect or purport
to protect officers or directors or the investment adviser of that Fund against
any liability to the Fund or its shareholders to which they
63
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of their obligations and duties.
Investment Managers. CSAM, located at 466 Lexington Avenue, 16th Floor,
New York, New York 10017, is the investment manager to both ETF and EMG pursuant
to investment advisory agreements with each.
CSAM is an indirect wholly-owned U.S. subsidiary of Credit Suisse Group.
Credit Suisse Group is a global financial services company which provides a
comprehensive range of banking and insurance products. As of December 31, 1999,
Credit Suisse Group had approximately $203 billion of global assets under
management. The principal business address of Credit Suisse Group is Paradeplatz
8, CH 8070, Zurich, Switzerland.
CSAM is a diversified asset manager, handling global equity, balanced,
fixed income and derivative securities accounts for private individuals, as well
as corporate pension and profit-sharing plans, state pension funds, union funds,
endowments and other charitable institutions. As of December 31, 1999, CSAM
managed approximately $72.0 billion in assets. CSAM is registered as an
investment adviser under the Investment Advisers Act of 1940, or the Advisers
Act. For information regarding a proposed new investment advisory agreement with
CSAM, see "Proposal 2 (Emerging Markets Telecommunications Fund Shareholders
Only): Approval of New Investment Advisory Agreement."
CSAM has sole investment discretion for each Fund's assets under the
supervision of each Fund's Board of Directors and in accordance with each Fund's
stated policies. CSAM will select investments for each Fund and will place
purchase and sale orders on behalf of the Funds. For information about each
Fund's investment advisory fees, including amounts paid for the 1999 fiscal
year, see "Synopsis--Fees and Expenses--The Emerging Markets Telecommunications
Fund" and "Synopsis--Fees and Expenses--The Emerging Markets Infrastructure
Fund."
CSAM's executive officers and directors are as follows: William W. Priest,
Jr., Richard W. Watt, Hal Liebes (all of whom are also executive officers or
directors of the Funds), James P. McCaughan, Laurence R. Smith, Elizabeth B.
Dater, Eugene L. Podsiadlo, Sheila N. Scott, Timothy T. Taussig, Robert D.
Birnbaum, Susan Black, Steven D. Bleiberg, Jo Ann Corkran, Alain G. De Coster,
Gregg M. Diliberto, Paul N. Edwards, Harold W. Ehrlich, Kyle F. Frey, Jeffrey A.
Geller, Robert S. Janis, Kevin K. Keady, Scott T. Lewis, Richard J. Lindquist,
Brady T. Lipp, Stephen J. Lurito, Lynn S. Martin, Jack Morgenstern, Maryanne S.
Mullarkey, Terry S. Newman, Sharon B. Parente, Roger Reinlieb, Eric N. Remole,
Donald C. Schultheis, Harold E. Sharon, Eugene J. Siembieda, Mark K.
Silverstein, Barbara A. Tarmy and Donna M. Vandenbulcke.
In addition, Emily Alejos, the Funds' Investment Officer, Yarek Aranowicz,
the Funds' Investment Officer, Robert B. Hrabchak, the Funds' Investment
Officer, Michael A. Pignataro, the Funds' Chief Financial Officer and Secretary,
Rocco A. Del Guercio, a Vice President of each Fund, and Robert M. Rizza, the
Funds' Treasurer, are also employees of CSAM.
64
Portfolio Management. Richard W. Watt, who is a Managing Director of CSAM
and who held the office of Senior Vice President of CSAM from August 1995 to
July 1996, is primarily responsible for management of each Fund's assets.
Administrator. Bear Stearns Funds Management Inc. serves as each Fund's
U.S. administrator pursuant to an administrative agreement with each Fund. BSFM
is located at 575 Lexington Avenue, New York, New York 10022. For information
about fees paid to BSFM, see "Synopsis--Fees and Expenses--The Emerging Markets
Telecommunications Fund" and "Synopsis--Fees and Expenses--The Emerging Markets
Infrastructure Fund."
BSFM provides office facilities and personnel adequate to perform the
following services for each Fund:
o oversight of the determination and publication of each Fund's
net asset value in accordance with the respective Fund's
policy as adopted from time to time by the respective Board of
Directors,
o maintenance of the books and records of each Fund as required
under the Investment Company Act,
o preparation of each Fund's U.S. federal, state and local
income tax returns,
o preparation of financial information for each Fund's proxy
statements and semiannual and annual reports to shareholders,
and
o preparation of certain of each Fund's reports to the SEC.
As of May 31, 2000, BSFM provided accounting and/or administrative
services for 29 investment companies and investment partnerships, with combined
total assets of approximately $4.2 billion.
Each Fund has retained CSAM to provide certain administrative and
shareholder services to the respective Fund that are not provided by BSFM,
subject to the supervision and direction of the respective Board of Directors of
the respective Fund pursuant to an administrative services agreement with CSAM.
These services include:
o furnishing certain internal executive and administrative
services, responding to shareholder inquiries,
o acting as liaison between the respective Fund and its various
service providers,
o furnishing corporate secretarial services, which include
assisting in the preparation of materials for meetings of the
Board of Directors,
o coordinating the preparation of proxy statements, reports to
shareholders and filings with state blue sky authorities,
65
o assisting in the preparation of tax returns, and
o generally assisting in monitoring and developing compliance
procedures for each Fund.
CSAM is reimbursed by each Fund for costs incurred on behalf of the Fund
(up to $20,000 per annum). Costs incurred on behalf of two or more funds for
which CSAM provides administrative and shareholder services are apportioned
among such funds according to their respective net asset values. Each Fund also
reimburses CSAM for any out-of-pocket expenses in providing these services to
each Fund, including postage, telephone and other telecommunications charges and
duplicating costs. For information regarding fees paid to CSAM for
administrative services for ETF's fiscal year ended May 31, 2000 and EMG's
fiscal year ended November 30, 1999, see "Synopsis--Fees and Expenses--The
Emerging Markets Telecommunications Fund" and "Synopsis--Fees and Expenses--The
Emerging Markets Infrastructure Fund."
Chilean Administrator. Under Chilean law, each Fund is required to have an
administrator in Chile. Celfin serves as each Fund's Chilean administrator
pursuant to an administrative agreement with each Fund. The Chilean
administrator, a Chilean corporation located at Apoquindo 3721, Piso 19,
Santiago, Chile, a subsidiary of CSAM, performs various services for each Fund,
including:
o maintaining the general ledger and preparing financial
statements required for each Fund pursuant to Chilean law and
regulations,
o making applications to the Central Bank of Chile for
remittances of dividends, interest, net realized capital gains
and capital outside Chile,
o withholding Chilean taxes due on amounts remitted abroad on
account of dividends, interest and net realized capital gains
or otherwise,
o acting as each Fund's representative in Chile, and
o providing clerical assistance in connection with Chilean
investments.
For information regarding fees paid to Celfin, see "Synopsis--Fees and
Expenses--The Emerging Markets Telecommunications Fund" and "Synopsis--Fees and
Expenses--The Emerging Markets Infrastructure Fund."
Estimated Expenses. Except as otherwise provided in the administrative
services agreements, the Brazilian administration agreement and the Chilean
administration agreements, CSAM, Fleet, Celfin and BSFM are each obligated to
pay expenses associated with providing the services contemplated by the
agreements to which they are parties, including compensation of and office
space for their respective officers and employees connected with investment and
economic research, trading and investment management and administration of each
Fund, as well
66
as the fees of all directors of each Fund who are affiliated with
those companies or any of their affiliates. Each Fund pays all other expenses
incurred in the operation of that Fund including, among other things:
o expenses for legal and independent accountants' services,
o costs of printing proxies, stock certificates and shareholder
reports,
o charges of the custodians, any sub-custodians and the transfer
and dividend-paying agent's expenses in connection with the
Funds' Dividend Reinvestment and Cash Purchase Plan,
o U.S. SEC fees and fees of regulatory bodies of the emerging
countries,
o fees and expenses of unaffiliated directors,
o accounting and pricing costs,
o membership fees in trade associations,
o fidelity bond coverage for the Funds' officers and employees,
o directors' and officers' errors and omissions insurance
coverage,
o interest,
o brokerage costs and stock exchange fees,
o taxes,
o stock exchange listing fees and expenses,
o expenses of qualifying the Funds' shares for sale in various
states and foreign jurisdictions,
o litigation, and
o other extraordinary or non-recurring expenses and other
expenses properly payable by the Funds.
Portfolio Managers. If the Merger is consummated, it is anticipated that
Richard W. Watt will continue as the Chief Investment Officer of ETF. For more
information regarding Mr. Watt, see "--Directors and Officers."
Custodian. Brown Brothers Harriman & Co., 40 Water Street, Boston, MA
02109, is the custodian for both Funds' U.S. and foreign assets.
67
Transfer Agent and Registrar. Fleet National Bank c/o EquiServe, L.P.,
P.O. Box 1865, Mail Stop 45-02-62, Boston, MA 02105 acts as the transfer agent
and registrar of each Fund.
Control Persons and Principal Holders of Securities. The following table
shows certain information based on filings made with the SEC concerning persons
who may be deemed beneficial owners of 5% or more of the shares of common stock
of either Fund because they possessed or shared voting or investment power with
respect to the shares of that Fund:
Number of Shares Percent
Fund Name and Address Beneficially of Shares
- ---- ---------------- Owned ---------
-----
ETF FMR Corp. 398,000 5.13%
82 Devonshire Street
Boston, Massachusetts 02109
EMG Lazard Freres & Co. LLC 1,789,693 11.11%
30 Rockefeller Plaza
New York, New York 10022
President and Fellows of Harvard 1,116,058 9.4%
College
c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, Massachusetts 02210
- ----------
(1) Based on a Schedule 13-G filed with the SEC on February 12, 2000.
(2) Based on a Schedule 13-G filed with the SEC on March 10, 2000.
(3) Based on a Schedule 13-G filed with the SEC on January 28, 2000.
All the directors and executive officers, as a group, of ETF, as of
July 7, 2000, owned less than 1% of the outstanding shares of ETF, and all the
directors and executive officers, as a group, of EMG, as of the same date, owned
less than 1% of the outstanding shares of EMG.
68
EXPERTS
Each Fund has selected PricewaterhouseCoopers LLP, Two Commerce Square,
Suite 1700, 2001 Market Street, Philadelphia, PA 19103, as its independent
public accountants who will audit each its financial statements. REQUIRED VOTE
The Merger has been approved by 75% of the Continuing Directors of each
Fund. Accordingly, under the Articles of Incorporation of each Fund, approval of
the Merger requires the affirmative vote of the holders of a majority of the
outstanding shares of common stock of each Fund. Subject to such approval, the
Merger is currently scheduled to be consummated shortly after the completion of
the Tender Offer. The Board of Directors of each Fund recommends that the
shareholders of each Fund vote in favor of this Proposal 1. LEGAL PROCEEDINGS
There are currently no material legal proceedings to which the Funds are a
party.
LEGAL OPINIONS
Certain legal matters in connection with the Merger will be passed upon
for the Funds by Willkie Farr & Gallagher. Willkie Farr & Gallagher will rely as
to certain matters of Maryland law on the opinion of Venable, Baetjer and
Howard, LLP.
69
PROPOSAL 2 (EMERGING MARKETS TELECOMMUNICATIONS FUND
SHAREHOLDERS ONLY): APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
CSAM currently acts as ETF's investment adviser pursuant to an investment
advisory agreement between CSAM and the Fund dated June 17, 1992. Under the
advisory agreement, CSAM is contractually entitled to receive a quarterly fee
computed monthly at an annual rate of 1.25% of the first $100 million of the
Fund's average weekly net assets, 1.125% of the next $100 million and 1.00% of
amounts over $200 million.
On July 24, 2000, the Fund's Board of Directors approved a proposal by
CSAM to enter into a new investment advisory agreement, or the New Investment
Advisory Agreement. The New Investment Advisory Agreement will be substantially
similar to the current investment advisory agreement except with regard to the
method used to calculate the investment advisory fees. Instead of basing the fee
on the Fund's average weekly net asset value, the New Investment Advisory
Agreement will calculate fees based on the lower of the average weekly market
value of the Fund's outstanding shares or the Fund's average weekly net asset
value. Assuming that the Fund's shares trade at a discount to net asset value
from time to time, the effect of this amendment will be to reduce the Fund's
advisory fee, thereby lowering its expense ratio.
If the New Investment Advisory Agreement is not approved, the current
investment advisory agreement will remain in effect. CSAM, however, has
voluntarily agreed to waive any amounts payable in excess of the proposed new
fee structure effective July 1, 2000 to the date of ETF's annual meeting of
shareholders. Thereafter, the higher fee reflected in the current agreement
would once again take effect.
A description of the proposed New Investment Advisory Agreement is
provided below under "-- The New Investment Advisory Agreement." This
description is only a summary and is qualified by reference to the form of
investment advisory agreement attached hereto as EXHIBIT B. THE NEW INVESTMENT
ADVISORY AGREEMENT IS SUBSTANTIALLY SIMILAR TO THE REDUCED CURRENT INVESTMENT
ADVISORY AGREEMENT EXCEPT WITH RESPECT TO THE REDUCED FEE STRUCTURE.
BOARD RECOMMENDATION
On July 24, 2000, at an in-person meeting of the Board specifically called
for this purpose, the Board of Directors of the Fund, including the
Non-interested Directors, unanimously approved the New Investment Advisory
Agreement and recommended its approval to shareholders of the Fund.
BOARD CONSIDERATIONS; REASONS FOR
THE NEW INVESTMENT ADVISORY AGREEMENT
As discussed in "Proposal 1 (Both Funds): Approval of the Merger Agreement
and Plan of Reorganization pursuant to which The Emerging Markets Infrastructure
Fund Will Merge
70
with and into The Emerging Markets Telecommunications Fund--Information About
the Merger," the Board of Directors of the Fund has been concerned with the size
of the discount to net asset value at which the Fund's shares have traded on the
NYSE. The Board has discussed and considered various alternative strategies to
address the discount at meetings held on February 8, 2000, April 6, 2000 and May
8, 2000. For a description of these strategies, see "Proposal 1 (Both Funds):
Approval of the Merger Agreement and Plan of Reorganization pursuant to which
The Emerging Markets Infrastructure Fund Will Merge with and into The Emerging
Markets Telecommunications Fund--Information About the Merger--Reasons for the
Merger."
At the May 8, 2000 board meeting, CSAM proposed changing the fee
structure. Changing the methodology by which the current investment advisory
fees are calculated as described above would:
o reduce the investment advisory fee, thereby lowering the
Fund's overall expense ratio, and
o have an on-going accretive impact on net asset value.
In addition, the Board of Directors believes that calculating the
investment advisory fee with reference to the stock price (market value) when
the Fund's shares are trading at a discount, will more closely align the
interests of CSAM with the interests of the Fund's shareholders in enhancing the
Fund's market value and narrowing the market discount, recognizing that CSAM
does not and cannot control the discount at which Fund shares trade.
The Board of Directors also considered and evaluated the proposed New
Investment Advisory Agreement and determined that, except for the fee structure,
the New Investment Advisory Agreement is not materially different from the
current investment advisory agreement. CSAM has confirmed that the level and
quality of the services provided to the Fund will not change if the New
Investment Advisory Agreement is approved by the Fund's shareholders.
INFORMATION CONCERNING CREDIT SUISSE GROUP AND CSAM
For information about the Fund's investment adviser, see "Proposal 1 (Both
Funds): Approval of the Merger Agreement and Plan of Reorganization pursuant to
which The Emerging Markets Infrastructure Fund Will Merge with and into The
Emerging Markets Telecommunications Fund--Management of the Funds."
DESCRIPTION OF CURRENT INVESTMENT ADVISORY AGREEMENT
Under the current investment advisory agreement, CSAM provides the Fund
with ongoing investment advisory services. CSAM:
o manages the Fund's assets in accordance with the Fund's
investment objective and policies,
o selects investments for the Fund,
o places purchase and sale orders on behalf of the Fund, and
71
o together with the Board of Directors of the Fund, monitors the
performance of Celfin.
CSAM also provides investment research and supervision of the Fund's
investments and conducts a continual program of investment, evaluation and if
appropriate, sale and reinvestment of the Fund's assets. Furthermore, CSAM also
provides administrative services to the Fund pursuant to a separate
administrative agreement. For more information about the administrative services
CSAM provides to the Fund pursuant to this agreement, see "Proposal 1 (Both
Funds): Approval of the Merger Agreement and Plan of Reorganization pursuant to
which The Emerging Markets Infrastructure Fund Will Merge with and into The
Emerging Markets Telecommunications Fund--Management of the
Funds--Administrator."
CSAM is responsible for all expenses incurred in connection with the
performance of its services under the current investment advisory agreement,
including fees payable to any sub-advisers. The Fund is responsible for all
other expenses, including those described under "Proposal 1 (Both Funds):
Approval of the Merger Agreement and Plan of Reorganization pursuant to which
The Emerging Markets Infrastructure Fund Will Merge with and into The Emerging
Markets Telecommunications Fund--Management of the Funds--Estimated Expenses."
CSAM is contractually entitled to receive a quarterly investment advisory
fee in return for the services provided by CSAM to the Fund calculated weekly at
an annual rate of 1.25% of the first $100 million of the Fund's average weekly
net assets, 1.125% of the next $100 million and 1.00% of amounts over $200
million. For the fiscal year ended May 31, 2000, CSAM earned $1,542,224 for
advisory services. In addition, CSAM was reimbursed $14,040 for administrative
services rendered to the Fund for the fiscal year ended May 31, 2000.
The current investment advisory agreement provides that CSAM shall not be
liable, and shall be indemnified, for error of judgment or mistake of law or for
any loss suffered by the Fund in connection with matters to which such agreement
relates, except liability resulting from willful misfeasance, bad faith or gross
negligence on the part of CSAM in the performance of its duties or reckless
disregard of its obligations and duties under the current investment advisory
agreement. CSAM is entitled to receive advances from the Fund for payment of the
reasonable expenses it incurs in connection with any matter as to which it seeks
indemnification in the manner and to the fullest extent permissible under the
MGCL.
The current investment advisory agreement may be terminated without
penalty upon 60 days' written notice by the Board of Directors or by CSAM or the
vote of the holders of a majority of the Fund's shares. This agreement
terminates automatically in the event of its assignment.
THE NEW INVESTMENT ADVISORY AGREEMENT
Shareholders are being asked to approve or disapprove the New Investment
Advisory Agreement. The New Investment Advisory Agreement is substantially
similar to the current investment advisory agreement except with regard to the
fee structure.
72
The New Investment Advisory Agreement will be dated as of the date
shareholder approval is granted. The agreement will be in effect for an initial
two-year term, ending on the second anniversary of the date on which shareholder
approval is granted. The agreement may continue thereafter from year to year
only if specifically approved at least annually by either (i) the Board of
Directors of the Fund or (ii) the "vote of a majority of the outstanding voting
securities" of the Fund, and in either case, the vote of a majority of the
Non-Interested Directors, cast in person at a meeting called for such purpose.
In the event that shareholders do not approve the New Investment Advisory
Agreement, the current investment advisory agreement will remain in effect and
the voluntary CSAM fee waiver based on the market value of the Fund's
outstanding shares will terminate.
DIFFERENCES BETWEEN THE CURRENT AND
THE NEW INVESTMENT ADVISORY AGREEMENT
The New Investment Advisory Agreement is substantially similar to the
current investment advisory agreement except with respect to the fee structure.
The New Investment Advisory Agreement would change the method by which the
investment advisory fees are calculated. Under the current investment advisory
agreement, CSAM's fees are based on the average weekly net asset value of the
Fund, whereas, under the New Investment Advisory Agreement, fees will be based
on the lower of the average weekly market value of the Fund's outstanding shares
and its average weekly net asset value.
The following table sets forth the investment advisory fee paid for the
fiscal year ended May 31, 2000 under the current investment advisory agreement
and the amount that would have been paid had the New Investment Advisory
Agreement been in effect for the fiscal year ended May 31, 2000. Also shown is
the difference between the two amounts in dollars and as a percentage of the fee
paid under the existing agreement.
--------------------------------------------------------------------------
Fee Payable Under Fee Payable Under Reduction in Fee
Current Agreement New Agreement $ as %
--------------------------------------------------------------------------
$1,542,224 $1,216,930 $325,294 21.09%
--------------------------------------------------------------------------
REQUIRED SHAREHOLDER VOTE
Approval of the New Investment Advisory Agreement requires the affirmative
vote of a "majority of the outstanding voting securities" of the Fund as defined
under "General."
IN THE JUDGMENT OF THE BOARD OF DIRECTORS OF THE FUND, THE NEW INVESTMENT
ADVISORY AGREEMENT SERVES THE BEST INTERESTS OF THE FUND AND ITS SHAREHOLDERS,
AND THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 2.
73
PROPOSAL 3 (EMERGING MARKETS TELECOMMUNICATIONS FUND
SHAREHOLDERS ONLY): RE-ELECTION OF DIRECTORS
BACKGROUND
The Fund's Board of Directors is divided into three classes, each class
having a term of no more than three years. Each year the term of office of one
class expires and the successor or successors elected to such class will serve
for a three-year term.
Each of James J. Cattano and William W. Priest, Jr., directors whose
current terms expire on September 15, 2000, the date of the annual meeting, has
been nominated for a three-year term to expire at the 2002 Annual Meeting of
Shareholders. Messrs. Cattano and Priest currently serve as directors of the
Fund. Mr. Cattano has been a member of the Board of Directors since 1994, and
Mr. Priest has served as a director since 1997.
Each nominee has indicated an intention to continue to serve if elected
and has consented to being named in this Proxy Statement/Prospectus. Each
director named below who is deemed an "interested person" of the Fund, as
defined in the 1940 Act, is indicated by an asterisk. Messrs. Priest and Watt
are interested persons of the Fund by virtue of their positions as directors
and/or officers of CSAM.
For information regarding the nominees for election to ETF's Board,
directors whose terms of office continue beyond the 2000 annual meeting, and the
officers and directors of ETF as a group, see "Proposal 1 (Both Funds): Approval
of the Merger Agreement and Plan of Reorganization pursuant to which The
Emerging Markets Infrastructure Fund Will Merge with and into The Emerging
Markets Telecommunications Fund -- Management of the Funds."
During the fiscal year ended May 31, 2000, each director who is not a
director, officer, partner, co-partner or employee of CSAM, the Administrator,
or any affiliate thereof, received an annual fee of $5,000 and $500 for each
meeting of the Board attended by him and was reimbursed for expenses incurred in
connection with his attendance at the Board meetings. The total remuneration
paid or accrued by the Fund during the fiscal year ended May 31, 2000 to all
such unaffiliated directors was $41,000. During the fiscal year ended May 31,
2000, the Board convened 9 times. Each director attended at least seventy-five
percent of the aggregate number of meetings of the Board and any committee on
which he served held during the period for which he was a Director.
Messrs. Arzac, Cattano, Landau and Torino constitute the Fund's Audit
Committee, which is composed of directors who are not interested persons of the
Fund. The Audit Committee met twice during the fiscal year ended May 31, 2000.
The Audit Committee advises the full Board with respect to accounting, auditing
and financial matters affecting the Fund. The Board performs the functions of a
nominating committee. The Board will consider nominees recommended by
shareholders in the event any vacancies arise. Recommendations should be
submitted to the Board care of the Secretary of the Fund. The Fund does not have
a compensation committee.
Section 16(a) of the Securities Exchange Act of 1934 and Section 30(f) of
the 1940 Act require the Fund's officers and directors, officers and directors
of the investment adviser, affiliated persons of the investment adviser,
74
and persons who beneficially own more than ten percent of the Fund's shares, to
file reports of ownership with the Securities and Exchange Commission, the New
York Stock Exchange and the Fund. Based solely upon its review of the copies of
such forms received by it and written representations from such persons, the
Fund believes that, for the fiscal year ended May 31, 2000, all filing
requirements applicable to such persons were complied with.
For information about executive officers of the Fund, see "Proposal 1
(Both Funds): Approval of the Merger Agreement and Plan of Reorganization
pursuant to which The Emerging Markets Infrastructure Fund Will Merge with and
into The Emerging Markets Telecommunications Fund--Management of the Funds."
The following table shows certain compensation information for the
directors of ETF and EMG for the fiscal year ended May 31, 2000 and November 30,
1999, respectively. None of the Fund's executive officers or directors who are
also officers or directors of CSAM received any compensation from the Fund for
such period. The Fund has no bonus, profit sharing, pension or retirement plans.
Pension or Total Total Number
Retirement Estimated Compensation of Boards of
Benefits Annual from Funds and CSAM-Advised
Aggregate Accrued as Benefits Fund Complex Investment
Compensation Part of Fund upon Paid to Companies
Name of Director from Funds Expenses Retirement Directors(1) Served(2)
- ------------------------------------ ----------------- ------------ ---------- -------------- ------------
Dr. Enrique R. Arzac................ ETF: $ 9,000 0 0 $94,500 11
EMG: $11,500
James J. Cattano.................... ETF: $ 8,500 0 0 $57,500 6
EMG: $10,000
Peter A. Gordon*.................... ETF: $8,000 0 0 $44,500 6
EMG: $7,500
George W. Landau.................... ETF: $ 9,000 0 0 $59,000 7
EMG: $11,000
Martin M. Torino.................... ETF: $ 8,000 0 0 $50,000 6
EMG: $10,500
William W. Priest Jr................ ETF: $ 0 0 0 0 57
EMG $ 0
Richard W. Watt..................... ETF: $ 0 0 0 0 8
EMG: $ 0
- -------------
(*) Mr. Gordon resigned from the Funds' Boards of Directors effective December
20, 1999.
(1) As of November 30, 1999.
(2) Includes ETF and EMG.
75
REQUIRED SHAREHOLDER VOTE
Approval of the election of James J. Cattano and William W. Priest, Jr. as
Directors of the Fund requires the affirmative vote of a plurality of the votes
cast on the matter at the annual meeting of the Fund in person or by proxy.
76
PROPOSAL 4 (EMERGING MARKETS TELECOMMUNICATIONS FUND
SHAREHOLDERS ONLY): RATIFICATION OF SELECTION OF INDEPENDENT
PUBLIC ACCOUNTANTS
BACKGROUND
The fourth proposal to be submitted will be the ratification or rejection
of the selection by the Board of Directors of PricewaterhouseCoopers LLP as
independent public accountants of the Fund for the fiscal year ending May 31,
2001. At a meeting held on May 8, 2000, the Board of Directors, including those
directors who are not "interested persons" of the Fund, approved the selection
of PricewaterhouseCoopers LLP for the fiscal year ending May 31, 2001.
