<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1995
1933 ACT FILE NO. 33-97572
1940 ACT FILE NO. 811-9100
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. / /
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 1 /X/
------------------------
RCM EQUITY FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
------------------------
Anthony Ain, Vice President, General Counsel & Secretary
RCM EQUITY FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
(Name and Address of Agent for Service)
COPY TO:
Michael Glazer
Paul, Hastings, Janofsky & Walker
555 South Flower Street
Los Angeles, California 90071
------------------------
APPROXIMATE DATE OF PROPOSED OFFERING:
AS SOON AS PRACTICABLE FOLLOWING EFFECTIVE DATE.
------------------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
------------------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
is hereby registering under the Securities Act of 1933 an indefinite number of
shares of beneficial interest. Registrant's initial Rule 24f-2 Notice will be
filed no later than April 26, 1996.
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<PAGE>
RCM EQUITY FUNDS, INC.
RCM GLOBAL TECHNOLOGY FUND
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C> <C>
ITEM NUMBER OF PART A OF FORM N-1A CAPTIONS IN PROSPECTUS
- ----------------------------------------------------- ------------------------------------------
1. Cover Page................................ Cover Page
2. Synopsis.................................. Prospectus Summary; Summary of Fees and
Expenses
3. Condensed Financial Information........... *
4. General Description of Registrant......... General Information; Investment Objective
and Policies; Investment and Risk
Considerations
5. Management of the Fund.................... Organization and Management
5A. Management's Description of Fund.......... *
6. Capital Stock and Other Securities........ General Information; Dividends,
Distributions and Taxes
7. Purchase of Securities Being Offered...... How to Purchase Shares; Organization and
Management
8. Redemption or Repurchase.................. Redemption of Shares
9. Pending Legal Proceedings................. *
ITEM NUMBER OF PART B OF FORM N-1A CAPTIONS IN STATEMENT OF ADDITIONAL
- ----------------------------------------------------- INFORMATION
------------------------------------------
10. Cover Page................................ Cover Page
11. Table Of Contents......................... Table of Contents
12. General Information and History........... *
13. Investment Objectives and Policies........ Investment Objective and Policies;
Investment and Risk Considerations;
Investment Restrictions
14. Management of the Fund.................... Directors and Officers
15. Control Persons and Principal Holders of Description of Capital Shares; Directors
Securities............................... and Officers
16. Investment Advisory and Other Services.... The Investment Manager; Additional
Information
17. Brokerage Allocation...................... Execution of Portfolio Transactions
18. Capital Stock and Other Securities........ Description of Capital Shares
19. Purchase, Redemption and Pricing of How to Purchase Shares
Securities Being Offered.................
20. Tax Status................................ Dividends, Distributions and Taxes
21. Underwriters.............................. Distributor
22. Calculation of Performance Data........... Investment Results
23. Financial Statements...................... Additional Information
</TABLE>
- ------------------------
* Not applicable
<PAGE>
-------------------------------
PROSPECTUS
----------------------------
RCM GLOBAL TECHNOLOGY FUND
OFFERED BY:
RCM EQUITY FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
THIS PROSPECTUS RELATES TO RCM GLOBAL TECHNOLOGY FUND
(A SERIES OF RCM EQUITY FUNDS, INC.), WHICH SPECIALIZES IN
EQUITY AND EQUITY-RELATED SECURITIES OF
DOMESTIC AND FOREIGN TECHNOLOGY COMPANIES
-------------------------------
RCM GLOBAL TECHNOLOGY FUND (THE "FUND") is a non-diversified, no-load series of
RCM Equity Funds, Inc. (the "Company"), an open-end management investment
company. Shares of the Fund may be purchased at their net asset value without a
sales charge. (See HOW TO PURCHASE SHARES.)
The Fund's investment objective is to seek appreciation of capital, primarily
through investment in equity and equity-related securities of domestic and
foreign technology companies. Such investments will be chosen primarily with
regard to their potential for capital appreciation. Current income will be
considered only as part of total investment return and will not be emphasized.
(See INVESTMENT OBJECTIVE AND POLICIES.)
Investments in equity and equity-related securities of domestic and foreign
technology companies involve significant risks, some of which are not typically
associated with investments in securities of domestic issuers and issuers
engaged in other types of business. There can be no assurance the Fund will
achieve its investment objective. (See INVESTMENT AND RISK CONSIDERATIONS.)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus sets forth concisely the information about the Fund that
prospective investors should know before investing. Investors should read this
document and retain it for future use. A Statement of Additional Information for
the Fund dated , 1995 has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. The Statement
may be obtained, without charge, by writing or calling the Company at the
address or telephone number set forth above.
-------------------------------
The date of this Prospectus is , 1995
-------------------------------
<PAGE>
-------------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................................................... 3
Summary of Fees and Expenses......................................................... 5
Prior Performance.................................................................... 6
Investment Objective and Policies.................................................... 8
Investment and Risk Considerations................................................... 13
Organization and Management.......................................................... 15
How to Purchase Shares............................................................... 17
Stockholder Services................................................................. 19
Redemption of Shares................................................................. 19
Investment Results................................................................... 21
Dividends, Distributions and Taxes................................................... 21
General Information.................................................................. 22
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
<PAGE>
-------------------------------
PROSPECTUS SUMMARY
----------------------------
The following summary is qualified in its entirety by the detailed information
appearing elsewhere in this Prospectus:
WHAT IS THE FUND'S OBJECTIVE?
The Fund's investment objective is to seek appreciation of capital, primarily
through investment in equity and equity-related securities of domestic and
foreign technology companies. The Fund's investments will be chosen primarily
with regard to their potential for capital appreciation; current income will be
considered only as part of total return and will not be emphasized. (See
INVESTMENT OBJECTIVE AND POLICIES.)
WHAT DOES THE FUND INVEST IN?
Under normal market conditions, at least 65% of the value of the total assets of
the Fund will be invested in equity and equity-related securities of technology
companies. Technology companies are issuers whose revenues are primarily
generated by technology products, including, but not limited to, computers and
peripheral products, software, electronic components and systems, communications
equipment and services, media and information services, pharmaceuticals,
hospital supply and medical devices, biotechnology, environmental services,
chemicals and synthetic materials, and defense and aerospace products and
services. Investments may also include companies that should significantly
benefit from the commercialization of technological advances even if they are
not directly involved in research and development.
DOES THE FUND INVEST GLOBALLY?
The Fund may invest up to 50% of the value of its total assets in foreign equity
and equity-related securities. Under normal market conditions, the Fund's assets
will be invested in equity and equity-related securities of companies organized
or headquartered in at least three different countries (one of which will be the
United States). A substantial portion of the Fund's foreign investments may be
securities of companies organized or headquartered in Japan, and up to 20% of
the value of the Fund's total assets may be securities of companies organized or
headquartered in emerging market countries. Investment in foreign securities and
currencies involves special risks, including fluctuations in foreign exchange
rates, political or economic instability in the country of issue, and the
possible imposition of exchange controls or other laws or restrictions.
Investment in emerging markets may involve greater risks than investments in
other foreign markets, as a result of factors such as less-developed economic
and legal structures, less stable political systems, and less liquid securities
markets.
SHOULD I INVEST IN THE FUND?
The Fund believes that there are attractive investment opportunities in the
technology sector. In the United States, as well as internationally, technology
companies have grown faster than the general economy for decades. The Fund's
investment manager believes that this trend can continue. Yet, the stocks of
individual technology companies can be very volatile, and analyzing individual
companies can be very time-intensive. A global technology fund offers
experienced professional management to investors who wish to invest in a
diversified global portfolio of technology stocks.
The Fund is designed for investors who recognize and are prepared to accept
these risks in return for the possibility of higher returns. Consider your
investment goals, your time horizon for achieving them, and your tolerance for
risk. If you seek an aggressive approach to capital growth, and can accept the
above-average level of price fluctuations that the Fund may experience, the Fund
may be an appropriate part of your overall investment strategy.
WHO OPERATES THE FUND?
The Fund's investment manager is RCM Capital Management, a California Limited
Partnership (the "Investment Manager"), a registered investment adviser with
principal offices in San Francisco, California. RCM and its predecessor have a
25-year record of investments in equity securities. It currently provides
investment supervisory services to institutional and individual clients and
registered investment companies with aggregate assets in excess of $26 billion.
(See ORGANIZATION AND MANAGEMENT.) The Custodian of the Fund's assets is
.
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Page 3
<PAGE>
WHAT ARE SOME OF THE POTENTIAL INVESTMENT RISKS?
Investment in the Fund is subject to a variety of risks in addition to those
normally associated with investments in a portfolio of equity securities. (See
INVESTMENT AND RISK CONSIDERATIONS.) They include the following:
Investment in equity and equity-related securities of technology companies
involves significant risks, some of which are not typically associated with
investment in securities of other issuers. These include substantial competitive
and pricing pressures, rapid product obsolescence, dependence on extensive
research and development, and sensitivity to changes in governmental regulations
and policies.
The Fund's investments will be concentrated in the technology sector of the U.S.
and foreign economies. As a result of the Fund's concentration on a single
sector, the Fund's net asset value may be more volatile in price than the net
asset value of a company with a more broadly diversified portfolio.
Investment in securities of foreign companies involves significant additional
risks, including fluctuations in foreign exchange rates, political or economic
instability in the country of issue, and the possible imposition of exchange
controls or other laws or restrictions. Foreign issuers generally are not
subject to accounting and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to U.S. issuers. There
is generally less government regulation of securities markets, exchanges and
dealers than in the United States, and the costs associated with transactions in
and custody of securities traded on foreign markets are higher than in the U.S.
DOES THE FUND HEDGE ITS RISKS?
The Fund may use a variety of techniques to hedge its investments. These include
currency management techniques; options on securities, indices and currencies;
financial and foreign currency futures contracts and options; and currency and
interest rate swaps. Each of these hedging techniques also involves certain
risks. (See INVESTMENT OBJECTIVE AND POLICIES AND INVESTMENT AND RISK
CONSIDERATIONS.)
IS THERE A MINIMUM INVESTMENT?
There is no minimum initial investment for investors purchasing shares through a
broker-dealer or other financial institution, such as Charles Schwab & Co.,
Inc., having a service agreement with the Investment Manager and maintaining an
omnibus account with the Fund. For other investors, the minimum initial
investment is $25,000, and the minimum subsequent investment is $1,000. There is
no initial sales charge. (See HOW TO PURCHASE SHARES.)
CAN I REDEEM SHARES AT ANY TIME?
You may redeem your shares at any time. If you have held your shares for at
least 12 months, you can redeem your shares at their net asset value, without a
redemption charge. However, to reduce costs to other stockholders of short-term
investments in the Fund , you will be charged a redemption fee of 2% of any
amounts you redeem within 12 months of your purchase. This redemption fee will
be payable to the Fund. (See REDEMPTION OF SHARES.)
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Page 4
<PAGE>
-------------------------------
SUMMARY OF FEES AND EXPENSES
----------------------------
WHAT EXPENSES WILL THE FUND INCUR?
The following information is designed to help you understand various costs and
expenses of the Fund that an investor may bear directly or indirectly. The
information is based on the Fund's expected expenses for its first year of
operation, and should not be considered a representation of future expenses or
returns. Actual expenses and returns may be greater or less than those shown
below.
<TABLE>
<S> <C> <C>
Stockholder Transaction Expenses
Sales load imposed on purchases None
Sales load imposed on reinvested dividends None
Deferred sales loads None
Redemption fees
For shares held more than 12 months None
For shares held 12 months or less* 2%
Annual Fund Operating Expenses
Investment management fees 1.00%
Other expenses (after expense reduction**) 0.75%
Total Fund operating expenses
(after expense reduction**) 1.75%
<CAPTION>
Example of Portfolio Expenses 1 Year 3 Years
<S> <C> <C>
You would pay the following total expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period
Assuming redemption at end of period $ 38.43 $ 55.11
Assuming no redemption $ 17.78 $ 55.11
</TABLE>
In accordance with applicable regulations of the Securities and Exchange
Commission ("SEC"), the Example of Portfolio Expenses assumes that (1) the
percentage amounts listed under Annual Fund Operating Expenses remain the same
in each of the one and three year periods; and (2) all dividends and
distributions are reinvested by the stockholder. SEC regulations require that
the example be based on a $1,000 investment, although the minimum initial
purchase of Fund shares may be different. (See HOW TO PURCHASE SHARES.)
For more information concerning fees and expenses of the Fund, see ORGANIZATION
AND MANAGEMENT AND DIVIDENDS, DISTRIBUTIONS AND TAXES.
- ------------------------
* Paid to the Fund, not the Investment Manager. See REDEMPTION OF SHARES.
** The Investment Manager has voluntarily agreed, until at least December 31,
1996, to pay the Fund on a quarterly basis the amount, if any, by which
certain ordinary operating expenses of the Fund exceed the annual rate of
1.75% of the average daily net assets of the Fund. In subsequent years, the
Fund will reimburse the Investment Manager for any such payments to the
extent that the Fund's operating expenses are otherwise below this expense
cap. (See ORGANIZATION AND MANAGEMENT.) Other expenses and total Fund
operating expenses for the first year of operation of the Fund, without
expense reduction, are estimated to be 2.36% and 3.36%, respectively, of the
Fund's average daily net assets.
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Page 5
<PAGE>
-------------------------------
PRIOR PERFORMANCE
----------------------------
WHAT IS THE INVESTMENT MANAGER'S PERFORMANCE
RECORD?
PRIOR PERFORMANCE. The following table sets forth historical performance data
for the technology sector portfolio of RCM Growth Equity Fund, a series of RCM
Capital Funds, Inc. (the "Portfolio"), as measured against specified market
indices. The Portfolio is a separately-managed segment of the total investment
portfolio of a mutual fund that is available only to clients of the Investment
Manager. The table is provided as an indication of the general capabilities of
the Investment Manager with respect to investment in technology companies in the
past, but should not be considered as an indication of the future performance of
the Fund. RCM Growth Equity Fund was subject to certain limitations that are not
applicable to the Fund, including prohibitions against the use of options,
currency hedging and short selling, and its investment in foreign securities was
limited to 10% of the value of its total assets. However, the Portfolio has been
managed at all times by the persons who will be acting as the primary portfolio
managers of the Fund, and the Investment Manager believes that the Portfolio was
managed in substantially the same manner as it proposes to manage the Fund. The
table does not include historical performance data for certain other technology
portfolios managed by the same persons during the same periods, which portfolios
were subject to various investment management restrictions that did not permit
them to be managed in substantially the same manner as the Fund.
The Investment Manager has indicated that the historical performance data of the
Portfolio are net of investment advisory fees actually charged during the
indicated periods, and give effect to transaction costs as well as reinvestment
of income and gains. As all other operating expenses of the Portfolio are borne
by the Investment Manager, the historical performance data has been restated to
reflect the Fund's current expense limitation of 1.75% of average daily net
assets (see SUMMARY OF FEES AND EXPENSES). The performance results have not been
reduced to reflect any income tax which may have been payable on dividends and
distributions. See Performance Information in the Statement of Additional
Information for further information about calculation of total return.
The information set forth in the table relies on data supplied by the Investment
Manager or from statistical services, reports or other sources believed by the
Investment Manager to be reliable. Information regarding the historical
performance of the Portfolio has been prepared in accordance with the
Performance Presentation Standards of the Association for Investment Management
and Research and has been examined by Deloitte & Touche. Information regarding
the specified market indices has not been examined and is unaudited.
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<PAGE>
<TABLE>
<CAPTION>
LIPPER
RCM GROWTH RUSSELL SCIENCE & HAMBRECHT &
EQUITY FUND S&P 500 MIDCAP TECH. FUND QUIST TECHNOLOGY
YR. PORTFOLIO INDEX (1) INDEX (2) INDEX (3) INDEX (4)
- ---------------- ----------- ------------ ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
1985 (5) 11.27% 22.20% 20.57% (6.20%)
1986 1.71 18.67 18.20 2.91
1987 13.69 5.24 0.23 5.43% 15.32
1988 6.87 16.55 19.80 8.19 (6.88)
1989 30.91 31.63 26.27 27.82 7.26
1990 1.80 (3.11) (11.50) (7.21) (9.57)
1991 60.40 30.42 41.54 44.97 46.49
1992 14.43 7.61 16.34 9.70 13.81
1993 29.86 10.06 14.30 21.87 8.64
1994 23.83 1.31 (2.09) 9.34 15.74
1995 (6) 58.16 29.73 30.26 46.64 53.50
Last 5 Years (6) 40.16 17.21 21.59 28.23 29.31
Last 10 Years
(6) 25.46 16.01 16.08 N/A 15.05
</TABLE>
- ------------------------
(1) The Standard & Poor's 500 Index is a widely recognized index composed of the
capitalization-weighted average of the price of 500 of the largest publicly
traded stocks in the United States.
(2) The Russell Midcap Index is composed of all medium and medium/small
companies in the Russell 1000 Index. The market capitalization of the 800
securities included in the Midcap Index range from approximately $475
million to $3.8 billion.
(3) The Lipper Science & Technology Fund Index is an equally weighted index of
the 10 largest U.S. science and technology mutual funds.
(4) The Hambrecht & Quist Technology Index is composed of 200 broadly defined
technology companies.
(5) Eleven months.
(6) Through September 30, 1995.
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<PAGE>
-------------------------------
INVESTMENT OBJECTIVE AND POLICIES
----------------------------
WHAT IS THE FUND'S OBJECTIVE?
The Fund's investment objective is to seek appreciation of capital, primarily
through investment in equity and equity-related securities of domestic and
foreign "technology companies." Under normal market conditions, the Fund will
invest at least 65% of the value of its total assets in such securities. The
Fund's investments will be chosen primarily with regard to their potential for
capital appreciation; current income from the Fund's investment portfolio will
be considered only as a part of total investment return, and will not be
emphasized. There can be no assurance that the Fund's investment objective will
be met.
HOW DOES THE FUND SELECT SECURITIES FOR ITS PORTFOLIO?
The Fund intends to invest primarily in the equity and equity-related securities
of high quality growth companies. In most cases, these companies will have one
or more of the following characteristics: superior management; strong balance
sheets; differentiated or superior products or services; substantial capacity
for growth in revenue, through either an expanding market or through expanding
market share; strong commitment to research and development; or a steady stream
of new products and services.
The Investment Manager will seek to identify companies throughout the world that
are expected to have higher-than-average rates of growth and strong potential
for capital appreciation relative to the potential downside risk of an
investment. While the Fund will emphasize investments in growth companies, the
Fund also expects to invest in other companies that are not traditionally
considered to be growth companies, such as emerging growth companies and
cyclical and semi-cyclical companies, if the Investment Manager believes that
such companies have above-average growth potential. In determining whether
securities of particular issuers are believed to have the potential for capital
appreciation, the Investment Manager will evaluate the fundamental value of each
enterprise, as well as its prospects for growth. Because current income is not
the Fund's investment objective, the Fund will not restrict its investments in
equity securities to those issuers with a record of dividend payments.
There is no limitation on the market capitalization of the companies in which
the Fund will invest. However, as of the date of this Prospectus, the Investment
Manager intends to invest primarily in equity and equity-related securities of
companies with market capitalizations in excess of $500 million, and does not
intend to invest more than 15% of the value of the Fund's total assets in
securities of companies with market capitalizations below $100 million at or
about the time of purchase.
WHAT ARE TECHNOLOGY COMPANIES?
Technology companies are issuers whose revenues are primarily generated by
technology products, including but not limited to computers and peripheral
products, software, electronic components and systems, communications equipment
and services, media and information services, pharmaceuticals, hospital supply
and medical devices, biotechnology, environmental services, chemicals and
synthetic materials, and defense and aerospace products and services.
Investments may also include companies that should significantly benefit from
the commercialization of technological advances even if they are not directly
involved in research and development. The types of companies that the Fund may
invest in will be broadly interpreted by the Investment Manager so that the Fund
will be positioned to benefit from holdings in all companies that may benefit
from technological advances.
WHAT ARE EQUITY AND EQUITY-RELATED SECURITIES?
"Equity and equity-related securities" in which the Fund has the authority to
invest include common stock, preferred stock, convertible preferred stock,
convertible debt obligations, warrants or other rights to acquire stock, and
options on stock and stock indexes. In addition, equity and equity-related
securities may include securities sold in the form of depository receipts and
securities issued by
- --------------------------------------------------------------------------------
Page 8
<PAGE>
other investment companies. The Fund currently intends to invest primarily in
common stock and depository receipts.
WHAT KINDS OF FOREIGN SECURITIES WILL THE FUND INVEST IN?
Under normal market conditions, as a fundamental policy which cannot be changed
without stockholder approval, the Fund's assets will be invested in equity and
equity-related securities of companies organized or headquartered in at least
three different countries (one of which will be the United States).
