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Dresdner RCM Global Funds, Inc.
Four Embarcadero Center
San Francisco, California 94111-4189
(800) 726-7240
DRESDNER RCM MIDCAP FUND
DRESDNER RCM SMALL CAP FUND
STATEMENT OF ADDITIONAL INFORMATION
October 30, 2000
Dresdner RCM MidCap Fund (the "MidCap Fund") and Dresdner RCM Small Cap Fund
(the "Small Cap Fund") are series of Dresdner RCM Global Funds, Inc. (the
"Company"), an open-end management investment company. The Company presently
consists of fourteen series, two of which are discussed in this SAI. The
Funds' investment manager is Dresdner RCM Global Investors LLC (the
"Investment Manager"). Both the MidCap Fund and the Small Cap Fund (each, a
"Fund" and together, "the Funds") are diversified.
This Statement of Additional Information ("SAI") is not a prospectus, and
should be read in conjunction with the Prospectus of the Funds dated
October 30, 2000. The Prospectus may be obtained without charge by writing
or calling the Company at the address and phone number above.
Incorporated herein by reference are the financial statements of the Funds
prior to their proposed reorganization as series of the Capital Company to
newly created series of the Global Company (each, a "predecessor fund").
contained in the Annual Report to Shareholders of Dresdner RCM Capital Funds,
Inc. for the year ended December 31, 1999, including the Report of
Independent Accountants dated February 18, 2000, the Statement of Assets and
Liabilities, including the Portfolio of Investments and the related Statement
of Operations, the Statement of Changes in Net Assets and the Financial
Highlights. Also incorporated herein by reference are the unaudited financial
statements of the Funds' predecessors contained in the Semi-Annual Report to
Shareholders of Dresdner RCM Capital Funds, Inc., for the six months ended
June 30, 2000. Copies of the Funds' Annual and Semi-Annual Reports to
Shareholders are available upon request, by calling (800) 726-7240, or by
writing to Four Embarcadero Center, San Francisco, CA 94111.
Table of Contents
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Investment Objectives and Policies........................................1
Risk Considerations......................................................13
Investment Restrictions..................................................18
Execution of Portfolio Transactions......................................20
Directors and Officers...................................................22
Control Persons and Principal Holders of Securities......................25
Investment by Employee Benefit Plans.....................................26
The Investment Manager...................................................26
The Distributor..........................................................28
The Administrator........................................................27
Other Service Providers..................................................27
Net Asset Value..........................................................30
Purchase and Redemption of Shares........................................31
Dividends, Distributions and Tax Status..................................32
Investment Results.......................................................34
General Information......................................................36
Additional Information...................................................37
Financial Statements.....................................................37
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Investment Objectives and Policies
INVESTMENT CRITERIA
In evaluating particular investment opportunities, the Investment Manager
may consider such other factors, in addition to those described in the
Prospectus, as the anticipated economic growth rate, the political outlook, the
anticipated inflation rate, the currency outlook, and the interest rate
environment for the country and the region in which a particular issuer is
located. When the Investment Manager believes it would be appropriate and
useful, the Investment Manager's personnel may visit the issuer's headquarters
and plant sites to assess an issuer's operations and to meet and evaluate its
key executives. The Investment Manager also will consider whether other risks
may be associated with particular securities.
INVESTMENT IN FOREIGN SECURITIES
Each Fund may invest up to 10% of its total assets in foreign securities,
including securities of issuers that are organized or headquartered in emerging
market countries. 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 investment
objectives of the Funds, the Investment Manager allocates the Funds' assets
among securities of countries and in currency denominations where it expects
opportunities for meeting the Funds' investment objectives to be the most
attractive, subject to the percentage limitations set forth in the Prospectus.
In addition, from time to time a 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, based on
the Investment Manager's evaluation of prevailing trends and developments, as
well as on the Investment Manager's assessment of the potential for capital
appreciation (as compared to the risks) of particular companies, industries,
countries, and regions.
INVESTMENT IN DEVELOPED FOREIGN COUNTRIES. Each of the Funds may invest
in securities of foreign companies that are organized or headquartered in
developed foreign countries. A Fund may not be invested in all developed foreign
countries at one time, and may not invest in particular developed foreign
countries at any time, depending on the Investment Manager's view of the
investment opportunities available.
Although these countries have developed economies, even developed
countries may be subject to periods of economic or political instability. For
example, efforts by the member countries of the European Union to eliminate
internal barriers to the free movement of goods, persons, services and capital
have encountered opposition arising from the conflicting economic, political and
cultural interests and traditions of the member countries and their citizens.
The reunification of the former German Democratic Republic (East Germany) with
the Federal Republic of Germany (West Germany) and other political and social
events in Europe have caused considerable economic and social dislocations. Such
events can materially affect securities markets and have also disrupted the
relationship of such currencies with each other and with the U.S. dollar.
Similarly, events in the Japanese economy and social developments may affect
Japanese securities and currency markets, as well as the relationship of the
Japanese yen to the U.S. dollar. Future political, economic and social
developments can be expected to produce continuing effects on securities and
currency markets in these and other developed foreign countries.
INVESTMENT IN EMERGING MARKETS. Each Fund may invest in securities of
companies organized or headquartered in developing countries with emerging
markets. As a general matter, countries that are not considered to be developed
foreign countries by the Investment Manager will be deemed to be emerging market
countries. Emerging market countries include any country generally considered to
be an emerging market 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 SAI, emerging market countries
are deemed to include for purposes of this SAI, 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. (See INVESTMENT IN DEVELOPED
FOREIGN COUNTRIES.) As their economies grow and their
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markets grow and mature, some countries that currently may be characterized by
the Investment Manager as emerging market countries may be deemed by the
Investment Manager to be developed foreign countries. In the event that the
Investment Manager deems a particular country to be a developed foreign country,
any investment in securities issued by that country's government or by an issuer
located in that country would not be subject to a Fund's overall limitations on
investments in emerging market countries.
Securities of issuers organized or headquartered in emerging market
countries may, at times, offer excellent opportunities for current income and
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. 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 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 a 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 a Fund will be invested in 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 Fund assets, overly burdensome repatriation or similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks, poor values of investments in those markets relative to
investments in other emerging markets, in developed foreign markets or in the
United States, or for other reasons.
CURRENCY MANAGEMENT
Securities purchased by the Funds may be denominated in U.S. dollars,
foreign currencies, or multinational currencies such as the Euro, and the Funds
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 a Fund's net currency positions may expose it to risks
independent of its securities positions.
A Fund's ability and decision to purchase or sell portfolio securities
may be affected by the laws or regulations in particular countries relating to
convertibility and repatriation of assets. Because the shares of the Funds are
redeemable in U.S. dollars each day the Funds determine their net asset value,
the Funds must have the ability at all times to obtain U.S. dollars to the
extent necessary to meet redemptions. Under present conditions, the Investment
Manager does not believe that these considerations will have any significant
adverse effect on its portfolio strategies, although there can be no assurances
in this regard.
GENERAL CURRENCY CONSIDERATIONS. Currency exchange rates may fluctuate
significantly over short periods of time causing, along with other factors, a
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. To the extent that a substantial portion of a
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.
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FUTURES TRANSACTIONS
Each Fund may purchase and sell stock index futures contracts and
options on such futures contracts as a hedge against changes in market
conditions that may result in changes in the value of the Fund's portfolio
securities and not for speculation. A stock index (such as the Standard & Poor's
500 Stock Price Index) assigns relative values to the common stocks included in
the index, and the index fluctuates with changes in the market values of the
common stocks so included.
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 the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written. In the case of futures contracts traded on U.S. exchanges,
the exchange itself or an affiliated clearing corporation assumes the opposite
side of each transaction (i.e., as buyer or seller). A futures contract may be
satisfied or closed out by payment of the change in the cash value of the index.
No physical delivery of the underlying stocks in the index is made.
Unlike when a Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the Fund's custodian or such other
parties as may be authorized by the SEC (in the name of the futures commission
merchant (the "FCM")) an amount of cash or U.S. Treasury bills which is referred
to as an "initial margin" payment. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that a
futures contract margin does not involve the borrowing of funds by a 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 stock index 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 a Fund has purchased a stock index futures contract
and the price of the underlying index has risen, the Fund's 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 a Fund has purchased a
stock index futures contract and the price of the underlying index 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 a
futures contract, a Fund may elect to close the position by taking an identical
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. Each Fund may also purchase call
options and put options on stock index futures contracts ("futures options"). A
futures option gives the holder the right, in return for the premium paid, to
assume a long position (in the case of a call) or short position (in the case of
a put) in a futures contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. A futures
option may be closed out (before exercise or expiration) by an offsetting
purchase or sale of a futures option of the same series.
PURCHASE OF FUTURES. When the Investment Manager anticipates a
significant stock market or stock market sector advance, a Fund may purchase a
stock index futures contract which affords a hedge against not participating in
such advance at a time when the Fund is not fully invested in equity securities.
Such purchase of a futures contract would serve as a temporary substitute for
the purchase of individual stocks which may later be purchased (with attendant
costs) in an orderly fashion. As such purchase of individual stocks are made, an
approximately equivalent amount of stock index futures would be terminated by
offsetting sales.
SALE OF FUTURES. Each Fund may sell stock index futures contracts in
anticipation of or during a general stock market or stock market sector decline
that may adversely affect the market values of the Fund's portfolio of equity
securities. To the extent that the Fund's portfolio of equity securities changes
in value in correlation with a given stock index, the sale of futures contracts
on that index would reduce the risk to the portfolio of a market decline and, by
doing so, would provide an alternative to the liquidation of securities
positions in the portfolio with resultant transaction costs.
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PURCHASE OF PUT OPTIONS ON FUTURES. The purchase of put options on
stock index futures contracts is analogous to the purchase of a put on
individual stocks, where an absolute level of protection from price fluctuation
is sought below which no additional economic loss would be incurred by a Fund.
For example, put options on futures may be purchased to hedge a portfolio of
stocks or a position in the futures contract upon which the put option is based
against a possible decline in market value.