PricewaterhouseCoopers LLP has been the Fund's independent public accountants
since the Fund commenced operations in 1992, and has informed the Fund that it
has no material direct or indirect financial interest in the Fund. A
representative of PricewaterhouseCoopers LLP will be available by telephone at
the annual meeting of the Fund and will have the opportunity to make a statement
if the representative so desires and will be available to respond to appropriate
questions.
REQUIRED SHAREHOLDER VOTE
Ratification of the selection of PricewaterhouseCoopers LLP as the Fund's
independent public accountants requires the affirmative vote of a majority of
the votes cast on the matter at the annual meeting of the Fund in person or by
proxy.
THE BOARD OF DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS THE FUND'S INDEPENDENT PUBLIC
ACCOUNTANTS.
77
PROPOSAL 5 (EMERGING MARKETS TELECOMMUNICATIONS FUND
SHAREHOLDERS ONLY): SHAREHOLDER PROPOSAL REQUESTING THAT
ETF'S BOARD OF DIRECTORS PRESENT FOR SHAREHOLDER APPROVAL A
PROGRAM TO PERMIT ETF SHAREHOLDERS TO REALIZE NET ASSET VALUE
FOR THEIR SHARES
BACKGROUND
On May 1, 2000, ETF received the following proposal and supporting
statement from Walter S. Baer, who advised ETF that, at the time he submitted
his proposal to ETF, he owned shares of that Fund with a market value of at
least $2,000 continuously for the preceding year. ETF will provide the address
of Mr. Baer to any person who so requests such information orally or in writing,
promptly upon the receipt of any oral or written request therefor, to CSAM at
466 Lexington Avenue, 16th Floor, New York, New York 10017. ETF accepts no
responsibility for the accuracy of either the proposal or Mr. Baer's supporting
statement. The Board of Directors of ETF recommends a vote AGAINST this
shareholder proposal.
SHAREHOLDER PROPOSAL
The text of the shareholder proposal for ETF is as follows:
"RESOLVED: The shareholders request that, within sixty days, the Fund's
Board of Directors present for shareholder approval a program that will permit
shareholders to realize Net Asset Value for their shares."
SUPPORTING STATEMENTS
The text of the supporting statement for the shareholder proposal of ETF
is as follows:
"Shareholders have suffered long enough from the Fund's large discount
from Net Asset Value (NAV). The Fund should permit shareholders who want to
redeem shares to do so at NAV. Recommended programs to accomplish this include
1) an unlimited, one-time self-tender offer at NAV; 2) converting the Fund to an
open-end fund; 3) merging the Fund with an open-end fund; or 4) liquidating the
Fund.
This proposal has been submitted prior to any statement from the Fund
about actions it plans to take as a result of the recently completed PaineWebber
study. If by the time this proxy is filed, actions have been taken or proposed
that permit shareholders to realize NAV, I will withdraw this proposal. If not,
however, Fund management probably will oppose this proposal and make numerous
arguments why the current structure should be retained. In my opinion, the
dollars-and-cents benefits to shareholders of eliminating the discount far
outweigh whatever advantages the closed-end structure may offer for this Fund."
REQUIRED SHAREHOLDER VOTE
The shareholder request that ETF's Board of Directors present a program
for shareholder approval that will permit shareholders to realize the net asset
value for their shares requires the
78
affirmative vote of a majority of the votes cast on the matter at the annual
meeting in person or by proxy.
OPPOSING STATEMENT OF THE BOARDS OF DIRECTORS
The Board of Directors of ETF has, over the years, taken a range of
actions intended to address the discount to net asset value at which its shares
have traded on the NYSE and the impact on shareholders of the discount. After
numerous discussions and the consideration of various alternative strategies,
the Board of Directors of ETF has concluded that it is in the best interests of
ETF and its shareholders to maintain the closed-end format. For more information
about the factors considered by ETF's Board of Directors see "Proposal 1 (Both
Funds): Approval of the Merger Agreement and Plan of Reorganization pursuant to
which The Emerging Markets Infrastructure Fund Will Merge with and into The
Emerging Markets Telecommunications Fund--Information About the Merger--Reasons
for the Merger." However, in recognition of the desire of certain shareholders
to be able to realize an amount approximating net asset value for their shares,
the Board of Directors of ETF has approved, subject to the consummation of the
Merger, a program whereby the Fund intends to effectuate a self-tender for not
less than 15% of its outstanding shares on an annual basis, as described above
under "Proposal 1 (Both Funds): Approval of the Merger Agreement and Plan of
Reorganization pursuant to which The Emerging Markets Infrastructure Fund Will
Merge with and into The Emerging Markets Telecommunications Fund--Information
About The Merger--History of the Emerging Markets Infrastructure Fund's
Discount." The Board of Directors of ETF believes that the combination of the
Funds pursuant to the Merger proposal and the implementation of this self-tender
program achieves a proper balance between the ability of ETF to pursue its
investment objective and the desire of certain shareholders to sell their shares
at a price approximating net asset value. Accordingly,
THE BOARD OF DIRECTORS OF ETF, INCLUDING THE NON-INTERESTED
DIRECTORS, RECOMMENDS THAT THE SHAREHOLDERS OF ETF VOTE
"AGAINST" PROPOSAL 5.
79
ADDITIONAL INFORMATION
The Proxy Statement/Prospectus does not contain all of the information set
forth in the registration statements and the exhibits relating thereto which the
Funds have filed with the Commission, under the Securities Act and the
Investment Company Act, to which reference is hereby made.
The Funds are subject to the informational requirements of the Securities
Exchange Act and in accordance therewith, file reports and other information
with the SEC. Reports, proxy statements, registration statements and other
information filed by the Funds can be inspected and copied at the public
reference facilities of the SEC in Washington, D.C. and at the New York Regional
Office of the SEC at Seven World Trade Center, New York, New York 10048. Copies
of such materials also can be obtained by mail from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20594, at prescribed rates.
Proposals of Shareholders. Notice is hereby given that for a shareholder
proposal to be considered for inclusion in ETF's proxy material relating to its
2001 annual meeting of shareholders, the shareholder proposal must be received
by the Fund no later than , 2001. The shareholder proposal, including any
accompanying supporting statement, may not exceed 500 words. A shareholder
desiring to submit a proposal must be a record or beneficial owner of shares
with a market value of $2,000 and must have held such shares for at least one
year. Further, the shareholder must continue to hold such shares through the
date on which the meeting is held. Documentary support regarding the foregoing
must be provided along with the proposal. There are additional requirements
regarding proposals of shareholders, and a shareholder contemplating submission
of a proposal is referred to Rule 14a-8 promulgated under the Securities
Exchange Act. The timely submission of a proposal does not guarantee its
inclusion in ETF's proxy materials.
Pursuant to the By-laws of ETF, at any annual meeting of the shareholders,
only such business will be conducted as has been properly brought before the
annual meeting. To be properly brought before the annual 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, (ii) otherwise properly brought before the
meeting by or at the direction of the Board, or (iii) otherwise properly brought
before the meeting by a shareholder.
For business to be properly brought before the annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of ETF. To be timely, any such notice must be delivered to or
mailed and received by The Emerging Markets Telecommunications Fund, Inc. c/o
Credit Suisse Asset Management, LLC, 466 Lexington Avenue, 16th Floor, New York,
NY 10017 not later than , 2001; provided, however, that in the event that the
date of the 2001 annual meeting is advanced or delayed by more than 30 days from
, 2001, the first anniversary of the 2000 annual meeting, notice by such
shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice or public
announcement of the date of the 2001 meeting is given or made.
80
Any notice by a shareholder to the respective Fund must set forth as to
each matter the shareholder proposes to bring before the annual meeting: (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on ETF's books, of the shareholder
proposing such business, (iii) the class and number of shares of the capital
stock of ETF which are beneficially owned by the shareholder, (iv) a
representation that the shareholder is a holder of record of shares of ETF
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to present such business, (v) whether the shareholder intends or is
part of a group which intends to solicit proxies from other shareholders in
support of such business, and (vi) any material interest of the shareholder in
such business.
The Fund may exercise discretionary voting authority with respect to any
shareholder proposals that are not submitted in accordance with Rule 14a-8 under
the Securities Exchange Act and which are submitted after the advance notice
deadline for submission of proposals pursuant to ETF's By-laws indicated above.
Even if timely notice is received, ETF may exercise discretionary voting
authority in certain other circumstances as described under Rule 14a-4(c) under
the Securities Exchange Act which governs ETF's use of discretionary proxy
voting authority. Discretionary voting authority is the ability to vote proxies
that shareholders have executed and returned to ETF on matters not specifically
reflected on the form of proxy.
Other Matters to Come Before the Meeting. The Board of Directors of each
Fund is not aware of any matters that will be presented for action at the
Meeting other than the matters set forth herein. Should any other matters
requiring a vote of shareholders arise, the proxy in the accompanying form will
confer upon the person or persons entitled to vote the shares represented by
such proxy the discretionary authority to vote the shares as to any such other
matters in their discretion in the interest of the respective Fund. PLEASE
COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Boards of Directors of The Emerging Markets Telecommunications
Fund, Inc. and The Emerging Markets Infrastructure Fund, Inc.
Michael A. Pignataro
Chief Financial Officer and Secretary, The Emerging Markets Telecommunications
Fund, Inc.
Michael A. Pignataro
Chief Financial Officer and Secretary, The Emerging Markets Infrastructure
Fund, Inc.
81
EXHIBIT A
FORM OF
MERGER AGREEMENT AND PLAN OF REORGANIZATION
A-1
MERGER AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
THE EMERGING MARKETS INFRASTRUCTURE FUND, INC.
AND
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
DATED AS OF JUNE [ ], 2000
A-2
TABLE OF CONTENTS
1. DEFINITIONS...........................................................................6
2. BASIC TRANSACTION.....................................................................6
2.1. The Merger....................................................................6
2.2. Actions at Closing............................................................7
2.3. Effect of Merger..............................................................7
3. REPRESENTATIONS AND WARRANTIES OF THE EMERGING MARKETS INFRASTRUCTURE FUND............7
3.1. Organization..................................................................7
3.2. Registrations and Qualifications..............................................7
3.3. Regulatory Consents and Approvals.............................................8
3.4. Noncontravention..............................................................8
3.5. Financial Statements..........................................................8
3.6. Annual Report.................................................................8
3.7. Qualification, Corporate Power, Authorization of Transaction..................8
3.8. Legal Compliance..............................................................9
3.9. Material Contracts............................................................9
3.10. Undisclosed Liabilities.......................................................9
3.11. Tax Filings...................................................................9
3.12. Qualification under Subchapter M.............................................10
3.13. Form N-14 and Exemptive Application..........................................10
3.14. Capitalization...............................................................10
3.15. Books and Records............................................................10
4. REPRESENTATIONS AND WARRANTIES OF THE EMERGING MARKETS TELECOMMUNICATIONS FUND.......11
4.1. Organization.................................................................11
4.2. Registrations and Qualifications.............................................11
4.3. Regulatory Consents and Approvals............................................11
4.4. Noncontravention.............................................................11
4.5. Financial Statements.........................................................11
4.6. Annual Report................................................................12
4.7. Qualification, Corporate Power, Authorization of Transaction.................12
4.8. Legal Compliance.............................................................12
4.9. Material Contracts...........................................................12
4.10. Undisclosed Liabilities......................................................12
4.11. Tax Filings..................................................................13
4.12. Qualification under Subchapter M.............................................13
4.13. Form N-14 and Exemptive Application..........................................13
4.14. Capitalization...............................................................14
4.15. Issuance of Stock............................................................14
4.16. Books and Records............................................................14
A-3
5. CONVERSION TO EMERGING MARKETS TELECOMMUNICATIONS FUND COMMON STOCK..................14
5.1. Conversion...................................................................14
5.2. Computation of Net Asset Value...............................................15
5.3. Issuance of Emerging Markets Telecommunications Fund Common Stock............15
5.4. Surrender of Emerging Markets Infrastructure Fund Stock Certificates.........15
6. COVENANTS OF THE PARTIES.............................................................16
6.1. Shareholders' Meetings.......................................................16
6.2. Operations in the Normal Course..............................................16
6.3. Articles of Merger...........................................................16
6.4. Regulatory Filings...........................................................16
6.5. Preservation of Assets.......................................................17
6.6. Tax Matters..................................................................17
6.7. Shareholder List.............................................................17
6.8. Delisting, Termination of Registration as an Investment Company..............17
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE EMERGING MARKETS TELECOMMUNICATIONS FUND..18
7.1. Approval of Merger...........................................................18
3. Certificates and Statements by the Emerging Markets Infrastructure Fund......18
7.3. Absence of Litigation........................................................19
7.4. Legal Opinions...............................................................19
7.5. Auditor's Consent and Certification..........................................21
7.6. Liabilities..................................................................21
7.7. Effectiveness of N-14 Registration Statement.................................21
7.8. Approval of Exemptive Application; Regulatory Filings........................21
7.9. Administrative Rulings, Proceedings..........................................21
7.10. Satisfaction of the Emerging Markets Telecommunications Fund, Inc............22
7.11. Dividends....................................................................22
7.12. Custodian's Certificate......................................................22
7.13. Books and Records............................................................22
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE EMERGING MARKETS INFRASTRUCTURE FUND..22
8.1. Approval of Merger...........................................................22
8.2. Certificates and Statements by the Emerging Markets Telecommunications Fund..22
8.3. Absence of Litigation........................................................23
8.4. Legal Opinions...............................................................23
8.5. Auditor's Consent and Certification..........................................25
8.6. Effectiveness of N-14 Registration Statement.................................25
8.7. Approval of Exemptive Application; Regulatory Filings........................26
8.8. Satisfaction of the Emerging Markets Infrastructure Fund.....................26
8.9. Dividends....................................................................26
9. PAYMENT OF EXPENSES..................................................................26
9.1. Allocation...................................................................26
A-4
10. COOPERATION FOLLOWING EFFECTIVE DATE.................................................27
11. INDEMNIFICATION......................................................................27
11.1. The Emerging Markets Infrastructure Fund.....................................27
11.2. The Emerging Markets Telecommunications Fund.................................27
12. TERMINATION, POSTPONEMENT AND WAIVERS................................................27
12.1. Termination..................................................................27
12.2. Waiver.......................................................................28
12.3. Expiration of Representations and Warranties.................................28
13. MISCELLANEOUS........................................................................29
13.1. Transfer Restriction.........................................................29
13.2. Material Provisions..........................................................29
13.3. Notices......................................................................29
13.4. Amendments...................................................................31
13.5. Headings.....................................................................31
13.6. Counterparts.................................................................31
13.7. Enforceability...............................................................31
13.8. Successors and Assigns.......................................................31
13.9. Governing Law................................................................31
A-5
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
is made as of this ____ day of June, 2000, between The Emerging Markets
Infrastructure Fund, Inc. (the "Target Fund" or the "Emerging Markets
Infrastructure Fund"), a Maryland corporation and a registered investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and The Emerging Markets Telecommunications Fund, Inc. (the "Acquiring Fund" or
the "Emerging Markets Telecommunications Fund"), a Maryland corporation and a
registered investment company under the 1940 Act.
This agreement contemplates a tax-free merger transaction which
qualifies for federal income tax purposes as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the Parties hereto agree as follows:
1. DEFINITIONS
Certain capitalized terms used in this Agreement are specifically
defined herein.
2. BASIC TRANSACTION
2.1. The Merger. On and subject to the terms and conditions of this
Agreement, the Target Fund will merge with and into the Acquiring Fund (the
"Merger") at the Effective Date (as defined in Section 2.3 below) in accordance
with the Maryland General Corporation Law ("MGCL"). The Emerging Markets
Telecommunications Fund shall be the surviving investment company. The Emerging
Markets Infrastructure Fund shall cease to exist as a separate investment
company.
Each share of the Emerging Markets Infrastructure Fund will be
converted into an equivalent dollar amount (to the nearest one ten-thousandth of
one cent) of full shares of Common Stock of the Emerging Markets
Telecommunications Fund, with a par value of $0.001 per share, based on the net
asset value per share of each of the Parties at 4:00 p.m. Eastern Time on the
Business Day prior to the Effective Date (the "Valuation Time"). No fractional
shares of the Emerging Markets Telecommunications Fund will be issued to
Emerging Markets Infrastructure Fund shareholders. In lieu thereof, the Emerging
Markets Telecommunications Fund's transfer agent will aggregate all fractional
shares of the Emerging Markets Telecommunications Fund and sell the resulting
full shares on the New York Stock Exchange ("NYSE") at the current market price
for shares of the Emerging Markets Telecommunications Fund for the account of
all holders of fractional interests, and each such holder will receive such
holder's pro rata share of the proceeds of such sale, without interest, upon
surrender of such holder's Emerging Markets Infrastructure Fund Common Stock
certificates pursuant to Article 5 below. The Effective Date and the Business
Day prior to it must each be a day on which the NYSE is open for trading (a
"Business Day").
From and after the Effective Date, the Acquiring Company shall
possess all of the properties, assets, rights, privileges, powers and shall be
subject to all of the restrictions, liabilities, obligations, disabilities and
duties of the Emerging Markets Infrastructure Fund, all as provided under
Maryland law.
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2.2. Actions at Closing. At the closing of the transactions
contemplated by this Agreement (the "Closing") on the date thereof (the "Closing
Date"), (i) the Emerging Markets Infrastructure Fund will deliver to the
Emerging Markets Telecommunications Fund the various certificates and documents
referred to in Article 7 below, (ii) the Emerging Markets Telecommunications
Fund will deliver to the Emerging Markets Infrastructure Fund the various
certificates and documents referred to in Article 8 below, and (iii) the
Emerging Markets Infrastructure Fund and the Emerging Markets Telecommunications
Fund will file jointly with the State Department of Assessments and Taxation of
Maryland (the "Department") articles of merger (the "Articles of Merger") and
make all other filings or recordings required by Maryland law in connection with
the Merger.
2.3. Effect of Merger. Subject to the requisite approvals of the
shareholders of the Parties, and to the other terms and conditions described
herein, the Merger shall become effective at such time as the Articles of Merger
are accepted for record by the Department or at such later time as is specified
in the Articles of Merger (the "Effective Date") and the separate corporate
existence of the Emerging Markets Infrastructure Fund shall cease. As promptly
as practicable after the Merger, the Emerging Markets Infrastructure Fund shall
delist its shares from the NYSE and its registration under the 1940 Act shall be
terminated. Any reporting responsibility of the Emerging Markets Infrastructure
Fund is, and shall remain, the responsibility of the Emerging Markets
Infrastructure Fund up to and including the Effective Date.
3. REPRESENTATIONS AND WARRANTIES OF THE EMERGING MARKETS
INFRASTRUCTURE FUND
The Emerging Markets Infrastructure Fund represents and warrants to
the Emerging Markets Telecommunications Fund that the statements contained in
this Article 3 are correct and complete in all material respects as of the
execution of this Agreement on the date hereof. The Emerging Markets
Infrastructure Fund represents and warrants to, and agrees with, the Emerging
Markets Telecommunications Fund that:
3.1. Organization. The Emerging Markets Infrastructure Fund is a
corporation duly organized, validly existing under the laws of the State of
Maryland and is in good standing with the Department, and has the power to own
all of its assets and to carry on its business as it is now being conducted and
to carry out this Agreement.
3.2. Registrations and Qualifications. The Emerging Markets
Infrastructure Fund is duly registered under the 1940 Act as a closed-end,
non-diversified management investment company (File No. ), and such registration
has not been revoked or rescinded and is in full force and effect. The Emerging
Markets Infrastructure Fund has elected and qualified for the special tax
treatment afforded regulated investment companies ("RICs") under Sections
851-855 of the Code at all times since its inception. The Emerging Markets
Infrastructure Fund is qualified as a foreign corporation in every jurisdiction
where required, except to the extent that failure to so qualify would not have a
material adverse effect on the Emerging Markets Infrastructure Fund.
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3.3. Regulatory Consents and Approvals. No consent, approval,
authorization, or order of any court or governmental authority is required for
the consummation by the Emerging Markets Infrastructure Fund of the transactions
contemplated herein, except (i) such as have been obtained or applied for under
the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange
Act of 1934 (the "1934 Act"), and the 1940 Act, (ii) such as may be required by
state securities laws and (iii) such as may be required under Maryland law for
the acceptance for record of the Articles of Merger by the Department.
3.4. Noncontravention. The Emerging Markets Infrastructure Fund is
not, and the execution, delivery and performance of this Agreement by the
Emerging Markets Infrastructure Fund will not result in, a violation of the laws
of the State of Maryland or of the Articles of Incorporation or the By-laws of
the Emerging Markets Infrastructure Fund, or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which the
Emerging Markets Infrastructure Fund is a party or by which it is bound, and the
execution, delivery and performance of this Agreement by the Emerging Markets
Infrastructure Fund will not result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Emerging Markets Infrastructure
Fund is a party or by which it is bound.
3.5. Financial Statements. The Emerging Markets Telecommunications
Fund has been furnished with a statement of assets, liabilities and capital and
a schedule of investments of the Emerging Markets Infrastructure Fund, each as
of November 30, 1999, said financial statements having been examined by
PricewaterhouseCoopers LLP, independent public auditors. These financial
statements are in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") and present fairly, in all material
respects, the financial position of the Emerging Markets Infrastructure Fund as
of such date in accordance with GAAP, and there are no known contingent
liabilities of the Emerging Markets Infrastructure Fund required to be reflected
on a balance sheet (including the notes thereto) in accordance with GAAP as of
such date not disclosed therein.
The Emerging Markets Telecommunications Fund has been furnished with
an unaudited statement of assets, liabilities and capital and a schedule of
investments of the Emerging Markets Infrastructure Fund, each as of May 31,
2000. This financial statement and the schedule of investments are in accordance
with GAAP and present fairly, in all material respects, the financial position
of the Emerging Markets Infrastructure Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Emerging Markets
Infrastructure Fund required to be reflected on a balance sheet (including the
notes thereto) in accordance with GAAP as of such date not disclosed therein.
3.6. Annual Report. The Emerging Markets Telecommunications Fund has
been furnished with the Emerging Markets Infrastructure Fund's Annual Report to
Shareholders for the fiscal year ended November 30, 1999.
3.7. Qualification, Corporate Power, Authorization of Transaction.
The Emerging Markets Infrastructure Fund has full power and authority to enter
into and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors, and, subject to
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shareholder approval, this Agreement constitutes a valid and binding contract
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and court decisions with respect thereto.
3.8. Legal Compliance. No material litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending (in which service of process has been received) or to its
knowledge threatened against the Emerging Markets Infrastructure Fund or any
properties or assets held by it. The Emerging Markets Infrastructure Fund knows
of no facts which might form the basis for the institution of such proceedings
which would materially and adversely affect its business and is not a party to
or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or its
ability to consummate the transactions herein contemplated.
3.9. Material Contracts. There are no material contracts outstanding
to which the Emerging Markets Infrastructure Fund is a party that have not been
disclosed in the N-14 Registration Statement (as defined in Section 3.13 below)
or will not be otherwise disclosed to the Emerging Markets Telecommunications
Fund prior to the Effective Date.
3.10. Undisclosed Liabilities. Since December 31, 1999, there has
not been any material adverse change in the Emerging Markets Infrastructure
Fund's financial condition, assets, liabilities or business and the Emerging
Markets Infrastructure Fund has no known liabilities of a material amount,
contingent or otherwise, required to be disclosed in a balance sheet in
accordance with GAAP other than those shown on the Emerging Markets
Infrastructure Fund's statements of assets, liabilities and capital referred to
above, those incurred in the ordinary course of its business as an investment
company since January 1, 2000, and those incurred in connection with the Merger.
Prior to the Effective Date, the Emerging Markets Infrastructure Fund will
advise the Emerging Markets Telecommunications Fund in writing of all known
liabilities, contingent or otherwise, whether or not incurred in the ordinary
course of business, existing or accrued. For purposes of this Section 3.10, a
decline in net asset value per share of the Emerging Markets Infrastructure Fund
due to declines in market values of securities in the Emerging Markets
Infrastructure Fund's portfolio or the discharge of Emerging Markets
Infrastructure Fund liabilities will not constitute a material adverse change.
3.11. Tax Filings. All federal and other tax returns and information
reports of the Emerging Markets Infrastructure Fund required by law to have been
filed shall have been filed and are or will be correct in all material respects,
and all federal and other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision shall have been made
for the payment thereof, and, to the best of the Emerging Markets Infrastructure
Fund's knowledge, no such return is currently under audit and no assessment has
been asserted with respect to such returns. All tax liabilities of the Emerging
Markets Infrastructure Fund have been adequately provided for on its books, and
no tax deficiency or liability of the Emerging Markets Infrastructure Fund has
been asserted and no question with respect thereto has been raised by the
Internal Revenue Service or by any state or local tax authority for taxes in
excess of those already paid, up to and including the taxable year in which the
Effective Date occurs.
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3.12. Qualification under Subchapter M. For each taxable year of its
operation (including the taxable year ending on the Effective Date), the
Emerging Markets Infrastructure Fund has met the requirements of Subchapter M of
the Code for qualification as a RIC and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852 of
the Code, and will have distributed substantially all of its investment company
taxable income and net realized capital gain (as defined in the Code) that has
accrued through the Effective Date.
3.13. Form N-14 and Exemptive Application. The exemptive application
to be filed with the Securities and Exchange Commission (the "SEC") by the
Parties regarding the Merger (the "Exemptive Application") and the registration
statement to be filed by the Emerging Markets Telecommunications Fund on Form
N-14 relating to the Emerging Markets Telecommunications Fund Common Stock to be
issued pursuant to this Agreement, and any supplement or amendment thereto or to
the documents therein (as amended, the "N-14 Registration Statement"), on the
effective date of the N-14 Registration Statement, at the time of the
shareholders' meetings referred to in Article 6 of this Agreement and at the
Effective Date, insofar as it relates to the Emerging Markets Infrastructure
Fund (i) shall have complied or will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
prospectus included therein did not or will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the representations and warranties in
this Section 3.13 shall only apply to statements in, or omissions from, the N-14
Registration Statement made in reliance upon and in conformity with information
furnished by the Emerging Markets Telecommunications Fund for use in the N-14
Registration Statement.
