<PAGE>
As filed with the Securities and Exchange Commission on March ___, 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. 2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3
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RCM EQUITY FUNDS, INC.
Four Embarcadero Center, Suite 3000
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, Suite 3000
San Francisco, California 94111
(800) 726-7240
(Name and Address of Agent for Service)
Copies to:
Timothy B. Parker, Deputy General Counsel Michael Glazer
RCM Capital Management, L.L.C. Paul, Hastings, Janofsky & Walker
Four Embarcadero Center, Suite 3000 555 South Flower Street
San Francisco, California 94111 Los Angeles, California 90071
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 ended
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) of rule 485
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _________________ pursuant to paragraph (a)(2) of rule 485
<PAGE>
RCM EQUITY FUNDS, INC.
RCM KLEINWORT BENSON EMERGING MARKETS 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 Registrant General Information,
Investment Objective and
Policies; Investment and Risk
Considerations
5. Management of the Fund Organization and Management
5A. Management's Description of Fund *
Performance
6. Capital Stock and Other Securities General Information;
Dividends, Distributions and
Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Organization and Management
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings *
__________________________
*Not applicable
<PAGE>
RCM EQUITY FUNDS, INC.
RCM KLEINWORT BENSON EMERGING MARKETS 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 STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objectives and Policies Investment Objective and
Policies; Investment and Risk
Considerations; Investment
Restrictions
14. Management of the Fund Directors and Officers
15. Control Persons and Principal Description of Capital Shares;
Holders of Securities Directors and Officers
16. Investment Advisory and Other The Investment Manager;
Services Additional Information
17. Brokerage Allocation Execution of Portfolio
Transactions
18. Capital Stock and Other Securities Description of Capital Stock
19. Purchase, Redemption and Pricing How to Purchase Shares
of Securities Being Offered
20. Tax Status Dividends, Distributions and
Taxes
21. Underwriters The Distributor
22. Calculation of Performance Data *
23. Financial Statements *
<PAGE>
RCM KLEINWORT BENSON EMERGING MARKETS FUND
OFFERED BY:
RCM EQUITY FUNDS, INC.
FOUR EMBARCADERO CENTER, SUITE 3000
SAN FRANCISCO, CALIFORNIA 94111
(800) 726-7240
THIS PROSPECTUS RELATES TO
RCM KLEINWORT BENSON EMERGING MARKETS FUND,
WHICH SPECIALIZES IN EQUITY AND EQUITY-RELATED
SECURITIES OF EMERGING MARKET COMPANIES
------------------------
RCM KLEINWORT BENSON EMERGING MARKETS FUND (THE "FUND") is a diversified,
no-load series of RCM Equity Funds, Inc. (the "Company"), an open-end management
investment company. Shares of the Fund may be purchased at their net asset value
per share next calculated after an order is received in proper form. (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 emerging market
companies. Such investments will be chosen primarily with regard to their
potential for capital appreciation. Current income will be considered only as
part of total investment return and will not be emphasized. "Emerging market
companies" is defined as companies organized or headquartered in 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. (See "INVESTMENT
OBJECTIVE AND POLICIES.")
Investments in equity and equity-related securities of emerging market companies
involve significant risks, some of which are not typically associated with
investments in securities of domestic companies and companies organized or
headquartered in developed foreign countries. 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 , 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 , 1997
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary......................................................................................... 3
Summary of Fees and Expenses............................................................................... 5
Investment Objective and Policies.......................................................................... 5
Investment and Risk Considerations......................................................................... 10
Organization and Management................................................................................ 13
How to Purchase Shares..................................................................................... 15
Stockholder Services....................................................................................... 17
Redemption of Shares....................................................................................... 18
Investment Results......................................................................................... 19
Dividends, Distributions and Taxes......................................................................... 20
General Information........................................................................................ 22
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
<PAGE>
RCM KLEINWORT BENSON EMERGING MARKETS 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 appreciation of
FUND'S capital, primarily through investment in equity and
OBJECTIVE? equity-related securities of emerging market companies. Such
investments will be chosen primarily with regard to their
potential for capital appreciation. Current income will be
considered only as part of total 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 least
FUND INVEST IN? 80% of the value of its total assets in emerging market
companies. "Emerging market companies" is defined as companies
organized or headquartered in 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. 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.
SHOULD I INVEST The Fund believes that emerging market companies can offer
IN THE FUND? attractive investment opportunities. Such companies have, from
time-to-time, offered greater potential investment returns
than those associated with companies in developed markets of
the world. However, the stocks of emerging market companies
can be very volatile, and analyzing individual companies can
be time-intensive. An emerging markets fund offers experienced
professional management to investors who wish to invest in a
diversified portfolio of companies organized or headquartered
in developing countries.
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.
WHO OPERATES THE The Fund's investment manager and administrator is RCM Capital
FUND? Management, L.L.C. ("RCM" or the "Investment Manager"), a
registered investment adviser with principal offices in San
Francisco, California. RCM and its predecessors have over 25
years of experience in investing in equity securities. RCM
currently provides investment management services to
institutional and individual clients and registered investment
companies with aggregate assets in excess of $25 billion.
RCM has delegated to its affiliate, Kleinwort Benson
Investment Management Americas Inc. ("KBIM Americas" or the
"Subadviser") responsibility for the day-to-day management of
the Fund's investment portfolio. KBIM Americas, a registered
investment adviser with offices in London, Hong Kong and
Tokyo, and its predecessor, have over 17 years of experience
in investing in securities of emerging market companies. It
currently provides investment management services, primarily
for institutional investors in North America, with aggregate
assets in excess of $1.6 billion. KBIM Americas is part of
Kleinwort Benson Group plc, a London-based holding
3
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company for a merchant banking group whose origins date to
1792. Kleinwort Benson Group subsidiaries, including KBIM
Americas, manage over $23 billion worldwide. (See
"ORGANIZATION AND MANAGEMENT.")
The custodian of the Fund's assets is
.
WHAT ARE SOME OF The value of the Fund's shares will fluctuate because of the
THE POTENTIAL fluctuations in the value of securities in the Fund's
INVESTMENT portfolio. Investment in the Fund is subject to a variety of
RISKS? risks in addition to those normally associated with
investments in a portfolio of equity securities. (See
"INVESTMENT AND RISK CONSIDERATIONS.")
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 generally are higher than
in the United States. 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.
Investments in equity and equity-related securities of
small-sized companies may involve significant risks, some of
which are not typically associated with investment in
securities of larger or more established firms. These firms
may have limited or unprofitable operating histories, limited
financial resources and inexperienced management, and they may
face competition from larger or more established firms that
have greater resources. Their securities are frequently traded
in the over-the-counter market or on regional exchanges where
low trading volumes may result in erratic or abrupt price
movements.
DOES THE FUND The Fund may use a variety of techniques to hedge its foreign
HEDGE ITS currency exposure. These currency management techniques
INVESTMENTS? include options on currencies, foreign currency futures
contracts, forward foreign currency exchange contracts,
currency options, and currency swaps. Each of these techniques
also involves certain risks. (See "INVESTMENT OBJECTIVE AND
POLICIES" and "INVESTMENT AND RISK CONSIDERATIONS.")
IS THERE A The minimum initial investment is $1,000,000. Shares of the
MINIMUM Fund may be purchased at the net asset value per share next
INVESTMENT? calculated after an order is received in proper form. (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.")
4
<PAGE>
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.
<TABLE>
<CAPTION>
STOCKHOLDER TRANSACTION EXPENSES
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<S> <C> <C>
Maximum sales load imposed on purchases............................................... None
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)
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Investment management fees............................................................ 1.00%
Other expenses (after expense reduction*)............................................. 0.50%
Total Fund operating expenses (after expense reduction*).............................. 1.50%
<CAPTION>
EXAMPLE OF PORTFOLIO EXPENSES 1 YEAR 3 YEARS
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<S> <C> <C>
You would pay the following total expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time period............................................................. $ 15 $47
</TABLE>
------------------------------------------
* The Investment Manager has voluntarily agreed, until at
least December 31, 1997, to pay the Fund on a quarterly basis
the amount, if any, by which certain ordinary operating
expenses of the Fund exceed the annual rate of 1.50% 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 1.45% and 2.45%, 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 will be 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."
INVESTMENT OBJECTIVE AND POLICIES
WHAT IS THE The Fund's investment objective is to seek appreciation of
FUND'S capital, primarily through investment in equity and
OBJECTIVE? equity-related securities of emerging market companies. Under
normal market conditions, the Fund will invest at least 80% 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.
5
<PAGE>
HOW DOES THE The Fund intends to invest primarily in equity and
FUND SELECT equity-related securities of emerging market companies. The
SECURITIES FOR Subadviser's primary emphasis is on a "top-down" strategy
ITS PORTFOLIO? which seeks to take advantage of market inefficiencies and the
lack of correlation among emerging markets. The Subadviser
seeks to control risk by maintaining a portfolio which holds
securities in a range of emerging market countries, regions
and industries.
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 Subadviser intends to invest
primarily in equity and equity-related securities of companies
with market capitalizations in excess of $100 million.
WHAT ARE The term emerging market companies includes any company
EMERGING MARKET organized or headquartered in any country that is generally
COMPANIES? 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, 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,
Ireland, Italy, Japan, Luxembourg, The Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and
the United Kingdom. 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. In addition, the Fund may invest up to 15% of its
total assets in securities of issuers that are not organized
or headquartered in developing countries, but that have or
will have substantial assets in developing countries or derive
or expect to derive a substantial portion of their total
revenues from goods and services produced in, or sales made
in, developing countries.
WHAT ARE EQUITY Equity and equity-related securities in which the Fund has the
AND EQUITY- authority to invest include common stock, preferred stock,
RELATED convertible preferred stock, convertible debt obligations, and
SECURITIES? warrants. In addition, equity and equity-related securities
may include securities sold in the form of depository receipts
and securities issued by other investment companies. The Fund
currently intends to invest primarily in common stock and
depository receipts.
The Fund expects that its investments in equity and
equity-related 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 when the Subadviser
believes that such securities meet the Fund's investment
criteria. Subject to the Fund's restrictions on investment in
illiquid securities (see "WHAT OTHER INVESTMENT PRACTICES
SHOULD I KNOW ABOUT?"), the Fund also may invest in securities
that are not publicly traded.
DOES THE FUND Under normal market conditions, the Fund may invest up to 5%
INVEST IN DEBT of its total assets in debt securities which the Subadviser
SECURITIES? believes present attractive opportunities for capital growth.
These debt securities will be issued or guaranteed by an
emerging market company or government (including such
government's agencies, instrumentalities, authorities and
political subdivisions), or denominated in the currencies of
emerging market countries. There is no limit on the average
maturity of the debt securities in the Fund's portfolio.
Such debt obligations may be unrated or rated, at the time of
purchase, below investment grade by Standard & Poor's
Corporation, Moody's Investor Services, Inc.,
6
<PAGE>
or another recognized international rating organization. Bonds
rated below investment grade are often referred to as "junk
bonds," and involve greater risk of default or price declines
than investment grade securities.
During times when the Subadviser 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 investment
grade debt securities, including debt securities issued by the
U.S. Government, and developed foreign countries (including
their respective agencies, instrumentalities, authorities and
political subdivisions). When the Fund is so invested, it may
not be achieving its investment objective.
DOES THE FUND The Fund presently expects to purchase or sell foreign
BUY AND SELL currency primarily to settle foreign securities transactions.
FOREIGN However, the Fund may also engage in currency management
CURRENCY? transactions to hedge currency exposure related to securities
it owns or that it anticipates purchasing.
Currency management techniques 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 also cross-hedge
currencies, which involves writing or purchasing options or
entering into foreign exchange contracts on one currency to
hedge against changes in exchange rates for a different
currency if, in the judgment of the Subadviser, 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 Subadviser, 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.
For purposes of the percentage limitation on the Fund's
investments in issuers in particular emerging markets, 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 the currency
of one or more emerging market countries. As a result, gains
in a particular securities market may be affected, either
positively or negatively, by changes in exchange rates.
WHAT OTHER DEPOSITORY RECEIPTS. The Fund may invest in securities of
INVESTMENT foreign companies in the form of American Depository Receipts
PRACTICES SHOULD ("ADRs"), European Depository Receipts ("EDRs"), Global
I KNOW ABOUT? Depository Receipts ("GDRs"), International Depository
Receipts ("IDRs"), or other similar instruments representing
securities of foreign companies. ADRs are receipts that
typically are issued by an American bank or trust company, and
represent the right to receive securities of foreign companies
deposited in the domestic bank or a correspondent bank. EDRs,
GDRs and IDRs 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, GDR, or IDR, 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.
7
<PAGE>
Depository receipts have risks that are similar to those of
foreign equity securities. Therefore, for purposes of the
Fund's investment policies and restrictions, depository
receipts will be treated as foreign equity securities, based
on the country in which the underlying issuer is organized or
headquartered. (See "WHAT KINDS OF FOREIGN SECURITIES WILL THE
FUND INVEST IN?")
OTHER INVESTMENT COMPANIES. The laws of some foreign
countries may make it difficult or impossible for the Fund to
invest directly in issuers organized or headquartered in those
countries, or may place limitations on such investments. 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 any one country (see
"WHAT ARE EMERGING MARKET COMPANIES?"), 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.
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
Subadviser to manage its portfolio may be adversely affected.
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
8
<PAGE>
(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
receive approximately the amount at which the Fund values such
securities within seven days. The Subadviser 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 Subadviser 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.
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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 any 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 Subadviser anticipates that the Fund's
TURNOVER RATE? annual portfolio turnover rate should not exceed 75%, but the
turnover rate will not be a limiting factor when the
Subadviser deems portfolio changes appropriate. Securities in
the Fund's portfolio will be sold whenever the Subadviser
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
Subadviser 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 Subadviser will purchase and sell securities for
the Fund's portfolio without regard to the length of the
holding period for such securities, it is possible that the
Fund's portfolio will have a higher turnover rate than might
be expected for investment companies that invest substantially
all of their funds for long-term capital appreciation or
generation of current income. A high portfolio turnover rate
would increase aggregate brokerage commission expenses and
other transaction costs, which must be borne directly by the
Fund and ultimately by the Fund's stockholders, and may under
certain circumstances make it more difficult for the Fund to
qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"). (See
"DIVIDENDS, DISTRIBUTIONS AND TAXES.")
INVESTMENT AND RISK CONSIDERATIONS
Investment in the Fund is subject to a variety of risks,
including the following:
RISKS OF EQUITY Although equity securities have a history of long term growth
INVESTMENTS. in value, their prices fluctuate based on changes in the
issuer's financial condition and prospects and on overall
market and economic conditions. The value of the Fund's net
assets can be expected to fluctuate.
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
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.
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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. 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 investments
INVESTING IN in emerging markets. The securities markets of emerging market
EMERGING countries are substantially smaller, less developed, less
MARKETS. liquid, and more volatile than the securities markets of the
United States and developed foreign markets. Disclosure and
regulatory standards in many respects are less stringent than
in the United States and developed foreign markets. There also
may be a lower level of monitoring and regulation of
securities markets in emerging market countries and the
activities of investors in such markets, and enforcement of
existing regulations has been extremely limited.
Economies in emerging markets generally are heavily dependent
upon international trade, and may be affected adversely by the
economic conditions of the countries in which they trade, as
well as by trade barriers, exchange controls, managed
adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the countries
with which they trade. In many cases, governments of emerging
market countries continue to exercise a significant degree of
control over the economies of such countries. In addition,
certain of such countries have in the past failed to recognize
private property rights and have at times nationalized or
expropriated the assets of private companies. There is a
heightened possibility of confiscatory taxation, imposition of
withholding taxes on interest payments, or other similar
developments that could affect investments in those countries.
Unanticipated political or social developments may also affect
the value of the Fund's investments in those countries.
RISKS OF Investments in small-sized concerns may involve greater risks
INVESTING IN than investments in larger companies. The securities of
SMALL-SIZED small-sized companies, as a class, have shown market behavior
COMPANIES. which has had periods of more favorable results, and periods
of less favorable results, than securities of larger companies
as a class. In addition, small- sized companies in which the
Fund will invest may be unseasoned; that is, these companies
may have limited or unprofitable operating histories, limited
financial resources and inexperienced management. Small-sized
companies often face competition from larger or more
established firms that have greater resources. Small- sized
companies may not have as great an ability to raise additional
capital, may have a less diversified product line (making them
susceptible to market pressure), and may have a smaller public
market for their shares than larger companies. Securities of
small and unseasoned companies are often less liquid than
securities of larger companies and are frequently traded in
the over-the-counter market or on regional exchanges where low
trading volumes may result in erratic or abrupt price
movements. To dispose of these securities, the Fund may have
to sell them over an extended period of time or below the
original purchase price. Investment by the Fund in these small
or unseasoned companies may be regarded as speculative. The
Fund has investment restrictions that prohibit investment of
more than 15% of the value of its net assets in securities
that are illiquid. However, as a result of these factors, the
Fund's net assets may be more volatile in price than the net
asset value of a fund investing principally in larger
companies.
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RISKS OF The Fund's currency management techniques involve risks
CURRENCY HEDGING different than those that arise in connection with investments
TECHNIQUES. 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.
Currency options may be more volatile than the underlying
currencies. Differences between the options and currency
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 currencies 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. Transactions in
future contracts and options on future contracts involve risks
similar to those of currency options. In addition, the
potential loss incurred by the Fund in such transactions is
unlimited.
The use of currency 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 Subadviser's
ability to predict correctly the direction of 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 currency, they could also limit the
potential gain from an increase in the value of the currency.
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.
12
<PAGE>
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.
WHO IS THE The Company, on behalf of the Fund, has retained as the Fund's
INVESTMENT investment manager and administrator RCM Capital Management,
MANAGER? L.L.C., a Delaware limited liability company with principal
offices at Four Embarcadero Center, Suite 3000, San Francisco,
California 94111. The Investment Manager provides the Fund
with services pursuant to an Investment Management Agreement,
Power of Attorney and Service Agreement (the "Management
Agreement") and an Administration Agreement (the
"Administration Agreement"), each dated , 1997.
The Investment Manager supervises management of 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, 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 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 39
limited partners and one general partner, RCM General
Corporation, a California corporation ("RCM General").
Twenty-five of the limited partners of RCM Limited are also
principals of the Investment Manager, and the shareholders of
RCM General.
WHO IS THE RCM has retained as the Fund's subadviser Kleinwort Benson
FUND'S Investment Management Americas Inc., a Delaware corporation
SUBADVISER? ("KBIM Americas") with principal offices at 75 Wall Street,
New York, New York 10005. The Subadviser manages the Fund's
investments pursuant to an Investment Subadvisory Agreement
with RCM (the "Subadvisory Agreement") dated ,
1997.
KBIM Americas is a registered investment adviser which is part
of Kleinwort Benson Group plc, a wholly owned subsidiary of
Dresdner which is a London-based holding company for a
merchant banking group whose origins date back to 1792. KBIM
Americas has offices in London, Hong Kong and Tokyo and may
utilize the general expertise of Kleinwort Benson Group plc
and its affiliates in respect of, for example, economic
analyses and predictions and market developments and trends.
Since it commenced operations in 1980, KBIM Americas has
managed investment accounts, primarily for institutions in
North America, comprised of equity and fixed income
portfolios. These portfolios as a general rule consist
principally of foreign
13
<PAGE>
securities. As of December 31, 1996, KBIM Americas had
approximately $1.6 billion of assets under management.
Kleinwort Benson Group subsidiaries, including KBIM Americas,
manage over $23 billion worldwide.
A team of KBIM Americas' portfolio managers is responsible for
day-to-day management of the Fund's portfolio.
WHAT ARE THE For the services rendered by RCM under the Management
FUND'S Agreement, the Fund will pay a monthly fee to RCM based on the
MANAGEMENT FEES? average daily net assets of the Fund, at the annualized rate
of 1% of the value of the Fund's average daily net assets. For
the services rendered by RCM under the Administration
Agreement, the Fund will pay a monthly fee to RCM at the
annualized rate of the higher of $75,000 per year or 0.15% of
the value of the Fund's average daily net assets.
For the services rendered by the Subadviser under the
Subadvisory Agreement, the Investment Manager will pay a
monthly fee to the Subadviser 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. The fee paid to
the Subadviser is an obligation of RCM, not the Fund.
WHAT OTHER The Fund is responsible for the payment of its operating
EXPENSES DOES expenses, including brokerage and commission expenses; taxes
THE FUND PAY? levied on the Fund; interest charges on borrowings (if any);
charges and expenses of the Fund's custodian; management fees
due to the Investment Manager; and all of the Fund's other
ordinary operating expenses (e.g., legal and audit fees,
securities registration expenses, and compensation of
non-interested directors of the Company).
To limit the expenses of the Fund, the Investment Manager has
agreed, until at least December 31, 1997, 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 1.50% 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. The fees paid by
the Investment Manager to the Subadviser will be deferred on a
similar basis.
14
<PAGE>
HOW DOES THE The Subadviser, subject to the overall supervision of the
FUND DECIDE Investment Manager and the Company's Board of Directors, makes
WHICH BROKERS TO the Fund's investment decisions and selects the broker or
USE? 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 Subadviser evaluates a wide range of
criteria. Subject to the requirement of seeking best
execution, the Subadviser 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 Subadviser. In so doing, the
Subadviser 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
Subadviser may also place orders with brokerage firms that
have sold shares of the Fund.
The Fund may in some instances invest in 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 Subadviser will seek to deal with the counterparty
that the Subadviser believes can provide the best execution,
whether or 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 Funds Distributor, Inc. (the "Distributor"), whose principal
FUND'S place of business is 60 State Street, Suite 1300, Boston,
DISTRIBUTOR? 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.
WHO IS THE [ ] acts as the Fund's custodian,
FUND'S CUSTODIAN transfer agent, redemption agent and dividend paying agent
AND TRANSFER (the "Custodian" or "Transfer Agent"). The Custodian's
AGENT? principal business address is [ ].
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. The minimum initial investment is $1 million.
15
<PAGE>
HOW CAN I Investors or their duly authorized agents may purchase shares
PURCHASE SHARES of the Fund by sending a signed, completed subscription form
OF THE FUND? to RCM Equity Funds, Inc., 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 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, the Transfer Agent
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 money
SEND MY order, made payable to RCM Kleinwort Benson Emerging Markets
SUBSCRIPTION Fund. Checks should be bank or certified checks. The Company,
PAYMENT? 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, Missouri 64141-6927
Attn: RCM Kleinwort Benson Emerging Markets 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. The Company reserves the right to
cancel any purchase order for which payment has not been
received by the third business day following the investment.