PURCHASE OF CALL OPTIONS ON FUTURES. The purchase of call options on
stock index futures contracts represents a means of obtaining temporary exposure
to market appreciation with risk limited to the premium paid for the call
option. It is analogous to the purchase of a call option on an individual stock,
which can be used as a substitute for a position in the stock itself. Depending
on the pricing of the option compared to either the futures contract upon which
it is based, or to the price of the underlying stock index 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 stock index
futures contract or the underlying stock. Like the purchase of a stock index
futures contract, a Fund would purchase a call option on a stock index futures
contract to hedge against a market advance when the Fund is not fully invested.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES AND FUTURES OPTIONS. The
Funds will not engage in transactions in stock index futures contracts or
futures options for speculation, but only as a hedge against changes in the
value of securities held in each Fund's portfolio, or securities which the
Investment Manager intends to purchase for the portfolio, resulting from actual
or anticipated changes in general market conditions. Such transactions will only
be effected when, in the view of the Investment Manager, they are economically
appropriate in the reduction of risks inherent in the ongoing management of a
Fund's investment portfolio.
A 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, a Fund may not purchase or sell futures or
purchase futures options if, immediately thereafter, the sum of the amount of
margin deposits on the Fund's existing futures positions and premiums paid for
futures options would exceed 5% of the market value of the Fund's total assets.
In Fund transactions involving futures contracts, to the extent required by
applicable SEC guidelines, an amount of cash, U.S. Government securities, or
other liquid debt or equity securities equal to the market value of the futures
contracts will be segregated with the Fund's Custodian, or in other segregated
accounts as regulations may allow, to collateralize the position and thereby to
insure that the use of such futures is unleveraged. Such segregated accounts
will be marked to market daily.
REGULATORY MATTERS. The Company has filed a claim of exemption from
registration of the Funds as commodity pools with the Commodity Futures Trading
Commission (the "CFTC"). Each 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
Each Fund may invest up to 20% of its total assets in U.S. Government
debt obligations. The timing of purchase and sale transactions in debt
obligations may result in capital appreciation or depreciation because the value
of debt obligations varies inversely with prevailing interest rates. The debt
obligations in which the Funds will invest will be rated, at the time of
purchase, BBB or higher by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's"), or Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or equivalent ratings by other rating organizations,
or, if unrated, will be determined by the Investment Manager to be of comparable
investment quality. If the rating of an investment grade security held by a Fund
is downgraded, the Investment Manager will determine whether it is in the best
interests of the Fund to continue to hold the security in its investment
portfolio.
RATINGS. 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
Investment Manager 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. In general, debt
securities held
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by a Fund will be treated as investment grade if they are rated by at least
one major rating agency in one of its top four rating categories at the time
of purchase or, if unrated, are determined by the Investment Manager to be of
comparable quality. Investment grade means the issuer of the security is
believed to have adequate capacity to pay interest and repay principal,
although certain of such securities in the lower grades have speculative
characteristics, and changes in economic conditions or other circumstances
may be more likely to lead to a weakened capacity to pay interest and
principal than would be the case with higher rated securities.
GOVERNMENT OBLIGATIONS. 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. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
The Investment Manager does not intend to purchase U.S. debt securities
(other than cash-equivalent instruments with a maturity of one year or less),
except on an occasional basis when the Investment Manager believes that
unusually attractive investments are available.
CONVERTIBLE SECURITIES AND WARRANTS
Each Fund may invest in convertible securities and warrants. 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 conversion privilege) and its "conversion
value" (the security's worth, at market value, if converted into the underlying
common stock). The credit standing of the issuer and other factors may also
affect the investment value of a convertible security. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value. 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
increasingly influenced by its conversion value.
As a matter of operating policy, no Fund will invest more than 10% of its
net assets in warrants. A warrant gives the holder a right to purchase at any
time during a specified period a predetermined number of shares of common stock
at a fixed price. Unlike convertible debt, securities or preferred stock,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for resale of the
warrants, potential price fluctuations as a result of speculation or other
factors, and failure of the price of the underlying security to reach or have
reasonable prospects of reaching a level at which the warrant can be prudently
exercised (in which event the warrant may expire without being exercised)
resulting in a loss of the Fund's entire investment therein.
SYNTHETIC CONVERTIBLE SECURITIES
Each Fund may invest in "synthetic" convertible securities, which are
derivative positions composed of two or more different securities whose
investment characteristics, taken together, resemble those of convertible
securities. For example, a Fund may purchase a non-convertible debt security and
a warrant or option, which enables a Fund to have a convertible-like position
with respect to a company, group of companies or stock index. Synthetic
convertible securities are typically offered by financial institutions and
investment banks in private placement transactions. Upon conversion, the Fund
generally receives an amount in cash equal to the difference between the
conversion price and the then current value of the underlying security. Unlike a
true convertible security, a synthetic convertible comprises two or more
separate securities, each with its own market value. Therefore, the market value
of a synthetic convertible is the sum of the values of its fixed-income
component and its convertible component. For this reason, the values of a
synthetic convertible and a true convertible security may respond differently to
market fluctuations. A Fund only invests in synthetic convertibles with respect
to companies whose corporate debt securities are rated "A" or higher by Moody's
or Standard & Poor's and will not invest more than 15% of its net assets in such
synthetic securities and other illiquid securities.
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PREFERRED STOCK
Each Fund may purchase preferred stock. 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 the holders of preferred stock 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.
BORROWING MONEY
From time to time, it may be advantageous for a Fund to borrow money
rather than sell portfolio securities to raise the cash to meet redemption
requests. In order to meet such redemption requests, each Fund may borrow from
banks or enter into reverse repurchase agreements. Each Fund may also borrow up
to 5% of the value of its total assets for temporary or emergency purposes other
than to meet redemptions. However, the Funds will not borrow money for
leveraging purposes. A Fund may continue to purchase securities while borrowings
are outstanding. The 1940 Act permits a Fund to borrow only from banks and only
to the extent that the value of its total assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings (including the
proposed borrowing), and requires the Fund to take prompt action to reduce its
borrowings if this limit is exceeded. For the purpose of the 300% borrowing
limitation, reverse repurchase transactions are considered to be borrowings.
A reverse repurchase agreement involves a transaction by which a borrower
(such as a 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 Board of Directors of the Company (the "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
Each 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 its 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
Each Fund may invest up to 5% of the value of its net assets in illiquid
securities. Securities may be considered illiquid if a Fund cannot reasonably
expect to receive approximately the amount at which the Fund values such
securities within seven days. The Investment Manager has the authority to
determine whether certain securities held by a Fund are liquid or illiquid
pursuant to standards adopted by the Board of Directors.
The Investment Manager takes into account a number of factors in reaching
liquidity decisions, including, but not limited to: the listing of the security
on an exchange or national market system; the frequency of trading in the
security; the number of dealers who publish quotes for the security; the number
of dealers who serve as market makers for the security; the apparent number of
other potential purchasers; and the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited,
and the mechanics of transfer).
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The Funds' 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 a Fund
purchases unregistered securities, it may, in appropriate circumstances, obtain
the right to register such securities at the expense of the issuer. In such
cases there may be a lapse of time between the Fund's decision to sell any such
security and the registration of the security permitting sale. During any such
period, the price of the security will be subject to market fluctuations.
The fact that there are contractual or legal restrictions on resale of
certain securities to the general public or to certain institutions may not be
indicative of the liquidity of such investments. If such securities are subject
to purchase by institutional buyers in accordance with Rule 144A under the
Securities Act, the Investment Manager may determine in particular cases,
pursuant to standards adopted by the 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 a Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing such
securities.
CASH-EQUIVALENT INSTRUMENTS
Other than as described under INVESTMENT RESTRICTIONS below, the Funds
are not restricted with regard to the types of cash-equivalent investments they
may make. When the Investment Manager believes that such investments are an
appropriate part of a 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
currencies: cash; short-term U.S. or foreign government securities; commercial
paper rated at least A-2 by Standard & Poor's or P-2 by Moody's certificates of
deposit or other deposits of banks deemed creditworthy by the Investment Manager
pursuant to standards adopted by the 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, a 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 a Fund) purchases
a security and simultaneously obtains the commitment of the seller (a member
bank of the Federal Reserve System or a securities dealer deemed creditworthy by
the Investment Manager pursuant to standards adopted by the Board of Directors)
to repurchase the security at an agreed-upon price on an agreed-upon date within
a number of days (usually not more than seven) from the date of purchase.
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RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments in foreign securities may offer investment opportunities and
potential benefits not available from investments solely in securities of U.S.
issuers. Such benefits may include higher rates of interest on debt securities
than are available from domestic issuers, the opportunity to invest in foreign
issuers that appear, in the opinion of the Investment Manager, to offer better
opportunity for long-term capital appreciation than investments in securities of
U.S. issuers, the opportunity to invest in foreign countries with economic
policies or business cycles different from those of the United States and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign markets that do not necessarily move in a manner parallel to U.S. stock
markets.
At the same time, however, investing in foreign 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 a 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 a 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.
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 a Fund, including the withholding of tax on
interest, dividends and other distributions and limitations on the repatriation
of currencies. In addition, a Fund may experience difficulties or delays in
obtaining or enforcing judgments. Foreign securities may be subject to foreign
government taxes that could reduce the yield and total return 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 a Fund
due to subsequent declines in the value of the portfolio security or, if a 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 a Fund's ability to implement its investment strategies and to achieve
its investment objectives.
In addition, the costs associated with transactions in securities traded
on foreign markets or of foreign issuers, and the expense of maintaining custody
of such securities with foreign custodians, generally are higher than the costs
associated with transactions in U.S. securities on U.S. markets. Investments in
foreign securities may result in higher expenses due to the cost of converting
foreign currency to U.S. dollars, the payment of fixed brokerage commissions on
foreign exchanges, the expense of maintaining securities with foreign custodians
and the imposition of transfer taxes or transaction charges associated with
foreign exchanges.
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DEPOSITARY RECEIPTS
In many respects, the risks associated with investing in depositary
receipts are similar to the risks associated with investing in foreign equity
securities directly. In addition, to the extent that a Fund acquires depositary
receipts through banks that do not have a contractual relationship with the
foreign issuer of the security underlying the depositary receipts to issue and
service depositary receipts, there may be an increased possibility that the Fund
would not become aware of and be able to respond to corporate actions, such as
stock splits or rights offerings, involving the foreign issuer in a timely
manner.
The information available for American Depositary Receipts ("ADRs")
sponsored by the issuers of the underlying securities is subject to the
accounting, auditing, and financial reporting standards of the domestic market
or exchange on which they are traded, which standards generally 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.
