<PAGE>
As filed with the Securities and Exchange Commission on October 8, 1997
1933 Act File No. 33-97572
1940 Act File No. 811-9100
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 5
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 6
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RCM EQUITY FUNDS, INC.
Four Embarcadero Center
San Francisco, California 94111
(415) 954-5400
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John E. Pelletier, Vice President and Secretary
RCM EQUITY FUNDS, INC.
Four Embarcadero Center
San Francisco, California 94111
(800) 726-7240
(Name and Address of Agent for Service)
Copies to:
Timothy B. Parker, Deputy General Michael Glazer
Counsel Paul, Hastings, Janofsky & Walker LLP
RCM Capital Management, L.L.C. 555 South Flower Street
Four Embarcadero Center Los Angeles, California 90071
San Francisco, California 94111
The Registrant has filed a declaration pursuant to Rule 24f-2 registering an
indefinite number of shares under the Securities Act of 1933. On February 28,
1997 the Registrant filed its 24f-2 Notice for its fiscal year December 31,
1996.
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It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On _________________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On _________________ pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _________________ pursuant to paragraph (a)(2) of rule 485
<PAGE>
RCM EQUITY FUNDS, INC.
DRESDNER RCM BIOTECHNOLOGY FUND
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
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 Investment Objective and Policies;
Registrant Investment and Risk Considerations;
General Information
5. Management of the Fund Organization and Management
5A. Management's Description *
of Fund Performance
6. Capital Stock and Other Dividends, Distributions and Taxes;
Securities General Information;
7. Purchase of Securities Being Organization and Management;
Offered How to Purchase Shares;
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings *
- ---------------
*Not applicable
<PAGE>
RCM EQUITY FUNDS, INC.
DRESDNER RCM BIOTECHNOLOGY FUND
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
(CONTINUED)
ITEM NUMBER OF PART B OF FORM N-1A CAPTIONS IN PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objective and Investment Objective and Policies;
Policies Investment and Risk Considerations;
Investment Restrictions
14. Management of the Fund Directors and Officers
15. Control Persons and Principal Description of Capital Shares;
Holders of Securities Directors and Officers
16. Investment Advisory and The Investment Manager; Additional
Other Services Information
17. Brokerage Allocation Execution of Portfolio Transactions
18. Capital Stock and Other Description of Capital Stock
Securities
19. Purchase, Redemption and How to Purchase Shares
Pricing of Securities Being
Offered
20. Tax Status Dividends, Distributions and Taxes
21. Underwriter The Distributor
22. Calculation of Performance Data Investment Results
23. Financial Statements Additional Information
<PAGE>
DRESDNER RCM BIOTECHNOLOGY FUND
OFFERED BY:
RCM EQUITY FUNDS, INC.
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CALIFORNIA 94111
(800) 726-7240
THIS PROSPECTUS RELATES TO DRESDNER RCM BIOTECHNOLOGY FUND
WHICH SPECIALIZES IN EQUITY AND EQUITY-RELATED SECURITIES OF
BIOTECHNOLOGY COMPANIES
---------------------------------
DRESDNER RCM BIOTECHNOLOGY FUND (THE "FUND") is a non-diversified 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 per share next
calculated after an order is received in proper form, plus a sales charge if
applicable. (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 companies in the
biotechnology industry. 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 companies in the
biotechnology industry involve significant risks, some of which are not
typically associated with investments in securities of issuers engaged in other
types of business. There can be no assurance that 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 NOR HAS THE SECURITIES AND EXCHANGE 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 December __, 1997 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 December __, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 5
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 8
Investment and Risk Considerations . . . . . . . . . . . . . . . . . . 14
Organization and Management . . . . . . . . . . . . . . . . . . . . . . 17
How to Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . 20
Stockholder Services . . . . . . . . . . . . . . . . . . . . . . . . . 23
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 24
Investment Results . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . 26
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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>
DRESDNER RCM BIOTECHNOLOGY FUND
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
detailed information appearing elsewhere in this Prospectus:
WHAT IS THE The Fund's investment objective is to seek long-term
FUND'S OBJECTIVE? appreciation of capital, primarily through investment in
equity and equity-related securities of companies in the
biotechnology industry. Such 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. There can
be no assurance that the Fund will achieve its investment
objective. (See INVESTMENT OBJECTIVE AND POLICIES.)
WHAT DOES THE Under normal market conditions, the Fund will invest at
FUND INVEST IN? least 65% of the value of its total assets in equity and
equity-related securities of companies in the biotechnology
industry. The Fund will seek investment opportunities in
companies engaged in the research, development, provision
and/or manufacture of biotechnological products, services
and processes. Such companies generally employ genetic
engineering to develop new drugs and apply new and
innovative processes to discover and develop diagnostic and
therapeutic products and services. Biotechnology companies
are in a variety of industries and currently include
pharmaceutical, biochemical, medical/surgical, human health
care, agricultural and industrial oriented companies.
However, the industry makeup is not static due to the rapid
advances being made and, over time, it can be expected that
new and different companies will be included in the
biotechnology sector.
DOES THE FUND The Fund may invest up to 100% of the value of its total
INVEST GLOBALLY? assets in equity and equity-related securities of foreign
issuers, including emerging market issuers. While there is
no limitation on the countries in which the Fund may invest,
the Fund currently expects that the majority of its
investments will be in securities of companies organized or
headquartered in the United States. Up to 15% of the value
of the Fund's total assets may be invested in securities of
companies 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. 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.
WHAT ARE SOME OF Investments in equity and equity-related securities of
THE POTENTIAL biotechnology companies may involve significant risks, some
INVESTMENT RISKS? of which are not typically associated with investments in
securities of other issuers. These include patent
considerations, 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 focused in the biotechnology
industry. As a result of the Fund's focus on a single
industry, the Fund's net asset value may be more volatile in
price than the net asset value of a more broadly diversified
portfolio. An investment in the Fund does not constitute a
balanced investment plan.
-3-
<PAGE>
It is likely that a significant portion of the companies in
which the Fund will invest will have market capitalizations
below $1 billion. Investing in these types of companies
involves greater risk and the possibility of greater
portfolio price volatility than investing in larger
capitalization companies. 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.
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
generally higher than in the United States. (See INVESTMENT
AND RISK CONSIDERATIONS.)
WHO OPERATES THE The Fund's investment manager is RCM Capital Management,
FUND? L.L.C. ("RCM" or the "Investment Manager"), a registered
investment adviser with its principal offices in San
Francisco, California. RCM and its predecessors have over
25 years of experience in investing in equity securities.
RCM currently manages approximately $30 billion of assets
for institutional and individual clients, and registered
investment companies. (See ORGANIZATION AND MANAGEMENT.)
The custodian of the Fund's assets is State Street Bank and
Trust Company.
SHOULD I INVEST The Fund believes that there are attractive investment
IN THE FUND? opportunities in the biotechnology industry. In the last
several years, biotechnology companies have developed new
techniques to efficiently discover and produce superior
diagnostic and therapeutic products and services. As a
result of these advances and advances likely to occur in the
future, the Fund believes that biotechnology is likely to
become an important economic industry. Yet the stocks of
individual biotechnology companies can be volatile, and
analyzing individual companies can be time-intensive. A
biotechnology fund offers experienced professional
management to investors who wish to invest in these
industries.
The Fund is designed for investors who recognize and are
prepared to accept these risks in exchange 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.
DOES THE FUND The Fund may use a variety of techniques to hedge
HEDGE ITS investments. These include currency management techniques;
INVESTMENTS? options on securities, indices and currencies; financial and
foreign currency futures contracts and options; and currency
swaps. Each of these hedging techniques also involves
certain risks. (See INVESTMENT OBJECTIVE AND POLICIES and
INVESTMENT AND RISK CONSIDERATIONS.)
IS THERE A There is no minimum initial investment for investors
MINIMUM purchasing shares through a broker-dealer or other financial
INVESTMENT? institution having a service agreement with the Investment
Manager and maintaining an omnibus account with the Fund.
For other investors, the minimum initial investment is
$5,000, and the minimum subsequent investment is $250
-4-
<PAGE>
(other than investments through the Fund's automatic
dividend reinvestment plan). Shares of the Fund may be
purchased at their net asset value per share next
calculated after an order is received in proper form, plus
a sales charge if applicable. (See HOW TO PURCHASE SHARES.)
CAN I REDEEM You may redeem your shares at any time at their net asset
SHARES AT ANY value, without a redemption charge. (See REDEMPTION OF
TIME? SHARES.)
SUMMARY OF FEES AND EXPENSES
WHAT EXPENSES The following information is designed to help you understand
WILL THE FUND various costs and expenses of the Fund that an investor may
INCUR? 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.
STOCKHOLDER TRANSACTION EXPENSES
--------------------------------
Maximum sales load imposed on 5.00%
purchases (as a percentage of offering price)*
Sales load imposed on reinvested dividends None
Deferred sales loads None
Redemption fees None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
-------------------------------------------------------------
Investment management fees 1.00%
Rule 12b-1 expenses 0.30%
Other expenses (after expense reduction**) 0.45%
Total Fund operating expenses (after expense
reduction**) 1.75%
EXAMPLE OF PORTFOLIO EXPENSES 1 YR 3 YRS
----------------------------- ---- -----
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 $ 67 $ 102
*Sales charges are reduced on a sliding scale for increasing
amounts of purchase at the public offering price, and are
waived for certain persons. The National Association of
Securities Dealers, Inc. ("NASD") limits total annual sales
charges (including Rule 12b-1 expenses) to all purchasers of
shares of the Fund to 6.25% of new sales plus an interest
factor. However, long-term stockholders may pay more
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<PAGE>
than the economic equivalent of the maximum sales charge
permitted by the NASD. (See HOW TO PURCHASE SHARES.)
**The Investment Manager has voluntarily agreed, until at
least December 31, 1998, to pay the Fund on a quarterly
basis the amount, if any, by which ordinary operating
expenses of the Company attributable to the Fund for the
quarter (except interest, taxes and extraordinary expenses)
exceed the annualized rate of 1.75% of the value 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 2.04% and
3.04%, respectively, of the Fund's average daily net assets.
In accordance with applicable regulations of the Securities
and Exchange Commission (the "SEC"), the Example of
Portfolio Expenses assumes that (1) the percentage amounts
listed under Annual Fund Operating Expenses will 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 is higher. (See HOW TO PURCHASE
SHARES.)
For more information concerning fees and expenses of the
Fund, see ORGANIZATION AND MANAGEMENT and DIVIDENDS,
DISTRIBUTIONS AND TAXES.
-6-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
WHAT IS THE The Fund's investment objective is to seek long-term
FUND'S OBJECTIVE? appreciation of capital, primarily through investment in a
portfolio of equity and equity-related securities of
companies in the biotechnology industry. 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 will be
considered only as part of total return and will not be
emphasized. There can be no assurance that the Fund will
achieve its investment objective.
HOW DOES THE FUND The Fund intends to invest primarily in equity and
SELECT SECURITIES equity-related securities of companies in the biotechnology
FOR ITS industry. In most cases, these companies will have one or
PORTFOLIO? 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 or services.
The Investment Manager will seek to identify companies 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 in developing economies, 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 and equity-related 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 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 the time of purchase.
WHAT ARE Biotechnology companies are companies which are principally
BIOTECHNOLOGY engaged in the research, development, provision and/or
COMPANIES? manufacture of biotechnological products, services and
processes. These companies include, but are not limited to,
pharmaceutical, biochemical, medical/surgical, human health
care, agricultural and industrial oriented companies.
However, the industry makeup is not static due to the rapid
advances being made and over time it can be expected that
new and different companies will be included in the
biotechnology sector. As a result, 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 the biotechnology business.
WHAT ARE EQUITY Equity and equity-related securities in which the Fund has
AND EQUITY- the authority to invest include common stock, preferred
RELATED stock, convertible preferred stock, convertible debt
SECURITIES? obligations, warrants or other rights to acquire stock, and
options on stock and stock indices. In addition, equity and
equity-related securities may include securities sold in the
form of depositary receipts and securities issued by other
investment companies. The Fund currently intends to
-7-
<PAGE>
invest primarily in common stock and depositary receipts.
WHAT KINDS OF Currently it is anticipated that the majority of the Fund's
FOREIGN investments will be in securities of companies organized or
SECURITIES WILL headquartered in the United States. However, the Fund may
THE FUND INVEST invest in foreign securities from time-to-time, depending on
IN? the investment Manager's view of foreign investment
opportunities and risks. 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) depositary
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. 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 foreign 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 United States or in foreign markets.
WILL THE FUND The Fund may invest up to 15% of the value of its total
INVEST IN assets in securities of companies that are organized or
EMERGING MARKETS? headquartered in developing countries with emerging markets.
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 recognized financial institutions. As of the date
of this Prospectus, the term "emerging market countries" is
deemed to include for purposes of this Prospectus all
foreign countries other than Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, The Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and
the United Kingdom.
DOES THE FUND BUY The Fund presently expects to purchase or sell foreign
AND SELL FOREIGN currency primarily to settle foreign securities
CURRENCY? 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 Union).
As a
-8-
<PAGE>
result, gains in a particular securities market may be
affected, either positively or negatively, by changes in
exchange rates.
DOES THE FUND For hedging purposes, the Fund may purchase options on stock
HEDGE ITS indices and on securities that are authorized for purchase
INVESTMENTS? by the Fund. If the Fund purchases a "put" option on a
security, 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 on a security, 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). An option on a stock index gives
the Fund the right to receive a cash payment equal to the
difference between the closing price of the index and the
exercise price of the option. The Fund may "close out" an
option prior to its exercise or expiration 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 (and related options), 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 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. The Fund is also
authorized to employ currency management techniques to
enhance its total return, although it presently does not
intend to do so.
WHAT OTHER DEPOSITARY RECEIPTS. The Fund may invest in securities of
INVESTMENT foreign companies in the form of American Depositary Receipts
PRACTICES SHOULD ("ADRs"), European Depositary Receipts ("EDRs"), Global
I KNOW ABOUT? Depositary Receipts ("GDRs"), or other similar instruments
representing securities of foreign companies. ADRs are
receipts that typically are issued by U.S. banks and entitle
the holder to all dividends and all capital gains associated
with the ordinary shares. These securities may not be
denominated in the same currency as the underlying securities
that they represent. EDRs and GDRs are receipts issued by a
non-U.S. financial institution evidencing a similar
arrangement. When 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 does not involve the currency
exchange risk that is present when investing in the
underlying securities, depositary receipts may have risks
that are similar to those of foreign equity securities.
Therefore, for purposes of the Fund's investment policies
and restrictions, depositary 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
-9-
<PAGE>
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. The only practical means of investing in such
issuers 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.
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 may also
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 5% of the value of the Fund's net
assets or 5% 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 of
1986, as amended (the "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 generally does not intend to 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 debt or equity 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.
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<PAGE>
DEBT SECURITIES. The Fund may invest in short-term debt
obligations (with maturities of less than one year) issued
or guaranteed by the U.S. Government and foreign governments
(including their respective agencies, instrumentalities,
authorities and political subdivisions), debt obligations
issued or guaranteed by international or supranational
governmental entities, and debt obligations of corporate
issuers. Such debt obligations will be rated, at the time
of purchase, investment grade by Standard & Poor's, Moody's
Investors Service, or another recognized rating
organization, or if unrated will be determined by the
Investment Manager to be of comparable investment quality.
Investment grade means the issuer of the security is
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 10% of the
value of the Fund's total assets will be invested in debt
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 securities. 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. In
order to meet such redemption requests, the Fund may borrow
from banks or enter into 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, 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
broker-dealer deemed creditworthy pursuant to standards
adopted by the Company's Board of Directors) 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 pursuant to
standards adopted by the Company's Board of Directors. The
borrower must maintain with the Fund's custodian collateral
consisting of cash, U.S. Government securities or other
liquid debt or equity securities 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, less any fees and
administrative expenses associated with the loan.
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
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<PAGE>
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 pursuant to standards
adopted 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 Investment Manager may
determine in particular cases, pursuant to standards adopted
by the Company's Board of Directors, 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 The Fund's investment objective is a fundamental policy that
OBJECTIVE AND may not be changed without a vote of its stockholders.
POLICIES BE However, except as otherwise indicated in this Prospectus or
CHANGED? 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 objective 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. Except as specifically indicated to the
contrary, the Fund is not required to sell any security in
its portfolio as a result of change in any applicable
percentage resulting from market fluctuations.