The portion of the Fund's assets invested in foreign securities will vary from
time-to-time, depending on the Investment Manager's view of foreign investment
opportunities and risks, but will not exceed 50% of the value of the Fund's
total assets. For purposes of this restriction, "foreign securities" includes
(i) securities of companies that are organized or headquartered, or whose
operations principally are conducted, outside the United States; (ii) securities
that are principally traded outside the United States, regardless of where the
issuer of such securities is organized or headquartered or where its operations
principally are conducted; (iii) depository receipts; and (iv) securities of
other investment companies investing primarily in such equity and equity-related
securities.
Under normal market conditions, the Fund will not invest more than 25% of the
value of its total assets in securities of issuers that are organized or
headquartered in any one foreign country, other than Japan. In evaluating
particular investment opportunities, the Investment Manager may consider, in
addition to the factors described above, the anticipated economic growth rate,
the political outlook, the anticipated inflation rate, the currency outlook, and
the interest rate environment for the country and the region in which a
particular company is located, as well as other factors it deems relevant.
The Fund expects that its investments in foreign securities will be comprised
primarily of securities that are traded on recognized foreign securities
exchanges. However, the Fund also may invest in securities that are traded only
over-the-counter, either in the United States or in foreign markets, when the
Investment Manager believes that such securities meet the Fund's investment
criteria. Subject to the Fund's restrictions on investment in funded securities
(see WHAT OTHER INVESTMENT PRACTICES SHOULD I KNOW ABOUT?), the Fund also may
invest in securities that are not publicly traded either in the U.S. or in
foreign markets.
WILL THE FUND INVEST IN EMERGING MARKET COUNTRIES?
The Fund may invest up to 20% of the value of its total assets in securities of
companies that are organized or headquartered in emerging market countries.
However, the Fund will not invest more than 10% of the value of its total assets
in securities of issuers that are organized or headquartered in any one emerging
market country. The term "emerging market countries" includes any country that
is generally considered to be an emerging or developing country by the World
Bank, the International Finance Corporation, the United Nations or its
authorities, or other reputable financial institutions. As of the date of this
Prospectus, the term "emerging market countries" is deemed for purposes of this
Prospectus to include all foreign countries other than Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Luxembourg, Malaysia, The Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
DOES THE FUND BUY AND SELL FOREIGN CURRENCY?
The Fund presently expects to purchase or sell foreign currency primarily to
settle foreign securities transactions. However, the Fund may also engage in
currency management transactions to hedge currency exposure related to
securities it owns or that it anticipates purchasing. (See DOES THE FUND HEDGE
ITS INVESTMENTS?)
For purposes of the percentage limitations on the Fund's investments in foreign
securities, the term "securities" does not include foreign currencies. This
means that the Fund could have more than the percentages of its total assets
indicated above denominated in foreign currencies or multinational currency
units such as the European Currency Unit (a "basket" comprised of specified
amounts of currencies of certain of the members of the European Community). As a
result, gains in a particular securities market may be affected, either
positively or negatively, by changes in exchange rates.
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Page 9
<PAGE>
DOES THE FUND HEDGE ITS INVESTMENTS?
For hedging purposes, the Fund may purchase covered "put" and "call" options
with respect to securities which are eligible for purchase by the Fund. If the
Fund purchases a put option, the Fund acquires the right to sell the underlying
security at a specified price at any time during the term of the option (for
"American-style" options) or on the option expiration date (for "European-style"
options). If the Fund purchases a call option, it acquires the right to purchase
the underlying security at a specified price at any time during the term of the
option (or on the option expiration date). Prior to exercise or expiration, an
option may be sold by the Fund when it has remaining value through a "closing
sale transaction," which is accomplished by selling an option of the same series
as the option previously purchased.
The Fund may employ certain currency management techniques to hedge against
currency exchange rate fluctuations. These include forward currency exchange
contracts, currency options, futures contracts, options on futures contracts,
and currency swaps. A forward currency exchange contract is an obligation to
purchase or sell a specific currency at a future date at a price set at the time
of the contract. Currency options are rights to purchase or sell a specific
currency at a future date at a specified price. Futures contracts are agreements
to take or make delivery of an amount of cash equal to the difference between
the value of the currency at the close of the last trading day of the contract
and the contract price. Currency swaps involve the exchange of rights to make or
receive payments in specified currencies.
The Fund may also cross-hedge currencies, which involves writing or purchasing
options or entering into foreign exchange contracts on one currency to hedge
against changes in exchange rates for a different currency, if in the judgment
of the Investment Manager there is a pattern of correlation between the two
currencies. In addition, the Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Investment Manager, it would be beneficial to convert such currency into U.S.
dollars at a later date, based on anticipated changes in the relevant exchange
rates.
WHAT OTHER INVESTMENT PRACTICES SHOULD I KNOW ABOUT?
DEPOSITORY RECEIPTS. The Fund may invest in securities of foreign companies in
the form of American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), Global Depository Receipts ("GDRs"), or other similar instruments
representing securities of foreign companies. ADRs are receipts that typically
are issued by an American bank or trust company, and represent the right to
receive securities of foreign companies deposited in the domestic bank or a
correspondent bank. EDRs and GDRs are receipts issued by a non-U.S. financial
institution evidencing a similar arrangement. Where it is possible to invest
either in an ADR, EDR, or GDR, or to invest directly in the underlying security,
the Fund will evaluate which investment opportunity is preferable, based on
price differences, relative trading volume, anticipated liquidity, differences
in currency risk, and other factors.
Although investment in ADRs involves less currency risk than investment in the
underlying securities, depository receipts may have risks that are similar to
those of foreign equity securities. Therefore, for purposes of the Fund's
investment policies and restrictions, depository receipts will be treated as
foreign equity securities, based on the country in which the underlying issuer
is organized or headquartered. See WHAT KINDS OF FOREIGN SECURITIES WILL THE
FUND INVEST IN?
OTHER INVESTMENT COMPANIES. The laws of some foreign countries may make it
difficult or impossible for the Fund to invest directly in issuers organized or
headquartered in those countries, or may place limitations on such investments.
In such cases, the only practical means of investment may be through investment
in other investment companies that in turn are authorized to invest in the
securities of such issuers. In such cases and in other appropriate
circumstances, and subject to the restrictions referred to above regarding
investments in companies organized or headquartered in foreign countries (see
WHAT KINDS OF FOREIGN SECURITIES WILL THE FUND INVEST IN?), the Fund may invest
up to 10% of the value of its total assets in other investment companies.
However, the Fund may not invest more than 5% of the value of its total assets
in the securities of any one investment company or acquire more than 3% of the
voting securities of any other investment company.
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To the extent that the Fund invests in other investment companies, the Fund
would bear its proportionate share of any management or administration fees and
other expenses paid by investment companies in which it invests. At the same
time, the Fund would continue to pay its own management fees and other expenses.
SHORT SELLING. The Fund may make short sales of securities that it owns or has
the right to acquire at no added cost through conversion or exchange of other
securities it owns (referred to as short sales "against the box") and to make
short sales of securities which it does not own or have the right to acquire. In
order to deliver a security that is sold short to the buyer, the Fund must
arrange through a broker to borrow the security, and becomes obligated to
replace the security borrowed at its market price at the time of replacement,
whatever that price may be. When the Fund makes a short sale, the proceeds of
the sale are retained by the broker until the Fund replaces the borrowed
security.
The value of securities of any issuer in which the Fund maintains a short
position that is not "against the box" may not exceed the lesser of 2% of the
value of the Fund's net assets or 2% of the securities of such class of the
issuer. The Fund's ability to enter into short sales transactions is limited by
the requirements of the Investment Company Act of 1940 (the "1940 Act"), and by
the Internal Revenue Code with respect to the Fund's qualification as a
regulated investment company. See DIVIDENDS, DISTRIBUTIONS AND TAXES.
WHEN ISSUED, FIRM COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS. The Fund may
purchase securities on a delayed delivery or "when issued" basis and may enter
into firm commitment agreements (transactions in which the payment obligation
and interest rate are fixed at the time of the transaction but the settlement is
delayed). Delivery and payment for these securities typically occur 15 to 45
days after the commitment to purchase, but delivery and payment can be scheduled
for shorter or longer periods, based upon the agreement of the buyer and the
seller. No interest accrues to the purchaser during the period before delivery.
The Fund normally will not enter into these transactions for the purpose of
leverage, but may sell the right to receive delivery of the securities before
the settlement date. The value of the securities at settlement may be more or
less than the agreed upon price.
The Fund will segregate cash, U.S. Government securities or other liquid, high
quality debt securities in an amount sufficient to meet its payment obligations
with respect to any such transactions. To the extent that assets are segregated
for this purpose, the Fund's liquidity and the ability of the Investment Manager
to manage its portfolio may be adversely affected.
DEBT SECURITIES. The Fund may invest in short-term debt obligations (with
maturities of less than one year) of the U.S. Government and foreign governments
and their respective agencies, instrumentalities and authorities, debt
obligations issued or guaranteed by international or supranational governmental
entities, and debt obligations of domestic and foreign corporate issuers. Such
debt obligations will be rated, at the time of purchase, BBB or higher by
Standard & Poor's Corporation ("Standard & Poor's"), Baa or higher by Moody's
Investor Services, Inc. ("Moody's"), or equivalent ratings by other rating
organizations, or if unrated will be determined by the Investment Manager to be
of comparable investment quality. These securities are of investment grade,
which means that their issuers are believed to have adequate capacity to pay
interest and repay principal, although certain of such securities in the lower
grades have speculative characteristics, and changes in economic conditions or
other circumstances may be more likely to lead to a weakened capacity to pay
interest and principal than would be the case with higher-rated securities.
Under normal market conditions, no more than % of the value of the Fund's
total assets will be invested in such obligations. However, during times when
the Investment Manager believes a temporary defensive posture is warranted,
including times involving international, political or economic uncertainty, the
Fund may hold all or a substantial portion of its assets in such debt
obligations. When the Fund is so invested, it may not be achieving its
investment objective.
BORROWING MONEY. From time-to-time, it may be advantageous for the Fund to
borrow money rather than sell portfolio positions to raise the cash to meet
redemption requests. Accordingly, to meet redemption requests the Fund may
borrow from banks or through reverse repurchase agreements. The Fund also may
borrow up to 5% of the value of its total assets for temporary or emergency
purposes other than to meet redemptions. However,
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the Fund will not borrow money for leveraging purposes. The Fund may continue to
purchase securities while borrowings are outstanding, but will not do so when
the Fund's borrowings (including reverse repurchase agreements) exceed 5% of the
value of its total assets. The 1940 Act permits the Fund to borrow only from
banks and only to the extent that the value of its total assets, less its
liabilities other than borrowings, is equal to at least 300% of all borrowings
(including the proposed borrowing), and requires the Fund to take prompt action
to reduce its borrowings if this limit is exceeded. For the purpose of the 300%
borrowing limitation, reverse repurchase transactions are considered to be
borrowings.
A reverse repurchase agreement involves a transaction by which a borrower (such
as the Fund) sells a security to a purchaser (a member bank of the Federal
Reserve System or a recognized securities dealer) and simultaneously agrees to
repurchase the security at an agreed-upon price on an agreed-upon date within a
number of days (usually not more than seven) from the date of purchase.
LENDING PORTFOLIO SECURITIES. The Fund is authorized to make loans of portfolio
securities, for the purpose of realizing additional income, to broker-dealers or
other institutional investors deemed creditworthy by the Board of Directors. The
borrower must maintain with the Fund's custodian collateral consisting of cash,
U.S. Government securities or other liquid, high grade debt equal to at least
100% of the value of the borrowed securities, plus any accrued interest. The
Fund will receive any interest paid on the loaned securities, and a fee and/or a
portion of the interest earned on the collateral.
ILLIQUID SECURITIES. The Fund may invest up to 15% of the value of its net
assets in illiquid securities. Securities may be considered illiquid if the Fund
cannot reasonably expect to receive approximately the amount at which the Fund
values such securities within seven days. The Investment Manager has the
authority to determine whether specific securities are liquid or illiquid
subject to policies established by the Company's Board of Directors.
The Fund's investments in illiquid securities may include securities that are
not registered for resale under the Securities Act of 1933 (the "Securities
Act"), and therefore are subject to restrictions on resale. When the Fund
purchases unregistered securities, the Fund may, in appropriate circumstances,
obtain the right to register such securities at the expense of the issuer. In
such cases there may be a lapse of time between the Fund's decision to sell any
such security and the registration of the security permitting sale. During any
such period, the price of the security will be subject to market fluctuations.
The fact that there are contractual or legal restrictions on resale of certain
securities to the general public or to certain institutions may not be
indicative of the liquidity of such investments. If such securities are subject
to purchase by institutional buyers in accordance with Rule 144A under the
Securities Act, the Company's Board of Directors may determine, in particular
cases, that such securities are not illiquid securities notwithstanding the
legal or contractual restrictions on their resale. Investing in Rule 144A
securities could have the effect of increasing the Fund's illiquidity to the
extent that qualified institutional buyers become, for a time, uninterested in
purchasing such securities.
CAN THE FUND'S OBJECTIVE AND POLICIES BE CHANGED?
The Fund's investment objective is a fundamental policy that may not be changed
without a vote of its stockholders. However, except as otherwise indicated in
this Prospectus or the Statement of Additional Information, the Fund's other
investment policies and restrictions are not fundamental and may be changed
without a vote of the stockholders. If there is a change in the Fund's
investment objectives or policies, stockholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs.
The various percentage limitations referred to in this Prospectus apply
immediately after a purchase or initial investment, and except as specifically
indicated to the contrary, any subsequent change in any applicable percentage
resulting from market fluctuations will not require elimination of any security
from the Fund's portfolio.
WHAT IS THE FUND'S PORTFOLIO TURNOVER RATE?
The Fund may invest in securities on either a long-term or short-term basis. The
Investment Manager anticipates that the Fund's annual portfolio turnover rate
should not exceed 150%, but the turnover
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rate will not be a limiting factor when the Investment Manager deems portfolio
changes appropriate. Securities in the Fund's portfolio will be sold whenever
the Investment Manager believes it is appropriate to do so, regardless of the
length of time that securities have been held, and securities may be purchased
or sold for short-term profits whenever the Investment Manager believes it is
appropriate or desirable to do so. Turnover will be influenced by sound
investment practices, the Fund's investment objective and the need for funds for
the redemption of the Fund's shares.
Because the Investment Manager will purchase and sell securities for the Fund's
portfolio without regard to the length of the holding period for such
securities, it is possible that the Fund's portfolio will have a higher turnover
rate than might be expected for investment companies that invest substantially
all of their funds for long-term capital appreciation or generation of current
income. A high portfolio turnover rate would increase aggregate brokerage
commission expenses and other transaction costs, which must be borne directly by
the Fund and ultimately by the Fund's stockholders, and may under certain
circumstances make it more difficult for the Fund to qualify as a regulated
investment company under the Internal Revenue Code. See Dividends, Distributions
and Taxes.
-------------------------------
INVESTMENT AND RISK CONSIDERATIONS
----------------------------
Investment in the Fund is subject to a variety of risks, including the
following:
RISKS OF INVESTING IN TECHNOLOGY STOCKS
Because the Fund will concentrate its investments in technology companies, the
Fund will be more susceptible than other investment companies to market and
other conditions affecting technology companies. Such conditions include
competitive pressures affecting the financial condition of technology companies,
rapid product obsolescence, dependence on extensive research and development,
aggressive pricing and greater sensitivity to changes in governmental regulation
and policies. As a result of the Fund's concentration on a single sector, the
Fund's net asset value may be more volatile in price than the net asset value of
a company with a more broadly diversified portfolio.
RISKS OF INVESTING IN FOREIGN MARKETS GENERALLY
Investing in foreign equity securities involves significant risks, some of which
are not typically associated with investing in securities of U.S. issuers. For
example, the value of investments in such securities may fluctuate based on
changes in the value of one or more foreign currencies relative to the U.S.
dollar. In addition, information about foreign issuers may be less readily
available than information about domestic issuers. Foreign issuers generally are
not subject to accounting, auditing and financial reporting standards, or to
other regulatory practices and requirements comparable to those applicable to
U.S. issuers. Furthermore, with respect to certain foreign countries, the
possibility exists of expropriation, nationalization, revaluation of currencies,
confiscatory taxation, and limitations on foreign investment and the use or
removal of funds or other assets of the Fund (including the withholding of
dividends and limitations of the repatriation of currencies). The Fund may also
experience difficulties or delays in obtaining or enforcing judgments.
Most foreign securities markets have substantially less volume than U.S.
securities markets, and the securities of many foreign issuers may be less
liquid and more volatile than securities of comparable U.S. issuers. In
addition, there is generally less government regulation of securities markets,
securities exchanges, securities dealers, and listed and unlisted companies in
foreign countries than in the United States. Foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct and complete such
transactions. In addition, the costs associated with transactions in securities
traded on foreign markets or of foreign issuers, and the expense of maintaining
custody of such securities with foreign custodians, generally are higher than
the costs associated with transactions in U.S. securities on U.S. markets.
RISKS OF INVESTING IN SMALLER CAPITALIZATION COMPANIES
Investing in securities of issuers with market capitalizations below $100
million at or near the time of
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<PAGE>
purchase ("smaller capitalization companies") involves greater risk and the
possibility of greater portfolio price volatility than investing in larger
capitalization companies. For example, smaller capitalization companies may have
less certain growth prospects, may be more sensitive to changing economic
conditions, may have more limited financial and management resources, and may
have less liquid markets for their securities, than larger, more established
firms.
RISKS OF INVESTING IN EMERGING MARKET SECURITIES
There are special additional risks associated with investments in emerging
market securities. The securities markets of emerging market countries are
substantially smaller, less developed, less liquid, and more volatile than the
securities markets of the United States and developed foreign markets.
Disclosure and regulatory standards in many respects are less stringent than in
the United States and developed foreign markets. There also may be a lower level
of monitoring and regulation of securities markets in emerging market countries
and the activities of investors in such markets, and enforcement of existing
regulations has been extremely limited.
Economies in emerging markets generally are heavily dependent upon international
trade, and may be affected adversely by the economic conditions of the countries
in which they trade, as well as by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. In many cases,
governments of emerging market countries continue to exercise a significant
degree of control over the economies of such countries. In addition, certain of
such countries have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies.
There is a heightened possibility of confiscatory taxation, imposition of
withholding taxes on interest payments, or other similar developments that could
affect investments in those countries. Unanticipated political or social
developments many also affect the value of the Fund's investments in those
countries.
RISKS OF HEDGING TECHNIQUES
There are a number of risks associated with transactions in options on
securities. Options may be more volatile than the underlying instruments.
Differences between the options and securities markets could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objective. In addition, a liquid secondary market for particular
options may be absent for a variety of reasons. When trading options on foreign
exchanges, many of the protections afforded to participants in the United States
will not be available. Although the purchaser of an option cannot lose more than
the amount of the premium plus transaction costs, this entire amount could be
lost.
The Fund's currency management techniques involve risks different than those
that arise in connection with investments in dollar-denominated securities. To
the extent that the Fund is invested in foreign securities while also
maintaining currency positions, it may be exposed to greater combined risk than
would otherwise be the case. Transactions in futures contracts and options on
futures contracts involve risks similar to those of options on securities. In
addition, the potential loss incurred by the Fund in such transactions is
unlimited.
The use of hedging techniques is a highly specialized activity, and there can be
no assurance as to the success of any hedging operations which the Fund may
implement. Gains and losses in such transactions depend upon the Investment
Manager's ability to predict correctly the direction of stock prices, interest
rates, currency exchange rates, and other economic factors. Although such
operations could reduce the risk of loss due to a decline in the value of the
hedged security or currency, they could also limit the potential gain from an
increase in the value of the security or currency.
RISKS OF SHORT SELLING
Short sales by the Fund that are not made "against the box" create opportunities
to increase the Fund's return but, at the same time, involve special risk
considerations and may be considered a speculative technique. The Fund's net
asset value per share will tend to be more volatile than would be the case if it
did not engage in short sales. Short sales that are not "against the box" also
theoretically involve unlimited loss potential, as the market price of
securities sold short may continuously increase, although the Fund may mitigate
such losses by replacing the securities sold short before the
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<PAGE>
market price has increased significantly. Under adverse market conditions, the
Fund might have difficulty purchasing securities to meet its short sale delivery
obligations, might have to purchase such securities at higher prices than would
otherwise be the case, and might have to sell portfolio securities to raise the
capital necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
WHAT OTHER RISK FACTORS SHOULD I BE AWARE OF?