3.14. Capitalization.
(a) All issued and outstanding shares of the Emerging Markets
Infrastructure Fund (i) have been offered and sold in compliance in all material
respects with applicable registration requirements of the 1933 Act and state
securities laws, (ii) are, and on the Effective Date will be, duly and validly
issued and outstanding, fully paid and non-assessable, and (iii) will be held at
the time of the Closing by the persons and in the amounts set forth in the
records of the transfer agent as provided in Section 6.7. The Emerging Markets
Infrastructure Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the Emerging Markets Infrastructure
Fund shares, nor is there outstanding any security convertible into, or
exchangeable for, any of the Emerging Markets Infrastructure Fund shares.
(b) The Emerging Markets Infrastructure Fund is authorized to issue
100,000,000 shares of stock, par value $0.001 per share, all of which shares are
classified as Common Stock and each outstanding share of which is fully paid,
non-assessable and has full voting rights.
3.15. Books and Records. The books and records of the Emerging
Markets Infrastructure Fund made available to the Emerging Markets
Telecommunications Fund are
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substantially true and correct and contain no material misstatements or
omissions with respect to the operations of the Emerging Markets Infrastructure
Fund.
4. REPRESENTATIONS AND WARRANTIES OF THE EMERGING MARKETS
TELECOMMUNICATIONS FUND
The Emerging Markets Telecommunications Fund represents and warrants
to the Emerging Markets Infrastructure Fund that the statements contained in
this Article 4 are correct and complete in all material respects as of the
execution of this Agreement on the date hereof. The Emerging Markets
Telecommunications Fund represents and warrants to, and agrees with, the
Emerging Markets Infrastructure Fund that:
4.1. Organization. The Emerging Markets Telecommunications Fund is a
corporation duly organized, validly existing under the laws of the State of
Maryland and is in good standing with the Department, and has the power to own
all of its assets and to carry on its business as it is now being conducted and
to carry out this Agreement.
4.2. Registrations and Qualifications. The Emerging Markets
Telecommunications Fund is duly registered under the 1940 Act as a closed-end,
non-diversified management investment company (File No. 811- ) and such
registration has not been revoked or rescinded and is in full force and effect.
The Emerging Markets Telecommunications Fund has elected and qualified for the
special tax treatment afforded RICs under Sections 851-855 of the Code at all
times since its inception. The Emerging Markets Telecommunications Fund is
qualified as a foreign corporation in every jurisdiction where required, except
to the extent that failure to so qualify would not have a material adverse
effect on the Emerging Markets Telecommunications Fund.
4.3. Regulatory Consents and Approvals. No consent, approval,
authorization, or order of any court or governmental authority is required for
the consummation by the Emerging Markets Telecommunications Fund of the
transactions contemplated herein, except (i) such as have been obtained or
applied for under the 1933 Act, the 1934 Act and the 1940 Act, (ii) such as may
be required by state securities laws and (iii) such as may be required under
Maryland law for the acceptance for record of the Articles of Merger by the
Department.
4.4. Noncontravention. The Emerging Markets Telecommunications Fund
is not, and the execution, delivery and performance of this Agreement by the
Emerging Markets Telecommunications Fund will not result, in violation of the
laws of the State of Maryland or of the Articles of Incorporation or the By-laws
of the Emerging Markets Telecommunications Fund, or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which the
Emerging Markets Telecommunications Fund is a party or by which it is bound, and
the execution, delivery and performance of this Agreement by the Emerging
Markets Telecommunications Fund will not result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement, indenture,
instrument, contract, lease, judgment or decree to which the Emerging Markets
Telecommunications Fund is a party or by which it is bound.
4.5. Financial Statements. The Emerging Markets Infrastructure Fund
has been furnished with a statement of assets, liabilities and capital and a
schedule of investments of
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the Emerging Markets Telecommunications Fund, each as of May 31, 1999, said
financial statements having been examined by PricewaterhouseCoopers LLP,
independent public auditors. These financial statements are in accordance with
GAAP and present fairly, in all material respects, the financial position of the
Emerging Markets Telecommunications Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Emerging Markets
Telecommunications Fund required to be reflected on a balance sheet (including
the notes thereto) in accordance with GAAP as of such date not disclosed
therein.
The Emerging Markets Infrastructure Fund has been furnished with an
unaudited statement of assets, liabilities and capital and a schedule of
investments of the Emerging Markets Telecommunications Fund, each as of May 31,
2000. This financial statement and schedule of investments are in accordance
with GAAP and present fairly, in all material respects the financial position of
the Emerging Markets Telecommunications Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Emerging Markets
Telecommunications Fund required to be reflected on a balance sheet (including
the notes thereto) in accordance with GAAP as of such date not disclosed
therein.
4.6. Annual Report. The Emerging Markets Infrastructure Fund has
been furnished with the Emerging Markets Telecommunications Fund's Annual Report
to Shareholders for the year ended May 31, 1999.
4.7. Qualification, Corporate Power, Authorization of Transaction.
The Emerging Markets Telecommunications Fund has full power and authority to
enter into and perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement has been duly authorized by all
necessary action of its Board of Directors, and, subject to shareholder
approval, this Agreement constitutes a valid and binding contract enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
moratorium, fraudulent conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto.
4.8. Legal Compliance. No material litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or to its knowledge threatened against the Emerging Markets
Telecommunications Fund or any properties or assets held by it. The Emerging
Markets Telecommunications Fund knows of no facts which might form the basis for
the institution of such proceedings which would materially and adversely affect
its business and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
4.9. Material Contracts. There are no material contracts outstanding
to which the Emerging Markets Telecommunications Fund is a party that have not
been disclosed in the N-14 Registration Statement or will not be otherwise
disclosed to the Emerging Markets Infrastructure Fund prior to the Effective
Date.
4.10. Undisclosed Liabilities. Since December 31, 1999, there has
not been any material adverse change in the Emerging Markets Telecommunications
Fund's financial condition, assets, liabilities, or business and the Emerging
Markets Telecommunications Fund
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has no known liabilities of a material amount, contingent or otherwise, required
to be disclosed in a balance sheet with GAAP other than those shown on the
Emerging Markets Telecommunications Fund's statements of assets, liabilities and
capital referred to above, those incurred in the ordinary course of its business
as an investment company since January 1, 2000, and those incurred in connection
with the Merger. Prior to the Effective Date, the Emerging Markets
Telecommunications Fund will advise the Emerging Markets Infrastructure Fund in
writing of all known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or accrued. For purposes
of this Section 4.10, a decline in net asset value per share of the Emerging
Markets Telecommunications Fund due to declines in market values of securities
in the Emerging Markets Telecommunications Fund's portfolio or the discharge of
the Emerging Markets Telecommunications Fund liabilities will not constitute a
material adverse change.
4.11. Tax Filings. All federal and other tax returns and information
reports of the Emerging Markets Telecommunications Fund required by law to have
been filed shall have been filed and are or will be correct in all material
respects, and all federal and other taxes shown as due or required to be shown
as due on said returns and reports shall have been paid or provision shall have
been made for the payment thereof, and, to the best of the Emerging Markets
Telecommunications Fund's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to such returns. All tax
liabilities of the Emerging Markets Telecommunications Fund have been adequately
provided for on its books, and no tax deficiency or liability of the Emerging
Markets Telecommunications Fund has been asserted and no question with respect
thereto has been raised by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid, up to and including the
taxable year in which the Effective Date occurs.
4.12. Qualification under Subchapter M. For each taxable year of its
operation, the Emerging Markets Telecommunications Fund has met the requirements
of Subchapter M of the Code for qualification as a RIC and has elected to be
treated as such, has been eligible to and has computed its federal income tax
under Section 852 of the Code, and will have distributed substantially all of
its investment company taxable income and net realized capital gain (as defined
in the Code) that has accrued through the Effective Date.
4.13. Form N-14 and Exemptive Application. The Exemptive
Application, and the N-14 Registration Statement, on the effective date of the
N-14 Registration Statement, at the time of the shareholders' meetings referred
to in Section 6 of this Agreement and at the Effective Date, insofar as it
relates to the Emerging Markets Telecommunications Fund (i) shall have complied
or will comply in all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did
not or will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and the prospectus included therein did not
or will not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this Section 4.13 shall not apply to
statements in, or omissions from, the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by the Emerging
Markets Infrastructure Fund for use in the N-14 Registration Statement.
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4.14. Capitalization.
(a) All issued and outstanding shares of the Emerging Markets
Telecommunications Fund (i) have been offered and sold in compliance in all
material respects with applicable registration requirements of the 1933 Act and
state securities laws, (ii) are, and on the Effective Date will be, duly and
validly issued and outstanding, fully paid and non-assessable, and (iii) will be
held at the time of the Closing by the persons and in the amounts set forth in
the records of the transfer agent. The Emerging Markets Telecommunications Fund
does not have outstanding any options, warrants or other rights to subscribe for
or purchase any of the Emerging Markets Telecommunications Fund shares, nor is
there outstanding any security convertible into, or exchangeable for, any of the
Emerging Markets Telecommunications Fund shares.
(b) The Emerging Markets Telecommunications Fund is authorized to
issue 100,000,000 shares of stock, par value $0.001 per share, all of which
shares are classified as Common Stock and each outstanding share of which is
fully paid, non-assessable and has full voting rights.
4.15. Issuance of Stock.
(a) The offer and sale of the shares to be issued pursuant to this
Agreement will be in compliance with all applicable federal and state securities
laws.
(b) At or prior to the Effective Date, the Emerging Markets
Telecommunications Fund will have obtained any and all regulatory, director and
shareholder approvals necessary to issue the Emerging Markets Telecommunications
Fund Common Stock.
4.16. Books and Records. The books and records of the Emerging
Markets Telecommunications Fund made available to the Emerging Markets
Infrastructure Fund are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of the Emerging
Markets Telecommunications Fund.
5. CONVERSION TO EMERGING MARKETS TELECOMMUNICATIONS FUND COMMON STOCK
5.1. Conversion.
(a) Subject to the requisite approval of the shareholders of the
Parties, and the other terms and conditions contained herein, at the Effective
Date, each share of Common Stock of the Emerging Markets Infrastructure Fund
will be converted into an equivalent dollar amount (to the nearest one
ten-thousandth of one cent) of full shares of Emerging Markets
Telecommunications Fund Common Stock, computed based on the net asset value per
share of each of the Parties at the Valuation Time.
(b) No fractional shares of the Emerging Markets Telecommunications
Fund will be issued to Emerging Markets Infrastructure Fund shareholders. In
lieu thereof, the Emerging Markets Telecommunications Fund's transfer agent will
aggregate all fractional shares of the Emerging Markets Telecommunications Fund
and sell the resulting full shares on the
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NYSE at the current market price for shares of the Emerging Markets
Telecommunications Fund for the account of all holders of fractional interests,
and each such holder will receive such holder's pro rata share of the proceeds
of such sale, without interest, upon surrender of such holder's Emerging Markets
Infrastructure Fund Common Stock certificates.
5.2. Computation of Net Asset Value. The net asset value per share
of the Parties shall be determined as of the Valuation Time, and no formula will
be used to adjust the net asset value so determined of either of the Parties to
take into account differences in realized and unrealized gains and losses. The
value of the assets of the Emerging Markets Infrastructure Fund to be
transferred to the Emerging Markets Telecommunications Fund shall be determined
by the Emerging Markets Telecommunications Fund pursuant to the principles and
procedures consistently utilized by the Emerging Markets Telecommunications Fund
in valuing its own assets and determining its own liabilities for purposes of
the Merger, which principles and procedures are substantially similar to those
employed by the Emerging Markets Infrastructure Fund when valuing its own assets
and determining its own liabilities. Such valuation and determination shall be
made by the Emerging Markets Telecommunications Fund in cooperation with the
Emerging Markets Infrastructure Fund and shall be confirmed in writing by the
Emerging Markets Telecommunications Fund to the Emerging Markets Infrastructure
Fund. The net asset value per share of Emerging Markets Telecommunications Fund
Common Stock shall be determined in accordance with such procedures, and the
Emerging Markets Telecommunications Fund shall certify the computations
involved.
5.3. Issuance of Emerging Markets Telecommunications Fund Common
Stock. The Emerging Markets Telecommunications Fund shall issue to the
shareholders of the Emerging Markets Infrastructure Fund separate certificates
or share deposit receipts for the Emerging Markets Telecommunications Fund
Common Stock by delivering the certificates or share deposit receipts evidencing
ownership of the Emerging Markets Telecommunications Fund Common Stock to
BankBoston N.A., as the transfer agent and registrar for the Emerging Markets
Telecommunications Fund Common Stock.
5.4. Surrender of Emerging Markets Infrastructure Fund Stock
Certificates. With respect to any Emerging Markets Infrastructure Fund
shareholder holding certificates representing shares of the Common Stock of the
Emerging Markets Infrastructure Fund as of the Effective Date, and subject to
the Emerging Markets Telecommunications Fund being informed thereof in writing
by the Emerging Markets Infrastructure Fund, the Emerging Markets
Telecommunications Fund will not permit such shareholder to receive new
certificates evidencing ownership of the Emerging Markets Telecommunications
Fund Common Stock until such shareholder has surrendered his or her outstanding
certificates evidencing ownership of the Common Stock of the Emerging Markets
Infrastructure Fund or, in the event of lost certificates, posted adequate bond.
The Emerging Markets Infrastructure Fund will request its shareholders to
surrender their outstanding certificates representing certificates of the Common
Stock of the Emerging Markets Infrastructure Fund or post adequate bond
therefor. Dividends payable to holders of record of shares of the Emerging
Markets Telecommunications Fund as of any date after the Effective Date and
prior to the exchange of certificates by any shareholder of the Emerging Markets
Infrastructure Fund shall be paid to such shareholder, without interest;
however, such dividends shall not be paid unless and until such shareholder
surrenders his or her stock certificates of the Emerging Markets Infrastructure
Fund for exchange.
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6. COVENANTS OF THE PARTIES
6.1. Shareholders' Meetings.
(a) Each of the Parties shall hold a meeting of its respective
shareholders for the purpose of considering the Merger as described herein,
which meeting has been called by each Party for September 15, 2000, and any
adjournments thereof.
(b) Each of the Parties agrees to mail to each of its respective
shareholders of record entitled to vote at the meeting of shareholders at which
action is to be considered regarding the Merger, in sufficient time to comply
with requirements as to notice thereof, a combined Proxy Statement and
Prospectus which complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act,
and the rules and regulations, respectively, thereunder.
6.2. Operations in the Normal Course. Each Party covenants to
operate its business in the ordinary course between the date hereof and the
Effective Date, it being understood that such ordinary course of business will
include (i) the declaration and payment of customary dividends and other
distributions and (ii) in the case of the Emerging Markets Infrastructure Fund,
preparing for its deregistration, except that the distribution of dividends
pursuant to Sections 7.11 and 8.9 of this Agreement shall not be deemed to
constitute a breach of the provisions of this Section 6.2.
6.3. Articles of Merger. The Parties agree that, as soon as
practicable after satisfaction of all conditions to the Merger, they will
jointly file executed Articles of Merger with the Department and make all other
filings or recordings required by Maryland law in connection with the Merger.
6.4. Regulatory Filings.
(a) The Emerging Markets Infrastructure Fund undertakes that, if the
Merger is consummated, it will file, or cause its agents to file, an application
pursuant to Section 8(f) of the 1940 Act for an order declaring that the
Emerging Markets Infrastructure Fund has ceased to a registered investment
company.
(b) The Emerging Markets Telecommunications Fund will file the N-14
Registration Statement with the SEC and will use its best efforts to ensure that
the N-14 Registration Statement becomes effective as promptly as practicable.
The Emerging Markets Infrastructure Fund agrees to cooperate fully with the
Emerging Markets Telecommunications Fund, and will furnish to the Emerging
Markets Telecommunications Fund the information relating to itself to be set
forth in the N-14 Registration Statement as required by the 1933 Act, the 1934
Act, the 1940 Act, and the rules and regulations thereunder and the state
securities or blue sky laws.
(c) The Parties each agree to proceed as promptly as possible to
cause to be made the necessary filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Filing") if applicable, with respect to the
transactions contemplated by this Agreement and
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to ensure that the related waiting period expires or is otherwise terminated at
the earliest possible time.
6.5. Preservation of Assets. The Emerging Markets Telecommunications
Fund agrees that it has no plan or intention to sell or otherwise dispose of the
assets of the Emerging Markets Infrastructure Fund to be acquired in the Merger,
except for dispositions made in the ordinary course of business.
6.6. Tax Matters. Each of the Parties agrees that by the Effective
Date all of its federal and other tax returns and reports required to be filed
on or before such date shall have been filed and all taxes shown as due on said
returns either have been paid or adequate liability reserves have been provided
for the payment of such taxes. In connection with this covenant, the Parties
agree to cooperate with each other in filing any tax return, amended return or
claim for refund, determining a liability for taxes or a right to a refund of
taxes or participating in or conducting any audit or other proceeding in respect
of taxes. The Emerging Markets Telecommunications Fund agrees to retain for a
period of ten (10) years following the Effective Date all returns, schedules and
work papers and all material records or other documents relating to tax matters
of the Emerging Markets Infrastructure Fund for its final taxable year and for
all prior taxable periods. Any information obtained under this Section 6.6 shall
be kept confidential except as otherwise may be necessary in connection with the
filing of returns or claims for refund or in conducting an audit or other
proceeding. After the Effective Date, the Emerging Markets Telecommunications
Fund shall prepare, or cause its agents to prepare, any federal, state or local
tax returns, including any Forms 1099, required to be filed and provided to
required persons by the Emerging Markets Infrastructure Fund with respect to its
final taxable years ending with the Effective Date and for any prior periods or
taxable years for which the due date for such return has not passed as of the
Effective Date and further shall cause such tax returns and Forms 1099 to be
duly filed with the appropriate taxing authorities and provided to required
persons. Notwithstanding the aforementioned provisions of this Section 6.6, any
expenses incurred by the Emerging Markets Telecommunications Fund (other than
for payment of taxes) in excess of any accrual for such expenses by the Emerging
Markets Infrastructure Fund in connection with the preparation and filing of
said tax returns and Forms 1099 after the Effective Date shall be borne by the
Emerging Markets Telecommunications Fund.
6.7. Shareholder List. Prior to the Effective Date, the Emerging
Markets Infrastructure Fund shall have made arrangements with its transfer agent
to deliver to the Emerging Markets Telecommunications Fund, a list of the names
and addresses of all of the shareholders of record of the Emerging Markets
Infrastructure Fund on the Effective Date and the number of shares of Common
Stock of the Emerging Markets Infrastructure Fund owned by each such
shareholder, certified by the Emerging Markets Infrastructure Fund's transfer
agent or President to the best of their knowledge and belief.
6.8. Delisting, Termination of Registration as an Investment
Company. The Emerging Markets Infrastructure Fund agrees that the (i) delisting
of the shares of the Emerging Markets Infrastructure Fund with the NYSE and (ii)
termination of its registration as a RIC will be effected in accordance with
applicable law as soon as practicable following the Effective Date.
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7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE EMERGING MARKETS
TELECOMMUNICATIONS FUND
The obligations of the Emerging Markets Telecommunications Fund
hereunder shall be subject to the following conditions:
7.1. Approval of Merger. This Agreement shall have been adopted by
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Emerging Markets Telecommunications Fund issued and outstanding and
entitled to vote thereon and the affirmative vote of the holders of a majority
of the shares of Common Stock of the Emerging Markets Infrastructure Fund issued
and outstanding and entitled to vote thereon; and the Emerging Markets
Infrastructure Fund shall have delivered to the Emerging Markets
Telecommunications Fund a copy of the resolutions approving this Agreement
adopted by its Board of Directors and shareholders, certified by its secretary.
7.2. Certificates and Statements by the Emerging Markets
Infrastructure Fund.
(a) The Emerging Markets Infrastructure Fund shall have furnished a
statement of assets, liabilities and capital, together with a schedule of
investments with their respective dates of acquisition and tax costs, certified
on its behalf by its President (or any Vice President) and its Treasurer, and a
certificate executed by both such officers, dated the Effective Date, certifying
that there has been no material adverse change in its financial position since
March 31, 2000, other than changes in its portfolio securities since that date
or changes in the market value of its portfolio securities.
(b) The Emerging Markets Infrastructure Fund shall have furnished to
the Emerging Markets Telecommunications Fund a certificate signed by its
President (or any Vice President), dated the Effective Date, certifying that as
of the Effective Dates, all representations and warranties made in this
Agreement are true and correct in all material respects as if made at and as of
such date and each has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied at or prior to such
dates.
(c) The Emerging Markets Infrastructure Fund shall have delivered to
the Emerging Markets Telecommunications Fund a letter from
PricewaterhouseCoopers LLP, dated the Effective Date, stating that such firm has
performed a limited review of the federal, state and local income tax returns
for the period ended December 31, 1999, and that based on such limited review,
nothing came to their attention which caused them to believe that such returns
did not properly reflect, in all material respects, the federal, state and local
income taxes of the Emerging Markets Infrastructure Fund for the period covered
thereby; and that for the period from December 31, 1999 to and including the
Effective Date and for any taxable year ending upon the Effective Date, such
firm has performed a limited review to ascertain the amount of such applicable
federal, state and local taxes, and has determined that either such amount has
been paid or reserves have been established for payment of such taxes, this
review to be based on unaudited financial data; and that based on such limited
review, nothing has come to their attention which caused them to believe that
the taxes paid or reserves set aside for payment of such taxes were not adequate
in all material respects for the satisfaction of federal, state and local taxes
for the period from December 31, 1999, to and including the Effective Date and
for any
A-18
taxable year ending upon the Effective Date or that the Emerging Markets
Infrastructure Fund would not continue to qualify as a RIC for federal income
tax purposes.
7.3. Absence of Litigation. There shall be no material litigation
pending with respect to the matters contemplated by this Agreement.
7.4. Legal Opinions.
(a) The Emerging Markets Telecommunications Fund shall have received
an opinion of Willkie Farr & Gallagher, as counsel to the Emerging Markets
Infrastructure Fund, in form and substance reasonably satisfactory to the
Emerging Markets Telecommunications Fund and dated the Effective Date, to the
effect that (i) the Emerging Markets Infrastructure Fund is a corporation duly
organized, validly existing under the laws of the State of Maryland and in good
standing with the Department; (ii) the Agreement has been duly authorized,
executed and delivered by the Emerging Markets Infrastructure Fund, and,
assuming that the N-14 Registration Statement complies with the 1933 Act, 1934
Act and the 1940 Act, constitutes a valid and legally binding obligation of the
Emerging Markets Infrastructure Fund, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement of creditors'
rights generally and by equitable principles; (iii) to the best of such
counsel's knowledge, no consent, approval, authorization or order of any United
States federal or Maryland state court or governmental authority is required for
the consummation by the Emerging Markets Infrastructure Fund of the Merger,
except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act,
the published rules and regulations of the SEC thereunder and under Maryland law
and such as may be required by state securities or blue sky laws; (iv) such
counsel does not know of any contracts or other documents with respect to the
Emerging Markets Infrastructure Fund related to the Merger of a character
required to be described in the N-14 Registration Statement which are not
described therein or, if required to be filed, filed as required; (v) the
execution and delivery of this Agreement does not, and the consummation of the
Merger will not, violate any material provision of the Articles of
Incorporation, as amended, the by-laws, as amended, or any agreement (known to
such counsel) to which the Emerging Markets Infrastructure Fund is a party or by
which the Emerging Markets Infrastructure Fund is bound, except insofar as the
parties have agreed to amend such provision as a condition precedent to the
Merger; (vi) to the best of such counsel's knowledge, no material suit, action
or legal or administrative proceeding is pending or threatened against the
Emerging Markets Infrastructure Fund; and (vii) all corporate actions required
to be taken by the Emerging Markets Infrastructure Fund to authorize this
Agreement and to effect the Merger have been duly authorized by all necessary
corporate actions on behalf of the Emerging Markets Infrastructure Fund. Such
opinion shall also state that (A) while such counsel cannot make any
representation as to the accuracy or completeness of statements of fact in the
N-14 Registration Statement or any amendment or supplement thereto with respect
to the Emerging Markets Infrastructure Fund, nothing has come to their attention
that would lead them to believe that, on the respective effective dates of the
N-14 Registration Statement and any amendment or supplement thereto with respect
to the Emerging Markets Infrastructure Fund, (1) the N-14 Registration Statement
or any amendment or supplement thereto contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading with respect
to the Emerging Markets Infrastructure Fund, and (2) the prospectus included in
the N-14
A-19
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading with
respect to the Emerging Markets Infrastructure Fund; provided that such counsel
need not express any opinion or belief as to the financial statements, other
financial data, statistical data or information relating to the Emerging Markets
Infrastructure Fund contained or incorporated by reference in the N-14
Registration Statement. In giving the opinion set forth above, Willkie Farr &
Gallagher may state that it is relying on certificates of officers of the
Emerging Markets Infrastructure Fund with regard to matters of fact and certain
certificates and written statements of governmental officials with respect to
the good standing of the Emerging Markets Infrastructure Fund and on the opinion
of Venable, Baetjer and Howard, LLP, as to matters of Maryland law.
(b) The Emerging Markets Telecommunications Fund shall have received
an opinion from Willkie Farr & Gallagher, as counsel to the Emerging Markets
Telecommunications Fund, dated the Effective Date, to the effect that for
federal income tax purposes (i) the Merger as provided in this Agreement will
constitute a reorganization within the meaning of Section 368(a)(1)(A) of the
Code and that the Emerging Markets Telecommunications Fund and the Emerging
Markets Infrastructure Fund will each be deemed a "party" to a reorganization
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized to the Emerging Markets Infrastructure Fund as a result of the Merger
or the conversion of Emerging Markets Infrastructure Fund shares to Emerging
Markets Telecommunications Fund Common Stock except to the extent such
shareholders are paid cash in lieu of fractional shares of Emerging Markets
Telecommunications Fund in the Merger; (iii) no gain or loss will be recognized
to the Emerging Markets Telecommunications Fund as a result of the Merger; (iv)
in accordance with Section 354(a)(1) of the Code, no gain or loss will be
recognized to the shareholders of the Emerging Markets Infrastructure Fund on
the conversion of their shares into Emerging Markets Telecommunications Fund
Common Stock; (v) the tax basis of the Emerging Markets Infrastructure Fund
assets in the hands of the Emerging Markets Telecommunications Fund will be the
same as the tax basis of such assets in the hands of the Emerging Markets
Infrastructure Fund prior to the consummation of the Merger; (vi) immediately
after the Merger, the tax basis of the Emerging Markets Telecommunications Fund
Common Stock received by the shareholders of the Emerging Markets Infrastructure
Fund in the Merger will be equal, in the aggregate, to the tax basis of the
shares of the Emerging Markets Infrastructure Fund converted pursuant to the
Merger; (vii) a shareholder's holding period for the Emerging Markets
Telecommunications Fund Common Stock will be determined by including the period
for which he or she held the Common Stock of the Emerging Markets Infrastructure
Fund converted pursuant to the Merger, provided that such Emerging Markets
Infrastructure Fund shares were held as a capital asset; (viii) the Emerging
Markets Telecommunications Fund's holding period with respect to the Emerging
Markets Infrastructure Fund assets transferred will include the period for which
such assets were held by the Emerging Markets Infrastructure Fund; and (ix) the
payment of cash to the Emerging Markets Infrastructure Fund shareholders in lieu
of fractional shares of the Emerging Markets Telecommunications Fund will be
treated as though the fractional shares were distributed as part of the Merger
and then redeemed by the Emerging Markets Telecommunications Fund with the
result that the Emerging Markets Infrastructure Fund shareholder will generally
have capital gains or losses to the extent the cash distribution differs from
such shareholder's basis allocable to the fractional shares.