A depositary receipt will be treated as an illiquid security for purposes
of a Fund's restriction on the purchases of such securities unless the
depositary receipt is convertible into cash by the Fund within seven days.
EMERGING MARKET SECURITIES
There are special risks associated with investments in securities of
companies organized or headquartered in developing countries with emerging
markets that are in addition to the usual risks of investing in securities of
issuers located in developed foreign markets around the world, and investors in
the Funds 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 with which they
trade. In addition, custodial services and other costs related to investment in
foreign markets may be more expensive in emerging markets than in many developed
foreign markets, which could reduce the Funds' 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 dividend and interest payments, or
other similar developments that could affect investments in
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those countries. As a result, there can be no assurance that adverse political
changes will not cause a Fund to suffer a loss with respect to any of its
holdings. In addition, political and economic structures in many of such
countries may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristics of more developed countries. Unanticipated political or social
developments may affect the values of a Fund's investments in those countries
and the availability of additional investments in those countries.
INVESTMENTS IN SMALLER COMPANIES
Investment in the securities of companies with smaller market
capitalizations involves greater risk and the possibility of greater portfolio
price volatility than investing in larger capitalization companies. The
securities of small-sized concerns, as a class, have shown market behavior which
has had periods of more favorable results, and periods of less favorable
results, relative to securities of larger companies as a class. 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 a 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, a Fund may
have to sell them over an extended period of time below the original purchase
price. Investments in smaller capitalization companies may be regarded as
speculative.
Securities issued by companies (including predecessors) that have
operated for less than three years may have limited liquidity, which can result
in their prices being lower than might otherwise be the case. In addition,
investments in such companies are more speculative and entail greater risk than
do investments in companies with established operating records.
The Small Cap Fund generally will not purchase the securities of issuers
with market capitalizations below $200 million, except in rare circumstances or
when the Investment Manager believes that an unusual investment opportunity is
available.
CONVERTIBLE SECURITIES
Investment in convertible securities involves certain risks. 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 a 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.
OTHER DEBT OBLIGATIONS
Although securities rated below BBB by Standard & Poor's or Baa by
Moody's are considered to be of "investment grade," and are considered to have
adequate capacity to pay interest and repay principal, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and principal than higher-rated securities. Credit
ratings evaluate the safety of principal and interest payments of securities,
not their market value. The rating of an issuer is also heavily weighted by past
developments and does not necessarily reflect probable future conditions. There
is frequently a lag between the time a rating is assigned and the time it is
updated.
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FUTURES TRANSACTIONS
There are several risks in connection with the use of stock index
futures contracts in the Funds. One risk arises because the correlation between
movements in the price of a futures contract and movements in the price of the
securities which are the subject of the hedge is not always perfect. The price
of the futures contract acquired by a Fund may move more than, or less than, the
price of the securities being hedged. If the price of the future moves less than
the price of the securities which are the subject of the hedge, the hedge will
not be fully effective but, if the price of the securities 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 securities 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 futures contract moves
more than the price of the securities, the Fund will experience either a loss or
a gain on the futures contract which will not be completely offset by movements
in the price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of the futures, a Fund may
buy or sell futures contracts in a greater dollar amount than the dollar amount
of the securities being hedged, if the historical volatility of the price of
such securities has been greater than the historical volatility of the
securities. Conversely, a Fund may buy or sell fewer futures contracts if the
historical volatility of the price of the securities being hedged is less than
the historical volatility of the securities.
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 a Fund may result in immediate and substantial loss, or 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 securities underlying the index and sold the instrument after the
decline.
When futures are purchased by a Fund to hedge against a possible
unfavorable movement in the price of stock before the Fund is able to invest its
cash (or cash equivalents) in stock in an orderly fashion, it is possible that
the market may decline 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
securities which are the subject of a hedge, the price of futures contracts may
not correlate perfectly with movements in the stock index 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
index 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 securities 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 stock index and
movements in the price of stock index futures, a correct forecast of general
market or currency trends by the Investment Manager still may not result in a
successful hedging transaction over a short time frame.
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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 a futures contract, the purchase of an option on
a futures contract involves less potential risk to a Fund because the maximum
amount at risk is the premium paid for the option (plus transaction costs).
However, there may be circumstances when the use of an option on a futures
contract would result in loss to a 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.
A Fund will only enter into futures contracts or purchase futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system.
However, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular futures contract or futures option
or at any particular time. In such event, it may not be possible to close a
futures position, and, in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin. In the
event futures contracts have been used to hedge a portfolio security or
currency, an increase in the price of the security or currency, 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 security or
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 Funds is subject to the Investment
Manager's ability to predict correctly movements in the direction of the
securities markets. For example, if a Fund hedged against the possibility of a
decline in the market adversely affecting stocks held in its portfolio and stock
prices increased instead, the Fund would lose part or all of the benefit of the
increased value of its stocks which it hedged because it would have offsetting
losses in its futures positions. In addition, in such situations, if a Fund had
insufficient cash, it might have to sell securities to meet daily variation
margin requirements. Such sales of securities might, but would not necessarily
be at increased prices which would reflect the rising market. The Investment
Manager and its predecessor have been actively engaged in the provision of
investment supervisory services for institutional and individual accounts since
1970, but the skills required for the successful use of futures and options on
futures are different from those needed to select portfolio securities, and the
Investment Manager has limited prior experience in the use of futures or options
techniques in the management of assets under its supervision.
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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 a Fund might not be
able to dispose of such securities promptly or at reasonable prices.
A number of transactions in which the Funds may engage are subject to the
risks of default by the other party to the transaction. If the seller of
securities pursuant to a repurchase agreement entered into by a Fund defaults
and the value of the collateral securing the repurchase agreement declines, the
Fund may incur a loss. If bankruptcy proceedings are commenced with respect to
the seller, realization of the collateral by the Fund may be delayed or limited.
Similarly, when a Fund engages in when-issued, reverse repurchase, forward
commitment and related settlement transactions, it relies on the other party to
consummate the trade; failure of the other party to do so may result in the Fund
incurring a loss or missing an opportunity to obtain a price the Investment
Manager believed to be advantageous. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of a possible delay in
receiving additional collateral or in recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially.
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, a 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
a Fund enters into reverse repurchase agreements, the Fund is subject to risks
that are similar to those of borrowing.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
Each 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.
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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. The restrictions for the Funds are as follows.
The MidCap Fund may not:
1. Invest in securities of any one issuer (other than the United States of
America, its agencies and instrumentalities), if immediately after and as a
result of such investment the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the value of the Fund's total
assets;
2. Invest more than 25% of 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);
3. Invest in foreign securities if immediately after and as a result of such
investment the value of the holdings of the Fund in foreign securities
exceeds 10% of the value of the Fund's total assets;
4. Acquire more than 10% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer;
5. Invest in companies for the purpose of exercising control or management;
6. 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;
7. Borrow amounts in excess of 5% of the total assets taken at cost or at
market value, whichever is lower, and only from banks as a temporary
measure for extraordinary or emergency purposes. The Fund will not
mortgage, pledge, hypothecate or in any other manner transfer as security
for an indebtedness any of its assets;
8. Issue senior securities as defined in the 1940 Act, except that the Fund
may borrow money as permitted by restriction 8 above. For this purpose,
futures and other transactions covered by segregated accounts are not
considered to be senior securities.
9. 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;
10. 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.
The Fund will not lend portfolio securities which, when valued at the time
of loan, have a value in excess of 10% of the value of the Fund's total
assets;
11. Make short sales of securities;
12. Act as an underwriter of securities issued by other persons, or invest more
than 5% of the value of its net assets in securities that are illiquid;
13. 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 5% 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;
14. Participate on a joint or a joint-and-several basis in any trading account
in securities (the aggregation of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of
the Investment Manager to save brokerage costs or average prices among
them, is not deemed to result in a securities trading account);
15. Purchase from or sell portfolio securities to its officers, directors, or
other "interested persons" (as defined in the 1940 Act) of the Company,
other than otherwise unaffiliated broker-dealers;
16. Purchase or sell stock index futures or purchase related options if,
immediately thereafter, more than 30% of the value of its net assets would
be hedged, or the sum of the amount of "margin" deposits on the Fund's
existing futures positions and premium paid for related options would
exceed 5% of the market value of the Fund's total assets; or
17. 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 only for hedging purposes. The Fund has no current
intention of entering into commodities contract except for stock index
futures and related options.
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The Small Cap Fund may not:
1. Invest in securities of any one issuer (other than the United States of
America, its agencies and instrumentalities), if immediately after and as a
result of such investment the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the value of the Fund's total
assets;
2. Invest more than 25% of 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);
3. Invest in foreign securities if immediately after and as a result of such
investment the value of the holdings of the Fund in foreign securities
exceeds 10% of the value of the Fund's total assets;
4. Acquire more than 10% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer;
5. Invest in companies for the purpose of exercising control or management;
6. 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;
7. Issue senior securities, except that the Fund may borrow amounts, up to 5%
of the total assets taken at cost or at market value, whichever is lower,
and only from banks as a temporary measure for extraordinary or emergency
purposes. For this purpose, futures and other transactions covered by
segregated accounts are not considered to be senior securities. The Fund
may engage in activities listed in Investment Restriction 10, but will not
mortgage, pledge, hypothecate or in any other manner transfer as security
for an indebtedness any of its assets;
8. 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;
9. 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; and (ii) the purchase of bank
obligations such as certificates of deposit, bankers' acceptances and other
short-term debt obligations. Notwithstanding the foregoing, the Fund may:
(i) enter 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 (ii) loan 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 and other
illiquid securities exceeds 5% of the value of the Fund's total assets. The
Fund will not lend portfolio securities which, when valued at the time of
loan, have a value in excess of 10% of the Fund's net assets;
10. Make short sales of securities;
11. Act as an underwriter of securities issued by other persons, or invest more
than 5% of the value of its net assets in securities that are illiquid;
12. 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 5% 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;
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13. Participate on a joint-and-several basis in any trading account in
securities (the aggregation of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of
the Investment Manager to save brokerage costs or average prices among
them, is not deemed to result in a securities trading account);
14. Purchase from or sell portfolio securities to its officers, directors, or
other "interested persons" (as defined in the 1940 Act) of the Company,
other than otherwise unaffiliated broker-dealers;
15. Purchase or sell stock index futures or purchase related options if,
immediately thereafter, more than 30% of the value of its net assets would
be hedged, or the sum of the amount of "margin" deposits on the Fund's
existing futures positions and premium paid for related options would
exceed 5% of the market value of the Fund's total assets; or
16. 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 only for hedging purposes. The Fund has no current
intention of entering into commodities contracts except for stock index
futures and related options.