CONVERTIBLE SECURITIES AND WARRANTS. The value of a convertible security is a
function of both its yield in comparison with the yields of similar non-
convertible securities and the value of the underlying stock. A convertible
security held by the Fund may be subject to redemption at the option of the
issuer at a fixed price, in which event the Fund will be required to permit the
issuer to redeem the security, convert it into the underlying common stock, or
sell it to a third party. Investment in warrants also involves certain risks,
including the possible lack of a liquid market for resale, potential price
fluctuations as a result of speculation or other factors, and the failure of the
price of the underlying security to reach or have reasonable prospects of
reaching the exercise price, in which event the warrant may expire without being
exercised, resulting in a loss of the Fund's entire investment in the warrant.
CREDIT OF COUNTERPARTIES. A number of transactions in which the Fund may engage
are subject to the risks of default by the other party to the transaction. When
the Fund engages in repurchase, reverse repurchase, when-issued, forward
commitment, delayed settlement and securities lending transactions, it relies on
the other party to consummate the transaction. Failure of the other party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price believed to be advantageous.
BORROWING. Borrowing also involves special risk considerations. Interest costs
on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on the borrowed funds (or on the
assets that were retained rather than sold to meet the needs for which funds
were borrowed). Under adverse market conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time when
fundamental investment considerations would not favor such sales. To the extent
the Fund enters into reverse repurchase agreements, the Fund is subject to risks
that are similar to those of the borrowings.
NON-DIVERSIFICATION. The Fund will be non-diversified within the meaning of the
1940 Act. As a non-diversified fund, the Fund may invest a greater percentage of
its assets in the securities of any single issuer than diversified funds, and
may be more susceptible to risks associated with a single economic, political or
regulatory occurrence than diversified funds. However, in order to meet the
requirements of the Internal Revenue Code of 1986 for qualification as a
regulated investment company, the Fund must diversify its holdings so that, at
the end of each quarter of its taxable year, (i) at least 50% of the market
value of its assets is represented by cash, U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for purposes of this calculation
to an amount not greater than 5% of the value of the Fund's total assets, and
(ii) not more than 25% of the value of the Fund's total assets may be invested
in the securities of any one issuer (other than the U.S. Government or other
regulated investment companies).
-------------------------------
ORGANIZATION AND MANAGEMENT
----------------------------
WHO MANAGES THE FUND?
The Company was incorporated in Maryland in September 1995 and is an open-end
management investment company or mutual fund. The Company's Board of Directors
has overall responsibility for the operation of the Fund. Pursuant to such
responsibility, the Board has approved contracts for various financial
organizations to provide, among other things, day-to-day management services
required by the Fund.
The Company, on behalf of the Fund, has retained as the Fund's Investment
Manager RCM Capital
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<PAGE>
Management, A California Limited Partnership (the "Investment Manager") with
principal offices at Four Embarcadero Center, Suite 3000, San Francisco,
California 94111. Pursuant to an Investment Management Agreement, Power of
Attorney and Service Agreement with the Company (the "Management Agreement"),
the Investment Manager manages the Fund's investments, provides various
administrative services, and supervises the Fund's daily business affairs,
subject to the authority of the Company's Board of Directors.
WHO IS RCM CAPITAL MANAGEMENT?
The Investment Manager is actively engaged in providing investment supervisory
services to institutional and individual clients and registered investment
companies, and is registered under the Investment Advisers Act of 1940. The
Investment Manager was established in July 1986, as the successor to the
business and operations of Rosenberg Capital Management (established in 1970).
The general partner of the Investment Manager, RCM Limited L.P., a California
limited partnership, is controlled by the 19 principals of the Investment
Manager. The sole limited partner of the Investment Manager is a wholly owned
indirect subsidiary of Travelers Group Inc.
The Investment Manager's equity philosophy is to invest in growth stocks --
stocks of companies that are expected to have superior and predictable growth.
Through fundamental research and a series of valuation screens, the Investment
Manager seeks to purchase securities of those companies whose expected growth in
earnings and dividends will provide a risk-adjusted return in excess of the
market.
The Investment Manager has a long history of investing in technology stocks. Its
technology analysts have been researching technology companies for purchase in
domestic equity portfolios for more than 20 years, and have been managing
technology portfolios for more than 10 years. The technology team consults
regularly with the senior members of the Investment Manager's equity portfolio
management team concerning the prospects for the technology industry generally
as well as specific technology companies. The equity investment process also
incorporates the Investment Manager's own macroeconomic views of the economy.
In addition to traditional research activities, the Investment Manager utilizes
research produced by Grassroots Research, an operating group within the
Investment Manager. Grassroots Research prepares research reports based on field
interviews with customers, distributors, and competitors of the companies that
the Investment Manager follows. In the technology area, Grassroots Research can
be a valuable adjunct to the Investment Manager's traditional research efforts
by providing a "second look" at technology companies in which the Fund is
considering investing and by checking marketplace assumptions concerning market
demand for particular technology products.
Walter C. Price, Jr. and Huachen Chen, each a Principal of the Investment
Manager, are the primary portfolio managers for the Fund. They have managed
equity portfolios on behalf of the Investment Manager since 1985.
WHAT ARE THE FUND'S MANAGEMENT FEES?
For the services rendered by the Investment Manager under the Management
Agreement, the Fund will pay a monthly fee to the Investment Manager based on
the average daily net assets of the Fund, at the annualized rate of 1.00% of the
value of the Fund's average daily net assets. This is higher than the fee paid
by most other registered investment companies. However, the Company believes
that the Fund's total annual expenses will be comparable to those currently paid
by other international technology funds.
WHAT OTHER EXPENSES DOES THE FUND PAY?
The Fund is responsible for the payment of its operating expenses, including
brokerage and commission expenses; taxes levied on the Fund; interest charges on
borrowings (if any); charges and expenses of the Fund's custodian; investment
management fees due to the Investment Manager; and all of the Fund's other
ordinary operating expenses (e.g., legal and audit fees, securities registration
expenses, and compensation of non-interested directors of the Company).
To limit the expenses of the Fund, the Investment Manager has agreed, until at
least December 31, 1996, to pay the Fund on a quarterly basis the amount, if
any, by which the ordinary operating expenses of the Company attributable to the
Fund for the quarter (except interest, taxes and extraordinary expenses) exceed
the annual rate of 1.75% of the value of the average daily net assets of the
Fund. The Fund will reimburse the Investment
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Manager for fees deferred or other expenses paid by the Investment Manager
pursuant to this agreement in later years in which operating expenses for the
Fund are otherwise less than such expense limitation. Accordingly, until all
such amounts are reimbursed, the Fund's expenses will be higher, and its total
return will be lower, than would otherwise have been the case. No interest,
carrying or finance charge will be paid by the Fund with respect to any amounts
representing fees deferred or other expenses paid by the Investment Manager. In
addition, the Fund will not be required to repay any unreimbursed amounts to the
Investment Manager upon termination of the Management Agreement.
HOW DOES THE FUND DECIDE WHICH BROKERS TO USE?
The Investment Manager, subject to the overall supervision of the Company's
Board of Directors, makes the Fund's investment decisions and selects the broker
or dealer to be used in each specific transaction using its judgment to choose
the broker or dealer most capable of providing the services necessary to obtain
the best execution of that transaction. In seeking the best execution of each
transaction, the Investment Manager evaluates a wide range of criteria. Subject
to the requirement of seeking best available prices and execution, the
Investment Manager may, in circumstances in which two or more brokers are in a
position to offer comparable prices and execution, give preference to a broker
that has provided investment information to the Investment Manager. In so doing,
the Investment Manager may effect securities transactions which cause the Fund
to pay an amount of commission in excess of the amount of commission another
broker would have charged. Subject to the requirement of seeking the best
available prices and execution, the Investment Manager may also place orders
with brokerage firms that have sold shares of the Fund.
The Fund may in some instances invest in foreign and/or U.S. securities that are
not listed on a national securities exchange but are traded in the
over-the-counter market. The Fund may also purchase listed securities through
the third market (over-the-counter trades of exchange-listed securities) or
fourth market (direct trades of securities between institutional investors
without the intermediation of a broker-dealer). When transactions are executed
in the over-the-counter market or the third or fourth market, the Investment
Manager will seek to deal with the counterparty that the Investment Manager
believes can provide the best price and execution, whether or not that
counterparty is the primary market maker for that security. In all cases, the
Investment Manager will attempt to negotiate the best market price and
execution.
When appropriate and to the extent consistent with applicable laws and
regulations, the Fund may execute brokerage transactions through Smith Barney
Inc. and The Robinson-Humphrey Company, Inc., affiliates of the limited partner
of the Investment Manager.
WHO IS THE FUND'S DISTRIBUTOR?
(the "Distributor") serves as distributor
of shares of the Fund.
WHO ARE THE FUND'S CUSTODIAN AND TRANSFER AGENT?
(the "Custodian") serves as custodian of
all securities and funds owned by the Fund in accordance with the terms of the
Custodian Contract between the Company and the Custodian. The Custodian also
provides dividend paying services to the Fund. The Company acts as its own
transfer and redemption agent for its capital stock.
-------------------------------
HOW TO PURCHASE SHARES
----------------------------
HOW CAN I PURCHASE SHARES OF THE FUND?
Shares of the Fund are offered on a continuous basis at the net asset value per
share (next determined after receipt of subscriptions), without any sales or
other charge. The initial investment must be at least $ , and there is a
$ minimum for additional investments other than through the Fund's
automatic dividend reinvestment plan. (See STOCKHOLDER SERVICES.)
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Investors or their duly authorized agents may purchase shares from the Company
by sending a signed, completed subscription form to the Company at Four
Embarcadero Center, Suite 3000, San Francisco, California 94111 (telephone (415)
954-5400), and paying for the shares as described below. Shares may also be
purchased through the Distributor or a broker which has entered into a selling
group agreement with the Distributor. Although the Fund does not impose a sales
charge, brokers may charge a fee for their services at the time of purchase or
redemption. Subscription forms can be obtained from the Distributor or the
Company.
Orders for shares received by the Company prior to the close of the New York
Stock Exchange composite tape on each day the New York Stock Exchange is open
for trading, will be priced at the net asset value (see SHARE PRICE) computed as
of the close of the New York Stock Exchange composite tape on that day. The
Company reserves the right to reject any subscription at its sole discretion.
Orders received after the close of the New York Stock Exchange composite tape,
or on any day on which the New York Stock Exchange is not open for trading, will
be priced at the close of the New York Stock Exchange composite tape on the next
succeeding day on which the New York Stock Exchange is open for trading.
Upon receipt of the subscription form in good order, the Company will open a
stockholder account in accordance with the investor's registration instructions.
A confirmation statement reflecting the current transaction along with a summary
of the status of the account as of the transaction date will be forwarded to the
investor.
WHERE SHOULD I SEND MY SUBSCRIPTION PAYMENT?
Payment for shares purchased should be made by check or money order, made
payable to:
- -------------------------------------------
Investors may also wire funds in payment of subscriptions to the above address.
Wired funds should include the following: the stockholder's registration name
and account number with the Company and the name of the Fund.
Investors may be charged a fee if they effect transactions through a broker or
agent. Your dealer is responsible for forwarding payment promptly to
. The Company reserves the right to cancel any purchase order for which
payment has not been received by the third business day following the
investment.
The Company will issue share certificates of the Fund only for full shares and
only upon the specific request of the stockholder. Confirmation statements
showing transactions in the stockholder's account and a summary of the status of
the account serve as evidence of ownership of shares of the Fund.
CAN I PAY FOR SHARES WITH INVESTMENT SECURITIES?
In its discretion, the Company may accept securities of equal value instead of
cash in payment of all or part of the subscription price for the Fund's shares
offered by this Prospectus. Any such securities (i) will be valued at the close
of the New York Stock Exchange composite tape on the day of acceptance of the
subscription in accordance with the method of valuing the Fund's portfolio
described under Share Price; (ii) will have a tax basis to the Fund equal to
such value; (iii) must not be "restricted securities"; and (iv) must be
permitted to be purchased in accordance with the Fund's investment objective and
policies set forth in this Prospectus and must be securities that the Fund would
be willing to purchase at that time. Prospective stockholders considering this
method of payment should contact the Company in advance to discuss the
securities in question and the documentation necessary to complete the
transaction.
HOW ARE SHARES PRICED?
The net asset value of each share of the Fund on which the subscription and
redemption prices are based is determined by the sum of the market value of the
securities and other assets owned by the Fund less its liabilities, computed in
accordance with the Company's Articles of Incorporation and Bylaws. The net
asset value of a share is the quotient obtained by dividing the net assets of
the Fund (i.e., the value of the assets of the Fund less its liabilities,
including expenses payable or accrued but excluding capital stock and surplus)
by the total number of shares of the Fund outstanding. The net asset value of
the Fund's shares will be calculated as of the close of regular trading on the
New York Stock Exchange, currently 4:00 p.m. Eastern Time on each day that the
New York Stock Exchange is open for trading.
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<PAGE>
-------------------------------
STOCKHOLDER SERVICES
----------------------------
WHAT SERVICES ARE PROVIDED TO STOCKHOLDERS?
AUTOMATIC REINVESTMENT. Each income dividend and capital gains distribution, if
any, declared by the Fund will be reinvested in full and fractional shares based
on the net asset value as determined on the payment date for such distributions,
unless the stockholder or his or her duly authorized agent has elected to
receive all such payments or the dividend or distribution portions thereof in
cash. Changes in the manner in which dividend and distribution payments are made
may be requested by the stockholder or his or her duly authorized agent at any
time through written notice to the Company and will be effective as to any
subsequent payment if such notice is received by the Company prior to the record
date used for determining the stockholders entitled to such payment. Any
dividend and distribution election will remain in effect until the Company is
notified by the stockholder in writing to the contrary.
ACCOUNT STATEMENTS. Your account is opened in accordance with your registration
instruction. Transactions in the account, such as additional investments and
dividend reinvestments, will be reflected on regular confirmation statements
from the Company.
REPORTS TO STOCKHOLDERS. The fiscal year of the Fund ends on December 31 of
each year. The Fund will issue to its stockholders semi-annual and annual
reports; each annual report will contain a schedule of the Fund's portfolio
securities, audited annual financial statements, and information regarding
purchases and sales of securities during the period covered by the report as
well as information concerning the Fund's performance in accordance with rules
promulgated by the SEC. In addition, stockholders will receive quarterly
statements of the status of their accounts reflecting all transactions having
taken place within that quarter. The federal income tax status of stockholders'
distributions will also be reported to stockholders after the end of each fiscal
year.
STOCKHOLDER INQUIRIES. Stockholder inquiries should be addressed to the Company
at the address or telephone number on the front page of this Prospectus.
-------------------------------
REDEMPTION OF SHARES
----------------------------
HOW DO I REDEEM MY SHARES?
Subject only to the limitations described below, the Company will redeem the
shares of the Fund tendered to it, as described below, at a redemption price
equal to the net asset value per share as next computed following the receipt of
all necessary redemption documents. Because the net asset value of the Fund's
shares will fluctuate as a result of changes in the market value of securities
owned, the amount a stockholder receives upon redemption may be more or less
than the amount paid for those shares.
Redemption payments will be made wholly in cash unless the Company's Board of
Directors believes that unusual conditions exist which would make such a
practice detrimental to the best interests of the Fund. Under such
circumstances, payment of the redemption price could be made whole or in part in
portfolio securities.
WHAT IS THE REDEMPTION FEE?
The Fund assesses a 2% redemption fee on redemptions of shares made within 12
months of their purchase (other than shares acquired by reinvestment of income
dividends and capital gain distributions). The fee is deducted from the
redemption proceeds and is paid directly to the Fund, not to the Investment
Manager. It is not a contingent deferred sale charge. For purposes of
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<PAGE>
determining whether the fee is payable, redemptions are deemed to be made first
from shares acquired by reinvestment of dividends and distributions, and then in
the order the shares were purchased by the stockholder.
The purpose of the redemption fee is to allocate transaction costs associated
with redemptions to the stockholders making those redemptions, thus insulating
other stockholders from such costs. The fees represent the Company's estimate of
these costs, which include brokerage costs, the decrease in market prices which
may result when the Fund sells thinly traded stocks in its portfolio, and the
effect of the "bid-ask" spread (which may be wide on many foreign stocks).
Without the redemption fee, the Fund would not be reimbursed for these costs,
which it incurs directly, resulting in reduced investment performance for all
stockholders. With the fee, the transaction costs of selling stocks are borne
not by all existing stockholders, but by those short-term stockholders making
the redemption.
Stockholders may also be charged a fee if they effect transactions through a
broker or agent.
WHEN WILL I RECEIVE MY REDEMPTION PAYMENT?
PAYMENT FOR SHARES. Payment for shares redeemed will be made within seven days
after receipt by the Company of: (i) a written request for redemption, signed by
each registered owner or his or her duly authorized agent exactly as the shares
are registered, which clearly identifies the exact names in which the account is
registered, the account number and the number of shares or the dollar amount to
be redeemed; (ii) stock certificates for any shares to be redeemed which are
held by the stockholder; and (iii) the additional documents required for
redemptions by corporations, executors, administrators, trustees and guardians.
Redemptions will not become effective until all documents in the form required
have been received by the Company. A stockholder in doubt as to what documents
are required should contact the Company.
If the Company is requested to redeem shares for which it has not yet received
payment, the Company will delay or cause to be delayed the mailing of a
redemption check until such time as it has assured itself that payment has been
collected, which may take up to 15 days. Delays in the receipt of redemption
proceeds may be avoided if shares are purchased through the use of
wire-transferred funds or other methods which do not entail a clearing delay in
the Fund receiving "good funds" for its use.
Upon execution of the redemption order, a confirmation statement will be
forwarded to the stockholder indicating the number of shares sold and the
proceeds thereof. Proceeds of all redemptions will be paid by check or federal
funds wire no later than seven days subsequent to execution of the redemption
order except as may be provided below.
SUSPENSION OF REDEMPTIONS. The right of redemption may not be suspended or the
date of payment upon redemption postponed for more than seven days after shares
are tendered for redemption, except for any period during which the New York
Stock Exchange is closed (other than customary weekend or holiday closing) or
during which the SEC determines that trading thereon is restricted, or for any
period during which an emergency (as determined by the SEC) exists as a result
of which disposal by the Fund of securities it owns is not reasonably
practicable, or as a result of which it is not reasonably practical for the Fund
fairly to determine the value of its net assets, or for such other periods as
the SEC may by order permit for the protection of stockholders.
CAN I REDEEM SHARES BY PHONE?
You may redeem shares by telephone if you have elected the telephone privilege
on your account application. You should realize that by electing the telephone
privilege you may be giving up a measure of security that you may have if you
were to request an exchange or redemption of shares in writing. Furthermore, in
periods of severe market or economic conditions, telephone redemptions may be
difficult to implement, in which case you should mail or send by overnight
delivery a written exchange or redemption request to the Company. The Company
will employ procedures designed to provide reasonable assurance that
instructions communicated by telephone are genuine and, if it does not do so, it
may be liable for any losses due to unauthorized or fraudulent instructions. The
procedures employed by the Company include requiring personal identification by
account number and social security number, tape recording of telephone
instructions, and providing written confirmation of transactions. The Company
reserves the right to refuse a telephone exchange or redemption request if it
believes, for example, that the person making the request is neither the record
owner of
- --------------------------------------------------------------------------------
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<PAGE>
the shares being exchanged or redeemed nor otherwise authorized by the
stockholder to request the exchange or redemption. Stockholders will be promptly
notified of any refused request for a telephone exchange or redemption. The
Company will not be liable for any loss, liability or cost which results from
acting upon instructions of a person reasonably believed to be a stockholder
with respect to the telephone privilege.
-------------------------------
INVESTMENT RESULTS
----------------------------
WILL THE FUND REPORT ITS PERFORMANCE?
The Fund may, from time-to-time, include information on its investment results
and/or comparisons of its investment results to various unmanaged indices (which
generally do not reflect deductions for administrative and management costs and
expenses) indexes prepared by consultants, mutual fund ranking entities, and
financial publications, or results of other mutual funds or groups of mutual
funds, in advertisements or in reports furnished to present or prospective
investors. Investment results will include information calculated on a total
return basis. Such indexes and rankings may include the following, among others:
1. The Standard & Poor's 500 Index.
2. The Russell Midcap Index.
3. The Lipper Science & Technology Fund Index.
4. The Hambrecht & Quist Technology Index.
5. Data and mutual fund rankings published or prepared by Lipper Analytical
Services, Inc. and Morningstar, which rank mutual funds by overall
performance, investment objectives, and assets.
-------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
----------------------------
WHAT DIVIDENDS DOES THE FUND PAY?