A-20
7.5. Auditor's Consent and Certification. The Emerging Markets
Telecommunications Fund shall have received from PricewaterhouseCoopers LLP a
letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Effective Date, in form and
substance satisfactory to the Emerging Markets Telecommunications Fund, to the
effect that (i) they are independent public auditors with respect to the
Emerging Markets Infrastructure Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder; and (ii) in their
opinion, the financial statements and supplementary information of the Emerging
Markets Infrastructure Fund included or incorporated by reference in the N-14
Registration Statement and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder.
7.6. Liabilities. The assets or liabilities of the Emerging Markets
Infrastructure Fund to be transferred to the Emerging Markets Telecommunications
Fund shall not include any assets or liabilities which the Emerging Markets
Telecommunications Fund, by reason of limitations in its Registration Statement
or Articles of Incorporation, may not properly acquire or assume. The Emerging
Markets Telecommunications Fund does not anticipate that there will be any such
assets or liabilities but the Emerging Markets Telecommunications Fund will
notify the Emerging Markets Infrastructure Fund if any do exist and will
reimburse the Emerging Markets Infrastructure Fund for any reasonable
transaction costs incurred by the Emerging Markets Infrastructure Fund for the
liquidation of such assets and liabilities.
7.7. Effectiveness of N-14 Registration Statement. The N-14
Registration Statement shall have become effective under the 1933 Act and no
stop order suspending such effectiveness shall have been instituted or, to the
knowledge of the Emerging Markets Telecommunications Fund, contemplated by the
SEC.
7.8. Approval of Exemptive Application; Regulatory Filings.
(a) The Exemptive Application shall have been approved and the
Emerging Markets Telecommunications Fund shall have received from the SEC such
orders or interpretations as Willkie Farr & Gallagher, as counsel to the
Emerging Markets Telecommunications Fund, deems reasonably necessary or
desirable under the 1933 Act and the 1940 Act in connection with the Merger,
provided, that such counsel shall have requested such orders as promptly as
practicable, and all such orders shall be in full force and effect.
(b) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
7.9. Administrative Rulings, Proceedings. The SEC shall not have
issued an unfavorable advisory report under Section 25(b) of the 1940 Act, nor
instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Merger under Section 25(c) of the 1940 Act; no other legal,
administrative or other proceeding shall be instituted or threatened which would
materially affect the financial condition of the Emerging Markets Infrastructure
Fund or would prohibit the Merger.
A-21
7.10. Satisfaction of the Emerging Markets Telecommunications Fund,
Inc. All proceedings taken by the Emerging Markets Infrastructure Fund and its
counsel in connection with the Merger and all documents incidental thereto shall
be satisfactory in form and substance to the Emerging Markets Telecommunications
Fund.
7.11. Dividends. Prior to the Effective Date, the Emerging Markets
Infrastructure Fund shall have declared and paid a dividend or dividends which,
together with all such previous dividends, shall have the effect of distributing
to its shareholders substantially all of its net investment company taxable
income that has accrued through the Effective Date, if any (computed without
regard to any deduction of dividends paid), and substantially all of its net
capital gain, if any, realized through the Effective Date.
7.12. Custodian's Certificate. The Emerging Markets Infrastructure
Fund's custodian shall have delivered to the Emerging Markets Telecommunications
Fund a certificate identifying all of the assets of the Emerging Markets
Infrastructure Fund held or maintained by such custodian as of the Valuation
Time.
7.13. Books and Records. The Emerging Markets Infrastructure Fund's
transfer agent shall have provided to the Emerging Markets Telecommunications
Fund (i) the originals or true copies of all of the records of the Emerging
Markets Infrastructure Fund in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the
Emerging Markets Infrastructure Fund outstanding as of the Valuation Time, and
(iii) the name and address of each holder of record of any shares and the number
of shares held of record by each such shareholder.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE EMERGING MARKETS
INFRASTRUCTURE FUND
The obligations of the Emerging Markets Infrastructure Fund
hereunder shall be subject to the following conditions:
8.1. Approval of Merger. This Agreement shall have been adopted, by
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Emerging Markets Infrastructure Fund issued and outstanding and entitled
to vote thereon and the affirmative vote of the holders of a majority of the
shares of Common Stock of the Emerging Markets Telecommunications Fund issued
and outstanding and entitled to vote thereon; and that the Emerging Markets
Telecommunications Fund shall have delivered to the Emerging Markets
Infrastructure Fund a copy of the resolutions approving this Agreement adopted
by its Board of Directors and shareholders, certified by its secretary.
8.2. Certificates and Statements by the Emerging Markets
Telecommunications Fund.
(a) The Emerging Markets Telecommunications Fund shall have
furnished a statement of assets, liabilities and capital, together with a
schedule of investments with their respective dates of acquisition and tax
costs, certified on its behalf by its President (or any Vice President) and its
Treasurer, and a certificate executed by both such officers, dated the Effective
Date, certifying that there has been no material adverse change in its financial
position since
A-22
March 31, 2000, other than changes in its portfolio securities since that date
or changes in the market value of its portfolio securities.
(b) The Emerging Markets Telecommunications Fund shall have
furnished to the Emerging Markets Infrastructure Fund a certificate signed by
its President (or any Vice President), dated the Effective Date, certifying that
as of the Effective Date, all representations and warranties made in this
Agreement are true and correct in all material respects as if made at and as of
such date and each has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied at or prior to such
dates.
(c) The Emerging Markets Telecommunications Fund shall have
delivered to the Emerging Markets Infrastructure Fund a letter from
PricewaterhouseCoopers LLP, dated the Effective Date, stating that such firm has
performed a limited review of the federal, state and local income tax returns
for the period ended December 31, 1999, and that based on such limited review,
nothing came to their attention which caused them to believe that such returns
did not properly reflect, in all material respects, the federal, state and local
income taxes of the Emerging Markets Telecommunications Fund for the period
covered thereby; and that for the period from December 31, 1999 to and including
the Effective Date, such firm has performed a limited review to ascertain the
amount of such applicable federal, state and local taxes, and has determined
that either such amount has been paid or reserves established for payment of
such taxes, this review to be based on unaudited financial data; and that based
on such limited review, nothing has come to their attention which caused them to
believe that the taxes paid or reserves set aside for payment of such taxes were
not adequate in all material respects for the satisfaction of federal, state and
local taxes for the period from December 31, 1999, to and including the
Effective Date or that the Emerging Markets Telecommunications Fund would not
continue to qualify as a RIC for federal income tax purposes.
8.3. Absence of Litigation. There shall be no material litigation
pending with respect to the matters contemplated by this Agreement.
8.4. Legal Opinions.
(a) The Emerging Markets Infrastructure Fund shall have received an
opinion of Willkie Farr & Gallagher, as counsel to the Emerging Markets
Telecommunications Fund, in form and substance reasonably satisfactory to the
Emerging Markets Infrastructure Fund and dated the Effective Date, to the effect
that (i) the Emerging Markets Telecommunications Fund is a corporation duly
organized, validly existing under the laws of the State of Maryland and in good
standing with the Department; (ii) the Agreement has been duly authorized,
executed and delivered by the Emerging Markets Telecommunications Fund, and,
assuming that the N-14 Registration Statement complies with the 1933 Act, 1934
Act and the 1940 Act, constitutes a valid and legally binding obligation of the
Emerging Markets Telecommunications Fund, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement of creditors'
rights generally and by equitable principles; (iii) to the best of such
counsel's knowledge, no consent, approval, authorization or order of any United
States federal or Maryland state court or governmental authority is required for
the consummation by the Emerging Markets Telecommunications Fund of the Merger,
except such as may be required under the 1933 Act,
A-23
the 1934 Act, the 1940 Act and the published rules and regulations of the SEC
thereunder and under Maryland law and such as may be required under state
securities or blue sky laws; (iv) the N-14 Registration Statement has become
effective under the 1933 Act, no stop order suspending the effectiveness of the
N-14 Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the 1933 Act, and,
with respect to the Emerging Markets Telecommunications Fund, the N-14
Registration Statement, and each amendment or supplement thereto, as of their
respective effective dates, appear on their face to be appropriately responsive
in all material respects to the requirements of the 1933 Act, the 1934 Act and
the 1940 Act and the published rules and regulations of the SEC thereunder; (v)
such counsel does not know of any statutes, legal or governmental proceedings or
contracts with respect to the Emerging Markets Telecommunications Fund or other
documents related to the Merger of a character required to be described in the
N-14 Registration Statement which are not described therein or, if required to
be filed, filed as required; (vi) the execution and delivery of this Agreement
does not, and the consummation of the Merger will not, violate any material
provision of the Articles of Incorporation, as amended, the by-laws, as amended,
or any agreement (known to such counsel) to which the Emerging Markets
Telecommunications Fund is a party or by which the Emerging Markets
Telecommunications Fund is bound, except insofar as the parties have agreed to
amend such provision as a condition precedent to the Merger; (vii) to the best
of such counsel's knowledge, no material suit, action or legal or administrative
proceeding is pending or threatened against the Emerging Markets
Telecommunications Fund; and (viii) all corporate actions required to be taken
by the Emerging Markets Telecommunications Fund to authorize this Agreement and
to effect the Merger have been duly authorized by all necessary corporate
actions on behalf of the Emerging Markets Telecommunications Fund. Such opinion
shall also state that (A) while such counsel cannot make any representation as
to the accuracy or completeness of statements of fact in the N-14 Registration
Statement or any amendment or supplement thereto with respect to the Emerging
Markets Telecommunications Fund, nothing has come to their attention that would
lead them to believe that, on the respective effective dates of the N-14
Registration Statement and any amendment or supplement thereto, (1) the N-14
Registration Statement or any amendment or supplement thereto contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading with respect to the Emerging Markets Telecommunications Fund; and (2)
the prospectus included in the N-14 Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading with respect to the Emerging Markets
Telecommunications Fund; provided that such counsel need not express any opinion
or belief as to the financial statements, other financial data, statistical data
or information relating to the Emerging Markets Telecommunications Fund
contained or incorporated by reference in the N-14 Registration Statement. In
giving the opinion set forth above, Willkie Farr & Gallagher may state that it
is relying on certificates of officers of the Emerging Markets
Telecommunications Fund with regard to matters of fact and certain certificates
and written statements of governmental officials with respect to the good
standing of the Emerging Markets Telecommunications Fund and on the opinion of
Venable, Baetjer and Howard, LLP as to matters of Maryland law.
(b) The Emerging Markets Infrastructure Fund shall have received an
opinion from Willkie Farr & Gallagher and dated the Effective Date, to the
effect that for federal income
A-24
tax purposes (i) the Merger as provided in this Agreement will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code and that
the Emerging Markets Telecommunications Fund and the Emerging Markets
Infrastructure Fund will each be deemed a "party" to a reorganization within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized
to the Emerging Markets Infrastructure Fund as a result of the Merger or on the
conversion of Emerging Markets Infrastructure shares to Emerging Markets
Telecommunications Fund Common Stock except to the extent such shareholders are
paid cash in lieu of fractional shares of Emerging Markets Telecommunications
Fund in the Merger; (iii) no gain or loss will be recognized to the Emerging
Markets Telecommunications Fund as a result of the Merger; (iv) no gain or loss
will be recognized to the shareholders of the Emerging Markets Infrastructure
Fund on the conversion of their shares into Emerging Markets Telecommunications
Fund Common Stock; (v) the tax basis of the Emerging Markets Infrastructure Fund
assets in the hands of the Emerging Markets Telecommunications Fund will be the
same as the tax basis of such assets in the hands of the Emerging Markets
Infrastructure Fund prior to the consummation of the Merger; (vi) immediately
after the Merger, the tax basis of the Emerging Markets Telecommunications Fund
Common Stock received by the shareholders of the Emerging Markets Infrastructure
Fund in the Merger will be equal, in the aggregate, to the tax basis of the
shares of the Emerging Markets Infrastructure Fund converted pursuant to the
Merger; (vii) a shareholder's holding period for the Emerging Markets
Telecommunications Fund Common Stock will be determined by including the period
for which he or she held the Common Stock of the Emerging Markets Infrastructure
Fund converted pursuant to the Merger, provided, that such Emerging Markets
Infrastructure Fund shares were held as a capital asset; (viii) the Emerging
Markets Telecommunications Fund's holding period with respect to the Emerging
Markets Infrastructure Fund assets transferred will include the period for which
such assets were held by the Emerging Markets Infrastructure Fund; and (ix) the
payment of cash to the Emerging Markets Infrastructure Fund shareholders in lieu
of fractional shares of the Emerging Markets Telecommunications Fund will be
treated as though the fractional shares were distributed as part of the Merger
and then redeemed by the Emerging Markets Telecommunications Fund with the
result that the Emerging Markets Infrastructure Fund shareholder will generally
have capital gains or losses to the extent the cash distribution differs from
such shareholder's basis allocable to the fractional shares.
8.5. Auditor's Consent and Certification. The Emerging Markets
Infrastructure Fund shall have received from PricewaterhouseCoopers LLP a letter
dated as of the effective date of the N-14 Registration Statement and a similar
letter dated within five days prior to the Effective Date, in form and substance
satisfactory to the Emerging Markets Infrastructure Fund, to the effect that (i)
they are independent public auditors with respect to the Emerging Markets
Telecommunications Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder; and (ii) in their opinion, the
financial statements and supplementary information of the Emerging Markets
Telecommunications Fund incorporated by reference in the N-14 Registration
Statement and reported on by them comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder.
8.6. Effectiveness of N-14 Registration Statement. The N-14
Registration Statement shall have become effective under the 1933 Act and no
stop order suspending such
A-25
effectiveness shall have been instituted or, to the knowledge of the Emerging
Markets Infrastructure Fund, contemplated by the SEC.
8.7. Approval of Exemptive Application; Regulatory Filings.
(a) The Exemptive Application shall have been approved and the
Emerging Markets Infrastructure Fund shall have received from the SEC such
orders or interpretations as Willkie Farr & Gallagher, as counsel to the
Emerging Markets Infrastructure Fund, deems reasonably necessary or desirable
under the 1933 Act and the 1940 Act in connection with the Merger, provided,
that such counsel or counsel to the Emerging Markets Telecommunications Fund
shall have requested such orders as promptly as practicable, and all such orders
shall be in full force and effect. Any applicable waiting period under the HSR
Act relating to the transactions contemplated hereby shall have expired or been
terminated.
(b) The SEC shall not have issued an unfavorable advisory report
under Section 25(b) of the 1940 Act, nor instituted or threatened to institute
any proceeding seeking to enjoin consummation of the Merger under Section 25(c)
of the 1940 Act; no other legal, administrative or other proceeding shall be
instituted or threatened which would materially affect the financial condition
of the Emerging Markets Infrastructure Fund or would prohibit the Merger.
(c) The Emerging Markets Telecommunications Fund shall have received
from any relevant state securities administrator such order or orders as are
reasonably necessary or desirable under the 1933 Act, the 1934 Act, the 1940
Act, and any applicable state securities or blue sky laws in connection with the
transactions contemplated hereby, and that all such orders shall be in full
force and effect.
8.8. Satisfaction of the Emerging Markets Infrastructure Fund. All
proceedings taken by the Emerging Markets Telecommunications Fund and its
counsel in connection with the Merger and all documents incidental thereto shall
be satisfactory in form and substance to the Emerging Markets Infrastructure
Fund.
8.9. Dividends. Prior to the Effective Date, the Emerging Markets
Telecommunications Fund shall have declared and paid a dividend or dividends
which, together with all such previous dividends, shall have the effect of
distributing to its shareholders substantially all of its net investment company
taxable income that has accrued through the Effective Date, if any (computed
without regard to any deduction of dividends paid), and substantially all of its
net capital gain, if any, realized through the Effective Date.
9. PAYMENT OF EXPENSES
9.1. Allocation. All expenses incurred in connection with the Merger
since _______, 2000 shall be allocated equally between the Emerging Markets
Telecommunications Fund and the Emerging Markets Infrastructure Fund in the
event the Merger is consummated. Such expenses shall include, but not be limited
to, all costs related to the preparation and distribution of the N-14
Registration Statement, the Exemptive Application, the HSR Filing for the
Parties, proxy solicitation expenses, SEC registration fees, and NYSE listing
fees. Neither of
A-26
the Parties owes any broker's or finder's fees in connection with the
transactions provided for herein.
10. COOPERATION FOLLOWING EFFECTIVE DATE
In case at any time after the Effective Date any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party may reasonably request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification as described below). The Emerging Markets
Infrastructure Fund acknowledges and agrees that from and after the Effective
Date, the Emerging Markets Telecommunications Fund shall be entitled to
possession of all documents, books, records, agreements and financial data of
any sort pertaining to the Emerging Markets Infrastructure Fund.
11. INDEMNIFICATION
11.1. The Emerging Markets Infrastructure Fund. The Emerging Markets
Telecommunications Fund agrees to indemnify and hold harmless the Emerging
Markets Infrastructure Fund and each of the Emerging Markets Infrastructure
Fund's directors and officers from and against any and all losses, claims,
damages, liabilities or expenses (including, without limitation, the payment of
reasonable legal fees and reasonable costs of investigation) to which jointly
and severally, the Emerging Markets Infrastructure Fund or any of its directors
or officers may become subject, insofar as any such loss, claim, damage,
liability or expense (or actions with respect thereto) arises out of or is based
on any breach by the Emerging Markets Telecommunications Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
11.2. The Emerging Markets Telecommunications Fund. The Emerging
Markets Infrastructure Fund agrees to indemnify and hold harmless the Emerging
Markets Telecommunications Fund and each of the Emerging Markets
Telecommunications Fund's directors and officers from and against any and all
losses, claims, liabilities or expenses (including, without limitation, the
payment of reasonable legal fees and reasonable costs of investigation) to which
jointly and severally, the Emerging Markets Telecommunications Fund or any of
its directors or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Emerging Markets Infrastructure Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
12. TERMINATION, POSTPONEMENT AND WAIVERS
12.1. Termination.
(a) Notwithstanding anything to the contrary in this Agreement, this
Agreement may be terminated and the Merger abandoned at any time (whether before
or after adoption by the shareholders of each of the Parties) prior to the
Effective Date, or the Effective Date may be postponed, (i) by mutual agreement
of the Parties' Board of Directors; (ii) by the Board of Directors of the
Emerging Markets Telecommunications Fund if any of the obligations
A-27
of the Emerging Markets Infrastructure Fund set forth in this Agreement has not
been fulfilled or waived by such Board or if the Emerging Markets Infrastructure
Fund has made a material and intentional misrepresentation herein or in
connection herewith; or (iii) by the Board of Directors of the Emerging Markets
Infrastructure Fund if any of the obligations of the Emerging Markets
Telecommunications Fund set forth in this Agreement has not been fulfilled or
waived by such Board or if the Emerging Markets Telecommunications Fund has made
a material and intentional misrepresentation herein or in connection herewith.
(b) If the transaction contemplated by this Agreement shall not have
been consummated by December 31, 2000, this Agreement automatically shall
terminate on that date, unless a later date is mutually agreed to by the Boards
of Directors of the Parties.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the Agreement shall become void and have no further effect,
and there shall not be any liability hereunder on the part of either of the
Parties or their respective directors or officers, except for any such material
breach or intentional misrepresentation, as to each of which all remedies at law
or in equity of the party adversely affected shall survive.
12.2. Waiver. At any time prior to the Effective Date, any of the
terms or conditions of this Agreement may be waived by the Board of Directors of
either the Emerging Markets Infrastructure Fund or the Emerging Markets
Telecommunications Fund (whichever is entitled to the benefit thereof), if, in
the judgment of such Board after consultation with its counsel, such action or
waiver will not have a material adverse effect on the benefits intended in this
Agreement to the shareholders of their respective fund, on behalf of which such
action is taken.
12.3. Expiration of Representations and Warranties.
(a) The respective representations and warranties contained in
Articles 3 and 4 of this Agreement shall expire with, and be terminated by, the
consummation of the Merger, and neither of the Parties nor any of their
officers, directors, agents or shareholders shall have any liability with
respect to such representations or warranties after the Effective Date. This
provision shall not protect any officer, director, agent or shareholder of the
Parties against any liability to the entity for which that officer, director,
agent or shareholder so acts or to its shareholders to which that officer,
director, agent or shareholder would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
(b) If any order or orders of the SEC with respect to this Agreement
shall be issued prior to the Effective Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of the
Parties to be acceptable, such terms and conditions shall be binding as if a
part of this Agreement without further vote or approval of the shareholders of
the Parties, unless such terms and conditions shall result in a change in the
method of computing the number of shares of Emerging Markets Telecommunications
Fund Common Stock to be issued pursuant to this Agreement, in which event,
unless such terms and conditions shall have been included in the proxy
solicitation materials furnished to the shareholders of the Parties prior to the
meetings at which the Merger shall have been approved,
A-28
this Agreement shall not be consummated and shall terminate unless the Parties
call special meetings of shareholders at which such conditions so imposed shall
be submitted for approval.
13. MISCELLANEOUS
13.1. Transfer Restriction. Pursuant to Rule 145 under the 1933 Act,
and in connection with the issuance of any shares to any person who at the time
of the Merger is, to its knowledge, an affiliate of a party to the Merger
pursuant to Rule 145(c), the Emerging Markets Telecommunications Fund will cause
to be affixed upon the certificate(s) issued to such person (if any) a legend as
follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC. (OR ITS
STATUTORY SUCCESSOR) UNLESS (I) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR
(II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND,
SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to the Emerging
Markets Telecommunications Fund's transfer agent with respect to such shares.
The Emerging Markets Infrastructure Fund will provide the Emerging Markets
Telecommunications Fund on the Effective Date with the name of any Emerging
Markets Infrastructure Fund Shareholder who is to the knowledge of the Emerging
Markets Infrastructure Fund an affiliate of it on such date.
13.2. Material Provisions. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any investigation made by
them or on their behalf.
13.3. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
A-29
If to the Emerging Markets Infrastructure Fund:
Hal Liebes, Esq.
Senior Vice President
The Emerging Markets Infrastructure Fund, Inc.
466 Lexington Avenue
New York, New York 10017
With copies to:
Daniel Schloendorn, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Marco E. Adelfio, Esq.
Morrison & Foerster
2000 Pennsylvania Avenue, N.W.
Suite 5500
Washington, D.C. 20006
If to the Emerging Markets Telecommunications Fund:
Hal Liebes, Esq.
Senior Vice President
The Emerging Markets Telecommunications Fund
466 Lexington Avenue
New York, New York 10017
With copies to:
Daniel Schloendorn, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Marco E. Adelfio, Esq.
Morrison & Foerster
2000 Pennsylvania Avenue, N.W.
Suite 5500
Washington, D.C. 20006
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may
A-30
change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
13.4. Amendments. This Agreement may be amended, modified or
supplemented in such manner as may be mutually agreed upon in writing by the
authorized officers of the Emerging Markets Infrastructure Fund and the Emerging
Markets Telecommunications Fund; provided, however, that following the meeting
of the Emerging Markets Infrastructure Fund and Emerging Markets
Telecommunications Fund shareholders to approve the Merger, no such amendment
may have the effect of changing the provisions for determining the number of the
Emerging Markets Telecommunications Fund shares to be issued to the Emerging
Markets Infrastructure Fund shareholders under this Agreement to the detriment
of such shareholders without their further approval.
13.5. Headings. The Article headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
13.7. Enforceability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
13.8. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns,
but no assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed to confer
upon or give any person, firm or corporation, other than the parties hereto and
the shareholders of the Parties and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
13.9. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of Maryland,
without regard to its principles of conflicts of law.
A-31
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed by its President or Vice President and its seal to be
affixed thereto and attested by its Secretary or Assistant Secretary.
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
By:_______________________________________[SEAL]
Name:
-------------------------------------------
Attest:
-----------------------------------------
Title:
------------------------------------------
THE EMERGING MARKETS INFRASTRUCTURE FUND, INC.
By:_______________________________________[SEAL]
Name:
-------------------------------------------
Attest:
-----------------------------------------
Title:
------------------------------------------
A-32
EXHIBIT B
FORM OF
NEW CSAM INVESTMENT ADVISORY AGREEMENT
B-1
INVESTMENT ADVISORY AGREEMENT
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
, 2000
Credit Suisse Asset Management, LLC
466 Lexington Avenue
New York, New York 10017
Dear Sirs:
The Emerging Markets Telecommunications Fund, Inc. (the "Company"),
a corporation organized under the laws of the state of Maryland, herewith
confirms its agreement with Credit Suisse Asset Management, LLC (the "Adviser"),
a limited liability company organized under the laws of the state of Delaware,
as follows:
1. Investment Description; Appointment
The Company desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Articles of Incorporation, as may be amended from time to time,
and in its Registration Statement as from time to time in effect, and in such
manner and to such extent as may from time to time be approved by the Board of
Directors of the Company. Copies of the Company's Registration Statement and
Articles of Incorporation have been or will be submitted to the Adviser. The
Company agrees to provide copies of all amendments to the Company's Registration
Statement and Articles of Incorporation to the Adviser on an ongoing basis. The
Company desires to employ and hereby appoints the Adviser to act as investment
adviser to the Company. The Adviser accepts the appointment and agrees to
furnish the services described herein for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of Directors
of the Company, the Adviser will (a) act in accordance with the Company's
Articles of Incorporation, the Investment Company Act of 1940 and the Investment
Advisers Act of 1940, as the same may from time to time be amended, (b) manage
the Company's assets in accordance with its investment objective and policies as
stated in the Company's Registration Statement as from time to time in effect,
(c) make investment decisions and exercise voting rights in respect of portfolio
securities for the Company, (d) place purchase and sale orders on behalf of the
Company for all investments and (e) borrow money on behalf of and in the name of
the Company within the limits established in the Company's Articles of
Incorporation and the Registration Statement as from time to time in effect. In
providing these services, the Adviser will provide investment research and
supervision of the Company's investments and conduct a continual program of
investment, evaluation and, if appropriate, sale and reinvestment of the
Company's assets. In addition, the Adviser will furnish the Company with
whatever statistical information the Company may reasonably request with respect
to the securities that the Company may hold or contemplate purchasing.