The Company will not issue share certificates of the Fund.
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.
16
<PAGE>
CAN I PAY FOR In its discretion, the Company may accept securities of equal
SHARES WITH value instead of cash in payment of all or part of the
INVESTMENT subscription price for the Fund's shares. Any such securities
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, currently 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
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.
EXCHANGE PRIVILEGE. You may exchange shares of the Fund into
shares of any other series of the Company, by contacting the
Transfer Agent. 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, and exchanges of less than $1,000,000 may be
subject to a sales charge. 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, plus a sales charge if applicable, next determined after
receipt by the Transfer Agent of (i) a written request for
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;
17
<PAGE>
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 the Transfer Agent. A stockholder in doubt as to
what documents are required should contact the Transfer Agent.
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 made
RECEIVE MY within seven days after receipt by the Company of: (i) a
REDEMPTION 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 Company.
18
<PAGE>
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 after 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.
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), indexes prepared by consultants, mutual fund
ranking entities, and financial publications, or results of
other mutual funds or groups of mutual funds, in
advertisements or in reports furnished to present or
prospective investors. Investment results will include
information calculated on a total return basis (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 indexes and rankings may
include the following, among others:
1. The IFC Index of Investable Emerging Markets.
2. The MSCI Emerging Markets Free Index.
3. The Standard & Poor's 500 Stock Price Index.
4. 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.
19
<PAGE>
PERFORMANCE OF Kleinwort Benson Investment Management Limited, an affiliate
SUBADVISER'S of the Subadviser, manages the Kleinwort Benson Emerging
AFFILIATE. Markets Fund Limited, a limited liability company incorporated
in Guernsey, Channel Islands (the "Portfolio"). The Portfolio
has substantially the same investment objective and policies
as the Fund. In addition, the Subadviser intends to manage the
Fund with the same personnel using closely similar investment
strategies, techniques and characteristics as those of the
Portfolio. Past investment performance of the Portfolio, as
shown in the table below, may be relevant to your
consideration of investment in the Fund. The investment
performance of the Portfolio is not necessarily indicative of
future performance of the Fund. The information below has been
adjusted to reflect the anticipated operating expenses of the
Fund. However, the Portfolio is not subject to the certain
investment limitations and restrictions imposed by the 1940
Act and the Code, which, if applicable, may have adversely
affected the performance result of the Portfolio.
TOTAL RETURN FOR THE
KLEINWORT BENSON EMERGING MARKETS FUND LIMITED
AND
THE IFC INDEX OF INVESTABLE EMERGING MARKETS
FOR THE PERIOD ENDING FEBRUARY 28, 1997
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED TOTAL RETURN
--------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS INCEPTION(2)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Kleinwort Benson Emerging Markets
Fund Limited(*)....................
IFC Index of Investable Emerging
Markets(1).........................
</TABLE>
------------------------------------------
(*) Total return adjusted for annual fees and expenses of
1.50%.
(1) The IFC Index of Investable Emerging Markets is comprised
of
.
(2) The Portfolio commenced operations on February 19, 1992.
The past performance of the Portfolio is no guarantee of the
future performance of the Portfolio or the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
WHAT DIVIDENDS The Fund intends to distribute to its stockholders all of each
DOES THE FUND fiscal year's net investment income and net realized capital
PAY? 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.
20
<PAGE>
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 year
RECEIVE TAX of the Company, full information on dividends, capital gains
INFORMATION? distributions and other reportable amounts with respect to
shares of the Fund for tax purposes, including information
such as the portion taxable as capital gains, and the amount
of dividends, if any, eligible for the federal dividends
received deduction for corporate taxpayers.
The foregoing is a general abbreviated summary of present U.S.
federal income tax laws and regulations applicable to
dividends and distributions by the Fund. Investors are urged
to consult their own tax advisers for more detailed
information and for information regarding any foreign, state,
and local tax laws and regulations applicable to dividends and
distributions received.
21
<PAGE>
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 which
SHOULD I KNOW 50,000,000 shares have been designated as shares of the Fund.
ABOUT THE FUND? In addition, 50,000,000 shares have been designated as shares
of RCM Global Technology Fund, 50,000,000 shares have been
designated as shares of RCM Global Health Care Fund,
50,000,000 shares have been designated as shares of RCM Global
Small Cap Fund, and 50,000,000 shares have been designated as
shares of RCM Large Cap Growth 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.
As of , 1997, there were shares of
the Fund outstanding, which 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 from the SEC at prescribed
rates.
22
<PAGE>
RCM EQUITY FUNDS, INC.
RCM KLEINWORT BENSON EMERGING MARKETS FUND
FOUR EMBARCADERO CENTER, SUITE 3000
SAN FRANCISCO, CALIFORNIA 94111
(800) 726-7240
STATEMENT OF ADDITIONAL INFORMATION
, 1997
RCM Kleinwort Benson Emerging Markets Fund (the "Emerging Markets Fund" or
"Fund") is a diversified, no-load series of RCM Equity Funds, Inc. (the
"Company"), an open-end management investment company. The Fund's investment
manager and administrator is RCM Capital Management, L.L.C. (the "Investment
Manager"), and its subadviser is Kleinwort Benson Investment Management Americas
Inc. (the "KBIM Americas" or "Subadviser").
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 calling or writing the Company at
the address and phone number above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Investment Objective and Policies.......................................................................... 2
Investment and Risk Considerations......................................................................... 9
Investment Restrictions.................................................................................... 14
Execution of Portfolio Transactions........................................................................ 16
Directors and Officers..................................................................................... 18
The Investment Manager..................................................................................... 20
The Subadviser............................................................................................. 22
The Distributor............................................................................................ 23
Net Asset Value............................................................................................ 23
Purchase and Redemption of Shares.......................................................................... 24
Dividends, Distributions and Tax Status.................................................................... 25
Investment Results......................................................................................... 28
Description of Capital Shares.............................................................................. 29
Additional Information..................................................................................... 30
</TABLE>
<PAGE>
---------------------------------
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
INVESTMENT CRITERIA
In evaluating particular investment opportunities, the Subadviser 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
Subadviser believes it would be appropriate and useful, the Subadviser'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 Subadviser
also will consider whether other risks may be associated with particular
securities.
INVESTMENT IN FOREIGN SECURITIES
The Fund will 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 Subadviser 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 Subadviser's evaluation of
prevailing trends and developments, as well as on the Subadviser's assessment of
the potential for capital appreciation (as compared to the risks) of particular
companies. industries. countries, and regions.
INVESTMENT IN EMERGING MARKETS. The Fund will invest primarily 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 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 as
emerging market countries may be deemed to be developed foreign countries. In
the event that the Subadviser deems a particular country to have become a
developed foreign country, the Fund will not be required to dispose of any
investment in securities issued by that country's government or by an issuer
located in that country.
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
2
<PAGE>
investments in those markets relative to investments in other emerging markets,
in developed foreign markets, or in the United States, or for other reasons.
INVESTMENT IN DEVELOPED FOREIGN COUNTRIES. The Fund may invest in
securities of companies that are organized or headquartered in developed foreign
countries. Although these countries have developed economies, even developed
countries are subject to periods of economic or political instability. For
example, efforts by the member countries of the European Community to eliminate
internal barriers to the free movement of goods, persons, services and capital
have encountered opposition arising from the conflicting economic, political and
cultural interests and traditions of the member countries and their citizens.
The reunification of the former German Democratic Republic (East Germany) with
the Federal Republic of Germany (West Germany) and other political and social
events in Europe have caused considerable economic and social dislocations. Such
events can materially affect securities markets and have also disrupted the
relationship of such currencies with each other and with the U.S. dollar.
Similarly, events in the Japanese economy and social developments may affect
Japanese securities and currency markets, as well as the relationship of the
Japanese Yen to the U.S. dollar. Future political, economic and social
developments can be expected to produce continuing effects on securities and
currency markets.
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.
The Fund's ability to engage in currency transactions may be limited by the
requirements of the Internal Revenue Code of 1986, as amended (the "Code") for
qualification as a regulated investment company and the Fund's intention to
continue to qualify as such. (See "DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.")
The Fund's ability and decisions to purchase or sell portfolio securities also
may be affected by the laws or regulations in particular countries relating to
convertability and repatriation of assets. Because the shares of the Fund are
redeemable in U.S. dollars each day the Fund determines its net asset value, the
Fund must have the ability at all times to obtain U.S. dollars to the extent
necessary to meet redemptions. Under present conditions, the Subadviser 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 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 enter into
forward foreign currency exchange contracts in order to protect against
anticipated changes in future foreign currency exchange
3
<PAGE>
rates. The Fund may engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is renominated or
quoted if the Subadviser 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.
Forward contracts are subject to the risk that the counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive the Fund of unrealized profits, transaction costs
or the benefits of a currency hedge or force the Fund to cover its purchase or
sale commitments, if any, at the current market price. The Fund will enter into
such transactions only with primary dealers or others deemed creditworthy by the
Subadviser.
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 Subadviser 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
elated transaction costs.
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 hedging
purposes. 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
4
<PAGE>
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 believes 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 Subadviser 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 Subadviser 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.
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.
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.
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 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 as 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 aid, to assume a
long position (in the case of a call) or short position (in the case of a put)
in a
5
<PAGE>
futures contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the older 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 Subadviser 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.
SALE OF FUTURES. The Subadviser 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 a currency,
where an absolute level of protection from price fluctuation is sought below
which no additional economic loss would be incurred by the Fund.
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 a
currency, which can be used as a substitute for a position in the currency
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
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. When
purchasing a futures contract, the Fund will maintain with its custodian cash,
U.S. Government securities, or other liquid debt or equity securities that, when
added to the amounts deposited with its custodian or an FCM as margin, are equal
to the market value of the futures contract. Alternatively, the Fund may cover
its position by purchasing a put option on the same futures contract with a
strike price as high or higher than the price of the contract held by the Fund.
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.
TAX TREATMENT. The extent to which the Fund may engage in futures and
futures option transactions may be limited by the requirements of the Code for
qualification as a regulated investment company and the Fund's intention to
continue to qualify as such. See "DIVIDENDS, DISTRIBUTIONS AND TAXES."
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, which may be rated below investment
grade by Standard & Poor's Corporation ("Standard & Poor's"), Moody's Investor
Services, Inc. ("Moody's") or other rating organizations, or may be unrated. The
timing of purchase and sale transactions in debt obligations may
6
<PAGE>
result in capital appreciation or depreciation because the value of debt
obligations varies inversely with prevailing interest rates.
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 Subadviser takes into account
a number of factors in reaching liquidity decisions, including, but not limited
to: the listing of the security on an exchange or national market system; the
frequency of trading in the security; the number of dealers who publish quotes
for the security; the number of dealers who serve as market makers for the
security; the apparent number of other potential purchasers; and the nature of
the security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited, and the mechanics of transfer).
CASH-EQUIVALENT INVESTMENTS
Other than as described below under "INVESTMENT RESTRICTIONS," the Fund is
not restricted with regard to the types of cash-equivalent investments it may
make. When the Subadviser 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 Subadviser
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 Subadviser pursuant to standards adopted by the Company's
Board of Directors) to repurchase the security at an agreed-upon price on an
greed-upon date within a number of days (usually not more than seven) from the
date of Purchase.
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DIVERSIFICATION
The Fund is "diversified" within the meaning of the 1940 Act. In order to
qualify as diversified, the Fund must diversify its holdings so that at all
times at least 75% of the value of its total assets is represented by cash and
cash items (including receivables), securities issued or guaranteed as to
principal or interest by the United States or its agencies or instrumentalities,
securities of other investment companies, and other securities (for this purpose
other securities of any one issuer are limited to an amount not greater than 5%
of the value of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of the issuer).
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 Subadviser 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 Subadviser 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 Subadviser 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 Subadviser 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 Subadviser 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 75% 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 75% 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
Subadviser will be subject to all of the restrictions referred to under
"INVESTMENT RESTRICTIONS." If a percentage restriction on the Fund's investment
or utilization of assets set forth above or under "INVESTMENT RESTRICTIONS" is
adhered to at the time the investment is made, a later change in percentage
resulting from changing value or a similar type of event will not be considered
a violation of the Fund's investment policies or restrictions. The Fund may
exchange securities, exercise conversions or subscription rights, warrants or
other rights to purchase common stock or other equity securities and may hold,
except to the extent limited by the 1940 Act, any such securities so acquired
without regard to the Fund's investment policies and restrictions.
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---------------------------------
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 Subadviser, 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. The Fund may also
experience difficulties or delays in obtaining or enforcing judgments. Foreign
securities may be subject to foreign government taxes that could reduce the
yield on such securities.
Foreign equity securities may be traded on an exchange in the issuer's
country, an exchange in another country, or over-the-counter in one or more
countries. Most foreign securities markets, including over-the-counter markets,
have substantially less volume than U.S. securities markets, and the securities
of many foreign issuers may be less liquid and more volatile than securities of
comparable U.S. issuers. In addition, there is generally less government
regulation of securities markets, securities exchanges, securities dealers, and
listed and unlisted companies in foreign countries than in the United States.
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct and complete such transactions. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to the Fund
due to subsequent declines in the value of the portfolio security or, if the
Fund has entered into a contract to sell that security, could result in possible
liability of the Fund to the purchaser. Delays in settlement could adversely
affect the Fund's ability to implement its investment strategies and to achieve
its investment objective.
In addition, the costs associated with transactions in securities traded on
foreign markets or of foreign issuers, and the expense of maintaining custody of
such securities with foreign custodians, generally are higher than the costs
associated with transactions in U.S. securities on U.S. markets. Investments in
foreign
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<PAGE>
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.
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. 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 elated 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 characteristic of more developed countries.
Unanticipated political or social developments may affect the value of the
Fund's investments in those countries and the availability of additional
investments in those countries.
INVESTMENTS IN SMALLER COMPANIES
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
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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.
DEPOSITORY RECEIPTS
In many respects, the risks associated with investing in depository receipts
are similar to the risks associated with investing in foreign equity securities.
In addition, to the extent that the Fund acquires depository receipts through
banks that do not have a contractual relationship with the foreign issuer of the
security underlying the depository receipts to issue and service depository
receipts, there may be an increased possibility that the Fund would not become
aware of and be able to respond to corporate actions, such as stock splits or
rights offerings, involving the foreign issuer in a timely manner.
The information available for American Depository Receipts ("ADRs")
sponsored by the issuers of the underlying securities is subject to the
accounting, auditing, and financial reporting standards of the domestic market
or exchange on which they are traded, which standards are more uniform and more
exacting than those to which many non-domestic issuers may be subject. However,
some ADRs are sponsored by persons other than the issuers of the underlying
securities. Issuers of the stock on which such ADRs are based are not obligated
to disclose material information in the United States. The information that is
available concerning the issuers of the securities underlying European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
International Depository Receipts ("IDRs") may be less than the information that
is available about domestic issuers, and EDRs, GDRs and IDRs may be traded in
markets or on exchanges that have lesser standards than those applicable to the
markets for ADRs.
A depository receipt will be treated as an illiquid security for purposes of
the Fund's restriction on the purchases of such securities unless the depository
receipt is convertible into cash by the Fund within seven days.
CONVERTIBLE SECURITIES
Investment in convertible securities involves certain risks. The value of a
convertible security is a function of its "investment value" (determined by its
yield in comparison with the yields of other securities of comparable maturity
and quality that do not have a conversion privilege) and its "conversion value"
(the security's worth, at market value, if converted into the underlying stock).
If the conversion value is low relative to the investment value, the price of
the convertible security will be governed principally by its yield, and thus may
not decline in price to the same extent as the underlying stock; to the extent
the market price of the underlying common stock approaches or exceeds the
conversion price, the price of the convertible security will be influenced
increasingly by its conversion value. A convertible security held by the Fund
may be subject to redemption at the option of the issuer at a price established
in the instrument governing the convertible security, in which event the Fund
will be required to permit the issuer to redeem the security, convert it into
the underlying common stock, or sell it to a third party.
JUNK BOND CONSIDERATIONS
The Fund may invest up to 5% of its total assets in debt securities rated
below "Baa" by Moody's, below "BBB" by S&P, or below investment grade by other
recognized rating agencies, or in unrated
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<PAGE>
securities determined by the Subadviser to be of comparable quality, if the
Subadviser believes that the financial condition of the issuer or the protection
afforded to the particular securities is stronger than would otherwise be
indicated by such low ratings or the lack thereof. Securities rated below "Baa"
or "BBB" or equivalent ratings, commonly referred to as "junk bonds," are
subject to greater risk of loss of income and principal than higher-rated bonds
and are considered to be predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal, which may in any case decline
during sustained periods of deteriorating economic conditions or rising interest
rates. Junk bonds are also generally considered to be subject to greater market
risk in times of deteriorating economic conditions, and to wider market and
yield fluctuations, than higher-rated securities. Junk bonds may also be more
susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade securities. The market for such securities may
be thinner and less active than that for higher-rated securities, which can
adversely affect the prices at which these securities can be sold. To the extent
that there is no established secondary market for lower-rated securities, the
Fund may experience difficulty in valuing such securities and, in turn, its
assets. In addition, adverse publicity and investor perceptions about junk
bonds, whether or not based on fundamental analysis, may tend to decrease the
market value and liquidity of such securities.
Legislation has been and could be adopted limiting the use, or tax and other
advantages, of junk bonds which could adversely affect their value. Under the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, for
example, federally insured savings and loan associations were required to divest
their investments in non-investment grade corporate debt securities by July 1,
1994. Such legislation could have a material adverse effect on the market for,
and prices of, such securities.
The Subadviser will try to reduce the risk inherent in the Fund's investment
in such securities through credit analysis, diversification and attention to
current developments and trends in interest rates and economic conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated bonds, the Subadviser's research and credit
analysis are a correspondingly more important aspect of its program for managing
the Fund's investments in such debt securities. The Subadviser will attempt to
identify those issuers of high-yielding securities whose financial condition is
adequate to meet future obligations, or has improved or is expected to improve
in the future.
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. As credit rating agencies may fail to timely change
credit ratings of securities to reflect subsequent events, the Subadviser will
also monitor issuers of such securities to determine if such issuers will have
sufficient cash flow and profits to meet required principal and interest
payments and to assure their liquidity.
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 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.
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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 as 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
Subadviser 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,
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
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<PAGE>
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 is subject to the
Subadviser's ability to predict correctly movements in the direction of the
currency markets. The Subadviser has been actively engaged in the provision of
investment supervisory services for institutional and individual accounts since
1980, 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
Subadviser 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 on 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 Subadviser
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:
1. Invest more than 25% the value of its total assets in the securities of
companies primarily engaged in any one industry (other than the United
States of America, its agencies and instrumentalities);
2. Acquire more than 10% of the outstanding voting securities, or 10% of all of
the securities, of any one issuer;
3. Invest in companies for the purpose of exercising control or management;
4. Borrow money, except from banks to meet redemption requests or for temporary
or emergency purposes; provided that borrowings for temporary or emergency
purposes other than to meet redemption requests shall not exceed 5% of the
value of its total assets; and provided further that total borrowings shall
be made only to the extent that the value of the Fund's total assets, less
its
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liabilities other than borrowings, is equal to at least 300% of all
borrowings (including the proposed borrowing). For purposes of the foregoing
limitations, reverse repurchase agreements and other borrowing transactions
covered by segregated accounts are considered to be borrowings. The Fund
will not mortgage, pledge, hypothecate, or in any other manner transfer as
security for an indebtedness any of its assets. This investment restriction
shall not prohibit the Fund from engaging in futures contracts, futures
options, forward foreign currency exchange transactions, and currency
options;
5. Purchase securities on margin, but it may obtain such short-term credit from
banks as may be necessary for the clearance of purchases and sales of
securities;
6. Make loans of its funds or assets to any other person, which shall not be
considered as including: (i) the purchase of a portion of an issue of
publicly distributed debt securities, (ii) the purchase of bank obligations
such as certificates of deposit, bankers' acceptances and other short-term
debt obligations, (iii) entering into repurchase agreements with respect to
commercial paper, certificates of deposit and obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
(iv) the loan of portfolio securities to brokers, dealers and other
financial institutions where such loan is callable by the Fund at any time
on reasonable notice and is fully secured by collateral in the form of cash
or cash equivalents. The Fund will not enter into repurchase agreements with
maturities in excess of seven days if immediately after and as a result of
such transaction the value of the Fund's holdings of such repurchase
agreements exceeds 10% of the value of the Fund's total assets:
7. Act as an underwriter of securities issued by other persons, except insofar
as it may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities, or invest more than 15% of the value of its
net assets in securities that are illiquid;
8. Purchase the securities of any other investment company or investment trust,
except by purchase in the open market where, to the best information of the
Company, no commission or profit to a sponsor or dealer (other than the
customary broker's commission) results from such purchase and such purchase
does not result in such securities exceeding 10% of the value of the Fund's
total assets, or except when such purchase is part of a merger,
consolidation, acquisition of assets, or other reorganization approved by
the Fund's stockholders;
9. Purchase portfolio securities from or sell portfolio securities to the
officers, directors, or other "interested persons" (as defined in the 1940
Act) of the Company, other than otherwise unaffiliated broker-dealers;
10. Purchase commodities or commodity contracts, except that the Fund may
purchase securities of an issuer which invests or deals in commodities or
commodity contracts, and except that the Fund may enter into futures and
options contracts in accordance with the applicable rules of the CFTC. The
Fund has no current intention of entering into commodities contracts except
for currency futures and futures options;
11. Issue senior securities, except that the Fund may borrow money as permitted
by restriction 4 above. This restriction shall not prohibit a Fund from
engaging in short sales, options, futures and foreign currency transactions;
and
12. Purchase or sell real estate; provided that the Fund may invest in readily
marketable securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein.
15
<PAGE>
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 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 Subadviser to save brokerage costs, or to average prices
among them, is not deemed to result in a securities trading account).
The Fund also is subject to other restrictions under the 1940 Act; however,
the registration of the Company under the 1940 Act does not involve any
supervision by any federal or other agency of the Company's management or
investment practices or policies, other than incident to occasional or periodic
compliance examinations conducted by the SEC staff.