WHAT IS THE The Fund may invest in securities on either a long-term or
FUND'S PORTFOLIO short-term basis. The Investment Manager anticipates that
TURNOVER RATE? the Fund's annual portfolio turnover rate should not exceed
150%, although for the first year of operations of the Fund,
the portfolio turnover rate may exceed 150%. The turnover
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.
-12-
<PAGE>
INVESTMENT AND RISK CONSIDERATIONS
Investment in the Fund is subject to a variety of risks,
including the following:
RISKS OF Because the Fund will focus its investments in biotechnology
INVESTING IN companies, the Fund will be more susceptible than other
BIOTECHNOLOGY investment companies to market and other conditions
STOCKS. affecting biotechnology companies. Such conditions include
patent considerations, competitive pressures affecting the
financial condition of biotechnology 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 assets may be more volatile in price than the net
asset value of a company with a more broadly diversified
portfolio.
RISKS OF Investing in securities of issuers with market
INVESTING IN capitalizations below $1 billion at or near the time of
SMALLER purchase ("smaller capitalization companies") involves
CAPITALIZATION greater risk and the possibility of greater portfolio price
COMPANIES. 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 foreign equity securities involves significant
INVESTING IN risks, some of which are not typically associated with
FOREIGN MARKETS investing in securities of U.S. issuers. For example, the
GENERALLY. 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 political
instability, expropriation or nationalization of assets,
revaluation of currencies, confiscatory taxation, and
limitations on foreign investment and use or removal of
funds or other assets of the Fund (including the withholding
of dividends and limitations on 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 There are special additional risks associated with
INVESTING IN investments in emerging markets. The securities markets of
EMERGING MARKETS. 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
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<PAGE>
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 may also affect the value
of the Fund's investments in those countries.
RISKS OF HEDGING There are a number of risks associated with transactions in
TECHNIQUES. 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 from 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 Short sales by the Fund that are not made "against the box"
SELLING. create opporunities 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 market price has increased significantly. Under
adverse market conditions, the Fund might have difficulty in
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
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<PAGE>
not favor such sales.
WHAT OTHER RISK CONVERTIBLE SECURITIES AND WARRANTS. The value of a
FACTORS SHOULD I convertible security is a function of both its yield in
BE AWARE OF? 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 of 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 borrowing.
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 The Company was incorporated in Maryland in September 1995,
FUND? 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.
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<PAGE>
The Company, on behalf of the Fund, has retained as the
Fund's investment manager RCM Capital Management, L.L.C., a
Delaware limited liability company with principal offices at
Four Embarcadero Center, San Francisco, California 94111.
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 December __, 1997. 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.
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 April 1996, and is the successor to the business and
operations of RCM Capital Management, a California Limited
Partnership, which, with its predecessors, has been in
operation since 1970. The Investment Manager is a wholly
owned subsidiary of Dresdner Bank AG ("Dresdner"), an
international banking organization with principal executive
offices located in Frankfurt, Germany.
Pursuant to an agreement among RCM Limited L.P. ("RCM
Limited"), the Investment Manager and Dresdner, RCM Limited
manages, operates and makes all decisions regarding the day-
to-day business and affairs of the Investment Manager,
subject to the oversight of RCM's Board of Managers. RCM
Limited is a California limited partnership consisting of 37
limited partners and one general partner, RCM General
Corporation, a California corporation ("RCM General").
Twenty-four of the limited partners of RCM Limited are also
principals of the Investment Manager, and the shareholders
of RCM General.
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
biotechnology stocks. Its research analysts have been
researching biotechnology companies for purchase in domestic
equity portfolios since the early 1980s, and have been
managing biotechnology portfolios for approximately five
years. The research team consults regularly with the
senior members of the Investment Manager's equity
portfolio management team concerning the prospects for the
biotechnology industry generally as well as specific
biotechnology 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
biotechnology area, Grassroots Research can be a valuable
adjunct to the Investment Manager's traditional research
efforts by providing a "second look" at biotechnology
companies in which the Fund is considering investing and by
checking marketplace assumptions concerning market demand
for particular products and services.
Selena A. Chaisson, M.D. and Jeffrey J. Wiggins are
primarily responsible for the day-to-day management of the
Fund. Dr. Chaisson is a Senior Vice President of the
Investment Manager, with which she has been associated since
1994. She has participated in the management of
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<PAGE>
portfolios since 1996. Mr. Wiggins is a Principal of the
Investment Manager, with which he has been associated since
1992. He has managed institutional portfolios for the
Investment Manager since 1992.
WHAT ARE THE For the services rendered by the Investment Manager under
FUND'S MANAGEMENT the Management Agreement, the Fund will pay a monthly fee to
FEES? 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.
WHAT OTHER The Fund is responsible for the payment of its operating
EXPENSES DOES THE expenses, including brokerage and commission expenses; taxes
FUND PAY? 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; fees paid
pursuant to the Fund's Rule 12b-1 plan; and all of the
Fund's other ordinary operating expenses (e.g., legal and
audit fees, securities registration expenses, and
compensation of directors of the Company who are not
affiliated with the Investment Manager).
To limit the expenses of the Fund, the Investment Manager
has agreed, until at least December 31, 1998, 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 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 The Investment Manager, subject to the overall supervision
DECIDE WHICH of the Company's Board of Directors, makes the Fund's
BROKERS TO USE? 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
execution, the Investment Manager may, in circumstances in
which two or more brokers are in a position to offer
comparable 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 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
execution, whether or
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<PAGE>
not that counterparty is the primary market maker for that
security.
When appropriate and to the extent consistent with
applicable laws and regulations, the Fund may execute
brokerage transactions through Dresdner Kleinwort Benson
North America LLC, a wholly owned subsidiary of Dresdner, or
other broker-dealer subsidiaries or affiliates of Dresdner.
WHO IS THE FUND'S Funds Distributor, Inc. (the "Distributor"), whose principal
DISTRIBUTOR? place of business is 60 State Street, Suite 1300, Boston,
Massachusetts 02109, acts as distributor of shares of the
Fund. The Distributor is engaged in the business of
providing mutual fund distribution services to registered
investment companies, and is an indirect wholly owned
subsidiary of Boston Institutional Group, Inc., which is not
affiliated with the Investment Manager or Dresdner.
The Distributor retains a portion of any initial sales
charge upon the purchase of shares of the Fund. In
addition, the Company has adopted a distribution plan
pursuant to Rule 12b-1 under the 1940 Act with respect to
the Fund. Under the distribution plan, which is a
"reimbursement plan," the Fund pays the Distributor an
annual fee of up to 0.30% of the Fund's average daily net
assets as reimbursement for certain expenses actually
incurred by the Distributor in connection with distribution
of shares of the Fund. These expenses include advertising
and marketing expenses, payments to broker-dealers and
others who have entered into agreements with the
Distributor, the expenses of preparing, printing and
distributing the prospectuses of the Fund to persons who are
not already stockholders, and indirect and overhead costs
associated with the sale of shares of the Fund. If in any
month the Distributor is due more monies for such services
than are immediately payable because of the expense
limitation under the plan, the unpaid amount is carried
forward from month to month while the plan is in effect
until such time as it may be paid. However, no amounts
carried forward are payable beyond the fiscal year during
which they were incurred, and no interest, carrying or other
finance charge is borne by the Fund with respect to any
amount carried forward.
WHO IS THE FUND'S State Street Bank and Trust Company acts as the Fund's
CUSTODIAN AND custodian, transfer agent, redemption agent and dividend
TRANSFER AGENT? paying agent (the "Custodian"). The Custodian's principal
business address is 1776 Heritage Drive, North Quincy,
Massachusetts 02171.
HOW TO PURCHASE SHARES
WHAT IS THE Shares of the Fund are offered on a continuous basis at the
OFFERING PRICE offering price next determined after receipt of an order in
FOR SHARES OF proper form. The offering price is the net asset value per
THE FUND? share plus a sales charge, if applicable. There is no
minimum initial investment for investors purchasing shares
through a broker-dealer or other financial institution
having a service agreement with the Investment Manager and
maintaining an omnibus account with the Fund. For other
investors, the initial investment must be at least $5,000,
and the minimum subsequent investment is $250 other than
through the Fund's automatic dividend reinvestment plan.
(See STOCKHOLDER SERVICES.)
IS THERE A SALES The sales charges you pay when purchasing shares of the Fund
CHARGE? are set forth below:
Sales Charge as Percentage of the:
----------------------------------
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<PAGE>
<TABLE>
<CAPTION>
Dealer
Amount of Purchase at Net Commission as
the Public Offering Offering Amount Percentage of
Price Price Invested the Offering Price
--------------------- -------- -------- ------------------
<S> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.50%
$50,000 but less than 4.50% 4.71% 4.00%
$100,000
$100,000 but less than 3.50% 3.63% 3.25%
$250,000
$250,000 but less than 2.50% 2.56% 2.25%
$500,000
$500,000 but less than 2.00% 2.04% 1.75%
$1,000,000
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
Commissions will be paid by the Distributor to dealers who
initiate and are responsible for purchases of $1 million or
more and purchases made at net asset value by certain
retirement plans of organizations with 50 or more eligible
employees as set forth in the Statement of Additional
Information.
WHEN IS THE NET ASSET VAUE PURCHASES. The Fund may sell shares at net
SALES CHARGE asset value to:
WAIVED OR
REDUCED? (1) current or retired directors, officers and employees of
the Fund, the Distributor, the Investment Manager, certain
family members of such persons, and trusts or plans
primarily for such persons;
(2) current or retired registered representatives or full-
time employees (and their spouses and minor children) of
dealers having selling group agreements with the Distributor
and plans for such persons;
(3) stockholders and former stockholders of another mutual
fund which has a sales charge and is not a series of the
Company, so long as shares of the Fund are purchased with
the proceeds of a redemption, made within 60 days of the
purchase, of shares of such other mutual fund (to obtain
this benefit, the redemption check, endorsed to the Company,
or a copy of the confirmation showing the redemption, must
be forwarded to National Financial Data Services --See HOW
CAN I PURCHASE SHARES OF THE FUND?);
(4) companies or other entities exchanging securities with
the Fund through a merger, acquisition or exchange offer;
(5) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with 50 or more
eligible employees;
(6) participants in certain pension, profit-sharing or
employee benefit plans that are sponsored by the Distributor
and its affiliates;
(7) investment advisers and financial planners who place
trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee
for their
-19-
<PAGE>
services;
(8) clients of investment advisers and financial planners
referred to in item (7) who place trades for their own
accounts if the accounts are linked to the master account of
the investment adviser or financial planner on the books and
records of a broker, agent, investment adviser or financial
institution;
(9) employee-sponsored benefit plans in connection with
purchases of shares of the Fund made as a result of
participant-directed exchanges between options in such a
plan;
(10) "wrap accounts" for the benefit of clients of broker-
dealers, financial institutions or financial planners having
sales or service agreements with the Distributor or another
broker-dealer or financial institution with respect to sales
of shares of the Fund; and
(11) such other persons as are determined by the Company's
Board of Directors (or by the Distributor pursuant to
standards adopted by the Board) to have acquired shares
under circumstances not involving any sales expenses to the
Fund or the Distributor.
Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort
and expense. No sales charges are imposed on Fund shares
purchased upon the reinvestment of dividends and
distributions, or upon an exchange of shares from other
series of the Company.
AGGREGATION. Sales charge discounts on purchases of shares
of the Fund are available for certain aggregated
investments. Investments which may be aggregated include
those by you, your spouse and your children under the age of
21, if all parties are purchasing shares for their own
accounts, which may include purchases through employee
benefit plans such as an IRA, individual-type 403(b) plan or
single-participant Keogh-type plan or by a business solely
controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other
fiduciary arrangement) solely for the benefit of these
individuals. Individual purchases by trustees or other
fiduciaries may also be aggregated if the investments are
(1) for a single trust, estate or fiduciary account,
including an employee benefit plan other than those
described above, (2) made for two or more employee benefit
plans of a single employer or affiliated employers as
defined in the 1940 Act, again excluding employee benefit
plans described above, or (3) for a common trust fund or
other pooled account not specifically formed for the purpose
of accumulating Fund shares. Purchases made for nominee or
street name accounts (securities held in the name of a
dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with those
made for other accounts and may not be aggregated with other
nominee or street name accounts unless otherwise qualified
as described above.
CONCURRENT PURCHASES. To qualify for a reduced sales
charge, you may combine concurrent purchases of shares of
two or more series of the Company. For example, if you
concurrently invest $500,000 in the Fund and $500,000 in
another series of the Company, the sales charge would be
reduced to reflect a $1,000,000 purchase.
RIGHT OF ACCUMULATION. The sales charge for your investment
may also be reduced by taking into account your existing
holdings in the Fund and the other series of the Company.
See the account application and Statement of Additional
Information for further details.
-20-
<PAGE>
LETTER OF INTENT. You may reduce sales charges on all
investments by meeting the terms of a letter of intent, a
non-binding commitment to invest a certain amount within a
13-month period. Your existing holdings in the Fund and the
other series of the Company may also be combined with the
investment commitment set forth in the letter of intent to
further reduce your sales charge. Up to 5% of the letter
amount will be held in escrow to cover additional sales
charges which may be due if your total investments over the
letter period are not sufficient to qualify for a sales
charge reduction. See the account application and Statement
of Additional Information for further details.
HOW CAN I Investors or their duly authorized agents may purchase
PURCHASE SHARES shares of the Fund by sending a signed, completed
OF THE FUND? subscription form to National Financial Data Services
("NFDS"), an affiliate of the Custodian, at P.O. Box 419927,
Kansas City, Missouri 64141-6927, and paying for the shares
as described below. Shares may also be purchased through
certain brokers which have entered into a selling group
agreement with the Distributor. Brokers may charge a fee
for their services at the time of purchase or redemption.
Subscription forms can be obtained from the Company.
Orders for shares received by NFDS 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 HOW ARE SHARES PRICED?) 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 order in proper form, NFDS will open a
stockholder account in accordance with the investor's
registration instructions. A confirmation statement
reflecting the current transaction will be forwarded to the
investor.
WHERE SHOULD I Payment for shares purchased should be made by check or
SEND MY money order, made payable to Dresdner RCM Biotechnology
SUBSCRIPTION Fund. Checks should be bank or certified checks. The
PAYMENT? Company, at its option, may accept a check that is not a
bank or certified check; however, third party checks will
not be accepted. Payments should be sent to:
RCM Equity Funds, Inc.
P.O. Box 419927
Kansas City, MO 64141-6927
Attn: Dresdner RCM Biotechnology Fund
Account [ ]
Investors may also make initial or subsequent investments by
electronic transfer of funds or wire transfer of federal
funds to the Company. Before transferring or wiring funds,
an investor must first telephone the Company at (800) 726-
7240 for instructions. On the telephone, the following
information will be requested: name of authorized person;
stockholder account number (if such account number is in
existence); name of Fund; amount being transferred or wired;
and transferring or wiring bank name.
Investors may be charged a fee if they effect transactions
through a broker or agent. Your dealer is responsible for
forwarding payment promptly to NFDS. The Company reserves
the right to cancel any purchase order for which payment has
not been received by the third
-21-
<PAGE>
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 In its discretion, the Company may accept securities of
SHARES WITH equal value instead of cash in payment of all or part of the
INVESTMENT subscription price for the Fund's shares offered by this
SECURITIES? 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 HOW
ARE SHARES PRICED? below; (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 The net asset value of each share of the Fund on which the
PRICED? 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
pursuant to standards adopted by the Company's Board of
Directors. 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, normally 4:00 p.m. Eastern Time, on
each day that the New York Stock Exchange is open for
trading.
STOCKHOLDER SERVICES
WHAT SERVICES AUTOMATIC REINVESTMENT. Each income dividend and capital
ARE PROVIDED TO gains distribution, if any, declared by the Fund will be
STOCKHOLDERS? reinvested in full and fractional shares based on the net as
asset value 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.
EXCHANGE PRIVILEGE. You may exchange shares of the Fund
into shares of any other series of the Company, without a
sales charge or other fee, by contacting NFDS. Before
effecting an exchange, you should obtain the currently
effective prospectus of the series into which the exchange
is to be made. Exchange purchases are subject to the
minimum investment requirements of the series purchased. An
exchange will be treated as a redemption and purchase for
tax purposes.