B-2
3. Brokerage
In executing transactions for the Company and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any Company
transaction, the Adviser will consider all factors it deems relevant including,
but not limited to, breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of any commission for the specific transaction and
on a continuing basis. In selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, the Adviser may
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Company
and/or other accounts over which the Adviser or an affiliate exercises
investment discretion.
4. Information Provided to the Company
The Adviser will keep the Company informed of developments
materially affecting the Company, and will, on its own initiative, furnish the
Company from time to time with whatever information the Adviser believes is
appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services described in paragraphs 2 and 3 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Company in connection with the matters to which this Agreement relates, provided
that nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Company or its shareholders to which the Adviser
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement ("disabling
conduct"). The Company will indemnify the Adviser against, and hold it harmless
from, any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) not resulting from disabling conduct by
the Adviser. Indemnification shall be made only following: (i) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the Adviser was not liable by reason of disabling conduct or (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the Adviser was not liable by reason of disabling conduct by (a)
the vote of a majority of a quorum of directors of the Company who are neither
"interested persons" of the Company nor parties to the proceeding
("disinterested non-party directors") or (b) an independent legal counsel in a
written opinion. The Adviser shall be entitled to advances from the Company for
payment of the reasonable expenses incurred by it in connection with the matter
as to which it is seeking indemnification in the manner and to the fullest
extent permissible under the Maryland General Corporation Law. The Adviser shall
provide to the Company a written affirmation of its good faith belief that the
standard of conduct necessary for indemnification by the Company has been met
and a written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a) the Adviser shall
provide security in form and
B-3
amount acceptable to the Company for its undertaking; (b) the Company is insured
against losses arising by reason of the advance; or (c) a majority of a quorum
of disinterested non-party directors, or independent legal counsel, in a written
opinion, shall have determined, based on a review of facts readily available to
the Company at the time the advance is proposed to be made, that there is reason
to believe that the Adviser will ultimately be found to be entitled to
indemnification.
6. Compensation
(a) In consideration of the services rendered pursuant to this
Agreement, the Company will pay the Adviser within five business days after the
end of each calendar quarter during the term of this Agreement, a fee for the
previous quarter computed at an annual rate of 1.25% of the first US$ 100
million of the Company's "Average Weekly Base Amount" (as defined below), 1.125%
of the next US$ 10 million and 1.00% of amounts above US$ 200 million.
(i) "Average Weekly Base Amount" for any quarter is the
average of the lesser of (A) "Market Value" of the Company's outstanding shares,
and (B) the Company's net assets, in each case determined as the last trading
day for each week during that quarter.
(ii) "Market Value" of the Company's outstanding shares will
be determined as follows:
(A) if the Company's shares are listed or traded on any
national securities exchange or on the Nasdaq National Market, the shares shall
be valued at the last sale price on the exchange or market on which they are
principally traded, on the valuation date; if there is no sale on the valuation
date, the shares shall be valued at the mean between the closing bid and asked
price;
(B) if the Company's shares are traded over-the-counter but
are not listed or traded on any national securities exchange or on the Nasdaq
National Market, the shares shall be valued at the last sale price on the
valuation date or, if no sale occurs on that date, at the last bid price; or
(C) if the Company's shares are not listed or traded on any
recognized securities market or over-the-counter, the shares shall be deemed to
have the same value as the underlying net assets of the Company as of the
valuation date.
(b) Upon any termination of this Agreement before the end of a
quarter, the fee for such part of that quarter shall be prorated according to
the proportion that such period bears to the full quarterly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of the Company's net assets
shall be computed at the times and in the manner specified in the Company's
Registration Statement as from time to time in effect.
B-4
7. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Company will bear certain
other expenses to be incurred in its operation, including: organizational
expenses, expenses for legal and independent accountants' services; insurance
premiums; outside auditing, accounting and pricing costs; costs of maintenance
of the Company's existence; costs attributable to investor services, including,
without limitation, telephone and personal expenses; costs of printing stock
certificates; costs of printing proxies; costs of shareholders' reports and
meetings of the shareholders of the Company and of the officers or Board of
Directors of the Company; charges of the custodians, any sub-custodians and the
transfer and dividend-paying agent; expenses in connection with the Dividend
Reinvestment and Cash Purchase Plan; Securities and Exchange Commission fees and
fees of emerging country regulatory bodies; fees and expenses of unaffiliated
directors; accounting and pricing costs; membership fees in trade associations;
fidelity bond coverage for the Company's officers and employees directors' and
officers' errors and omissions insurance coverage; interest; brokerage costs and
stock exchange fees; taxes; stock exchange listing fees and expenses; expenses
of qualifying the Company's shares for sale in various states and foreign
jurisdictions; litigation and other extraordinary or non-recurring expenses and
other expenses properly payable by the Company.
8. Services to Other Companies or Accounts
The Company understands that the Adviser now acts, will continue to
act or may act in the future as investment adviser to fiduciary and other
managed accounts or as investment adviser to one or more other investment
companies (the "CSAM Accounts"), and the Company has no objection to the Adviser
so acting, provided that whenever the Company and one or more other accounts or
investment companies advised by the Adviser have available funds for investment,
investments suitable and appropriate for each will be allocated in accordance
with procedures believed to be equitable to each entity. Similarly,
opportunities to sell securities will be allocated in an equitable manner. The
Company recognizes that in some cases this procedure may adversely affect the
size of the position that may be acquired or disposed of for the Company and the
Adviser agrees to report to the Board of Directors of the Company on a quarterly
basis whenever the Company and a CSAM Account are allocated portions of the same
investment opportunity and will review with the Board of Directors of the
Company the basis for each such allocation. In addition, the Company understands
that the persons employed by the Adviser to assist in the performance of the
Adviser's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right of the
Adviser or any affiliate of the Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of the date hereof and
shall continue for an initial two-year term and shall continue from year to year
thereafter so long as such continuance is specifically approved at least
annually by (i) the Board of Directors of the Company or (ii) a vote of a
"'majority" (as defined in the Investment Company Act
B-5
of 1940) of the Company's outstanding voting securities, provided that in either
event the continuance is also approved by a majority of the Board of Directors
who are not "interested persons" (as defined in said Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable, without penalty, on 60 days'
written notice, by the Board of Directors of the Company or by the Adviser or by
vote of holders of a majority of the Company's shares. This Agreement will also
terminate automatically in the event of its assignment (as defined in said Act).
10. Independent Contractor Status
The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided herein or
authorized by the Board of Directors of the Company from time to time, have no
authority to act for or represent the Company in any way or otherwise to be
deemed an agent of the Company.
11. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
12. Changes in Membership
The Adviser shall notify the Company of any change in the membership
of the Adviser within a reasonable time after such change.
13. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the state of New York without giving effect to the
conflicts of laws principles thereof.
14. Counterparts
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same original.
If the foregoing accurately sets forth our agreement, kindly
indicate your acceptance hereof by signing and returning the enclosed copy
hereof.
Very truly yours,
THE EMERGING MARKETS
TELECOMMUNICATIONS FUND, INC.
By:
------------------------------------
Name:
Title: President
B-6
Accepted:
CREDIT SUISSE ASSET MANAGEMENT, LLC
By:
--------------------------------
Name:
Title:
B-7
PROXY CARD FOR
THE EMERGING MARKETS
TELECOMMUNICATIONS FUND, INC.
PROXY
THE EMERGING MARKETS
TELECOMMUNICATIONS FUND, INC.
PROXY
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Messrs. Hal Liebes and Michael A. Pignataro as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side and in
accordance with their judgment on such other matters as may properly come before
the meeting or any adjournments thereof, all shares of The Emerging Markets
Telecommunications Fund, Inc. (the "Fund") that the undersigned is entitled to
vote at the annual meeting of shareholders to be held on Friday, September 15,
2000, and at any adjournments thereof.
- ---------------- ----------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
- ---------------- ----------------
|X| Please mark
votes as in
this example
The Board of Directors recommends a vote "FOR" Proposal 1, "FOR" Proposal
2, "FOR" the nominees in Proposal 3, "FOR" Proposal 4 and "AGAINST"
Proposal 5.
FOR AGAINST ABSTAIN
1. To approve the Merger Agreement and Plan of |_| |_| |_|
Reorganization dated July __, 2000 whereby
The Emerging Markets Infrastructure Fund,
Inc. will merge with and into the Fund.
FOR AGAINST ABSTAIN
2. To approve a new investment advisory |_| |_| |_|
agreement with Credit Suisse Asset
Management, LLC.
3. To elect the following nominees as Directors:
Nominees: James J. Cattano (three-year term)
William W. Priest, Jr. (three-year term)
FOR |_| |_| WITHHOLD
ALL ALL
NOMINEES NOMINEES
|_|_________________________________________ MARK HERE
For all nominees except as noted above FOR ADDRESS |_|
CHANGE AND
NOTE BELOW
Signature:____________________________ Date:___________________________
FOR AGAINST ABSTAIN
4. To ratify the selection of |_| |_| |_|
PricewaterhouseCoopers LLP as independent
public accountants of the Fund for the
fiscal year ending May 31, 2001.
FOR AGAINST ABSTAIN
5. To approve or disapprove the shareholder |_| |_| |_|
proposal requesting that, within sixty days,
the Board present a program for shareholder
approval that will permit shareholders to
realize net asset value for their shares.
This proxy when properly executed will be voted in
the mannerdirected herein by the undersigned
shareholder.
If no direction is made, this proxy will be voted for Proposals 1, 2, 3 and 4,
and against Proposal 5.
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Signature:____________________________ Date:___________________________
PROXY CARD FOR
THE EMERGING MARKETS
INFRASTRUCTURE FUND, INC.
PROXY
THE EMERGING MARKETS
INFRASTRUCTURE FUND, INC.
PROXY
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Messrs. Hal Liebes and Michael A. Pignataro as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side and in
accordance with their judgment on such other matters as may properly come before
the meeting or any adjournments thereof, all shares of The Emerging Markets
Infrastructure Fund, Inc. (the "Fund") that the undersigned is entitled to vote
at the special meeting of shareholders to be held on Friday, September 15, 2000,
and at any adjournments thereof.
- ---------------- ----------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
- ---------------- ----------------
|_| Please mark
vote as in
this example
The Board of Directors recommends a vote "FOR" Proposal 1.
FOR AGAINST ABSTAIN
1. To approve the Merger Agreement and Plan of |_| |_| |_|
Reorganization dated July __, 2000 whereby
the Fund will merge with and into The
Emerging Markets Telecommunications Fund,
Inc.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder.
If no direction is made, this proxy will be voted for Proposal 1.
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Signature:_______________________ Date:___________
PART B
SUBJECT TO COMPLETION DATED JULY 7, 2000
THE EMERGING MARKETS TELECOMMUNICATIONS
FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MERGER OF
THE EMERGING MARKETS INFRASTRUCTURE FUND,
INC.
466 LEXINGTON AVENUE, 16th FLOOR
NEW YORK, NEW YORK 10017
(212) 875-3500
WITH AND INTO
THE EMERGING MARKETS TELECOMMUNICATIONS
FUND, INC.
466 LEXINGTON AVENUE, 16th FLOOR
NEW YORK, NEW YORK 10017
(212) 875-3500
This Statement of Additional Information, or SAI, relates
specifically to the proposed merger (the "Merger") of The Emerging Markets
Infrastructure Fund, Inc. (the "Emerging Markets Infrastructure Fund") with and
into The Emerging Markets Telecommunications Fund, Inc. (the "Emerging Markets
Telecommunications Fund") in accordance with the General Corporation Law of the
State of Maryland. This Statement of Additional Information consists of this
cover page, the information contained herein, and the following documents, each
of which has been filed electronically and is incorporated by reference herein:
(1) The audited financial statements, notes to the audited financial
statements and report of the independent auditors for the Emerging Markets
Telecommunications Fund for the fiscal year ended May 31, 1999 and the
unaudited financial statements for the Emerging Markets Telecommunications
Fund for the six months ended November 30, 1999; and
(2) The audited financial statements, notes to the audited financial
statements and report of the independent auditors for the Emerging Markets
Infrastructure Fund for the fiscal year ended November 30, 1999 and the
unaudited financial statements for the Emerging Markets Infrastructure
Fund for the six months ended May 31, 2000.
This Statement of Additional Information is not a prospectus and
should be read only in conjunction with the Proxy Statement/Prospectus dated ,
2000, relating to the Merger. A copy of the Proxy Statement/Prospectus may be
obtained without charge by writing to either Fund at 466 Lexington Avenue, 16th
Floor, New York, New York 10017 or by calling Shareholders Communications
Corporation at 1-(800) 403-7916.
This Statement of Additional Information is dated , 2000
2
TABLE OF CONTENTS
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES...............................4
INVESTMENT RESTRICTIONS.......................................................10
MANAGEMENT OF THE FUNDS.......................................................11
PORTFOLIO TRANSACTIONS........................................................16
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN..................................17
TAXATION......................................................................21
FINANCIAL STATEMENTS..........................................................28
PRO FORMA FINANCIAL STATEMENTS................................................28
3
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
Organization. Both the Emerging Markets Telecommunications Fund and the
Emerging Markets Infrastructure Fund are closed-end, non-diversified management
investment companies registered under the Investment Company Act of 1940, or the
Investment Company Act. The Emerging Markets Telecommunications Fund and the
Emerging Markets Infrastructure Fund are sometimes collectively referred to in
this SAI as the "Funds" and individually, as the context may require, as the
"Fund." Both Funds are organized as corporations under the laws of the State of
Maryland. Each Fund is managed and advised by Credit Suisse Asset Management,
LLC, or CSAM, formerly known as BEA Associates. The shares of common stock of
each Fund are listed and trade on the New York Stock Exchange, or NYSE, under
the symbols "ETF" and "EMG", respectively. After the Merger, the Emerging
Markets Telecommunications Fund's shares will continue to be traded on the NYSE
under the symbol "ETF", while the Emerging Markets Infrastructure Fund's shares
will be delisted and that Fund will cease to exist.
The shares of common stock of each Fund have equal non-cumulative voting
rights and equal rights with respect to dividends, assets and dissolution. Each
Fund's shares of common stock are fully paid and non-assessable and have no
preemptive, conversion or other subscription rights. Fluctuations in the market
price of the Fund's shares is the principal investment risk of an investment in
either Fund. Portfolio management, market conditions, investment policies and
other factors affect such fluctuations. Although the investment objectives,
policies and restrictions of the Funds are similar, there are differences
between them, as discussed below. There can be no assurance that either Fund
will achieve its stated objective.
Investment Objectives. Long-term capital appreciation is the principal
investment objective of each Fund. ETF seeks to achieve this objective by
investing primarily in equity securities of telecommunications companies in
emerging countries and companies that provide other essential services in the
development of an emerging country's infrastructure, while EMG seeks to achieve
this objective by investing primarily in equity securities of infrastructure
companies in emerging countries and companies that manufacture products on
behalf of or service infrastructure companies in emerging countries. The
investment objective of each Fund is a fundamental policy of such Fund and
cannot be changed without the approval of the holders of a "majority of that
Fund's outstanding voting securities," as defined in the Proxy
Statement/Prospectus under "General."
No assurance can be given that either Fund's investment objective will be
achieved.
Comparison of Investment Policies. ETF's policy, under normal market
conditions, is to invest at least 65% of its total assets in equity securities
of telecommunications companies in emerging markets. ETF may also invest a
substantial portion of its remaining assets, up to 25% of its total assets under
normal market conditions, in equity securities of companies that provide other
essential services in the development of an emerging country's infrastructure
and will benefit from macroeconomic growth in an emerging country, but whose
growth is not directly linked to favorable changes in commodity prices. EMG's
policy, under normal market conditions, is to invest at least 70% of its total
assets in equity securities of infrastructure companies in emerging countries.
EMG may also invest up to 30% of its total assets in equity securities of
companies that manufacture products on behalf of or service infrastructure
4
companies in emerging countries. These policies and the investment limitations
are fundamental and may not be changed without the approval of a majority of
each Fund's outstanding voting securities. All other policies and percentage
limitations of each Fund as described below may be modified by that Fund's Board
of Directors if, in the reasonable exercise of its business judgment, it
determines that modification is necessary or appropriate to carry out that
Fund's investment objective.
ETF may also seek to invest in equity securities of telecommunications
companies in developed countries when these securities, in the opinion of CSAM,
have investment characteristics similar to emerging country telecommunications
companies. In determining if the securities of a telecommunications company in a
developed country have investment characteristics similar to those of emerging
country telecommunications companies, CSAM will consider whether the potential
for growth in such company is similar to that of telecommunications companies in
emerging countries, based on analysis and comparison of such factors as earnings
potential, ratio of revenue per employee and revenue per telephone line, the
density of telephone lines per household, management performance and other
pertinent measurements.
Both Funds define emerging countries as countries which are generally
considered to be emerging or developing by the International Bank for
Reconstruction and Development (more commonly referred to as the World Bank) and
the International Finance Corporation, as well as countries that are classified
by the United Nations or otherwise regarded by its authorities as emerging or
developing, at the time of the Funds' investments. The countries that are not
considered emerging countries include: Australia; Austria; Belgium; Canada;
Denmark; Finland; France; Germany; Ireland; Italy; Japan; Luxembourg;
Netherlands, New Zealand; Norway; Spain; Sweden; Switzerland; United Kingdom;
and the United States.
An emerging country equity security is defined as common stock and
preferred stock (including convertible preferred stock); bonds, notes and
debentures convertible into common or preferred stock; stock purchase warrants
and rights; equity interests in trusts and partnerships; and American, Global or
other types of Depositary Receipts of companies: (i) the principal securities
trading market for which is an emerging country; (ii) whose principal trading
market is in any country, provided that, alone or on a consolidated basis, they
derive 50% or more of their annual revenue from either goods produced, sales
made or services performed in emerging countries; or (iii) that are organized
under the laws of, and with a principal office in, an emerging country.
Determinations as to eligibility will be made by the Funds based on publicly
available information and inquiries made to the companies.
In addition, ETF's definition of emerging country equity securities also
includes securities of companies that may have characteristics and business
relationships common to companies in a country or countries other than an
emerging country. As a result, the value of the securities of these companies
may reflect economic and market forces applicable to other countries, as well as
to an emerging country.
Many of the companies in which the Funds invest may be in the early stages
of their growth cycle and/or may have only recently been privatized;
accordingly, the Funds anticipate that certain investments (up to 25% of its
total assets in the case of ETF and up to 30% of its
5
total assets in the case of EMG, in both cases at the time of purchase) will be
in equity securities of closely-held companies or private placements of public
companies, where CSAM anticipates that a liquid market will develop for these
securities within a period of two to five years from the date such securities
are acquired by that Fund. Securities that are not publicly traded in the United
States but that can be sold to "qualified institutional buyers" pursuant to Rule
144A ("Rule 144A securities") under the Securities Act of 1933, as amended (the
"Securities Act"), will not be subject to these percentage limitations if the
Fund's Board of Directors determines on an ongoing basis that an adequate
trading market exists for these securities. The Board of Directors of either
Fund may adopt guidelines and delegate to CSAM the function of determining and
monitoring the liquidity of Rule 144A securities, although the Boards of
Directors will retain ultimate responsibility for any determination regarding an
adequate market for Rule 144A securities.
The governments of some emerging countries have been engaged in
"privatization" programs which involve the sale of part or all of their stakes
in government owned or controlled enterprises. CSAM believes that privatizations
may offer shareholders opportunities for significant capital appreciation and
intends to invest assets of each Fund in privatizations in appropriate
circumstances. In certain emerging countries, the ability of foreign entities,
such as the Funds, to participate in privatizations may be limited by local law.
In addition, the terms on which the Funds may be permitted to participate may be
less advantageous than those for local investors. There can be no assurance that
the governments of emerging countries will continue to sell companies currently
owned or controlled by them or that privatization programs will be successful.
To the extent its assets are not invested as described above, ETF may
invest the remainder of its assets in (i) debt securities denominated in the
currency of an emerging country or issued or guaranteed by an emerging country
company or the government of an emerging country, (ii) equity or debt securities
of corporate or governmental issuers located in developed countries, and (iii)
short-term and medium-term debt securities of the type described below under
"Temporary Investments." ETF's assets may be invested in debt securities when
CSAM believes that, based upon factors such as relative interest rate levels and
foreign exchange rates, such debt securities offer opportunities for long-term
capital appreciation. The debt securities in which ETF may invest include bonds,
notes, bank deposits and bank obligations (including certificates of deposit,
time deposits and bankers' acceptances), commercial paper, repurchase
agreements, assignments of loans and loan participations.
To the extent that its assets are not invested as described above, the
remainder of EMG's assets may be invested as follows: (i) up to 10% of its total
assets in equity securities of emerging country corporate issuers, (ii) up to
30% of its total assets in equity securities of infrastructure companies in
developed countries when CSAM believes that these securities have investment
characteristics similar to securities of emerging country infrastructure
companies and (iii) up to 5% of its total assets in debt securities of
infrastructure companies in emerging countries.
In addition, for temporary defensive purposes, ETF and EMG may each invest
less than 65% and 70%, respectively, of its total respective assets in equity
securities of telecommunications and infrastructure companies, respectively, in
emerging countries, in which
6
case each Fund may invest in debt securities of the kind described under
"Temporary Investments" below. In addition, ETF may acquire assignments of, and
participations in, loans.
Temporary Investments. During periods in which CSAM believes changes in
economic, financial or political conditions make it advisable, the Funds may for
temporary defensive purposes reduce their holdings in equity and other
securities and invest in certain short-term (less than twelve months to
maturity) and medium-term (not greater than five years to maturity) debt
securities or hold cash.
Each Fund may invest in the following short-term instruments:
o obligations of the U.S. Government, its agencies or
instrumentalities (including repurchase agreements with respect to
these securities),
o bank obligations (including certificates of deposit, time deposits
and bankers' acceptances) of U.S. banks and foreign banks
denominated in any currency,
o floating rate securities and other instruments denominated in any
currency issued by international development agencies, banks and
other financial institutions, governments and their agencies and
instrumentalities, and corporations located in countries that are
members of the Organization for Economic Cooperation and
Development,
o obligations of U.S. corporations that are rated no lower than A-2 by
Standard & Poor's Rating Group or P-2 by Moody's Investor Services
or the equivalent by another rating service or, if unrated, deemed
to be of equivalent quality by CSAM, and
o shares of money market funds that are authorized to invest in
short-term instruments described above.
Currency Transactions. CSAM generally does not seek to hedge against
declines in the value of the Funds' non-dollar-denominated portfolio securities
resulting from currency devaluations or fluctuations. If suitable hedging
instruments are available on a timely basis and on acceptable terms, CSAM may,
in its discretion, hedge all or part of the value of the Funds'
non-dollar-denominated portfolio securities, although it is not obligated to do
so. Each Fund will be subject to the risk of changes in value of the currencies
of the emerging countries in which their assets are denominated, unless they
engage in hedging transactions.
Both Funds will conduct any currency exchange transactions either on a
spot, i.e., cash, basis at the rate prevailing in the currency exchange market,
or through entering into forward contracts to purchase or sell currency. A
forward currency contract typically involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. If either Fund enters into a forward contract, that Fund's U.S.
or non-U.S. custodian will place cash or readily marketable securities in a
segregated account of that Fund in an amount equal to the value of that Fund's
total assets committed to the consummation of the
7
forward contract. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account so
that the value of the account will equal the amount of the Fund's commitment
with respect to the contract.
At or before the maturity of a forward contract, either Fund may either
sell a portfolio security and make delivery of the currency or retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a currency and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The cost to the Funds of engaging in currency transactions will vary with
respect to factors such as the length of the contract period and the market
conditions then prevailing. Because forward currency exchange transactions are
usually conducted on a principal basis, no fees or commissions are involved,
although the price charged in the transaction includes a dealer's markup. The
use of forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currency, at the same time they limit any potential gain that might result
should the value of the currency increase.
If a devaluation is generally anticipated, either Fund may not be able to
contract to sell the currency at a price above the devaluation level it
anticipates.
There is a risk that the U.S. dollar value of each Fund's dividends,
interest and net realized capital gains in local currency will decline, to the
extent of any devaluation of the currency, during the interval between the time
that the Fund becomes entitled to receive or receives dividends and interest and
realizes gains and the time such amounts are converted into U.S. dollars for
remittance.
Currency Convertibility. Neither Fund intends to invest in any security in
a country where the currency is not freely convertible to U.S. dollars, unless
that Fund has obtained the necessary governmental licensing to convert such
currency or other appropriately licensed or sanctioned contractual guarantee to
protect such investment against loss of that currency's external value, or that
Fund has a reasonable expectation at the time the investment is made that such
governmental licensing or other appropriately licensed or sanctioned guarantee
would be obtained or that the currency in which the security is quoted would be
freely convertible at the time of any proposed sale of the security by that
Fund.
8
Depositary Receipts. Both Funds may invest indirectly in securities of
emerging country issuers through sponsored or unsponsored American Depositary
Receipts, or ADRs, Global Depositary Receipts, or GDRs, and other types of
Depositary Receipts (which, together with ADRs and GDRs, are referred to in this
SAI as "Depositary Receipts"). Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depositary Receipts. ADRs are Depositary
Receipts typically issued by a United States bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
GDRs and other types of Depositary Receipts are typically issued by foreign
banks or trust companies, although they also may be issued by U.S. banks or
trust companies, and evidence ownership of underlying securities issued by
either a foreign or a United States corporation. Generally, Depositary Receipts
in registered form are designed for use in the United States securities markets
and Depositary Receipts in bearer form are designed for use in securities
markets outside the United States. For purposes of the Funds' investment
policies, the Funds' investments in ADRs, GDRs and other types of Depositary
Receipts will be deemed to be investments in the underlying securities.