The Funds are also subject to other restrictions under the 1940 Act;
however, the registration of the Company under the 1940 Act does not involve any
supervision by any federal or other agency of the Company's management or
investment practices or policies, other than incident to occasional or periodic
compliance examinations conducted by the SEC staff.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Manager, subject to the overall supervision of the
Company's Board of Directors, makes each Fund's investment decisions and selects
the broker or dealer for 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
each transaction, the Investment Manager evaluates a wide range of criteria
including any or all of the following: the broker's commission rate, promptness,
reliability and quality of executions, trading expertise, positioning and
distribution capabilities, back-office efficiency, ability to handle difficult
trades, knowledge of other buyers and sellers, confidentiality, capital strength
and financial stability, prior performance in serving the Investment Manager and
its clients, and other factors affecting the overall benefit to be received in
the transaction. When circumstances relating to a proposed transaction indicate
that a particular broker or dealer is in a position to obtain the best
execution, the order is placed with that broker or dealer. This may or may not
be a broker or dealer that has provided investment information and research
services to the Investment Manager. Such investment information and research
services may include, among other things, a wide variety of written reports or
other data on the individual companies and industries; data and reports on
general market or economic conditions; information concerning pertinent federal
and state legislative and regulatory developments and other developments that
could affect the value of actual or potential investments; companies in which
the Investment Manager has invested or may consider investing; attendance at
meetings with corporate management personnel, industry experts, economists,
government personnel, and other financial analysts; comparative issuer
performance and evaluation and technical measurement services; subscription to
publications that provide investment-related information; accounting and tax law
interpretations; availability of economic advice; quotation equipment and
services; execution measurement services; market-related and survey data
concerning the products and services of an issuer and its competitors or
concerning a particular industry that are used in reports prepared by the
Investment Manager to enhance its ability to analyze an issuer's financial
condition and prospects; and other services provided by recognized experts on
investment matters of particular interest to the Investment Manager. In
addition, the foregoing services may include the use of or be delivered by
computer systems whose hardware and/or software components may be provided to
the Investment Manager as part of the services. In any case in which information
and other services can
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be used for both research and non-research purposes, the Investment Manager
makes an appropriate allocation of those uses and pays directly for that portion
of the services to be used for non-research purposes.
Subject to the requirement of seeking best available price and execution,
the Investment Manager may, in circumstances in which two or more brokers are in
a position to offer comparable prices and execution, give preference to a broker
or dealer that has provided investment information to the Investment Manager. In
so doing, the Investment Manager may effect securities transactions which cause
a Fund to pay an amount of commission in excess of the amount of commission
another broker would have charged. In selecting such broker or dealer, the
Investment Manager will make a good faith determination that the amount of
commission is reasonable in relation to the value of the brokerage services and
research and investment information received, viewed in terms of either the
specific transaction or the Investment Manager's overall responsibility to the
accounts for which the Manager exercises investment discretion. The Investment
Manager continually evaluates all commissions paid in order to ensure that the
commission represents reasonable compensation for the brokerage and research
services provided by such brokers. Such investment information as is received
from brokers or dealers may be used by the Investment Manager in servicing all
of its clients (including the Funds), and it is recognized that a Fund may be
charged a commission paid to a broker or dealer who supplied research services
not utilized by such Fund. However, the Investment Manager expects that the
Funds will benefit overall by such practice because they are receiving the
benefit of research services and the execution of such transactions not
otherwise available to them without the allocation of transactions based on the
recognition of such research services.
Subject to the requirement of seeking the best available prices and
execution, the Investment Manager may also place orders with brokerage firms
that have sold shares of the Funds. However, to date the Funds have not marketed
any of their shares through brokers and the Investment Manager has thus not
utilized the above authority. The Investment Manager has not made and will not
make any commitments to place orders with any particular broker or group of
brokers. It is anticipated that a substantial portion of all brokerage
commissions will be paid to brokers who supply investment information to the
Investment Manager. During 1999, all brokerage commissions paid by the Funds
were paid to such brokers.
Each Fund may, in some instances, invest in U.S. and/or foreign
securities that are not listed on a national securities exchange but are traded
in the over-the-counter market. Each Fund may also purchase listed securities
through the third market or fourth market. When transactions are executed in the
over-the-counter market or the third or fourth market, the Investment Manager
will seek to deal with the primary market-makers for each security; however,
when necessary in order to obtain the best price and execution, it will utilize
the services of others. In all cases, the Investment Manager will attempt to
negotiate the best market price and execution.
For the Fiscal Years ended December 31, 1997, 1998 and 1999, the
predecessor to the MidCap Fund paid total brokerage commissions of $2,415,659,
$2,617,257 and $2,991,915, respectively. All commissions paid during the fiscal
year ended December 31, 1999, were paid to firms which provided research,
statistical or other services to the Investment Manager. The Investment Manager
has not separately identified a portion of such commissions as applicable to the
provision of such research, statistical or otherwise.
For the Fiscal Years ended December 31, 1997, 1998 and 1999, the
predecessor to the Small Cap Fund paid total brokerage commissions of $889,316,
$1,614,907 and $937,205, respectively. All commissions paid during the fiscal
year ended December 31, 1999, were paid to firms which provided research,
statistical or other services to the Investment Manager. The Investment Manager
has not separately identified a portion of such commissions as applicable to the
provision of such research, statistical or otherwise.
During fiscal year ended 1999 the predecessors to the MidCap Fund and the
Small Cap Fund each acquired the securities of one of its regular broker-dealers
(as defined in Rule 10b-1 under the 1940 Act). At December 31, 1999, the MidCap
Fund and the Small Cap Fund both had holdings in State Street Bank and Trust
Company valued at $27,648,000 and $780,000, respectively.
As noted below, the Investment Manager is an indirect wholly owned
subsidiary of Dresdner Bank AG ("Dresdner"). Dresdner Kleinwort Benson North
America LLC ("Dresdner Kleinwort Benson") and other Dresdner subsidiaries may be
broker-dealers (collectively, the "Dresdner Affiliates"). The Investment Manager
believes that it is in the best interests of the Funds to have the ability to
execute brokerage transactions, when appropriate, through the
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<PAGE>
Dresdner Affiliates. Accordingly, the Investment Manager intends to execute
brokerage transactions on behalf of the Funds 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
Funds, and the Investment Manager will not enter into any transaction on behalf
of the Funds 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 brokerage commissions separate from the
Investment Manager's management fee. The Investment Manager's policy is that
such commissions must 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 must 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 Funds.
The Investment Manager performs investment management and advisory
services for various clients, including other registered investment companies,
and pension, profit-sharing and other employee benefit plans, as well as
individuals. In many cases, portfolio transactions for a Fund may be executed in
an aggregated transaction as part of concurrent authorizations to purchase or
sell the same security for numerous accounts served by the Investment Manager,
some of which accounts may have investment objectives similar to those of the
Fund. The objective of aggregated transactions is to obtain favorable execution
and/or lower brokerage commissions, although there is no certainty that such
objective will be achieved. Although executing portfolio transactions in an
aggregated transaction potentially could be either advantageous or
disadvantageous to any one or more particular accounts, aggregated transactions
in which a Fund participates will be effected only when the Investment Manager
believes that to do so will be in the best interest of the Fund, and the
Investment Manager is not obligated to aggregate orders into larger
transactions. These orders generally will be averaged as to price. When such
aggregated transactions occur, the objective will be to allocate the executions
in a manner which is deemed fair and equitable to each of the accounts involved
over time. In making such allocation decisions, the Investment Manager will use
its business judgment and will consider, among other things, any or all of the
following: each client's investment objectives, guidelines, and restrictions,
the size of each client's order, the amount of investment funds available in
each client's account, the amount already committed by each client to that or
similar investments, and the structure of each client's portfolio. Although the
Investment Manager will use its best efforts to be fair and equitable to all
clients, including the Funds, there can be assurance that any investment will be
proportionately allocated among clients according to any particular or
predetermined standard or criteria. The Investment Manager will not include
orders on behalf of any affiliated or related entity in any aggregated
transaction that includes orders placed on behalf of a Fund.
DIRECTORS AND OFFICERS
The names and addresses of the Directors and officers of the Company and
their principal occupations and certain other affiliations during the past five
years are given below. Unless otherwise specified, the address of each of the
following persons is Four Embarcadero Center, San Francisco, California 94111.
DEWITT F. BOWMAN, (69), 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 the Wilshire
Target Funds Inc.; and as a trustee of Brandes Institutional International
Investment Trust, the Pacific Gas and Electric Nuclear Decommissioning Trust,
and the PCG Private Equity Fund.
* ROBERT J. BIRNBAUM, (72), Director. Director, Chicago Board Options
Exchange (since 1998); Director, Dresdner RCM Investment Funds, Inc. (1990 to
2000); Director, Chicago Mercantile Exchange (1990 to 1998); Trustee, Liberty
All-Star Growth Fund, Inc. (since 1995); Trustee, Colonia Funds (since 1995);
Trustee, Liberty All-Star Equity Fund, Inc. (since 1994); Special Counsel,
Dechert Price & Rhoads (law firm) (1988 to 1993); President and Chief Operating
Officer, New York Stock Exchange, Inc. (1985 to 1988); President and Chief
Operating Officer, American Stock Exchange, Inc. (1977 to 1985).
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<PAGE>
* THEODORE J. COBURN (46), Director. Partner, Brown Coburn & Co., a
consulting firm (since 1991); education associate at Harvard University Graduate
School of Education (since 1996); Director, Nicholas-Applegate Fund, Inc. (since
1987); Trustee, Nicholas-Applegate Mutual Funds (since 1992); Director,
Measurement Specialities, Inc. (since 1995); Director, Moovies, Inc. (since
1995); Director, Dresdner RCM Investment Funds, Inc. (1991 to 2000); Senior Vice
President, Prudential Securities Inc. (1986 to 1991); Managing Director of the
Global Equity Transactions Group and a member of the Board of Directors,
Prudential Securities (1986 to 1991); Managing Director, Merrill Lynch Capital
Markets (1983 to 1986).