---------------------------------
EXECUTION OF PORTFOLIO TRANSACTIONS
---------------------------------
The Subadviser, subject to the overall supervision of the Company's Board of
Directors and Investment Manager, 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 Subadviser 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
Subadviser 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
Subadviser. 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 Subadviser has invested or may
consider investing; attendance at meetings with corporate management personnel,
industry experts, economists, government personnel, and other financial
analysts; comparative issuer performance and evaluation and technical
measurement services; subscription to publications that provide
investment-related information; accounting and tax law interpretations;
availability of economic advice; quotation equipment and services; execution
measurement services; market-related and survey data concerning the products and
services of an issuer and its competitors or concerning a particular industry
that are used in reports prepared by the Subadviser 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 Subadviser. 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 Subadviser 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 Subadviser makes an appropriate allocation of those uses and pays
directly for that portion of the services to be used for non-research purposes.
16
<PAGE>
Subject to the requirement of seeking the best execution, the Subadviser
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 Subadviser. In so doing, the Subadviser 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 Subadviser 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 Subadviser's
overall responsibility to the accounts for which the Subadviser exercises
investment discretion. The Subadviser 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 Subadviser
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 Subadviser 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 Subadviser may
also place orders with brokerage firms that have sold shares of the Fund. The
Subadviser 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 Subadviser.
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 Subadviser will seek to
deal with the counterparty that the Subadviser 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 and the Subadviser are affiliates of
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 and Subadviser believe 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 Subadviser 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 Subadviser 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
Subadviser's management fee. It is the Subadviser's policy that such commissions
be reasonable and fair when compared to the commissions received by other
brokers in connection with comparable transactions involving similar securities
and that the commissions paid to 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 Subadviser performs investment management and advisory services for
various clients, including other registered investment companies, and pension,
profit-sharing and other employee benefit trusts. 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 Subadviser, some of which accounts may have investment
objectives similar to those of the Fund. The
17
<PAGE>
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 Subadviser believes that to do so
will be in the best interest of the Fund, and the Subadviser 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 Subadviser 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 Subadviser 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 Fund, Inc. ("Capital Fund").
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 Fund.
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.
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
18
<PAGE>
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 Senior 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 advised or administered by the
Dreyfus Corporation ("Dreyfus"), Waterhouse Asset Management ("Waterhouse") and
Morgan Guaranty Trust Company of New York ("Morgan Guaranty"). 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
advised or administered by Dreyfus, Waterhouse and Morgan Guaranty. His address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
ELIZABETH A. BACHMAN, Vice President and Assistant Secretary. Ms. Bachman is
Assistant Vice President and Counsel of FDI, with which she has been associated
since September 1994. Since September 1995 to present, she has also served as
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. Bachman 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 advised or administrated by Dreyfus, Waterhouse and Morgan Guaranty.
Her address is 600 Park Avenue, Sixth Floor, New York, New York 10166.
KAREN JACOPPO-WOOD, Assistant Secretary. Ms. Jacoppo-Wood is a Senior
Paralegal 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 an Assistant Secretary of Capital
Funds, and an officer of certain investment companies advised or administrated
by Morgan Guaranty. Her address is 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MARY A. NELSON, Assistant Treasurer. Ms. Nelson is the Manager of Treasury,
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. 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 change 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 $6,000 per year plus $1,000 for each Board meeting attended, and is
reimbursed for travel and other expenses incurred in connection with attending
Board meetings.
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
19
<PAGE>
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>
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATE FROM COMPANY AND
AGGREGATE BENEFITS ACCRUED ANNUAL COMPANY COMPLEX
COMPENSATION AS PART OF BENEFITS UPON PAID TO DIRECTOR
NAME FROM COMPANY COMPANY EXPENSES RETIREMENT (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 Company 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.
---------------------------------
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 and
administrator RCM Capital Management, L.L.C., a Delaware limited liability
company with principal offices at Four Embarcadero Center, Suite 3000, San
Francisco, California 94111. The Investment Manager is actively engaged in
providing investment supervisory services to institutional and individual
clients, and is registered under the Investment Advisers Act of 1940. The
Investment Manager was established in 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
December 31, 1995, of DM 484 billion ($337 billion), and approximately 1,600
offices and 45,000 employees in over 60 countries around the world, Dresdner is
Germany's second 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 nine members of the Board of Managers of the Investment Manager
are William L. Price (Chairman), Gerhard Eberstadt, Michael J. Apatoff,
Hans-Dieter Bauernfeind, George N. Fugelsang, John D. Leland, Jr., 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
20
<PAGE>
Manager believes that it may perform the services contemplated by the Management
Agreement referred to below 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 39 limited partners and one general
partner, RCM General Corporation, a California corporation ("RCM General").
Twenty-six 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, Ellen M. Courtien, 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 W. Schreyer, Gary B. Sokol,
Andrew C. Whitelaw, and Jeffrey J. Wiggins.
The Investment Manager provides the Fund with services pursuant to an
Investment Management Agreement, Power of Attorney and Service Agreement (the
"Management Agreement") and an Administration Agreement, each dated ,
1997. The Investment Manager 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 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 , 1997, and by the unanimous vote of the
Company's Board of Directors on , 1997, and will continue in effect
until , 1999. 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) 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) legal and audit
fees, (g) SEC and "Blue Sky" registration expenses, and (h) compensation, if
any, paid to officers and employees of the Company who are not employees of the
Investment Manager or Subadviser (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
21
<PAGE>
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 each 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, 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). The Administration
Agreement with respect to the Fund was approved by the unanimous vote of the
Company's Board of Directors on , 1997, and will continue in effect
for the same term as the Management Agreement, subject to annual approval by the
Company's Board of Directors in the same manner as the Management Agreement. The
provisions of the Administration Agreement with respect to liability,
indemnification, and termination are similar to those of the Management
Agreement.
---------------------------------
THE SUBADVISER
---------------------------------
The Investment Manager has retained as the Fund's Subadviser Kleinwort
Benson Management Americas Inc., a Delaware corporation with principal offices
at 75 Wall Street, New York, New York 10005. The Subadviser is actively engaged
in providing investment advisory services to institutional clients, and is
registered under the Investment Advisers Act of 1940. The Subadviser was
established in 1980, and is an affiliate of Dresdner.
The Subadviser provides the Fund with investment management services
pursuant to an Investment Subadvisory Agreement dated , 1997 (the
"Subadvisory Agreement"). The Subadviser is also the investment manager for
Kleinwort Benson Australian Income Fund, Inc., a closed-end management
investment company, and the Subadviser for the 1784 International Equity Fund
and Pilot International Equity Fund, open-end investment management companies.
The Subadvisory Agreement was approved by the stockholders of the Fund and the
directors of the Company on the same dates as they approved the Management
Agreement, and will continue in effect for the same term, subject to annual
approval by the Company's Board of Directors in the same manner as the
Management Agreement.
The Subadviser is responsible for all of its own expenses in providing
services to the Fund. The provisions of the Subadvisory Agreement with respect
to liability, indemnification, and termination, are similar to those of the
Management Agreement.
22
<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 various series
of the Company, including 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 various series of the Company,
including 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.
---------------------------------
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 Subadviser 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.
23
<PAGE>
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 futures 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
racing characteristics, indications of value from dealers, and other market
data. Such services may use electronic data processing techniques and/or a
matrix system to determine valuations. The procedures of such services are
reviewed periodically by the officers of the 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, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The offering
price is effective for orders received by State Street Bank and Trust Company
(the "Transfer Agent") prior to the time of determination of net asset value.
Dealers are responsible for promptly transmitting purchase orders to the
Transfer Agent. 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.
Redemption 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.
24
<PAGE>
---------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
---------------------------------
Each income dividend and capital gains distribution, if any, declared by the
Fund will be reinvested in full and fractional shares based on the net asset
value as determined on the payment date for such distributions, unless the
stockholder or his or her duly authorized agent has elected to receive all such
payments or the dividend or distribution portions thereof in cash. Changes in
the manner in which dividend and distribution payments are made may be requested
by the stockholder or his or her duly authorized agent at any time through
written notice to the Company and will be effective as to any subsequent payment
if such notice is received by the Company prior to the record date used for
determining the stockholders entitled to such payment. Any dividend and
distribution election will remain in effect until the Company is notified by the
stockholder in writing to the contrary.
REGULATED INVESTMENT COMPANY. The Company intends to qualify the Fund as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). The Fund will be treated as a separate fund
for tax purposes and thus the provisions of the Code generally applicable to
regulated investment companies will be applied to the Fund. In addition, net
capital gains, net investment income, and operating expenses will be determined
separately for the Fund. By complying with the applicable provisions of the
Code, the Fund will not be subject to federal income taxes with respect to net
investment income and net realized capital gains distributed to their
stockholders.
To qualify under Subchapter M, the Fund must (i) derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock, securities or
currencies and certain options, futures, forward contracts and foreign
currencies; (ii) derive less than 30% of its gross income from the sale or other
disposition of stock or securities held less than three months; and (iii)
diversify its holdings so that, at the end of each fiscal quarter, (a) at least
50% of the market value of the Fund's assets is represented by cash, cash items,
U.S. Government securities and other securities, limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total resets 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.
25
<PAGE>
Stockholders who are subject to federal or state income or franchise taxes
will be required to pay taxes on dividends and capital gains distributions they
receive from a Fund whether paid in additional shares of the Fund or in cash. To
the extent that dividends received by the Fund would qualify for the 70%
dividends received deduction available to corporations, the Fund must designate
in a written notice to stockholders the amount of the Fund's dividends that
would be eligible for this treatment. In order to qualify for the dividends
received deduction, a corporate stockholder must hold the Fund shares paying the
dividends upon which a dividend received deduction is based for at least 46
days. Stockholders, such as qualified employee benefit plans, who are exempt
from federal and state taxation generally would not have to pay income tax on
dividend or capital gain distributions. Prospective tax-exempt investors should
consult their own tax advisers with respect to the tax consequences of an
investment in the Fund under federal, state, and local tax laws.
Investors who purchase shares of the Fund shortly before the record date of
a dividend or capital gain distribution will pay full price for those shares
("buying a dividend") and then receive some portion of the price back as a
taxable dividend or capital gain distribution.
WITHHOLDING. Under the Code, distributions of net investment income by the
Fund to a stockholder who, as to the U.S., is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign stockholder") will be subject to U.S.
withholding tax (at a rate of 30% or a lower treaty rate, whichever is less).
Withholding will not apply if a dividend paid by the Fund to a foreign
stockholder is "effectively connected" with a U.S. trade or business, in which
case the reporting and withholding requirements applicable to U.S. citizens or
domestic corporations will apply. Distributions of net long-term capital gains
to foreign stockholders who are neither U.S. resident aliens nor engaged in a
U.S. trade or business are not subject to tax withholding, but in the case of a
foreign stockholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. 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 50% long-term and 40%
short-term capital gains or losses, although certain foreign currency gains and
losses from such contracts may be treated as ordinary income in character.
Section 1256 contracts held by the Fund at the end of each taxable year (and for
purposes of 4% nondeductible excise tax on October 31 or such other dates as
prescribed under the Code) are "marked to market," with the result that
unrealized gains or losses are treated as though they were realized.
STRADDLE RULES. Generally, the hedging transactions and other transactions
in options, futures and forward contracts undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains or losses realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle position may be
deferred under the straddle rules, rather than being taken into account for the
taxable year in which these losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
hedging transactions and options, futures and forward contracts to the Fund are
not entirely clear.
Hedging transactions may increase the amount of short-term capital gain
realized by the Fund which is taxed as ordinary income when distributed to
stockholders. The Fund may make one or more of the elections available under the
Code which are applicable to straddle positions. If the Fund makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under the rules
that vary according to elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions. Because the application of the straddle rules may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected straddle positions, the amount
which must be distributed to stockholders, and which will be taxed to
stockholders as ordinary
26
<PAGE>
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions. The
qualification rules of Subchapter M may limit the extent to which the Fund will
be able to engage in hedging transactions and other transactions involving
options, futures contracts or forward contracts.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses attributable
to fluctuations 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" gain or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to stockholders as ordinary income.
FOREIGN TAXES. The Fund may be required to pay withholding and other taxes
imposed by foreign countries which would reduce the Fund's investment income,
generally at rates from 10% to 40%. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes. If more than 50% of
the value of the Fund's total assets at the close of its taxable year consists
of securities of foreign corporations, the Fund will be eligible to elect to
"pass-through" to the Fund's stockholders the amount of foreign income and
similar taxes paid by the Fund. If this election is made, stockholders generally
subject to tax will be required to include in gross income (in addition to
taxable dividends actually received) their pro rata share of the foreign income
taxes paid by the Fund, and may be entitled either to deduct (as an itemized
deduction) their pro rata share of foreign taxes in computing their taxable
income or to use it (subject to limitations) as a foreign tax credit against
their U.S. federal income tax liability. No deduction for foreign taxes may be
claimed by a stockholder who does not itemize deductions. Each stockholder will
be notified within 60 days after the close of the Fund's taxable year whether
the foreign taxes paid by the Fund will be "pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the stockholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the pass-through election is
made, the source of the Fund's income will flow through to stockholders of the
Fund. With respect to such election, gains from the sale of securities will be
treated as derived from U.S. sources and certain currency fluctuation gains,
including fluctuation gains from foreign currency denominated debt securities,
receivables and payables will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, and to certain other types of income.
Stockholders may be unable to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by the Fund. The foreign tax
credit is modified for purposes of the federal alternative minimum tax and can
be used to offset only 90% of the alternative minimum tax imposed on
corporations and individuals and foreign taxes generally are not deductible in
computing alternative minimum taxable income.
The foregoing is a general abbreviated summary of present U.S. federal
income tax laws and regulations applicable to dividends and distributions by the
Fund. Stockholders are urged to consult their own tax advisers for more detailed
information and for information regarding any foreign, state, and local tax laws
and regulations applicable to dividends and distributions received.
27
<PAGE>
---------------------------------
INVESTMENT RESULTS
---------------------------------
Average total return ("T") of the Fund will be calculated as follows: an
initial hypothetical investment of $1000 ("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 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:
P(1+T) to the (n)th power = 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.
28
<PAGE>
---------------------------------
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.
As of the date of this Statement of Additional Information, there were
outstanding shares of the Fund. As of that date, the following were known
to the Company to own of record more than 5% of the Fund's capital stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES HELD % OF SHARES OUTSTANDING
- ---------------------------------------------------------------------------- ----------- -------------------------
<S> <C> <C>
</TABLE>
29
<PAGE>
---------------------------------
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 Venable,
Baetjer and Howard, LLP, 1800 Mercantile Bank & Trust Building, 2 Hopkins Plaza,
Baltimore, Maryland 21201. 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 each Fund, assist in the
preparation of each 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 the Company at (800) 726-7240, or by writing
the Company at Four Embarcadero Center, Suite 3000, 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 Prospectus are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Company's Registration Statement, each such statement being
qualified in all respects by such reference.
30
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
None.
(b) EXHIBITS
1. (a) Articles of Incorporation of Registrant (previously filed as
Exhibit 1 to the Registration Statement, September 29, 1995,
and incorporated herein by reference).
(b) Articles Supplementary to Registrant's Articles of
Incorporation dated December 12, 1996.
(c) Form of Articles Supplementary to Registrant's Articles of
Incorporation with respect to RCM Kleinwort Benson Emerging
Markets Fund.
2. Bylaws of Registrant (previously filed with Pre-Effective Amendment
No. 2, December 26, 1995, and incorporated herein by reference).
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
(previously filed with Pre-Effective Amendment No. 2,
December 26, 1995 and incorporated herein by reference).
(b) Proof of specimen of certificate for Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM Global Health Care Fund
(previously filed with Post-Effective Amendment No. 1,
October 17, 1996, and incorporated herein by reference).
(c) Proof of specimen of certificate for Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM Global Small Cap Fund
(previously filed with Post-Effective Amendment No. 1,
October 17, 1996, and incorporated herein by reference).
(d) Proof of specimen of certificate for Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM Large Cap Growth Fund
(previously filed with Post-Effective Amendment No. 1,
October 17, 1996, and incorporated herein by reference).
C-1
<PAGE>
(e) Proof of specimen of certificate for Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM Kleinwort Benson Emerging
Markets Fund.
5. (a) Investment Management Agreement, Power of Attorney and Services
Agreement between Registrant, on behalf of RCM Global Technology
Fund, and RCM Capital Management, L.L.C., dated as of June 14,
1996 (previously filed with Post-Effective Amendment No. 1,
October 17, 1996, and incorporated herein by reference).
(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. (previously
filed with Post-Effective Amendment No. 1, October 17, 1996, and
incorporated herein by reference).
(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.
(previously filed with Post-Effective Amendment No. 1,
October 17, 1996, and incorporated herein by reference).
(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. (previously
filed with Post-Effective Amendment No. 1, October 17, 1996, and
incorporated herein by reference).
(e) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of RCM Kleinwort
Benson Emerging Markets Fund, and RCM Capital Management, L.L.C.
(f) Form of Sub-Advisory Agreement between RCM Capital Management,
L.L.C. and Kleinwort Benson Investment Management America, Inc.
with respect to the RCM Kleinwort Benson Emerging Markets Fund.
(g) Form of Administration Agreement between Registrant on behalf of
RCM Kleinwort Benson Emerging Markets Fund and RCM Capital
Management, L.L.C.
6. (a) Agreement between RCM Capital Management, L.L.C., RCM Equity
Funds, Inc., RCM Capital Funds, Inc. and Funds Distributor, Inc.,
dated June 14, 1996 (previously filed with Post-Effective
Amendment No. 1, October 17, 1996, and incorporated herein by
reference).
C-2
<PAGE>
(b) Distribution Agreement between Registrant and Funds Distributor,
Inc., dated June 14, 1996 (previously filed with Post-Effective
Amendment No. 1, October 17, 1996, and incorporated herein by
reference).
(c) Fee Letter Agreement between RCM Capital Management, L.L.C., RCM
Equity Funds, Inc., RCM Capital Funds, Inc. and Funds
Distributor, Inc., dated June 14, 1996 (previously filed with
Post-Effective Amendment No. 1, October 17, 1996, and
incorporated herein by reference).
(d) Form of Selling Agreement (previously filed with Post-Effective
Amendment No. 1, October 17, 1996, and incorporated herein by
reference).
7. None.
8. (a) Custodian Agreement and remuneration schedule between Registrant
and its custodian bank, State Street Bank and Trust Company
(previously filed with Pre-Effective Amendment No. 2,
December 26, 1995, and incorporated herein by reference).
(b) Amendment to Custodian Agreement between Registrant, with regard
to RCM Global Health Care Fund, and State Street Bank and Trust
Company (previously filed with Post-Effective Amendment No. 1,
October 17, 1996, and incorporated herein by reference).
(c) Amendment to Custodian Agreement between Registrant, with regard
to RCM Global Small Cap Fund, and State Street Bank and Trust
Company (previously filed with Post-Effective Amendment No. 1,
October 17, 1996, and incorporated herein by reference).
(d) Amendment to Custodian Agreement between Registrant, with regard
to RCM Large Cap Growth Fund, and State Street Bank and Trust
Company (previously filed with Post-Effective Amendment No. 1,
October 17, 1996, and incorporated herein by reference).
(e) Form of Custodian Agreement between Registrant on behalf of RCM
Kleinwort Benson Emerging Markets Fund and the Registrant's
Custodian with respect to RCM Kleinwort Benson Emerging Markets
Fund.
9. Agreement, dated as of June 14, 1996, between RCM Capital Management
and Registrant related to the use by Registrant of the name "RCM"
(previously filed with Post-Effective Amendment No. 1, October 17,
1996, and incorporated herein by reference).
10. (a) Opinion and consent of Baetjer, Venable and Howard, LLP as to
legality of securities being registered (previously filed with
Pre-Effective
C-3
<PAGE>
Amendment No. 2, December 26, 1995, and incorporated herein by
reference).
(b) Consent of Paul, Hastings, Janofsky & Walker (previously filed
with Pre-Effective Amendment No. 2, December 26, 1995, and
incorporated herein by reference).
11. None
12. None.
13. None.
14. None.
15. Rule 12b-1 Plan (previously filed with Post-Effective Amendment No. 1,
October 17, 1996, and incorporated herein by reference).
16. None.
17. None.
18. None.
19. Power of Attorney for DeWitt F. Bowman, Pamela A. Farr, Thomas S.
Foley, Frank P. Greene and George G.C. Parker, the members of the
Board of Directors of the Registrant (previously filed with Post-
Effective Amendment No. 1, October 17, 1996, and incorporated herein
by reference).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Investment Manager also serves as investment manager of RCM
Growth Equity Fund, RCM Small Cap Fund and RCM International Growth Equity
Fund A, each a series of RCM Capital Funds, Inc., an open-end management
investment company ("Capital Funds"), RCM Strategic Global Government Fund,
Inc., a closed-end management investment company ("RCS") and The Emerging
Germany Fund Inc. ("FRG"), a closed-end management investment company.
Certain officers and directors of Capital Funds and RCS are also officers or
directors of the Registrant. Accordingly, Capital Funds and RCS may be deemed
to be under common control with the Registrant.
Funds Distributor, Inc. (the "Distributor") acts as distributor
of shares of the funds of the Registrant. Certain officers or employees of
the Distributor also serve as officers of the Registrant, and of Capital
Funds and RCS. Accordingly, the Distributor, Capital Funds and RCS may be
deemed to be under common control with the Company.
C-4
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of February 28, 1997
TITLE OF CLASS NUMBER OF RECORD-HOLDERS
RCM Global Technology Fund 35
Common Stock
($0.0001 par value)
RCM Global Health Care Fund 1
Common Stock
($0.0001 par value)
RCM Large Cap Growth Fund 1
Common Stock
($0.0001 par value)
RCM Global Small Cap Fund 1
Common 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 XI of the Bylaws of the 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 the 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 the Investment Manager and its partners and employees.
C-5
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions of Maryland
law and the Registrant 's Articles of Incorporation and Bylaws, or otherwise,
the 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
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the 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, the 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
Certain directors, officers, employees or shareholders of the
Investment Manager, formerly were directors, officers, employees or
shareholders of The RREEF Corporation. The RREEF Corporation is a registered
investment adviser specializing in the management of equity real estate
investments for institutional, tax-exempt clients. Currently, no officer or
employee of the Investment Manager is a director, officer, employee or
shareholder of The RREEF Corporation. However, certain of such persons are
former directors, officers, employees or shareholders of The RREEF
Corporation and in that capacity receive certain retirement benefits. John
D. Leland, Jr., Lee N. Price, Gary W. Schreyer, John A. Kriewall, Walter C.
Price, Jr., William L. Price, Jeffrey S. Rudsten, Kenneth B. Weeman, Jr.,
Andrew C. Whitelaw, and G. Nicholas Farwell are General Partners of RREEF
Partners (a California general partnership). RREEF Partners is member of
RREEF America LLC, formerly RREEF America Partners, holding less than 25% of
the equity interest. RREEF America LLC is registered as an investment
adviser to group trusts (the RREEF MidAmerica Funds, the RREEF USA Funds and
the RREEF West Funds) designed to afford pension and profit sharing plans and
other investors exempt from federal income tax the opportunity to make equity
investments in real properties.
