<PAGE>
As filed with the Securities and Exchange Commission on June 19, 1996
Securities Act File No. 33-
Investment Company Act File No. 811-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. / /
(Check Appropriate Box or Boxes)
___________
BATTERY PARK HIGH YIELD FUND
OF BATTERY PARK FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
2 World Financial Center, Building B
New York, New York 10281-1198
(Address of Principal Executive Offices) (Zip Code)
(212) 667-9300
(Registrant's Telephone Number, including Area Code)
Mr. Robert Levine
c/o Nomura Corporate Research and Asset Management Inc.
2 World Financial Center, Building B
New York, New York 10281-1198
(Name and Address of Agent for Service)
___________
Copies to:
Peter J. Chepucavage, Esq.
c/o Nomura Corporate Research John A. MacKinnon, Esq.
and Asset Management Inc. Brown & Wood
2 World Financial Center, Building B One World Trade Center
New York, New York 10281-1198 New York, New York 10048-0557
___________
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
___________
An indefinite number of shares of common stock of the Registrant is being
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to Rule 24f-2 under the Investment Company Act of 1940.
___________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
1
<PAGE>
BATTERY PARK HIGH YIELD FUND
OF BATTERY PARK FUNDS, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
N-1A Item No.
- - -------------
PART A
- - ------
Item 1. Cover Page ................................Prospectus Front Cover
Page
Item 2. Synopsis ..................................Fee Table
Item 3. Condensed Financial Information ...... Not Applicable
Item 4. General Description of Registrant ..... Investment Objectives and
Policies; Additional
Information - Organization
of the Fund
Item 5. Management of the Fund ................ Fee Table; Management of
the Fund; Prospectus Back
Cover Page
Item 5A. Management's Discussion of
Fund Performance ....................... Not Applicable
Item 6. Capital Stock and Other Securities .... Prospectus Cover Page;
Purchase of Shares;
Redemption of Shares;
Taxes; Shareholder
Services; Additional
Information
Item 7. Purchase of Securities Being
Offered .................................Prospectus Cover
Page; Fee Table;
Purchase of Shares
Additional Information -
Determination of
Net Asset Value;
Shareholder Services;
Prospectus Back
Cover Page
Item 8. Redemption or Repurchase ............. Fee Table; Purchase of
Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings ............. Not Applicable
PART B
- - ------
Item 10. Cover Page ............................... Statement of
Additional Information
Front Cover Page
Item 11. Table of Contents ....................... Statement of
Additional Information
Back Cover Page
Item 12. General Information and History ...... Not Applicable
Item 13. Investment Objectives and Policies ... Investment Objectives and
Policies; Portfolio
Transactions and Brokerage
Item 14. Management of the Fund ............... Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities .................. Management of the Fund
Item 16. Investment Advisory and Other
Services ................................Statement of Additional
Information Front
Cover Page; Management
of the Fund; Purchase of
Shares; Redemption of
Shares; Shareholder
Services; General
Information
1
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Item 17. Brokerage Allocation and Other
Practices ...............................Portfolio
Transactions and
Brokerage
Item 18. Capital Stock and Other Securities .... Purchase of Shares;
Redemption of Shares;
Shareholder Services;
General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered ........... Purchase of Shares;
Redemption of Shares;
Determination of Net
Asset Value;
Shareholder Services;
General Information
Item 20. Tax Status ................................Taxes
Item 21. Underwriters ..............................Portfolio Transactions
and Brokerage;
Purchase of Shares
Item 22. Calculation of Performance Data ...... Performance Data
Item 23. Financial Statements ..................... Independent Auditor's
Report; Statement of
Assets and Liabilities
PART C
- - ------
Items 24-32. Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
2
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 19, 1996
PROSPECTUS
- - ----------
BATTERY PARK HIGH YIELD FUND
2 WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10281-1198, (212) 667-9300
ABOUT THE Battery Park High Yield Fund (the "Fund") is the only existing
FUND series of Battery Park Funds, Inc., a newly organized,
diversified, open-end series-type investment company. The Fund's
primary investment objective is to provide shareholders with a
high level of current income by investing principally in fixed
income securities of U.S. companies which are rated in the lower
rating categories of the established rating services or are
unrated securities of comparable quality. As a secondary
objective, the Fund will seek capital appreciation. See
"Investment Objectives and Policies." No assurance can be
given that the Fund's investment objectives will be realized.
The Fund's Investment Adviser is Nomura Corporate Research and
Asset Management Inc.
RISK
FACTORS Investment in lower rated or unrated securities (commonly
referred to as "junk bonds") involves special considerations
and certain risks, including risks of failure to pay interest
and principal, default and price volatility. Investors should
carefully consider these risks before investing. See "Risk
Factors and Special Considerations."
PURCHASING The Fund offers two classes of shares with different fees and
SHARES other features. Shares may be purchased from securities dealers
which have entered into selected dealer agreements with Nomura
Securities International, Inc. ("NSI" or the "Distributor"), 2
World Financial Center, Building B, New York, New York 10281.
The minimum initial purchase for Class A shares is $1,000 and
the minimum subsequent purchase is $100. The minimum initial
purchase for Class D shares is $1 million. See "Purchase of
Shares."