It is the intention of the Fund to distribute to its stockholders all of each
fiscal year's net investment income and net realized capital gains, if any, on
the Fund's investment portfolio. The amount and time of any such distribution
must necessarily depend upon the realization by the Fund of income and capital
gains from investments. Any dividend or distribution received by a stockholder
on shares of the Fund shortly after the purchase of such shares by the
stockholder will have the effect of reducing the net asset value of such shares
by the amount of such dividend or distribution.
WHAT TAXES WILL I PAY ON FUND DIVIDENDS?
Dividends generally are taxable to stockholders at the time they are paid.
However, dividends declared in October, November and December by the Fund and
made payable to stockholders of record in such a month are treated as paid and
are thereby taxable as of December 31, provided that the Fund pays the dividend
no later than January 31 of the following year.
Federal law requires the Company to withhold 31% of income from dividends,
capital gains distributions and/or redemptions that occur in certain stockholder
accounts if the stockholder has not properly furnished a certified correct
Taxpayer Identification Number and has not certified that withholding does not
apply. Amounts withheld are applied to the stockholder's federal tax liability,
and a refund may be obtained from the Internal Revenue Service if withholding
results in an overpayment of taxes. Under the Code, distributions of net
investment income and net long-term capital gains by the Fund to a stockholder
who, as to the United States, is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership may also be subject to U.S. withholding tax.
WILL THE FUND ALSO PAY TAXES?
The Company intends to qualify the Fund as a "regulated investment company"
under Subchapter M of the Code. By complying with the applicable provisions of
the Code, the Fund will not
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<PAGE>
be subject to federal income taxes with respect to net investment income and net
realized capital gains distributed to its stockholders.
The Fund may be required to pay withholding and other taxes imposed by foreign
countries, generally at rates from 10% to 40%, which would reduce the Fund's
investment income. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. The Fund may elect to "pass through"
to its stockholders the amount of foreign income taxes paid by the Fund, if such
election is deemed to be in the best interests of stockholders. If this election
is made, stockholders will be required to include in their gross income their
pro rata share of foreign taxes paid by the Fund, and will be able to treat such
taxes as either an itemized deduction or a foreign credit against U.S. income
taxes (but not both) on their tax returns. If the Fund does not make that
election, stockholders will not be able to deduct their pro rata share of such
taxes in computing their taxable income and will not be able to take their share
of such taxes as a credit against their U.S. income taxes.
WHEN WILL I RECEIVE TAX INFORMATION?
Each stockholder will receive, at the end of each fiscal year of the Company,
full information on dividends, capital gains distributions and other reportable
amounts with respect to shares of the Fund for tax purposes, including
information such as the portion taxable as capital gains, and the amount of
dividends, if any, eligible for the federal dividends received deduction for
corporate taxpayers.
The foregoing is a general abbreviated summary of present U.S. federal income
tax laws and regulations applicable to dividends and distributions by the Fund.
Investors are urged to consult their own tax advisers for more detailed
information and for information regarding any foreign, state, and local tax laws
and regulations applicable to dividends and distributions received.
-------------------------------
GENERAL INFORMATION
----------------------------
WHAT OTHER INFORMATION SHOULD I KNOW ABOUT THE FUND?
The Company was incorporated in Maryland on September 7, 1995. The authorized
capital stock of the Company is 1,000,000,000 shares of capital stock (par value
$.0001 per share) of which 50,000,000 shares have been designated as shares of
RCM Global Technology Fund. The Company's Board of Directors may, in the future,
authorize the issuance of other series of capital stock representing shares of
additional investment portfolios or funds.
All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by series is required by law
or where the matter involved affects only one series. There are no conversion or
preemptive rights in connection with any shares of the Company. All shares of
the Fund when duly issued will be fully paid and non-assessable. The rights of
the holders of shares of the Fund may not be modified except by vote of the
majority of the outstanding shares of the Fund. Certificates are not issued
unless requested and are never issued for fractional shares. Fractional shares
are liquidated when an account is closed. As of , 1995, there were
shares of the Fund outstanding, all of which were owned by [the
Investment Manager].
Shares of the Company have non-cumulative voting rights, which means that the
holders of more than 50% of all series of the Company's shares voting for the
election of directors can elect 100% of the directors if they wish to do so. In
such event, the holders of the remaining less that 50% of the shares voting for
the election of directors will not be able to elect any person to the Board of
Directors.
The Company is not required to hold a meeting of stockholders in any year in
which the 1940 Act does not require a stockholder vote on a particular matter,
such as election of directors. The Company will hold a meeting of its
stockholders for the purpose of voting on the question of removal of one or more
directors if requested in writing by the holders of at
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<PAGE>
least 10% of the Company's outstanding voting securities, and will assist in
communicating with its stockholders as required by Section 16(c) of the 1940
Act.
This Prospectus does not contain all of the information set forth in the
Company's registration statement and related forms as filed with the SEC,
certain portions of which are omitted in accordance with rules and regulations
of the Commission. The registration statements and related forms may be
inspected at the Public Reference Room of the Securities and Exchange Commission
at Room 1024, 450 5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
copies thereof may be obtained from the SEC at prescribed rates.
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<PAGE>
RCM EQUITY FUNDS, INC.
RCM GLOBAL TECHNOLOGY FUND
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) -
-------------------------------
STATEMENT OF ADDITIONAL INFORMATION
----------------------------
, 1995
RCM Global Technology Fund (the "Fund") is a non-diversified, no-load series of
RCM Equity Funds, Inc. (the "Company"), an open-end management investment
company. The Fund's investment manager is RCM Capital Management, A California
Limited Partnership (the "Investment Manager").
This Statement of Additional Information is not a prospectus, but contains
information in addition to and more detailed than that set forth in the Fund's
Prospectus (the "Prospectus") and should be read in conjunction with such
Prospectus. The Prospectus may be obtained without charge by calling or writing
the Company at the address and phone number above.
-------------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Objective and Policies.................................................... B-2
Investment and Risk Considerations................................................... B-10
Investment Restrictions.............................................................. B-15
Execution of Portfolio Transactions.................................................. B-17
Directors and Officers............................................................... B-19
The Investment Manager............................................................... B-21
Distributor.......................................................................... B-23
How to Purchase Shares............................................................... B-23
Net Asset Value...................................................................... B-23
Redemption of Shares................................................................. B-24
Dividends, Distributions and Tax Status.............................................. B-25
Investment Results................................................................... B-27
Description of Capital Stock......................................................... B-28
Additional Information............................................................... B-29
</TABLE>
<PAGE>
-------------------------------
INVESTMENT OBJECTIVE AND POLICIES
----------------------------
INVESTMENT IN FOREIGN SECURITIES
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political, and social factors. In seeking to achieve the Fund's investment
objective, the Investment Manager will allocate the Fund's assets among
securities of countries and in currency denominations where opportunities for
meeting the Fund's investment objective are expected to be the most attractive,
subject to the percentage limitations set forth in the Prospectus. In addition,
from time-to-time, the Fund may strategically adjust its investments among
issuers based in various countries and among the various equity markets of the
world in order to take advantage of diverse global opportunities for capital
appreciation, based on the Investment Manager's evaluation of prevailing trends
and developments, as well as on the Investment Manager's assessment of the
potential for capital appreciation (as compared to the risks) of particular
companies, industries, countries, and regions.
INVESTMENT IN DEVELOPED FOREIGN COUNTRIES. The Fund may invest a substantial
portion of its assets in securities of companies that are organized or
headquartered in developed foreign countries, including the developed foreign
countries listed in the Prospectus. At the discretion of the Investment Manager,
the Fund may also invest in securities of companies that are organized or
headquartered in other developed foreign countries. The Fund may not be invested
in all developed foreign countries at one time, and may not invest in particular
developed foreign countries at any time, depending on the Investment Manager's
view of the investment opportunities available.
Although these countries have developed economies, even developed countries are
subject to periods of economic or political instability. For example, efforts by
the member countries of the European Community to eliminate internal barriers to
the free movement of goods, persons, services and capital have encountered
opposition arising from the conflicting economic, political and cultural
interests and traditions of the member countries and their citizens. The
reunification of the former German Democratic Republic (East Germany) with the
Federal Republic of Germany (West Germany) and other political and social events
in Europe have caused considerable economic and social dislocations. Such events
can materially affect securities markets and have also disrupted the
relationship of such currencies with each other and with the U.S. dollar.
Similarly, events in the Japanese economy and social developments may affect
Japanese securities and currency markets, as well as the relationship of the
Japanese Yen to the U.S. dollar. Future political, economic and social
developments can be expected to produce continuing effects on securities and
currency markets.
The Japanese currency is the Yen (as of , 1995: Y = $1 U.S.).
Gross domestic product ("GDP") was Y471 trillion ($4,651 billion) in 1994. The
current account balance in 1994 was a surplus of Y13.2 trillion ($129 billion),
which was 2.8% of the GDP. The annual rate of inflation in 1994 was 0.7%. The
average rate of inflation for the three years ending 1994 was 1.2%. Japan is a
highly industrialized nation with a population in excess of 120 million people.
At the end of 1993 and 1994, total market value of shares listed on the Tokyo
stock exchange was $2,881 billion and $3,553 billion, respectively, which was an
increase of 23.3%. The Nikkei stock average, which is calculated on a formula
similar to that used for the Dow Jones average in the United States, was
16,924.95, 17,417.24 and 19,723 at year-end 1992, 1993 and 1994, respectively.
INVESTMENT IN EMERGING MARKET COUNTRIES. As a general matter, countries that
are not considered to be developed foreign countries by the Investment Manager
will be deemed to be emerging market countries. (See INVESTMENT IN DEVELOPED
FOREIGN COUNTRIES ABOVE.) As their economies grow and their markets grow and
mature, some countries that currently may be characterized by the Investment
Manager as emerging market countries may be deemed by the Investment Manager to
be developed foreign countries. In the event that the Investment Manager deems a
particular country to be a developed foreign country, any investment in
securities issued by that country's government or by an issuer located in that
country would not be subject to the Fund's overall limitation on investments in
emerging market countries.
- --------------------------------------------------------------------------------
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<PAGE>
Securities of issuers organized or headquartered in emerging market countries
may, at times, offer excellent opportunities for capital appreciation. However,
prospective investors should be aware that the markets of emerging market
countries historically have been more volatile than the markets of the United
States and developed foreign countries, and thus the risks of investing in
securities of issuers organized or headquartered in emerging market countries
may be far greater than the risks of investing in developed foreign markets. See
INVESTMENT AND RISK CONSIDERATIONS -- EMERGING MARKET SECURITIES for a more
detailed discussion of the risk factors associated with investments in emerging
market securities. In addition, movements of emerging market currencies
historically have had little correlation with movements of developed foreign
market currencies. Prospective investors should consider these risk factors
carefully before investing in the Fund. Some emerging market countries have
currencies whose value is closely linked to the U.S. dollar. Emerging market
countries also may issue debt denominated in U.S. dollars and other currencies.
It is unlikely that the Fund will be invested in equity securities in all
emerging market countries at any time. Moreover, investing in some emerging
markets currently may not be desirable or feasible, due to lack of adequate
custody arrangements for the Fund's assets, overly burdensome repatriation or
similar restrictions, the lack of organized and liquid securities markets,
unacceptable political risks, poor values of investments in those markets
relative to investments in other emerging markets, in developed foreign markets,
or in the United States, or for other reasons.
INVESTMENT CRITERIA
In evaluating particular investment opportunities, the Investment Manager may
consider, in addition to the factors described in the Prospectus, the
anticipated economic growth rate, the political outlook, the anticipated
inflation rate, the currency outlook, and the interest rate environment for the
country and the region in which a particular issuer is located. When the
Investment Manager believes it would be appropriate and useful, the Investment
Manager's personnel may visit the issuer's headquarters and plant sites to
assess an issuer's operations and to meet and evaluate its key executives. The
Investment Manager also will consider whether other risks may be associated with
particular securities.
CURRENCY MANAGEMENT
Securities purchased by the Fund may be denominated in U.S. dollars, foreign
currencies, or multinational currency units such as the European Currency Unit,
and the Fund will incur costs in connection with conversions between various
currencies. Movements in the various securities markets may be offset by changes
in foreign currency exchange rates. Exchange rates frequently move independently
of securities markets in a particular country. As a result, gains in a
particular securities market may be affected, either positively or negatively,
by changes in exchange rates, and the Fund's net currency positions may expose
it to risks independent of its securities positions.
From time-to-time, the Fund may employ currency management techniques to enhance
its total return, although it presently does not intend to do so. The Fund may
not employ more than 30% of the value of its total assets in currency management
techniques for the purpose of enhancing returns. To the extent that such
techniques are used to enhance return, they are considered speculative.
The Fund's ability to engage in currency transactions may be limited by the
requirements of the Internal Revenue Code of 1986 for qualification as a
regulated investment company and the Fund's intention to continue to qualify as
such. (See DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.) The Fund's ability and
decisions to purchase or sell portfolio securities also may be affected by the
laws or regulations in particular countries relating to convertability and
repatriation of assets. Because the shares of the Fund are redeemable in U.S.
dollars each day the Fund determines its net asset value, the Fund must have the
ability at all times to obtain U.S. dollars to the extent necessary to meet
redemptions. Under present conditions, the Investment Manager does not believe
that these considerations will have any significant adverse effect on its
portfolio strategy, although there can be no assurances in this regard.
GENERAL CURRENCY CONSIDERATIONS. Currency exchange rates may fluctuate
significantly over short periods of time causing, along with other factors, the
Fund's net asset value to fluctuate as well. Currency exchange rates generally
are determined by the forces of supply and demand in the foreign exchange
markets and the relative merits of investments in different countries, actual or
anticipated changes in interest rates and other complex factors,
- --------------------------------------------------------------------------------
B-3
<PAGE>
as seen from an international perspective. Currency exchange rates also can be
affected unpredictably by intervention, or failure to do so, by U.S. or foreign
governments or central banks or by currency controls or political developments
in the United States or abroad. The market in forward foreign currency exchange
contracts, currency swaps and other privately negotiated currency instruments
offers less protection against defaults by the other party to such instruments
than is available for currency instruments traded on an exchange. To the extent
that a substantial portion of the Fund's total assets, adjusted to reflect the
Fund's net position after giving effect to currency transactions, is denominated
or quoted in the currencies of foreign countries, the Fund will be more
susceptible to the risk of adverse economic and political developments within
those countries.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may purchase or sell
forward foreign currency exchange contracts for hedging purposes or to seek to
increase total return when the Investment Manager anticipates that the foreign
currency will appreciate or depreciate in value, but securities denominated or
quoted in that currency do not present attractive investment opportunities and
are not held in the Fund's portfolio. When purchased or sold to increase total
return, forward foreign currency exchange contracts are considered speculative.
In addition, the Fund may enter into forward foreign currency exchange contracts
in order to protect against anticipated changes in future foreign currency
exchange rates. The Fund may engage in cross-hedging by using forward contracts
in a currency different from that in which the hedged security is denominated or
quoted if the Investment Manager determines that there is a pattern of
correlation between the two currencies. The Fund may also engage in proxy
hedging, by using forward contracts in a series of foreign currencies for
similar purposes.
The Fund may enter into contracts to purchase foreign currencies to protect
against an anticipated rise in the U.S. dollar price of securities it intends to
purchase. The Fund may enter into contracts to sell foreign currencies to
protect against the decline in value of its foreign currency denominated or
quoted portfolio securities, or a decline in the value of anticipated dividends
from such securities, due to a decline in the value of foreign currencies
against the U.S. dollar. Contracts to sell foreign currency could limit any
potential gain which might be realized by the Fund if the value of the hedged
currency increased.
If the Fund enters into a forward foreign currency exchange contract to sell
foreign currency to increase total return, the Fund will place cash, U.S.
Government securities, or other liquid high grade debt obligations in a
segregated account with the Fund's custodian in an amount equal to the value of
the Fund's total assets committed to the consummation of the forward contract.
If the value of the securities placed in the segregated account declines,
additional assets 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.
Forward contracts are subject to the risk that the counterparty to such contract
will default on its obligations. Since a forward foreign currency exchange
contract is not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive the Fund of unrealized profits, transaction costs or the
benefits of a currency hedge or force the Fund to cover its purchase or sale
commitments, if any, at the current market price. The Fund will enter into such
transactions only with primary dealers or others deemed creditworthy by the
Investment Manager.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and sell (write) put and
call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of foreign portfolio securities and
anticipated dividends on such securities and against increases in the U.S.
dollar cost of foreign securities to be acquired. The Fund may also use options
on currency to cross-hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a different currency, if
the Investment Manager believes there is a pattern of correlation between the
two currencies. Options on foreign currencies to be written or purchased by the
Fund will be traded on U.S. and foreign exchanges.
The writer of a put or call option receives a premium and gives the purchaser
the right to sell (or buy) the currency underlying the option at the exercise
price. The writer has the obligation upon exercise of the option to purchase (or
deliver) the currency during the option period. A writer of an
- --------------------------------------------------------------------------------
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<PAGE>
option who wishes to terminate the obligation may effect a "closing transaction"
by buying an option of the same series as the option previously written. A
writer may not effect a closing purchase transaction after being notified of the
exercise of an option. The writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received; the
Fund could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against exchange rate fluctuations;
however, in the event of exchange rate movements adverse to the Fund's position,
the Fund may forfeit the entire amount of the premium plus related transaction
costs.
The Fund may purchase call or put options on currency to seek to increase total
return when the Investment Manager anticipates that the currency will appreciate
or depreciate in value, but the securities quoted or denominated in that
currency do not present attractive investment opportunities and are not held in
the Fund's portfolio. When purchased or sold to increase total return, options
on currencies are considered speculative.
When the Fund writes a call option on a foreign currency, an amount of cash,
U.S. Government securities, or other liquid high-grade debt obligations equal to
the market value of its obligations under the option will be deposited by the
Fund in a segregated account with the Fund's Custodian to collateralize the
position.
CURRENCY SWAPS. The Fund may enter into currency swaps for both hedging and to
seek to increase total return. Currency swaps involve the exchange of rights to
make or receive payments in specified currencies. Since currency swaps are
individually negotiated, the Fund expects to achieve an acceptable degree of
correlation between its portfolio investments and its currency swap positions
entered into for hedging purposes. Currency swaps may involve the delivery of
the entire principal value of one designated currency in exchange for the other
designated currency, or the delivery of the net amount of a party's obligations
over its entitlements. Therefore, the entire principal value of a currency swap
may be subject to the risk that the other party to the swap will default on its
contractual delivery obligations. The Fund will maintain in a segregated account
with the Fund's custodian cash and liquid, high grade debt securities equal to
the amount of the Fund's obligations, or the net amount (if any) of the excess
of the Fund's obligations over its entitlements, with respect to swap
transactions. To the extent that such amount of a swap is held in a segregated
account consisting of cash or liquid, high grade debt securities, the Fund and
the Investment Manager believe that swaps do not constitute senior securities
under the Investment Company Act of 1940 (the "1940 Act") and, accordingly, will
not treat them as being subject to the Fund's borrowing restriction.
The currency swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting both as principals and
agents utilizing standard swap documentation, and the Investment Manager has
determined that the currency swap market has become relatively liquid. However,
the use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Manager is incorrect in its
forecasts of market values and currency exchange rates, the investment
performance of the Fund would be less favorable than it would have been if this
investment technique were not used.
OPTIONS TRANSACTIONS
The Fund may purchase listed covered put and call options on stocks as a hedge
against changes in market conditions that may result in changes in the value of
the Fund's portfolio securities. The aggregate premiums on put options and call
options purchased by the Fund may not in each case exceed 5% of the value of the
net assets of the Fund. In addition, the Fund will not purchase or sell options
if more than 25% of the value of its net assets would be hedged.
A put gives the holder the right, in return for the premium paid, to require the
writer of the put to purchase from the holder a security at a specified price. A
call gives the holder the right, in return for the premium paid, to require the
writer of the call to sell a security to the holder at a specified price. Put
and call options are traded on U.S. and foreign exchanges. A put option is
covered if the writer maintains cash or cash equivalents equal to the exercise
price in a segregated account. A call option is covered if the writer owns the
security underlying the call or has an absolute and immediate
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right to acquire the security without additional cash consideration upon
conversion or exchange of other securities held by it.
PUT OPTIONS. Purchasing put options may be used as a portfolio investment
strategy when the Investment Manager perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If the Fund
is holding a stock which the Investment Manager feels has strong fundamentals,
but for some reason may be weak in the near term, the Fund may purchase a put
option on such security, thereby giving itself the right to sell such security
at a certain strike price throughout the term of the option. Consequently, the
Fund will exercise the put only if the price of such security falls below the
strike price of the put. The difference between the put's strike price and the
market price of the underlying security on the date the Fund exercises the put,
less transaction costs, will be the amount by which the Fund will be able to
hedge against a decline in the underlying security. If during the period of the
option the market price for the underlying security remains at or above the
put's strike price, the put will expire worthless, representing a loss of the
price the Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put may be sold.