PAMELA A. FARR, (54), Director. Ms. Farr is a partner in Best & Co. LLC,
a manufacturer and retailer of children's clothing and accessories. From 1991 to
1994, she was President of Banyan Homes, Inc., a real estate development and
construction firm; and 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.
* ALFRED W. FIORE (62), Director. General Manager, Hirschfeld, Stern, Moyer
& Ross, Inc. (employee benefit consulting firm) (since 1988); Director, Dresdner
RCM Investment Funds Inc. (1996 to 2000); Consultant, Lois/U.S.A. (creative
advertising agency) (1987 to 1988); Executive Vice President and Chief Financial
Officer, Parlux Fragrances, Inc. (1987); Executive Vice President and Chief
Financial Officer, Concord Assets Group, Inc. (real estate manager) (1986);
President and Chief Operating Officer, Amerigroup Financial Services, Inc.
(financial services) (1984 to 1986); Partner, KPMG Peat Marwick, LLP (1973 to
1984).
GEORGE B. JAMES, (62), Director. Mr. James serves as a director of Basic
Vegetable Products, California Sun Dry Foods, Clayton Group, Inc., and Crown
Vantage, Inc. Mr. James also serves as a trustee of the Committee for Economic
Development and the California Pacific Medical Center Foundation. From 1985 to
1999 Mr. James was a Senior Vice President and Chief Financial Officer of Levi
Strauss & Co. Mr. James previously was Chair of the Advisory Committee to the
California Public Employees Retirement System.
+ JOHN A. KRIEWALL (59) Director. Mr. Kriewall is retired from his position
as Managing Director of Dresdner RCM, with which he had been associated since
1973. He also served Dresdner RCM as Co-Chief Investment Officer of the Mid Cap
Team and was a member of the Mid Cap Team Management Committee. He received his
BS degree from Stanford University and in 1971 received his MBA from Stanford
University. Following graduation, he joined the Trust Division of United
California Bank and assisted in the founding of its investment counseling
subsidiary, Western Asset Management. Mr. Kriewall is an "interested person" (as
defined in the 1940 Act) by virtue of his affiliation with the Investment
Manager.
GEORGE G.C. PARKER, (61), Director. Mr. Parker is Associate Dean for
Academic Affairs and Director of the MBA Program and Dean Witter Professor of
Finance at the Graduate School of Business at Stanford University, with which he
has been associated since 1973. Mr. Parker has served on the Board of Directors
of: the California Casualty Group of Insurance Companies since 1977; BB&K
Holdings, Inc., a holding company for financial services companies, since 1980;
H. Warshow & Sons, Inc., a manufacturer of specialty textiles, since 1982;
Zurich Reinsurance Centre, Inc., a large reinsurance underwriter, since 1994;
and Continental Airlines, since 1996. Mr. Parker served on the Board of
Directors of the University National Bank & Trust Company from 1986 to 1995.
+ KENNETH E. SCOTT, (71), Director. Mr. Scott is the Ralph M. Parsons
Professor of Law and Business at Stanford Law School, with which he has been
associated since 1967. He is also a director of certain registered investment
companies managed by Benham Capital Management.
ANTHONY AIN, (40), President. Mr. Ain is a Managing Director and General
Counsel of Dresdner RCM, with which he has been associated since 1992. From 1988
to 1992, he worked for the United States Securities and Exchange Commission,
first as Counsel to Commissioner Joseph A. Grundfest, then as a Senior Special
Counsel in the SEC's Division of Market Regulation. From 1984 to 1988, he was an
associate in the Washington, D.C. office of Fried, Frank, Harris, Shriver &
Jacobson, where he practiced securities and banking law.
ROBERT J. GOLDSTEIN, (37), Vice President and Secretary. Mr. Goldstein is
a Director and Associate General Counsel of Dresdner RCM, with which he has been
associated since 1997. From 1990 to 1996, Mr. Goldstein was an associate in the
New York, London and Prague offices of Weil, Gotshal & Manges where his
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<PAGE>
practice primarily focused on private investment and hedge funds, and
international transactional and general corporate matters.
KARIN L. BROTMAN, (33), Assistant Secretary. Ms. Brotman is Assistant
Fund Counsel of Dresdner RCM, with which she has been associated since 1997.
From 1995 to 1997, Ms. Brotman was a Product Manager at Fidelity Investments in
their Legal Department, where she was involved in providing legal and compliance
for 1940 Act registered management investment companies. From 1993 to 1995, she
was employed as an Account Officer with Fleet Financial Group where she was
responsible for negotiating the legal recovery of a distressed asset portfolio.
JENNIE W. KLEIN, (35), Vice President and Treasurer. Ms. Klein is
Director of Commingled Fund Services and at Director of Dresdner RCM, with which
she has been associated since 1994. She is responsible for fund administration
and shareholder record keeping for the Dresdner RCM products. From 1991 to 1994,
Ms. Klein was employed at G.T. Capital Management as the Manager of Financial
Reporting and Compliance for their mutual funds. From 1988 to 1991, she was an
auditor at KPMG Peat Marwick.
STEVEN L. WONG, (33), Assistant Treasurer. Mr. Wong is a Manager in
Commingled Fund Services and has been associated with Dresdner RCM since 1994.
He is responsible for overseeing Dresdner RCM's mutual fund administration which
includes financial reporting, compliance, tax reporting, fund accounting,
budgeting and shareholder servicing. From 1992 to 1994, Mr. Wong was a senior
auditor at KPMG Peat Marwick specializing in the audit of investment companies.
From 1991 to 1992, he was a fund accountant with Franklin Funds.
* Nominated for election at a stockholders' meeting scheduled for
December 18, 2000, pending the reorganization of the predecessor funds.
+ Nominated for election at a stockholders' meeting scheduled for
December 18, 2000.
Regular meetings of the Board of Directors are held on a quarterly basis.
The Company's Audit Committee, whose present members are Messrs. Bowman and
Parker, meet with its independent accountants to exchange views and information
and to assist the full Board in fulfilling its responsibilities relating to
corporate accounting and reporting practices. Each Director of the Company
receives a fee of $1,000 per year plus $500 per series for each Board meeting
attended and $250 for each Audit Committee meeting attended. Each Director is
reimbursed for travel and other expenses incurred in connection with attending
Board meetings.
The following table sets forth the aggregate compensation earned by
the Directors for the fiscal year ended December 31, 1999, for their service
on the Board(s) of Directors of the funds in the "Company complex" (as
defined in Schedule 14A under the Securities Exchange Act of 1934):
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued from the Company
Compensation as Part of Estimate Annual and Company
Director from the Global the Company's Benefits Upon Complex
Name Company(1) Expenses Retirement Paid to Director
--------------------- ----------------- ------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
DeWitt F. Bowman $21,250 $24,125 N/A $48,250(2)
Robert J. Birnbaum N/A N/A N/A $30,500(3)
Theodore J. Coburn N/A N/A N/A $30,000(3)
Pamela A. Farr $19,000 $46,000 N/A $46,000(2)
Alfred W. Fiore N/A N/A N/A $30,500(3)
John Kriewall N/A None N/A $0
George B. James $19,000 None N/A $48,250(2)
George G.C. Parker $19,000 $47,500 N/A $47,500(2)
Kenneth E. Scott N/A $14,250 N/A $28,500(2)
-----------------------------------------------------------------------------------------------
Total $78,250 $83,250 $309,500
</TABLE>
----------------------------
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<PAGE>
(1) As of December 31, 1999, there were 10 funds in the Global Company.
(2) Includes compensation earned as a Director of the Dresdner RCM Capital
Funds, Inc. Upon election as Directors, these individuals will be
compensated by the Global Company.
(3) Represents compensation earned as a Director of the Dresdner RCM
Investment Funds, Inc. Upon election as Directors, these individuals
will be compensated by the Global Company.
Each Director of the Company who is not an "interested person", as that
term is defined in the 1940 Act, of the Investment Manager may elect to defer
receipt of all or a portion of his or her fees for service as a Director in
accordance with the terms of a Deferred Compensation Plan for Non-Interested
Directors ("Directors' Plan"). Under the Directors' Plan, an eligible Director
may elect to have his or her deferred fees deemed invested either in 90-day U.S.
Treasury bills, shares of the Common Stock of the Company, or a combination of
these options, and the amount of deferred fees payable to such director under
the Directors' Plan will be determined by reference to the return on such deemed
investments. Generally, the deferred fees (reflecting any earnings, gains or
losses thereon) become payable upon the Director's retirement or disability. The
obligation to make these payments to the Directors of the Company pursuant to
the Directors' Plan is a general obligation of the Company. Each Fund may, to
the extent permitted by the 1940 Act, invest in 90-day U.S. Treasury bills or
the Common Stock of the Company, to match its share of the deferred compensation
obligation under the Directors' Plan.
As of August 9, 2000, 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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of August 9, 2000, there were 132,505,241 shares of the MidCap Fund
outstanding and 33,032,157 shares of the Small Cap Fund outstanding; on that
date the following were known to the Company to own of record more than 5% of
the Funds' capital stock:
<TABLE>
<CAPTION>
% of Shares
Name and Address of Beneficial Owner Shares Held Outstanding
------------------------------------ ----------- -----------
<S> <C> <C>
MIDCAP FUND
Ernst & Young Master Trust 22,272,764 16.81%%
c/o The Chase Manhattan Bank, N.A.
770 Broadway, 10th Floor
New York, New York 10003
American Stores Retirement Portfolio 21,703,875 16.38%%
c/o Fidelity Management Trust Co.
82 Devonshire Street
Boston, Massachusetts 02109
Boeing Company Employee Retirement Plan 12,322,187 9.30%
c/o The Chase Manhattan Bank, N.A.
3 Metrotech Center
Brooklyn, New York 11245
Chevron Corp. Annuity Trust 8,730,596 6.59%
c/o Bankers Trust Company
BT Services Tennessee
648 Grassmere Park Road
Nashville, Tennessee 37211
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<PAGE>
Tektronix Inc. 8,218,690 6.20%
c/o Northern Trust Company
P.O., Box 3577
Terminal Annex
Los Angeles, California 90051
Consolidated Natural Gas Company Pension Trust 8,084,587 6.10%%
c/o Bankers Trust Company
BT Services Tennessee
648 Grassmere Park Road
Nashville, Tennessee 37211
SMALL CAP FUND
American Stores Retirement Portfolio 11,634,333 35.22%
c/o Fidelity Management Trust Co.