Shares will be exchanged at the net asset value per share of
the Fund and the series into which the exchange is to be
made, next determined after receipt by NFDS of (i) a written
request for
-22-
<PAGE>
exchange, 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 exchanged; and (ii) stock
certificates for any shares to be exchanged which are held
by the stockholder. Exchanges will not become effective
until all documents in the form required have been received
by NFDS. A stockholder in doubt as to what documents
are required should contact NFDS.
ACCOUNT STATEMENTS. Your account is opened in accordance
with your registration instructions. 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 Subject only to the limitations described below, the Company
MY SHARES? 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
in whole or in part in portfolio securities.
Stockholders may be charged a fee if they effect transactions
through a broker or agent.
WHEN WILL I PAYMENT FOR SHARES. Payment for shares redeemed will be
RECEIVE MY made within seven days after receipt by the Company of: (i)
REDEMPTION a written request for redemption, signed by each registered
PAYMENT? 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
-23-
<PAGE>
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 a 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.
WHAT ELSE SHOULD REINSTATEMENT PRIVILEGE. You may reinvest proceeds from a
I KNOW ABOUT redemption of shares of the Fund, or proceeds of a dividend
REDEMPTIONS? or capital gain distribution paid to you with respect to
shares of the Fund, without a sales charge, in the Fund or
any other series of the Company. Send a written request and
a check to the Company within 90 days after the date of the
redemption, dividend or distribution. Reinvestment will be
at the next calculated net asset value after receipt. The
tax status of a gain realized on a redemption will not be
affected by exercise of the reinstatement privilege, but a
loss may be nullified if you reinvest in the same series
within 30 days.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the
Fund, the Company may redeem all of the shares of any
investor whose account has a net asset value of less than
$5,000 due to redemptions (other than a stockholder who is a
participant in a qualified retirement plan). The Company
will give such stockholders 60 days' prior written notice in
which to purchase sufficient additional shares to avoid such
redemption.
INVESTMENT RESULTS
WILL THE FUND The Fund may, from time-to-time, include information on its
REPORT ITS investment results and/or comparisons of its investment
PERFORMANCE? results to various unmanaged indices (which generally do not
reflect deductions for administrative and management costs
and expenses), indices 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 (total return
is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and
capital gain distributions). Such indices and rankings may
include the following, among others:
-24-
<PAGE>
1. The American Stock Exchange Biotechnology Index.
2. The Russell 2000 Index.
3. 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 The Fund intends to distribute to its stockholders all of
DOES THE FUND each fiscal year's net investment income and net realized
PAY? 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 Dividends generally are taxable to stockholders at the time
I PAY ON FUND they are paid. However, dividends declared in October,
DIVIDENDS? 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 non-resident alien individual,
non-resident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership may also be subject to
U.S. withholding tax.
WILL THE FUND The Company intends to qualify the Fund as a "regulated
ALSO PAY TAXES? investment company" under Subchapter M of the Code. 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.
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 Each stockholder will receive, at the end of each fiscal
RECEIVE TAX year of the Company, full information on dividends, capital
gains distributions and other reportable amounts with
respect to shares of
-25-
<PAGE>
INFORMATION? 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 The authorized capital stock of the Company is 1,000,000,000
INFORMATION shares of capital stock (par value $.0001 per share), of
SHOULD I KNOW which 50,000,000 shares have been designated as shares of
ABOUT THE FUND? the Fund. In addition, 50,000,000 shares have been
designated as shares of the RCM Global Technology Fund,
50,000,000 shares have been designated as shares of the RCM
Global Small Cap Fund, 50,000,000 shares have been
designated as shares of the RCM Global Health Care Fund,
50,000,000 shares have been designated as shares of the RCM
Large Cap Growth Fund, and 50,000,000 shares have been
designated as shares of the Dresdner RCM Emerging Markets
Fund. The Company's Board of Directors may, in the future,
authorize the issuance of other classes of shares of the
Fund (with, for example, different sales loads, or other
distribution or service fee arrangements), or of other
series of capital stock of the Company 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 December __,
1997, there were [ ] shares of the Fund outstanding, of
which [ ] shares were beneficially owned by [ ].
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 than 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 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 SEC.
The registration statements 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
-26-
<PAGE>
from the SEC at prescribed rates.
-27-
<PAGE>
RCM EQUITY FUNDS, INC.
DRESDNER RCM BIOTECHNOLOGY FUND
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CALIFORNIA 94111
(800) 726-7240
STATEMENT OF ADDITIONAL INFORMATION
December __, 1997
Dresdner RCM Biotechnology Fund (the "Biotechnology Fund" or "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, L.L.C. (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 and should be read in conjunction with such Prospectus. The
Prospectus may be obtained without charge by writing or calling the Company at
the address and phone number above.
TABLE OF CONTENTS
PAGE
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . 2
Investment and Risk Considerations . . . . . . . . . . . . . . . . . . 11
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . 17
Execution of Portfolio Transactions. . . . . . . . . . . . . . . . . . 19
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . 21
The Investment Manager . . . . . . . . . . . . . . . . . . . . . . . . 23
The Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Purchase and Redemption of Shares. . . . . . . . . . . . . . . . . . . 27
Dividends, Distributions and Tax Status. . . . . . . . . . . . . . . . 29
Investment Results . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Description of Capital Shares. . . . . . . . . . . . . . . . . . . . . 33
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . 33
<PAGE>
------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
------------------------------------
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.
INVESTMENT IN FOREIGN SECURITIES
The Fund may invest 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 or 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 in securities of
companies that are organized or headquartered in 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 Union 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.
INVESTMENT IN EMERGING MARKETS. The Fund may invest in securities of companies
organized or headquartered in developing countries with emerging markets. 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.) 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
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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 limitations on investments in emerging market
countries.
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.
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 returns, 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 and decisions to purchase or sell portfolio securities also
may be affected by the laws or regulations in particular countries relating to
convertibility 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 strategies, 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, 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
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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 debt or equity securities 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 a 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 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 additional 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.
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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 debt or equity securities 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, U.S. Government securities, or other liquid debt
or equity 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 such a segregated account the Company 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 entering into a currency swap would be less favorable
than it would have been if this investment technique were not used.
OPTIONS TRANSACTIONS
The Fund may purchase listed put and call options on stocks and stock indices 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, U.S. Government securities or other liquid
debt or equity securities 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 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
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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 incur 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.
STOCK INDEX OPTIONS. The Fund may purchase put and call options with respect to
the stock indices such as the S&P 500 Index. Such options may be purchased as a
hedge against changes resulting from market conditions in the values of
securities which are held in the Fund's portfolio or which it intends to
purchase or sell, or when they are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund.
The distinctive characteristics of options on stock indices create certain risks
that are not present with stock options generally. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an index option depends upon movements in the level of stock prices
in the stock market generally rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on a stock index will
be subject to the Investment Manager's ability to predict correctly movements in
the direction of the stock market generally. This requires different skills and
techniques than predicting changes in the prices of individual stocks.
Index prices may be distorted if trading of certain stocks included in an index
is interrupted. Trading of index options also may be interrupted in certain
circumstances, such as if trading were halted in a substantial number of stocks
included in the index. If this were to occur, the Fund would not be able to
close out options which it had purchased, and if restrictions on exercise were
imposed, the Fund might be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the policy of the Fund to
purchase put or call options only with respect to an index which the Investment
Manager believes includes a sufficient number of stocks to minimize the
likelihood of a trading halt in the index.
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
The Fund may engage in short sales transactions. 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 it 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.
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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 increase 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 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, U.S. Government securities or other liquid
debt or equity 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 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 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
qualification 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 segregated
account cash, U.S. Government securities or other liquid debt or equity
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 could 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 resumes 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.
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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. 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, the
call option may be less risky, because losses are limited to the premium paid
for the call option, when compared to the ownership of the
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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, U.S. Government securities, or other liquid
debt or equity securities 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.
REGULATORY MATTERS. The Company has filed a claim of exemption from registration
of the Fund 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 Fund may purchase debt obligations. 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 or Baa or higher by Moody's
Investors Service ("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.
PREFERRED STOCKS
The Fund may purchase preferred stocks. Preferred stock, unlike common stock,
offers a stated dividend rate payable from a corporation's earnings. Such
preferred stock dividends may be cumulative or non-cumulative, participating, or
auction rate. If interest rates rise, the fixed dividend on preferred stocks may
be less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, a negative feature when interest rates decline.
Dividends on some preferred stock may be "cumulative," requiring all or a
portion of prior unpaid dividends to be paid prior to payment of dividends on
the issuer's common stock. Preferred stock also generally has a preference over
common stock on the distribution of a corporation's assets in the event of
liquidation of the corporation, and may be "participating," which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stocks on the distribution of a corporation's assets in
the event of a liquidation are generally subordinate to the rights associated
with a corporation's debt securities.
INVESTMENT IN ILLIQUID SECURITIES
The Fund may purchase 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
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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 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.
For example, a 150% portfolio turnover rate would occur if the value of
purchases or sales of portfolio securities (whichever is less) by the Fund 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 the Fund's 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 the Fund's investment or
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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.
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.
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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.
DEPOSITARY RECEIPTS
In many respects, the risks associated with investing in depositary receipts are
similar to the risks associated with investing in foreign equity securities. In
addition, to the extent that the Fund acquires depositary receipts through banks
that do not have a contractual relationship with the foreign issuer of the
security underlying the depositary receipts to issue and service depositary
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 Depositary 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 Depositary Receipts
("EDRs") and Global Depositary Receipts ("GDRs") may be less 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 depositary receipt will be treated as an illiquid security for purposes of the
Fund's restriction on the purchases of such securities unless the depositary
receipt is convertible into cash by the Fund within seven days.
EMERGING MARKET SECURITIES
There are special risks associated with investments in securities of companies
organized or headquartered in developing countries with emerging markets that
are in addition to the usual risks of investing in securities of issuers located
in developed foreign markets around the world, and investors in the Fund 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.
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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 returns 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 characteristics 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
Investment by the Fund 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.
The Fund will invest no 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
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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
instruments; 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 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 acquired by
the Fund may move more than, or
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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 by
the Fund 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 by the Fund 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
decides 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 a 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.
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 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 in a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. However,
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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 of the transaction. If the seller of securities
pursuant to a repurchase agreement entered into by the Fund 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 of the collateral by the Fund may be delayed or limited.
Similarly, when the Fund engages in when-issued, reverse repurchase, forward
commitment and relayed 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 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:
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1. Acquire more than 10% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer;
2. Invest in companies for the purpose of exercising control or management;
3. 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;
4. 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;
5. 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;
6. 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;
7. 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;
8. 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 unaffiliated broker-dealers;
9. 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;
10. Issue senior securities, except that the Fund may borrow money as permitted
by restriction 3 above. This restriction shall not prohibit the Fund from
engaging in short sales, options, futures and foreign currency
transactions; and
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11. 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 is also 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
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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
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 execution, the Investment Manager
may, in circumstances in which two or more brokers are in a position to offer
comparable 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 electing 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 Investment
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 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 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
execution, whether or not that counterparty is the primary market maker for that
security.
As noted below, the Investment Manager is a wholly owned subsidiary of Dresdner
Bank AG ("Dresdner"). Dresdner Kleinwort Benson North America LLC ("Dresdner
Kleinwort Benson") and other Dresdner subsidiaries may be broker-dealers
(collectively, the "Dresdner Affiliates"). 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 the Dresdner Affiliates. Accordingly,
the Investment Manager intends to execute brokerage transactions on behalf of
the Fund through the Dresdner Affiliates, when appropriate and to the extent
consistent with applicable laws and regulations, including federal banking laws.
In all such cases, the Dresdner Affiliates will act as agent for the Fund, and
the Investment Manager will not enter into any transaction on behalf of the Fund
in which a Dresdner Affiliate is acting as principal for its own account. In
connection with such agency transactions, the Dresdner Affiliates 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 and fair when compared to the commissions received by
other brokers
19
<PAGE>
in connection with comparable transactions involving similar securities and that
the commissions paid to a Dresdner Affiliate 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 for the Fund 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 in which the Fund
participates 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.
-------------------------
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.
DEWITT F. BOWMAN, Chairman and Director. Mr. Bowman is a Principal of Pension
Investment Consulting, with which he has been associated since February 1994.
From February 1989 to January 1994 he was Chief Investment Officer for
California Public Employees Retirement System, a public pension fund. He serves
as a director of RREEF America REIT, Inc., and a trustee of Brandes Investment
Trust and Pacific Gas and Electric Nuclear Decommissioning Trust. He also serves
as a director of RCM Capital Funds, Inc. ("Capital Funds").
PAMELA A. FARR, Director. Ms. Farr is an independent management consultant. From
1991 to 1994, she was President of Banyan Homes, Inc., a real estate development
and construction firm; for eight years she was a management consultant for
McKinsey & Company, where she served a variety of Fortune 500 companies in all
aspects of strategic management and organizational structure. She also serves as
a director of Capital Funds.
THOMAS S. FOLEY, Director. Mr. Foley has been a partner in the law firm of Akin,
Gump, Strauss, Hauer & Feld, L.L.P. since January 1995. Prior to that he served
as the 49th Speaker of the House of Representatives and was the representative
of the 15th Congressional District of the State of Washington from 1965 to 1994.
Mr. Foley serves on the Board of Directors of the H.J. Heinz Company, on the
Global Advisory Board of Coopers & Lybrand L.L.P. and on the Board of Overseers
of Whitman College. He also serves as a director of Capital Funds.
20
<PAGE>
FRANK P. GREENE, Director. Mr. Greene is a partner and portfolio manager of Wood
Island Associates, Inc., a registered investment adviser, with which he has been
associated since August 1991. From November 1987 to August 1991, he was a Senior
Vice President and Portfolio Manager of Siebel Capital Management, Inc., a
registered investment adviser. He also serves as a director of Capital Funds.
GEORGE G.C. PARKER, Director. Mr. Parker is Associate Dean for Academic Affairs,
and Director of the MBA Program and Dean Witter Professor of Finance at the
Graduate School of Business at Stanford University, with which he has been
associated since 1973. Mr. Parker has served on the Board of Directors of the
California Casualty Group of Insurance Companies since 1977; BB&K Holdings,
Inc., a holding company for financial services companies, since 1980; H. Warshow
& Sons, Inc., a manufacturer of specialty textiles, since 1982; Zurich
Reinsurance Centre, Inc., a large reinsurance underwriter, since 1994; and
Continental Airlines, since 1996. Mr. Parker served on the Board of Directors of
the University National Bank & Trust Company from 1986 to 1995. He also serves
as a director of Capital Funds.
RICHARD W. INGRAM, President, Treasurer and Chief Financial Officer. Mr. Ingram
is Executive Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc., ("FDI"), the ultimate parent of which
is Boston Institutional Group, Inc. From March 1994 to November 1995, Mr. Ingram
was Vice President and Division Manager of First Data Investor Services Group.
From 1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company. He is also President, Treasurer
and Chief Financial Officer of Capital Funds; President, Chief Financial Officer
and Assistant Treasurer of RCM Strategic Global Government Fund, Inc. ("RCS");
and an officer of certain investment companies distributed or administered by
FDI. His address is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
JOHN E. PELLETIER, Vice President and Secretary. Mr. Pelletier is Senior Vice
President and General Counsel of FDI. From February 1992 to April 1994, he
served as Counsel for The Boston Company Advisors, Inc. From August 1990 to
February 1992, Mr. Pelletier was employed as an Associate at Ropes & Gray. He is
also a Vice President and Secretary of Capital Funds; a Vice President and
Assistant Secretary of RCS; and an officer of certain investment companies
distributed or administered by FDI. His address is 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
ELIZABETH A. KEELEY, Vice President and Assistant Secretary. Ms. Keeley is Vice
President and Senior Counsel of FDI, with which she has been associated since
September 1994. Since September 1995 she has also served as Senior Counsel to
Premier Mutual Fund Services, Inc. Prior to September 1995, she was enrolled at
Fordham University School of Law and received her J.D. in May 1995. Prior to
September 1992, Ms. Keeley was an Assistant at the National Association for
Public Interest Law. She is also Vice President and Assistant Secretary of
Capital Funds and RCS, and an officer of certain investment companies
distributed or administered by FDI. Her address is 200 Park Avenue, 45th Floor,
New York, New York 10166.