CALL OPTIONS. The purchase of a call option is a type of insurance policy to
hedge against losses that could occur if the Fund intends to purchase the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the price of the
underlying security thereafter falls, the price the Fund pays for the security
will in effect be increased by the premium paid for the call option less any
amount for which such option may be sold.
DEALER OPTIONS. The Fund may engage in transactions involving dealer options as
well as exchange-traded options. Options not traded on an exchange generally
lack the liquidity of an exchange traded option, and may be subject to the
Fund's restriction on investment in illiquid securities. In addition, dealer
options may involve the risk that the securities dealers participating in such
transactions will fail to meet their obligations under the terms of the option.
SHORT SALES
A short sale that is not made "against the box" is a transaction in which the
Fund sells a security it does not own in anticipation of a decline in market
price. When the Fund makes a short sale, the proceeds its receives are retained
by the broker until the Fund replaces the borrowed security. In order to deliver
the security to the buyer, the Fund must arrange through a broker to borrow the
security and, in so doing, the Fund becomes obligated to replace the security
borrowed at its market price at the time of replacement, whatever that price may
be.
Short sales by the Fund that are not made "against the box" create opportunities
to increase the Fund's return but, at the same time, involve special risk
considerations and may be considered a speculative technique. Since the Fund in
effect profits from a decline in the price of the securities sold short without
the need to invest the full purchase price of the securities on the date of the
short sale, the Fund's net asset value per share will tend to increase more when
the securities it has sold short decrease in value, and to decrease more when
the securities it has sold short decrease in value, than would otherwise be the
case if it had not engaged in such short sales. Short sales theoretically
involve unlimited loss potential, as the market price of securities sold short
may continuously increase, although the Fund may mitigate such losses by
replacing the securities sold short before the market price has increased
significantly. Under adverse market conditions the Fund might have difficulty
purchasing securities to meet its short sale delivery obligations, and might
have to sell portfolio securities to raise the capital necessary to meet its
short sale obligations at a time when fundamental investment considerations
would not favor such sales.
If the Fund makes a short sale "against the box," the Fund would not immediately
deliver the securities sold and would not receive the proceeds from
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the sale. The seller is said to have a short position in the securities sold
until it delivers the securities sold, at which time it receives the proceeds of
the sale. The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Investment Manager believes
that the price of a security may decline, causing a decline in the value of a
security owned by the Fund or a security convertible into or exchangeable for
such security. In such case, any future losses in the Fund's long position would
be reduced by a gain in the short position.
In the view of the Securities and Exchange Commission ("SEC"), a short sale
involves the creation of a "senior security" as such term is defined in the 1940
Act, unless the sale is "against the box" and the securities sold are placed in
a segregated account (not with the broker), or unless the Fund's obligation to
deliver the securities sold short is "covered" by placing in a segregated
account (not with the broker) cash or U.S. Government securities in an amount
equal to the difference between the market value of the securities sold short at
the time of the short sale and any cash or U.S. Government securities required
to be deposited as collateral with a broker in connection with the sale (not
including the proceeds from the short sale), which difference is adjusted daily
for changes in the value of the securities sold short. The total value of the
cash and U.S. Government securities deposited with the broker and otherwise
segregated may not at any time be less than the market value of the securities
sold short at the time of the short sale.
The Fund's ability to enter into short sales transactions is limited by the
requirements of the Internal Revenue Code with respect to the Fund's
qualifications as a regulated investment company. (See DIVIDENDS, DISTRIBUTIONS
AND TAX STATUS.)
To avoid limitations under the 1940 Act on borrowing by investment companies,
short sales by the Fund will be against the box, or the Fund's obligation to
deliver the securities sold short will be "covered" by placing in a segregated
account cash or U.S. Government securities in an amount equal to the market
value of its delivery obligation. The Fund will not make short sales of
securities or maintain a short position if doing so would create liabilities or
require collateral deposits and segregation of assets aggregating more than 25%
of the value of the Fund's total assets.
FUTURES TRANSACTIONS
The Fund may purchase and sell currency futures contracts and futures options,
in accordance with the strategies more specifically described below, to hedge
against currency exchange rate fluctuations or to enhance returns.
FUTURES CHARACTERISTICS. A futures contract is an agreement between two parties
(buyer and seller) to take or make delivery of an amount of cash equal to the
difference between the value of currency at the close of the last trading day of
the contract and the price at which the currency contract was originally
written. In the case of futures contracts traded on U.S. exchanges, the exchange
itself or an affiliated clearing corporation assumes the opposite side of each
transaction (i.e., as buyer or seller). A futures contract may be satisfied or
closed out by payment of the change in the cash value of the currency. No
physical delivery of the underlying currency is made.
Unlike when the Fund purchases or sells a security, no price is paid or received
by the Fund upon the purchase or sale of a futures contract. Initially, the Fund
will be required to deposit with the Fund's custodian or such other parties as
may be authorized by the SEC (in the name of the futures commission merchant
(the "FCM")) an amount of cash or U.S. Treasury bills which is referred to as an
"initial margin" payment. The nature of initial margin in futures transactions
is different from that of margin in security transactions in that a futures
contract margin does not involve the borrowing of funds by the Fund to finance
the transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Futures contracts customarily are purchased and sold with
initial margins that may range upwards from less than 5% of the value of the
futures contract being traded. Subsequent payments, called variation margin, to
and from the FCM, will be made on a daily basis as the price of the underlying
currency varies, making the long and short positions in the futures contract
more or less valuable. This process is known as "marking to the market." For
example, when the Fund has purchased a currency futures contract and the price
of the underlying currency has risen, that position will have increased in value
and the Fund will receive from the FCM a variation margin payment equal to that
increased value.
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<PAGE>
Conversely, when the Fund has purchased a currency futures contract and the
price of the underlying currency has declined, the position would be less
valuable and the Fund would be required to make a variation margin payment to
the FCM. At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an identical opposite position which will
operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or a gain.
CHARACTERISTICS OF FUTURES OPTIONS. The Fund may also purchase call options and
put options on currency futures contracts ("futures options"). A futures option
gives the holder the right, in return for the premium paid, to assume a long
position (in the case of a call) or short position (in the case of a put) in a
futures contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. A futures option may be closed
out (before exercise or expiration) by an offsetting purchase or sale of a
futures option of the same series.
PURCHASE OF FUTURES. The Investment Manager may purchase a currency futures
contract when it anticipates the subsequent purchase of particular securities
and has the necessary cash, but expects the currency exchange rates then
available in the applicable market to be less favorable than rates that are
currently available, or to attempt to enhance return when it anticipates that
future currency exchange rates will be more favorable than current rates.
SALE OF FUTURES. The Investment Manager may sell a currency futures contract to
hedge against an anticipated decline in foreign currency rates that would
adversely affect the dollar value of the Fund's portfolio securities denominated
in such currency, or may sell a currency futures contract in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency if there is an established historical pattern or correlation between
the two currencies.
PURCHASE OF PUT OPTIONS ON FUTURES. The purchase of a put option on a currency
futures contract is analogous to the purchase of a put on an individual stock,
where an absolute level of protection from price fluctuation is sought below
which no additional economic loss would be incurred by the Fund. The purchase of
a put option on a currency futures contract can be used to hedge against
unfavorable movements in currency exchange rates, or to attempt to enhance
returns in contemplation of movements in such rates.
PURCHASE OF CALL OPTIONS ON FUTURES. The purchase of a call option on a
currency futures contract represents a means of obtaining temporary exposure to
favorable currency exchange rate movements with risk limited to the premium paid
for the call option. It is analogous to the purchase of a call option on an
individual stock, which can be used as a substitute for a position in the stock
itself. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or to the price of the underlying currency
itself, it may be less risky, because losses are limited to the premium paid for
the call option, when compared to the ownership of the underlying currency. Like
the purchase of a currency futures contract, the Fund would purchase a call
option on a currency futures contract to hedge against an unfavorable movement
in exchange rates.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES AND FUTURES OPTIONS. The Fund may
not purchase or sell futures contracts or purchase futures options if,
immediately thereafter, more than 30% of the value of its net assets would be
hedged. In addition, the Fund may not purchase or sell futures or purchase
futures options if, immediately thereafter, the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid for futures
options would exceed 5% of the market value of the Fund's total assets. In Fund
transactions involving futures contracts, to the extent required by applicable
SEC guidelines, an amount of cash and cash equivalents equal to the market value
of the futures contracts will be deposited by the Fund in a segregated account
with the Fund's Custodian, or in other segregated accounts as regulations may
allow, to collateralize the position and thereby to insure that the use of such
futures is unleveraged.
TAX TREATMENT. The extent to which the Fund may engage in futures and futures
option transactions may be limited by the requirements of the Internal Revenue
Code of 1986 for qualification as
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a regulated investment company and the Fund's intention to continue to qualify
as such. See DIVIDENDS, DISTRIBUTIONS AND TAXES.
REGULATORY MATTERS. The Fund has filed a claim of exemption from registration
as a commodity pool with the Commodity Futures Trading Commission (the "CFTC").
The Fund intends to conduct its futures trading activity in a manner consistent
with that exemption. The Investment Manager is registered with the CFTC as both
a Commodity Pool Operator and as a Commodity Trading Advisor.
DEBT SECURITIES
The timing of purchase and sale transactions in debt obligations may result in
capital appreciation or depreciation because the value of debt obligations
varies inversely with prevailing interest rates.
The debt obligations in which the Fund will invest will be rated, at the time of
purchase, BBB or higher by Standard & Poor's Corporation ("Standard & Poor's")
or Baa or higher by Moody's Investor Services, Inc. ("Moody's") or equivalent
ratings by other rating organizations, or, if unrated, will be determined by the
investment Manager to be of comparable investment quality. If the rating of an
investment grade security held by the Fund is downgraded, the Investment Manager
will determine whether it is in the best interests of the Fund to continue to
hold the security in its investment portfolio.
U.S. Government obligations include obligations issued or guaranteed as to
principal and interest by the U.S. Government and its agencies and
instrumentalities, by the right of the issuer to borrow from the U.S. Treasury,
by the discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality, or only by the credit of the
agency or instrumentality.
INVESTMENT IN ILLIQUID SECURITIES
The Investment Manager takes into account a number of factors in reaching
liquidity decisions, including, but not limited to: the listing of the security
on an exchange or national market system; the frequency of trading in the
security; the number of dealers who publish quotes for the security; the number
of dealers who serve as market makers for the security; the apparent number of
other potential purchasers; and the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited,
and the mechanics of transfer).
CASH-EQUIVALENT INVESTMENTS
Other than as described below under INVESTMENT RESTRICTIONS, the Fund is not
restricted with regard to the types of cash-equivalent investments it may make.
When the Investment Manager believes that such investments are an appropriate
part of the Fund's overall investment strategy, the Fund may hold or invest, for
investment purposes, a portion of its assets in any of the following,
denominated in U.S. dollars, foreign currencies, or multinational currency
units: cash; short-term U.S. or foreign government securities; commercial paper
rated at least A-2 by Standard & Poor's or P-2 by Moody's; certificates of
deposit or other deposits of banks deemed creditworthy by the Investment Manager
pursuant to standards adopted by the Company's Board of Directors; time
deposits; bankers' acceptances; and repurchase agreements related to any of the
foregoing. In addition, for temporary defensive purposes under abnormal market
or economic conditions, the Fund may invest up to 100% of its assets in such
cash-equivalent investments.
A certificate of deposit is a short-term obligation of a commercial bank. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with international commercial transactions. A repurchase
agreement involves a transaction by which an investor (such as the Fund)
purchases a security and simultaneously obtains the commitment of the seller (a
member bank of the Federal Reserve System or a securities dealer deemed
creditworthy by the Investment Manager pursuant to standards adopted by the
Company's Board of Directors) to repurchase the security at an agreed-upon price
on an agreed-upon date within a number of days (usually not more than seven)
from the date of purchase.
PORTFOLIO TURNOVER
The Fund may invest in securities on either a long-term or short-term basis. The
Fund may invest with the expectation of short-term capital appreciation if the
Investment Manager believes that such action will benefit the Fund's
stockholders. The Fund also may sell securities that have been held on a
short-term basis if the Investment Manager believes that circumstances make the
sale of such securities advisable. This may result in a taxable
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stockholder paying higher income taxes than would be the case with investment
companies emphasizing the realization of long-term capital gains. Because the
Investment Manager will purchase and sell securities for the Fund's portfolio
without regard to the length of the holding period for such securities, it is
possible that the Fund's portfolio will have a higher turnover rate than might
be expected for investment companies that invest substantially all of their
funds for long-term capital appreciation or generation of current income.
Securities in the Fund's portfolio will be sold whenever the Investment Manager
believes it is appropriate to do so, regardless of the length of time that
securities have been held, and securities may be purchased or sold for
short-term profits whenever the Investment Manager believes it is appropriate or
desirable to do so. Turnover will be influenced by sound investment practices,
the Fund's investment objective, and the need for funds for the redemption of
the Fund's shares.
A 150% portfolio turnover rate would occur if the value of purchases or sales of
portfolio securities (whichever is less) for a year (excluding purchases of U.S.
Treasury issues and securities with a maturity of one year or less) were equal
to 150% of the average monthly value of the securities held by the Fund during
such year. As a result of the manner in which turnover is measured, a high
turnover rate could also occur during the first year of Fund operations, and
during periods when the Fund's assets are growing or shrinking.
INVESTMENT RESTRICTIONS
In making purchases within the foregoing policies, the Fund and the Investment
Manager will be subject to all of the restrictions referred to under INVESTMENT
RESTRICTIONS. If a percentage restriction on an investment or utilization of
assets set forth above or under INVESTMENT RESTRICTIONS is adhered to at the
time the investment is made, a later change in percentage resulting from
changing value or a similar type of event will not be considered a violation of
the Fund's investment policies or restrictions. The Fund may exchange
securities, exercise conversions or subscription rights, warrants or other
rights to purchase common stock or other equity securities and may hold, except
to the extent limited by the 1940 Act, any such securities so acquired without
regard to the Fund's investment policies and restrictions.
-------------------------------
INVESTMENT AND RISK CONSIDERATIONS
----------------------------
INVESTMENTS IN FOREIGN SECURITIES
GENERALLY
Investments in foreign equity securities may offer investment opportunities and
potential benefits not available from investments solely in securities of U.S.
issuers. Such benefits may include the opportunity to invest in foreign issuers
that appear, in the opinion of the Investment Manager, to offer better
opportunity for long-term capital appreciation than investments in securities of
U.S. issuers, the opportunity to invest in foreign countries with economic
policies or business cycles different from those of the United States and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that do not necessarily move in a manner parallel to U.S.
stock markets.
At the same time, however, investing in foreign equity securities involves
significant risks, some of which are not typically associated with investing in
securities of U.S. issuers. For example, the value of investments in such
securities may fluctuate based on changes in the value of one or more foreign
currencies relative to the U.S. dollar, and a change in the exchange rate of one
or more foreign currencies could reduce the value of certain portfolio
securities. Currency exchange rates may fluctuate significantly over short
periods of time, and are generally determined by the forces of supply and demand
and other factors beyond the Fund's control. Changes in currency exchange rates
may, in some circumstances, have a greater effect on the market value of a
security than changes in the market price of the security. To the extent that a
substantial portion of the Fund's total assets is denominated or quoted in the
currency of a foreign country, the Fund will be more susceptible to the risk of
adverse economic and political developments within that country. As discussed
above, the Fund may employ certain investment techniques to hedge its foreign
currency exposure; however, such techniques also entail certain risks.
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In addition, information about foreign issuers may be less readily available
than information about domestic issuers. Foreign issuers generally are not
subject to accounting, auditing, and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to U.S.
issuers. Furthermore, with respect to certain foreign countries, the possibility
exists of expropriation, nationalization, revaluation of currencies,
confiscatory taxation, and limitations on foreign investment and the use or
removal of funds or other assets of the Fund, including the withholding of
dividends and limitations on the repatriation of currencies. In addition, the
Fund may experience difficulties or delays in obtaining or enforcing judgments.
Foreign securities may be subject to foreign government taxes that could reduce
the yield on such securities.
Foreign equity securities may be traded on an exchange in the issuer's country,
an exchange in another country, or over-the-counter in one or more countries.
Most foreign securities markets, including over-the-counter markets, have
substantially less volume than U.S. securities markets, and the securities of
many foreign issuers may be less liquid and more volatile than securities of
comparable U.S. issuers. In addition, there is generally less government
regulation of securities markets, securities exchanges, securities dealers, and
listed and unlisted companies in foreign countries than in the United States.
Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
and complete such transactions. Inability to dispose of a portfolio security
caused by settlement problems could result either in losses to the Fund due to
subsequent declines in the value of the portfolio security or, if the Fund has
entered into a contract to sell that security, could result in possible
liability of the Fund to the purchaser. Delays in settlement could adversely
affect the Fund's ability to implement its investment strategies and to achieve
its investment objective.
In addition, the costs associated with transactions in securities traded on
foreign markets or of foreign issuers, and the expense of maintaining custody of
such securities with foreign custodians, generally are higher than the costs
associated with transactions in U.S. securities on U.S. markets. Investments in
foreign securities may result in higher expenses due to the cost of converting
foreign currency to U.S. dollars, the payment of fixed brokerage commissions on
foreign exchanges, the expense of maintaining securities with foreign custodians
and the imposition of transfer taxes or transaction charges associated with
foreign exchanges.
Investment in debt obligations of supranational organizations involves
additional risks. Such organizations' debt obligations generally are not
guaranteed by their member governments, and payment depends on their financial
solvency and/or the willingness and ability of their member governments to
support their obligations. Continued support of a supranational organization by
its government members is subject to a variety of political, economic and other
factors, as well as the financial performance of the organization.
DEPOSITORY RECEIPTS
In many respects, the risks associated with investing in depository receipts are
similar to the risks associated with investing in foreign equity securities. In
addition, to the extent that the Fund acquires depository receipts through banks
that do not have a contractual relationship with the foreign issuer of the
security underlying the depository receipts to issue and service depository
receipts, there may be an increased possibility that the Fund would not become
aware of and be able to respond to corporate actions, such as stock splits or
rights offerings, involving the foreign issuer in a timely manner.
The information available for American Depository Receipts ("ADRs") sponsored by
the issuers of the underlying securities is subject to the accounting, auditing,
and financial reporting standards of the domestic market or exchange on which
they are traded, which standards are more uniform and more exacting than those
to which many non-domestic issuers may be subject. However, some ADRs are
sponsored by persons other than the issuers of the underlying securities.
Issuers of the stock on which such ADRs are based are not obligated to disclose
material information in the United States. The information that is available
concerning the issuers of the securities underlying European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs") may be less
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than the information that is available about domestic issuers, and EDRs and GDRs
may be traded in markets or on exchanges that have lesser standards than those
applicable to the markets for ADRs.
A depository receipt will be treated as an illiquid security for purposes of the
Fund's restriction on
the purchases of such securities unless the depository receipt is convertible
into cash by the Fund within seven days.
EMERGING MARKET SECURITIES
There are special risks associated with investments in emerging market
securities that are in addition to the usual risks of investing in securities of
issuers located in developed foreign markets around the world, and investors are
strongly advised to consider those risks carefully. The securities markets of
emerging market countries are substantially smaller, less developed, less
liquid, and more volatile than the securities markets of the United States and
developed foreign markets. As a result, the prices of emerging market securities
may increase or decrease much more rapidly and much more dramatically than the
prices of securities of issuers located in developed foreign markets. Disclosure
and regulatory standards in many respects are less stringent than in the United
States and developed foreign markets. There also may be a lower level of
monitoring and regulation of securities markets in emerging market countries and
the activities of investors in such markets, and enforcement of existing
regulations has been extremely limited.
Many emerging market 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 very negative
effects on the economies and securities markets of certain emerging market
countries. Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values, and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be adversely affected by economic conditions in the countries in which they
trade. In addition, custodial services and other costs related to investment in
foreign markets may be more expensive in emerging markets than in many developed
foreign markets, which could reduce the Fund's investment return from such
securities.
In many cases, governments of emerging market countries continue to exercise a
significant degree of control over the economies of such countries, and
government actions relative to the economy, as well as economic developments
generally, also may have a major effect on an issuer's prospects. In addition,
certain of such governments have in the past failed to recognize private
property rights and have at times naturalized or expropriated the assets of
private companies. There is also a heightened possibility of confiscatory
taxation, imposition of withholding taxes on interest payments, or other similar
developments that could affect investments in those countries. As a result,
there can be no assurance that adverse political changes will not cause the Fund
to suffer a loss with respect to any of its holdings. In addition, political and
economic structures in many of such countries may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristic of more developed countries.