Portfolio Turnover Rate. Neither Fund engages in the trading of securities
for the purpose of realizing short-term profits, but adjusts its portfolio as it
deems advisable in view of prevailing or anticipated market conditions to
accomplish its investment objective. It is not anticipated that the annual
portfolio turnover rate of ETF following the Merger will exceed 85%. A high rate
of portfolio turnover involves correspondingly greater brokerage commission
expenses than a lower rate, which expenses must be borne by the Funds and their
shareholders. High portfolio turnover may also result in the realization of
substantial net short-term capital gains and any distributions resulting from
such gains will be taxable at ordinary income rates for U.S. federal income tax
purposes. ETF's portfolio turnover rates for the fiscal years ended May 31, 2000
and 1999 were 113.75% and 179.66%, respectively. EMG's portfolio turnover rates
for the fiscal years ended November 30, 1999 and 1998 were 109.09% and 169.85%,
respectively. The higher EMG portfolio turnover rate for the fiscal year ended
November 30, 1998 is attributable to the Fund's increased investment activity in
Asia during that year. The portfolio turnover rate is calculated by dividing the
lesser of sales or purchases of portfolio securities by the average monthly
value of a Fund's portfolio securities. For purposes of this calculation,
portfolio securities exclude purchases and sales of debt securities having a
maturity at the date of purchase of one year or less.
Borrowing. For information on the Funds' ability to borrow money see
"Proposal 1 (Both Funds): Approval of the Merger Agreement and Plan of
Reorganization pursuant to which the Emerging Markets Infrastructure Fund
Will Merge with and into the Emerging Markets Telecommunications
Fund -- Comparison of Investment Objectives and Policies" in the Proxy
Statement/Prospectus.
9
INVESTMENT RESTRICTIONS
For information on the Funds' fundamental investment policies and
restrictions see "Proposal 1 (Both Funds): Approval of the Merger Agreement and
Plan of Reorganization pursuant to which the Emerging Markets Infrastructure
Fund Will Merge with and into the Emerging Markets Telecommunications Fund -
Comparision of Investment Objectives and Policies" in the Proxy
Statement/Prospectus.
10
MANAGEMENT OF THE FUNDS
Directors and Principal Officers
The names, addresses and principal occupations of the directors and
principal officers of each Fund are described under "Proposal 1 (Both Funds):
Approval of the Merger Agreement and Plan of Reorganization pursuant to which
the Emerging Markets Infrastructure Funds Will Merge with and into the Emerging
Markets Telecommunications Fund -- Management of the Funds -- Directors and
Principal Officers" in the Proxy Statement/Prospectus.
Compensation of Directors and Principal Officers
For information about the compensation of the directors of ETF and
EMG for the fiscal years ended May 31, 1999 and November 30, 1999, respectively,
see "Proposal 1 (Both Funds): Approval of the Merger Agreement and Plan of
Reorganization pursuant to which the Emerging Markets Infrastructure Fund Will
Merge with and into the Emerging Markets Telecommunications Fund --- Management
of the Funds" and "Proposal 3 (Emerging Markets Telecommunications Fund
Shareholders Only): Election of Directors --- Background" in the Proxy
Statement/Prospectus.
Control Persons and Principal Holders of Securities
For information concerning persons who may be deemed beneficial owners of
5% or more of the shares of common stock of either Fund see "Proposal 1 (Both
Funds): Approval of the Merger Agreement and Plan of Reorganization pursuant to
which the Emerging Markets Infrastructure Fund Will Merge with and into the
Emerging Markets Telecommunications Fund -- Management of the Funds" in the
Proxy Statement/Prospectus.
11
All the directors and executive officers, as a group, of ETF, as of
July 7, 2000, owned less than 1% of the outstanding shares of ETF, and all the
directors and executive officers, as a group, of EMG, as of the same date, owned
less than 1% of the outstanding shares of EMG.
Advisory Arrangements
CSAM serves as the investment adviser to both Funds pursuant to
advisory agreements with each Fund (the "Advisory Agreements"). Each Advisory
Agreement provides that the Adviser shall not be liable, and shall be
indemnified, for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the Advisory
Agreement relates, except liability resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard of its obligations and duties under the
Advisory Agreement. In addition, CSAM is entitled to receive advances from each
Fund for payment of the reasonable expenses it incurs in connection with any
matter as to which it seeks indemnification in the manner and to the fullest
extent permissible under the Maryland General Corporation Law.
For more information about each Adviser and the Advisory Agreements,
see "Proposal 1 (Both Funds): Approval of the Merger Agreement and Plan of
Reorganization pursuant to which the Emerging Markets Infrastructure Fund Will
Merge with and into the Emerging Markets Telecommunication Fund - Synopsis -
Fees and Expenses - The Emerging Markets Telecommunications Fund," "Proposal 1
(Both Funds): Approval of the Merger Agreement and Plan of Reorganization
pursuant to which the Emerging Markets Infrastructure Fund Will Merge with and
into the Emerging Markets Telecommunication Fund - Synopsis - Fees and Expenses
of the Emerging Markets Infrastructure Fund" and "Proposal 1 (Both Funds):
Approval of the Merger Agreement and Plan of Reorganization pursuant to which
the Emerging Markets Infrastructure Fund Will Merge with and into the Emerging
Markets Telecommunication Fund - Management" in the Proxy Statement/Prospectus.
Shareholders of the Emerging Markets Telecommunications Fund have been requested
to consider and approve a new investment advisory agreement with CSAM. For
information regarding the terms of the new investment advisory agreement, see
"Proposal 2 (Emerging Markets Telecommunications Fund Shareholders Only):
Approval of New Investment Advisory Agreement" in the Proxy
Statement/Prospectus.
The table below sets forth the investment advisory fees earned by
CSAM for each Fund for the last three fiscal years.
12
-------------------------------------------------------------------------
Fund Fiscal Year Ended Advisory Fee
-------------------------------------------------------------------------
Emerging Markets May 31, 1997 $2,059,688
Telecommunications Fund ---------------------------------------------
May 31, 1998 $1,985,605
---------------------------------------------
May 31, 1999 $1,303,309
-------------------------------------------------------------------------
Emerging Markets November 30, 1997 $3,242,573
Infrastructure Fund ---------------------------------------------
November 30, 1998 $2,615,834
---------------------------------------------
November 30, 1999 $1,922,776
-------------------------------------------------------------------------
For information about the Funds' custodian, transfer agent and
registrar, see "Proposal 1 (Both Funds): Approval of the Merger Agreement and
Plan of Reorganization pursuant to which the Emerging Markets Infrastructure
Fund Will Merge with and into the Emerging Markets Telecommunication Fund -
Management of the Funds" in the Proxy Statement/Prospectus. For information
about the Funds' independent accountants, see "Proposal 1 (Both Funds): Approval
of the Merger Agreement and Plan of Reorganization pursuant to which the
Emerging Markets Infrastructure Fund Will Merge with and into the Emerging
Markets Telecommunication Fund - Experts" in the Proxy Statement/Prospectus.
Duration and Termination; Non-Exclusive Services
Unless earlier terminated as described below, the Advisory
Agreements remain in effect if approved annually by either (i) the Board of
Directors of the Fund or (ii) the "vote of a majority of the outstanding voting
securities" of the Fund, and in either case, the vote of a majority of the
Non-interested Directors (as defined in the Investment Company Act), cast in
person at a meeting called for such purpose. Each of the Advisory Agreements
terminates automatically on its assignment by any party and may be terminated
without penalty on 60 days' written notice by the Board of Directors or the vote
of the holders of a majority of the Fund's outstanding shares. CSAM may
terminate either agreement, without penalty, upon 60 days' written notice.
Administration Arrangements
The U.S. Administration Agreements between Bear Stearns Funds
Management Inc. ("BSFM" or the "U.S. Administrator") and the Funds are
terminable on 60 days' notice by either party. Unless terminated by the Funds'
Board of Directors upon 60 days' prior written notice or by the relevant service
provider upon 90 days' prior written notice, the Chilean Administration
Agreements between the Funds and Celfin Administradora de Fondos de Inversion de
Capitel Extranjero S.A. ("Celfin" or the "Chilean Administrator") and the
Brazilian Administration Agreements between the Funds and Fleet National Bank
("Fleet" or the "Brazilian Administrator") will continue automatically from
year to year. The Chilean Administrator and the Brazilian Administrator may be
replaced only by an entity authorized to act as an administrator of a foreign
capital investment fund under Chilean and Brazilian law, respectively.
13
The following table sets forth the amounts BSFM and Celfin earned as
administrative fees and the amounts CSAM was reimbursed for administrative fees
for the last three years. Fleet is paid for its services out of the custody fee
payable to Brown Brothers Harriman & Co., the Funds' accounting agent and
custodian.
14
-----------------------------------------------------------------------------
Fund Year Ended BSFM CSAM CELFIN
-----------------------------------------------------------------------------
Emerging May 31, 1997 $205,899 $18,001 $69,799
Markets ------------------------------------------------------------
Telecommu- May 31, 1998 $211,894 $14,078 $59,999
nications ------------------------------------------------------------
Fund May 31, 1999 $112,812 $14,001 $60,002
-----------------------------------------------------------------------------
Emerging November 30, 1997 $299,319 $19,752 $65,369
Markets ------------------------------------------------------------
Infrastructure November 30, 1998 $241,462 $19,986 $71,999
Fund ------------------------------------------------------------
November 30, 1999 $177,488 $19,998 $64,999
-----------------------------------------------------------------------------
The services of CSAM, the Chilean Administrator, the Brazilian
Administrator and the U.S. Administrator are not deemed to be exclusive, and
nothing in the relevant service agreements will prevent any of them or their
affiliates from providing similar services to other investment companies and
other clients (whether or not such clients' investment objectives and policies
are similar to those of the Fund) or from engaging in other activities.
Code of Ethics
Each Fund and CSAM have adopted a written Code of Ethics, which permits
personnel covered by the Code of Ethics ("Covered Persons") to invest in
securities, including securities that may be purchased or held by the respective
Fund. The Code of Ethics also contains provisions designed to address the
conflicts of interest that could arise from personal trading by advisory
personnel, including: (1) all Covered Persons must report their personal
securities transactions at the end of each quarter; (2) with certain limited
exceptions, all Covered Persons must obtain preclearance before executing any
personal securities transactions; (3) Covered Persons may not execute personal
trades in a security if there are any pending orders in that security by the
respective Fund; and (4) Covered Persons may not invest in initial public
offerings.
The Board of Directors of each Fund reviews the administration of the Code
of Ethics at least annually and may impose sanctions for violations of the Code
of Ethics.
15
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for each Fund are made by CSAM
subject to the overall review of that Fund's Board of Directors. Portfolio
securities transactions for each Fund are placed on behalf of the Fund by
persons authorized by CSAM. CSAM manages other investment companies and accounts
that invest in securities of emerging countries. Although investment decisions
for the Funds are made independently from those of the other accounts,
investments of the type the Funds may make may also be made on behalf of those
other accounts. When the Funds and one or more of those other accounts is
prepared to invest in, or desires to dispose of, the same security, available
investments or opportunities for each will be allocated in a manner believed by
CSAM to be equitable. In some cases, this procedure may adversely affect the
price paid or received by the Funds or the size of the position obtained or
disposed of by the Funds. The Funds may utilize Celfin, CS First Boston
Corporation or other affiliates of CSAM in connection with a purchase or sale of
securities in accordance with rules or exemptive orders adopted by the SEC when
CSAM believes that the charge for the transaction does not exceed usual and
customary levels. In addition, the Funds may purchase securities in the
placement for which Celfin, CS First Boston Corporation or other affiliates of
CSAM has acted as agent to or for issuers, consistent with applicable rules
adopted by the SEC or regulatory authorization, if necessary. The Funds will not
purchase securities from or sell securities to any Adviser or its affiliates
acting as principal.
Transactions on U.S. and some foreign stock exchanges involve the payment
of negotiated brokerage commissions, which may vary among different brokers. The
cost of securities purchased from underwriters includes an underwriter's
commission or concession, and the prices at which securities are purchased from
and sold to dealers in the over-the-counter markets include an undisclosed
dealer's mark-up or mark-down. Fixed income securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security will likely include a
profit to the dealer.
In selecting brokers or dealers to execute portfolio transactions on
behalf of each Fund, CSAM will seek the best overall terms available. Each
Advisory Agreement provides that, in assessing the best overall terms available
for any transaction, the Adviser will consider the factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, each Advisory Agreement authorizes the Adviser in
selecting brokers or dealers, to execute a particular transaction and in
evaluating the best overall terms available, to consider the brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) provided to the Funds and/or other accounts over which the
Adviser exercises investment discretion. The fees payable under the Advisory
Agreements are not reduced as a result of the Adviser's receiving such brokerage
and research services.
The Board of Directors of each Fund will review periodically the
commissions paid by that Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
inuring to such Fund.
16
The aggregate amounts paid by ETF in brokerage commissions for the fiscal
years ended May 31, 1998, 1999 and 2000 were $1,149,119, $672,107 and $600,684,
respectively and the aggregate amounts paid by EMG for the fiscal years ended
November 30, 1997, 1998 and 1999 were $1,408,426, $1,490,525 and $778,666,
respectively. None of these brokerage commissions paid by ETF or EMG were paid
to affiliated brokers. The higher commissions paid by ETF in the fiscal year
ended May 31, 1998 and the higher commissions paid by EMG in the fiscal years
ended November 30, 1997 and November 30, 1998 are attributable to the Funds'
increased investment activity in Asia during those periods. ETF paid $8,433 and
EMG paid $6,244 to brokers and dealers who provided research services for the
fiscal year ended May 31, 1999 and November 30, 1999, respectively.
Each Fund has the benefit of an exemptive order of the SEC issued under
the Investment Company Act authorizing the Funds and other investment companies
advised by CSAM to co-invest in securities issued in privately-negotiated
transactions, subject to the terms and conditions of the order.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Each Fund operates a Dividend Reinvestment and Cash Purchase Plan, the
InvestLinkSM Program, or the Program, sponsored and administered by Fleet
National Bank c/o EquiServe, L.P. ("Fleet"), pursuant to which Fund dividends
and distributions, net of any applicable U.S. withholding tax, are reinvested in
additional shares of that Fund. Fleet National Bank c/o EquiServe, L.P. serves
as the Program Administrator for the shareholders in administering the Program.
The purpose of the Program is to provide interested investors with a simple and
convenient way to invest funds and reinvest dividends in shares of that Fund's
common stock ("Shares") at prevailing prices, with reduced brokerage commissions
and fees.
An interested investor may join the Program at any time. Purchases of
Shares with funds from a participant's cash payment or automatic account
deduction will begin on the next day on which funds are invested. If a
participant selects the dividend reinvestment option, automatic investment of
dividends generally will begin with the next dividend payable after Fleet
receives the participant's enrollment form. Once in the Program, a person will
remain a participant until he or she terminates his or her participation or
sells all Shares held in his or her Program account, or his or her account is
terminated by Fleet. A participant may change his or her investment options at
any time by requesting a new enrollment form and returning it to Fleet.
A participant will be assessed certain charges in connection with his or
her participation in the Program. First-time investors will be subject to an
initial service charge which will be deducted from their initial cash deposit.
All optional cash deposit investments will be subject to a service charge. Sales
processed through the Program will have a service fee deducted from the net
proceeds, after brokerage commissions. In addition to the transaction charges
outlined above, participants will be assessed per share processing fees (which
include brokerage commissions). Participants will not be charged any fee for
reinvesting dividends.
The number of Shares to be purchased for a participant depends on the
amount of his or her dividends, cash payments or bank account or payroll
deductions, less applicable fees and commissions, and the purchase price of the
Shares. Fleet uses dividends and funds of
17
participants to purchase Shares of the relevant Fund's Common Stock in the open
market. Such purchases will be made by participating brokers as agent for the
participants using normal cash settlement practices. All Shares purchased
through the Program will be allocated to participants as of the settlement date,
which is usually three business days from the purchase date. In all cases,
transaction processing will occur within 30 days of the receipt of funds, except
where temporary curtailment or suspension of purchases is necessary to comply
with applicable provisions of the federal securities laws or when unusual market
conditions make prudent investment impracticable. In the event Fleet is unable
to purchase Shares within 30 days of the receipt of funds, such funds will be
returned to the participants.
The average price of all Shares purchased by Fleet with all funds received
during the time period from two business days preceding any investment date up
to the second business day preceding the next investment date shall be the price
per share allocable to a participant in connection with the Shares purchased for
his or her account with his or her funds or dividends received by Fleet during
such time period. The average price of all Shares sold by Fleet pursuant to sell
orders received during such time period shall be the price per share allocable
to a participant in connection with the Shares sold for his or her account
pursuant to his or her sell orders received by Fleet during such time period.
Fleet administers the Program for participants, keeps records, sends
statements of account to participants and performs other duties relating to the
Program. Each participant in the Program will receive a statement of his or her
account following each purchase of Shares. The statements will also show the
amount of dividends credited to such participant's account (if applicable), as
well as the fees paid by the participant. In addition, each participant will
receive copies of the respective Fund's annual and semi-annual reports to
shareholders, proxy statements and, if applicable, dividend income information
for tax reporting purposes.
If the respective Fund is paying dividends on the Shares, a participant
will receive dividends through the Program for all Shares held on the dividend
record date on the basis of full and fractional Shares held in his or her
account, and for all other Shares of the Fund registered in his or her name.
Fleet will send checks to the participants for the amounts of their dividends
that are not to be automatically reinvested at no cost to the participants.
Shares of the Fund purchased under the Program will be registered in the
name of the accounts of the respective participants. Unless requested, the Fund
will not issue to participants certificates for Shares of the Fund purchased
under the Program. Fleet will hold the Shares in book-entry form until a Program
participant chooses to withdraw his or her Shares or terminates his or her
participation in the Program. The number of Shares purchased for a participant's
account under the Program will be shown on his or her statement of account. This
feature protects against loss, theft or destruction of stock certificates.
A participant may withdraw all or a portion of the Shares from his or her
Program account by notifying Fleet. After receipt of a participant's request,
Fleet will issue to such participant certificates for the whole Shares of the
Fund so withdrawn or, if requested by the participant, sell the Shares for him
or her and send him or her the proceeds, less applicable brokerage commissions,
fees, and transfer taxes, if any. If a participant withdraws all full and
18
fractional Shares in his or her Program account, his or her participation in the
Program will be terminated by Fleet. In no case will certificates for fractional
Shares be issued. Fleet will convert any fractional Shares held by a participant
at the time of his or her withdrawal to cash.
Participation in any rights offering, dividend distribution or stock split
will be based upon both the Shares of the Fund registered in participants' names
and the Shares (including fractional Shares) credited to participants' Program
accounts. Any stock dividend or Shares resulting from stock splits with respect
to Shares of the Fund, both full and fractional, which participants hold in
their Program accounts and with respect to all Shares registered in their names
will be automatically credited to their accounts.
All Shares of the Fund (including any fractional share) credited to his or
her account under the Program will be voted as the participant directs. The
participants will be sent the proxy materials for the annual meetings of
shareholders. When a participant returns an executed proxy, all of such Shares
will be voted as indicated. A participant may also elect to vote his or her
Shares in person at the Shareholders' meeting.
A participant will receive tax information annually for his or her
personal records and to help him or her prepare his or her U.S. federal income
tax return. The automatic reinvestment of dividends does not relieve him or her
of any income tax which may be payable on dividends. For further information as
to tax consequences of participation in the Program, participants should consult
with their own tax advisors.
Fleet in administering the Program will not be liable for any act done in
good faith or for any good faith omission to act. However, Fleet will be liable
for loss or damage due to error caused by its negligence, bad faith or willful
misconduct. Shares held in custody by Fleet are not subject to protection under
the Securities Investors Protection Act of 1970.
The participant should recognize that neither the Fund nor Fleet can
provide any assurance of a profit or protection against loss on any Shares
purchased under the Program. A participant's investment in Shares held in his or
her Program account is no different than his or her investment in directly held
Shares in this regard. The participant bears the risk of loss and the benefits
of gain from market price changes with respect to all of his or her Shares.
Neither the Fund nor Fleet can guarantee that Shares purchased under the Program
will, at any particular time, be worth more or less than their purchase price.
Each participant must make an independent investment decision based on his or
her own judgment and research.
While Fleet hopes to continue the Program indefinitely, Fleet reserves the
right to suspend or terminate the Program at any time. It also reserves the
right to make modifications to the Program. Participants will be notified of any
such suspension, termination or modification in accordance with the terms and
conditions of the Program. Fleet also reserves the right to terminate any
participant's participation in the Program at any time. Any question of
interpretation arising under the Program will be determined in good faith by
Fleet and any such good faith determination will be final.
19
Any interested investor may participate in the Program. To participate in
the Program, an investor who is not already a registered owner of the Shares
must make an initial investment of at least $250.00. All other cash payments or
bank account deductions must be at least $100.00, up to a maximum of $3,000.00
semi-annually. An interested investor may join the Program by reading the
Program description, completing and signing the enrollment form and returning it
to Fleet. The enrollment form and information relating to the Program (including
the terms and conditions) may be obtained by calling Fleet at one of the
following telephone numbers: First Time Investors--(800) 338-1176; Current
Shareholders--(800) 730-6001. All correspondence regarding the Program should be
directed to: Fleet National Bank c/o EquiServe, L.P., InvestLinkSM Program, P.O.
Box 8040, Boston, MA 02266-8040.
20
TAXATION
The following is a summary of certain material United States federal
income tax considerations regarding the purchase, ownership and disposition of
shares in either Fund. Each prospective shareholder is urged to consult his or
her own tax adviser with respect to the specific federal, state, local and
foreign tax consequences of investing in either Fund. The summary is based on
the laws in effect on the date of this SAI, which are subject to change.
United States Federal Income Taxes
The Funds and Their Investments
Each Fund has qualified, and intends to continue to qualify and elect to
be treated, as a regulated investment company for each taxable year under the
Code. To so qualify, each Fund must, among other things: (a) derive at least 90%
of its gross income in each taxable year 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 its business of investing in such stock, securities or currencies;
and (b) diversify its holdings so that, at the end of each quarter of that
Fund's taxable year, (i) at least 50% of the market value of that Fund's assets
is represented by cash, securities of other regulated investment companies,
United States government securities and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of that 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 assets
is invested in the securities (other than United States government securities or
securities of other regulated investment companies) of any one issuer or any two
or more issuers that such Fund controls and are determined to be engaged in the
same or similar trades or businesses or related trades or businesses. Each Fund
expects that all of its foreign currency gains will be directly related to its
principal business of investing in stocks and securities.
As a regulated investment company, neither Fund will be subject to United
States federal income tax on its net investment income (i.e., income other than
its net realized long- and short-term capital gains) and its net realized long-
and short-term capital gains, if any, that it distributes to its shareholders,
provided that an amount equal to at least 90% of its investment company taxable
income (i.e., 90% of its taxable income minus 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 adjustments
as specified in section 852 of the Code) for the taxable year is distributed,
but will be subject to tax at regular corporate rates on any income or gains
that it does not distribute. Furthermore, each Fund will be subject to a United
States corporate income tax with respect to such distributed amounts in any year
that it fails to qualify as a regulated investment company or fails to meet this
distribution requirement. Any dividend declared by either 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
that Fund not later than such December 31, provided that such dividend is
actually paid by that Fund during January of the following calendar year.
21
Each Fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income. The Board of Directors of each
Fund will determine annually whether to distribute any such net realized
long-term capital gains in excess of net realized short-term capital losses
(including any capital loss carryovers). Each Fund currently expects to
distribute any excess annually to its shareholders. However, if either Fund
retains for investment an amount equal to its net long-term capital gains in
excess of its net short-term capital losses and capital loss carryovers, it will
be subject to a corporate tax (currently at a rate of 35%) on the amount
retained. In that event, each Fund expects to designate such retained amounts as
undistributed capital gains in a notice to its shareholders who (a) will be
required to include in income for United States federal income tax purposes, as
long-term capital gains, their proportionate shares of the undistributed amount,
(b) will be entitled to credit their proportionate shares of the 35% tax paid by
that Fund on the undistributed amount against their United States federal income
tax liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income.
The Code imposes a 4% nondeductible excise tax on each Fund to the extent
such Fund does not distribute by the end of any calendar year at least 98% of
its net investment income for that year and 98% of the net amount of its capital
gains (both long-and short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose, however, any income or gain
retained by such 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, as the case may
be, from the previous year. Each Fund anticipates that it will pay such
dividends and will make such distributions as are necessary in order to avoid
the application of this tax.
Exchange control regulations may restrict repatriations of
investment income and capital or the proceeds of securities sales by foreign
investors such as the Funds and may limit the Funds' abilities to pay sufficient
dividends and to make sufficient distributions to satisfy the 90% and excise tax
distribution requirements.
Each Fund will maintain accounts and calculate income in U.S. dollars. In
general, gains and losses on the disposition, or receipt of principal, of debt
securities denominated in a foreign currency that are attributable to
fluctuation in exchange rates between the date the debt security is acquired and
the date of disposition, or receipt of principal, gains and losses attributable
to fluctuations in exchange rates that occur between the time such Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time such Fund actually collects such
receivables or pays such liabilities, and gains and losses from the disposition
of foreign currencies and foreign currency forward contracts will be treated as
ordinary income or loss. If either Fund acquires a debt security denominated in
a Latin American currency, such security may bear interest at a high nominal
rate that takes into account expected decreases in the value of the principal
amount of the security due to anticipated devaluations of the currency. In the
case of such debt securities, each Fund would be required to include the stated
interest in income as it accrues, but would generally realize an ordinary loss
22
attributable to devaluations of the currency with respect to principal only when
the security is disposed of or the principal amount is received.
Each Fund's transactions in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) will be subject to special provisions of the Code that,
among other things, may affect the character of gains and losses realized by
such Fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to such Fund and defer the Fund's losses. These
rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions also (a) will require each 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 each 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. Each Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the effect of these rules and
prevent disqualification of such Fund as a regulated investment company.
Passive Foreign Investment Companies
If either Fund purchases shares in certain foreign investment
entities, called "passive foreign investment companies" (a "PFIC"), that Fund
may be subject to United States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if such income is
distributed as a taxable dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on that Fund in respect of
deferred taxes arising from such distributions or gains. If such Fund were to
invest in a PFIC and elected to treat the PFIC as a "qualified electing fund" (a
"QEF Election") under the Code, in lieu of the foregoing requirements, such Fund
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if not
distributed to the Fund, and such amounts would be subject to the 90% and
calendar year distribution requirements described above.