GARY S. MACDONALD, Vice President and Assistant Treasurer. Mr. MacDonald is Vice
President of FDI, with which he has been associated since November 1996. From
September 1992 to November 1996, he was Vice President of BayBanks Investment
Management/BayBanks Financial Services; and from April 1989 to September 1992 he
was an analyst at Wellington Management Company. He is also Vice President and
Assistant Treasurer of Capital Funds and RCS.
DOUGLAS C. CONROY, Vice President and Assistant Treasurer. Mr. Conroy is
Assistant Vice President and Manager of Treasury Services and Administration of
FDI since April 1997. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company.
From December 1991 to March 1993, Mr. Conroy was employed as a Fund Accountant
at The Boston Company, Inc. He is also Assistant Treasurer of Capital Funds and
an officer of certain investment companies distributed or administered by FDI.
His address is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
21
<PAGE>
KAREN JACOPPO-WOOD, Assistant Secretary. Ms. Jacoppo-Wood is an Assistant Vice
President and Paralegal Manager for FDI, with which she has been associated
since January 1996. From June 1994 to January 1996, she was a Manager of SEC
Registration for Scudder, Stevens & Clark, Inc. From 1988 to May 1994, she was
Senior Paralegal at The Boston Company Advisors, Inc. She is also Assistant
Secretary of Capital Funds, and an officer of certain investment companies
distributed or administered by FDI. Her address is 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
MARY A. NELSON, Assistant Treasurer. Ms. Nelson is Vice President of Services
and Administration for FDI, with which she has been associated since 1994. From
1989 to 1994, she was an Assistant Vice President and Client Manager for The
Boston Company. She is also Assistant Treasurer of Capital Funds and an officer
of certain investment companies distributed or administered by FDI. Her address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
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 DeWitt F. Bowman and Frank P. Greene, 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 receives a fee
of $1,000 per year plus $500 for each Board meeting attended, and is reimbursed
for travel and other expenses incurred in connection with attending Board
meetings.
The following table sets forth the aggregate compensation paid by the Company
for the fiscal year ending December 31, 1996, to the Directors and the aggregate
compensation paid to the 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
Aggregate Benefits Accrued Estimate Annual from Company and
Compensation as Part of Benefits Upon Company Complex
Name from Company Company Expenses Retirement Paid to Director (1)
- --------------------- ------------ ----------------- --------------- --------------------
<S> <C> <C> <C> <C>
DeWitt F. Bowman $ 15,000 None N/A $33,000
Pamela A. Farr (2) $ 9,000 None N/A $27,000
Thomas S. Foley (2) $ 8,000 None N/A $23,000
Frank P. Greene $ 14,000 None N/A $32,000
George G.C. Parker (2) $ 9,000 None N/A $27,000
</TABLE>
- -----------------------
(1) During the fiscal year ended December 31, 1996, there were seven funds in
the complex.
(2) Elected as a Director on May 28, 1996.
As of December 31, 1996, no Director or officer of the Company was a beneficial
owner of any shares of the outstanding Common Stock of any series of the
Company.
22
<PAGE>
-------------------------
THE INVESTMENT MANAGER
-------------------------
The Company's Board of Directors has overall responsibility for the operation of
the Fund. Pursuant to such responsibility, the Board has approved various
contracts for various financial organizations to provide, among other things,
day to day management services required by the Fund. The Company, on behalf of
the Fund, has retained as the Fund's Investment Manager RCM Capital Management,
L.L.C., a Delaware limited liability company with principal offices at Four
Embarcadero Center, San Francisco, California 94111. The Investment Manager is
actively engaged in providing investment supervisory services to institutional
and individual clients, and is registered under the Investment Advisers Act of
1940. The Investment Manager was established in April 1996, as the successor to
the business and operations of RCM Capital Management, a California Limited
Partnership, which, with its predecessors, has been in operation since 1970.
The Investment Manager is a wholly owned subsidiary of Dresdner, an
international banking organization with principal executive offices located at
Gallunsanlage 7, 60041 Frankfurt, Germany. With total consolidated assets as of
_________, of DM ___ billion ($___ billion), and approximately 1,600 offices and
45,000 employees in over 60 countries around the world, Dresdner is the world's
thirteenth largest bank. Dresdner provides a full range of banking services,
including traditional lending activities, mortgages, securities, project finance
and leasing, to private customers and financial and institutional clients. In
the United States, Dresdner maintains branches in New York and Chicago and an
agency in Los Angeles. As of the date of this Prospectus, the members of the
Board of Managers of the Investment Manager are William L. Price (Chairman),
Gerhard Eberstadt, Michael J. Apatoff, Joachim Madler, George N. Fugelsang,
Jeffrey S. Rudsten, William S. Stack, and Kenneth B. Weeman, Jr.
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, prohibit
certain banking entities, such as Dresdner, from sponsoring, organizing,
controlling or distributing the shares of a registered investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities. However, banks and their affiliates generally can
act as adviser to an investment company and can purchase shares of an investment
company as agent for and upon the order of customers. The Investment Manager
believes that it may perform the services contemplated by the investment
management agreement without violating these banking laws or regulations.
However, future changes in legal requirements relating to the permissible
activities of banks and their affiliates, as well as future interpretations of
current requirements, could prevent the Investment Manager from continuing to
perform investment management services for the Company.
Pursuant to an agreement among RCM Limited L.P. ("RCM Limited"), the Investment
Manager, and Dresdner, RCM Limited manages, operates and makes all decisions
regarding the day-to-day business and affairs of the Investment Manager, subject
to the oversight of the Board of Managers. RCM Limited is a California limited
partnership consisting of 37 limited partners and one general partner, RCM
General Corporation, a California corporation ("RCM General"). Twenty-four of
the limited partners of RCM Limited are also principals of the Investment
Manager, and the shareholders of RCM General. As of the date of this Prospectus,
the following persons are limited partners of RCM Limited and shareholders of
RCM General: William L. Price, Michael J. Apatoff, Eamonn F. Dolan, John D.
Leland, Jr., Jeffrey S. Rudsten, William S. Stack, Kenneth B. Weeman, Jr.,
Anthony Ain, Donna L. Avedisian, John L. Bernard, Huachen Chen, Jacqueline M.
Cormier, G. Nicholas Farwell, Joanne L. Howard, Stephen Kim, John A. Kriewall,
Allan C. Martin, Andrew H. Massie, Jr., Melody L. McDonald, Lee N. Price, Walter
C. Price, Jr., Gary B. Sokol, Andrew C. Whitelaw, and Jeffrey J. Wiggins.
The Investment Manager provides the Fund with investment supervisory services
pursuant to an Investment Management Agreement, Power of Attorney and Service
Agreement dated December __, 1997. The Investment Manager manages the Fund's
investments, provides various administrative services, and supervises the Fund's
daily
23
<PAGE>
business affairs, subject to the authority of the Board of Directors. The
Investment Manager is also the investment manager for each series of RCM Capital
Funds, Inc., an open-end management investment company consisting of three
series, and RCM Strategic Global Government Fund, Inc. and The Emerging Germany
Fund Inc., closed-end management investment companies. The Investment Manager
also acts as sub-adviser to Bergstrom Capital Corporation, a closed-end
management investment company.
The Management Agreement with respect to the Fund was approved by the
stockholders of the Fund on ___________, and by the unanimous vote of the
Company's Board of Directors on ______________, and will continue in effect
until ____________. The Management Agreement may be renewed from year-to-year
after its initial term, provided that any such renewals have been specifically
approved at least annually by (i) the vote of a majority of the Company's Board
of Directors, including a majority of the 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 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) fees pursuant to the
Fund's Rule 12b-1 plan, (g) legal and audit fees, (h) SEC and "Blue Sky"
registration expenses, and (i) 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 the Fund's expenses as
described in its 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 the expense cap. However, if the
total operating expenses of the Fund fall below the expense cap, the
reimbursement to the Investment Manager will be accrued by the Fund as a
liability.
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 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 outstanding voting securities of the
Fund which is the subject of the Management Agreement, 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).
24
<PAGE>
-------------------------
THE DISTRIBUTOR
-------------------------
Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
02109, serves as distributor to the Fund. The Distributor has provided mutual
fund distribution services since 1976, and is a subsidiary of Boston
Institutional Group, Inc., which provides distribution and other related
services with respect to investment products.
DISTRIBUTION AGREEMENT
Pursuant to a Distribution Agreement with the Company, 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 Fund's Management Agreement discussed above. 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
of 1933.
Pursuant to an Agreement among the Manager, the Company, Capital Funds and the
Distributor, the Distributor has also agreed to provide regulatory, compliance
and related technical services to the Fund; to provide services with regard to
advertising, marketing and promotional activities; and to provide officers to
the Company. The Manager is required to reimburse the Company for any fees and
expenses of the Distributor pursuant to the Agreement.
DISTRIBUTION PLAN
Under a plan of distribution for the Company with respect to the Fund (the
"Distribution Plan") adopted pursuant to Rule 12b-1 under the 1940 Act, the
Distributor incurs the expense of distributing shares of the Fund. The
Distribution Plan provides for reimbursement to the Distributor for the services
it provides, and the costs and expenses it incurs, related to marketing shares
of the Fund. The Distributor is reimbursed for: (a) expenses incurred in
connection with advertising and marketing shares of the Fund, including but not
limited to any advertising by radio, television, newspapers, magazines,
brochures, sales literature, telemarketing or direct mail solicitations; (b)
periodic payments of fees or commissions for distribution assistance made to one
or more securities brokers, dealers or other industry professionals such as
investment advisers, accountants, estate planning firms and the Distributor
itself in respect of the average daily value of shares owned by clients of such
service organizations, and (c) expenses incurred in preparing, printing and
distributing the Fund's prospectus and statement of additional information.
The Distribution Plan continues in effect from year to year with respect to the
Fund, provided that each such continuance is approved at least annually by a
vote of the Board of Directors of the Company, including a majority vote of the
Directors who are not "interested persons" of the Company within the meaning of
the 1940 Act and have no direct or indirect financial interest in the Plan or in
any agreement related to the Plan, cast in person at a meeting called for the
purpose of voting on such continuance. The Distribution Plan may be terminated
with respect to the Fund at any time, without penalty, by the vote of a majority
of the outstanding shares of the Fund. The Distribution Plan may not be amended
to increase materially the amounts to be paid by the Fund for the services
described therein without approval by the shareholders of the Fund, and all
material amendments are required to be approved by the Board of Directors in the
manner described above. The Distribution Plan will automatically terminate in
the event of its assignment.
The Distributor pays broker-dealers and others out of its distribution fees
quarterly trail commissions of up to 0.30% of the average daily net assets
attributable to shares of the Fund held in the accounts of their customers.
Pursuant to the Distribution Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
shares of the Fund by the Distributor. The report will include an
25
<PAGE>
itemization of the distribution and service expenses and the purposes of such
expenditures. In addition, as long as the Plan remains in effect, the selection
and nomination of Directors who are not "interested persons" of the Company
within the meaning of the 1940 Act will be committed to the Directors who are
not interested persons of the Company.
-------------------------
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 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
rating characteristics, indications
26
<PAGE>
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
Investment Manager 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.
-------------------------
PURCHASE AND REDEMPTION OF SHARES
-------------------------
The price paid for purchase and redemption of shares of the Fund is based on the
net asset value per share, which is calculated once daily at the close of
trading (currently 4:00 P.M. New York time) each day the New York Stock Exchange
is open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Washington's Birthday, Martin Luther King
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day. The offering price is effective for orders received by National
Financial Data Services ("NFDS") prior to the time of determination of net asset
value. Dealers are responsible for promptly transmitting purchase orders to
NFDS. The Company reserves the right in its sole discretion to suspend the
continued offering of the Fund's shares and to reject purchase orders in whole
or in part when such rejection is in the best interests of the Company and the
Fund.
REDUCED SALES CHARGES
Sales charges on purchases of shares are subject to reduction in certain
circumstances, as indicated in the Prospectus.
RIGHTS OF ACCUMULATION. The Fund makes available to its shareholders the ability
to aggregate the value (at the current maximum offering price on the date of the
purchase) of their existing holdings of shares of all of the Portfolios of the
Company (the "Funds") to determine the reduced sales charge, provided the shares
are held in a single account. The value of existing holdings for purposes of
determining the reduced sales charge is calculated using the maximum offering
price (net asset value plus sales charge) as of the previous business day. NFDS
must be notified at the time of purchase that the shareholder is entitled to a
reduced sales charge. The reduced sales charges will be granted subject to
confirmation of the investor's holdings.
CONCURRENT PURCHASES. Purchasers may combine concurrent purchases of shares of
two or more Funds to qualify for a reduced sales charge. If the shares of the
Funds purchased concurrently are subject to different sales charges, the
concurrent purchases are aggregated to determine the reduced sales charge
applicable to shares of each Fund purchased, and each separate reduced sales
charge is imposed on the amount of shares purchased for that Fund.
To illustrate, if an investor concurrently purchases $500,000 of the
Biotechnology Fund and $500,000 of the Health Care Fund, for an aggregate
concurrent purchase of $1,000,000, because the sales charges are waived for
purchases of $1,000,000 or more, and because concurrent purchases can be
combined, the applicable sales charge imposed on the $500,000 purchase of shares
of each of the Funds would be reduced to 0.00% (from 1.75%).
LETTER OF INTENT. Reduced sales charges are available to purchasers of shares of
the Fund who enter into a written Letter of Intent providing for the purchase,
within a 13-month period, of shares of the Fund, provided the shares are held in
a single account. All shares of the Fund which were previously purchased and are
still owned are also included in determining the applicable reduction. The
Letter of Intent privilege may be withdrawn by the Company for future purchases
upon receipt of information that any shares subject to the Letter of Intent have
been transferred or redeemed during the 13-month period.
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<PAGE>
A Letter of Intent permits a purchaser to establish a total investment goal to
be achieved by any number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales charge applicable to the
amount represented by the goal, as if it were a single investment. Investors
should refer to their Letter of Intent when placing orders for shares of the
Fund. During the 13-month period, an investor may increase his or her Letter of
Intent goal and all subsequent purchases will be treated as a new Letter of
Intent except as to the 13-month period, which does not change. The sales charge
paid on purchases made before the increase to the Letter of Intent goal will be
retroactively reduced at the end of the period.
Shares of the Fund totaling 5% of the dollar amount of the Letter of Intent will
be held in escrow by the Transfer Agent in the name of the purchaser. Any
dividends and capital gains distributions on the escrowed shares will be paid to
the investor or as otherwise directed by the investor. The effective date of a
Letter of Intent may be back-dated up to 90 days, in order than any investments
made during this 90-day period, valued at the purchaser's cost, can be applied
to the fulfillment of the Letter of Intent goal. Upon completion of the Letter
of Intent goal within the 13-month period, the escrowed shares will be promptly
delivered to the investor or as otherwise directed by the investor.
The Letter of Intent does not obligate the investor to purchase, or the Fund to
sell, the indicated amount. In the event the Letter of Intent goal is not
achieved within the 13-month period, the investor is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor, or, if not paid within 20 days after written
request, the Company will liquidate sufficient escrowed shares to obtain such
difference. If the redemption or liquidation proceeds are inadequate to cover
the differences, investors will be liable for the extent of the inadequacy. By
executing the Letter of Intent, investors irrevocably appoint the Transfer Agent
as attorney in fact with full power of substitution in the premises to surrender
for redemption any or all escrowed shares. If the Letter of Intent goal is
exceeded in an amount which qualified for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the 13-month period.
DEALER COMMISSIONS
A commission of up to 1.00% may be paid by the Distributor to dealers who
initiate and are responsible for purchases of Portfolio shares of $1 million or
more and for purchases made at net asset value by certain retirement plans of
organizations with 50 or more eligible employees. For this purpose, exchanges
between Funds are not considered to be purchases. The Distributor reserves the
right to require reimbursement of any such commissions paid with respect to such
purchases if such shares are redeemed within twelve months after purchase.
Dealers requesting further information may call (800) 726-7240.
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.
28
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-------------------------
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
Corporation 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; and (ii) 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.
29
<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, within 60 days after the close of the
Fund's taxable year, the amount of the Fund's dividends that would be eligible
for this treatment. In order to qualify for the dividends-received deduction
with respect to common stock, a corporate stockholder must hold the Fund shares
paying the dividends upon which a dividend received deduction is based for at
least 46 days during the 90 day period that begins 45 days before the shares
become ex-dividend with respect to the dividend. 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, if applicable).