Unanticipated political or social developments may affect the value of the
Fund's investments in those countries and the availability of additional
investments in those countries.
INVESTMENTS IN SMALLER COMPANIES
Investing in the securities of companies with market capitalizations below $1
billion involves greater
risk and the possibility of greater portfolio price volatility than investing in
larger capitalization companies. For example, smaller capitalization companies
may have less certain growth prospects, and may be more sensitive to changing
economic conditions, than large, more established companies. Moreover, smaller
capitalization companies often face competition from larger or more established
companies that have greater resources. In addition, the smaller capitalization
companies in which the Fund may invest may have limited or unprofitable
operating histories, limited financial resources, and inexperienced management.
Furthermore, securities of such companies are often less liquid than securities
of larger companies, and may be subject to erratic or abrupt price movements. To
dispose of these securities, the Fund may have to sell them over an extended
period of time below the original purchase price. Investments by the Fund in
smaller capitalization companies may be regarded as speculative.
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<PAGE>
The Fund will not invest more than 5% of the value of its total assets in
securities issued by companies (including predecessors) that have operated for
less than three years. The securities of such companies may have limited
liquidity which can result in their prices being lower than might otherwise be
the case. In addition, investments in such companies are more speculative and
entail greater risk than do investments in companies with established operating
records.
CONVERTIBLE SECURITIES
Investment in convertible securities involves certain risks. The value of a
convertible security is a function of its "investment value" (determined by its
yield in comparison with the yields of other securities of comparable maturity
and quality that do not have a conversion privilege) and its "conversion value"
(the security's worth, at market value, if converted into the underlying stock).
If the conversion value is low relative to the investment value, the price of
the convertible security will be governed principally by its yield, and thus may
not decline in price to the same extent as the underlying stock; to the extent
the market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be influenced
increasingly by its conversion value. A convertible security held by the Fund
may be subject to redemption at the option of the issuer at a price established
in the instrument governing the convertible security, in which event the Fund
will be required to permit the issuer to redeem the security, convert it into
the underlying common stock, or sell it to a third party.
DEBT OBLIGATIONS
Although securities rated BBB by Standard & Poor's or Baa by Moody's are
considered to be of "investment grade," and are considered to have adequate
capacity to pay interest and repay principal, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and principal than higher-rated securities. Credit ratings evaluate the
safety of principal and interest payments of securities, not their market value.
The rating of an issuer is also heavily weighted by past developments and does
not necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated.
OPTIONS
There are several risks associated with transactions in options on securities
and indices. Options may be more volatile than the underlying instruments and,
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying instruments themselves.
There are also significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objective. In addition, a liquid
secondary market for particular options may be absent for reasons which include
the following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or clearing corporation may not at
all times be adequate to handle current trading volume; or one or more exchanges
could, for economic or other reasons, decide, or be compelled at some future
date, to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or unexpected events. The extent to which
the Fund may enter into options transactions may be limited by the Internal
Revenue Code requirements for qualification as a regulated investment company.
In addition, when trading options on foreign exchanges, many of the protections
afforded to participants in U.S. option exchanges will not be available. For
example, there may be no daily price fluctuation limits in such exchanges or
markets, and adverse market movements could therefore continue to an unlimited
extent over a period of time. Although the purchaser of an option cannot
- --------------------------------------------------------------------------------
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<PAGE>
lose more than the amount of the premium plus related transaction costs, this
entire amount could be lost.
Potential losses to the writer of an option are not limited to the loss of the
option premium received by the writer, and thus may be greater than the losses
incurred in connection with the purchasing of an option.
FUTURES TRANSACTIONS
There are several risks in connection with the use of futures in the Fund as a
hedging device. One risk arises because the correlation between movements in the
price of the future and movements in the price of the currencies which are the
subject of the hedge is not always perfect. The price of the future may move
more than, or less than, the price of the currencies being hedged. If the price
of the future moves less than the price of the currencies which are the subject
of the hedge, the hedge will not be fully effective but, if the price of the
currencies being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
currencies being hedged has moved in a favorable direction, this advantage will
be partially offset by movement in the value of the future. If the price of the
future moves more than the price of the currencies, the Fund will experience
either a loss or a gain on the future which will not be completely offset by
movements in the price of the currencies which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
currencies being hedged and movements in the price of the futures, the Fund may
buy or sell futures contracts in a greater dollar amount than the dollar amount
of currencies being hedged, if the historical volatility of the price of such
currencies has been greater than the historical volatility of the currencies.
Conversely, the Fund may buy or sell fewer futures contracts if the historical
volatility of the price of the currencies being hedged is less than the
historical volatility of the currencies.
Because of the low margins required, futures trading involves a high degree of
leverage. As a result, a relatively small investment in a futures contract may
result in immediate and substantial loss, as well as gain, to the Fund. A
purchase or sale of a futures contract may result in losses in excess of the
initial margin for the futures contract. However, the Fund would have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying currencies and sold the instrument after the decline.
When futures are purchased to hedge against a possible unfavorable movement in a
currency exchange rate before the Fund is able to invest its cash (or cash
equivalents) in stock in an orderly fashion, it is possible that the currency
exchange rate may move in a favorable manner instead; if the Fund then concludes
not to invest in stock at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the futures and the currencies which
are the subject of the hedge, the price of futures contracts may not correlate
perfectly with movement in the currency due to certain market distortions.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions. This practice could distort the normal relationship between the
currency and futures markets. Second, from the point of view of speculators, the
deposit requirements in the futures market may be less onerous than margin
requirements in the currency market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between movements in the currency and movements in the
price of currency futures, a correct forecast of general currency trends by the
Investment Manager still may not result in a successful hedging transaction over
a very short time frame.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. Once the daily limit has
been reached, no more trades may be made on that day at a price beyond the
limit. The daily limit governs only price movements during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions.
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<PAGE>
Compared to the use of futures contracts, the purchase of options on futures
contracts involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund when the use of a futures contract would not, such
as when there is no movement in the level of an index. In addition, daily
changes in the value of the option due to changes in the value of the underlying
futures contract are reflected in the net asset value of the Fund.
The Fund will only enter into futures contracts or purchase futures options that
are standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. However, there is no
assurance that a liquid secondary market on an exchange or board of trade will
exist for any particular futures contract or futures option or at any particular
time. In such event, it may not be possible to close a futures position, and, in
the event of adverse price movements, the Fund would continue to be required to
make daily cash payments of variation margin. In the event futures contracts
have been used to hedge currencies, an increase in the price of the currencies,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
currency will, in fact, correlate with the movements in the futures contract and
thus provide an offset to losses on a futures contract.
Successful use of futures by the Fund for hedging purposes or to enhance returns
is subject to the Investment Manager's ability to predict correctly movements in
the direction of the currency markets. For example, if the Fund purchased
currency futures contracts with the intention of profiting from a favorable
change in currency exchange rates, and the change was unfavorable, the Fund
would incur a loss, and might have to sell securities to meet daily variation
margin requirements at a time when it might be disadvantageous to do so. The
Investment Manager and its predecessor have been actively engaged in the
provision of investment supervisory services for institutional and individual
accounts since 1970, but the skills required for the successful use of futures
and options on futures are different from those needed to select portfolio
securities, and the Investment Manager has limited prior experience in the use
of futures or options techniques in the management of assets under its
supervision.
OTHER RISK CONSIDERATIONS
Investment in illiquid securities involves potential delays on resale as well as
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities, and the Fund might not be able to
dispose of such securities promptly or at reasonable prices.
A number of transactions in which the Fund may engage are subject to the risks
of default by the other party to the transaction. If the seller of securities
pursuant to a repurchase agreement defaults and the value of the collateral
securing the repurchase agreement declines, the Fund may incur a loss. If
bankruptcy proceedings are commenced with respect to the seller, realization on
the collateral by the Fund may be delayed or limited. Similarly, when the Fund
engages in when-issued, reverse repurchase, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the trade;
failure of the other party to do so may result in the Fund incurring a loss or
missing an opportunity to obtain a price the Investment Manager believed to be
advantageous. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of a possible delay in receiving
additional collateral or in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially.
-------------------------------
INVESTMENT RESTRICTIONS
----------------------------
FUNDAMENTAL POLICIES
The Fund has adopted certain investment restrictions that are fundamental
policies and that may not be changed without approval by the vote of a majority
of the Fund's outstanding voting securities, as defined in the 1940 Act. The
"vote of a majority of the outstanding voting securities" of the Fund, as
defined in Section 2(a)(42) of the 1940 Act, means the vote of (i) 67% or more
of the
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<PAGE>
voting securities of the Fund present at any meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund, whichever is less. These restrictions provide that the Fund may
not:
1. Invest more than 25% the value of its total assets in the securities of
companies primarily engaged in any one industry (other than the United
States of America, its agencies and instrumentalities);
2. Acquire more than 10% of the outstanding voting securities, or 10% of all of
the securities, of any one issuer;
3. Invest in companies for the purpose of exercising control or management;
4. Borrow money, except from banks to meet redemption requests or for temporary
or emergency purposes; provided that borrowings for temporary or emergency
purposes other than to meet redemption requests shall not exceed 5% of the
value of its total assets; and provided further that total borrowings shall
be made only to the extent that the value of the Fund's total assets, less
its liabilities other than borrowings, is equal to at least 300% of all
borrowings (including the proposed borrowing). For purposes of the foregoing
limitations, reverse repurchase agreements and other borrowing transactions
covered by segregated accounts are considered to be borrowings. The Fund
will not mortgage, pledge, hypothecate, or in any other manner transfer as
security for an indebtedness any of its assets. This investment restriction
shall not prohibit the Fund from engaging in futures contracts, futures
options, forward foreign currency exchange transactions, and currency
options;
5. Purchase securities on margin, but it may obtain such short-term credit from
banks as may be necessary for the clearance of purchases and sales of
securities;
6. Make loans of its funds or assets to any other person, which shall not be
considered as including: (i) the purchase of a portion of an issue of
publicly distributed debt securities, (ii) the purchase of bank obligations
such as certificates of deposit, bankers' acceptances and other short-term
debt obligations, (iii) entering into repurchase agreements with respect to
commercial paper, certificates of deposit and obligations issued or
guaranteed by the U. S. Government, its agencies or instrumentalities, and
(iv) the loan of portfolio securities to brokers, dealers and other
financial institutions where such loan is callable by the Fund at any time
on reasonable notice and is fully secured by collateral in the form of cash
or cash equivalents. The Fund will not enter into repurchase agreements with
maturities in excess of seven days if immediately after and as a result of
such transaction the value of the Fund's holdings of such repurchase
agreements exceeds 10% of the value of the Fund's total assets;
7. Act as an underwriter of securities issued by other persons, except insofar
as it may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities, or invest more than 15% of the value of its
net assets in securities that are illiquid;
8. Purchase the securities of any other investment company or investment trust,
except by purchase in the open market where, to the best information of the
Company, no commission or profit to a sponsor or dealer (other than the
customary broker's commission) results from such purchase and such purchase
does not result in such securities exceeding 10% of the value of the Fund's
total assets, or except when such purchase is part of a merger,
consolidation, acquisition of assets, or other reorganization approved by
the Fund's stockholders;
9. Purchase portfolio securities from or sell portfolio securities to the
officers, directors, or other "interested persons" (as defined in the 1940
Act) of the Company, other than otherwise unaffiliated broker-dealers;
10. Purchase commodities or commodity contracts, except that the Fund may
purchase securities of an issuer which invests or deals in commodities or
commodity contracts, and except that the Fund may enter into futures and
options contracts in accordance with the applicable rules of the CFTC. The
Fund has no current intention of entering into commodities contracts except
for currency futures and futures options;
11. Issue senior securities, except that the Fund may borrow money as permitted
by restriction
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<PAGE>
4 above. This restriction shall not prohibit the Fund from engaging in short
sales, options, futures and foreign currency transactions; and
12. Purchase or sell real estate; provided that the Fund may invest in readily
marketable securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein.
OPERATING POLICIES
The Fund has adopted certain investment restrictions that are not fundamental
policies and may be changed by the Company's Board of Directors without approval
of the Fund's outstanding voting securities. These restrictions provide that the
Fund may not:
1. Invest in interests in oil, gas, or other mineral exploration or development
programs;
2. Invest more than 5% of the value of its total assets in the securities of
any issuer which has a record of less than three years of continuous
operation (including the operation of any predecessor);
3. Participate on a joint or a joint-and-several basis in any trading account
in securities (the aggregation of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of
the Investment Manager to save brokerage costs, or to average prices among
them, is not deemed to result in a securities trading account); and
4. Purchase or sell futures or purchase related options if, immediately
thereafter, the sum of the amount of "margin" deposits on the Fund's
existing futures positions and premiums paid for related options entered
into for the purpose of seeking to increase total return would exceed 5% of
the value of the Fund's net assets.
THE FUND ALSO IS SUBJECT TO OTHER RESTRICTIONS UNDER THE 1940 ACT; HOWEVER, THE
REGISTRATION OF THE COMPANY UNDER THE 1940 ACT DOES NOT INVOLVE ANY SUPERVISION
BY ANY FEDERAL OR OTHER AGENCY OF THE COMPANY'S MANAGEMENT OR INVESTMENT
PRACTICES OR POLICIES, OTHER THAN INCIDENT TO OCCASIONAL OR PERIODIC COMPLIANCE
EXAMINATIONS CONDUCTED BY THE SEC STAFF.
-------------------------------
EXECUTION OF PORTFOLIO TRANSACTIONS
----------------------------
The Investment Manager, subject to the overall supervision of the Company's
Board of Directors, makes the Fund's investment decisions and selects the broker
or dealer to be used in each specific transaction using its best judgment to
choose the broker or dealer most capable of providing the services necessary to
obtain the best execution of that transaction. In seeking the best execution of
a transaction, the Investment Manager evaluates a wide range of criteria
including any or all of the following: the broker's commission rate, promptness,
reliability and quality of executions, trading expertise, positioning and
distribution capabilities, back-office efficiency, ability to handle difficult
trades, knowledge of other buyers and sellers, confidentiality, capital strength
and financial stability, and prior performance in serving the Investment Manager
and its clients and other factors affecting the overall benefit to be received
in the transaction. When circumstances relating to a proposed transaction
indicate that a particular broker is in a position to obtain the best execution,
the order is placed with that broker. This may or may not be a broker that has
provided investment information and research services to the Investment Manager.
Such investment information may include, among other things, a wide variety of
written reports or other data on the individual companies and industries; data
and reports on general market or economic conditions; information concerning
pertinent federal and state legislative and regulatory developments and other
developments that could affect the value of actual or potential investments;
companies in which the Investment Manager has invested or may consider
investing; attendance at meetings with corporate management personnel, industry
experts, economists, government personnel, and other financial analysts;
comparative issuer performance and evaluation and technical measurement
services; subscription to publications that provide investment-related
information; accounting and tax law interpretations; availability of economic
advice; quotation equipment and services; execution measurement services;
market-related and survey data concerning the products and services of an issuer
and its competitors or concerning a particular industry that are used in reports
prepared by the Investment Manager to enhance its ability to analyze an issuer's
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<PAGE>
financial condition and prospects; and other services provided by recognized
experts on investment matters of particular interest to the Investment Manager.
In addition, the foregoing services may include the use of or be delivered by
computer systems whose hardware and/or software components may be provided to
the Investment Manager as part of the services. In any case in which information
and other services can be used for both research and non-research purposes, the
Investment Manager makes an appropriate allocation of those uses and pays
directly for that portion of the services to be used for non-research purposes.
Subject to the requirement of seeking the best available prices and execution,
the Investment Manager may, in circumstances in which two or more brokers are in
a position to offer comparable prices and execution, give preference to a broker
or dealer that has provided investment information to the Investment Manager. In
so doing, the Investment Manager may effect securities transactions which cause
the Fund to pay an amount of commission in excess of the amount of commission
another broker would have charged. In selecting such broker or dealer, the
Investment Manager will make a good faith determination that the amount of
commission is reasonable in relation to the value of the brokerage services and
research and investment information received, viewed in terms of either the
specific transaction or the Investment Manager's overall responsibility to the
accounts for which the Manager exercises investment discretion. The Investment
Manager continually evaluates all commissions paid in order to ensure that the
commissions represent reasonable compensation for the brokerage and research
services provided by such brokers. Such investment information as is received
from brokers or dealers may be used by the Investment Manager in servicing all
of its clients (including the Fund) and it is recognized that the Fund may be
charged a commission paid to a broker or dealer who supplied research services
not utilized by the Fund. However, the Investment Manager expects that the Fund
will benefit overall by such practice because it is receiving the benefit of
research services and the execution of such transactions not otherwise available
to it without the allocation of transactions based on the recognition of such
research services.
Subject to the requirement of seeking the best available prices and execution,
the Investment Manager may also place orders with brokerage firms that have sold
shares of the Fund. The Investment Manager has made and will make no commitments
to place orders with any particular broker or group of brokers. It is
anticipated that a substantial portion of all brokerage commissions will be paid
to brokers who supply investment information to the Investment Manager.
The Fund may in some instances invest in foreign and/or U.S. securities that are
not listed on a national securities exchange but are traded in the
over-the-counter market. The Fund may also purchase listed securities through
the third market or fourth market. When transactions are executed in the
over-the-counter market or the third or fourth market, the Investment Manager
will seek to deal with the counterparty that the Investment Manager believes can
provide the best price and execution, whether or not that counterparty is the
primary market maker for that security. In all cases, the Investment Manager
will attempt to negotiate the best market price and execution.
As noted below, the limited partner of the Investment Manger is RCM Acquisition,
Inc., a wholly owned, indirect subsidiary of Travelers Group Inc. ("Travelers").
Smith Barney Inc. ("Smith Barney") is a wholly owned subsidiary of Travelers,
and The Robinson-Humphrey Company Inc. ("Robinson-Humphrey") is a wholly owned
subsidiary of Smith Barney. Smith Barney and Robinson-Humphrey are registered
broker-dealers. The Investment Manager believes that it is in the best interests
of the Fund to have the ability to execute brokerage transactions, when
appropriate, through Smith Barney and Robinson-Humphrey. Accordingly, the
Investment Manager intends to execute brokerage transactions on behalf of the
Fund through Smith Barney and Robinson-Humphrey, when appropriate and to the
extent consistent with applicable laws and regulations.
In all such cases, Smith Barney or Robinson-Humphrey will act as agent for the
Fund, and the Investment Manager will not enter into any transaction on behalf
of the Fund in which Smith Barney or Robinson-Humphrey is acting as principal
for its own account. In connection with such agency transactions, Smith Barney
or Robinson-Humphrey will receive compensation in the form of a brokerage
commission separate from the Investment Manager's management fee. It is the
Investment Manager's policy that such commissions be reasonable
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<PAGE>
and fair when compared to the commissions received by other brokers in
connection with comparable transactions involving similar securities and that
the commissions paid to Smith Barney or Robinson-Humphrey, as the case may be,
be no higher than the commissions paid to that broker by any other similar
customer of that broker who receives brokerage and research services that are
similar in scope and quality to those received by the Fund.
The Investment Manager performs investment management and advisory services for
various clients, including other registered investment companies, and pension,
profit-sharing and other employee benefit trusts, as well as individuals. In
many cases, portfolio transactions may be executed in an aggregated transaction
as part of concurrent authorizations to purchase or sell the same security for
numerous accounts served by the Investment Manager, some of which accounts may
have investment objectives similar to those of the Fund. The objective of
aggregated transactions is to obtain favorable execution and/or lower brokerage
commissions, although there is no certainty that such objective will be
achieved. Although executing portfolio transactions in an aggregated transaction
potentially could be either advantageous or disadvantageous to any one or more
particular accounts, aggregated transactions will be effected only when the
Investment Manager believes that to do so will be in the best interest of the
Fund, and the Investment Manager is not obligated to aggregate orders into
larger transactions. These orders generally will be averaged as to price. When
such aggregated transactions occur, the objective will be to allocate the
executions in a manner which is deemed fair and equitable to each of the
accounts involved over time. In making such allocation decisions, the Investment
Manager will use its business judgment and will consider, among other things,
any or all of the following: each client's investment objectives, guidelines,
and restrictions, the size of each client's order, the amount of investment
funds available in each client's account, the amount already committed by each
client to that or similar investments, and the structure of each client's
portfolio. Although the Investment Manager will use its best efforts to be fair
and equitable to all clients, including the Fund, there can be no assurance that
any investment will be proportionately allocated among clients according to any
particular or predetermined standard or criteria. The Investment Manager will
not include orders on behalf of any affiliated or related entity in any
aggregated transaction that includes orders placed on behalf of the Fund.