Alternatively, the Fund may make a mark-to-market election that will
result in the Fund being treated as if it had sold and repurchased all of the
PFIC stock at the end of each year. In such case, the Fund would report any such
gains as ordinary income and would deduct any such losses as ordinary losses to
the extent of previously recognized gains. The election, once made, would be
effective for all subsequent taxable years of the Fund, unless revoked with the
consent of the IRS. By making the election, the Fund could potentially
ameliorate the adverse tax consequences with respect to its ownership of shares
in a PFIC, but in any particular year may be required to recognize income in
excess of the distributions it receives from PFICs and its proceeds from
dispositions of PFIC stock. The Fund may have to distribute this "phantom"
income and gain to satisfy the 90% distribution requirement and to avoid
imposition of the 4% excise tax. The Fund will make the appropriate tax
elections if possible, and take any additional steps that are necessary to
mitigate the effect of these rules.
23
Dividends and Distributions
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares. Distributions of net long-term
capital gains, if any, that either Fund designates as capital gains dividends
are taxable as long-term capital gains, whether paid in cash or in shares and
regardless of how long a shareholder has held shares of the Fund. Dividends and
distributions paid by each Fund (except for the portion thereof, if any,
attributable to dividends on stock of U.S. corporations received by the Fund)
will not qualify for the deduction for dividends received by corporations.
Distributions in excess of such Fund's current and accumulated earnings and
profits will, as to each shareholder, be treated as a tax-free return of
capital, to the extent of a shareholder's basis in his shares of the Fund, and
as a capital gain thereafter (if the shareholder held his shares of the Fund as
capital assets).
Shareholders reinvesting dividends or distributions in shares pursuant to
the Program will be treated for United States federal income tax purposes as
receiving a distribution in the amount equal to the amount of money that the
shareholders receiving cash dividends or distributions will receive, and will
have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution
which nevertheless will be taxable to them.
If either Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are included in
the Fund's gross income not as of the date received but as of the later of (a)
the date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
Sales of Shares
Upon the sale or exchange of his shares, a shareholder will realize
a taxable gain or loss equal to the difference between the amount realized and
his basis in his shares. Such gain or loss will be treated as capital gain or
loss, if the shares are capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the Fund under the Program, within
a period (of 61 days) beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be increased to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of a Fund share held by the shareholder for six months or less will
be treated for United States income tax
24
purposes as a long-term capital loss to the extent of any distributions or
deemed distributions of long-term capital gains received by the shareholder with
respect to such share.
Foreign Taxes
Income received by the Funds from sources within countries other
than the United States may be subject to withholding and other taxes imposed by
such countries, which will reduce the amount available for distribution to
shareholders. If more than 50% of the value of either Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, that
Fund will be eligible and intends to elect to "pass-through" to shareholders the
amount of foreign income and similar taxes it has paid. Pursuant to this
election, shareholders of the Fund will be required to include in gross income
(in addition to the full amount of the taxable dividends actually received)
their pro rata share of the foreign taxes paid by that Fund. Each such
shareholder will also be entitled either to deduct (as an itemized deduction)
its pro rata share of foreign taxes in computing its taxable income or to claim
a foreign tax credit against its U.S. federal income tax liability, subject to
limitations. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions, but such a shareholder may be eligible to claim the
foreign tax credit. The deduction for foreign taxes is not allowable in
computing alternative minimum taxable income. Each shareholder will be notified
within 60 days after the close of that Fund's taxable year whether the foreign
taxes paid by the Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his or her
foreign source taxable income. For this purpose, if the pass-through election is
made, the source of each Fund's income flows through to its shareholders. Any
gains from the sale of securities by either Fund will be treated as derived from
U.S. sources and certain currency fluctuation gains, including fluctuation gains
from foreign currency-denominated debt securities, receivables and payables,
will be treated as ordinary income derived from U.S. sources. The limitation on
the foreign tax credit is applied separately to foreign source passive income
(as defined for purposes of the foreign tax credit), including the foreign
source passive income passed through by each Fund. Because of the limitation,
shareholders taxable in the United States may be unable to claim a credit for
the full amount of their proportionate share of the foreign taxes paid by each
Fund. The foreign tax credit also cannot be used to offset more than 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals.
Backup Withholding
Each Fund may be required to withhold, for United States federal
income tax purposes, 31% of the dividends and distributions payable to
shareholders who fail to provide such Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders are or may be
exempt from backup withholding. Backup withholding is not an additional tax and
any amount withheld may be credited against a shareholder's United States
federal income tax liabilities. Additional tax withholding requirements which
apply with respect to foreign investors are discussed below.
25
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a foreign
investor (such as a nonresident alien individual, a foreign trust or estate, a
foreign corporation or a foreign partnership) depends, in part, on whether the
shareholder's income from either Fund is "effectively connected" with a United
States trade or business carried on by the shareholder.
If the foreign investor is not a resident alien and the income from such
Fund is not effectively connected with a United States trade or business carried
on by the foreign investor, distributions of net investment income and net
realized short-term capital gains will be subject to a 30% (or lower treaty
rate) United States withholding tax. Furthermore, foreign investors may be
subject to an increased United States tax on their income resulting from that
Fund's election (described above) to "pass-through" amounts of foreign taxes
paid by such Fund, but may not be able to claim a credit or deduction with
respect to the foreign taxes treated as having been paid by them. Distributions
to a non-resident alien of net realized long-term capital gains, amounts
retained by that Fund which are designated as undistributed capital gains, and
gains realized upon the sale of shares of such Fund generally will not be
subject to United States tax unless the foreign investor who is a nonresident
alien individual is physically present in the United States for more than 182
days during the taxable year. However, a determination by such Fund not to
distribute long-term capital gains will cause that Fund to 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 investment, and the
foreign investor may not be able to claim a credit or deduction with respect to
such taxes. In general, if a foreign investor is a resident alien or if
dividends or distributions from either Fund are effectively connected with a
United States trade or business carried on by the foreign investor, then
dividends of net investment income, distributions of net short-term and
long-term capital gains, amounts retained by such Fund that are designated as
undistributed capital gains and any gains realized upon the sale of shares of
the Fund will be subject to United States income tax at the rates applicable to
United States citizens or domestic corporations. If the income from the Fund is
effectively connected with a United States trade or business carried on by a
foreign investor that is a corporation, then such foreign investor may also be
subject to the 30% (or lower treaty rate) branch profits tax.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. 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 (a)
whether their income from either Fund is or is not effectively connected with a
United States trade or business carried on by them, (b) whether they may claim
the benefits of an applicable tax treaty, and (c) any other tax consequences to
them of an investment in either Fund.
Notices
Shareholders will be notified annually by each Fund as to the United
States federal income tax status of the dividends, distributions and deemed
distributions made by the
26
Fund to its shareholders. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of each Fund's taxable year
regarding the United States federal income tax status of certain dividends,
distributions and deemed distributions that were paid (or that are treated as
having been paid) by the Fund to its shareholders during the preceding taxable
year.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUNDS AND THEIR SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM
OF AN INVESTMENT IN EITHER FUND.
27
FINANCIAL STATEMENTS
The audited financial statements, notes to the financial statements
and report of the independent auditors of ETF for the fiscal year ended May 31,
1999 included in ETF's Annual Reports to Shareholders and the unaudited
financial statements of ETF for the six months ended November 30, 1999 are
incorporated by reference herein. The audited financial statements, notes to the
financial statements and report of the independent auditors of EMG for the
fiscal year ended November 30, 1999 included in EMG's Annual Reports to
Shareholders and the unaudited financial statements of EMG for the six-month
period ended May 31, 2000 are incorporated by reference herein. The Annual
Reports may be obtained without charge, by writing to Shareholder Communications
Corporation, 17 State Street, New York, New York 10004, or by calling 1-(800)
403-7916.
Pro Forma Financial Statements
The following tables set forth the unaudited pro forma condensed
statement of assets and liabilities and unaudited pro forma condensed statement
of operations for each Fund as of and for the year ended May 31, 2000 and as
adjusted to give effect to the Emerging Markets Infrastructure Fund's tender
offer to acquire up to 50% of its shares of common stock at a price per share
equal to 95% of its net asset value per share (the "Tender Offer") and the
Merger.
28
PRO FORMA CONDENSED STATEMENT
OF ASSETS AND LIABILITIES
AT MAY 31, 2000 (UNAUDITED)
THE EMERGING THE EMERGING
MARKETS MARKETS
TELECOMMUNICATIONS INFRASTRUCTURE PRO FORMA
FUND FUND (AS ADJUSTED)
Value Value Adjustments Value
----- ----- ----------- -----
ASSETS
Investments, at value ........ $119,286,078 $135,475,195 $76,180,229(a) $178,581,044
Cash ......................... 16,683,132 19,441,502 36,124,634
Collateral received from
Securities Loaned ......... 11,639,279 6,232,895 17,872,174
Receivables: ................. 294,290
Investments sold .......... 294,290 -- 734,407
Dividends ................. 326,223 408,184
Interest .................. 0 2,121 2,121
Prepaid expenses and other
assets .................... 9,920 15,601 (15,601)(c) 9,920
----- ------ -----
Total Assets ................. 148,238,922 161,575,498 233,618,590
----------- ----------- -----------
LIABILITIES
Payables:
Payable upon return of
securities loaned ....... 11,639,279 6,232,895 17,872,174
Investments purchased ..... 5,849,601 2,340,924 8,190,525
Merger and Tender Offer
Payable ................. 842,636(b) 842,636
Investment advisory fee ... 285,213 358,611 643,824
Administration fees ....... 29,516 36,362 65,878
Other accrued expenses .... 134,858 246,248 381,106
------- ------- -------
Total Liabilities ............ 17,938,467 9,215,040 27,996,143
---------- --------- ----------
Net Assets ................... 130,300,455 152,360,458 205,622,447
----------- ----------- -----------
Net Assets Consist Of:
Capital stock, $0.001 par
value, shares issued and
outstanding ............... 7,101 11,176 (5,588)(a) 12,689
Paid-in-capital .............. 101,403,838 173,332,794 (76,174,641)(a) 198,561,991
Undistributed net investment
income/(loss) ............. -- 930,254 (858,237)(b)(c) 72,017
Accumulated net realized loss
on investments and foreign
currency related
transactions .............. 21,211,808 (21,532,798) (d) (320,990)
Net unrealized appreciation in
value of investments and
translation of other assets
and liabilities denominated
in foreign currencies ..... 7,677,708 (380,968) (d) 7,296,790
--------- -------- ---------
$130,300,455 $152,360,458 $(77,038,466)(d) $205,622,447
----------- ----------- -----------
Share Outstanding ............ 7,100,819 11,175,955 11,205,560
Net asset value per share .... $18.35 $13.63 $18.35
See Accompanying Notes to the Pro Forma Financial Statements.
29
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2000 (UNAUDITED)
THE THE
EMERGING EMERGING
MARKETS MARKETS
TELECOMMUN- INFRA- COMBINED
ICATIONS STRUCTURE PRO FORMA FUND (AS
FUND FUND ADJUSTMENTS ADJUSTED)
INVESTMENT INCOME:
Income:
Dividends .................................. $1,208,286 $1,828,360 $(914,180)(i) $2,122,466
Interest ................................... 275,305 837,099 (418,550)(i) 693,855
Less: Foreign taxes withheld ............... (115,163) (175,182) 87,591(i) (202,754)
-------- -------- ------ --------
Total Investment Income ....................... 1,368,428 2,490,277 (1,245,139) 2,613,567
--------- --------- ---------- ---------
Expenses:
Investment advisory fees ................... 1,542,224 2,076,131 (1,698,221)(e) 1,920,139
Audit fees ................................. 54,777 54,652 (49,429)(h) 60,000
Legal fees ................................. 102,774 161,674 (159,448)(h) 105,000
Administration fees ........................ 219,867 276,872 (248,962)(t) 246,666
Custodian fees ............................. 157,305 237,116 (114,421)(g) 280,000
Printing ................................... 96,223 273,036 (269,259)(h) 100,000
Accounting fees ............................ 101,073 124,322 (60,210)(h) 164,444
Directors' fees ............................ 38,548 57,035 (57,035)(h) 38,548
Transfer agent fees ........................ 43,940 42,449 (41,389)(h) 45,000
NYSE listing fees .......................... 16,532 24,328 (16,600)(h) 24,260
Tender Offer/Miscellaneous fees............. 162,672 349,836 (512,511) 0
Insurance .................................. 9,384 11,613 (5,807)(c) 15,191
Other ...................................... 19,859 24,823 (14,682)(h) 30,000
Chilean repatriation taxes ................. 228,767 162,897 -- 391,664
Brazilian taxes ............................ 24,336 65,578 -- 89,914(f)
------ ------ ------- ------
Total Expenses ................................ 2,818,284 3,942,362 (3,249,826) 3,519,986
--------- --------- ---------- ---------
Net Investment Income ......................... (1,449,856) (1,452,085) 2,004,687 (897,254)
---------- ---------- --------- --------
Net Realized And Unrealized Gain On Investments
And Foreign Currency Related Transaction
Net realized gain/loss from:
Investments ................................ 38,908,462 45,531,239 (d) 84,439,701
Foreign currency related transactions ...... (345,547) (810,818) (1,156,365)
Net change in unrealized
depreciation in value of
investments and translation of
other assets and liabilities
denominated in foreign currencies .......... 7,411,859 (4,565,562) 2,846,297
--------- ---------- ---------
Net realized and unrealized gain on
investments and foreign currency
related transaction ........................ 45,974,774 40,154,859 0 86,129,633
---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................ $44,524,918 $38,702,774 $2,004,687
----------- ----------- ---------- -----------
30
The Emerging Markets Telecommunications Fund, Inc.
The Emerging Markets Infrastructure Fund, Inc.
Notes to Pro Forma Financial Statements (unaudited)
1. Basis of Combination
The unaudited Pro Forma Condensed Portfolio of Investments, Pro Forma
Condensed Statement of Assets and Liabilities and Pro Forma Condensed Statement
of Operations give effect to the proposed merger of The Emerging Markets
Infrastructure Fund, Inc. ("EMG") into The Emerging Markets Telecommunications
Fund, Inc. ("ETF"). The proposed merger will be accounted for by the method of
accounting for tax-free mergers of investment companies (sometimes referred to
as the pooling-of-interest basis). Prior to consummation of the Merger, EMG
intends to make a Tender Offer to acquire up to 50% of its shares of common
stock at 95% of its net asset value. The Tender Offer will not occur unless the
shareholders of both Funds approve the Merger. The Merger provides for the
transfer of all or substantially all of the assets of EMG to ETF in exchange for
ETF common shares, the distribution of such ETF common shares to common
shareholders of EMG and the subsequent liquidation of EMG. Each share of common
stock of EMG will convert into an equivalent dollar amount of full shares of
common stock of ETF based on the net asset value per share of each Fund. The
accounting survivor in the proposed merger will be ETF. This is because although
EMG has substantially similar investment objectives as ETF, the surviving Fund
will invest in a style that is similar to the way in which ETF is currently
operated.
31
The pro forma combined statements should be read in conjunction with the
historical financial statements of the constituent Fund and the notes thereto
incorporated by reference in the Registration Statement filed on Form N-14.
ETF and EMG are both closed-end, non-diversified management investment
companies registered under the Investment Company Act of 1940, as amended.
Pro Forma Adjustments:
The Pro Forma adjustments below reflect the impact of the merger between
ETF and EMG.
(a) To remove 50% of net assets from EMG as a result of Tender Offer,
investments will be sold off.
(b) To reflect expenses to be incurred in connection with the Tender
Offer and Merger.
(c) To remove certain prepaid expenses associated with EMG, in the
statement of assets and liabilities, which will not be assumed by
ETF; and to reduce the corresponding amortization on the statement
of operations.
(d) In connection with EMG's intention to make a Tender Offer to acquire
up to 50% of its assets, EMG will be selling a certain percentage of
its securities. As a result, actual realized and unrealized gains
and losses will be impacted. The effects of these sales are not
reasonably estimable at this time.
(e) Adjustment based on contractual agreements with Advisor and
reduction in net assets associated with Tender Offer.
(f) Adjustment based on the contractual agreement with the Administrator
for the combined Fund.
(g) Adjustment based on the contractual agreement with the custodian for
the combined Fund.
(h) Assumes elimination of duplicate charges in combination and reflects
management's estimates of combined pro forma operations.
(i) Adjustment for sale of securities in connection with Tender Offer.
(j) Assumes prior elimination of charges on prior tender offers.
2. Significant Accounting Policies
The following is a summary of significant accounting policies, which
are consistently followed by each of ETF and EMG in the preparation of its
financial statements.
Management Estimates: The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make certain estimates
32
and assumptions that may affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
Portfolio Valuation: Investments are stated at value in the
accompanying financial statements. All equity securities for which market
quotations are readily available are valued at the last sales price prior to the
time of determination, or, if no sales price is available at that time, at the
closing price quoted for the securities (but if bid and asked quotations are
available, at the mean between the current bid and asked prices). Securities
that are traded over-the-counter are valued at the mean between the current bid
and the asked prices, if available. All other securities and assets are valued
at the fair value as determined in good faith by the Board of Directors.
Short-term investments having a maturity of 60 days or less are valued on the
basis of amortized cost. The Board of Directors has established general
guidelines for calculating fair value of not readily marketable securities. The
net asset value per share of each Fund is calculated on each business day, with
the exception of those days on which the New York Stock Exchange is closed .
Investment Transactions and Investment Income: Investment
transactions are accounted for on the trade date. The cost of investments sold
is determined by use of the specific identification method for both financial
reporting and income tax purposes. Interest income is recorded on an accrual
basis; dividend income is recorded on the ex-dividend date.
Taxes: No provision is made for U.S. federal income or excise taxes
as it is each Fund's intention to continue to qualify as a regulated investment
company and to make the requisite distributions to its shareholders which will
be sufficient to relieve it from all or substantially all U.S. federal income
and excise taxes.
Income received by each Fund from sources within Latin America may
be subject to withholding and other taxes imposed by such countries. Also,
certain Latin American countries impose taxes on funds remitted or repatriated
from such countries.
Each Fund is subject to a 10% Chilean repatriation tax with respect
to all remittances from Chile in excess of original invested capital.
From January 23, 1997 through January 22, 1999, Brazil imposed a
0.20% Contribucao Provisoria sobre Movimentacaoes Financieras ("CPMF") tax that
applied to most debit transactions carried out by financial institutions.
Effective January 23, 1999 the CPMF tax expired and was reinstated on June 17,
1999 for a period of three years. The tax is assessed at a rate of 0.38% for the
initial year and will drop to 0.30% for the remaining two years.
Foreign Currency Translations: The books and records of each Fund
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
market value of investment securities, assets and liabilities at the
current rate of exchange; and purchases and sales of investment
securities, income and expenses at the relevant rates of exchange
prevailing on the respective dates of such transactions.
33
Each Fund does not isolate that portion of gains and losses in
investments in equity securities which is due to changes in the foreign exchange
rates from that which is due to changes in market prices of equity securities.
Accordingly, realized and unrealized foreign currency gains and losses with
respect to such securities are included in the reported net realized and
unrealized gains and losses on investment transactions balances. However, each
Fund does isolate the effect of fluctuations in foreign exchange rates when
determining the gain or loss upon the sale or maturity of foreign currency
denominated debt obligations pursuant to U.S. federal income tax regulations,
with such amount categorized as foreign exchange gain or loss for both financial
reporting and U.S. federal income tax reporting purposes.
Net currency gains or losses from valuing foreign currency
denominated assets and liabilities at period end exchange rates are reflected as
a component of net unrealized appreciation/depreciation in value of investments
and translation of other assets and liabilities denominated in foreign
currencies.
Net realized foreign exchange losses represent foreign exchange
gains and losses from sales and maturities of debt securities, transactions in
foreign currencies and forward foreign currency contracts, exchange gains or
losses realized between the trade date and settlement date on security
transactions, and the difference between the amounts of interest and dividends
recorded on each Fund's books and the U.S. dollar equivalent of the amounts
actually received.
Distributions of Income and Gains: Each Fund distributes at least
annually to shareholders, substantially all of its net investment income and net
realized short-term capital gains, if any. Each Fund determines annually whether
to distribute any net realized long-term capital gains in excess of net
short-term capital losses, including capital loss carryovers, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are
recorded by each Fund on the ex-dividend date. .
The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for U.S. federal income tax purposes due to U.S. generally
accepted accounting principles/tax differences in the character of income and
expense recognition.
Other: Securities denominated in currencies other than U.S. dollars
are subject to changes in value due to fluctuations in exchange rates.
34
SCHEDULE OF INVESTMENTS OF THE EMERGING
MARKETS TELECOMMUNICATIONS FUND, INC.
AT MAY 31, 2000
No. of
Shares/Units Value
------------ -----
EQUITY OR EQUITY-LINKED
SECURITIES - (91.55%)
Equity or Equity-Linked Securities of
Telecommunications Companies in Emerging
Countries - (74.67%)
ARGENTINA - (2.67%):
CEI Citicorp Holdings S.A., Class B+ 949,309 3,484,417
----------
TOTAL ARGENTINA (Cost $3,738,676)
ASIA - (0.92%):
INVESCO AsiaNET Fund PLC+ 97,560 902,430
Nirvana Capital Limited*+# 30,000 300,000
----------
TOTAL ASIA (Cost $1,299,990) 1,202,430
----------
BRAZIL - (8.44%):
Celular CTR. Participacoes S.A., PNA+ 1664,000 496,784
Companhia Riograndense de Telecomunicacoes-CRT, PNA+ 1,087,758 333,686
Embratel Participacoes S.A., ADR## 135,700 2,841,219
Brazil Telecom Participacoes S.A., ADR 12,900 774,000
Tele Nordeste Celular Participacoes S.A, ADR## 7,400 392,200
Tele Norte Leste Participacoes S.A. (Telemar), ADR## 132,702 2,604,277
Telemig Celular Participacoes S.A., ADR## 23,500 1,364,469
Telesp Celular Participacoes S.A., ADR 57,800 2,189,175
----------
TOTAL BRAZIL (Cost $11,299,278) 10,995,810
----------
CHILE - (2.35%):
Compania de Telecomunicaciones de Chile S.A., ADR## 147,800 2,919,050
Telefonos de Coyhaique S.A 6,500 148,827
---------
TOTAL CHILE (Cost $3,464,897) 3,067,877
---------
GLOBAL - (2.44%):
Telesoft Co-Investments, L.P., Sub Fund A-3*# 375,394 375,394
Telesoft Partners Ltd.f# 1,187,500 2,812,563
---------
TOTAL GLOBAL (Cost $1,400,519) 3,187,957
---------
See Accompanying Notes to the Pro Forma Financial Statements.
35
No. of
Shares/Units Value
------------ -----
GREECE - (0.75%):
STET Hellas Telecommunications S.A+ 46,400 974,400
----------
TOTAL GREECE (Cost $993,943)
HONG KONG - (8.57%):
China Telecom (Hong Kong) Ltd, Class H+ 1,309,435 9,788,370
Cable & Wireless HKT Ltd. 410,800 938,399
Pacific Century Cyberworks Ltd. 224,000 438,384
----------
TOTAL HONG KONG (Cost $4,396,456) 11,165,153
----------
INDIA - (5.86%):
Mahanagar Telephone Nigam Ltd., GDR++ 233,500 2,410,887
The India Media, Internet and Communications
Fund Ltd.*+# 25,000 250,000
Videsh Sanchar Nigam Ltd., GDR++ 318,500 4,976,562
----------
TOTAL INDIA (Cost $6,974,360) 7,637,449
----------
INDONESIA - (1.38%):
PT Indosat (Persero) Tbk, ADR 85,660 915,491
PT Telekomunikasi Indonesia 2,683,800 879,042
----------
TOTAL INDONESIA (Cost $2,562,724) 1,794,533
----------
ISRAEL - (5.38%):
Bezeq Israeli Telecommunication
Corporation Ltd. 121,537 684,815
Check Point Software Technologies Ltd.+ 16,000 3,006,000
Geotek Communications, Inc., Convertible Preferred
Series M, 8.50%*+ 100 0
Gilat Satellite Networks Ltd.+## 23,200 1,869,050
Global Wireless Holdings Inc. C.V. PNB*+ 48,122 6,978
Nexus Aptel Warrants*+ 16,800 189,000
Nexus Telecommunication Systems+ 170,784 384,264
Nexus Telocation Systems Ltd.*+ 481,600 866,880
----------
TOTAL ISRAEL (Cost $8,089,672) 7,006,987
----------
LATIN AMERICA - (0.23%):
J.P. Morgan Latin America Capital Partners, L.P.+*# 297,445 297,445
----------
TOTAL LATIN AMERICA (Cost $321,085)
See Accompanying Notes to the Pro Forma Financial Statements.
36
No. of
Shares/Units Value
------------ -----
MALAYSIA - (1.31%):
Digi.com Berhad+ 842,000 1,706,180
---------
TOTAL MALAYSIA (Cost $1,503,251)
MEXICO - (6.37%):
Carso Global Telecom, Class A-1+ 848,000 1,921,396
Grupo Iusacell S.A. de C.V, V shares ADR+ 85,288 1,130,066
Grupo Televisa S.A., GDR+ 50,400 2,806,650
Telefonos de Mexico, S.A., Class L ADR 50,200 2,444,113
---------
TOTAL MEXICO (Cost $7,004,785) 8,302,225
---------
MIDDLE EAST/AFRICA - (0.78%):
EFG-Hermes Telecom Fund*+ 100,000 1,012,500
---------
TOTAL MIDDLE EAST/AFRICA (Cost $1,020,000)
PERU - (0.01%):
Tecsur S.A.+ 102,450 6,727
---------
TOTAL PERU (Cost $20,757)
PHILLIPINES - (0.55%):
Phillipine Long Distance Telephone Co., ADR## 41,000 722,625
---------
TOTAL PHILLIPINES (Cost $1,008,284)
RUSSIA - (3.51%):
Golden Telecom, Inc.+ 30,000 896,250
Independent Network Television, Series II*+ 1,000,000 500,000
Rostelecom, ADR 127,800 1,940,963
Vimpel--Communications, ADR+ 47,500 1,232,031
---------
TOTAL RUSSIA (Cost $6,470,187) 4,569,244
SINGAPORE - (1.06%):
Venture Manufacturing (Singapore) Ltd. 156,000 1,377,146
---------
TOTAL SINGAPORE (Cost $543,812)
SOUTH KOREA - (12.52%):
Hanaro Telecom Inc.+ 52,000 342,523
Korea Telecom Corp., ADR 53,100 1,964,700
Samsung Electronics 30,004 8,181,702
See Accompanying Notes to the Pro Forma Financial Statements.