82 Devonshire Street
Boston, Massachusetts 02109
Chevron Corp. Annuity Trust 2,357,195 7.14%
c/o Bankers Trust Company
BT Services Tennessee
648 Grassmere Park Road
Nashville, Tennessee 37211
Richard and Rhoda Goldman Fund 2,077,408 6.29%
1 Lombard Street Suite 303
San Francisco, California 94111-1130
Hughes Aircraft 2,008,452 6.08%
P.O. Box 2458
Culver City, California 90231-2458
</TABLE>
THE INVESTMENT MANAGER
The Board of Directors has overall responsibility for the operation of
the Company's Funds. Pursuant to such responsibility, the Board of Directors has
approved various contracts for designated financial organizations to provide,
among other things, day to day management services required by the Funds. The
Company has retained as the Funds' Investment Manager, Dresdner RCM Global
Investors LLC, a Delaware limited liability company with principal offices at
Four Embarcadero Center, San Francisco, California 94111. The Investment Manager
is actively engaged in providing investment supervisory services to
institutional and individual clients. It was established in December of 1998 and
is the successor to the business of its holding company, Dresdner RCM Global
Investors US Holdings LLC. The Investment Manager was originally formed as
Rosenberg Capital Management in 1970, and it and its successors have been
consistently in business since then.
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<PAGE>
The Investment Manager is an indirect wholly owned subsidiary of Dresdner
Bank, an international banking organization with principal executive offices
located at Gallunsanlage 7, 60041 Frankfurt, Germany. With total consolidated
assets as of December 31, 1999, of EUR 397 billion ($463 billion), and
approximately 1,500 offices and 51,000 employees in over 60 countries around the
world, Dresdner is one of Germany's largest banks. 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 SAI, the
nine members of the Board of Managers of the Investment Manager are William L.
Price (Chairman), Gerhard Eberstadt, George N. Fugelsang, Joachim Madler,
Susan C. Gause and Luke D. Knecht.
Dresdner and the Investment Manager, by virtue of Dresdner's banking
operations in the United States, are subject to U.S. banking laws and
regulations. U.S. banking organizations generally may act as advisers to
investment companies and may buy and sell investment company shares for their
customers. The Investment Manager believes that it may perform the services
contemplated by its investment management agreements with the Company without
violating these banking laws or regulations. In addition, effective March 11,
2000, banking organizations that qualify as and elect to become financial
holding companies are permitted to sponsor and distribute the shares of
investment companies. Thus, the extent to which Dresdner qualifies and elects to
engage in these activities, as well as future changes in legal requirements or
regulatory interpretations relating to permissible activities of banking
organizations and their affiliates, could affect the nature and scope of
services provided to the Company by the Investment Manager or its affiliates.
The Investment Manager provides the Funds with investment supervisory
services pursuant to Investment Management Agreements, Powers of Attorney and
Service Agreements (the "Management Agreements") dated as of June 14, 1996. The
Investment Manager manages the Funds' investments, provides various
administrative services, and supervises the Funds' daily business affairs,
subject to the authority of the Board of Directors.
The Investment Manager is also the investment manager for Dresdner RCM
International Growth Equity Fund, Dresdner RCM Europe Fund, Dresdner RCM
Large Cap Growth Fund, Dresdner RCM Global Small Cap Fund, Dresdner RCM
Global Technology Fund, Dresdner RCM Global Health Care Fund, Dresdner RCM
Biotechnology Fund, Dresdner RCM Emerging Markets Fund, Dresdner RCM Tax
Managed Growth Fund, Dresdner RCM Balanced Fund, Dresdner RCM Global Equity
Fund and Dresdner RCM Strategic Income Fund, each a series of the Company.;
Dresdner RCM Global Strategic Income Fund, Inc., RCM Strategic Global
Government Fund, Inc. and Bergstrom Capital Corporation, each a closed-end
management investment company.
Each Fund's Management Agreement was approved by its sole stockholder
and will continue in effect until December 2002. All management fees paid
for periods prior to the Funds' reorganizations were made under similar
management agreements with different advisory fees. The management
agreements may be renewed from year-to-year thereafter, provided that any
such renewals have been specifically approved at least annually by (i) the
vote of a majority of the Company's Board of Directors, including a majority
of the Directors who are not parties to the Management Agreement or
interested persons (as defined in the 1940 Act) 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.
Each Fund, pursuant to its Management Agreement, has assumed the
obligation for payment of the following ordinary operating expenses: (a)
brokerage and commission expenses, (b) federal, state, or local taxes incurred
by, or levied on, each Fund, (c) interest charges on borrowings, (d) charges and
expenses of the Fund's custodian (e) payment of all investment advisory fees
(including fees payable to the Investment Manager under the Management
Agreement), (f) fees pursuant to the Fund's Rule 12b-1 plan, (g) legal and audit
fees, (h) SEC and "Bluesky" registration expenses, and (i) compensation, if any,
paid to officers and employees of the Company who are not employees of the
Investment Manager.. Each Fund is also responsible for expenses of an
extraordinary nature subject to good faith determination of the Company's Board
of Directors. Each Fund's expenses are charged against its assets. General
expenses of the Company are allocated among its series in a manner proportionate
to the net assets of each series,
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<PAGE>
on a transactional basis, or on such other basis as the Board of Directors deems
equitable. The Investment Manager is also responsible for all of its own
expenses in providing services to the Funds.
For the services rendered by the Investment Manager under the Management
Agreements, each Fund pays management fees at an annualized rate of its average
daily net assets. These fees are computed daily and paid monthly. The MidCap
Fund pays investment management fees monthly at an annualized rate of 0.75% of
the Fund's average daily net assets. For the years ended December 31, 1999,
1998, and 1997, the Fund's predecessor incurred investment management fees
aggregating $7,410,131, $7,043,731, and $7,008,712 , respectively. The Small Cap
Fund pays investment management fees monthly at an annualized rate of 1.00% of
the Fund's average daily net assets. For the years ended December 31, 1999,
1998, and 1997, the Fund's predecessor incurred investment management fees
aggregating $4,309,277, $5,821,282, and $5,759,180, respectively. During the
years noted, the management fees paid by the predecessors to the Funds were paid
under a different expense structure that previously provided that the Funds pay
for certain of their ordinary operating expenses while the Investment Manager
was responsible for all of the other ordinary operating expenses (ie. legal and
audit fees, and SEC and "Blue Sky" registration expenses), including the
compensation of the directors of the Company.
The Investment Manager has agreed to limit each Fund's expenses as
described in the Prospectus. The Funds have agreed to reimburse the Investment
Manager for a period of up to five years, for any such payments to the extent
that the Fund's operating expenses are otherwise below this expense cap. This
obligation will not be recorded on the books of the Fund to the extent that the
total operating expenses of the Fund are at or above the expense cap. However,
if the total operating expenses of the Fund fall below the expense cap, the
reimbursement to the Investment Manager will be accrued by the Fund as a
liability.
Each Management Agreement is terminable as to Fund without penalty on 60
days' written notice by a vote of the majority of the Fund's outstanding voting
securities, by a vote of the majority of the Company's Board of Directors, or by
the Investment Manager on 60 days' written notice and will automatically
terminate in the event of its assignment.
The Fund's Management Agreement provides that the Investment Manager will
not be liable for any error of judgment or for any loss suffered by a 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 out of the assets of
each Fund, against liabilities, costs and expenses that the Investment Manager
may incur in connection with any action, suit, investigation or other proceeding
arising out of or otherwise based on any action actually or allegedly taken or
omitted to be taken by the Investment Manager in connection with the performance
of its duties or obligations under the Management Agreement with respect to the
Fund or otherwise as investment manager of the Fund. The Investment Manager is
not entitled to indemnification with respect to any liability to a 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 DISTRIBUTOR
Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109 (the "Distributor") serves as Distributor to each 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.
Pursuant to the Distribution Agreement with the Company, the Distributor
has agreed to use its best efforts to effect sales of shares of the Funds, 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 each Fund's Management Agreement discussed above. Pursuant to the
Distribution Agreement, the Company has agreed to indemnify the
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<PAGE>
Distributor out of the assets of each Fund to the extent permitted by applicable
law against certain liabilities under the Securities Act of 1933 arising in
connection with the Distributor's activities on behalf of the Company.
The Company also has an Agreement with the Investment Manager and the
Distributor pursuant to which the Distributor has agreed to provide: regulatory,
compliance and related technical services to the Company; services with regard
to advertising, marketing and promotional activities; and officers to the
Company. The Investment Manager is required to reimburse the Company for any
fees and expenses of the Distributor pursuant to the Agreements.
The Company, on behalf of its Class N shares, has adopted a distribution
and service plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under
the Plan, each Fund pays the Distributor an annual fee of up to 0.25% of the
average daily net assets of its Class N shares as reimbursement for certain
expenses actually incurred by the Distributor in connection with providing
distribution and shareholder support services to such shares. Class I shares are
not subject to 12b-1 fees. The Distributor is reimbursed for: (a) expenses
incurred in connection with advertising and marketing the N Class of shares of
the Funds, including but not limited to any advertising by radio, television,
newspapers, magazines, brochures, sales literature, telemarketing or direct mail
solicitations; (b) periodic payments of fees or commissions for distribution
assistance made to one or more securities brokers, dealers or other industry
professionals such as investment advisers, accountants, estate planning firms
and the Distributor itself in respect of the average daily value of shares owned
by clients of such service organizations, and (c) expenses incurred in
preparing, printing and distributing the Funds' prospectus and statement of
additional information.
The Plan continues in effect from year to year with respect to each Fund,
provided that each such continuance is approved at least annually by a vote of
the Board of Directors of the respective Company, including a majority vote of
the Directors who are not "interested persons" of the Company within the meaning
of the 1940 Act and have no direct or indirect financial interest in the Plan or
in any agreement related to the Plan, cast in person at a meeting called for the
purpose of voting on such continuance. The Plan may be terminated with respect
to a Fund at any time, without penalty, by the vote of a majority of the
outstanding shares of the Fund. The Plan may not be amended to increase
materially the amounts to be paid by a Fund for the services described therein
without approval by the shareholders of the Fund, and all material amendments
are required to be approved by the Board of Directors in the manner described
above. The Plan will automatically terminate in the event of its assignment.