The Investment Manager is a limited liability company, whose two
members are Dresdner Bank A.G. ("Dresdner") 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.
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 the Registrant. FDI is an indirectly 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
C-6
<PAGE>
Exchange Act of 1934, as amended. FDI also serves as principal
underwriter of the following investment companies:
BJB Investment Funds
Foreign Fund, Inc.
Fremont Mutual Funds
HT Insight Funds
The Harris Insight Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Fund
RCM Capital Funds, Inc.
Skyline Funds
Waterhouse Investors Cash Management Mutual Funds
FDI does not act as a depositor or investment adviser of any
investment companies.
(b) The following is a list of officers, directors and partners of FDI.
Their positions and offices with Registrant are set forth below:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices
Business Address* Funds Distributor, Inc. with Registrant
------------------ -------------------------- -----------------------------
<S> <C> <C>
Marie W. Connolly Director, President and None
Chief Executive Officer
Richard W. Ingram Senior Vice President President
John E. Pelletier Senior Vice President and Vice President and Secretary
General Counsel
Donald R. Roberson Senior Vice President None
Joseph F. Tower III Senior Vice President, None
Treasurer and
Chief Financial Officer
David A. Wrubel Senior Vice President None
Rui M. Moura First Vice President None
Bernard A. Whalen First Vice President None
John W. Gomez Director None
William J. Nutt Director None
</TABLE>
_______________________
*See Item 29(a) for Principal Business Address.
(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 the Registrant's investment manager, RCM Capital
Management, L.L.C., Four Embarcadero Center, Suite 3000, San Francisco,
California 94111.
C-7
<PAGE>
Records covering portfolio transactions are also maintained and
kept by the Registrant's custodian, State Street Bank and Trust Company,
U.S. Mutual Funds Services Division, P.O. Box 1713, Boston, Massachusetts
02105, and the Registrant's custodian with respect to RCM Kleinwort Benson
Emerging Markets Fund.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to file a post-effective amendment,
containing reasonably current financial statements with respect to RCM
Kleinwort Benson Emerging Markets 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.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, RCM Equity Funds, Inc. certifies that it
meets all of the requirements for effectiveness of this Post-Effective
Amendment No. 2 to the Registration Statement pursuant to Rule 485(a) under
the Securities Act of 1933 and has duly caused this Post-Effective Amendment
No. 2 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 March __, 1997.
RCM EQUITY FUNDS, INC.
By: \s\ Richard W. Ingram
------------------------
President
Each person whose signature appears below hereby authorizes Richard W.
Ingram, John E. Pelletier, and Elizabeth A. Bachman or any of them, as attorney-
in-fact, to sign on his/her behalf, individually and in each capacity stated
below, any amendment to this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the Securities
and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 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 March __, 1997
/s/ Richard W. Ingram*
-------------------------
Richard W. Ingram
(2) Chief Financial and Accounting Officer Treasurer March __, 1997
/s/ Richard W. Ingram*
-------------------------
Richard W. Ingram
____________________________
* By Richard W. Ingram, pursuant to Power of Attorney filed with
Post-Effective Amendment No. 1, October 17, 1996, and incorporated herein by
reference.
<PAGE>
SIGNATURE TITLE DATE
(4) Directors
/s/ DeWitt F. Bowman* March __, 1997
------------------------
DeWitt F. Bowman
/s/ Pamela A. Farr* March __, 1997
------------------------
Pamela A. Farr
/s/ Thomas S. Foley * March __, 1997
------------------------
Thomas S. Foley
/s/ Frank P. Greene * March __, 1997
------------------------
Frank P. Greene
/s/ George G.C. Parker * March __, 1997
------------------------
George G.C. Parker
By: /s/ Richard W. Ingram* March __, 1997
------------------------
Richard W. Ingram
as Attorney-in-Fact
<PAGE>
EXHIBIT 99.1(b)
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 150,000,000 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 three new series of capital stock having the
following designations:
Designations Number of Shares
------------ ----------------
RCM Global Health Care Fund 50,000,000
RCM Global Small Cap Fund 50,000,000
RCM Large Cap Growth Fund 50,000,000
SECOND: The shares of RCM Global Health Care Fund, RCM Global Small Cap
Fund and RCM Large Cap Growth Fund, respectively, 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 RCM Global Health Care Fund, RCM Global Small
Cap Fund and RCM Large Cap Growth Fund have been classified by the Board of
Directors pursuant to authority contained in the Charter of the Corporation.
1
<PAGE>
IN WITNESS WHEREOF, RCM Equity Funds, Inc. has caused these Articles
Supplementary to be executed by its President and witnessed by its Secretary on
this 12th day of December, 1996. The 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.
/s/ John E. Pelletier By: /s/ Richard W. Ingram
- -------------------------------- --------------------------------
John E. Pelletier, Secretary Richard W. Ingram, President
2
<PAGE>
EXHIBIT 99.1(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
------------ ----------------
RCM Kleinwort Benson Emerging Markets Fund 50,000,000
SECOND: The shares of RCM Kleinwort Benson 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 RCM Kleinwort Benson 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 President and witnessed by its Secretary on
this ____ day of __________, 1997. The 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.
________________________________ By:________________________________
John E. Pelletier, Secretary Richard W. Ingram, President
1
<PAGE>
INCORPORATED UNDER THE LAWS OF
THE STATE OF MARYLAND
RCM EQUITY FUNDS, INC.
RCM KLEINWORT BENSON EMERGING
MARKETS FUND SERIES
THIS CERTIFIES THAT ____________________________________ IS THE REGISTERED
HOLDER OF ____________________________________ SHARES OF THE RCM KLEINWORT
BENSON EMERGING MARKETS 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
RCM KLEINWORT BENSON EMERGING MARKETS 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
STOCK HOLDER 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>
Ex 99.5(e)
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 RCM Kleinwort
Benson Emerging Markets Fund, a series of the Company (the "Fund"), and RCM
Capital Management, L.L.C. (the "Investment Manager").
1. APPOINTMENT AND ACCEPTANCE OF APPOINTMENT OF THE INVESTMENT MANAGER
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"), 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 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;
(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;
1
<PAGE>
(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;
(g) to take such other action, or to direct the Fund's custodian (the
"Custodian") to take such other action, as may be necessary or desirable
to carry out the purpose and intent of the foregoing;
(h) to vote proxies solicited by or with respect to the issuers of
securities in which Portfolio assets are invested as of the record date for
voting such proxies ("Proxies"); and
(i) to engage Kleinwort Benson Investment Management Americas Inc.
("KBIMA") or, subject to, among other things, the approval of a majority
of the Board of Directors of the Company who are not interested persons (as
defined in the 1940 Act) and a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Fund, any other affiliate of the
Investment Manager, as the subadviser to the Fund (the "Subadviser") and,
in connection therewith, to authorize the Subadviser to do any and all of
the foregoing in the Subadviser's sole discretion, subject to the
supervision of the Investment Manager.
3. EXECUTION OF PORTFOLIO TRANSACTIONS
(a) The Investment Manager shall maintain 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 best judgment of the Investment Manager or KBIMA shall offer the most
favorable price and market for the execution of each transaction; provided,
however, that, subject to the above, the Investment Manager or KBIMA may
place orders with brokerage firms that have sold shares of the Fund or that
furnish statistical and other information to the Investment Manager or
KBIMA, 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 or KBIMA 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 6 hereof and Appendix A hereto.
(c) the Fund understands and agrees that the Investment Manager or
KBIMA 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 or
KBIMA determines in good faith that such amount of commission is reasonable
in relation to the value of Fund share transactions, statistical, brokerage
and other services provided by such broker, viewed in terms of either the
specific
2
<PAGE>
transaction or the Investment Manager's or KBIMA'S overall responsibilities
to the Fund and other clients for which the Investment Manager or KBIMA
exercises investment discretion. The Fund also understands that the receipt
and use of such services will not reduce the Investment Manager's or
KBIMA's customary and normal research activities.
(d) The Fund understands and agrees that:
(i) the Investment Manager and KBIMA perform investment
management services for various clients and that the Investment Manager or
KBIMA 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 or
KBIMA'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 or KBIMA shall have no obligation to
purchase or sell for the Portfolio any security which the Investment
Manager or KBIMA, 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 or KBIMA such transaction or investment
appears unsuitable, impractical or undesirable for the Portfolio;
(iii) on occasions when the Investment Manager or KBIMA 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 or KBIMA, the
Investment Manager or KBIMA, to the extent permitted by applicable laws
and regulations, may aggregate the securities to be so sold or purchased
when the Investment Manager or KBIMA 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 or KBIMA in the manner the
Investment Manager or KBIMA considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other
clients;
(iv) neither the Investment Manager nor KBIMA prohibits 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 or KBIMA's clients, subject to the provisions of the Investment
Manager's or KBIMA's Code of Ethics and that of the Company;
(v) each of the Investment Manager and KBIMA is a subsidiary of
Dresdner Bank AG. Subject to the terms of this paragraph 4, the Fund
hereby authorizes each of the Investment Manager and KBIMA, as the case
may be, to execute brokerage transactions for the Portfolio through any
direct or indirect subsidiary of Dresdner Bank AG, including, but not
limited to, Dresdner Kleinwort Benson North America LLC (collectively
"Affiliated Brokers"). The Fund understands and agrees that neither the
Investment Manager nor KBIMA will execute trades through an Affiliated
Broker unless such trades are agency trades, and that the Investment
Manager or KBIMA, as the case may be, will not execute any trades through
an Affiliated Broker when that Affiliated Broker is acting in a principal,
3
<PAGE>
or dealer, capacity. This authorization may be revoked at any time by
written notice to the Investment Manager; and
(vi) in certain instances trades executed through an Affiliated
Broker may involve "agency cross transactions" within the meaning of Rule
206(3)-2 under the Investment Advisers Act of 1940. For purposes of this
paragraph, "agency cross transactions" are trades in which an Affiliated
Broker may act as broker for both the Portfolio and the counterparty on the
other side of the transaction. The Fund understands and agrees that, when
an agency cross transaction occurs, an Affiliated Broker may receive
compensation in the form of a commission from both the Portfolio and the
counterparty. The Fund hereby authorizes each of the Investment Adviser
and KBIMA to engage in agency cross transactions through an Affiliated
Broker. This authorization may be revoked at any time by written notice to
the Investment Adviser.
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 and officers 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 the Fund (including safekeeping of funds
and securities and maintaining required books and accounts); transfer
agent, registrar and dividend reinvestment and disbursing agent 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 relating to the Fund; 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.
4
<PAGE>
5. UNDERTAKINGS
(a) The Investment Manager agrees:
(i) to furnish the Company with quarterly statements of the
Portfolio, valued, for each security listed on any national securities
exchange at the last quoted sale price on the valuation date reported on
the composite tape or, in the case of securities not so reported, by the
principal exchange on which the security is traded, and for any other
security or asset in a manner determined in good faith by the Investment
Manager to reflect its fair market value;
(ii) to furnish statements to the Company evidencing any
purchases and sales for the Portfolio as soon as practicable after such
transactions have taken place;
(iii) to maintain strict confidence in regard to the Portfolio;
(iv) to provide to the Company upon request a written report
with respect to the voting of Proxies by the Investment Manager or KBIMA on
behalf of the Fund. The Investment Manager shall provide such additional
reports to the Company concerning the voting of Proxies on behalf of the
Fund as shall be reasonably requested; and
(v) to indemnify the Fund against any losses, claims, damages,
liabilities or expenses arising out of or based upon any untrue statement
of any material fact contained in any registration statement, prospectus,
proxy statement, report or other document, or any amendment or supplement
thereto, or arising out of or based upon any omission to state therein any
material fact required to be stated therein or necessary to make the
statements therein not misleading, to the extent that such untrue statement
or omission was made in reliance upon and in conformity with information
furnished by the Investment Manager to the Company specifically for use in
the preparation thereof.
(b) The Company agrees:
(i) to advise the Investment Manager of the investment
objectives, policies and restrictions of the Fund and of any changes or
modifications thereto and to notify the Investment Manager promptly of any
other changes in the Portfolio of which the Investment Manager would not
otherwise have knowledge;
(ii) to advise the Investment Manager of any specific investment
restrictions applicable to the Portfolio and to give the Investment Manager
promptly written notice of any investments made for the Portfolio that the
Company deems to be in violation of such objectives or restrictions;
(iii) to maintain in strict confidence and for use only with
respect to the Portfolio all investment advice given by the Investment
Manager or KBIMA;
(iv) to take all actions necessary to effect delivery of Proxy
solicitations to the Investment Manager in a timely manner, including, but
not limited to, effecting delivery of
5
<PAGE>
any Proxy solicitation received by a third party who may hold securities
on behalf of the Fund, and to verify, or to cause such third party to
verify, at such time, that the number of shares of an issuer's securities
indicated in a Proxy solicitation equals the number of shares of such
issuer's securities held by or for the benefit of the Fund as of the
record date for voting the Proxies; and
(v) not to hold the Investment Manager, and any of its
directors, officers and employees, liable, under any circumstances for any
error of judgment or other action taken or omitted by the Investment
Manager or the Subadviser in the good faith exercise of their powers
hereunder or arising out of an act or omission of the Custodian, or of any
broker-dealer or agent selected by the Investment Manager or KBIMA in good
faith and in a commercially reasonable manner, excepting matters as to
which the Investment Manager or KBIMA shall be finally adjudged to have
been guilty of willful misfeasance, bad faith, gross negligence, reckless
disregard of duty or breach of fiduciary duty involving personal misconduct
(all as defined in the 1940 Act). The federal and state 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
and state securities laws.
6. 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 Company hereby authorizes the Investment Manager to charge
the Portfolio for the full amount of fees as they become due and payable in
accordance with 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
periods of the Company, as set forth in Appendix A hereto or in any other
written agreement with the Company. If in any such fiscal period 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 period, the Investment Manager
shall reimburse the Fund for such excess operating expenses. Such
operating expense reimbursement, if any, shall be
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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 aggregate 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.
7. 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.
8. 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 Investment
Manager may have under any federal securities laws.
9. 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
outstanding voting securities of the Fund, 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.
10. 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 Fund 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).
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11. 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.
12. 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 members of
the Investment Manager 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.
13. AMENDMENT OF THIS AGREEMENT
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.
14. MISCELLANEOUS
(a) This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the state of California (without
regard to the principles of conflicts thereof) and the applicable
provisions of the 1940 Act. To the extent the applicable law of the State
of California, or any of the provisions herein, conflict with applicable
provisions of the 1940 Act, the latter shall control.
(b) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(c) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted
assigns. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement, whether written or oral,
between them.
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<PAGE>
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.
RCM CAPITAL MANAGEMENT, L.L.C. RCM EQUITY FUNDS, INC.
ON BEHALF OF
RCM KLEINWORT BENSON
EMERGING MARKETS FUND
By: ______________________________ By: ______________________________
Name: Name:
Title: Title:
ATTEST: ATTEST:
By: ______________________________ By: ______________________________
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APPENDIX A
INVESTMENT MANAGEMENT AGREEMENT, POWER OF ATTORNEY,
AND SERVICE AGREEMENT
BETWEEN RCM CAPITAL MANAGEMENT, L.L.C.
AND RCM EQUITY FUNDS, INC.
SCHEDULE OF FEES
FOR RCM KLEINWORT BENSON EMERGING MARKETS FUND
Effective Date: _____ __, 1997
The Fund will pay a monthly fee to the Investment Manager based on the
average daily net assets of the Fund, at the annualized rate of 1.00% of the
value of the Fund's average daily net assets.
VALUE OF SECURITIES AND CASH OF FUND FEE
------------------------------------ ---
On all sums 1.00% annually
For the fiscal year ending December 31, 1997, and for each fiscal period
thereafter as may be agreed upon between the Investment Manager and the Fund,
the Investment Manager shall reimburse the Fund to the extent that the
operating expenses of the Fund (as hereinafter defined) exceed 1.50% 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: _____ __, 1997
RCM CAPITAL MANAGEMENT, L.L.C. RCM EQUITY FUNDS, INC.
ON BEHALF OF
RCM KLEINWORT BENSON
EMERGING MARKETS FUND
By: ______________________________ By: ______________________________
Name: Name:
Title: Title:
ATTEST: ATTEST:
By: ______________________________ By: ______________________________
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<PAGE>
INVESTMENT SUBADVISORY AGREEMENT
THIS AGREEMENT is entered into this ____ day of _____, 1997 by and
between Kleinwort Benson Investment Management Americas Inc. ("KBIMA") and
RCM Capital Management, L.L.C. (the "Investment Manager").
1. APPOINTMENT AND ACCEPTANCE OF APPOINTMENT OF KBIMA
Subject to any express limitations set forth in writing, a copy of
which is attached hereto or has been previously furnished to KBIMA, the
Investment Manager hereby grants to KBIMA and KBIMA hereby accepts full
discretionary authority to manage the investment and reinvestment of the
cash, securities, and other assets of the RCM Kleinwort Benson Emerging
Markets Fund (the "Fund"), a series of RCM Equity Funds, Inc. (the
"Company"), any proceeds thereof, and any additions thereto (the
"Portfolio"), in KBIMA's discretion. In the performance of its duties
hereunder, KBIMA shall further be bound by any and all determinations by
the Board of Directors of the Company and the Investment Manager relating
to the investment objectives, policies or restrictions of the Fund, which
determinations shall be communicated in writing to KBIMA by the Investment
Manager. For all purposes herein, KBIMA shall be deemed an independent
contractor of the Company and the Investment Adviser.
2. POWERS OF KBIMA
Subject to the limitations provided in Section 1 hereof, KBIMA is
empowered hereby, through any of its directors, officers 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;
(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;
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<PAGE>
(g) to take such other action, or to direct the Fund's custodian (the
"Custodian") to take such other action, as may be necessary or desirable to
carry out the purpose and intent of the foregoing; and
(h) to vote proxies solicited by or with respect to the issuers of
securities in which Portfolio assets are invested as of the record date for
voting such proxies ("Proxies").
3. EXECUTION OF PORTFOLIO TRANSACTIONS
(a) KBIMA shall maintain 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 KBIMA by the Fund or the
Investment Manager, all orders for the purchase and sale of securities for
the Portfolio shall be placed in such markets and through such brokers as
in KBIMA's best judgment shall offer the most favorable price and market
for the execution of each transaction; provided, however, that, subject to
the above, KBIMA may place orders with brokerage firms that have sold
shares of the Fund or that furnish statistical and other information to
KBIMA, 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 KBIMA 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 KBIMA pursuant to
Section 6 hereof and Appendix A hereto.
(c) KBIMA 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 KBIMA determines in good
faith that such amount of commission is reasonable in relation to the value
of Fund share transactions, statistical, brokerage and other services
provided by such broker, viewed in terms of either the specific transaction
or KBIMA's overall responsibilities to the Fund and other clients for which
KBIMA exercises investment discretion.
(d) The Investment Manager understands and agrees that:
(i) KBIMA performs investment management services for various
clients and that KBIMA 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 KBIMA'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) KBIMA shall have no obligation to purchase or sell for the
Portfolio any security which KBIMA, or its directors, officers or
employees, may purchase or sell for its or their own accounts or the
account of any other client, if in the opinion of KBIMA such transaction
or investment appears unsuitable, impractical or undesirable for the
Portfolio; and
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<PAGE>
(iii) on occasions when KBIMA deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other
clients of KBIMA, KBIMA, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so sold or purchased when
KBIMA believes that to do so will be in the best interests of the
Portfolio. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, shall be made by
KBIMA in the manner KBIMA considers to be the most equitable and consistent
with its fiduciary obligations to the Portfolio and to such other clients.
4. ALLOCATION OF EXPENSES
KBIMA will bear all expenses related to the salaries of its employees
and its overhead in connection with its duties under this Agreement.
5. UNDERTAKINGS
(a) KBIMA agrees:
(i) to furnish the Investment Manager and the Company with
quarterly statements of the Portfolio, valued, for each security listed on
any national securities exchange at the last quoted sale price on the
valuation date reported on the composite tape or, in the case of securities
not so reported, by the principal exchange on which the security is traded,
and for any other security or asset in a manner determined in good faith by
KBIMA to reflect its fair market value;
(ii) to furnish statements to the Investment Manager and the
Company evidencing any purchases and sales for the Portfolio as soon as
practicable after such transactions have taken place;
(iii) to maintain strict confidence in regard to the Portfolio;
(iv) to provide to the Investment Manager and the Company upon
request a written report with respect to the voting of Proxies by KBIMA on
behalf of the Fund. KBIMA shall provide such additional reports to the
Investment Manager and the Company concerning the voting of Proxies on
behalf of the Fund as shall be reasonably requested; and
(v) to indemnify the Investment Manager and the Company against
any losses, claims, damages, liabilities or expenses arising out of or
based upon any untrue statement of any material fact contained in any
registration statement, prospectus, proxy statement, report or other
document, or any amendment or supplement thereto, or arising out of or
based upon any omission to state therein any material fact required to be
stated therein or necessary to make the statements therein not misleading,
to the extent that such untrue statement or omission was made in reliance
upon and in conformity with information furnished to the Investment Manager
or the Company by KBIMA specifically for use in the preparation thereof.