-------------------------------
DIRECTORS AND OFFICERS
----------------------------
The names and addresses of the directors and officers of the Company and their
principal occupations and certain other affiliations during the past five years
are given below. Unless otherwise specified, the address of each of the
following persons is Four Embarcadero Center, Suite 3000, San Francisco,
California 94111.
WILLIAM L. PRICE,+ Director, Chairman of the Board, President and Chief
Executive Officer. Mr. Price is a Principal of RCM Capital Management, A
California Limited Partnership ("RCM"), with which he has been associated since
1977. (1) (See THE INVESTMENT MANAGER.) He is also a Principal and Limited
Partner of RCM Limited L.P., a California limited partnership ("RCM Limited"),
the sole general partner of RCM; a Director, Executive Vice President and a
stockholder of RCM General Corporation ("RCM General"), the sole General Partner
of RCM Limited; Director and Executive Vice President of RCM Capital Trust
Company ("RCM Trust"); Director and Chairman of the Board of RCM Capital Funds,
Inc. ("Capital Funds"), an open-end management investment company for which RCM
acts as investment manager; a General Partner of RREEF Partners, a California
general partnership comprised of certain limited partners of RCM Limited (RREEF
Partners owns an interest in RREEF America Partners, a real estate investment
manager); and a stockholder of The RREEF Corporation, a real estate investment
manager.
MICHAEL J. APATOFF,+ Director and Chief Operating Officer. Mr. Apatoff is a
Principal and Chief Operating Officer of RCM, with which he has been associated
since 1991. He is also a Principal and Limited Partner of RCM Limited; Director,
Executive Vice President and a stockholder of RCM General; Director, Vice
President and Chief Operating Officer of Capital Funds; Vice President of RCM
Strategic Global Government Fund, Inc.
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<PAGE>
("RCS"), a closed-end management investment company for which RCM acts as
adviser; and Director and Vice President of RCM Trust. From 1986 to 1991 he was
an Executive Vice President and Chief Operating Officer of the Chicago
Mercantile Exchange.
WILLIAM S. STACK,+ Director and Vice President. Mr. Stack is a Senior Vice
President, member of the Equity Portfolio Management Team and the Chief
Investment Officer of International Equities of RCM, with which he has been
associated since 1994. He is also a Senior Vice President of RCM Limited;
Director and Senior Vice President of RCM General; and Vice President of Capital
Funds. From October 1985 to August 1994, he was employed by Lexington Management
Corporation, where he was a Managing Director and Chief Investment Officer and
managed mutual funds and investments in global, international and domestic
securities.
[INSERT NAMES OF TWO DISINTERESTED DIRECTORS HERE*]
WALTER C. PRICE, JR., Vice President. Mr. Price is a Principal of RCM, with
which he has been associated since 1974. He is also a Limited Partner of RCM
Limited; a stockholder of RCM General; a Vice President of Capital Funds; and a
General Partner of RREEF Partners.
HUACHEN CHEN, Vice President. Mr. Chen is a Principal of RCM, with which he has
been associated since 1984. He is also a Limited Partner of RCM Limited, and a
stockholder of RCM General.
SUSAN C. GAUSE, Treasurer and Chief Financial Officer. Ms. Gause is the Director
of Finance at RCM, with which she has been associated since 1994. She is also
Director of Finance of RCM Limited; Treasurer of RCM General; Treasurer and
Chief Financial Officer of Capital Funds and RCS; and Chief Financial Officer,
Treasurer and Trust Officer of RCM Trust. From December 1990 to June 1994, she
was employed by Citicorp Bankers Leasing, where she was Chief Financial Officer
and Controller. From December 1988 to December 1990, she was Assistant
Controller and Accounting Manager at Sierra Capital Realty Advisers.
ANTHONY AIN, Vice President, Secretary and General Counsel. Mr. Ain is a Senior
Vice President, Secretary and General Counsel of RCM, with which he has been
associated since 1992. He is also a Senior Vice President, Secretary and General
Counsel of RCM Limited; Vice President, Secretary and General Counsel of RCM
General; Vice President, Secretary and General Counsel of Capital Funds and RCS;
and Vice President, Secretary and General Counsel of RCM Trust. From September
1988 to April 1992 he was employed by the United States Securities and Exchange
Commission, where he was senior special counsel and counsel to a Commissioner.
CAROLINE M. HIRST, Vice President and Principal Accounting Officer. Ms. Hirst is
Director of Investment Operations of RCM, with which she has been associated
since 1994. She is also Vice President and Principal Accounting Officer of
Capital Funds and RCS and Vice President of RCM Trust. From February 1980 to
April 1994 she was employed by Morgan Grenfell Asset Management, Ltd., where she
served as Head of International Administration.
It is presently anticipated that regular meetings of the Company's Board of
Directors will be held on a quarterly basis. The Company's Audit Committee,
whose present members are , meets with the Company's independent
accountants to exchange views and information and to assist the full Board in
fulfilling its responsibilities relating to corporate accounting and reporting
practices. Each director of the Company who is not a director, officer,
principal or employee of the Investment Manager or any company affiliated with
the Investment Manager (an "Outside Director") receives a fee of $6,000 per year
plus $1,000 for each Board meeting attended, and is reimbursed for travel and
other expenses incurred in connection with attending Board meetings.
- ------------------------
* Member, Audit Committee of the Company.
+ Director who is an "interested person" of the
Company, as defined in Section 2(a)(19) of the 1940 Act.
(1) RCM was established in July, 1986 as the
successor to Rosenberg Capital Management (which was established in 1970). Any
historical references herein to RCM prior to July, 1986 refer to the
operations of Rosenberg Capital Management.
- --------------------------------------------------------------------------------
B-20
<PAGE>
The following table sets forth the aggregate compensation expected to be paid by
the Company for the fiscal year ending December 31, 1996, to the Outside
Directors and the aggregate compensation paid to the Outside Directors for
service on the Company's Board and that of all other funds in the Company
complex (as defined in Schedule 14A under the Securities Exchange Act of 1934):
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
BENEFITS ACCRUED FROM COMPANY AND
AGGREGATE AS PART OF ESTIMATED ANNUAL COMPANY COMPLEX
COMPENSATION FROM COMPANY BENEFITS UPON PAID TO
NAME COMPANY EXPENSES RETIREMENT DIRECTOR(5*)
- ---------------- ------------------- ------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
$ 10,000 None N/A
$ 10,000 None N/A
</TABLE>
- -------------------------------
* Indicates total number of funds in Company Complex, including the Fund.
-------------------------------
THE INVESTMENT MANAGER
----------------------------
The Company's Board of Directors has overall responsibility for the operation of
the Fund. Pursuant to such responsibility, the Board has approved various
contracts for various financial organizations to provide, among other things,
day to day management services required by the Fund. The Company, on behalf of
the Fund, has retained as the Fund's Investment Manager RCM Capital Management,
a California Limited Partnership, with principal offices at Four Embarcadero
Center, Suite 3000, San Francisco, California 94111. The Investment Manager is
actively engaged in providing investment supervisory services to institutional
and individual clients, and is registered under the Investment Advisers Act of
1940. The Investment Manager was established in July, 1986, as the successor to
the business and operations of Rosenberg Capital Management (established in
1970). The general partner and controlling person of the Investment Manager is
RCM Limited L.P., a California limited partnership, which is the successor in
interest to RCM General, the former general partner. RCM Limited is managed by
its general partner, RCM General Corporation, a California corporation. RCM
Limited has 19 limited partners, all of whom are principals of RCM: Claude N.
Rosenberg, Jr., Michael J. Apatoff, Huachen Chen, Ellen M. Courtien, Edward C.
Derkum, Eamonn F. Dolan, G. Nicholas Farwell, Joanne L. Howard, Stephen Kim,
John A. Kriewall, John D. Leland, Jr., Melody L. McDonald, Lee N. Price, Walter
C. Price, Jr., William L. Price, Jeffrey S. Rudsten, Gary W. Schreyer, Kenneth
B. Weeman, Jr., and Andrew C. Whitelaw.
The sole limited partner of the Investment Manager is RCM Acquisition, Inc., a
wholly owned subsidiary of Travelers Group Inc. ("Travelers"). Travelers, whose
principal executive offices are located at 388 Greenwich Street, New York, New
York 10013, is a financial services holding company engaged, through its
subsidiaries, principally in the business of consumer financing, insurance
services, and investment services. The common stock of Travelers is listed on
the New York Stock Exchange. The limited partner does not have the power to
control the management or operations of the Investment Manager. Pursuant to the
agreement between Primerica Corporation, the predecessor of Travelers, and RCM
Limited, Travelers has an option to acquire the remaining interest of the
Investment Manager from RCM Limited in the year 2000.
The Investment Manager provides the Fund with investment supervisory services
pursuant to an Investment Management Agreement, Power of Attorney and Service
Agreement (the "Management Agreement") dated , 1995. The Investment
Manager manages the Fund's investments, provides various administrative
services, and supervises the Fund's daily business affairs, subject to the
authority of the Board of Directors.
- --------------------------------------------------------------------------------
B-21
<PAGE>
In addition, the Investment Manager provides persons satisfactory to the
Company's Board of Directors to act as officers and employees of the Company.
Such officers and employees, as well as certain directors of the Company, may be
principals or employees of the Investment Manager. The Investment Manager is
also the investment manager for each series of RCM Capital Funds, Inc., an
open-end management investment company, and RCM Strategic Global Government
Fund, Inc., a closed-end management investment company, and is sub-adviser to
Bergstrom Capital Corporation, a closed-end management investment company.
The Management Agreement was approved by the Fund's initial stockholder on
, 1995, and by the unanimous vote of the Company's Board of Directors
on , 1995. The Management Agreement will continue in effect until
, 1997. It may be renewed from year-to-year thereafter, provided that
any such renewals have been specifically approved at least annually by (i) a
majority of the Company's Board of Directors, including a majority of the
Outside Directors who are not parties to the Management Agreement or interested
persons of any such person, cast in person at a meeting called for the purpose
of voting on such approval, or (ii) the vote of a majority (as defined in the
1940 Act) of the outstanding voting securities of the Fund and the vote of a
majority of the Outside Directors who are not parties to the contract or
interested persons of any such party.
The Fund has, under the Management Agreement, assumed the obligation for payment
of all of its ordinary operating expenses, including: (a) brokerage and
commission expenses, (b) federal, state, or local taxes incurred by, or levied
on, the Fund, (c) interest charges on borrowings, (d) charges and expenses of
the Fund's custodian, (e) investment advisory fees (including fees payable to
the Investment Manager under the Management Agreement), (f) legal and audit
fees, (g) SEC and "Blue Sky" registration expenses, and (h) compensation, if
any, paid to officers and employees of the Company who are not employees of the
Investment Manager (see DIRECTORS AND OFFICERS). The Investment Manager is
responsible for all of its own expenses in providing services to the Fund.
Expenses attributable to the Fund are charged against the assets of the Fund.
The Investment Manager has voluntarily agreed to limit Fund expenses until at
least December 31, 1996, as described in the Prospectus. In subsequent years,
the Fund has agreed to reimburse the Investment Manager for any such payments to
the extent that the Fund's operating expenses are otherwise below this expense
cap. This obligation will not be recorded on the books of the Fund to the extent
that the total operating expenses of the Fund are at or above 1.75% of the
average daily net assets of the Fund. However, if the total operating expenses
of the Fund fall below 1.75% of average daily net assets, the reimbursement to
the Investment Manager will be accrued by the Fund as a liability. In addition,
the Fund is subject to certain limitations on expenses imposed by state
securities laws. At present, the only expense limitation known to the Company to
be in effect is in California. Under California law, the Fund will be subject to
an annual expense limitation equal to the sum of 2.5% of the first $30 million
of the Fund's average net assets, 2.0% of the next $70 million of average net
assets, and 1.5% of the remaining average net assets. If the Fund's expenses
(excluding interest, brokerage commissions litigation expenses and certain other
items), were to exceed such limit in any fiscal year, the Investment Manager has
agreed to bear the amount of such excess to the extent required by such
limitations.
The Management Agreement provides that the Investment Manager will not be liable
for any error of judgment or for any loss suffered by the Fund in connection
with the matters to which the Management Agreement relates, except for liability
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of the Investment Manager's reckless
disregard of its duties and obligations under the Management Agreement. The
Company has agreed to indemnify the Investment Manager against liabilities,
costs and expenses that the Investment Manager may incur in connection with any
action, suit, investigation or other proceeding arising out of or otherwise
based on any action actually or allegedly taken or omitted to be taken by the
Investment Manager in connection with the performance of its duties or
obligations under the Management Agreement or otherwise as investment manager of
the Fund. The Investment Manager is not entitled to indemnification with respect
to any liability to the Fund or its stockholders by reason of willful
misfeasance, bad faith or gross negligence in the
- --------------------------------------------------------------------------------
B-22
<PAGE>
performance of its duties, or of its reckless disregard of its duties and
obligations under the Management Agreement.
The Management Agreement is terminable without penalty on 60 days' written
notice by a vote of the majority of the Fund's outstanding voting securities, by
a vote of the majority of the Company's Board of Directors, or by the Investment
Manager on 60 days' written notice and will automatically terminate in the event
of its assignment (as defined in the 1940 Act).
-------------------------------
DISTRIBUTOR
----------------------------
(the "Distributor"), is the principal underwriter
and distributor for the Company and, in such capacity, is responsible for
distributing shares of the Fund. The Distributor is a organized in
to distribute shares of registered investment companies.
Pursuant to its Distribution Agreement with the Company (the "Distribution
Agreement"), the Distributor has agreed to use its best efforts to effect sales
of shares of the Fund, but is not obligated to sell any specified number of
shares. The Distribution Agreement contains provisions with respect to renewal
and termination similar to those in the Management Agreement previously
discussed. Pursuant to the Distribution Agreement, the Company has agreed to
indemnify the Distributor to the extent permitted by applicable law against
certain liabilities under the Securities Act.
-------------------------------
HOW TO PURCHASE SHARES
----------------------------
Shares of the Fund are offered on a continuous basis at the net asset value per
share (next determined after receipt of subscriptions), without any sales or
other charge. The Company has delegated to the Investment Manager the right at
any time to waive, increase, or decrease the minimum requirements applicable to
initial or subsequent investments.
The Company will issue share certificates of the Fund only for full shares and
only upon the specific request of the stockholder. Confirmation statements
showing transactions in stockholder accounts and a summary of the status of the
accounts serve as evidence of ownership of shares of the Fund.
In its discretion, the Company may accept securities of equal value instead of
cash in payment of all or part of the subscription price for the Fund's shares
offered by the Prospectus. Any such securities (a) will be valued at the close
of the New York Stock Exchange composite tape on the day of receipt of the
subscription in accordance with the method of valuing the Fund's portfolio
described under NET ASSET VALUE; (b) will have a tax basis to the Fund equal to
such value; (c) must not be "restricted securities;" and (d) must be permitted
to be purchased in accordance with the Fund's investment objective and policies
and must be securities that the Fund would be willing to purchase at that time.
Prospective stockholders considering this method of payment should contact the
Company in advance to discuss the securities in question and the documentation
necessary to complete the transaction.
-------------------------------
NET ASSET VALUE
----------------------------
For purposes of the computation of the net asset value of each share of the
Fund, equity securities traded on stock exchanges are valued at the last sale
price on the exchange or in the principal over-the-counter market in which such
securities are traded as of the close of business on the day the securities are
being valued. In cases where securities are traded on more than one exchange,
the securities are valued on the exchange determined by the Investment Manager
to be the primary market for the securities. If there has been no sale on such
day, the security will be valued at the closing
- --------------------------------------------------------------------------------
B-23
<PAGE>
bid price on such day. If no bid price is quoted on such day, then the security
will be valued by such method as a duly constituted committee of the Company's
Board of Directors shall determine in good faith to reflect its fair market
value. Readily marketable securities traded only in the over-the-counter market
that are not listed on NASDAQ or similar foreign reporting service will be
valued at the mean bid price, or such other comparable sources as the Company's
Board of Directors deems appropriate to reflect their fair market value. Other
portfolio securities held by the Fund will be valued at current market value, if
current market quotations are readily available for such securities. To the
extent that market quotations are not readily available such securities will be
valued by whatever means a duly constituted committee of the Company's Board of
Directors deems appropriate to reflect their fair market value.
Futures contracts and related options are valued at their last sale or
settlement price as of the close of the exchange on which they are traded or, if
no sales are reported, at the mean between the last reported bid and asked
prices. All other assets of the Fund will be valued in such manner as a duly
constituted committee of the Company's Board of Directors in good faith deems
appropriate to reflect their fair market value.
Trading in securities on foreign exchanges and over-the counter markets is
normally completed at times other than the close of the business day in New
York. In addition, foreign securities and commodities trading may not take place
on all business days in New York, and may occur in various foreign markets on
days which are not business days in New York and on which net asset value is not
calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of the New
York Stock Exchange will not be reflected in the calculation of net asset value
unless the Board of Directors determines that a particular event would
materially affect net asset value, in which case an adjustment will be made.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of net asset value into U.S. dollars
at the spot exchange rates at 12:00 p.m. Eastern time or at such other rates as
the Investment Manager may determine to be appropriate in computing net asset
value.
Debt obligations with maturities of 60 days or less are valued at amortized
cost. The Fund may use a pricing service approved by the Company's Board of
Directors to value other debt obligations. Prices provided by such a service
represent evaluations of the mean between current bid and asked market prices,
may be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, individual
trading characteristics, indications of value from dealers, and other market
data. Such services may use electronic data processing techniques and/or a
matrix system to determine valuations. The procedures of such services are
reviewed periodically by the officers of the Company under the general
supervision of the Company's Board of Directors. Short-term investments are
amortized to maturity based on their cost, adjusted for foreign exchange
translation, provided such valuations equal fair market value.
-------------------------------
REDEMPTION OF SHARES
----------------------------
Payments will be made wholly in cash unless the Company's Board of Directors
believes that economic conditions exist which would make such a practice
detrimental to the best interests of the Fund. Under such circumstances, payment
of the redemption price could be made either in cash or in portfolio securities
taken at their value used in determining the redemption price (and, to the
extent practicable, representing a pro rata portion of each of the portfolio
securities held by the Fund), or partly in cash and partly in portfolio
securities. Payment for shares redeemed also may be made wholly or partly in the
form of a pro rata portion of each of the portfolio securities held by the Fund
at the request of the redeeming stockholder, if the Company believes that
honoring such request is in the best interests of the Fund. If payment for
shares redeemed were to be made wholly or partly in portfolio securities,
brokerage costs would be incurred by the stockholder in converting the
securities to cash.
- --------------------------------------------------------------------------------
B-24
<PAGE>
-------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
----------------------------
Each income dividend and capital gains distribution, if any, declared by the
Fund will be reinvested in full and fractional shares based on the net asset
value as determined on the payment date for such distributions, unless the
stockholder or his or her duly authorized agent has elected to receive all such
payments or the dividend or distribution portions thereof in cash. Changes in
the manner in which dividend and distribution payments are made may be requested
by the stockholder or his or her duly authorized agent at any time through
written notice to the Company and will be effective as to any subsequent payment
if such notice is received by the Company prior to the record date used for
determining the stockholders entitled to such payment. Any dividend and
distribution election will remain in effect until the Company is notified by the
stockholder in writing to the contrary.
REGULATED INVESTMENT COMPANY. The Company intends to qualify the Fund as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). The Fund will be treated as a separate fund
for tax purposes and thus the provisions of the Code generally applicable to
regulated investment companies will be applied to the Fund. In addition, net
capital gains, net investment income, and operating expenses will be determined
separately for the Fund. By complying with the applicable provisions of the
Code, the Fund will not be subject to federal income taxes with respect to net
investment income and net realized capital gains distributed to its
stockholders.
To qualify under Subchapter M, the Fund must (i) derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock, securities or
currencies and certain options, futures, forward contracts and foreign
currencies; (ii) derive less than 30% of its gross income from the sale or other
disposition of stock or securities held less than three months; and (iii)
diversify its holdings so that, at the end of each fiscal quarter, (a) at least
50% of the market value of the Fund's assets is represented by cash, cash items,
U.S. Government securities and other securities, limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
In any fiscal year in which the Fund so qualifies and distributes at least 90%
of the sum of its investment company taxable income (consisting of net
investment income and the excess of net short-term capital gains over net
long-term capital losses) and its tax-exempt interest income (if any), it will
be taxed only on that portion, if any, of such investment company taxable income
and any net capital gain that it retains. The Fund expects to so distribute all
of such income and gains on an annual basis, and thus will generally avoid any
such taxation.