If in any year Funds Distributor is due more from the Funds for such
services than is immediately payable because of the expense limitation under the
Plan, the unpaid amount is carried forward while the Plan is in effect until
such later year as it may be paid. There is no limit on the periods during which
unreimbursed expenses may be carried forward, although the Funds are not
obligated to repay any outstanding unreimbursed expenses that may exist if the
Plan is terminated or not continued. No interest, carrying, or finance charge
will be imposed on any amounts carried forward.
The Distributor may pay broker-dealers and others, out of the fees it
receives under the Plan, quarterly trail commissions of up to 0.25%, on an
annual basis, of the average daily net assets attributable to the Class N of
shares of each Fund held in the accounts of their customers.
Pursuant to the Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
the Class N shares of the Fund by the Distributor. The report will include an
itemization of the distribution expenses and the purposes of such expenditures.
In addition, as long as the Plans remain in effect, the selection and nomination
of Directors of the Company who are not "interested persons" of the Company
within the meaning of the 1940 Act will be committed to the Directors who are
not interested persons of the Company.
THE ADMINISTRATOR
The administrator of the Company is State Street Bank and Trust Company
("State Street"), 1776 Heritage Drive, North Quincy, Massachusetts 02109.
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Pursuant to an Sub-administration Agreement with the Company, State
Street is responsible for performing various administrative services required
for the daily operation of the Company, subject to the control, supervision and
direction of the Company and the review and comment by the Company's auditors
and legal counsel. State Street has no supervisory responsibility over the
investment operations of the Funds. Administrative services performed by State
Street include, but are not limited to, the following: overseeing the
determination and publication of the Company's net asset value; overseeing the
maintenance by the Company's custodian of certain book and records of the
Company; preparing the Company's federal, state and local income tax returns;
arrange for payment of the Company's expenses; and preparing the financial
information for the Company's semi-annual and annual reports, proxy statements
and other communications.
Fees payable to State Street for administrative services performed on
behalf of the Funds are paid by the Investment Manager.
OTHER SEVICE PROVIDERS
State Street acts as the transfer agent, redemption agent, dividend
paying agent and custodian for the Funds. The custodian is responsible for the
safekeeping of a fund's assets and the appointment of any subcustodian banks and
clearing agencies. State Street's principal business address in 1776 Heritage
Drive, North Quincy, Massachusetts 02171.
PricewaterhouseCoopers LLP ("PwC") acts as the independent public
accountants for the Funds. The accountant examines financial statements for the
Funds and provides other audit, tax and related services. PwC's principal
business address is 160 Federal Street, Boston, Massachusetts 02110.
NET ASSET VALUE
For purposes of the computation of the net asset value of each share of
each 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 regular trading on the day the
securities are being valued, unless the Board of Directors or a duly constituted
committee of the Board determines that such price does not reflect the fair
value of the security. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange determined by the Investment
Manager to be the primary market for the securities. If there has been no sale
on such day, the security will be valued at the closing bid price on such day.
If no bid price is quoted on such day, then the security will be valued by such
method as a duly constituted committee of the Board of Directors determines in
good faith to reflect its fair value. Readily marketable securities traded only
in the over-the-counter market that are not listed on the NASDAQ Stock Market or
a similar foreign reporting service will be valued at the mean bid price, or
such other comparable sources as the Board of Directors deems appropriate to
reflect their fair value. Other portfolio securities held by the Funds 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 Board of Directors deems appropriate to reflect
their fair 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 Funds will be valued in such manner as a duly
constituted committee of the Board of Directors in good faith deems appropriate
to reflect their fair value.
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Trading in securities on foreign exchanges and over-the-counter markets
is normally completed at times other than the close of regular trading on the
New York Stock Exchange. In addition, foreign securities and commodities trading
may not take place on all business days in New York, and may occur in various
foreign markets on days which are not business days in New York and on which net
asset value is not calculated. The calculation of net asset value may not take
place contemporaneously with the determination of the prices of portfolio
securities used in such calculation. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the New York Stock Exchange will not be reflected in the calculation of net
asset value unless the Board of Directors determines that a particular event
would materially affect net asset value, in which case an adjustment will be
made.
Assets or liabilities initially expressed in terms of foreign currencies
are translated prior to the next determination of net asset value into U.S.
dollars at the spot exchange rates at 12:00 p.m. Eastern time or at such other
rates as the Investment Manager may determine to be appropriate in computing net
asset value.
Debt obligations with maturities of 60 days or less are valued at
amortized cost. The Company may use a pricing service approved by the Board of
Directors to value other debt obligations. Prices provided by such a service
represent evaluations of the mean between current bid and asked market prices,
may be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, individual
rating characteristics, indications 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 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.
The Board of Directors of the Company has adopted guidelines and
procedures for valuing portfolio securities for which market quotations are not
readily available and has delegated to a Pricing Committee the responsibility
for determining the basis for pricing such securities. Such pricing may be used
only when no reliable external price is available from a pricing service, from a
dealer quotation, or from a recent sale.
PURCHASE AND REDEMPTION OF SHARES
The price paid for purchase and redemption of shares of the Funds is
based on the net asset value per share, which is normally calculated once daily
at the close of regular trading (normally 4:00 P.M. Eastern time) on the New
York Stock Exchange on each day that 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, President's Day, Martin Luther King Jr. Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
Day. The offering price is effective for orders received by Boston Financial
Data Services ("BFDS") prior to the time of determination of net asset value.
Dealers are responsible for promptly transmitting purchase orders to BFDS. The
Company reserves the right in its sole discretion to suspend the continued
offering of one or more of its Funds' shares and to reject purchase orders in
whole or in part when such rejection is in the best interests of the Fund and
its respective stockholders.
REDEMPTION OF SHARES
Payments will be made wholly in cash unless the Board of Directors
believes that economic conditions exist which would make such a practice
detrimental to the best interests of a 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 a Fund at
the request of the redeeming stockholder, if the Company believes that honoring
such request is in the best interests of such series. 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.
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DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
Each income dividend and capital gain distribution, if any, declared by a
Fund will be paid in full and fractional shares based on the net asset value as
determined on the ex-dividend date for such distribution, unless the stockholder
or his or her duly authorized agent has elected to receive all such payments or
the dividend or other distribution portion thereof in cash. Changes in the
manner in which dividend and other distribution payments are paid 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 distribution
election will remain in effect until the Company is notified by the stockholder
in writing to the contrary.
REGULATED INVESTMENT COMPANY
Each Fund has qualified and intends to continue to qualify for treatment
as a "regulated investment company" under Subchapter M of the Internal revenue
Code of 1986 (the "Code"). Each Fund is treated as a separate corporation for
tax purposes and thus the provisions of the Code generally applicable to
regulated investment companies are applied separately to the Funds. In addition,
net capital gains (the excess of net long-term capital gain over net short-term
capital loss), net investment income, and operating expenses are determined
separately for each Fund. By complying with the applicable provisions of the
Code, a Fund will not be subject to federal income tax with respect to net
investment income and net realized capital gains distributed to its
stockholders.
To qualify as a regulated investment company under Subchapter M,
generally a Fund must: (i) derive at least 90% of its gross income each taxable
year from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies and certain other income (including gains from certain options,
futures and forward contracts), ("Income Requirement"); and (ii) diversify its
holdings so that, at the end of each fiscal quarter, (a) at least 50% of the
value of the Fund's total assets is represented by cash, cash items, U.S.
Government securities, securities of other regulated investment companies and
other securities, limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
In any taxable year in which a Fund so qualifies and distributes at least
90% of the sum of its investment company taxable income (consisting of net
investment income, the excess of net short-term capital gains over net long-term
capital losses and net gains from certain foreign currency transactions) and its
net tax-exempt interest income (if any) ("Distribution Requirement"), 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 Funds expect to so distribute all
of such income and gains on an annual basis and thus will generally avoid any
such taxation.
Even if a Fund qualifies as a "regulated investment company," it may be
subject to a federal excise tax unless it meets certain additional distribution
requirements. Under the Code, a nondeductible excise tax of 4% ("Excise Tax") is
imposed on the excess of a regulated investment company's "required
distribution" for a calendar year ending within the regulated investment
company's taxable year over the "distributed amount" for that calendar year. The
term "required distribution" means the sum of (i) 98% of ordinary income
(generally net investment income and net gains from certain foreign currency
transactions) for the calendar year, (ii) 98% of capital gain net income
(generally both long-term and short-term capital gain) for the one-year period
ending on October 31 (as though that period 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 a Fund from its current year's ordinary income
and capital gain net income and (ii) any amount on which a Fund pays income tax
for the year. The Funds intend to meet these distribution requirements to avoid
Excise Tax liability.
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Stockholders who are subject to federal or state income or franchise
taxes will be required to pay taxes on dividend and capital gain distributions
they receive from a Fund whether paid in additional shares of the Fund or in
cash. To the extent that dividends received by a Fund would qualify for the 70%
dividends-received deduction available to corporations, the Fund must designate
in a written notice to stockholders, within 60 days after the close of the
Fund's taxable year, the amount of the Fund's dividends that would be eligible
for this treatment. In order to qualify for the dividends-received deduction
with respect to a dividend paid on Fund shares, a corporate stockholder must
hold the Fund shares for at least 45 days during the 90 day period that begins
45 days before the shares become ex-dividend with respect to the dividend.
Stockholders, such as qualified employee benefit plans, which 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 Funds under federal, state, and local tax laws.
WITHHOLDING
Dividends paid by a 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") generally
will be subject to U.S. withholding tax (at a rate of 30% or a lower treaty
rate, if applicable). Withholding will not apply, however, if a dividend paid by
a Fund to a foreign stockholder is "effectively connected" with the conduct of 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 capital gain to foreign stockholders who are neither U.S. resident aliens
nor engaged in a U.S. trade or business generally are not subject to withholding
or U.S. federal income tax.