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<PAGE>
(b) The Investment Manager agrees:
(i) to advise KBIMA of the investment objectives, policies and
restrictions of the Fund and of any changes or modifications thereto and
to notify KBIMA promptly of any other changes in the Portfolio of which
KBIMA would not otherwise have knowledge;
(ii) to advise KBIMA of any specific investment restrictions
applicable to the Portfolio and to give KBIMA promptly written notice of
any investments made for the Portfolio that the Investment Manager deems
to be in violation of such objectives or restrictions;
(iii) to maintain in strict confidence and for use only with
respect to the Portfolio all investment advice given by KBIMA;
(iv) to take all actions necessary to effect delivery of the
Proxy solicitations to KBIMA in a timely manner, including, but not limited
to, effecting delivery of any Proxy solicitation received by a third party
who may hold securities on behalf of the Fund, and to verify, or to cause
such third party to verify, at such time, that the number of shares of an
issuer's securities indicated in a Proxy solicitation equals the number of
shares of such issuer's securities held by or for the benefit of the Fund
as of the record date for voting the Proxies; and
(v) not to hold KBIMA, and any of its directors, officers and
employees, liable, under any circumstances for any error of judgment or
other action taken or omitted by KBIMA in the good faith exercise of its
powers hereunder or arising out of an act or omission of the Custodian, or
of any broker-dealer or agent selected by KBIMA in good faith and in a
commercially reasonable manner, excepting matters as to which KBIMA shall
be finally adjudged to have been guilty of willful misfeasance, bad faith,
gross negligence, reckless disregard of duty or breach of fiduciary duty
involving personal misconduct (all as defined in the 1940 Act). The federal
and state 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 and state securities laws.
6. COMPENSATION OF KBIMA
(a) In consideration of the services performed by KBIMA hereunder,
the Investment Manager will pay or cause to be paid to KBIMA, as they
become due and payable, advisory fees determined in accordance with the
attached Schedule of Fees (Appendix A). In the event of termination, any
advisory 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 Investment Manager.
(b) The net asset value of the 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
4
<PAGE>
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.
7. SERVICE TO OTHER CLIENTS
Nothing contained in this Agreement shall be construed to prohibit
KBIMA from performing investment advisory, management, distribution or
other services for other investment companies and other persons, trusts or
companies, or to prohibit affiliates of KBIMA from engaging in such
businesses or in other related or unrelated businesses.
8. STANDARD OF CARE
KBIMA shall have no liability to the Investment Manager or the Fund,
or their equityholders, 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 and state 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 Fund may have under any federal securities laws.
9. DURATION OF AGREEMENT
This Agreement shall continue in effect until the close of business
on _____ __, 1999 and shall be renewed thereafter from year to year to the
same extent as the Investment Management Agreement, Power of Attorney and
Service Agreement, by and between the Investment Manager and the Company,
dated the date hereof (the "Investment Management Agreement"), is renewed
so long as such renewal is specifically approved by the Board of Directors
of the Investment Manager and the Board of Directors of KBIMA.
10. TERMINATION
This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of the Investment Manager or KBIMA.
11. REPORTS, BOOKS AND RECORDS
KBIMA shall render to the Company and the Investment Manager such
periodic and other reports as the Company or the Investment Manager may
from time to time reasonably request. In compliance with the requirements
of Rule 31a-3 under the Investment Company Act of 1940, KBIMA hereby agrees
that all records which it maintains for the Company are property of the
Company. KBIMA 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.
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<PAGE>
12. REPRESENTATIONS AND WARRANTIES
KBIMA represents and warrants to the Investment Manager that KBIMA is
registered as an investment adviser under the Investment Advisers Act of
1940. During the term of this Agreement, KBIMA shall notify the Company and
the Investment Manager of any change in the status of KBIMA within a
reasonable time after such change. 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.
13. AMENDMENT OF THIS AGREEMENT
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.
14. MISCELLANEOUS
(a) This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the state of California (without regard to
the principles of conflicts of law) and the applicable provisions of the
1940 Act. To the extent the applicable law of the State of California, or
any of the provisions herein, conflict with applicable provisions of the
1940 Act, the latter shall control.
(b) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement, whether written or oral, between them.
6
<PAGE>
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.
RCM CAPITAL MANAGEMENT, L.L.C. KLEINWORT BENSON INVESTMENT
MANAGEMENT AMERICAS INC.
By: ______________________________ By: ______________________________
Name: Name:
Title: Title:
ATTEST: ATTEST:
By: ______________________________ By: ______________________________
7
<PAGE>
APPENDIX A
INVESTMENT SUBADVISORY AGREEMENT
BETWEEN RCM CAPITAL MANAGEMENT, L.L.C.
AND KLEINWORT BENSON INVESTMENT MANAGEMENT
AMERICAS INC.
SCHEDULE OF FEES
Effective Date: _____ __, 1997
The Investment Manager will pay a monthly fee to KBIMA 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
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ADMINISTRATION AGREEMENT
Administration Agreement, dated as of _________ __, 1997, by
and between RCM Capital Management, L.L.C., a Delaware limited liability
company ("RCM"), and RCM Equity Funds, Inc. (the "Company"), on behalf of
RCM Kleinwort Benson Emerging Markets Fund, a series of the Company (the
"Fund").
WHEREAS, the Fund is a diversified series of the Company, a
registered open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Company, on behalf of the Fund, desires to retain
RCM to furnish certain administrative services to the Fund, and RCM is
willing to furnish such services, on the terms and conditions hereinafter set
forth (RCM, in its capacity as administrator to the Fund pursuant to the
terms hereof is hereinafter referred to as the "Administrator").
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Company hereby appoints the Administrator to act as
administrator with respect to the Fund for purposes of providing certain
administrative services for the period and on the terms set forth in this
Agreement. The Administrator accepts such appointment and agrees to render
the services stated herein.
2. DELIVERY OF DOCUMENTS
The Company will promptly deliver to the Administrator copies
of each of the following documents and all future amendments and supplements,
if any:
a. The Company's charter document and by-laws;
b. The Company's currently effective registration statement
under the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the Prospectus(es) and
Statement(s) of Additional Information relating to the Fund
and all amendments and supplements thereto as in effect from
time to time;
c. Certified copies of the resolutions of the Board of
Directors of the Company (the "Board") authorizing (1) the
Company to enter into this Agreement and (2) certain
individuals on behalf of the Fund to (a) give instructions
to the Administrator pursuant to this Agreement and (b) sign
checks and pay expenses;
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d. A copy of the investment advisory agreement between the
Company, on behalf of the Fund, and its investment adviser;
and
e. Such other certificates, documents or opinions which the
Administrator may, in its reasonable discretion, deem
necessary or appropriate in the proper performance of its
duties.
3. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR
The Administrator represents and warrants to the Company that:
a. It is a Delaware limited liability company, duly organized,
existing and in good standing under the laws of the State of
Delaware;
b. All requisite proceedings have been taken to authorize it to
enter into and perform this Agreement;
c. No legal or administrative proceedings have been instituted
or threatened which would impair the Administrator's ability
to perform its duties and obligations under this Agreement;
and
d. The execution and performance of this Agreement shall not
cause a material breach or be in material conflict with any
other agreement or obligation of the Administrator or any
law or regulation applicable to it.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Administrator that:
a. It is corporation, duly organized and existing and in good
standing under the laws of the State of Maryland;
b. It has the corporate power and authority under applicable
laws and by its charter and by-laws to enter into and
perform this Agreement;
c. All requisite proceedings have been taken to authorize it to
enter into and perform this Agreement;
d. It is an investment company registered under the 1940 Act;
e. A registration statement under the 1933 Act and the 1940 Act
has been filed and will be effective and remain effective
during the term of this Agreement;
f. No legal or administrative proceedings have been instituted
or threatened which would impair the Company's ability to
perform its duties and obligations under this Agreement;
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<PAGE>
g. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement
or obligation of the Company or the Fund or any law or
regulation applicable to them; and
h. As of the close of business on the date of this Agreement,
the Company is authorized to issue up to 50,000,000 shares
of capital stock of the Fund.
5. ADMINISTRATION SERVICES
The Administrator shall provide the following services subject
to the control, supervision and direction of the Company and the review and
comment by the Company's auditors and legal counsel and in accordance with
procedures which may be established from time to time between the Company and
the Administrator.
a. Oversee the determination and publication of the Fund's net
asset value in accordance with the Fund's policy as adopted
from time to time by the Board;
b. Oversee the maintenance by the Fund's custodian of certain
books and records of the Fund as required under
Rule 31a-1(b) of the 1940 Act;
c. Prepare the Fund's federal, state and local income tax
returns for review by the Company's independent accountants
and filing by the Company's treasurer;
d. Review the calculation, submit for approval by officers of
the Company and arrange for payment of the Fund's expenses;
e. Prepare for review and approval by officers of the Company
financial information for the Fund's semi-annual and annual
reports, proxy statements and other communications required
or otherwise to be sent to Fund shareholders, and arrange
for the printing and dissemination of such reports and
communications to shareholders;
f. Prepare for review by an officer of and legal counsel for
the Company the Fund's periodic financial reports required
to be filed with the Securities and Exchange Commission
("SEC") on Form N-SAR and financial information required
by Form N-1A and such other reports , forms or filings as
may be mutually agreed upon;
g. Prepare reports relating to the business and affairs of the
Fund as may be mutually agreed upon and not otherwise
prepared by the Fund's investment adviser, custodian, legal
counsel or independent accountants;
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<PAGE>
h. Make such reports and recommendations to the Board
concerning the performance of the independent accountants
as the Board may reasonably request;
i. Make such reports and recommendations to the Board
concerning the performance and fees of the Fund's custodian
and transfer and dividend disbursing agent ("Transfer
Agent") as the Board may reasonably request or deems
appropriate;
j. Oversee and review calculations of fees paid to the Fund's
investment adviser, custodian and Transfer Agent;
k. Consult with the Company's officers, independent
accountants, legal counsel, custodian and Transfer Agent in
establishing the accounting policies of the Fund;
1. Review implementation of any dividend reinvestment programs
authorized by the Board;
m. Respond to, or refer to the Company's officers or Transfer
Agent, shareholder inquiries relating to the Fund;
n. Provide periodic testing of portfolios to assist the Fund's
investment adviser in complying with Subchapter M of the
Internal Revenue Code, qualification requirements of the
1940 Act and Fund prospectus limitations as may be mutually
agreed upon;
o. Review and provide assistance on shareholder communications;
p. Maintain a general corporate calendar;
q. Maintain copies of the Company's charter and by-laws;
r. File annual and semi-annual shareholder reports with
appropriate regulatory agencies; review text of
"Presidents' letters" to shareholders and "Management's
Discussion of Fund Performance" (which shall also be
subject to review by the Fund's legal counsel),
s. Subject to review and comment by the Company's legal
counsel, organize, attend and prepare minutes of shareholder
meetings;
t. Provide consultation on regulatory matters relating to
portfolio management, Fund operations and any potential
changes in the Fund's investment policies, operations or
structure; act as liaison to legal counsel to the Fund and,
where applicable, to legal counsel to the Company's
independent Board members;
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<PAGE>
u. Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect
the Fund, update the Board and the investment adviser on
those developments and provide related planning assistance
where requested or appropriate;
v. Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various
agents with applicable legal requirements;
w. Assist the Fund in the handling of routine regulatory
examinations and work closely with the Fund's legal counsel
in response to any non-routine regulatory matters;
x. Assist with the filing of amendments to the Fund's
Prospectus and Statement of Additional Information, prepare
and file with the SEC proxy statements and SEC Rule 24f-2
notices.
The Administrator shall provide the office facilities and the personnel
required by it to perform the services contemplated herein.
6. FEES; EXPENSES; EXPENSE REIMBURSEMENT
For the services to be rendered hereunder, the Fund shall pay
the Administrator a monthly fee equal to the annualized rate of the higher of
$75,000.00 and 0.15% of the Fund's average daily net asset value. The fees
are accrued daily and billed monthly and shall be due and payable upon
receipt of the invoice. Upon the termination of this Agreement before the end
of any month, the fee for the part of the month before such termination shall
be prorated according to the proportion which such part bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. In addition, the Fund shall reimburse the Administrator for its
out-of-pocket costs incurred in connection with this Agreement.
The Fund agrees promptly to reimburse the Administrator for
any equipment and supplies specially ordered by or for the Fund through the
Administrator and for any other expenses not contemplated by this Agreement
that the Administrator may incur on the Fund's behalf at the Fund's request
or with the Fund's consent.
The Fund will bear all expenses that are incurred in its
operation and not specifically assumed by the Administrator. Expenses to be
borne by the Fund include, but are not limited to: organizational expenses;
costs of services of independent accountants and outside legal and tax
counsel (including such counsel's review of the Fund's registration
statement, proxy materials, federal and state tax qualification as a
regulated investment company and other reports and materials prepared by the
Administrator under this Agreement); investment advisory fees; costs of any
services contracted for by the Fund directly from parties other than the
Administrator; cost of trading operations and brokerage fees, commissions and
transfer insurance premiums and other fees and expenses applicable to its
operation; costs incidental to any meetings of shareholders including, but
not limited to, legal and accounting fees, proxy filing fees and the costs of
preparation, printing and mailing of any proxy materials; costs incidental
to Board
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meetings, including fees and expenses of Board members; the salary and
expenses of any officer, director/trustee or employee of the Fund; costs
incidental to the preparation, printing and distribution of the Fund's
registration statements and any amendments thereto and shareholder reports;
costs of typesetting and printing of prospectuses; cost of preparation and
filing of the Fund's tax returns, Form N-1A and Form N-SAR, and all notices,
registrations and amendments associated with applicable federal and state tax
and securities laws; all applicable registration fees and filing fees
required under federal and state securities laws; fidelity bond and
directors' and officers' liability insurance; and costs of independent
pricing services used in computing the Fund's net asset value.
The Administrator is authorized to and may employ or
associate with such person or persons as the Administrator may deem desirable
to assist it in performing its duties under this Agreement; provided,
however, that the compensation of such person or persons shall be paid by the
Administrator and that the Administrator shall be as fully responsible to the
Fund for the acts and omissions of any such person or persons as it is for
its own acts and omissions.
7. INSTRUCTIONS AND ADVICE
At any time, the Administrator may apply to any officer of the
Company for instructions and may consult with its own legal counsel or
outside counsel for the Company or the independent accountants for the Fund
at the expense of the Fund, with respect to any matter arising in connection
with the services to be performed by the Administrator under this Agreement.
The Administrator shall not be liable, and shall be indemnified by the Fund,
for any action taken or omitted by it in good faith in reliance upon any such
instructions or advice or upon any paper or document believed by it to be
genuine and to have been signed by the proper person or persons. The
Administrator shall not be held to have notice of any change of authority of
any person until receipt of written notice thereof from the Company. Nothing
in this paragraph shall be construed as imposing upon the Administrator any
obligation to seek such instructions or advice, or to act in accordance with
such advice when received.
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
The Administrator shall be responsible for the performance of
only such duties as are set forth in this Agreement and, except as otherwise
provided under Section 6, shall have no responsibility for the actions or
activities of any other party, including other service providers. The
Administrator shall have no liability for any error of judgment or mistake of
law or for any loss or damage resulting from the performance or
nonperformance of its duties hereunder unless solely caused by or resulting
from the gross negligence or willful misconduct of the Administrator, its
officers or employees. The Administrator shall not be liable for any special,
indirect, incidental, or consequential damages of any kind whatsoever
(including, without limitation, attorney's fees) under any provision of this
Agreement, or for any such damages arising out of any act or failure to act
hereunder. In any event, the Administrator's liability under this Agreement
shall be limited to its total annual compensation earned and fees paid
hereunder during the preceding twelve months for any liability or loss
suffered by the Fund including, but not limited to, any liability
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relating to qualification of the Fund as a regulated investment company or
any liability relating to the Fund's compliance with any federal or state tax
or securities statute, regulation or ruling.
The Administrator shall not be responsible or liable for any
failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including without limitation work stoppage, power or other
mechanical failure, computer virus, natural disaster, governmental action or
communication disruption, nor shall any such failure or delay give the
Company the right to terminate this Agreement.
The Company shall indemnify and hold the Administrator
harmless from loss, cost, damage and expense, including reasonable fees and
expenses for counsel, incurred by the Administrator resulting from any claim,
demand, actions or suit in connection with the Administrator's acceptance of
this Agreement, any action or omission by it in the performance of its duties
hereunder, or as a result of acting upon any instructions reasonably
believed by it to have been duly authorized by the Fund, provided that this
indemnification shall not apply to actions or omissions of the Administrator,
its officers, or employees in cases of its or their own gross negligence or
willful misconduct.
The indemnification contained herein shall survive the
termination of this Agreement.
9. CONFIDENTIALITY
The Administrator agrees that, except as otherwise required by
law or in connection with any required disclosure to a banking or other
regulatory authority, it will keep confidential all records and information
in its possession relating to the Fund or its shareholder accounts and will
not disclose the same to any person except at the request or with the written
consent of the Company.
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS
The Company assumes full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable
to the Fund.
In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Administrator agrees that all records which it maintains for
the Fund shall at all times remain the property of the Company, shall be
readily accessible during normal business hours, and shall be promptly
surrendered upon the termination of the Agreement or otherwise on written
request. The Administrator further agrees that all records which it maintains
for the Fund pursuant to Rule 31a-1 under the 1940 Act will be preserved for
the periods prescribed by Rule 31a-2 under the 1940 Act unless any such
records are earlier surrendered as provided above. Records shall be
surrendered in usable machine-readable form.
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11. SERVICES NOT EXCLUSIVE
The services of the Administrator to the Company are not
deemed exclusive, and the Administrator shall be free to render similar
services to others. The Administrator shall be deemed to be an independent
contractor and shall, unless otherwise expressly provided herein or
authorized by the Company from time to time, have no authority to act or
represent the Company in any way or otherwise be deemed an agent of the
Company.
12. TERM, TERMINATION AND AMENDMENT
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 the Board. Upon termination of
this Agreement, the Fund shall pay to the Administrator such compensation
and reimbursable expenses as may be due under the terms hereof as of the date
of such termination, including reasonable out-of -pocket expenses associated
with such termination. This Agreement may be modified or amended from time to
time by mutual written agreement of the parties hereto.
13. NOTICES
Any notice or other communication authorized or required by
this Agreement to be given to either party shall be in writing and deemed to
have been given when delivered in person or by confirmed facsimile, or posted
by certified mail, return receipt requested, to such address and/or fax
number as a party may specify by written notice to the other.
14. NON-ASSIGNABILITY
This Agreement shall not be assigned by either party hereto
without the prior consent in writing of the other party, except that the
Administrator may assign this Agreement to a successor of all or a
substantial portion of its business, or to a party controlling, controlled by
or under common control with the Administrator.
15. SUCCESSORS
This Agreement shall be binding on and shall inure to the
benefit of the Company and the Administrator and their respective successors
and permitted assigns.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
previous representations, warranties or commitments regarding the services to
be performed hereunder whether oral or in writing.
17. WAIVER
The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right
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thereafter to insist upon strict adherence to that term or any term of this
Agreement. Any waiver must be in writing signed by the waiving party.
18. SEVERABILITY
If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if
any provision is inapplicable to any person or circumstance it shall
nevertheless remain applicable to all other persons and circumstances.
19. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of California,
without regard to principles of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below as of the date
first written above.
RCM EQUITY FUNDS, INC.
ON BEHALF OF RCM KLEINWORT
BENSON EMERGING MARKETS FUND
By:_______________________
Name: _________________
Title: _________________
RCM CAPITAL MANAGEMENT, L.L.C.
By:_______________________
Name: _________________
Title: _________________
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CUSTODIAN AGREEMENT
AGREEMENT made as of this ____ day of ___________ 19____ between [ ]
(the "Fund") [on behalf of each of the portfolios listed on Appendix C hereto
as the same may be amended from time to time (each a "Fund" and collectively
the "Funds"),] and [ ] (the "Custodian").
WITNESSETH
WHEREAS the Fund is organized as a [ ] with one or
more series of shares, and is an open-end management investment company
registered with the Securities and Exchange Commission.
[WHEREAS each Fund represents an interest in a separate portfolio of cash,
securities and other assets (all references to a "Fund" or the "Funds" shall be
deemed to include each portfolio within the Fund as the context may make
appropriate).]
WHEREAS the Fund wishes to employ the Custodian and the Custodian has
agreed to provide custodial, banking and related services to the Fund in
accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Fund and the Custodian agree as follows:
1. APPOINTMENT OF CUSTODIAN. Upon the terms and conditions set forth in this
Agreement, the Fund hereby appoints the Custodian as a custodian, and the
Custodian
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hereby accepts such appointment. The Fund shall deliver or shall cause to be
delivered to the Custodian cash, securities and other property ("Property")
owned by the Fund from time to time during the term of this Agreement. The
Custodian shall be under no obligation to request or to require that any or all
Property of the Fund be delivered to it, and the Custodian shall have no
responsibility with respect to any Property not delivered to it.
[The Fund may in the future authorize the establishment of separate
accounts which hold Property of the Fund and with respect to which a certain
investment adviser or manager will be authorized to act and give instructions to
the Custodian (an "Investment Adviser"). The Fund shall notify the Custodian in
writing by a Proper Instruction of such authorization, whereupon the Custodian
may accept and act on Proper Instructions it reasonably believes to be sent by
such Investment Adviser.]
2. DEFINITIONS.
In this Agreement, the following words shall, unless the context otherwise
requires, have the following meanings:
(i) "1940 Act" - the Investment Company Act of 1940 and the rules and
regulations thereunder.
(ii) "Advances" - shall have the meaning ascribed to it in Section 11
hereof.
(iii) "Agency Accounts" - shall have the meaning ascribed to it in Section 5
hereof.
(iv) "Agent" - shall have the meaning ascribed to it in Section 7 hereof.
(v) "[ ] Accounts" - shall have the meaning ascribed to it in
Section 5 hereof.
(vi) "Book-Entry Agent" - shall have the meaning ascribed to it in
Section 4.1(b) hereof.
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(vii) "Derivative Instruments and Commodities" - any form of risk transfer
contract in which a gain or loss is recognized from fluctuations in
market price levels or rates, indexes or benchmarks, and which
includes without limitation futures, forwards, options, swaps, forward
rate and forward exchange contracts, leverage- or commodity-related
similar contracts and any other risk transfer contract whether traded
on or off an exchange.
(viii) "Electronic Instructions" - shall have the meaning ascribed to it in
Section 8.3 hereof.
(ix) "Electronic Reports" - shall have the meaning ascribed to it in
Section 8.3 hereof.
(x) "Force Majeure" - shall have the meaning ascribed to it in Section
10.4 hereof.
(xi) "Investments" - assets of the Fund, other than Property held by the
Custodian, a Subcustodian or a Securities Depository, but which the
Custodian may note on its records as being assets of the Fund
including without limitation Derivative Instruments and Commodities.
(xii) "Investment Adviser" - shall have the meaning ascribed to it in
Section 1 hereof.
(xiii) "Liability" - shall have the meaning ascribed to it in Section 11
hereof.
(xiv) "Margin Account" - shall have the meaning ascribed to it in
Section 4.2(d) hereof.