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. federal 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, futures 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 limited 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
30
<PAGE>
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.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses attributable to
fluctuations in 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" gains 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 such amount (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 capital gain 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") of the Fund will be calculated as follows: an initial
hypothetical investment of $1,000 ("P") is divided by the net asset value of
shares of the Fund as of the first day of the period in order to determine the
initial number of shares purchased. Subsequent dividends and capital gain
distributions by the Fund are reinvested
31
<PAGE>
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 share of the Fund 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:
n
P(1+T) = 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 reduction 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
-------------------------
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.
-------------------------
ADDITIONAL INFORMATION
-------------------------
COUNSEL
Certain legal matters in connection with the capital shares offered by the
Prospectus have been passed upon for the Fund by Paul, Hastings, Janofsky &
Walker LLP, 555 South Flower Street, Los Angeles, California 90071. The validity
of the capital stock offered by the Prospectus has been passed upon by ________
_________________________________,
32
<PAGE>
_______________________________________________________________________________
_____. Paul, Hastings, Janofsky & Walker LLP has acted and will continue to act
as counsel to the Investment Manager in various matters.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109,
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.
LICENSE AGREEMENT
Under a License Agreement dated June 14, 1996, 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
Copies of the Fund's Annual and Semi-Annual Reports to Shareholders will be
available, upon request, by calling to Company at (800) 726-7240, or by writing
the Company at Four Embarcadero Center, San Francisco, California 94111.
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 Prospectuses 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.
33
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
None
(b) EXHIBITS
1. (a) Articles of Incorporation of Registrant are incorporated herein
by reference to Exhibit 1 of Pre-Effective Amendment No.1.
(b) Articles Supplementary to Articles of Incorporation of Registrant
with respect to RCM Global Health Care Fund, RCM Global Small Cap
Fund and RCM Large Cap Growth Fund are incorporated herein by
reference to Exhibit 1(b) of Post-Effective Amendment No. 2.
(c) Articles Supplementary to Articles of Incorporation of Registrant
with respect to Dresdner RCM Emerging Markets Fund are filed
herein as Exhibit 1(c).
(d) Form of Articles Supplementary to Articles of Incorporation of
Registrant with respect to Dresdner RCM Biotechnology Fund are
filed herein as Exhibit 1(d).
2. (a) Bylaws of Registrant are incorporated herein by reference to
Exhibit 2 of Pre-Effective Amendment No. 2.
(b) Form of Amendments to Bylaws of Registrant are incorporated
herein by reference to Exhibit 2(b) of Post-Effective Amendment
No. 3.
3. None
4. (a) Proof of specimen of certificate for capital stock ($0.0001 par
value) of Registrant, on behalf of RCM Global Technology Fund,
and excerpts from Articles of Incorporation and Bylaws, are
incorporated herein by reference to Exhibit 4 of Pre-Effective
Amendment No. 2.
(b) Proof of specimen of certificate for capital stock ($0.0001 par
value) of Registrant, on behalf of RCM Global Health Care Fund,
is incorporated herein by reference to Exhibit 4(b) of Post-
Effective Amendment No. 1.
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(c) Proof of specimen of certificate for capital stock ($0.0001 par
value) of Registrant, on behalf of RCM Global Small Cap Fund, is
incorporated herein by reference to Exhibit 4(c) of Post-
Effective Amendment No. 1.
(d) Proof of specimen of certificate for capital stock ($0.0001 par
value) of Registrant, on behalf of RCM Large Cap Growth Fund, is
incorporated herein by reference to Exhibit 4(d) of Post-
Effective Amendment No. 1.
(e) Proof of specimen of certificate for capital stock ($0.0001 par
value) of Registrant, on behalf of Dresdner RCM Emerging Markets
Fund, is incorporated herein by reference to Exhibit 4(e) of
Post-Effective Amendment No. 2.
(f) Proof of specimen of certificate for capital stock ($0.0001 par
value) of Registrant, on behalf of Dresdner RCM Biotechnology
Fund, is filed herein as Exhibit 4(f).
5. (a) Investment Management Agreement, Power of Attorney and Service
Agreement between Registrant, on behalf of RCM Global Technology
Fund, and RCM Capital Management, L.L.C., dated as of June 14,
1996, is incorporated herein by reference to Exhibit 5(a) of
Post-Effective Amendment No. 1.
(b) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of RCM Global
Health Care Fund, and RCM Capital Management, L.L.C., is
incorporated herein by reference to Exhibit 5(b) of Post-
Effective Amendment No. 1.
(c) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of RCM Global
Small Cap Growth Fund, and RCM Capital Management, L.L.C., is
incorporated herein by reference to Exhibit 5(c) of Post-
Effective Amendment No. 1.
(d) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of RCM Large Cap
Growth Fund, and RCM Capital Management, L.L.C., is incorporated
herein by reference to Exhibit 5(d) of Post-Effective Amendment
No. 1.
(e) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of Dresdner RCM
Emerging Markets Fund, and RCM Capital Management, L.L.C., is
incorporated herein by reference to Exhibit 5(e) of Post-
Effective Amendment No. 2.
(f) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of Dresdner RCM
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<PAGE>
Biotechnology Fund, and its Investment Manager, is filed herein
as Exhibit 5(f).
(g) Form of Sub-Advisory Agreement between RCM Capital Management,
L.L.C. and Kleinwort Benson Investment Management America, Inc.
with respect to the Dresdner RCM Emerging Markets Fund is
incorporated herein by reference to Exhibit 5(f) of Post-
Effective Amendment No. 2.
6. (a) Agreement among RCM Capital Management, a California Limited
Partnership, RCM Equity Funds, Inc., RCM Capital Funds, Inc. and
Funds Distributor, Inc. ("FDI"), dated June 13, 1996, is
incorporated herein by reference to Exhibit 6(a) of Post-
Effective Amendment No. 1.
(b) Distribution Agreement between Registrant and FDI, dated June 13,
1996 is incorporated herein by reference to Exhibit 6(b) of Post-
Effective Amendment No. 1.
(c) Fee Letter Agreement between Registrant, RCM Capital Management,
a California Limited Partnership, RCM Equity Funds, Inc., RCM
Capital Funds, Inc. and FDI, dated June 13, 1996 is incorporated
herein by reference to Exhibit 6(c) of Post-Effective Amendment
No. 1.
(d) Form of Selling Agreement is incorporated herein by reference to
Exhibit 6(d) of Post-Effective Amendment No. 1.
7. None
8. (a) Custodian Contract dated January 3, 1996 and remuneration
schedule between Registrant and State Street Bank and Trust
Company is filed herein as Exhibit 8(a).
(b) Form of Amendment to Custodian Contract between Registrant, with
regard to RCM Global Health Care Fund, and State Street Bank and
Trust Company is incorporated herein by reference to Exhibit 8(b)
of Post-Effective Amendment No. 1.
(c) Form of Amendment to Custodian Contract between Registrant, with
regard to RCM Global Small Cap Fund, and State Street Bank and
Trust Company is incorporated herein by reference to Exhibit 8(c)
of Post-Effective Amendment No. 1.
(d) Form of Amendment to Custodian Contract between Registrant, with
regard to RCM Large Cap Growth Fund, and State Street Bank and
Trust Company is incorporated herein by reference to Exhibit 8(d)
of Post-Effective Amendment No. 1.
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<PAGE>
(e) Form of Custodian Agreement between Registrant, on behalf of
Dresdner RCM Emerging Markets Fund, and Brown Brothers Harriman &
Co. is incorporated herein by reference to Exhibit 8(e) of Post-
Effective Amendment No. 2.
(f) Form of Amendment to Custodian Contract between Registrant, with
regard to Dresdner RCM Biotechnology Fund, and State Street Bank
and Trust Company is filed herein as Exhibit 8(f).
9. (a) License Agreement, dated as of June 14, 1996, between RCM Capital
Management, L.L.C. and Registrant related to the use by
Registrant of the name "RCM", is incorporated herein by
reference to Exhibit 9 of Post-Effective Amendment No. 1.
(b) Form of Administration Agreement between Registrant, on behalf of
Dresdner RCM Emerging Markets Fund, and RCM Capital Management,
L.L.C. is incorporated herein by reference to Exhibit 5(g) of
Post-Effective Amendment No. 2.
10. (a) To be filed
(b) Consent of Paul, Hastings, Janofsky & Walker LLP is incorporated
herein by reference to Exhibit 10(b) of Post-Effective Amendment
No. 4.
11. None
12. None
13. None
14. None
15. (a) Rule 12b-1 Plan of Registrant, with respect to RCM Global Health
Care Fund, RCM Global Small Cap Fund, and RCM Large Cap Growth
Fund, is incorporated herein by reference to Exhibit 15 of Post-
Effective Amendment No. 1.
(b) Rule 12b-1 Plan of Registrant, with respect to Dresdner RCM
Biotechnology Fund, is filed herein as Exhibit 15(b).
16. None
17. None
18. None
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19. Power of Attorney for DeWitt F. Bowman, Pamela A. Farr, Thomas S.
Foley, Frank P. Greene and George G.C. Parker, is incorporated herein
by reference to Exhibit 19 of Post-Effective Amendment No. 1.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
RCM Growth Equity Fund, RCM Small Cap Fund and RCM International
Growth Equity Fund A are each series of RCM Capital Funds, Inc., an open-end
management investment company ("Capital Funds"), for which RCM Capital
Management, L.L.C. acts as investment manager. RCM Strategic Global Government
Fund, Inc. is a closed-end management investment company ("RCS"), for which
Dresdner RCM Global Investors, L.L.C. acts as investment manager. Certain
officers and/or directors of Capital Funds and RCS are also officers and/or
directors of Registrant. Accordingly, Capital Funds and RCS may be deemed to be
under common control with Registrant.
Funds Distributor, Inc. ("FDI") acts as distributor of shares of the
funds of Registrant. Certain officers or employees of FDI also serve as officers
of Registrant, Capital Funds and RCS. Accordingly, FDI may be deemed to be under
common control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of August 31, 1997
TITLE OF CLASS NUMBER OF RECORD-HOLDERS
RCM Global Technology Fund 39
Capital Stock
($0.0001 par value)
RCM Global Health Care Fund 3
Capital Stock
($0.0001 par value)
RCM Large Cap Growth Fund 3
Capital Stock
($0.0001 par value)
RCM Global Small Cap Fund 3
Capital Stock
($0.0001 par value)
Dresdner RCM Emerging Markets Fund 0
Capital Stock
($0.0001 par value)
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<PAGE>
Dresdner RCM Biotechnology Fund 0
Capital Stock
($0.0001 par value)
ITEM 27. INDEMNIFICATION.
Section 2-418 of the General Corporation Law of Maryland empowers a
corporation to indemnify directors and officers of the corporation 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
corporation 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
corporation 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 Registrant 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 Registrant and the directors and officers of Registrant 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 Registrant's investment manager and its members and employees.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Registrant pursuant to the provisions of Maryland law and
Registrant's Articles of Incorporation and Bylaws, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in said Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Registrant's investment manager, RCM Capital Management, L.L.C., is a
Delaware limited liability company, whose two members are Dresdner Bank AG
("Dresdner")
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<PAGE>
and Dresdner Kleinwort Benson North America, Inc. ("Dresdner Kleinwort Benson").
Dresdner is an international banking organization whose principal executive
offices are located at Gallunsanlage 7, 60041 Frankfurt am Main, Frankfurt,
Germany. Dresdner Kleinwort Benson is a wholly owned subsidiary of Dresdner
whose principal executive offices are located at 75 Wall Street, New York, New
York 10005.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Funds Distributor, Inc. ("FDI"), whose principal offices are
located at 60 State Street, Suite 1300, Boston Massachusetts
02109, is the principal underwriter of Registrant. FDI is an
indirect, wholly owned subsidiary of Boston Institutional Group,
Inc., a holding company, all of whose outstanding shares are
owned by key employees. FDI is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended, and is a member
of the National Association of Securities Dealers, Inc.. FDI also
serves as principal underwriter of the following investment
companies:
BJB Investment Funds
The Brinson Funds
Burridge Funds
HT Insight Funds, Inc. d/b/a Harris Insight Funds
Harris Insight Funds Trust
The JPM Institutional Funds
The JPM Pierpont Funds
The JPM Series Trust
The JPM Series Trust II
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
Orbitex Group of Funds
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Cash Management Fund, Inc.
WEBS Index Fund, Inc.
FDI does not act as a depositor or investment adviser of any
investment company.
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<PAGE>
(b) The directors and executive officers of FDI are set forth below:
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH FUNDS DISTRIBUTOR, WITH REGISTRANT
INC.
- --------------------------------------------------------------------------------
Marie E. Connolly Director, President and None
Chief Executive Officer
Richard W. Ingram Executive Vice President President, Treasurer and
Chief Financial Officer
Donald R. Roberson Executive Vice President None
John E. Pelletier Senior Vice President, Vice President and
General Counsel, Secretary
Secretary and Clerk
Michael S. Petrucelli Senior Vice President None
Joseph F. Tower III Director, Senior Vice None
President, Treasurer and
Chief Financial Officer
Paula R. David Senior Vice President None
Bernard A. Whalen Senior Vice President None
William J. Nutt Director None
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2
under the Investment Company Act of 1940, as amended, are maintained and held in
the offices of Registrant's investment manager, RCM Capital Management, L.L.C.,
Four Embarcadero Center, Suite 3000, San Francisco, California 94111; and/or
Registrant's distributor, Funds Distributor, Inc., 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
Records covering portfolio transactions are also maintained and kept
by Registrant's custodian and transfer agent, State Street Bank and Trust
Company, U.S. Mutual Funds Services Division, P.O. Box 1713, Boston,
Massachusetts 02105, with respect to Dresdner RCM Biotechnology Fund.
ITEM 31. MANAGEMENT SERVICES.
None
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ITEM 32. UNDERTAKINGS.
(a) Not applicable
(b) Registrant undertakes to file a post-effective amendment, containing
reasonably current financial statements with respect to Dresdner RCM
Biotechnology Fund, which need not be certified, within four to six months from
the effective date of the 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 shareholders, upon
request and without charge.
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<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
Post-Effective Amendment No. 5 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on October 8, 1997.
RCM EQUITY FUNDS, INC.
By: /s/Richard W.Ingram, President
--------------------
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 5 to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
(1) Principal Executive Officer President October 8, 1997
/s/Richard W. Ingram*
---------------------
Richard W. Ingram
(2) Chief Financial and Accounting Officer Treasurer October 8, 1997
/s/Richard W. Ingram*
---------------------
Richard W. Ingram
<PAGE>
SIGNATURE TITLE DATE
(4) Directors
/s/ DeWitt F. Bowman* October 8, 1997
---------------------
DeWitt F. Bowman
/s/ Pamela A. Farr* October 8, 1997
---------------------
Pamela A. Farr
/s/ Thomas S. Foley * October 8, 1997
---------------------
Thomas S. Foley
/s/ Frank P. Greene * October 8, 1997
---------------------
Frank P. Greene
/s/ George G.C. Parker * October 8, 1997
---------------------
George G.C. Parker
By: /s/Richard W. Ingram* October 8, 1997
---------------------
Richard W. Ingram
as Attorney-in-Fact
- ---------------
* By Richard W. Ingram, pursuant to Power of Attorney dated June 14, 1996,
and incorporated herein by reference to Exhibit 5(a) of Post-Effective
Amendment No. 1.
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
1(c) Articles Supplementary to Articles of Incorporation
(Dresdner RCM Emerging Markets Fund)
1(d) Form of Articles Supplementary to Articles of Incorporation
(Dresdner RCM Biotechnology Fund)
4(f) Proof of Specimen of certificate for Capital Stock
(Dresdner RCM Biotechnology Fund)
5(f) Form of Investment Management Agreement, Power of Attorney and
Service Agreement
(Dresdner RCM Biotechnology Fund)
8(a) Custodian Agreement
(RCM Equity Funds, Inc. and State Street Bank and Trust Company)
8(f) Form of Amendment to Custodian Contract
(Dresdner RCM Biotechnology Fund)
15(b) !2b-1 Plan
(Dresdner RCM Biotechnology Fund)
<PAGE>
Exhibit 1(c)
RCM EQUITY FUNDS, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
- --------------------------------------------------------------------------------
RCM Equity Funds, Inc., a Maryland corporation having its principal office
in the State of Maryland in Baltimore City (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Board of Directors has classified 50,000,000 unissued shares
of capital stock, par value $.0001 per share, of the Corporation, which shares
are currently unclassified, into shares of capital stock, par value $.0001 per
share, of the Corporation of one new series of capital stock having the
following designation:
DESIGNATIONS NUMBER OF SHARES
------------ ----------------
Dresdner RCM Emerging Markets Fund 50,000,000
SECOND: The shares of Dresdner RCM Emerging Markets Fund of the
Corporation so classified by the Board of Directors shall have the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption set forth in
Article IV(5) of the Corporation's Articles of Incorporation and shall be
subject to all provisions of the Charter of the Corporation relating to stock of
the Corporation generally.