SECTION 1256 CONTRACTS
Many of the futures contracts and related options entered into by the
Funds are "Section 1256 contracts." Any gains or losses realized on Section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses, although certain foreign currency gains and losses from such
contracts may be treated as ordinary income in character. Section 1256 contracts
held by a Fund at the end of each taxable year (and, for purposes of the Excise
Tax, on October 31 or such other dates as prescribed under the Code), other than
Section 1256 contracts that are part of a "mixed straddle" with respect to which
a Fund has made an election not to have the following rules apply, must be
"marked-to-market" (that is, treated as sold for their fair market value) for
federal income tax purposes, with the result that unrealized gains or losses are
treated as though they were realized. The 60% portion of gains on Section 1256
contracts that is treated as long-term capital gain will qualify for the reduced
maximum tax rates on net capital gain -- 20% (10% for taxpayers in the 15%
marginal tax bracket) for gain recognized on capital assets held for more than
12 months.
STRADDLE RULES
Generally, transactions in futures contracts and related options
undertaken by the Funds may result in "straddles" for U.S. federal income tax
purposes. The straddle rules may affect the amount, character and timing of
recognition of gains or losses realized by a Fund. In addition, losses realized
by a Fund on positions that are part of a straddle position may be deferred
under the straddle rules, rather than being taken into account for the taxable
year in which these losses are realized. Because limited regulations
implementing the straddle rules have been promulgated, the tax consequences of
hedging transactions and options, futures and forward contracts to the Funds are
not entirely clear.
Transactions in futures contracts and related options may increase the
amount of short-term capital gain realized by a Fund, which is taxed as ordinary
income when distributed to stockholders. A Fund may make one or more elections
available under the Code which are applicable to straddle positions. If a 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
rules that vary according to elections made. The rules applicable under certain
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
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which will be taxed to stockholders as ordinary income or long-term capital
gain, may be increased or decreased substantially as compared to a fund that did
not engage in such hedging transactions.
SECTION 988 GAINS AND LOSSES
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a 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 futures 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, contract or option and the date of disposition
thereof are also treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to stockholders as ordinary income.
FOREIGN TAXES
A 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 a
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 shares of the foreign income taxes paid by the
Fund, and may be entitled either to deduct (as an itemized deduction) their pro
rata shares of foreign taxes in computing their taxable income or to use such
amount (subject to limitations) as a foreign tax credit against their U.S.
federal income tax liability. No deduction for foreign taxes may be claimed by a
stockholder who does not itemize deductions. Each stockholder will be notified
within 60 days after the close of a Fund's taxable year whether the foreign
taxes paid by the Fund will be "passed-through" for that year.
The foregoing is a general abbreviated summary of present U.S. federal
income tax laws applicable to the Funds, their stockholders and dividend and
capital gain distributions by the Funds. 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
other distributions received from the Funds.
INVESTMENT RESULTS
Average annual total return ("T") of a Fund is calculated as follows: an
initial hypothetical investment of $1,000 ("P") is divided by the net asset
value of shares of the Fund as of the first day of the period in order to
determine the initial number of shares purchased. Subsequent dividend and
capital gain distributions by a Fund are paid at net asset value on the payment
date determined by the Board of Directors. The sum of the initial shares
purchased and shares acquired through distributions is multiplied by the net
asset value per share of the Fund as of the end of the period ("n") to determine
ending redeemable value ("ERV"). The ending value divided by the initial
investment converted to a percentage equals total return. The formula thus used,
as required by the SEC, is:
n
P(1+T) = ERV
The resulting percentage indicates the positive or negative investment
results that an investor would have experienced from reinvested dividend 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
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reinvestment date determined by the Board of Directors; 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 using ending values as determined above.
In addition, in order to more completely represent a Fund's performance
or more accurately compare such performance to other measures of investment
return, a 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. A Fund's investment
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 a 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 a Fund's investment objective and policies.
Each of the Funds may from time to time compare its investment results
with data and mutual fund rankings published or prepared by Lipper Inc. and
Morningstar, Inc., which rank mutual funds by overall performance, investment
objectives, and assets.
The MidCap Fund may from time to time compare its investment results
with:
1. THE RUSSELL MIDCAP INDEX, which is composed of the smallest 800
companies in the Russell 1000 Index. The Russell 1000 Index is
made up of the 1,000 largest companies in the Russell 3000 Index,
which is composed of the 3,000 largest U.S. companies by market
capitalization and represents approximately 98% of the investable
U.S. equity market.
2. RUSSELL MIDCAP GROWTH INDEX, which measures the performance of
companies included in the Russell Midcap Index that have higher
price-to-book ratios and higher forecasted growth values. The
stocks are also included in the Russell 1000 Growth index.
3. THE S&P 500 INDEX, which is a capitalization-weighted index of 500
stocks that attempts to measure performance of the broad domestic
economy through changes in the aggregate market value of 500
stocks representing major industries.
4. THE S&P MIDCAP 400 INDEX, which is comprised of the smallest 400
companies in the S&P 500 Index.
5. THE DOW JONES INDUSTRIAL AVERAGE, which is a price-weighted
average of the price of 500 of the largest publicly traded stocks
in the United States.
6. THE RUSSELL 2000 INDEX, which is composed of the 2,000 smallest
securities in the Russell 3000 Index, which is composed of the
3,000 largest U.S. companies based on market capitalization and
represents approximately 98% of the investable U.S. equity market.
7. THE VALUE LINE COMPOSITE INDEX, which consists of approximately
1,700 common equity securities.
8. THE NASDAQ OVER-THE-COUNTER INDEX, which is a value-weighted index
compose of 4,500 stocks traded over the counter.
9. Data and mutual fund rankings published by Lipper Inc. and
Morningstar, which rank mutual funds by overall performance,
investment objectives, and assets.
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The Small Cap Fund may from time to time compare its investment results
with:
1. THE RUSSELL 2000 INDEX.
2. THE S&P 500 INDEX.
3. THE VALUE LINE COMPOSITE INDEX.
4. THE NASDAQ OVER-THE-COUNTER INDEX.
5. Data and mutual fund rankings published or prepared by Lipper
Analytical Services, Inc. and Morningstar, which rank mutual funds
by overall performance, investment objectives, and assets.
GENERAL INFORMATION
The Global Company was incorporated in Maryland as an open-end management
investment company on September 17, 1995. The authorized capital stock of the
Global Company is 3,000,000,000 shares of capital stock (par value $.0001 per
share) of which 100,000,000 shares have been designated as shares of the
International Growth Equity Fund and the Small Cap Fund, 400,000,000 shares have
been designated as shares of the MidCap Fund, 200,000,000 shares have been
designated as shares of the Europe Fund, 50,000,000 shares have been designated
as shares of each of the Global Technology Fund, Global Small Cap Fund, Global
Health Care Fund, Large Cap Fund, Biotechnology Fund, Emerging Markets Fund, Tax
Managed Growth Fund, Global Equity Fund and Strategic Income Fund and 25,000,000
shares have been designated as shares of the Balanced Fund.
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
its Articles of Incorporation or Bylaws, the Company generally may take or
authorize any extraordinary action upon the favorable vote of the holders of
more than 50% of the outstanding shares of the Company or may take or authorize
any routine action upon approval of a majority of the votes cast.
Shares of the Funds 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 or persons 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, or to assist in communicating with its
stockholders as required by Section 16(c) of the 1940 Act.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Companies shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding voting securities, as
defined in the 1940 Act, of the series or class of the Company affected by the
matter. Under Rule 18f-2, a series or class is presumed to be affected by a
matter, unless the interests of each series or class in the matter are identical
or the matter does not affect any interest of such series or class. Under Rule
18f-2 the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
Fund only if approved by a majority of its outstanding voting securities, as
defined in the 1940 Act. However, the rule also provides that the
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ratification of independent public accountants, the approval of principal
underwriting contracts and the election of directors may be effectively acted
upon by the stockholders of the Company voting without regard to Fund.
Each share of each Class of a Fund represents an equal proportional
interest in the Fund with each other share of the same Class and is entitled to
such dividends and distributions out of the income earned on the assets
allocable to the Class as are declared in the discretion of the Board of
Directors. In the event of the liquidation or dissolution of the Global Company,
stockholders of a Fund are entitled to receive the assets attributable to the
Fund that are available for distribution, and a distribution of any general
assets not attributable to a particular Fund that are available for
distribution, in such manner and on such general basis as the Board of Directors
may determine.
In the event of the liquidation or dissolution of the Company,
stockholders of a Fund are entitled to receive the assets attributable to the
Fund that are available for distribution, and a distribution of any general
assets not attributable to a particular Fund that are available for
distribution, in such manner and on such general basis as the Board of Directors
may determine.
Stockholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and nonassessable by the Company.
ADDITIONAL INFORMATION
COUNSEL
Certain legal matters in connection with the capital shares offered by
the Prospectus have been passed upon for the Funds by Paul, Hastings, Janofsky &
Walker LLP, 555 South Flower Street, Los Angeles, California 90071. The validity
of the capital stock offered by the Funds 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.
Wilmer, Cutler & Pickering acts as counsel to the independent directors.
LICENSE AGREEMENT
Under a License Agreement dated as of December 11, 1997, the Investment
Manager has granted the Company the right to use the "Dresdner 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 right to use any other name it might assume in the future, with
respect to any other investment company sponsored by the Investment Manager.
FINANCIAL STATEMENTS
Incorporated by reference herein are the financial statements of the
Funds' predecessors contained in the Annual Reports to Shareholders of the
Capital Funds for the year ended December 31, 1999, including the Report of
Independent Accountants, dated February 18, 2000, the Statements of Assets
and Liabilities, including the Portfolios of Investments and the related
Statements of Operations, the Statements of Changes in Net Assets and the
Financial Highlights. Also incorporated by reference herein are the unaudited
financial statements of the Funds' predecessors contained in the Semi-Annual
Report to Shareholders of the Capital Funds for the six-month period ended
June 30, 2000. Copies of the Funds' Annual and Semi-Annual Reports to
Shareholders will be available, upon request, by calling (800) 726-7240, or
by writing to Four Embarcadero Center, San Francisco, California 94111.
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REGISTRATION STATEMENT
The Funds' Prospectus and this SAI 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. It is also available on the SEC's
Internet Web site at http://www.sec.gov or by writing the Public Reference
Section of the Commission, Washington, D.C. 20549-6009, calling 1-800-SEC-0330
or by email at [email protected]. Statements contained in the Prospectus or
this SAI 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, such statement being qualified
in all respects by such reference.
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