(xv) "Margin Agreement" - shall have the meaning ascribed to it in
Section 4.2(d) hereof.
(xvi) "Omnibus Accounts" - accounts established in the name of the Custodian
on behalf of its customers in which assets on deposit with the
Custodian by one or several customers may be deposited. Omnibus
Accounts may be established for the purpose of holding cash or
securities.
(xvii) "Proper Instructions" - any direction to take or not to take action in
respect of Property (including cash) or Investments which the
Custodian reasonably believes to be sent by an authorized person and
to be genuine. Proper Instructions may be
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<PAGE>
sent via the media set forth in Section 6 hereof or as otherwise
agreed between the Custodian and the Fund.
(xviii) "Property" - shall have the meaning ascribed to it in Section 1
hereof.
(xix) "Securities Accounts" - shall have the meaning ascribed to it in
Section 4 hereof.
(xx) "Securities Depository" - a generally recognized book-entry system or
a clearing agency which acts as a securities depository in any country
in which securities are maintained under this Agreement and with which
the Custodian or a Subcustodian may maintain securities or other
Property owned by or held on behalf of the Fund, pursuant to the
provisions hereof, including Euroclear and Cedel.
(xxi) "Segregated Accounts" - shall have the meaning ascribed to it in
Section 4.2(d) hereof.
(xxii) "Subcustodian" - shall mean any subcustodian appointed pursuant to
Section 7 of this Agreement.
(xxiii) "Voluntary Corporate Actions" - corporate actions (as further
described in Section 8.4) in respect of portfolio securities of the
Fund which require an investment decision.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FUND. The Fund represents
and warrants that the execution, delivery and performance by the Fund of this
Agreement are within the Fund's corporate, trust or other constitutive powers,
have been duly authorized by all necessary corporate, trust or other appropriate
action under its constitutive documents, and do not contravene or constitute a
default under any provision of applicable law or regulation or of the
constitutive documents of the Fund or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Fund. The Fund agrees to
inform the Custodian reasonably promptly if any statement set
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forth in this Section 3 or elsewhere made by the Fund in this Agreement ceases
to be true and correct. The Fund shall safeguard and shall solely be responsible
for the safekeeping of any testkeys, identification codes, other security
devices or statements of account with which the Custodian provides it. If and
when applicable, the Fund shall execute a license agreement or sublicense
agreement governing its use of any electronic instruction system proprietary to
the Custodian or an affiliate of the Custodian or proprietary to a third party
which has licensed such system to the Custodian or an affiliate of the
Custodian.
The Fund hereby represents and warrants that it has disclosed appropriately
and adequately, or will appropriately and adequately disclose, all material
investments risks, including without limitation those relating to the custody,
settlement or servicing of foreign securities in the markets in which the Fund
invests or intends to invests, to the shareholders or other investors in the
Fund or to other persons who have property or contractual rights to or interests
in the assets of the Fund which are the subject of this Custodian Agreement.
4. SECURITIES ACCOUNT. The Fund hereby authorizes the Custodian to open and
maintain, with itself or with Subcustodians, securities accounts (the
"Securities Account") and authorizes the Custodian to deposit or record, as the
case may be, in such Securities Account the Fund's Property delivered to and
accepted by the Custodian, or such other Investments as the Fund requests the
Custodian to record by notation only. The Custodian shall keep safely all
Property delivered to it. In the event of a loss of a security for which the
Custodian would be liable under the provisions of this Agreement, the Custodian
shall be responsible for either replacing the security or for reimbursing the
Fund the value of the security [as of the date the loss is first discovered by
the Fund or the Custodian]. The Securities Account shall be maintained in the
manner and on the terms set forth below.
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(All references in this Section to the Custodian shall include a Subcustodian,
Securities Depository or any agent of the Custodian.)
4.1 MANNER OF HOLDING OR RECORDING SECURITIES AND OTHER INVESTMENTS -
(a) SECURITIES REPRESENTED BY PHYSICAL CERTIFICATES - Securities
represented by share certificates or other instruments may be held in
registered or bearer form (i) in the Custodian's vault, (ii) in the vault
of a Subcustodian or other agent of the Custodian, (iii) in an account
maintained by the Custodian or a Subcustodian at a Securities Depository,
or (iv) in accordance with customary market practice in the Custodian's
discretion (x) in the country in which settlement is to occur or (y) for
the particular security in respect of which settlement is instructed.
Securities held at a Subcustodian will be held subject to the terms of
the Subcustodian Agreement in effect between the Custodian and the
Subcustodian and may be held in Omnibus Accounts.
Securities held in a Securities Depository will be held subject to the
agreement, rules, statement of terms and conditions or other document or
conditions effective between the Securities Depository and the Custodian or
the Subcustodian. Such securities shall be held (i) in an account which
contains only assets of the Custodian held as custodian or otherwise on
behalf of others if such account is maintained by the Custodian with a
Securities Depository (unless market practice or Securities Depository
rules and regulations require the Custodian also to hold its own assets in
such account), or (ii) in an account which contains only assets of the
Subcustodian or other agent held as custodian or otherwise on behalf of
others if such account is maintained by the Subcustodian or other agent
with a Securities Depository (unless market practice or Securities
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<PAGE>
Depository rules and regulations require a Subcustodian also to hold its
own assets in such account).
Registered securities of the Fund may be registered in the name of the
Custodian, the Fund or a nominee of either of them and may be held in any
manner set forth above, with or without any indication of fiduciary
capacity, provided that securities are held in an account of the Custodian
or a Subcustodian containing only assets of the Fund or only assets held by
the Custodian or a Subcustodian as custodian for its customers or are
otherwise held on behalf of others.
(b) SECURITIES REPRESENTED BY BOOK-ENTRY - Securities represented by
book-entry on the books of the issuer, a registrar, a clearing agency or
other agent of the issuer (a "Book-Entry Agent") may be so held in an
account of the Custodian or a Subcustodian or other Agent maintained with
such Book-Entry Agent provided such account contains only assets of the
Fund or only assets held as custodian for customers or are otherwise held
on behalf of others.
(c) OTHER INVESTMENTS - At the specific request of the Fund, the
Custodian may note on its records Investments owned by the Fund that are
not represented by physical securities or by book-entry, including without
limitation Derivative Instruments and Commodities. The Fund acknowledges
that such notation is for recordkeeping purposes only, that the Custodian
may not be able to exercise control over such Investments and that such
Investments may represent contractual rights of the Fund which the
Custodian cannot enforce. The Fund shall be responsible for requesting that
any statements applicable to such Investments, including brokerage
statements, be sent to the Custodian.
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4.2 POWERS AND DUTIES OF THE CUSTODIAN WITH RESPECT TO THE SECURITIES
ACCOUNT - The Custodian shall have the following powers and duties with respect
to the Securities Account:
(a) PURCHASES - Upon receipt of Proper Instructions, insofar as funds
are available or as funds are otherwise provided by the Custodian at its
discretion pursuant to Section 11 hereof for the purpose, to pay for and
receive securities purchased for the account of the Fund, payment being
made (i) upon receipt of the securities by the Custodian, by a clearing
corporation of a securities exchange of which the Custodian or a
Subcustodian is a member, or by a Securities Depository, or (ii) otherwise
in accordance with (A) governmental regulations, (B) rules of Securities
Depositories or other U.S. or foreign clearing agencies, (C) generally
accepted trade practice in the applicable local market, (D) the terms of
the instrument representing the security, or (E) the terms of Proper
Instructions.
(b) SALES - Upon receipt of Proper Instructions, to make delivery of
securities which have been sold for the account of the Fund (i) against
payment therefor in cash, by check or by bank wire transfer; (ii) by
credit to the account of the Custodian or Subcustodian with a clearing
corporation of a securities exchange of which the Custodian or a
Subcustodian is a member; (iii) by credit to the account of the Custodian
or Subcustodian with a Securities Depository; or (iv) otherwise in
accordance with (A) governmental regulations, (B) rules of Securities
Depositories or other U.S. or foreign clearing agencies, (C) generally
accepted trade practice in the applicable local market, (D) the terms of
the instrument representing the security, or (E) the terms of Proper
Instructions.
(c) OTHER TRANSFERS - To deliver Property of the Fund to a
Subcustodian, another custodian or another third party as necessary to
effect transactions authorized by Proper Instructions, and upon receipt of
Proper
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Instructions, to make such other disposition of Property of the Fund in a
manner other than or for purposes other than as enumerated elsewhere in
this Agreement, provided that the instructions relating to such disposition
shall state the amount of Property to be delivered and the name of the
person or persons to whom delivery is to be made.
(d) FUTURES; OPTIONS; SEGREGATED ACCOUNTS - Upon the receipt of
Proper Instructions and the execution of any agreements relating to margin
in respect of a Derivative Instrument or Commodity ("Margin Agreements"),
to establish and maintain on its books a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities of the Fund in accordance with the terms
of such Margin Agreements and any Proper Instructions ("Segregated
Accounts").
Upon receipt of Proper Instructions or upon receipt of instructions
given pursuant to any Margin Agreement, or pursuant to the terms of such
Agreement, the Custodian shall (i) receive and retain, to the extent the
same are provided to the Custodian, confirmations or other documents
evidencing the purchase or sale of such Derivative Instruments or
Commodities by the Fund; (ii) deposit and maintain, pursuant to a Margin
Agreement, in a segregated account, either physically or by book-entry in a
Securities Depository, for the benefit of any futures commission merchant
("Margin Account"), or pay pursuant to Proper Instructions to such broker,
dealer or futures commission merchant, such securities, cash or other
assets as are designated by the Fund as initial, maintenance or variation
"margin" deposits or other collateral intended to secure the Fund's
performance of its obligations under the terms of any Derivative Instrument
or Commodity, in accordance with the provisions of any Margin Agreement
relating thereto; and (iii) otherwise pay, release and/or transfer
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<PAGE>
securities, cash or other assets into or out of such Margin Accounts only
in accordance with the provisions of any such Margin Agreement. The
Custodian shall not be responsible for the sufficiency of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements or for the performance of the other terms of any
agreement relating to a Derivative Instrument or Commodity.
Notwithstanding anything in this Agreement to the contrary, the Fund
agrees that the Custodian's responsibility for any Derivative Instruments
and Commodities shall be limited to the exercise of reasonable care with
respect to any confirmations or other documents evidencing the purchase or
sale of such Derivative Instrument by the Fund which the Custodian
receives.
(e) STOCK LENDING - Upon receipt of Proper Instructions, to deliver
securities of the Fund, in connection with loans of securities by the Fund,
to the borrower thereof prior to receipt of the collateral, if any, for
such borrowing.
(f) NON-DISCRETIONARY DETAILS - Without the necessity of express
authorization from the Fund, (1) to attend to all nondiscretionary details
in connection with the sale, exchange, substitution, purchase, transfer or
other dealings with securities, cash or other Property of the Fund held by
the Custodian except as otherwise directed from time to time by the
Directors or Trustees of the Fund, and (2) to make payments to itself or
others for minor expenses of handling securities or other similar items
relating to the Custodian's duties under this Agreement, provided that all
such payments shall be accounted for to the Fund.
4.3 CORPORATE ACTIONS - Unless the Custodian receives timely Proper
Instructions to the contrary, the Custodian will perform or will cause the
Subcustodian to perform the following:
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(i) exchange securities held by it for the account of the Fund for
other securities in connection with any reorganization, recapitalization,
split-up of shares, change of par value, conversion or other event relating
to the securities or the issuer of such securities, and shall deposit any
such securities in accordance with the terms of any reorganization or
protective plan;
(ii) surrender securities in temporary form for definitive
securities; surrender securities for transfer into the name of the
Custodian, the Fund or a nominee of either of them, as permitted by Section
4.1(a); and surrender securities for a different number of certificates or
instruments representing the same number of shares or same principal amount
of indebtedness;
(iii) deliver warrants, puts, calls, rights or similar securities to
the issuer or trustee thereof, or to the agent of such issuer or trustee,
for the purpose of exercise or sale, and deposit securities upon
invitations for tenders thereof;
(iv) take all necessary action to comply with the terms of all
mandatory or compulsory exchanges, calls, tenders, redemptions, or similar
rights of security ownership, and promptly notify the Fund of such action,
and collect all stock dividends, rights and other items of like nature;
(v) collect amounts due and payable to the Fund with respect to
portfolio securities of the Fund, and promptly credit to the account of the
Fund all income and other payments relating to portfolio securities and
other assets held by the Custodian hereunder upon Custodian's receipt of
such income or payments or as otherwise agreed in writing by the Custodian
and the Fund, provided that the Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio securities
that are in default;
(vi) endorse and deliver any instruments required to effect
collection of any amount due and payable to the Fund with respect to
securities; execute
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ownership and other certificates and affidavits on the Fund's behalf for
all federal, state and foreign tax purposes in connection with receipt of
income, capital gains or other payments with respect to portfolio
securities and other assets of the Fund, or in connection with the
purchase, sale or transfer of such securities or other assets; and file any
certificates or other affidavits for the refund or reclaim of foreign taxes
paid;
(vii) deliver to the Fund all forms of proxies, all notices of
meetings, and any other notices or announcements affecting or relating to
securities owned by the Fund that are received by the Custodian, any
Subcustodian, or any nominee of either of them, and, upon receipt of Proper
Instructions, the Custodian shall execute and deliver, or cause such
Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Proper
Instructions, neither the Custodian nor any Subcustodian or nominee shall
vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto.
In fulfilling the duties set forth above, the Custodian shall be
responsible for sending to the Fund all information pertaining to the relevant
terms of a corporate action which it in fact receives, provided that the
Custodian shall not be responsible for incorrect information it receives, or
information it has not received but should have received, from industry-accepted
third-party securities information vendors.
Notwithstanding any provision of this Agreement to the contrary, with
respect to portfolio securities registered in so-called street name, the
Custodian shall use reasonable efforts to collect cash or share entitlements due
and payable to the Fund but shall not be responsible for its inability to
collect such cash or share entitlements.
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The Custodian shall only be responsible for acting on the Proper
Instructions of the Fund in respect of any Voluntary Corporate Action provided
the Custodian has received a Proper Instruction requesting such action a
reasonable time prior to expiration of the time within which action in respect
of such Voluntary Corporate Action may be taken, in order to ensure that
Custodian has sufficient time to take such action. The deadline for the
acceptance of such instruction may be set forth by the Custodian in its
communication of the terms of such action to the Fund and shall take into
consideration delays which occur due to (i) the involvement of a Subcustodian,
Securities Depository or other intermediary; (ii) differences in time zones; or
(iii) other factors particular to a given market, exchange or issuer.
Any advance credit of cash or shares by the Custodian or a Subcustodian
expected to be received as a result of any corporate event shall be subject to
actual collection and may, when the Custodian deems such collection unlikely, be
reversed by the Custodian upon written notice to the Fund. As used herein, an
"advance credit of cash or shares" shall mean any credit of cash or shares to
any account maintained hereunder prior to actual receipt and collection of such
cash or shares in anticipation of a distribution expected to be received in the
future.
5. CASH ACCOUNTS.
5.1 OPENING AND MAINTAINING CASH ACCOUNTS - Subject to the terms and
conditions set forth in this Section 5, the Fund hereby authorizes the Custodian
to open and maintain, with itself or with Subcustodians, cash accounts in United
States Dollars and in such other currencies as the Fund shall from time to time
request or as are in the Custodian's discretion required in order for the
Custodian to carry out the terms of this Agreement. The Custodian shall make
payments from or deposits to any of said accounts
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upon its receipt of Proper Instructions from the Fund providing sufficient
details to effect such transaction.
Cash accounts opened on the books of the Custodian ("[ ]
Accounts") shall be opened in the name of the Fund. Subject always to the
provisions of Section 10 hereof, the Custodian shall be liable for repayment
of any and all deposits carried on its books as principal, whether
denominated in United States Dollars or in other currencies.
Cash accounts opened on the books of Subcustodians appointed pursuant to
Section 7 hereof may be opened in the name of the Fund or the Custodian or in
the name of the Custodian for its customers generally ("Agency Accounts").
Such deposits shall be treated as portfolio securities, and accordingly the
Custodian shall be responsible for the exercise of reasonable care in respect
of the administration of such Agency Accounts but shall not be liable for
their repayment in the event the Subcustodian fails to make repayment
(including in the event of the Subcustodian's bankruptcy or insolvency). Both
[ ] Accounts and Agency Accounts shall have the benefit of the
provisions of Section 10 of this Agreement.
The Fund bears all risks of holding or transacting in any currency.
Any credit made to any Agency or [ ] Account shall be provisional and
may be reversed by the Custodian in the event such payment is not actually
collected.
The Custodian shall not be liable for any loss or damage arising from
the applicability of any law or regulation now or hereafter in effect, or
from the occurrence of any event, which may delay or affect the
transferability, convertibility or availability of any currency in the
country (i) in which such [ ] or Agency Accounts are maintained or (ii)
in which such currency is issued, and in no event shall the Custodian be
obligated to make payment of a deposit denominated in a currency during the
period during which its transferability, convertibility or availability has
been affected by any such law, regulation or event. Without limiting the
generality of the foregoing, neither the Custodian nor any
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Subcustodian shall be required to repay any deposit made at a foreign branch of
either the Custodian or Subcustodian if such branch cannot repay the deposit due
to (i) an act of war, insurrection or civil strife; or (ii) an action by a
foreign government or instrumentality, whether de jure or de facto, in the
country in which the branch is located preventing such repayment, unless the
Custodian or such Subcustodian expressly agrees in writing to repay the deposit
under such circumstances.
All currency transactions in any account opened pursuant to this Agreement
are subject to exchange control regulations of the United States and of the
country where such currency is the lawful currency or where the account is
maintained. Any taxes, costs, charges or fees imposed on the convertibility of a
currency held by the Fund shall be for the account of the Fund.
5.2 FOREIGN EXCHANGE TRANSACTIONS - The Custodian shall, pursuant to
Proper Instructions, settle foreign exchange transactions (including contracts,
futures, options and options on futures) on behalf and for the account of the
Fund with such currency brokers or banking institutions, including
Subcustodians, as the Fund may direct pursuant to Proper Instructions. The
Custodian shall be responsible for the transmission of cash and instructions to
and from the currency broker or banking institution with which the contract or
option is made and the safekeeping of all certificates and other documents and
agreements evidencing or relating to such foreign exchange transactions as the
Custodian may receive. In connection with such transactions, the Custodian is
authorized to make free outgoing payments of cash in the form of U. S. Dollars
or foreign currency without receiving confirmation of a foreign exchange
contract or option or confirmation that the countervalue currency completing the
foreign exchange contract has been delivered or received or that the option has
been delivered or received. The Fund accepts full responsibility for its use of
third-party foreign exchange dealers and for execution of said
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foreign exchange contracts and options and understands that the Fund shall be
responsible for any and all costs and interest charges which may be incurred by
the Fund or the Custodian as a result of the failure or delay of third parties
to deliver foreign exchange.
Foreign exchange transactions (including without limitation contracts,
futures, options, and options on futures), other than those executed with the
Custodian as principal, but including those executed with Subcustodians, shall
be deemed to be portfolio securities of the Fund and accordingly the Custodian
shall only be responsible for delivering or receiving currency on behalf of the
Fund in respect of such contracts pursuant to Proper Instructions subject to the
fourth paragraph of this Section 5. The Custodian shall not be responsible for
the failure of any counterparty in such agency transaction to perform its
obligations thereunder.
Alternatively, such transactions may be undertaken by the Custodian as
principal, if instructed by the Fund and accepted by the Custodian, which
instructions may be in the form of a standing instruction.
The obligations of the Custodian in respect of all foreign exchange
transactions shall be contingent on the free, unencumbered transferability of
the currency transacted on the actual settlement date of the transaction.
5.3 DELAYS - In the event a delay is caused by the negligence or willful
misconduct of the Custodian in carrying out a Proper Instruction to transfer
cash in connection with any transaction referred to in Section 5.1 or 5.2 above,
the Custodian shall be liable to the Fund for interest to be calculated at the
rate customarily paid by the Custodian on overnight deposits at the time the
delay occurs for the period from the day when the transfer should have been
effected until the day it is in fact effected. The Custodian shall not be liable
for delays in carrying out such instructions to transfer cash which are not due
to the Custodian's own negligence or willful misconduct.
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6. PROPER INSTRUCTIONS. Proper Instructions shall include, in the following
order of the preferred method of giving such instructions, authenticated
electromechanical communications including direct electronic transmissions,
authenticated SWIFT and tested telex, including Electronic Instructions as
described in Section 8.3,; a written request signed by two or more authorized
persons as set forth below; telefax transmissions; and oral instructions,
including telephone. Proper Instructions may also include such other methods of
communicating Proper Instructions as the parties hereto may from time to time
agree. Each of the first four methods of communicating Proper Instructions is
described and defined below and may from time to time be described and defined
in written operating memoranda between the Custodian and the Fund. The Custodian
is hereby authorized to act on instructions sent via any of the foregoing
methods from any director, employee or officer of the Fund or from the
Investment Adviser or other agent of the Fund as the Fund shall from time to
time instruct.
Authenticated electro-mechanical communications shall include
communications effected directly between electromechanical or electronic devices
or systems, including authenticated SWIFT and tested telex transmissions, and
other forms of communications involving or between such electro-mechanical or
electronic devices or systems as the parties may from time to time agree upon in
writing. In the event media other than tested telex transmissions are agreed
upon, the Custodian may in its discretion require that the Fund, its Investment
Adviser or other agent and the Custodian enter into certain operating memoranda
which shall set forth the media through which such Proper Instructions shall be
transmitted and the data which must be included in such Proper Instructions in
order for such instructions to be complete. Once such operating memoranda shall
have been instituted, the Fund, its Investment Adviser or other Agent shall be
responsible for sending instructions which meet the requirements set forth in
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such operating memoranda and the Custodian shall only be responsible for acting
on instructions which meet such requirements. The Custodian shall not be liable
for damages of any kind, including direct or consequential losses resulting from
technological or equipment failures or communications system failures of any
kind in respect of instructions sent or attempted to be sent via
electromechanical communications.
A written request signed by two or more authorized persons shall include a
written request, direction, instruction or certification signed or initialed on
behalf of the Fund by two or more persons as the Directors or Trustees of the
Fund shall have from time to time authorized, or by such other written procedure
as the Custodian and the Fund shall from time to time agree in writing. Those
persons authorized to give Proper Instructions may be identified by the
Directors or Trustees by name, title or position (including any of its
directors, employees or agents or any investment manager or adviser or person or
entity with similar responsibilities which is authorized to give Proper
Instructions on behalf of the Fund to the Custodian) and will include at least
one officer empowered by the Directors or Trustees to name other individuals or
entities who are authorized to give Proper Instructions on behalf of the Fund.