THIRD: The series known as Dresdner RCM Emerging Markets Fund has been
classified by the Board of Directors pursuant to authority contained in the
Charter of the Corporation.
IN WITNESS WHEREOF, RCM Equity Funds, Inc. has caused these Articles
Supplementary to be executed by its Vice President and witnessed by its
Assistant Secretary on this 5th day of May, 1997. The Vice President of the
Corporation who signed these Articles Supplementary acknowledges them to be the
act of the Corporation and states under the penalties of perjury that, to the
best of his knowledge, information and belief, the matters and facts set forth
herein relating to authorization and approval hereof are true in all material
respects.
WITNESS: RCM EQUITY FUNDS, INC.
<PAGE>
/s/ Karen Jacoppo-Wood By: /s/ Gary S. MacDonald
Karen Jacoppo-Wood, Assistant Secretary Gary S. MacDonald, Vice President
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 1(d)
RCM EQUITY FUNDS, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
- --------------------------------------------------------------------------------
RCM Equity Funds, Inc., a Maryland corporation having its principal office
in the State of Maryland in Baltimore City (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Board of Directors has classified 50,000,000 unissued shares
of capital stock, par value $.0001 per share, of the Corporation, which shares
are currently unclassified, into shares of capital stock, par value $.0001 per
share, of the Corporation of one new series of capital stock having the
following designation:
DESIGNATION NUMBER OF SHARES
----------- ----------------
Dresdner RCM Biotechnology Fund 50,000,000
SECOND: The shares of Dresdner RCM Biotechnology Fund of the Corporation
so classified by the Board of Directors shall have the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption set forth in Article IV(5)
of the Corporation's Articles of Incorporation and shall be subject to all
provisions of the Charter of the Corporation relating to stock of the
Corporation generally.
THIRD: The series known as Dresdner RCM Biotechnology Fund has been
classified by the Board of Directors pursuant to authority contained in the
Charter of the Corporation.
IN WITNESS WHEREOF, RCM Equity Funds, Inc. has caused these Articles
Supplementary to be executed by its _______________ and witnessed by its
___________ on this ____ day of _________, 1997. The ___________ of the
Corporation who signed these Articles Supplementary acknowledges them to be the
act of the Corporation and states under penalties of perjury that, to the best
of his knowledge, information and belief, the matters and facts set forth herein
relating to authorization and approval hereof are true in all material respects.
WITNESS: RCM EQUITY FUNDS, INC.
By: By:
------------------------- ---------------------------
<PAGE>
Exhibit 4(f)
INCORPORATED UNDER THE LAWS OF
THE STATE OF MARYLAND
RCM EQUITY FUNDS, INC.
DRESDNER RCM BIOTECHNOLOGY
FUND SERIES
(Par Value $0.0001)
THIS CERTIFIED THAT ________________________________ IS THE REGISTERED HOLDER OF
____________________________ SHARES OF THE DRESDNER RCM BIOTECHNOLOGY FUND
SERIES Common Stock of RCM EQUITY FUNDS, INC. TRANSFERABLE ONLY ON THE BOOKS OF
THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF
THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE
TO BE SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO
BE HEREUNTO AFFIXED
THIS ____________ DAY OF ___________________________ AD. __________
--------------------------- -------------------------
Secretary President
SHARES Par Value Each
$0.0001
<PAGE>
CERTIFICATE
FOR
SHARES
DRESDNER RCM BIOTECHNOLOGY FUND SERIES
Common Stock of
RCM EQUITY FUNDS, INC.
ISSUED TO:
-----------------------
DATED:
-----------------------
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF CAPITAL
STOCK AND THE BOARD OF DIRECTORS MAY AUTHORIZE ADDITIONAL CLASSES OF
CAPITAL STOCK. THE CORPORATION WILL FURNISH A FULL STATEMENT OF THE
BOARD OF DIRECTORS' AUTHORITY AND OF THE DESIGNATIONS AND ANY
PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS AND TERMS AND CONDITIONS
OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE CORPORATION IS
AUTHORIZED TO ISSUE TO ANY STOCKHOLDER UPON REQUEST WITHOUT CHARGE.
FOR VALUE RECEIVED, ____________________ HEREBY SELL, ASSIGN AND
TRANSFER UNTO ________________________________________________________________
_____________________________________________________________________________
SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT
_________________________________________ ATTORNEY TO TRANSFER THE SAID SHARES
ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN
THE PREMISES.
DATED _____________________
In presence of _________________________________________
<PAGE>
Exhibit 5(f)
INVESTMENT MANAGEMENT AGREEMENT, POWER OF ATTORNEY
AND SERVICE AGREEMENT
THIS AGREEMENT is entered into this ____ day of __________, 1997 by and
between RCM Equity Funds, Inc. (the "Company"), on behalf of Dresdner RCM
Biotechnology Fund, a series of the Company (the "Fund") and
_____________________ (the "Investment Manager").
1. APPOINTMENT AND ACCEPTANCE OF APPOINTMENT OF THE INVESTMENT MANAGER
(a) Subject to express provisions and limitations set forth in the
Company's Articles of Incorporation, Bylaws, Form N-lA Registration
Statement under the Investment Company Act of 1940, as amended (the "1940
Act") and under the Securities Act of 1933, as amended (the "1933 Act"),
and the Fund's prospectus as in use from time to time, as well as to the
factors affecting the Company's status as a regulated investment company
under the Internal Revenue Code of 1986, as amended, the Company hereby
grants to the Investment Manager and the Investment Manager hereby accepts
full discretionary authority to manage the investment and reinvestment of
the cash, securities, and other assets of the Fund (the "Portfolio")
presently held by State Street Bank & Trust Company (the "Custodian"), any
proceeds thereof, and any additions thereto, in the Investment Manager's
discretion. In the performance of its duties hereunder, the Investment
Manager shall further be bound by any and all determinations by the Board
of Directors of the Company relating to the investment objectives policies
or restrictions of the Fund, which determinations shall be communicated in
writing to the Investment Manager. For all purposes herein, the Investment
Manager shall be deemed an independent contractor of the Company.
2. POWERS OF THE INVESTMENT MANAGER
Subject to the limitations provided in Section 1 hereof, the Investment
Manager is empowered hereby, through any of its partners, principals, or
appropriate employees, for the benefit of the Fund:
(a) to invest and reinvest in shares, stocks, bonds, notes and other
obligations of every description issued or incurred by governmental bodies,
corporations, mutual funds, trusts, associations or firms, in trade
acceptances and other commercial paper, and in loans and deposits at
interest on call or on time, whether or not secured by collateral;
(b) to purchase and sell commodities or commodities contracts and
investments in put, call, straddle, or spread options;
1
<PAGE>
(c) to enter into forward, future, or swap contracts with respect to the
purchase and sale of securities, currencies, commodities, and commodities
contracts;
(d) to lend its portfolio securities to brokers, dealers and other
financial institutions;
(e) to buy, sell, or exercise options, rights and warrants to subscribe
for stock or securities;
(f) to engage in any other types of investment transactions described in
the Fund's Prospectus and Statement of Additional Information; and
(g) to take such other action, or to direct the Custodian to take such
other action, as may be necessary or desirable to carry out the purpose and
intent of the foregoing.
3. EXECUTION OF PORTFOLIO TRANSACTIONS
(a) The Investment Manager shall provide adequate facilities and qualified
personnel for the placement of, and shall place, orders for the purchase,
or other acquisition, and sale, or other disposition, of portfolio
securities or other portfolio assets for the Fund.
(b) Unless otherwise specified in writing to the Investment Manager by the
Fund, all orders for the purchase and sale of securities for the Portfolio
shall be placed in such markets and through such brokers as in the
Investment Manager's best judgment shall offer the most favorable price and
market for the execution of each transaction; provided, however, that,
subject to the above, the Investment Manager may place orders with
brokerage firms that have sold shares of the Fund or that furnish
statistical and other information to the Investment Manager, taking into
account the value and quality of the brokerage services of such firms,
including the availability and quality of such statistical and other
information. Receipt by the Investment Manager of any such statistical and
other information and services shall not be deemed to give rise to any
requirement for abatement of the advisory fee payable to the Investment
Manager pursuant to Section 5 hereof and Appendix A hereto.
(c) The Fund understands and agrees that 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, provided, however, that the Investment Manager determines in good
faith that such amount of commission is reasonable in relation to the value
of Fund share sales, statistical, brokerage and other services provided by
such broker, viewed in terms of either the specific transaction or the
Investment Manager's overall responsibilities to the Fund and other clients
for which the Investment Manager exercises investment discretion. The Fund
also understands that the receipt and use of such services will not reduce
the Investment Manager's customary and normal research activities.
2
<PAGE>
(d) The Fund understands and agrees that:
(i) the Investment Manager performs investment management services
for various clients and that the Investment Manager may take action with
respect to any of its other clients which may differ from action taken or
from the timing or nature of action taken with respect to the Portfolio, so
long as it is the Investment Manager's policy, to the extent practical, to
allocate investment opportunities to the Portfolio over a period of time on
a fair and equitable basis relative to other clients;
(ii) the Investment Manager shall have no obligation to purchase or
sell for the Portfolio any security which the Investment Manager, or its
principals or employees, may purchase or sell for its or their own accounts
or the account of any other client, if in the opinion of the Investment
Manager such transaction or investment appears unsuitable, impractical or
undesirable for the Portfolio;
(iii) on occasions when the Investment Manager deems the purchase or
sale of a security to be in the best interests of the Fund as well as other
clients of the Investment Manager, the Investment Manager, to the extent
permitted by applicable laws and regulations, may aggregate the securities
to be so sold or purchased when the Investment Manager believes that to do
so will be in the best interests of the Fund. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in
the transaction, shall be made by the Investment Manager in the manner the
Investment Manager considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to such other clients; and
(iv) the Investment Manager does not prohibit any of its principals or
employees from purchasing or selling for their own accounts securities that
may be recommended to or held by the Investment Manager's clients, subject
to the provisions of the Investment Manager's Code of Ethics and that of
the Company.
4. ALLOCATION OF EXPENSES OF THE COMPANY AND THE FUND
(a) The Investment Manager will bear all expenses related to salaries of
its employees and to the Investment Manager's overhead in connection with
its duties under this Agreement. The Investment Manager also will pay all
fees and salaries of the Company's directors and officers who are
affiliated persons (as such term is defined in the 1940 Act) of the
Investment Manager.
(b) Except for the expenses specifically assumed by the Investment
Manager, the Fund will pay all of its expenses, including, without
limitation, fees and expenses of the directors not affiliated with the
Investment Manager attributable to the Fund; fees of the Investment
Manager; fees of the Fund's administrator, custodian and subcustodians for
all services to
3
<PAGE>
the Fund (including safekeeping of funds and securities and maintaining
required books and accounts); transfer agent, registrar and dividend
reinvestment and disbursing agent interest charges; taxes; charges and
expenses of the Fund's legal counsel and independent accountants; charges
and expenses of legal counsel provided to the non-interested directors of
the Company; expenses of repurchasing shares of the Fund; expenses of
printing and mailing share certificates, stockholder reports, notices,
proxy statements and reports to governmental agencies; brokerage and other
expenses connected with the execution, recording and settlement of
portfolio security transactions; expenses connected with negotiating, or
effecting purchases or sales of portfolio securities or registering
privately issued portfolio securities; expenses of calculating and
publishing the net asset value of the Fund's shares; expenses of membership
in investment company associations; premiums and other costs associated
with the acquisition of a mutual fund directors and officers errors and
omissions liability insurance policy; expenses of fidelity bonding and
other insurance premiums; expenses of stockholders' meetings; and SEC and
state blue sky registration fees.
(c) The expenses borne by the Fund pursuant to Section 4(b) shall include
the Fund's proportionate share of any such expenses of the Company, which
shall be allocated among the Fund and the other series of the Company on
such basis as the Company shall deem appropriate.
5. COMPENSATION OF THE INVESTMENT MANAGER
(a) In consideration of the services performed by the Investment Manager
hereunder, the Fund will pay or cause to be paid to the Investment Manager,
as they become due and payable, management fees determined in accordance
with the attached Schedule of Fees (Appendix A). In the event of
termination, any management fees paid in advance pursuant to such fee
schedule will be prorated as of the date of termination and the unearned
portion thereof will be returned to the Fund.
(b) The net asset value of the Fund's portfolio used in fee calculations
shall be determined in the manner set forth in the Articles of
Incorporation and Bylaws of the Company and the Fund's prospectus as of the
close of regular trading on the New York Stock Exchange on each business
day the New York Stock Exchange is open.
(c) The Fund hereby authorizes the Investment Manager to charge the
Portfolio, subject to the provisions in Section 6 hereof, for the full
amount of fees as they become due and payable pursuant to the attached
schedule of fees; provided, however, that a copy of a fee statement
covering said payment shall be sent to the Custodian and to the Company.
(d) The Investment Manager may from time to time voluntarily agree to
limit the aggregate operating expenses of the Fund for one or more fiscal
years of the Company, as set forth in
4
<PAGE>
Appendix A hereto or in any other written agreement with the Company. If
in any such fiscal year the aggregate operating expenses of the Fund (as
defined in Appendix A or such other written agreement) exceed the
applicable percentage of the average daily net assets of the Fund for such
fiscal year, the Investment Manager shall reimburse the Fund for such
excess operating expenses. Such operating expense reimbursement, if any,
shall be estimated, reconciled and paid on a quarterly basis, or such more
frequent basis as the Investment Manager may agree in writing. Any such
reimbursement of the Fund shall be repaid to the Investment Manager by the
Fund, without interest, at such later time or times as it may be repaid
without causing the aggregating operating expenses of the Fund to exceed
the applicable percentage of the average daily net assets of the Fund for
the period in which it is repaid; provided, however, that upon termination
of this Agreement, the Fund shall have no further obligation to repay any
such reimbursements.
6. SERVICE TO OTHER CLIENTS
Nothing contained in this Agreement shall be construed to prohibit the
Investment Manager from performing investment advisory, management,
distribution or other services for other investment companies and other
persons, trusts or companies, or to prohibit affiliates of the Investment
Manager from engaging in such businesses or in other related or unrelated
businesses.
7. STANDARD OF CARE
The Investment Manager shall have no liability to the Fund, or its
stockholders, for any error of judgment, mistake of law, loss arising out
of any investment, or other act or omission in the performance of its
obligations to the Fund not involving willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties hereunder.
The federal securities laws impose liabilities under certain circumstances
on persons who act in good faith, and therefore nothing herein shall in any
way constitute a waiver or limitation of any rights which the undersigned
may have under any federal securities laws.
8. DURATION OF AGREEMENT
This Agreement shall continue in effect until the close of business on
____________, 1999. This Agreement may thereafter be renewed from year to
year by mutual consent, provided that such renewal shall be specifically
approved at least annually by (i) the Board of Directors of the Company, or
by the vote of a majority (as defined in the 1940 Act) of the
5
<PAGE>
outstanding voting securities of the Company, and (ii) a majority of those
directors who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party cast in person at a meeting
called for the purpose of voting on such approval.
9. TERMINATION
This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of the Company or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Company on sixty (60) days' written notice to the Investment
Manager, or by the Investment Manager on like notice to the Company. This
Agreement shall automatically terminate in the event of its assignment (as
defined in the 1940 Act).