37
No. of
Shares/Units Value
------------ -----
SK Telecom Co., LTD 7,840 2,672,333
SK Telecom Co., Ltd., ADR## 78,800 3,156,925
----------
TOTAL SOUTH KOREA (Cost $11,120,574) 16,318,183
----------
TAIWAN - (2.61%):
Siliconware Precision Industries, GDR+ 63,200 654,120
Taiwan Semiconductor Manufacturing Co. Ltd., ADR+## 77,850 2,749,078
TOTAL TAIWAN (Cost $2,113,394) 3,403,198
THAILAND - (1.88%):
TelecomAsia Corporation Public Co. Ltd. Foreign 2,460,300 2,447,435
Registered+(b) ----------
TOTAL THAILAND (Cost $3,895,748)
TURKEY - (3.60%):
Dogan Yayin Holding A.S.+ 126,903,046 2,318,946
Vestel Elektronik Sanayi ve Ticaret A.S.+ 7,575,000 2,368,533
----------
TOTAL TURKEY (Cost $5,505,242) 4,687,479
UNITED STATES - (0.38%):
Technology Crossover Ventures IV, L.P.*+# 520,000 491,491
----------
TOTAL UNITED STATES (Cost $520,000)
VENEZUELA - (1.10%):
Venworld Telecommunications+f 125,947 1,430,971
----------
TOTAL VENEZUELA (Cost $2,531,383)
TOTAL EMERGING COUNTRIES 97,289,862
(Cost $87,799,016) ----------
EQUITY SECURITIES OF TELECOMMUNICATIONS COMPANIES IN
DEVELOPED COUNTRIES - (2.01%):
EASTERN EUROPE - (0.17%):
Central European Media Enterprises Ltd.+ 22,875 217,313
----------
TOTAL EASTERN EUROPE (Cost $4,578,326)
See Accompanying Notes to the Pro Forma Financial Statements.
38
No. of
Shares/Units Value
------------ -----
SPAIN - (1.84%):
Telefonica S.A., ADR+ 39,500 2,404,563
---------
TOTAL SPAIN (Cost $2,711,829) 2,621,876
---------
TOTAL DEVELOPED COUNTRIES
(Cost $7,290,155)
EQUITY SECURITIES OF COMPANIES
PROVIDING OTHER ESSENTIAL SERVICES IN
THE DEVELOPMENT OF AN EMERGING
COUNTRY'S INFRASTRUCTURE - (14.87%):
GLOBAL - (2.22%):
Emerging Markets Ventures I, L.P.f +# 2,602,830 2,888,699
---------
TOTAL GLOBAL (Cost $2,702,244)
HONG KONG - (2.39%):
Hutchison Whampoa Ltd. 258,860 2,981,512
Li & Fung Ltd. 30,000 128,589
---------
TOTAL HONG KONG (Cost $2,394,334) 3,110,101
---------
INDIA - (0.07%):
SSI Ltd., GDR+ 12,900 90,300
---------
TOTAL INDIA (Cost $185,760)
ISRAEL - (1.57%):
Concord Ventures II Fundf +# 240,000 240,000
Formula Ventures L.P.f +# 423,738 402,474
Giza GE Venture Fund III, L.P.f +# 250,000 240,970
K.T. Concord Sub-Fund QP L.P.f +# 850,000 1,165,906
---------
TOTAL ISRAEL (Cost $1,732,121) 2,049,350
---------
SINGAPORE - (0.24%):
St Assembly Test Services Ltd.+ 107,000 317,947
---------
TOTAL SINGAPORE (Cost $222,510)
SOUTH KOREA - (1.21%)
Korea Electric Power (KEP) Corporation 58,900 1,580,053
---------
TOTAL SOUTH KOREA (Cost $1,626,367)
See Accompanying Notes to the Pro Forma Financial Statements.
39
No. of
Shares/Units Value
------------ -----
TAIWAN - (5.93%)
D-Link Corp. 312,000 1,032,911
Hon Hai Precision Industry Co., Ltd., GDR+ 74,300 1,690,325
Macronix International Co., Ltd.+ 366,000 1,134,469
Nan Ya Plastic Corp. 370,000 810,613
Siliconware Precision Industries Company+ 173,000 359,364
Via Technologies Inc.+ 76,000 1,312,301
Winbond Electronics Corp.+ 457,320 1,380,421
-----------
TOTAL TAIWAN (Cost $6,430,652) 7,720,404
-----------
THAILAND - (1.24%)
Advanced Information Services Public Co. Ltd.
Foreign Registered+ 140,919 1,617,486
-----------
TOTAL THAILAND (Cost $1,015,849)
TOTAL OTHER ESSENTIAL SERVICES
(Cost $16,309,837) 19,374,340
-----------
TOTAL EQUITY OR EQUITY-LINKED
SECURITIES (Cost $111,399,008) 119,286,078
-----------
FIXED OR FLOATING RATE
INVESTMENTS - (0.00%)
GLOBAL - (0.00%):
International Wireless Communications, Inc.,
Senior Secured Notes, 37485.00%, USD*(a) 93 0
---
TOTAL GLOBAL (Cost $206,700)
Total Investments - (91.55%)
(cost $111,605,708) 119,286,078
Cash and Other Assets in Excess
of Liabilities - (8.45%) 11,014,377
NET ASSETS - (100% $130,300,455
============
See Accompanying Notes to the Pro Forma Financial Statements.
40
SCHEDULE OF INVESTMENTS OF THE EMERGING
MARKETS INFRASTRUCTURE FUND, INC.
AT MAY 31, 2000
No. of Shares/Units Value
------------------- -----
EQUITY OR EQUITY LINKED
SECURITIES - (88.89%):@
Equity or Equity Securities on Infrstructure Companies
in Emerging Countries - (74.27%)
ARGENTINA - (2.84%):
CEI Citicorp Holdings, S.A., Class B+ 627,952 $2,304,883
Exxel Capital Partnersf 2,000,001 2,021,537
----------
TOTAL ARGENTINA (Cost $4,582,278) 4,326,420
----------
BRAZIL - (7.03%):
Companhia Riograndense. de Telecomunicacoes S.A.,
PNA+ 1,330,242 408,072
Compania Vale do Rio Doce, ADR 31,700 790,103
Electropaulo Metropolitana S.A., PN+ 25,403,416 1,426,376
Embratel Participacoes S.A., ADR 80,100 1,677,094
Petroleo Brasileiro, S.A 95,400 2,253,597
Brazil Telecom Participacoes S.A., ADR#++# 24,700 1,482,000
Tele Nordeste Celular Participacoes S.A., ADR 9,200 487,600
Tele Norte Leste Participacoes, ADR 89,642 1,759,224
Telecelular Sul Participacoes, ADR 12,600 426,825
----------
TOTAL BRAZIL (Cost $10,718,729) 10,710,891
----------
CHILE - (6.91%):
Besalco S.A+ 250,882 703,676
Chilectra S.A+ 80,566 345,876
Compania de Consumidores de Gas de Santiago S.A+ 40,000 148,827
Compania de Petroleos de Chile S.A+ 221,895 965,313
Compania de Telecomunicacoes de Chile S.A.,
Class A+ 101,591 503,981
Compania de Telecomunicacoes de Chile S.A.,
ADR+## 82,000 1,619,500
Empresa Nacional de Electricidad S.A+ 1,434,282 563,067
Empresa Nacional de Telecomunicaciones S.A+ 57,814 521,771
Enersis S.A+ 1,431,330 611,750
Gener S.A. ADR+## 278,727 3,832,496
Puerto Ventenas S.A+ 288,453 385,264
Sociedad Austral de Electricidad S.A 20,600 326,236
----------
TOTAL CHILE (Cost $12,324,231) 10,527,757
----------
CHINA - (0.25%)
Beijing Putang Power Generation Company Limited 2,496,438 381,246
----------
TOTAL CHINA (Cost $719,084)
EUROPE - (0.67%):
Global TeleSystems Group, Inc.+ 91,876 1,022,120
----------
See Accompanying Notes to the Pro Forma Financial Statements.
41
No. of Shares/Units Value
------------------- -----
TOTAL EUROPE (Cost $2,090,162)
HONG KONG - (9.18%):
China Telecom (Hong Kong) Limited, ADR+## 55,200 8,114,400
City Telecom (HK) Ltd. 1,204,000 248,765
Hutchison Whampoa Ltd. 409,200 4,713,106
Li & Fung Ltd 32,000 137,162
Pacific Century Cyberworks 395,000 773,044
----------
13,986,477
----------
TOTAL HONG KONG (Cost $9,615,444)
INDIA - (5.75%):
Bharat Heavy Electricals Ltd. 210,355 571,637
BSES Ltd.++ 158,800 3,025,140
Hindustan Corp. 100,600 302,364
Larsen and Taubro Ltd., GDR++ 77,000 704,550
Videsh Sanchar Nigam Ltd., GDR++ 266,300 4,160,938
----------
TOTAL INDIA (Cost $11,123,126) 8,764,629
----------
INDONESIA - (0.70%):
PT Telekomunikasi Indonesia, ADR 158,000 1,066,500
----------
TOTAL INDONESIA (Cost $1,785,609)
ISRAEL - (2.60%):
Concord Venture Fund II, L.P.+ ++# 240,000 240,000
Geotek Communications, Inc.+ 49,501 772
Geotek Communications Inc., Convertible Preferred
Series M, 8.50%*+ 100 0
Geotek Communications Inc., Convertible Preferred
Series N*+(a) 1,584 0
Gilat Satellite Networks Ltd.+## 15,800 1,272,888
Giza GE Venture Fund III. L.P.+ f## 300,000 289,164
K.T. Concord Sub- Fund QP, L.P.+ f# 850,000 1,165,906
Nexus Telecommunication Systems Ltd.+ 210,283 473,137
The Renaissance Fund LDC+f 160 527,834
----------
TOTAL ISRAEL (Cost $7,492,945) 3,969,701
----------
See Accompanying Notes to the Pro Forma Financial Statements.
42
No. of Shares/Units Value
------------------- -----
JAMAICA - (1.69%):
Jamaican Assets I L.P.+f 1,156,324 2,573,226
----------
TOTAL JAMAICA (Cost $1,249,729)
LATIN AMERICA - (0.24%):
J.P. Morgan Latin America Capital Partners L.P.+# 371,803 371,803
----------
TOTAL LATIN AMERICA (Cost $401,354)
MALAYSIA - (4.63%):
Digi Swisscom Berhad+ 997,000 2,020,263
Telecom Malaysia Berhard 243,800 891,806
Tenega Nasional Berhad 1,133,000 4,144,449
----------
TOTAL MALAYSIA (Cost $6,536,108) 5,876,570
----------
MEXICO - (3.86%):
Cemex, S.A. de C.V., ADR+(b) 102,200 2,165,363
Grupo Televisa S.A., GDR+ 27,300 1,520,269
Telefonos de Mexico S.A., Class L ADR+ 45,000 2,190,938
TOTAL MEXICO (Cost $6,182,670) 5,876,570
PAKISTAN - (0.21%):
The Hub Power Company Ltd.+ 957,600 316,410
----------
TOTAL PAKISTAN (Cost $1,209,434)
PERU - (0.01%):
Tecsur, S.A+ 119,535 7,848
----------
TOTAL PERU (Cost $24,216)
RUSSIA - (1.58%):
RAO Unified Energy Systems 97,500 1,335,750
Rostelecom ADR 71,000 1,078,313
----------
TOTAL RUSSIA (Cost $3,587,453) 2,414,063
----------
SINGAPORE - (1.74%):
Datacraft Asia Ltd. 98,000 681,100
NatSteel Electronics Ltd.+ 538,000 1,583,129
ST Assembly Test Service Ltd.+ 128,000 380,348
----------
TOTAL SINGAPORE (Cost $2,259,273) 2,644,577
----------
See Accompanying Notes to the Pro Forma Financial Statements.
43
No. of Shares/Units Value
------------------- -----
SOUTH AFRICA - (0.58%):
Imperial Holdings Ltd. 119,173 880,199
----------
TOTAL SOUTH AFRICA (Cost $1,372,166)
SOUTH KOREA - (9.41%):
Dacom Corp.+ 8,710 1,160,562
Hanaro Telecom Inc.+ 38,469 253,395
Korea Telecom Corp. 146,100 5,405,700
Samsung Electronics Co., Ltd. 27,787 7,577,154
----------
TOTAL SOUTH KOREA (Cost $10,882,979) 14,396,811
----------
SPAIN- (1.87%):
Telefonica S.A+ 46,700 2,842,863
----------
TOTAL SPAIN (Cost $3,206,137)
TAIWAN - (1.70%):
Hon Hai Precision Industry Co., Ltd., GDR+ ++ 30,000 682,500
Winbond Electronics Corp.+ 357,420 1,078,872
Yageo Corp.+ ++ 95,400 834,750
----------
TOTAL TAIWAN (Cost $1,944,209) 2,596,122
----------
THAILAND - (2.53%):
Advanced Information Services Public Co. Ltd.+ 77,900 894,146
TelecomAsia Corp. Public Co. Ltd.+(c) 2,978,400 2,962,826
----------
TOTAL THAILAND (Cost $5,366,687) 3,856,972
----------
TURKEY - (6.35%):
Cimsa Cimento Sanayi Ve Ticaret A.S. 87,089,000 1,768,233
Eregli Demir Ve Celik-Fabrikalari TAS+ 74,707,000 3,458,377
Netas Northern Electric Telekomunikayson A.S 32,591,000 4,446,754
----------
TOTAL TURKEY (Cost $6,266,929) 9,673,364
----------
Global-(1.90%)
Emerging Markets Ventures I, L.P.++# 2,602,830 2,888,699
----------
TOTAL GLOBAL (Cost $2,702,225)
TOTAL EMERGING COUNTRIES
(Cost $113,643,177) 113,151,786
-----------
EQUITY OR EQUITY-LINKED SECURITIES OF NON-
INFRASTRUCTURE COMPANIES - (12.52%)
See Accompanying Notes to the Pro Forma Financial Statements.
44
No. of Shares/Units Value
------------------- -----
CANADA - (0.09%):
Officeland Inc., Senior Unsecured Convertible
Notes, 12%* 571,429 80,672
Officeland Inc., C Units* 133,654 64,154
---------
TOTAL CANADA (Cost $638,256) 144,826
---------
HONG KONG - (2.50%)
Legend Holdings Ltd. 3,760,000 3,811,993
---------
TOTAL HONG KONG (Cost $3,751,613)
INDIA - (3.12%):
Reliance Inds. Ltd, GDR, 190,000 4,650,250
SSI Ltd., GDR+ f 14,300 100,100
---------
TOTAL INDIA (Cost $3,538,125) 4,750,350
---------
ISRAEL - (0.27%):
Formula Ventures L.P.+ f# 423,738 402,474
---------
TOTAL ISRAEL (Cost $433,923)
MALAYSIA - (1.03%):
Resorts World Berhad+ 502,200 1,572,700
---------
TOTAL MALAYSIA (Cost $1,859,580)
TAIWAN - (2.81%):
D-Link Corp.+ 295,000 976,631
Nan Ya plastic Corp.+ 785,000 1,719,815
Via Technologies Inc. 92,000 1.588,575
---------
4,285,021
---------
TOTAL TAIWAN (Cost $3,834,326)
TURKEY - (2.69%):
Vestel Electronik Sanayai ve Ticaret A.S.+ 70,044,702 1,279,953
Dosan Yayin Holdings A.S.+ 9,033,000 2,824,417
---------
4,104,370
---------
TOTAL TURKEY (Cost $4,364,167)
TOTAL EQUITY SECURITIES OF
NON-INFRASTRUCTURE COMPANIES 19,071,734
(Cost $18,625,910) ----------
EQUITY SECURTIES OF COMPANIES
PROVIDING OTHER ESSENTIAL SERVICES IN
THE DEVELOPMENT OF AN EMERGING
COUNTRY'S INFRASTRUCTURE - (2.10%)
See Accompanying Notes to the Pro Forma Financial Statements.
45
No. of Shares/Units Value
------------------- -----
COLOMBIA - (0.01%):
Cementos Paz del Rio S.A. ADR++ 2,135 12,370
---------
TOTAL COLOMBIA (Cost $29,089)
EGYPT - (0.79%):
Nile Growth Company 200,000 1,200,000
---------
TOTAL EGYPT (Cost $2,020,000)
TAIWAN - (1.30%):
Taiwan Semiconductor Manufacturing Co.+ 390,400 1,989,380
---------
TOTAL TAIWAN (Cost $1,282,116)
TOTAL OTHER ESSENTIAL SERVICES
(Cost $3,331,205) 3,201,750
---------
TOTAL EQUITY OR EQUITY-LINKED
SECURITIES (Cost $135,600,292) 135,425,270
-----------
FIXED RATE INVESTMENTS - (0.00%)
Global Funds - (0.00%):
International Wireless Communications, Inc. 93 0
Senior Secured Notes #(d)
TOTAL GLOBAL
(Cost $205,840)
SHORT-TERM INVESTMENTS - (0.03%)
Chilean Mutual Fund - (0.03%)
Fondo Mutuo Security Check 10,513 49,925
-----------
TOTAL CHILEAN MUTUAL FUND (Cost $50,199)
TOTAL INVESTMENTS (88.92%) 135,475,195
(Cost $135,856,331) -----------
Cash and other assets in Excess
Liabilities - (11.08%) 16,885,263
-----------
NET ASSETS - (100%) $152,360,418
-----------
See Accompanying Notes to the Pro Forma Financial Statements.
46
@ EMG intends to sell all of its non-telecommunications securities to
finance the expenses of its Tender Offer.
* Not readily marketable security.
+ Security is non-income producing.
++ SEC Rule 144A security. Such securities are traded only among "qualified
institutional buyers".
f Restricted security, not readily marketable.
# As of May 31, 2000, the Fund committted to investing an
additional $1,760,000, $1,364,949, $326,262, $1,200,000, $3,098,646 and
$150,000 of capital in Concord Ventures II L.P., Emerging Markets
Ventures I, L.P., Formula Ventures L.P., Giza GE Venture Fund III, L.P.,
J.P. Morgan Latin America Capital Partners L.P. and K.T. Concord Sub-Fund
QP L.P., respectively.
## Security or a portion thereof is out on loan.
(a) With an additional 1,584 warrants attached, expiring 06/20/01.
(b) With an additional 12,740 warrants attached, expiring 12/25/49, with no
market value.
(c) With an additional 940,547 warrants attached, expiring 12/31/49, with no
market value.
(d) As of March 31, 1998, this investment ceased accruring interest.
ADR American Depositary Receipts.
GDR Global Depositary Receipts.
PN Preferred Shares.
PNA Preferred Shares, Class A.
USD United States Dollar
See Accompanying Notes to the Pro Forma Financial Statements.
47
PART C
OTHER INFORMATION
Item 15. Indemnification
A policy of insurance covering Credit Suisse Asset Management, LLC, its
affiliates, and all of the registered investment companies advised by Credit
Suisse Asset Management, LLC insures the Registrant's directors and officers and
others against liability arising by reason of an alleged breach of duty caused
by any negligent act, error or accidental omission in the scope of their duties.
Article Eight of the Registrant's Articles of Incorporation states as follows:
ARTICLE VIII
LIMITATION ON LIABILITY; INDEMNIFICATION
(1) To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, no director
or officer of the Corporation shall have any liability to the Corporation or its
stockholders for damages. This limitation on liability applies to events
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.
(2) Any person who was or is a party or is threatened to be made a party
in any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is a current or former director or officer of the Corporation, or is
or was serving while a director or officer of the Corporation at the request of
the Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, shall be indemnified by the Corporation against
judgments, penalties, fines, excise taxes, settlements and reasonable expenses
(including attorneys' fees) actually incurred by such person in connection with
such action, suit or proceeding to the fullest extent permissible under the
Maryland General Corporation Law, the Securities Act of 1933 and the Investment
Company Act of 1940, as such statutes are now or hereafter in force. In
addition, the Corporation shall also advance expenses to its currently acting
and its former directors and officers to the fullest extent that indemnification
of directors is permitted by the Maryland General Corporation Law, the
Securities Act of 1933 and the Investment Company Act of 1940. The Board of
Directors may by Bylaw, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to the fullest
extent permitted by the Maryland General Corporation Law.
(3) No provision of this Article shall be effective to protect or purport
to protect any director or officer of the Corporation against any liability to
the Corporation or its 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.
(4) References to the Maryland General Corporation Law in this Article are
to that law as from time to time amended. No amendment to the charter of the
Corporation shall affect any right of any person under this Article based on any
event, omission or proceeding prior to the amendment.
Articles 5.2 and 5.3 of Registrant's By-Laws state as follows:
INDEMNIFICATION AND INSURANCE
Article 5.2. Indemnity.
(a) The Company shall indemnify its directors to the fullest extent
that indemnification of directors is permitted by the Maryland General
Corporation Law. The Company shall indemnify its officers to the same extent as
its directors and to such further extent as is consistent with law. The Company
shall indemnify its directors and officers who, while serving as directors or
officers, also serve at the request of the Company as a director, officer,
partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. This Article shall not protect any such person
against any liability to the Company or any Stockholder thereof to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office ("disabling conduct").
(b) Any current or former director or officer of the Company seeking
indemnification within the scope of this Article shall be entitled to advances
from the Company for payment of the reasonable expenses incurred by him in
connection with the matter as to which he is seeking indemnification in the
manner and to the fullest extent permissible under the Maryland General
Corporation Law. The person seeking indemnification shall provide to the Company
a written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Company has been met and a written
undertaking to repay any such advance if it should ultimately be determined that
the standard of conduct has not been met. In addition, at least one of the
following conditions shall be met: (i) the person seeking indemnification shall
provide security in form and amount acceptable to the Company for his
undertaking; (ii) the Company is insured against losses arising by reason of the
advance; or (iii) a majority of a quorum of directors of the Company who are
neither "interested persons" as defined in Section 2(a)(19) of the Investment
Company Act of 1940, as amended, nor parties to the proceeding ("disinterested
non-party directors"), or independent legal counsel, in a written opinion, shall
have determined, based on a review of facts readily available to the Company at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
(c) At the request of any person claiming indemnification under this
Article, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, whether the
standards required by this Article have been met. Indemnification shall be made
only following: (i) a final decision on the merits by a court
or other body before whom the proceeding was brought that the person to be
indemnified was not liable by reason of disabling conduct or (ii) in the absence
of such a decision, a reasonable determination, based upon a review of the
facts, that the person to be indemnified was not liable by reason of disabling
conduct by (a) the vote of a majority of a quorum of disinterested non-party
directors or (b) an independent legal counsel in a written opinion.
(d) Employees and agents who are not officers or directors of the
Company may be indemnified, and reasonable expenses may be advanced to such
employees or agents, as may be provided by action of the Board of Directors or
by contract, subject to any limitations imposed by the Investment Company Act of
1940.
(e) The Board of Directors may make further provision consistent
with law for indemnification and advance of expenses to directors, officers,
employees and agents by resolution, agreement or otherwise. The indemnification
provided by this Article shall not be deemed exclusive of any other right, with
respect to indemnification or otherwise, to which those seeking indemnification
may be entitled under any insurance or other agreement or resolution of
stockholders or disinterested directors or otherwise.
(f) References in this Article are to the Maryland General
Corporation Law and to the Investment Company Act of 1940, as from time to time
amended. No amendment of these Bylaws shall affect any right of any person under
this Article based on any event, omission or proceeding prior to the amendment.
Article 5.3. Insurance. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company or who, while a director, officer, employee or agent of the
Company, is or was serving at the request of the Company 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; provided that no insurance
may be purchased by the Company on behalf of any person against any liability to
the Company or to its Stockholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Item 16. Exhibits
1. Articles of Incorporation of the Registrant, dated
February 11, 1992, as amended March 31, 1992.
2. Amended and Restated By-laws of the Registrant dated
November 9, 1999.
3. Not Applicable.
4. Form of Merger Agreement and Plan of Reorganization.
Filed herewith.
5. Not Applicable.
6. Investment Advisory Agreement between the Registrant
and BEA Associates dated June 17, 1992, as amended.*
7. Not Applicable.
8. Not Applicable.
9. Custodian Agreement between the Registrant and Brown
Brothers Harriman & Co., dated June 14, 1995, as
amended.*
10. Not Applicable.
11.(a) Opinion and Consent of Willkie Farr & Gallagher.*
(b) Opinion and consent of Venable, Baetjer and Howard,
LLP.*
12. Opinion and Consent of Willkie Farr & Gallagher with
respect to tax matters.*
13.(a) Registrar, Transfer Agency and Service Agreement
between the Registrant and the First National Bank of
Boston, dated September 1, 1995.*
- ----------
* To be filed by amendment.
(b) Administrative Services Agreement between the
Registrant and BEA Associates dated July 14, 1995.*
(c) Chilean Administration Agreement between the
Registrant, BEA Associates and BEA Administration,
Administradora de Fondos de Inversion de Capital
Extranjero S.A. dated November 4, 1997.*
14. Consent of PricewaterhouseCoopers LLP.
Filed herewith.
15. Not Applicable
16. Powers of Attorney (see signature page).
Item 17. Undertakings
(1) The Registrant agrees that prior to any public reoffering of the securities
registered through the use of a prospectus which is a part of this registration
statement by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will
contain the information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant agrees that every prospectus that is filed under paragraph
(1) above will be filed as a part of an amendment to the registration statement
and will not be used until the amendment is effective, and that, in determining
any liability under the 1933 Act, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial bona
fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the day of
July 7, 2000.
The Emerging Markets Telecommunications Fund, Inc.
By:
/s/ Richard W. Watt
--------------------------------------------------
Richard W. Watt, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ William W. Priest, Jr.
- --------------------------
William W. Priest, Jr. Chairman of the Board July 7, 2000
and Director
/s/ Dr. Enrique R. Arzac
- ------------------------
Dr. Enrique R. Arzac Director July 7, 2000
/s/ James J. Cattano
- --------------------
James J. Cattano Director July 7, 2000
/s/ George W. Landau
- --------------------
George W. Landau Director July 7, 2000
/s/ Martin M. Torino
- --------------------
Martin M. Torino Director July 7, 2000
/s/ Richard W. Watt
- -------------------
Richard W. Watt President (Principal July 7, 2000
Executive Officer)
/s/ Michael A. Pignataro
- ------------------------
Michael A. Pignataro Chief Financial Officer
and Secretary (Principal
Financial Officer) July 7, 2000
Exhibit No. Exhibit
- ----------- -------
4 Form of Merger Agreement and Plan of Reorganization.
14 Consent of PricewaterhouseCoopers LLP.
16 Powers of Attorney (see signature page).