Telephonic or other oral instructions or instructions given by telefax
transmission may be given by any one of the persons referred to in the preceding
paragraph and will be considered Proper Instructions if the Custodian believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved.
With respect to telefax transmissions, the Fund and the Custodian hereby
acknowledge that receipt of legible instructions cannot be assured, and that the
Custodian cannot verify that authorized signatures on telefax instructions are
original or properly affixed. Accordingly, the Custodian shall not be
responsible for losses or expenses incurred through actions taken in reliance on
inaccurately stated, illegible or unauthorized telefax instructions.
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Oral instructions will be confirmed by authenticated electro-mechanical
communications or written instructions in the manner set forth above, but the
lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions. The Fund hereby authorizes
the Custodian to tape record any and all telephonic or other oral instructions
given to the Custodian by or on behalf of the Fund (including any of its
Directors, Trustees, employees or agents or any Investment Adviser or person or
entity with similar responsibilities which is authorized to give Proper
Instructions on behalf of the Fund to the Custodian).
Proper Instructions may relate to specific transactions or to types or
classes of transactions, and may be in the form of standing instructions.
The Custodian shall not be responsible for its failure to act on any
instruction received from the Fund which the Custodian in good faith believes
does not meet the requirements set forth herein.
7. AUTHORITY TO APPOINT SUBCUSTODIANS AND AGENTS AND TO UTILIZE SECURITIES
DEPOSITORIES. Subject to the provisions hereinafter set forth in this Section
7, the Fund hereby authorizes the Custodian to utilize Securities Depositories
to act on behalf of the Fund and to appoint from time to time and to utilize
Subcustodians.
The Custodian may deposit and/or maintain Property of the Fund in any non-
U.S. Securities Depository provided such Securities Depository meets the
requirements of an "eligible foreign custodian" under Rule 17f-5 promulgated
under the 1940 Act, or any successor rule or regulation ("Rule 17f-5") or which
by order of the Securities and Exchange Commission is exempted therefrom. The
Custodian may deposit and/or maintain, either directly or through one or more
agents appointed by the Custodian, Property of the Fund in any Securities
Depository in the United States, including The
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Depository Trust Company, provided such Depository meets applicable requirements
of the Federal Reserve Bank or of the Securities and Exchange Commission.
Notwithstanding anything in this Agreement to the contrary, any Property held in
a Securities Depository, whether or not the Custodian is a direct participant or
member, will be held subject to the rules, regulations, operating memoranda or
other conditions of participation in such Securities Depository.
The Custodian may, at any time and from time to time, appoint any bank as
defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act on behalf of the Fund as a subcustodian for purposes of
holding Property of the Fund in the United States. Additionally, the Custodian
may, at any time and from time to time, appoint (i) any bank, trust company or
other entity meeting the requirements of an "eligible foreign custodian" under
Rule 17f-5 or which by order of the Securities and Exchange Commission is
exempted therefrom, or (ii) any bank as defined in Section 2(a)(5) of the 1940
Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act
and the rules and regulations thereunder, to act on behalf of the Fund as a
subcustodian for purposes of holding Property of the Fund outside the United
States. Any bank, trust company or other entity appointed pursuant to the
foregoing provisions shall be a Subcustodian.
Prior to the appointment of any Subcustodian for purposes of holding
Property of the Fund outside the United States, the Custodian shall have
obtained written confirmation of the approval of the Board of Trustees or
Directors of the Fund with respect to (i) the identity of a Subcustodian, (ii)
the country or countries in which, and the Securities Depositories, if any,
through which, any proposed Subcustodian is authorized to hold Property of the
Fund, and (iii) the subcustodian agreement which shall govern such appointment.
Each such duly approved Subcustodian and the countries where and
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Securities Depositories through which they may hold Property of the Customer
shall be listed on Appendix A attached hereto as the same may from time to time
be amended. The Custodian may, at any time in its discretion, remove any
Subcustodian that has been appointed as such but will promptly notify the Fund
of any such action.
The Fund shall be responsible for informing the Custodian sufficiently in
advance of a proposed investment which is to be held in a country in which no
Subcustodian is authorized to act in order that the Custodian shall have
sufficient time to establish a subcustodial arrangement in accordance herewith.
In the event, however, the Custodian is unable to establish such arrangements
prior to the time such investment is to be acquired, the Custodian is authorized
to designate at its discretion a local safekeeping agent, and the use of such
local safekeeping agent shall be at the sole risk of the Fund, and accordingly
the Custodian shall be responsible to the Fund for the actions of such agent if
and only to the extent the Custodian shall have recovered from such agent for
any damages caused the Fund by such agent.
With respect to securities and funds held by a Subcustodian, either
directly or indirectly (including by a Securities Depository or clearing
agency), notwithstanding any provisions of this Agreement to the contrary,
payment for securities purchased and delivery of securities sold may be made
prior to receipt of securities or payment, respectively, and securities or
payment may be received in a form, in accordance with (i) governmental
regulations, (ii) rules of Securities Depositories and clearing agencies, (iii)
generally accepted trade practice in the applicable local market, (iv) the terms
of the instrument representing the security, or (v) the terms of Proper
Instructions.
In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the Fund of such claim. No more than thirty days
after written notice to the Fund of the Custodian's intention to make such
payment, the Fund will
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<PAGE>
reimburse the Custodian the amount of such payment except in respect of any
negligence or misconduct of the Custodian.
The Custodian may at any time or times in its discretion appoint (and may
at any time remove) any other bank or trust company as its agent (an "Agent") to
carry out such of the provisions of this Agreement as the Custodian may from
time to time direct, provided, however, that the appointment of such Agent shall
not relieve the Custodian of any of its responsibilities under this Agreement.
8. REPORTING; RECORDS. The Custodian shall have and perform the following
duties with respect to recordkeeping.
8.1 RECORDS - The Custodian shall create, maintain and retain such
records relating to its activities and obligations under this Agreement as will
enable the Custodian to comply with its obligations hereunder and as are
customarily maintained by a professional custodian.
8.2 ACCESS TO RECORDS - The books and records maintained by the Custodian
pursuant to this Section 8 shall at reasonable times during the Custodian's
regular business hours be open to inspections and audit by the auditors and by
employees and agents of the Fund provided that all such individuals shall
observe all security requirements of the Custodian applicable to its own
employees having access to similar records and such rules as may be reasonably
imposed by the Custodian.
8.3 ELECTRONIC RECORDS AND COMMUNICATIONS - The Custodian may make any of
its records available to the Fund or its Investment Adviser via electronic
reporting which may include without limitation on-line software systems
("Electronic Reports"). The Fund understands that such Electronic Reports may
include data provided to the Custodian by outside sources which may not have
been independently verified by the
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<PAGE>
Custodian and is subject to change. Accordingly, the Custodian shall not be
liable for inaccuracies, errors or incomplete information furnished by such
sources.
The Custodian may also make available to the Fund or its Investment Adviser
certain software to be used to initiate payment and securities transfer
instructions, affirm brokerage transactions reported through the Institutional
Delivery System or initiate other transaction instructions for the Custodian's
processing ("Electronic Instructions").
The Fund agrees that it shall be responsible for protecting and maintaining
the confidentiality and security of any codes assigned in respect of the Fund's
or its Investment Adviser's access to such Electronic Reports or Electronic
Instructions and that any instructions received through such system using the
client code assigned to the Fund shall be deemed to have originated from or on
behalf of the Fund and to be Proper Instructions.
The Custodian shall not be responsible for information added to, changed or
omitted by electronic programming malfunction, unauthorized access or other
failure of such systems unless such actions are the direct result of the
Custodian's negligence, bad faith or willful malfeasance.
8.4 REVIEW OF RECORDS - The Fund agrees to examine all records howsoever
produced or transmitted promptly upon receipt thereof and to notify the
Custodian promptly of any discrepancy or error therein. Unless the Fund delivers
written notice of any such discrepancy or error to the Custodian within a
reasonable period of time after its receipt thereof, such records shall be
deemed true and accurate.
8.5 APPOINTMENT AS RECORDKEEPING AND NET ASSET VALUE CALCULATION AGENT -
The Custodian is hereby appointed recordkeeping and net asset value calculation
agent responsible for creating, maintaining and retaining such records relating
to its obligations under this Agreement as are required under the 1940 Act
(including Section 31 thereof and Rules 31a-1 and 31a-2 thereunder). All such
records will be the property of the Fund.
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<PAGE>
The Custodian shall compute and determine the net asset value per share of
the Fund as of the close of business on the New York Stock Exchange on each day
on which such Exchange is open, unless otherwise directed by Proper
Instructions. Such computation and determination shall be made in accordance
with (1) the provisions of the Fund's Declaration of Trust or Certificate of
Incorporation and By-Laws, as they may from time to time be amended and
delivered to the Custodian, (2) the votes of the Board of Trustees or Directors
of the Fund at the time in force and applicable, as they may from time to time
be delivered to the Custodian, and (3) Proper Instructions. On each day that
the Custodian shall compute the net asset value per share of the Fund, the
Custodian shall provide the Investment Adviser with written reports which the
Investment Adviser will use to verify that portfolio transactions have been
recorded in accordance with the Fund's instructions and are reconciled with the
Fund's trading records.
In computing the net asset value, the Custodian may rely upon any
information furnished by Proper Instructions, including without limitation any
information (1) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account kept by the Custodian, (2) as
to the existence, status and proper treatment of reserves, if any, authorized by
the Fund, (3) as to the sources of quotations
to be used in computing the net asset value, including those listed in Appendix
B, (4) as to the fair value to be assigned to any securities or other property
for which price quotations are not readily available, and (5) as to the sources
of information with respect to "corporate actions" affecting portfolio
securities of the Fund, including those listed in Appendix B. (Information as to
"corporate actions" shall include information as to dividends, distributions,
stock splits, stock dividends, rights offerings, conversions, exchanges,
recapitalizations, mergers, redemptions, calls, maturity dates and similar
transactions, including the ex- and record dates and the amounts or other terms
thereof.) The Fund may instruct the Custodian to utilize a particular source for
the valuation of a
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<PAGE>
specific Security or other Property and the Custodian shall protected in
utilizing the valuation provided by such source without further inquiry in order
to effect calculation of the Fund's net asset value. [Notwithstanding anything
in this Agreement to the contrary, the Custodian shall not be responsible for
the failure of the Fund or the Investment Adviser to provide the Custodian with
Proper Instructions regarding liabilities which ought to be included in the
calculation of the Fund's net asset value.]
In like manner, the Custodian shall compute and determine the net asset
value as of such other times as the Board of Trustees or Directors of the Fund
from time to time may reasonably request.
Notwithstanding any other provisions of this Agreement, including Section
10.1, the following provisions shall apply with respect to the Custodian's
foregoing responsibilities in this Section 8.5: The Custodian shall be held to
the exercise of reasonable care in computing and determining net asset value as
provided in this Section 8.5, but shall not be held accountable or liable for
any losses or damages the Fund or any shareholder or former shareholder of the
Fund or any other person may suffer or incur arising from or based upon errors
or delays in the determination of such net asset value resulting from any event
beyond the reasonable control of the Custodian unless such error or delay was
due to the Custodian's negligence or reckless or willful misconduct in
determination of such net asset value. (The parties hereto acknowledge, however,
that the Custodian's causing an error or delay in the determination of net asset
value may, but does not in and of itself, constitute negligence or reckless or
willful misconduct.) In no event shall the Custodian be liable or responsible to
the Fund, any present or former shareholder of the Fund or any other person for
any error or delay which continued or was undetected after the date of an audit
performed by the certified public accountants employed by the Fund if, in the
exercise of reasonable care in accordance with generally accepted accounting
standards, such accountants should have become aware of such error
25
<PAGE>
or delay in the course of performing such audit. The Custodian's liability for
any such negligence or reckless or willful misconduct which results in an error
in determination of such net asset value shall be limited exclusively to the
direct, out-of-pocket loss the Fund, shareholder or former shareholder shall
actually incur, measured by the difference between the actual and the
erroneously computed net asset value, and any expenses the Fund shall incur in
connection with correcting the records of the Fund affected by such error
(including charges made by the Fund's registrar and transfer agent for making
such corrections) or communicating with shareholders or former shareholders of
the Fund affected by such error.
Without limiting the foregoing, the Custodian shall not be held accountable
or liable to the Fund, any shareholder or former shareholder thereof or any
other person for any delays or losses, damages or expenses any of them may
suffer or incur resulting from (1) the Custodian's failure to receive timely and
suitable notification concerning quotations or corporate actions relating to or
affecting portfolio securities of the Fund or (2) any errors in the computation
of the net asset value based upon or arising out of quotations or information as
to corporate actions if received by the Custodian either (i) from a source which
the Custodian was authorized pursuant to the third paragraph of this Section 8.5
to rely upon, (ii) from a source which in the Custodian's reasonable judgment
was as reliable a source for such quotations or information as the sources
authorized pursuant to that third paragraph, [or (iii) relevant information
known to the Fund or the Investment Adviser which would impact the calculation
of net asset value but which is not communicated by the Fund or the Investment
Adviser to the Custodian.]
In the event of any error or delay in the determination of such net asset
value for which the Custodian may be liable, the Fund and the Custodian will
consult and make good faith efforts to reach agreement on what actions should be
taken in order to mitigate any loss suffered by the Fund or its present or
former shareholders, in order that the
26
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Custodian's exposure to liability shall be reduced to the extent possible after
taking into account all relevant factors and alternatives. Such actions might
include the Fund or the Custodian taking reasonable steps to collect from any
shareholder or former shareholder who has received any overpayment upon
redemption of shares such overpaid amount or to collect from any shareholder who
has underpaid upon a purchase of shares the amount of such underpayment or to
reduce the number of shares issued to such shareholder. It is understood that
in attempting to reach agreement on the actions to be taken or the amount of the
loss which should appropriately be borne by the Custodian, the Fund and the
Custodian will consider such relevant factors as the amount of the loss
involved, the Fund's desire to avoid loss of shareholder good will, the fact
that other persons or entities could have been reasonably expected to have
detected the error sooner than the time it was actually discovered, the
appropriateness of limiting or eliminating the benefit which shareholders or
former shareholders might have obtained by reason of the error, and the
possibility that other parties providing services to the Fund might be induced
to absorb a portion of the loss incurred.
9. RESPONSIBILITY OF CUSTODIAN. In carrying out the provisions of this
Agreement, the Custodian shall be held to the exercise of reasonable care,
provided that the Custodian shall not thereby be required to take any action
which is in contravention of any law, rule or regulation or any order of any
court of competent jurisdiction. As used in this Agreement, "reasonable care"
shall mean the level of care which a professional custodian providing custody
services to institutional investors would provide in light of the circumstances
and events which reasonably influence its performance in the market where the
securities are held or the transaction is effected, including without limitation
local market practices relating to securities settlement and safekeeping, and
"negligence"
27
<PAGE>
shall mean the failure to exercise reasonable care as herein defined. The
Custodian shall, subject to the provisions set forth in Sections 9 and 10
hereof, be responsible to the Fund for any direct loss or damage (without taking
into account special circumstances) which the Fund incurs by reason of the
Custodian's negligence, bad faith or willful malfeasance.
With respect to securities and funds held by a Subcustodian, either
directly or indirectly (including by a Securities Depository or foreign
clearing agency), including demand deposits, currencies or other deposits and
foreign exchange contracts as referred to herein, the Custodian shall be liable
to the Fund if and only to the extent that such Subcustodian is liable to the
Custodian and the Custodian recovers under the applicable subcustodian
agreement.
With respect to the securities, cash and other Property of the Fund held by
a Securities Depository utilized by the Custodian or any Subcustodian or any
agent of the Custodian, the Custodian shall not be liable for the acts and
omissions of such Securities Depository unless and only to the extent that such
Securities Depository is liable to the Custodian and the Custodian recovers from
such Securities Depository, provided always that the Custodian shall be liable
to the Fund only for any direct loss or damage to the Fund resulting from use of
the Securities Depository if caused by the negligence, bad faith or willful
malfeasance of the Custodian.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominees from all claims and liabilities (including counsel fees) incurred or
assessed against it or its nominees in connection with the performance of this
Agreement, except such as may arise from its or its nominees breach of the
relevant standard of conduct set forth herein. Without limiting the foregoing
indemnification obligation of the Fund, the Fund agrees to indemnify the
Custodian and any nominee in whose name portfolio securities or other property
of the Fund is registered against any liability the Custodian or such nominee
may incur by reason of taxes assessed to the Custodian or such nominee or other
costs,
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<PAGE>
liability or expense incurred by the Custodian or such nominee resulting
directly or indirectly from the fact that portfolio securities or other property
of the Fund is registered in the name of the Custodian or such nominee.
10. LIMITATIONS TO CUSTODIAN'S RESPONSIBILITY.
10.1 LIABILITY IN GENERAL - Except as otherwise provided in this
Agreement, the Custodian shall be responsible for loss or damage which the Fund
may incur by reason of the Custodian's negligence, bad faith or willful
malfeasance, PROVIDED ALWAYS that such loss or damage shall be limited to direct
damages incurred by the Fund without taking into account special circumstances,
and PROVIDED FURTHER that the Custodian shall in no event be liable for indirect
or consequential damages or for loss of goodwill, even if the Custodian has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
10.2 LIABILITY OF THE CUSTODIAN WITH RESPECT TO PROPER INSTRUCTIONS;
EVIDENCE OF AUTHORITY; ETC. - The Custodian shall not be liable for, and shall
be indemnified by the Fund for losses or damages incurred or assessed against
the Custodian as a result of, any action taken or omitted in reliance upon
Proper Instructions or upon any other written notice, request, direction,
instruction, certificate or other instrument believed by it to be genuine.
The Custodian shall be entitled, at the expense of the Fund, to receive and
act upon advice of (a) its own counsel or counsel which it selects, (b) counsel
for the Fund, or (c) such other counsel as the Fund and the Custodian may agree
upon, with respect to all matters. The Custodian shall be without liability for
any action taken or omitted pursuant to such advice.
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10.3 TITLE TO SECURITIES, FRAUDULENT SECURITIES - 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 Agreement.
10.4 FORCE MAJEURE - Notwithstanding any other provision contained herein,
the Custodian shall not be liable for any action taken, or for any failure to
take any action required to be taken hereunder, or otherwise for its failure to
fulfill its obligations hereunder (including without limitation the failure to
receive or deliver securities or the failure to receive or make any payment) in
the event and to the extent that the taking of such action or such failure
arises out of or is caused by civil commotion, act of God, accident, fire, water
damage, explosion, mechanical breakdown, computer or system failure or other
equipment failure, malfunction or failure caused by computer virus, failure or
malfunctioning of any communications medium for whatever reason, interruption
(whether partial or total) of power supplies or other utility service, strike or
other stoppage (whether partial or total) of labor, market conditions which
prevent the orderly execution of securities transactions or affect the value of
Property, any law, decree, regulation or order of any government or governmental
body, de facto or de jure (including any court or tribunal), rules or
regulations of any Securities Depository or clearing agency or any other cause
whatsoever (whether similar or dissimilar to the foregoing) beyond its control
or the control of its Subcustodian or other agent (collectively, "Force
Majeure").
10.5 SOVEREIGN RISK - Without limiting the generality of the foregoing
Section 10.4, the Custodian shall not be liable for any losses resulting from a
Sovereign Risk. As used herein, a Sovereign Risk shall mean any act of war,
terrorism, riot, insurrection or civil commotion; the imposition of exchange
control restrictions; confiscation, expropriation or nationalization of any
property including without limitation cash, cash
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equivalents, securities or the assets of any issuer of securities by any
governmental or quasi-governmental authority (including without limitation
those authorities which are judicial, legislative, executive, military or
religious in nature), whether de facto or de jure; currency devaluation or
revaluation; the imposition of taxes, levies or other charges affecting the
Fund's property, or any other political risk (whether similar or dissimilar
to the foregoing) incurred in respect of the country in which the issuer of
such securities is organized or in which such securities are held or such
payments are held or effected.
10.6 CURRENCY RISKS - The Fund bears all risks of holding or
transacting in any currency. Without limiting the generality of the
foregoing, the Fund bears all risks that rules or procedures imposed by
Securities Depositories, exchange controls, asset freezes or other laws or
regulations shall prohibit or impose burdens on or costs relating to the
transfer by or for the account of the Fund of securities, cash or currency
held outside the United States or denominated in a currency other than U. S.
dollars or on the conversion of any currency so held. The Custodian shall in
no event be obligated to substitute another currency (including U.S. dollars)
for a currency whose transferability, convertibility or availability has been
affected by any such law, regulation, rule or procedure.
10.7 INVESTMENT RISKS NOT ASSUMED BY CUSTODIAN - The Custodian shall
have no liability in respect of any loss or damage suffered by the Fund,
insofar as such loss or damage arises from commercial or other investment
risks inherent in investing in capital markets or in holding securities in a
particular jurisdiction or country including without limitation: (i)
political, legal, economic, settlement and custody infrastructure, exchange
rate and currency risks; (ii) investment and repatriation restrictions; (iii)
the Fund's or Custodian's inability to protect and enforce any local legal
rights including rights of title and beneficial ownership; (iv) corruption
and crime in the local market; (v) unreliable information which emanates from
the local market; (vi) volatility of banking and
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financial systems and infrastructure; (vii) bankruptcy and insolvency risks
of any and all local banking agents, counterparties to cash and securities
transactions or registrars or transfer agents; (viii) risk of issuer
insolvency or default; and (ix) market conditions which prevent the orderly
execution of transactions or the value of assets.
10.8 INVESTMENT LIMITATIONS - In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, the Custodian may assume unless and until
notified in writing to the contrary that Proper Instructions received by it
are not in conflict with or in any way contrary to any provisions of the
Fund's Declaration of Trust or Certificate of Incorporation or By-Laws (or
comparable documents) or votes or proceedings of the shareholders or Trustees
or Directors of the Fund. The Custodian shall in no event be liable to the
Fund and shall be indemnified by the Fund for any violation which occurs in
the course of carrying out instructions given by the Fund or any Investment
Adviser of any investment limitations to which the Fund is subject or other
limitations with respect to the Fund's powers to make expenditures, encumber
securities, borrow or take similar actions affecting the Fund.