10. REPORTS, BOOKS AND RECORDS
The Investment Manager shall render to the Board of Directors of the
Company such periodic and other reports as the Board may from time to time
reasonably request. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Manager hereby agrees that all records
which it maintains for the Company are property of the Company. The
Investment Manager shall surrender promptly to the Company any of such
records upon the Company's request, and shall preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
11. REPRESENTATIONS AND WARRANTIES
The Investment Manager represents and warrants to the Company that the
Investment Manager is registered as an investment adviser under the
Investment Advisers Act of 1940. During the term of this Agreement, the
Investment Manager shall notify the Company of any change in the membership
of the Investment Manager's partnership within a reasonable time after such
change. The Company represents and warrants to the Investment Manager that
the company is registered as an open-end management investment company
under the 1940 Act. Each party further represents and warrants to the
other that this Agreement has been duly authorized by such party and
constitutes the legal, valid and binding obligation of such party in
accordance with its terms.
12. AMENDMENT OF THIS AGREEMENT
6
<PAGE>
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination
is sought.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their officers thereunto duly authorized as
of the date first above written.
THE INVESTMENT MANAGER RCM EQUITY FUNDS, INC.
ON BEHALF OF DRESDNER
RCM BIOTECHNOLOGY FUND
By: By:
------------------------- --------------------------
ATTEST: ATTEST:
By: By:
------------------------------- --------------------------
7
<PAGE>
APPENDIX A
INVESTMENT MANAGEMENT AGREEMENT, POWER OF ATTORNEY,
AND SERVICE AGREEMENT
BETWEEN __________(the "INVESTMENT MANAGER")
AND RCM EQUITY FUNDS, INC.
SCHEDULE OF FEES
FOR DRESDNER RCM BIOTECHNOLOGY FUND
Effective Date: _______________
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 ____ % of the value of
the Fund's average daily net assets.
VALUE OF SECURITIES AND CASH OF FUND FEE
------------------------------------ ---
On all sums ____ % annually
For the fiscal year ended December 31, ____, the Investment Manager shall
reimburse the Fund to the extent that the operating expenses of the Fund (as
hereinafter defined) exceed ____ % of the average daily net assets of the Fund.
For this purpose, the "operating expenses" of the Fund shall be deemed to
include all ordinary operating expenses other than interest, taxes and
extraordinary expenses.
Dated:
-------------
THE INVESTMENT MANAGER RCM EQUITY FUNDS, INC.
ON BEHALF OF DRESDNER
RCM BIOTECHNOLOGY FUND
By: By:
----------------------------- ------------------------------
ATTEST: ATTEST:
By: By:
----------------------------- ------------------------------
8
<PAGE>
Exhibit 8(a)
CUSTODIAN CONTRACT
Between
RCM EQUITY FUNDS, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
Exhibit 8(a)
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property Held by It . . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property of the
Fund Held by the Custodian in the United States . . . . . . . . . . . 2
2.1 Holding Securities. . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities. . . . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities. . . . . . . . . . . . . . . . . . . 4
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Availability of Federal Funds . . . . . . . . . . . . . . . . . 5
2.6 Collection of Income. . . . . . . . . . . . . . . . . . . . . . 5
2.7 Payment of Fund Monies. . . . . . . . . . . . . . . . . . . . . 6
2.8 Liability of Payment in Advance of Receipt of
Securities Purchased. . . . . . . . . . . . . . . . . . . . . . 7
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . . . . 7
2.10 Deposit of Fund Assets in U.S. Securities System. . . . . . . . 7
2.11 Fund Assets Held in the Custodian's Direct Paper System . . . . 9
2.12 Segregated Account. . . . . . . . . . . . . . . . . . . . . . . 9
2.13 Ownership Certificates for Tax Purposes . . . . . . . . . . . . 10
2.14 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.15 Communications Relating to Portfolio Securities . . . . . . . . 10
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States . . . . . . . . . . . . . . . . . . 11
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . . . . 11
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Foreign Securities Systems. . . . . . . . . . . . . . . . . . . 11
3.4 Holding Securities. . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Agreements with Foreign Banking Institutions. . . . . . . . . . 12
3.6 Access of Independent Accountants of the Fund . . . . . . . . . 12
3.7 Reports by Custodian. . . . . . . . . . . . . . . . . . . . . . 12
3.8 Transactions in Foreign Custody Account . . . . . . . . . . . . 12
3.9 Liability of Foreign Sub-Custodians . . . . . . . . . . . . . . 13
3.10 Liability of Custodian. . . . . . . . . . . . . . . . . . . . . 13
3.11 Reimbursement for Advances. . . . . . . . . . . . . . . . . . . 14
3.12 Monitoring Responsibilities . . . . . . . . . . . . . . . . . . 14
3.13 Branches of U.S. Banks. . . . . . . . . . . . . . . . . . . . . 14
3.14 Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
4. Payments for Sales or Repurchases or Redemptions of Shares of
the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 15
6. Actions Permitted without Express Authority . . . . . . . . . . . . . 16
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . 16
8. Duties of Custodian with Respect to the Books of Account
and Calculation of Net Asset Value and Net Income . . . . . . . . . . 16
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10. Opinion of Fund's Independent Accountant. . . . . . . . . . . . . . . 17
11. Reports to Fund by Independent Public Accountants . . . . . . . . . . 17
12. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . 18
13. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . 18
14. Effective Period, Termination and Amendment . . . . . . . . . . . . . 19
15. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . 20
16. Interpretive and Additional Provisions. . . . . . . . . . . . . . . . 21
17. Additional Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
18. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . . . . . 21
19. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
20. Representations and Warranties of the Custodian . . . . . . . . . . . 22
21. Shareholder Communications Election . . . . . . . . . . . . . . . . . 22
-ii-
<PAGE>
Exhibit 8(a)
CUSTODIAN CONTRACT
This Contract between RCM Equity Funds, Inc., a corporation organized and
existing under the laws of Maryland and having its principal place of business
at Four Embarcadero Center, Suite 3000, San Francisco, California 94111 (the
"Fund"), and State Street Bank and Trust Company, a Massachusetts trust company
having its principal place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Custodian").
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series, RCM
Global Technology Fund (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
Article 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained. the Parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund, including securities which the Fund, on behalf of the
applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund's Articles
of Incorporation (the "Articles of Incorporation"). The Fund on behalf of the
Portfolio(s) agrees to deliver to the Custodian all securities and cash of the
Portfolios, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of capital stock of the Fund representing interests
in the Portfolios, ("Shares") as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5), the Custodian shall on behalf of the applicable Portfolio(s) from
time to time employ one or more sub-custodians, located in the United States,
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any sub-
custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign securities on
behalf of the applicable Portfolio(s) the foreign banking institutions and
foreign securities depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3.
<PAGE>
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury
(each, a "U.S. Securities System") and (b) commercial paper of an issuer
for which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian (the "Direct Paper System") pursuant to
Section 2.11.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper System account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor:
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian
or into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination
in accordance with "street
-2-
<PAGE>
delivery" custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the delivery of
such securities prior to receiving payment for such securities except as
may arise from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger, consolidation,
recapitalization, reorganization or readjustment of the securities of the
issuer of such securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash, if any, are
to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities or
the surrender of interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund on behalf of the Portfolio,
which may be in the form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in connection
with any loans for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings by the Fund on
behalf of the Portfolio requiring a pledge of assets by the Fund on behalf
of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among the
Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among the
Fund on behalf of the Portfolio, the Custodian, and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading Commission
and/or any Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by the Portfolio
of the Fund;
-3-
<PAGE>
14) Upon receipt of instructions from the transfer agent for the Fund (the
"Transfer Agent"), for delivery to such Transfer Agent or to the
holders of Shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to the
Portfolio (the "Prospectus"), in satisfaction of requests by holders
of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Directors of the Fund or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary (a "Certified Resolution"), specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom delivery
of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers. Securities shall at all times be
identifiable on its records.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 1 7f-3 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Funds held by
the Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other banks
or trust companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified
to act as a custodian under the 1940 Act and that each such bank or trust
company and the funds to be deposited with each such bank or trust company
shall on behalf of each applicable Portfolio be approved by vote of a
majority of the Board of
-4-
<PAGE>
Directors of the Fund (the "Board"). Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if, on the date
of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
1940 Act to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the case of
a purchase effected through a U.S. Securities System, in accordance
with the conditions set forth in Section 2.10 hereof; (c) in the case
of a purchase involving the Direct Paper System, in accordance with
the conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf of the
Portfolio and the Custodian, or another bank, or a broker-dealer which
is a member of NASD, (i) against delivery of the
-5-
<PAGE>
securities either in certificate form or through an entry crediting
the Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing purchase
by the Portfolio of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time deposit
account of the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation from a
broker and/or the applicable bank pursuant to Proper Instructions from
the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares as set forth in Article 4
hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of
the Portfolio: interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, mat only upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the Portfolio, a
Certified Resolution specifying the amount of such payment, setting
forth the purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons to
whom such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of domestic securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund on
behalf of such Portfolio to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as if
the securities had been received by the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the 1940 Act to act as a custodian,
as its agent to carry out such of the provisions of this Article 2 as the
Custodian may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
-6-
<PAGE>
2.10 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission (the "SEC")
under Section 17A of the Exchange Act, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "U.S. Securities System" in accordance with applicable Federal
Reserve Board and SEC rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in an
account ("Account") of the Custodian in the U.S. Securities System
which shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers:
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Portfolio. The
Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of transfers of
securities for the account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of each
transfer to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on behalf of
the Portfolio copies of daily transaction sheets reflecting each day's
transactions in the U.S. Securities System for the account of the
Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any report
obtained by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate. as the case may be.
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio
for any loss or damage to the Portfolio resulting from use of the U.S.
Securities System by reason of any
-7-
<PAGE>
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the U.S. Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the U.S. Securities System
or any other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Portfolio has
not been made whole for any such loss or damage.
2.11 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in the Direct Paper
System Account, which account shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities sold
for the account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio,
in the form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets reflecting
each day's transaction in the U.S. Securities System for the account
of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper Instructions
from the Fund on behalf of each applicable Portfolio establish and maintain
a segregated account or accounts for and on behalf of each such Portfolio,
into which account or accounts may
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be transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on behalf of
the Portfolio, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with
the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or written
by the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of compliance by
the Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, BUT ONLY, in the
case of clause (iv), upon receipt of, in addition to Proper Instructions
from the Fund on behalf of the applicable Portfolio, a Certified Resolution
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 PROXIES. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities. Neither the
Custodian nor any nominee of the custodian shall vote any of the Portfolio
securities held hereunder by or for the account of the Portfolio, except
upon receipt of Proper Instructions from the Fund.
2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, capital changes, or other reorganizations,
the Custodian shall transmit promptly to the Portfolio all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with
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respect to any tender offer, exchange offer or any other similar
transaction, the Portfolio shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE
OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated
on Schedule A hereto ("foreign sub-custodians"). Upon receipt of "Proper
Instructions", as defined in Article 5 hereof, together with a Certified
Resolution, the Custodian and the Fund may agree to amend Schedule A hereto
from time to time to designate additional foreign banking institutions and
foreign securities depositories to act as sub-custodian. Upon receipt of
Proper Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining custody
of the Portfolio's assets. The Custodian represents that each of the
foreign sub-custodians listed on Schedule A is an "Eligible Foreign
Custodian" as defined in Rule 17f-5 of the Investment Company Act of 1940.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the 1940 Act, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to effect
the Portfolio's foreign securities transactions. The Custodian shall
identify on its books as belonging to the Fund, the foreign securities of
the Fund held by each foreign sub-custodian.
3.3 FOREIGN SECURITIES SYSTEMS. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in a clearing agency which acts as a securities depository or in
a book-entry system for the central handling of securities located outside
of the United States (each a "Foreign Securities System") only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof (Foreign Securities Systems and
U.S. Securities Systems are collectively referred to herein as the
"Securities Systems"). Where possible, such arrangements shall include
entry into agreements containing the provisions set forth in Section 3.5
hereof
3.4 HOLDING SECURITIES. The Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a Foreign Sub-
custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash
property of the Fund which are maintained in such account shall identify by
book-entry those securities and other non-cash property belonging to the
Fund and (ii) the Custodian shall require that securities and other non-
cash property so held by the Foreign
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Sub custodian be held separately from any assets of the Foreign Sub-
custodian or of others.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a foreign
banking institution shall provide that: (a) the assets of each Portfolio
will not be subject to any right, charge, security interest, lien or claim
of any kind in favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or administration;
(b) beneficial ownership for the assets of each Portfolio will be freely
transferable without the payment of money or value other than for custody
or administration; (c) adequate records will be maintained identifying the
assets as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its agreement
with the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian or
its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained by
a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a Portfolio,
the identity of the entity having physical possession of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise provided
in subSection (b) of this Section 3.8. the provision of Sections 2.2 and
2.7 of this Contract shall apply, MUTATIS MUTANDIS to the foreign
securities of the Fund held outside the United States by foreign sub-
custodians. (b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for the account of
each applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained in
the name of such entity's nominee to the same extent as
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set forth in Section 2.3 of this Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by Section 3.13 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
Section 3. 10, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio including
the purchase or sale of foreign exchange or of contracts for foreign
exchange, or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the applicable Portfolio shall be security therefor and should
the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's
assets to the extent necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign sub-
custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the
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Fund in connection with the initial approval of this Contract. In addition,
the Custodian will promptly inform the Fund in the event that the Custodian
learns of a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the case
of any foreign sub-custodian not the subject of an exemptive order from the
SEC is notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below
$200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting principles).
3.13 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in this Contract,
the provisions hereof shall not apply where the custody of the Portfolios
assets are maintained in a foreign branch of a banking institution which is
a "bank" as defined by Section 2(a)(5) of the 1940 Act meeting the
qualification set forth in Section 26(a) of said Act. The appointment of
any such branch as a sub-custodian shall be governed by Article 1 hereof.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the direction
of the Custodian, State Street London Ltd. or both.
3.14 TAX LAW. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or any
state or political subdivision thereof. It shall be the responsibility of
the Fund to notify the Custodian of the obligations imposed on the Fund or
the Custodian as custodian of the Fund by the tax law of jurisdictions
other than those mentioned in the above sentence, including responsibility
for withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such information.
4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent and deposit into the account of the appropriate Portfolio such
payments as are received for Shares of that Portfolio issued or sold from time
to time by the Fund. The Custodian will provide timely notification to the Fund
on behalf of each such Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board pursuant thereto, the Custodian shall, upon receipt of instructions from
the Transfer Agent, make funds available for payment to holders of Shares who
have delivered to the Transfer Agent a request for redemption or repurchase of
their Shares. In connection with the redemption or repurchase of Shares, the
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Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when presented
to the Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
5. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Contract means a writing signed
or initialed by one or more person or persons as the Board shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Board, Proper Instructions may include communications
effected directly between electro-mechanical or electronic devices provided that
the Board and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly
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executed by or on behalf of the Fund. The Custodian may receive and accept a
certified copy of a vote of the Board as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board pursuant to the Articles of
Incorporation as described in such vote, and such vote may be considered as in
full force and effect until receipt by the Custodian of written notice to the
contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board to keep the books of account of each
Portfolio and/or compute the net asset value per share of the outstanding Shares
or, if directed in writing to do so by the Fund on behalf of the Portfolio,
shall itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily the net income
of the Portfolio as described in the Prospectus and shall advise the Fund and
the Transfer Agent daily of the total amounts of such net income and, if
instructed in writing by an officer Fund to do so, shall advise the Transfer
Agent periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the daily
income of each Portfolio shall be made at the time or times described from time
to time in the Prospectus.
9. RECORDS
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof and Rules 3 la-1 and 3 la-2
thereunder. All such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Fund and employees and
agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by each Portfolio and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the SEC and with respect to any
other requirements of the SEC.