Even though the Fund qualifies as a "regulated investment company," it may be
subject to certain federal excise taxes unless the Fund meets certain additional
distribution requirements. Under the Code, a nondeductible excise tax of 4% is
imposed on the excess of a regulated investment company's "required
distribution" for the calendar year ending within the regulated investment
company's taxable year over the "distributed amount" for such calendar year. The
term "required distribution" means the sum of (i) 98% of ordinary income
(generally net investment income) for the calendar year, (ii) 98% of capital
gain net income (both long-term and short-term) for the one-year period ending
on October 31 (as though the one year period ending on October 31 were the
regulated investment company's taxable year), and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by the Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
the Fund pays income tax for the year. The Fund intends to meet these
distribution requirements to avoid the excise tax liability.
- --------------------------------------------------------------------------------
B-25
<PAGE>
Stockholders who are subject to federal or state income or franchise taxes will
be required to pay taxes on dividends and capital gains distributions they
receive from the Fund whether paid in additional shares of the Fund or in cash.
To the extent that dividends received by the Fund would qualify for the 70%
dividends received deduction available to corporations, the Fund must designate
in a written notice to stockholders the amount of the Fund's dividends that
would be eligible for this treatment. In order to qualify for the dividends
received deduction, a corporate stockholder must hold the Fund shares paying the
dividends upon which a dividend received deduction is based for at least 46
days. Stockholders, such as qualified employee benefit plans, who are exempt
from federal and state taxation generally would not have to pay income tax on
dividend or capital gain distributions. Prospective tax-exempt investors should
consult their own tax advisers with respect to the tax consequences of an
investment in the Fund under federal, state, and local tax laws.
Investors who purchase shares of the Fund shortly before the record date of a
dividend or capital gain distribution will pay full price for those shares
("buying a dividend") and then receive some portion of the price back as a
taxable dividend or capital gain distribution.
WITHHOLDING. Under the Code, distributions of net investment income by the Fund
to a stockholder who, as to the U.S., is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign stockholder") will be subject to U.S.
withholding tax (at a rate of 30% or a lower treaty rate, whichever is less).
Withholding will not apply if a dividend paid by the Fund to a foreign
stockholder is "effectively connected" with a U.S. trade or business, in which
case the reporting and withholding requirements applicable to U.S. citizens or
domestic corporations will apply. Distributions of net long-term capital gains
to foreign stockholders who are neither U.S. resident aliens nor engaged in a
U.S. trade or business are not subject to tax withholding, but in the case of a
foreign stockholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the individual
is physically present in the U.S. for more than 182 days during the taxable
year.
SECTION 1256 CONTRACTS. Many of the options, future contracts and forward
contracts entered into by the Fund are "Section 1256 contracts." Any gains or
losses on Section 1256 contracts are generally considered 60% long-term and 40%
short-term capital gains or losses, although certain foreign currency gains and
losses from such contracts may be treated as ordinary income in character.
Section 1256 contracts held by the Fund at the end of each taxable year (and for
purposes of 4% nondeductible excise tax on October 31 or such other dates as
prescribed under the Code) are "marked to market," with the result that
unrealized gains or losses are treated as though they were realized.
STRADDLE RULES. Generally, the hedging transactions and other transactions in
options, futures and forward contracts undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains or losses realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle position may be
deferred under the straddle rules, rather than being taken into account for the
taxable year in which these losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
hedging transactions and options, futures and forward contracts to the Fund are
not entirely clear.
Hedging transactions may increase the amount of short-term capital gain realized
by the Fund which is taxed as ordinary income when distributed to stockholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddle positions. If the Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under the rules that vary
according to elections made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions. Because the application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
gains or losses from the affected straddle positions, the amount which must be
distributed to stockholders, and which will be taxed to stockholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions. The
qualification rules of Subchapter M may limit
- --------------------------------------------------------------------------------
B-26
<PAGE>
the extent to which the Fund will be able to engage in hedging transactions and
other transactions involving options, futures contracts or forward contracts.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses attributable to
fluctuations and exchange rates which occur between the time the Fund accrues
interest or other receivables, or accrues expenses or other liabilities,
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or loss. Similarly, on the disposition of debt securities denominated in foreign
currency and on the disposition of certain future contracts, forward contracts
and options, gains or losses attributable to fluctuation in the value of foreign
currency between the date of acquisition of the debt security or contract and
the date of disposition are also treated as ordinary gain or loss. These gains
or losses, referred to under the Code as "Section 988" gain or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to stockholders as ordinary income.
FOREIGN TAXES. The Fund may be required to pay withholding and other taxes
imposed by foreign countries which would reduce the Fund's investment income,
generally at rates from 10% to 40%. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes. If more than 50% of
the value of the Fund's total assets at the close of its taxable year consists
of securities of foreign corporations, the Fund will be eligible to elect to
"pass-through" to the Fund's stockholders the amount of foreign income and
similar taxes paid by the Fund. If this election is made, stockholders generally
subject to tax will be required to include in gross income (in addition to
taxable dividends actually received) their pro rata share of the foreign income
taxes paid by the Fund, and may be entitled either to deduct (as an itemized
deduction) their pro rata share of foreign taxes in computing their taxable
income or to use it (subject to limitations) as a foreign tax credit against
their U.S. federal income tax liability. No deduction for foreign taxes may be
claimed by a stockholder who does not itemize deductions. Each stockholder will
be notified within 60 days after the close of the Fund's taxable year whether
the foreign taxes paid by the Fund will be "pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the stockholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of the Fund's income will flow through to stockholders of the Fund.
With respect to such election, gains from the sale of securities 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, and to certain other types of income. Stockholders may be unable
to claim a credit for the full amount of their proportionate share of the
foreign taxes paid by the Fund. The foreign tax credit is modified for purposes
of the federal alternative minimum tax and can be used to offset only 90% of the
alternative minimum tax imposed on corporations and individuals and foreign
taxes generally are not deductible in computing alternative minimum taxable
income.
The foregoing is a general abbreviated summary of present U.S. federal income
tax laws and regulations applicable to dividends and distributions by the Fund.
Stockholders are urged to consult their own tax advisers for more detailed
information and for information regarding any foreign, state, and local tax laws
and regulations applicable to dividends and distributions received.
-------------------------------
INVESTMENT RESULTS
----------------------------
Average total return ("T") will be calculated as follows: an initial
hypothetical investment of $1000 ("P") is divided by the net asset value as of
the first day of the period in order to determine the initial number of shares
purchased. Subsequent dividends and capital gain distributions are reinvested at
net asset value on the reinvestment date determined by the Board of Directors.
The sum of the initial shares purchased and shares acquired through reinvestment
is multiplied by the net asset value per
- --------------------------------------------------------------------------------
B-27
<PAGE>
share as of the end of the period ("n") to determine ending redeemable value
("ERV"). The ending value divided by the initial investment converted to a
percentage equals total return. The formula thus used, as required by the SEC,
is:
P(1+T)(N) = ERV
The resulting percentage indicates the positive or negative investment results
that an investor would have experienced from reinvested dividends and capital
gain distributions and changes in share price during the period.
This formula reflects the following assumptions: (i) all share sales at net
asset value, without a sales load deduction from the $1,000 initial investment;
(ii) reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (iii) complete redemption at the
end of any period illustrated. Total return may be calculated for one year, five
years, ten years, and for other periods, and will typically be updated on a
quarterly basis. The average annual compound rate of return over various periods
may also be computed by utilizing ending values as determined above.
In addition, in order more completely to represent the Fund's performance or
more accurately to compare such performance to other measures of investment
return, the Fund also may include in advertisements and stockholder reports
other total return performance data based on time-weighted, monthly-linked total
returns computed on the percentage change of the month end net asset value of
the Fund after allowing for the effect of any cash additions and withdrawals
recorded during the month. Returns may be quoted for the same or different
periods as those for which average total return is quoted. The Fund's investment
results will vary from time-to-time depending upon market conditions, the
composition of the Fund's portfolio, and operating expenses, so that any
investment results reported should not be considered representative of what an
investment in the Fund may earn in any future period. These factors and possible
differences in calculation methods should be considered when comparing the
Fund's investment results with those published for other investment companies,
other investment vehicles and unmanaged indices. Results also should be
considered relative to the risks associated with the Fund's investment objective
and policies.
-------------------------------
DESCRIPTION OF CAPITAL SHARES
----------------------------
All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by series is required by law
or where the matter involved affects only one series. There are no conversion or
preemptive rights in connection with any shares of the Company. All shares of
the Fund when duly issued will be fully paid and non-assessable. The rights of
the holders of shares of the Fund may not be modified except by vote of the
majority of the outstanding shares of the Fund. As of , 1995, there were
shares of the Fund outstanding.
Shares of the Company have non-cumulative voting rights, which means that the
holders of more than 50% of all series of the Company's shares voting for the
election of directors can elect 100% of the directors if they wish to do so. In
such event, the holders of the remaining less that 50% of the shares voting for
the election of directors will not be able to elect any person or persons to the
Company's Board of Directors. Stockholders are entitled to one vote for each
full share held and fractional votes for fractional shares held. Unless
otherwise provided by law or Articles of Incorporation or Bylaws, the Company
may take or authorize any action upon the favorable vote of the holders of more
than 50% of the outstanding shares of the Company.
The Company is not required to hold a meeting of stockholders in any year in
which the 1940 Act does not require a stockholder vote on a particular matter,
such as election of directors. The Company will hold a meeting of its
stockholders for the purpose of voting on the question of removal of one or more
directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, or to assist in communicating with its
stockholders as required by Section 16(c) of the 1940 Act.
- --------------------------------------------------------------------------------
B-28
<PAGE>
-------------------------------
ADDITIONAL INFORMATION
----------------------------
STOCKHOLDER REPORTS
The fiscal year of the Fund ends on December 31 of each year. The Fund will
issue to its stockholders semi-annual and annual reports; each annual report
will contain a schedule of the Fund's portfolio securities, audited annual
financial statements, and information regarding purchases and sales of
securities during the period covered by the report as well as information
concerning the Fund's performance in accordance with rules promulgated by the
Securities and Exchange Commission. In addition, stockholders will receive
quarterly statements of the status of their accounts reflecting all transactions
having taken place within that quarter. The federal income tax status of
stockholders' distributions will also be reported to stockholders after the end
of each fiscal year.
COUNSEL
Certain legal matters in connection with the capital shares offered by this
Prospectus have been passed upon for the Fund by Paul, Hastings, Janofsky &
Walker, 555 South Flower Street, Los Angeles, California 90071. The validity of
the capital stock offered by the Prospectus has been passed upon by Venable,
Baetjer and Howard, LLP, 1800 Mercantile Bank & Trust Building, 2 Hopkins Plaza,
Baltimore, Maryland 21201. Paul, Hastings, Janofsky & Walker have acted and will
continue to act as counsel to the Investment Manager in various matters.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
have been appointed as independent auditors for the Company. Coopers & Lybrand
L.L.P. will conduct an annual audit of the Fund, assist in the preparation of
the Fund's federal and state income tax returns, and consult with the Company as
to matters of accounting, regulatory filings, and federal and state income
taxation.
CUSTODIAN
(the "Custodian") serves as custodian of all securities and funds
owned by the Fund in accordance with the terms of the Custodian Contract. The
Custodian also provides dividend paying services to the Fund.
LICENSE AGREEMENT
Under the License Agreement dated , 1995, the Investment Manager has
granted the Company the right to use the "RCM" name and has reserved the right
to withdraw its consent to the use of such name by the Company at any time, or
to grant the use of such name to any other company. In addition, the Company has
granted the Investment Manager, under certain conditions, the use of any other
name it might assume in the future, with respect to any other investment company
sponsored by the Investment Manager.
FINANCIAL STATEMENTS
The Company's Statement of Assets as of , 1995 and the report of Coopers
& Lybrand L.L.P. thereon, appear at the end of this Statement of Additional
Information. Such financial statement has been included herein in reliance upon
such report given upon their authority as experts in accounting and auditing.
REGISTRATION STATEMENT
The Fund's Prospectus and this Statement of Additional Information do not
contain all of the information set forth in the Company's registration statement
and related forms as filed with the SEC, certain portions of which are omitted
in accordance with rules and regulations of the SEC. The registration statement
and related forms may be inspected at the Public Reference Room of the SEC at
Room 1024, 450 5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
copies thereof may be obtained from the SEC at prescribed rates.
Statements contained in the Prospectus or this Statement of Additional
Information as to the contents of any contract or other document referred to
herein or in the Prospectus are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Company's Registration Statement, each such statement being
qualified in all respects by such reference.
- --------------------------------------------------------------------------------
B-29
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Registrant's Statement of Assets and Liabilities as of , 1995 is
included in Part B.
(B) EXHIBITS
<TABLE>
<C> <S>
1. Articles of Incorporation of Registrant -- filed as Exhibit 1 to the
Registration Statement on September 29, 1995 and incorporated herein by
reference.
2. Bylaws of Registrant -- to be filed.
3. None.
4. Proof of specimen of certificate for capital stock ($0.0001 par value) of
Registrant -- to be filed.
5. Investment Management Agreement, Power of Attorney and Services Agreement
between Registrant and RCM Capital Management, a California Limited
Partnership (the "Investment Manager") -- to be filed.
6. Distribution Agreement between Registrant and its distributor -- to be filed.
7. None.
8. Custodian Contract and remuneration schedule between Registrant and its
custodian bank -- to be filed.
9. License Agreement between the Investment Manager and Registrant related to the
use by Registrant of the name "RCM" -- to be filed.
10.1 Opinion of Venable, Baetjer and Howard, LLP as to legality of securities being
registered, and consent of Venable, Baetjer & Howard -- to be filed.
10.2 Consent of Paul, Hastings, Janofsky & Walker -- to be filed.
11. Consent of independent accountants -- to be filed.
12. None.
13. Investment letter of initial investor in Registrant -- to be filed.
14. None.
15. None.
16. None.
17. Limited Powers of Attorney of Directors.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Investment Manager of RCM Global Technology Fund (the "Fund"), a series
of Registrant, RCM Equity Funds, Inc. (the "Company"), is RCM Capital
Management, a California Limited Partnership (the "Investment Manager"). The
general partner and controlling person of the Investment Manager is RCM Limited
L.P., a California limited partnership ("RCM Limited"). RCM Limited is managed
by its general partner, RCM General Corporation, a California corporation ("RCM
General"). The limited partners of RCM Limited are set forth in Part B under
"The Investment Manager." In addition, certain of the directors and officers of
the Company are officers or employees of the Investment Manager. Accordingly,
the Investment Manager, RCM Limited and RCM General may be deemed to be under
common control with the Company.
The Investment Manager also serves as investment manager of each series of
RCM Capital Funds, Inc., an open-end management investment company ("Capital
Funds") and RCM Strategic Global Government
C-1
<PAGE>
Fund, Inc., a closed-end management investment company ("RCS"). Certain of the
directors and officers of Capital Funds and RCS are also officers or employees
of the Investment Manager. Accordingly, Capital Funds and RCS may be deemed to
be under common control with the Company.
The sole limited partner of the Investment Manager is RCM Acquisition, Inc.
("RCM Acquisition"), a wholly owned subsidiary of Travelers Group Inc.
("Travelers"). Travelers does not have the power to control the management or
operation of the Investment Manager. Pursuant to an agreement between Travelers
and RCM Limited, Travelers has an option to acquire RCM Limited's interest in
the Investment Manager, as discussed in more detail in Part B under "The
Investment Manager." Accordingly, Travelers may be deemed to be under common
control with the Company.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of , 1995
<TABLE>
<S> <C>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
- --------------------------- ------------------------
RCM Global Technology Fund 1
Capital Stock
($0.0001 par value)
</TABLE>
ITEM 27. INDEMNIFICATION.
Section 2-418 of the General Corporation of Maryland empowers the Company to
indemnify directors and officers of the Company under various circumstances as
provided in such statute. A director or officer who has been successful on the
merits or otherwise, in the defense of any proceeding, must be indemnified
against reasonable expenses incurred by such person in connection with the
proceeding. Reasonable expenses may be paid or reimbursed by the Company in
advance of the final disposition of the proceeding, after a determination that
the facts then known to those making the determination would not preclude
indemnification under the statute, and following receipt by the Company of a
written affirmation by the person that his or her standard of conduct necessary
for indemnification has been met and upon delivery of a written undertaking by
or on behalf of the person to repay the amount advanced if it is ultimately
determined that the standard of conduct has not been met.
Article VI of the Bylaws of the Company contains indemnification provisions
conforming to the above statute and to the provisions of Section 17 of the
Investment Company Act of 1940, as amended (the "1940 Act").
The Company and its directors and officers have obtained coverage under an
errors and omissions insurance policy. The terms and conditions of policy
coverage conform generally to the standard coverage available throughout the
investment company industry. The coverage also applies to the Investment Manager
and its partners and employees.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the provisions of Maryland law and the
Company's Articles of Incorporation and Bylaws, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
C-2
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Claude N. Rosenberg, Jr., Chairman of the Board, Chief Executive Officer and
President of RCM General Corporation, the general partner of RCM Limited L.P.,
which is the general partner of the Company's Investment Manager, owns less than
20% of the shares of The RREEF Corporation. The RREEF Corporation is a
registered investment adviser specializing in the management of equity real
estate investments for institutional, tax-exempt clients. John D. Leland, Jr.
owns less than 5% of The RREEF Corporation's outstanding shares. Claude N.
Rosenberg Jr., John D. Leland, Jr., Lee N. Price, Gary W. Schreyer, John A.
Kriewall, Walter C. Price, Jr., William L. Price, Edward C. Derkum, Jeffrey S.
Rudsten, Kenneth B. Weeman, Jr., Andrew C. Whitelaw, and G. Nicholas Farwell are
General Partners of RREEF Partners (a California general partnership). RREEF
Partners is the holder of 24.85% interest in RREEF America Partners, a general
partnership which is registered as an investment adviser to group trusts (the
RREEF MidAmerica Funds, the RREEF USA Funds and the RREEF West Funds) designed
to afford pension and profit sharing plans and other investors exempt from
federal income tax the opportunity to make equity investments in real
properties.
The sole limited partner of the Investment Manager is RCM Acquisition, a
wholly owned indirect subsidiary of Travelers. Travelers, whose principal
executive offices are located at 338 Greenwich Street, New York, New York 10013,
is a financial services holding company engaged, through its subsidiaries,
principally in the business of consumer financial, insurance services and
investment services. Securities of Travelers are listed for trading on the New
York Stock Exchange. RCM Acquisition and its predecessors have been the sole
limited partner of the Investment Manager since July 1986.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) None.
(b) None.
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under
the 1940 Act are maintained and held in the offices of the Company and its
investment manager, RCM Capital Management, Four Embarcadero Center, Suite 3000,
San Francisco, California 94111.
Records covering portfolio transactions are also maintained and kept by the
Company's custodian, .
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to file a post-effective amendment, containing
reasonably current financial statements with respect to the RCM Global
Technology Fund, which need not be certified, within four to six months from the
effective date of Registrant's 1933 Act Registration Statement with respect to
such series.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to stockholders, upon
request and without charge.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, RCM Equity Funds, Inc. has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on December 13, 1995.
RCM EQUITY FUNDS, INC.
By: /s/ WILLIAM L. PRICE
--------------------------------------
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<S> <C> <C>
(1) Principal Executive Officer
/s/ WILLIAM L. PRICE Chairman of the Board, President,
------------------------------------------- Chief Executive Officer and December 13, 1995
William L. Price Director
(2) Principal Financial Officer
/s/ SUSAN C. GAUSE*
------------------------------------------- Treasurer December 13, 1995
Susan C. Gause
(3) Principal Accounting Officer
/s/ CAROLINE M. HIRST*
------------------------------------------- Principal Accounting Officer December 13, 1995
Caroline M. Hirst
(4) Directors
/s/ MICHAEL J. APATOFF*
------------------------------------------- December 13, 1995
Michael J. Apatoff
/s/ WILLIAM S. STACK*
------------------------------------------- December 13, 1995
William S. Stack
*By /s/ WILLIAM L. PRICE
-------------------------------------------
William L. Price
AS ATTORNEY-IN-FACT
</TABLE>
* By William L. Price, pursuant to Power of Attorney filed with the Securities
and Exchange Commission with Registrant's Registration Statement on September
29, 1995.
<PAGE>
EXHIBIT INDEX
RCM EQUITY FUNDS, INC.
FORM N-1A REGISTRATION STATEMENT
<TABLE>
<C> <S>
1. Articles of Incorporation of Registrant -- filed as Exhibit 1 to the Registration
Statement on September 29, 1995 and incorporated herein by reference.
</TABLE>