10.9 FOREIGN OWNERSHIP LIMITATIONS - The Fund shall be responsible for
monitoring foreign ownership limitations in any markets in which it invests.
10.10 RESTRICTED SECURITIES - The Custodian shall only be
responsible for notifying the Fund of any restrictions on the transfer of
securities held in the Securities Account of which the Custodian is in fact
aware. In no event shall the Custodian be responsible for the inability of a
Fund to sell or transfer restricted securities or for delays incurred in the
sale or transfer of restricted securities if such inability or delay is the
result of the terms of the security itself, actions of the issuer, its
counsel or other representative (including without limitation its registrar),
or limitations due to laws, regulations or other applicable rules. The
Custodian shall only be responsible for transmitting information to
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the Fund as to those corporate actions in respect of restricted securities
which it in fact receives.
10.11 MARKET INFORMATION - The Custodian may in its discretion make
market information available to the Fund. This service is for informational
purposes only and is not to be construed as a recommendation to buy or sell a
particular security, to invest or not to invest in a particular country, or
to take any action whatsoever. Although information reported therein is
believed to be accurate, the Custodian does not represent or warrant its
accuracy or completeness. The Fund accordingly acknowledges that the
Custodian provides market information on a best efforts basis and recognizes
its responsibility to consult with its own independent sources before making
any investment or other decisions.
11. ADVANCES AND SECURITY FOR ADVANCES. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds from
any [ ] or Agency Account on behalf of the Fund for which there would
be, at the close of business on the date of such payment or transfer, whether
known at that time or subsequently determined, insufficient funds held by the
Custodian or any Subcustodian, Securities Depository, or otherwise on behalf
of the Fund, or if the Custodian or any nominee thereof shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement (collectively a
"Liability"), the Custodian may, in its discretion without further Proper
Instructions, provide or authorize an advance ("Advance") for the account of
the Fund in an amount sufficient to satisfy such Liability or to allow the
settlement or completion of the transaction by reason of which such payment
or transfer of funds is to be made. Any Advance shall be payable on demand
made by the Custodian, unless otherwise agreed by
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the Fund and the Custodian, and shall accrue interest from the date of the
Advance to the date of payment by the Fund at a rate agreed upon from time to
time by the Custodian and the Fund or otherwise at the rate the Custodian
customarily charges on loans to customers. It is understood that any
transaction in respect of which the Custodian shall have made an Advance,
including but not limited to a foreign exchange contract or transaction in
respect of which the Custodian is not acting as a principal, is for the
account of and at the risk of the Fund, and not, by reason of such Advance,
deemed to be a transaction undertaken by the Custodian for its own account
and risk. If the Custodian shall make or authorize any Advance to the Fund
or incur any Liability, then in such event any property at any time held for
the account of the Fund by the Custodian, a Subcustodian, a Securities
Depository or otherwise ("Collateral") shall be security for such Liability
or for such Advance and the interest thereon, and if the Fund shall fail to
pay such Advance or interest when due or shall fail to reimburse or indemnify
the Custodian promptly in respect of a Liability, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund's property,
including securities and balances in any [ ] or Agency Account, to the
extent necessary (which shall include the right to sell or assign securities
or otherwise assign its security interest to third parties) to obtain
repayment, reimbursement or indemnification.
For purposes of this Section 11, all such Collateral shall be treated as
financial assets credited to securities accounts under revised Articles 8 and
9 of the Uniform Commercial Code (1994), whether such Articles have in fact
been adopted in the jurisdiction in which the securities are held or the
Advance is granted. Accordingly, with respect to any Collateral, the
Custodian shall have the rights and benefits of a secured creditor that is a
securities intermediary for the Fund under the Uniform Commercial Code as
revised.
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Deposits maintained in Agency Accounts and [ ] Accounts (including
all accounts denominated in any currency) shall collectively constitute a
single and indivisible current account with respect to the Fund's obligations
to the Custodian or any Subcustodian hereunder. Accordingly, balances in all
such Agency and [ ] Accounts shall at all times be available for
satisfaction of the Fund's obligations under this Agreement to the Custodian
or any of its Subcustodians or agents including without limitation any
Advances incurred pursuant to this Section.
12. COMPENSATION. The Fund shall pay the Custodian a custody fee based on
such fee schedule as may from time to time be agreed upon in writing by the
Custodian and the Fund. Such fee, together with all out-of-pocket expenses
for which the Custodian is to be reimbursed, shall be billed to the Fund and
be paid by cash or wire transfer to the Custodian.
13. TERMINATION. This Agreement shall continue in full force and effect
until terminated by either party by an instrument in writing delivered or
mailed, postage prepaid, to the other party, such termination to take effect
not sooner than ninety (90) days after the date of such delivery or mailing.
In the event of termination the Custodian shall be entitled to receive, prior
to delivery of the securities, cash and other Property held by it, payment of
all accrued fees and unreimbursed expenses and all Advances and Liabilities,
upon receipt by the Fund of a statement setting forth such fees, expenses,
Advances and Liabilities.
In the event of the appointment of a successor custodian, it is agreed
that the cash, securities and other Property owned by the Fund and held by
the Custodian or
35
<PAGE>
any Subcustodian shall be delivered to the successor custodian, and the
Custodian agrees to cooperate with the Fund in execution of documents and
performance of other actions necessary or desirable in order to substitute the
successor custodian for the Custodian under this Agreement.
14. MISCELLANEOUS. The following miscellaneous provisions shall govern the
relationship between the parties --
14.1. EXECUTION OF DOCUMENTS, ETC. Upon request, the Fund shall execute
and deliver to the Custodian such proxies, powers of attorney or other
instruments as may be reasonable and necessary or desirable in connection with
the performance by the Custodian or any Subcustodian of their respective
obligations to the Fund under this Agreement or any applicable subcustodian
agreement with respect to the Fund.
14.2. ENTIRE AGREEMENT - This Agreement constitutes the entire
understanding and agreement of the Fund, on the one hand, and the Custodian, on
the other, with respect to the subject matter hereof and accordingly, supersedes
as of the effective date of this Agreement any custodian agreement or other oral
or written agreements heretofore in effect between the Fund and the Custodian
with respect to custody of the Fund's Property.
14.3. WAIVERS AND AMENDMENTS - No provision of this Agreement may be
waived, amended or terminated except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or termination is
sought; PROVIDED HOWEVER any appendix or addendum to this Agreement may be added
or amended from time to time by the Fund's execution and delivery to the
Custodian of such additional or amended appendix or addendum, in which case the
terms thereof shall take effect immediately upon execution by the Custodian or
otherwise as set forth in this Agreement.
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<PAGE>
14.4. INTERPRETATION - In connection with the operation of this Agreement,
the Custodian and the Fund may agree in writing from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
with respect to the Fund as may be consistent with the general tenor of this
Agreement. No interpretative or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Agreement.
14.5. CAPTIONS - Headings contained in this Agreement, which are included
as convenient references only, shall have no bearing upon the interpretation of
the terms of the Agreement or the obligations of the parties hereto.
14.6. GOVERNING LAW - The provisions of this Agreement shall be construed
in accordance with and governed by the laws of the State of [ ] without
giving effect to principles of conflicts of law. The parties hereto irrevocably
consent to the exclusive jurisdiction of the courts of the State of [ ] and
the federal courts located in [ ].
14.7 NOTICES - Except in the case of Proper Instructions, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission (provided that in the case of delivery by facsimile
transmission, such notice or other writing shall also be mailed postage prepaid)
to the parties at the following addresses:
(a) If to the Fund:
(b) If to the Custodian:
[ ]
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<PAGE>
or to such other address as the Fund or the Custodian may have designated in
writing to the other.
14.8. ASSIGNMENT - This Agreement shall be binding on and shall inure to
the benefit of the Fund and the Custodian and their respective successors and
assigns, provided that neither the Custodian nor the Fund may assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party.
14.9. COUNTERPARTS - This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
the Fund and the Custodian.
14.10. CONFIDENTIALITY; SURVIVAL OF OBLIGATIONS - The parties hereto
agree that each shall treat confidentially the terms and conditions of this
Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a
party hereto shall be used by any other party hereto solely for the purpose
of rendering or obtaining services pursuant to this Agreement and, except as
may be required in carrying out this Agreement, shall not be disclosed to any
third party without the prior consent of such providing party. The foregoing
shall not be applicable to any information that is publicly available when
provided or thereafter becomes publicly available other than through a breach
of this Agreement, or that is required to be disclosed by or to any bank
examiner of the Custodian or any Subcustodian, any regulatory authority, any
auditor of the parties hereto, or by judicial or administrative process or
otherwise by applicable law or regulation. The provisions of this Agreement
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
[ ] [ ]
By ____________________________ By ____________________________
Name: Name:
Title: Title:
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<PAGE>
AMENDMENT TO THE CUSTODIAN AGREEMENT
AMENDMENT entered into as of this _____ day of ____________, 1997 to the
Custodian Agreement between _________________________(the "Fund") and [ ]
(the "Custodian") dated as of ____________________(the "Agreement").
In consideration of the Custodian's offering subcustodial services to the
Fund in Russia, the Fund and the Custodian agree that the Agreement is hereby
amended as follows:
1. Section 4. SECURITIES ACCOUNT is amended by the addition of the
following phrase at the end of said Section:
"provided, however, that the Custodian's responsibility for safekeeping
equity securities of Russian issuers ("Russian Equities") hereunder shall
be limited to the safekeeping of relevant share extracts from the share
registration books maintained by the entities providing share registration
services to issuers of Russian Equities (each a "Registrar") indicating an
investor's ownership of such securities (each a "Share Extract")."
2. Section 4.1 (b) SECURITIES REPRESENTED BY BOOK-ENTRY, is amended by
the addition of the following at the end of said Section:
"However, with respect to Russian Equities, the Custodian shall instruct a
Subcustodian to endeavor to assure that registration thereof shall be
reflected on the books of the issuer's Registrar, subject to the following
conditions, but shall in no event be liable for losses or costs incurred as
a result of delays or failures in the registration process, including
without limitation the inability to obtain or enforce relevant Share
Extracts. Such registration may be in the name of a nominee of a
Subcustodian. In the event registration is in the name of a Fund, such Fund
hereby acknowledges that only the Custodian or Subcustodian may give
instructions to the Registrar to transfer or engage in other transactions
involving the Russian Equities so registered.
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A Subcustodian may from time to time enter into contracts with Registrars
with respect to the registration of Russian Equities ("Registrar Contracts").
Such Registrar Contracts may provide for (i) regular share confirmations by the
Subcustodian, (ii) reregistrations within set timeframes, (iii) use of a
Subcustodian's nominee name, (iv) direct access by auditors of the Subcustodian
or its clients to share registers, and (v) specification of the Registrar's
responsibilities and liabilities. It is hereby acknowledged and agreed that the
Custodian does not represent or warrant that such Registrar Contracts are
enforceable.
If the Fund instructs the Custodian to settle a purchase of a Russian
Equity, the Custodian will instruct a Subcustodian to endeavor on a best efforts
basis to reregister the Russian Equity and obtain a Share Extract in a timely
manner.
After completion of reregistration of a Russian Equity in respect of which
a Subcustodian has entered into a Registrar Contract, the Custodian shall
instruct the Subcustodian to monitor such registrar on a best efforts basis and
to notify the Custodian upon the Subcustodian's obtaining knowledge of the
occurrence of any of the following events ("Registrar Events"): (i) a Registrar
has eliminated a shareholder from the register or has altered registration
records; (ii) a Registrar has refused to register securities in the name of a
particular purchaser and the purchaser or seller has alleged that the
registrar's refusal to so register was unlawful; (iii) a Registrar holds for its
own account shares of an issuer for which it serves as registrar; (iv) if a
Registrar Contract is in effect with a Registrar, the Registrar notifies the
Subcustodian that it will no longer be able materially to comply with the terms
of the Registrar Contract; or (v) if a Registrar Contract is in effect with a
Registrar, the Registrar has materially breached such Contract. The Custodian
shall inform the Funds of the occurrence of a Registrar Event provided the
Custodian has in fact received actual notice thereof from the Subcustodian.
It shall be the sole responsibility of the Fund to contact the Custodian
prior to executing any transaction in a Russian Equity to determine whether a
Registrar Contract exists in respect of such issuer.
If the Fund instructs the Custodian by Proper Instruction to settle a
purchase of a Russian Equity in respect of which the Subcustodian has not
entered into a Registrar Contract, then the Custodian shall instruct the
Subcustodian to endeavor to settle such transaction in accordance with the
Proper Instruction and with the provisions of Section 4.2 (a) of this Agreement,
notwithstanding the absence of any such Registrar Contract and without the
Custodian being required to notify the Fund that no such Registrar Contract is
then in effect, and it being understood that neither the Custodian nor the
Subcustodian shall be required to follow the procedure set forth in the second
preceding paragraph."
3. Section 4.2 (a) PURCHASES, is amended by the addition of the
following at the end of said Section:
"Without limiting the generality of the foregoing, the following
provisions shall apply with respect to settlement of purchases of
securities in Russia. Unless otherwise
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instructed by Proper Instructions acceptable to the Custodian, the
Custodian shall only authorize a Subcustodian to make payment for purchases
of Russian Equities upon receipt of the relevant Share Extract in respect
of the Fund's purchases. With respect to securities other than Russian
Equities, settlement of purchases shall be made in accordance with
securities processing or settlement practices which the Custodian in its
discretion determines to be a market practice. The Custodian shall only be
responsible for securities purchased upon actual receipt of such securities
at the premises of its Subcustodian, provided that the Custodian's
responsibility for securities represented by Share Extracts shall be
limited to the safekeeping of the relevant Share Extract upon actual
receipt of such Share Extract at the premises of the Subcustodian."
4. SECTION 4.2 (B) SALES- is amended by the addition of the following at
the end of said Section:
"Without limiting the generality of the foregoing, the following
provisions shall apply with respect to settlement of sales of securities in
Russia. Unless otherwise expressly instructed by Proper Instructions
acceptable to the Custodian, settlement of sales of securities shall be
made in accordance with securities processing or settlement practices which
the Custodian in its discretion determines to be a market practice. The
Fund hereby expressly acknowledges that such market practice might require
delivery of securities prior to receipt of payment and that the Fund bears
the risk of payment in instances where delivery of securities is made prior
to receipt of payment therefor in accordance with Proper Instructions
received by the Custodian or pursuant to the Custodian's determination in
its discretion that such delivery is in accordance with market practice.
The Custodian shall not be responsible for any securities delivered from
the premises of the Subcustodian from the time they leave such premises."
5. SECTION 7 AUTHORITY TO APPOINT SUBCUSTODIANS AND AGENTS AND TO UTILIZE
SECURITIES DEPOSITORIES is amended by the addition of the following at the end
of the first paragraph of Section 7:
"With respect to Russia, the Fund hereby expressly acknowledges that a
Subcustodian for Russian securities may from time to time delegate any of
its duties and responsibilities to any securities depository, clearing
agency, share registration agent or sub-subcustodian (collectively,
"Russian Agent") in Russia, including without limitation Rosvneshtorgbank
(also called Vneshtorgbank RF) ("VTB"). The Fund acknowledges that the
rights of the Subcustodian against any such Russian Agent may consist only
of a contractual claim against the Russian Agent. Notwithstanding any
provision of this
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Agreement to the contrary, neither the Custodian nor the Subcustodian shall
be responsible or liable to the Fund or its shareholders for the acts or
omissions of any such Russian Agent. In the event of a loss of securities
or cash held on behalf of the Fund through any Russian Agent, the Custodian
shall not be responsible to the Fund or its shareholders unless and to the
extent it in fact recovers from the Subcustodian."
6. SECTION 10.2 LIABILITY OF THE CUSTODIAN WITH RESPECT TO PROPER
INSTRUCTIONS; EVIDENCE OF AUTHORITY; ETC. is amended by the insertion of the
following at the end of the first paragraph of said Section:
"It is also agreed that the Fund shall be responsible for preparation
and filing of tax returns, reports and other documents on any activities
it undertakes in Russia which are to be filed with any relevant
governmental or other authority and for the payment of any taxes, levies,
duties or similar liability the Fund incurs in respect of property held or
sold in Russia or of payments or distributions received in respect thereof
in Russia. Accordingly, the Fund hereby agrees to indemnify and hold
harmless the Custodian from any loss, cost or expense resulting from the
imposition or assessment of any such tax, duty, levy or liability or any
expenses related thereto."
7. A new SECTION 15, RISK DISCLOSURE ACKNOWLEDGMENT, is added at the end
of the present Section 14.10:
"The Fund hereby acknowledges that it has received, has read and has
understood the Custodian's Risk Disclosure Statement, a copy of which is
attached hereto and is incorporated herein by reference. The Fund further
acknowledges that the Risk Disclosure Statement is not comprehensive, and
warrants and represents to the Custodian that it has undertaken its own
review of the risks associated with investment in Russia and has concluded
that such investment is appropriate for the Fund and in no way conflicts
with the Fund's constitutive documents, investment objective, duties to its
shareholders or with any regulatory requirements applicable to the Fund."
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<PAGE>
Except as amended above, all the provisions of the Agreement as heretofore
in effect shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
[ ]
__________________________________ ___________________________________
Name: Name:
Title: Title:
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RISK DISCLOSURE STATEMENT
In connection with your consideration of investment in Russia, we bring
to your attention the following risks which, although they exist in many
markets around the world, we believe deserve special consideration in Russia.
This list is not comprehensive and is intended only to highlight some of the
risks inherent in investing in Russia which appear to be greater than those
in other established markets. These risks include, without limitation:
POLITICAL AND ECONOMIC RISKS
There is no history of stability in this market and no guarantee of future
stability. The emerging nature of the Russian political system in its
current democratic form leaves it more vulnerable to break down in the event
of economic instability or popular unrest. The dynamic nature of the
political environment can make the future uncertain. The economic
infrastructure is poor, and the country maintains a high level of external
and internal debt. Tax regulations are ambiguous and unclear, and there is a
risk of imposition of arbitrary or onerous taxes due to the lack of a fair
and economically rational tax regime.
COMMERCIAL AND CREDIT RISKS
Banks and other financial systems are not well developed or regulated, and as
a result tend to be untested and have low credit ratings. Organized crime
and corruption are a feature of the business environment, and bankruptcy and
insolvency are commonplace as businesses are learning how to cope in new
conditions. In terms of cash, securities and other investment transactions,
the risk of broker, counterparty and other third party default is high. The
same holds true for issuers, where the risk of default is high. Insurance is
expensive and difficult to obtain in light of the volatility of the
commercial environment.
LIQUIDITY RISKS
Foreign investment is affected by restrictions in terms of repatriation and
convertibility of the currency. The ruble is only convertible internally,
and the value of investments may be affected by fluctuations in available
currency rates and exchange control regulations. The repatriation of
profits may be restricted in some cases. Due to the undeveloped nature of
the banking system, considerable delays can occur in transferring funds,
converting rubles into other currencies and remitting funds out of Russia.
LEGAL AND REGULATORY RISKS
Russia's legal system is evolving and is not as developed as that of a western
country. It is based on a civil code with no system of judicial precedents.
The regulatory environment is sometimes uncertain since the total law can
encompass the civil code, legislative laws, presidential decrees, and ministry
resolutions. The code, laws, decrees, and resolutions ("Regulations") are
promulgated at separate times and are not necessarily consistent. The issuance
of Regulations does not always keep pace with market developments, thereby
creating ambiguities and inconsistencies.
Regulations governing securities investment may not exist or may be interpreted
and applied in an arbitrary or inconsistent manner. There may be a risk of
conflict between the rules and
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<PAGE>
regulations of the local, regional, and national governments. The concept of
share ownership rights and controls may not be in place or be enforceable.
The independence of the courts from economic, political, or national
influence is basically untested and the courts and judges are not experienced
in business and corporate law. Foreign investors cannot be guaranteed
redress in a court of law for a breach of local laws, regulations or
contracts.
The securities market regulatory body, the Federal Commission on the Capital
Market, was established in 1994 and is responsible for overseeing market
participants, including registrars. However, the monitoring of and
enforcement of the obligations of registrar companies is difficult due to
geographic dispersion and inconsistent interpretation and application of
regulations.
OPERATIONAL RISKS
SHAREHOLDER TITLE TO SECURITIES: Shareholder risk is a major risk for equity
investment in Russia. For example, shares are dematerialized and the only
legal evidence of ownership is the shareholder's name entered in the register
of the company. The concept of fiduciary duty on the part of companies'
management is generally non-existent. Therefore, shareholders may suffer a
dilution or loss of investment, due to arbitrary changes in the shareholder
register, with little or no recourse or redress available. Local laws and
regulations may not prohibit or restrict a company's management from
materially changing the company's structure without the consent of
shareholders. Legislation prohibiting insider trading activities is
rudimentary.
CLEARING AND SETTLEMENT: Settlements in Russia are non-DVP. For equity
settlements, the payments are usually handled offshore in USD after the
shares are reregistered on the books of the company or its registrar.
However, the only evidence of the registration is a company "extract" which
is a photocopy of the appropriate page from the register reflecting the new
shareholder's name. The extract does not have a legal basis for establishing
ownership in the event of a loss.
For Ministry of Finance (MinFin) bond settlements, payments are made offshore
in USD upon settlement of the bearer bonds at Vneshtorgbank's (VTB) office in
Moscow. If the bonds are transported between the local subcustodian and VTB,
the investor is exposed to transportation risk as the MinFins are bearer
bonds and are not replaceable in the event they are lost, stolen, or
destroyed.
Foreign investors can also invest in treasury issues through the Moscow
Interbank Currency Exchange (MICEX). These issues settle book-entry at MICEX
in rubles only.
TRANSPARENCY: The rules regulating corporate governance may not exist or are
underdeveloped and offer little protection to minority shareholders.
Disclosure and reporting requirements are not to the expected level of most
developed western nations. The accounting standards generally used in Russia
are not international standards and in many cases may be a cash based,
nonaccrual method of accounting. The quality, reliability, and availability
of information on companies in Russia is lower than in most western markets.
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<PAGE>
Because of these and other risks inherent in Russia, the custody
services available in Russia are not of the same standard as those available
in developed markets. As with all markets, [ ] must consider and accept
these risks when it decides to invest in the market. As you know, the risks
associated with investing in emerging markets deserve special attention as
they are considerably higher than those in more developed markets. This Risk
Disclosure Statement should not be the sole source of information for risk
with respect to the Russian market. We suggest that you review the market
independently and consult with your own legal advisors.
March, 1997
Acknowledged:
_____________________________________
Name:
Title:
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