11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities,
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futures contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the services
provided by the Custodian under this Contract; such reports, shall be of
sufficient scope and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
13. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. In any case in which
the Custodian believes that the indemnification provided for under this
Paragraph 8 shall be required, the Custodian shall advise the Fund fully and
promptly in writing of all pertinent facts concerning the situation in question,
and the Custodian shall use reasonable care to identify and notify the Fund in
writing promptly concerning any situation which reasonably appears likely to
present the possibility of such a claim for indemnification. If any person makes
a claim against the Custodian which the Custodian believes is subject to
indemnification, the Fund shall have the option to defend the Custodian against
such claim. The Custodian shall in no case confess any claim or make any
compromise in any case in which the Fund will be asked to indemnify the
Custodian except with the Fund's prior written consent. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by, (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, or computer viruses or communications disruptions;
(ii) errors by the Fund or the Investment Advisor in their instructions to the
Custodian provided such instructions have been in accordance with this Contract;
(iii) the insolvency of or acts or omissions by a Securities System; (iv) any
delay or
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failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge or registering or transferring securities in the name of
the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or
agents or any consequential losses arising out of such delay or failure to
transfer such securities including non-receipt of bonus, dividends and rights
and other accretions or benefits; (vi) delays or inability to perform its duties
due to any disorder in market infrastructure with respect to any particular
security or Securities System; and (vii) any provision of any present or future
law or regulation or order of the United States of America, or any state
thereof, or any other country, or political subdivision thereof or of any court
of competent jurisdiction. Regardless of whether assets are maintained in the
custody of a foreign banking institution or a foreign securities depository, the
Custodian shall not be liable for "country risk", i.e. any loss, damage, cost,
expense, liability or claim resulting from, or caused by, the direction of or
authorization by the Fund to maintain custody of any securities or cash of the
Fund or of a Portfolio in a foreign country including, but not limited to,
losses resulting from nationalization, expropriation, imposition of currency
controls or restrictions, acts of war or terrorism, riots, revolutions, work
stoppages, natural disasters or other similar events or acts.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund assets to
the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. EFFECTIVE PERIOD. TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
Custodian
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shall not with respect to a Portfolio act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board has approved the initial use of a particular Securities
System by such Portfolio, as required by Rule 17f-4 under the 1940 Act and that
the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board has approved the initial use of the Direct
Paper System by such Portfolio; provided fit, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Articles of Incorporation, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of the Board (i) substitute another bank or trust company
for the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. SUCCESSOR CUSTODIAN
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities of each applicable Portfolio then held by
it hereunder and shall transfer to an account of the successor custodian all of
the securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board, deliver at
the office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board shall have been delivered to the Custodian
on or before the date when such termination shall become effective, then the
Custodian shall have the right to deliver to a bank or trust company, which is a
"bank" as defined the 1940 Act, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Portfolio and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such successor custodian
all of the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board to appoint a successor custodian, the
-18-
<PAGE>
Custodian shall be entitled to fair compensation for its services during such
period as the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
16. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to RCM Global Technology Fund with respect to which it desires to have
the Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
20. REPRESENTATIONS WARRANTIES OF THE CUSTODIAN
Custodian represents and warrants to the Fund that:
(a) it is a Massachusetts trust company duly organized and existing and in
good standing under the laws of The Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its charter and by-laws
to enter into and perform the services set forth in this Contract, and all
requisite corporate proceedings have been taken to authorize it to enter into
and perform this Contract; and
-19-
<PAGE>
(c) it is duly authorized to act as a Custodian under the Investment
Company Act of 1940.
21. SHAREHOLDER COMMUNICATIONS ELECTION
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of January 3, 1996.
-20-
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By: /s/Ronald E. Logue
Name: Ronald E. Logue
Title: Executive Vice President
RCM EQUITY FUNDS, INC.
By: /s/Michael J. Apatoff
Name: Michael J. Apatoff
Title: Chief Operating Officer
-21-
<PAGE>
Exhibit 8(a)
SCHEDULE A
17f-5 Approval
The Board of Directors/Trustees of RCM Equity Funds, Inc. has approved certain
foreign banking institutions and foreign securities depositories within State
Street's Global Custody Network for use as subcustodians for the Fund's
securities, cash and cash equivalents held outside of the United States. Board
approval is as indicated by the Fund's Authorized Officer:
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
-------- ------- ------------ -------------------
<S> <C> <C> <C>
Argentina Citibank, N.A. Caja de Valores S.A.
--------
Australia Westpac Banking Corporation Austraclear Limited;
--------
Reserve Bank Information and Transfer
System (RITS)
Austria GiroCredit Bank Aktiengesellschaft der Oesterreichische Kontrolbank AG
-------- Sparkassen (Wertpapiersammelbank Division)
Bangladesh Standard Chartered Bank None
--------
Belgium Generale Bank Caisse Interprofessionnelle de Depots et
-------- de Virements de Titres S.A. (CIK);
Banque Nationale de Belgique
Botswana Baclays Bank of Botswana Limited None
--------
Brazil Citibank, N.A. Bolsa de Valores de Sao Paulo (Bovespa);
--------
Bankco Central do Brasil, Systema
Especial de Liquidacao e Custodia
(SELIC)
Canada Canada Trustco Mortgage Company The Canadian Depository for Securities
-------- Limited (CDS)
Chile Citibank, N.A. None
--------
</TABLE>
<PAGE>
Schedule A
17f-5 Approval
Page 2
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
-------- ------- ------------ -------------------
<S> <C> <C> <C>
People's Republic of The Hongkong and Shanghai Banking Shanghai Securities Central Clearing and
China Corporation Limited, Shanghai and Registration Corporation (SSCCRC);
-------- Shenzhen branches
Shenzhen Securities Central Clearing
Co., Ltd.
Colombia Cititrust Colombia S.A. Sociedad None
-------- Fiduciaria
Cyprus Barclays Bank PLC None
--------
Czech Republic Ceskoslovenska Obchodni Banka A.S. Stredisko cennych papiru (SCP);
--------
Czech National Bank (CNB)
Denmark Den Danske Bank Vaerdipapircentralen - The Danish
-------- Securities Center (VP)
Ecuador Citibank, N.A. None
--------
Egypt National Bank of Egypt None
--------
Finland Merita Bank Limited The Central Share Register of Finland
--------
France Banque Paribas Societe Interprofessionnelle pour la
-------- Compensation des Valeurs Mobilieres
(SICOVAM);
Banque de France, Saturne System
Germany BHF-Bank Aktiengesellschaft The Deutscher Kassenverein AG
--------
Ghana Barclays Bank of Ghana Limited None
--------
Greece National Bank of Greece S.A. The Central Securities Depository
-------- (Apothetirion Titlon A.E.)
Hong Kong Standard Chartered Bank The Central Clearing and Settlement
-------- System (CCASS)
</TABLE>
<PAGE>
Schedule A
17f-5 Approval
Page 3
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
-------- ------- ------------ -------------------
<S> <C> <C> <C>
Hungary Citibank Budgpest Rt. The Central Depository and Clearing
-------- Hourse (Budapest) Ltd. (KELER Ltd.)
India Deutsche Bank AG None
--------
Indonesia Standard Chartered Bank None
--------
Ireland Bank of Ireland None;
--------
The Central Bank of Ireland, The Gilt
Settlement Office (GSO)
Israel Bank Hapoalim B.M. The Clearing House of the Tel Aviv Stock
-------- Exchange
Italy Morgan Guaranty Trust Company Monte Titoli S.p.A.;
--------
Banca d'Italia
Japan The Sumitomo Trust & Banking Co., Ltd. Japan Securities Depository Center
-------- (JASDEC);
Bank of Japan Net System
Jordan The British Bank of the Middle East None
--------
Kenya Barclays Bank of Kenya Limited None
--------
Republic of Korea SEOULBANK Korea Securities Depository (KSD)
--------
Malaysia Standard Chartered Bank Malaysia Berhad Malaysian Central Depository Sdn. Bhd.
-------- (MCD)
Mauritius The Hongkong and Shanghai Banking None
-------- Corporation Limited
Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V. (Instituto
-------- para el Deposito de Valores);
Banco de Mexico
</TABLE>
<PAGE>
Schedule A
17f-5 Approval
Page 4
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
-------- ------- ------------ -------------------
<S> <C> <C> <C>
Morocco Banque Commerciale du Maroc None
--------
Netherlands MeesPierson N.V. Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. (NECIGEF)
--------
New Zealand ANZ Banking Group (New Zealand) Limited None;
--------
Reserve Bank of New Zealand, Austraclear
NZ
Norway Christiania Bank og Kreditkasse Verdipapirsentralen - The Norwegian
-------- Registry of Securities (VPS)
Pakistan Deutsche Bank AG None
--------
Peru Citibank, N.A. Caja de Valores (CAVAL)
--------
Philippines Standard Chartered Bank None
--------
Poland Citibank Poland S.A. The National Depository of Securities
-------- (Centrum Krajowego Depozytu Papierow
Wartosciowych)
Portugal Banco Comerical Portugues Central de Valores Mobiliarios (Central)
--------
Singapore The Development Bank of Singapore Ltd. The Central Depository (Pte) Limited
-------- (CDP)
Slovak Republic Ceskoslovenska Obchodna Banka A.S. Stredisko cennych papierov (SCP);
-------- National Bank of Slovakia
South Africa Standard Bank of South Africa Limited None
--------
Spain Banco Santander, S.A. Servicio de Compensacion y Liquidacion
-------- de Valores (SCLV);
Banco de Espana, Anotaciones en Cuenta
</TABLE>
<PAGE>
Schedule A
17f-5 Approval
Page 5
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
-------- ------- ------------ -------------------
<S> <C> <C> <C>
Sri Lanka The Honkong and Shanghai Banking The Central Depository System (Pvt)
-------- Corporation Limited Limited
Swaziland Barclays Bank of Swaziland Limited None
--------
Sweden Skandinaviska Enskilda Banken Vardepapperscentralen VPC AB, The
Swedish Central Securities Depository
--------
Switzerland Union Bank of Switzerland Schweizerische Effekten - Giro AG (SEGA)
--------
Taiwan - R.O.C. Central Trust of China The Taiwan Securities Central Depository
-------- Company, Ltd. (TSCD)
Thailand Standard Chartered Bank Thailand Securities Depository Company
-------- Limited (TSD)
Turkey Citibank, N.A. Istanbul Stock Exchange Settlement and
-------- Custody Co. Inc. (I.M.K.B. Takas ve
Saklama A.S.)
United Kingdom State Street Bank and Trust Company None;
--------
The Bank of England, The Central Gilts
Office (CGO); The Central Moneymarkets
Office (CMO)
Uruguay Citibank, N.A. None
--------
Venezuela Citibank, N.A. None
--------
Zambia Barclays Bank of Zambia Limited None
--------
Zimbabwe Barclays Bank of Zimbabwe Limited None
--------
Euroclear (The Euroclear System)/State Street London Limited
--------
Cedel (Cedel Bank societe anonyme)/State Street London Limited
--------
</TABLE>
<PAGE>
Schedule A
17f-5 Approval
Page 6
CERTIFIED BY:
- -------------------------------------------- -----------
FUND'S AUTHORIZED OFFICER Date
<PAGE>
Exhibit 8(f)
[Letterhead]
State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Dear Sirs:
In accordance with Section 17 of the Custodian Contract, dated January 3,
1996 (the "Agreement"), between RCM Equity Funds, Inc. (the "Fund") and State
Street Bank & Trust Company (the "Bank"), the Fund hereby notifies the Bank of
the Fund's desire to have the Bank render services as Custodian under the terms
of the Agreement with respect to Dresdner RCM Biotechnology Fund, a series of
shares of common stock of the Fund.
Please indicate your acceptance of the foregoing by executing two copies of
this Letter Agreement, returning one to the Fund and retaining one copy for your
records.
Very truly yours,
RCM EQUITY FUNDS, INC.
By:
----------------------
Name:
Title
Accepted:
STATE STREET BANK & TRUST COMPANY
By:
------------------------
Name:
Title
1
<PAGE>
Exhibit 15(b)
RCM EQUITY FUNDS, INC.
DISTRIBUTION PLAN
INTRODUCTION
The Board of Directors (the "Board") of RCM Equity Funds, Inc., a Maryland
Corporation (the "Company"), has approved the adoption of the Distribution Plan
(the "Plan") set forth below with respect to the distribution of shares of
capital stock (the "Shares") of its Dresdner RCM Biotechnology Fund (the
"Fund"). This Plan is designed to conform to the requirements of Rule 12b-1
promulgated under the Investment Company Act of 1940, as amended (the "Act").
The Company on behalf of the Fund has entered into a distribution agreement
pursuant to which the Company will employ Funds Distributor, Inc. (the
"Distributor") to distribute shares of the Fund. Under this Plan, the Company
on behalf of the Fund intends to compensate the Distributor for expenses
incurred, and services and facilities provided, by the Distributor in
distributing Shares of the Fund.
THE PLAN
The material aspects of the Plan are as follows:
SECTION 1. The Fund will pay the Distributor for: (a) expenses
incurred in connection with advertising and marketing shares of the Fund
including but not limited to any advertising or marketing via radio, television,
newspapers, magazines, telemarketing or direct dial mail solicitations; (b)
periodic payments of fees for distribution assistance made to one or more
securities dealers, or other industry professionals, such as investment
advisers, accountants, estate planning firms and the Distributor itself
(collectively "Service Organizations") in respect of the average daily value of
the Fund's Shares beneficially owned by persons ("Clients") for whom the Service
Organization is the dealer of record or holder of record or with whom the
Service Organization has a servicing relationship, and (c) expenses incurred in
preparing, printing and distributing the Fund's prospectus and statement of
additional information (except those used for regulatory purposes or for
distribution to existing shareholders of the Fund).
SECTION 2. While this Plan is in effect the Distributor will be
compensated by the Fund for such distribution expenses that are incurred, and
services and facilities that are provided, in connection with Shares of the Fund
on a monthly basis, at the annual rate of up to 0.35% of the Fund's average
daily net assets during such month. These monthly payments to the Distributor
will be made in accordance with and subject to the conditions set forth below.
For the purposes of determining the amounts payable under the Plan, the value of
the Fund's net assets shall be computed in the manner specified in the Fund's
prospectus and statement of additional information as then in effect for the
computation of the value of the Fund's net assets.
1
<PAGE>
The distribution fees payable to the Distributor are designed to
reimburse the Distributor for the expenses it incurs and services it renders
in distributing shares of the Fund. If in any year the Distributor's
expenses incurred in connection with the distribution of Shares of the Fund
exceed the distribution fees paid by the Fund, the Distributor will recover
such excess only if this Plan continues to be in effect with respect to the
Fund in some later year when the distribution fees exceed the Distributor's
expenses. There is no limit on the periods during which unreimbursed
expenses may be carried forward, although the Company is not obligated to
repay any unreimbursed expenses for the Fund that may exist at such time, if
any, as this Plan terminates or is not continued with respect to the Fund.
No interest, carrying or finance charge will be imposed on any amounts
carried forward.
Payment made out of or charged against the assets of the Fund must be in
payment for distribution expenses incurred on behalf of the Fund and which are
described herein.
SECTION 3. Payments by the Distributor to a Service Organization
described in this Plan shall be subject to compliance by the Service
Organization with the terms of a written agreement between the Service
Organization and the Distributor. If an investor in the Fund ceases to be a
client of a Service Organization that has entered into a selling group agreement
with the Distributor, but continues to hold shares of the Fund, the Distributor
will be entitled to receive similar payments in respect of the distribution
assistance provided with respect to such investor.
SECTION 4. The Distributor shall provide the Board, at least quarterly,
with a written report of all amounts expended pursuant to this Plan. The report
shall state the purposes for which the amounts were expended.
SECTION 5. This Plan shall become effective with respect to the Fund
upon its adoption by the Board and, unless earlier terminated with respect to
the Fund in accordance with its terms, the Plan shall continue automatically
with respect to the Fund for successive annual periods provided such continuance
is approved by a majority of the Board, including a majority of the Directors
who are not "interested persons" (as defined in the Act) of the Company and who
have no direct or indirect financial interest in the operation of this Plan or
in any agreements entered into in connection with this Plan (the "Disinterested
Directors"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on the continuance of the Plan.
SECTION 6. This Plan may be amended at any time by the Board provided
that (i) any amendment to increase materially the costs which the Fund may bear
for distribution pursuant to this Plan shall be effective only upon approval by
a vote of a majority of the outstanding voting securities of the Fund, and (ii)
any material amendments of the terms of this Plan shall become effective only
upon approval by a majority of the Board and a majority of the Disinterested
Directors pursuant to a vote cast in person at a meeting called for the purpose
of voting on the Plan.
SECTION 7. This Plan is terminable, as to the Fund, without penalty at
any time by (i) vote of the majority of the Disinterested Directors, or (ii)
vote of a majority of the outstanding voting securities of the Fund.
SECTION 8. The Board has adopted this Plan as of ____________________.
2