ABOUT THIS This Prospectus is a concise statement of information about the
PROSPECTUS Fund that a prospective investor should know before investing in
the Fund. This Prospectus should be retained for future reference.
A statement containing additional information about the Fund
dated _____________, 1996 (the "Statement of Additional
Information") has been filed with the Securities and Exchange
Commission (the "SEC") and is available, without charge, by
calling the Transfer Agent at ____________ or writing to the
Transfer Agent at its address on the back cover of the
Prospectus. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
The date of this Prospectus
is _________, 1996
1
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Fee Table . . . . . . . . . . . 3 Investment Account . . . . . 21
The Fund . . . . . . . . . . . 4 Reinvestment of Dividends and
The Investment Adviser . . . . 4 Capital Gains
Investment Objectives and Policies
10 Distributions . . . . . . . 21
Other Investment Policies and Retirement Plans . . . . . . 22
Practices . . . . . . . . . . . 10 Exchange Privilege . . . . . 22
Investment Restrictions . . . 13 Taxes . . . . . . . . . . . . . 22
Risk Factors and Special Performance Data . . . . . . . 24
Considerations . . . . . . . . 13 Portfolio Transactions . . . . 25
Management of the Fund . . . . 15 Additional Information . . . . 26
Directors . . . . . . . . . . 15 Dividends and Distributions . 26
Management and Advisory Determination of Net Asset Value 27
Arrangements . . . . . . . . . 15 Organization of the Fund . . 27
Transfer Agency Services . . 16 Shareholder Inquiries . . . . . 28
Purchase of Shares . . . . . . 16 Shareholder Reports . . . . . . 28
Class A Shares . . . . . . . 17 Appendix A - Ratings of High Yield
Class D Shares . . . . . . . 20 Debt Securities . . . . . . . A-1
Redemption of Shares . . . . . 20 Appendix B-Hedging Transactions B-1
Shareholder Services . . . . . 21 Purchase Application . . . . C-1
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring
and recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION> CLASS A CLASS D(A)
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50%(b) None
Sales Charge Imposed on Dividend Reinvestments . . . . . . . . . . . None None
Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) . . . . . . . . . . . . . . . None None
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees(, after expense reimbursements)(c) . . . . . ___% ___%
Rule 12b-1 Fees(d) . . . . . . . . . . . . . . . . . . . . . . . . . 0.25% None
Other Expenses(e) . . . . . . . . . . . . . . . . . . . . . . . . . . ___% ___%
TOTAL FUND OPERATING EXPENSES(, AFTER EXPENSE REIMBURSEMENTS) . . . . . % %
==== ====
</TABLE>
_____________________________
(a) Class D shares are sold only to Qualified Investors (as defined herein)
investing a minimum of $1 million. See "Purchase of Shares--Class D
Shares."
(b) Class A shares of the Fund held in accounts of financial planners or
individuals will convert to Class D shares when the aggregate value of
the Class A shares in such account reaches $1 million or more. See
"Purchase of Shares--Class A Shares--Conversion of Class A Shares to
Class D Shares."
(c) The Investment Adviser has agreed voluntarily to waive that portion of
its fee necessary to limit the Total Operating Expense ratios of Class A
Shares and Class D Shares to 1.25% during the Fund's first year of
operations. Absent this waiver, it is estimated that the Total
Operating Expense ratio would be ___% for Class A shares and _____% for
Class D shares. See "Management of the Fund--Management and Advisory
Arrangements."
(d) Under the Distribution Plan, the Fund is authorized to pay up to an
additional 0.25% to the Transfer Agent or certain other financial
institutions for shareholder services. The Fund has no present
intention to incur such additional fee. See "Purchase of Shares--Class
A Shares--Distribution Plan."
(e) Information under "Other Expenses" is estimated for the fiscal year
ending _______________, 1996.
EXAMPLE:
<TABLE>
<CAPTION> CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
1 YEAR 3 YEARS
<S> <C> <C>
An investor would pay the following expenses on a $1,000 investment
including the maximum $45 initial sales charge (Class A shares only)
and assuming (1) the Total Fund Operating Expenses for each class set
forth above, (2) a 5% annual return throughout the periods and (3)
redemption at the end of each period:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all
dividends and distributions and utilizes a 5% annual rate of return as
mandated by SEC regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND
ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
ASSUMED FOR PURPOSES OF THE EXAMPLE.
3
<PAGE>
THE FUND
Battery Park High Yield Fund (the "Fund") is the only existing series of
Battery Park Funds, Inc. (the "Company"), a newly organized, diversified,
open-end series-type investment company that was incorporated under the laws
of the State of Maryland on June 4, 1996, and is registered under the
Investment Company Act of 1940, (the "Investment Company Act"). The Fund's
principal office is located at Two World Financial Center, Building B, New
York, New York 10281-1198 and its telephone number is (212) 667-9300. The
Fund's primary investment objective is to provide shareholders with a high
level of current income by investing principally in fixed income securities
of U.S. companies which are rated in the lower rating categories of the
established rating services or are unrated securities of comparable quality.
As a secondary objective, the Fund will seek capital appreciation. There can
be no assurance that the Fund's investment objectives will be realized. See
"Investment Objectives and Policies."
Investment in lower rated or unrated securities (commonly referred to as
"junk bonds") involves special considerations and certain risks, including
risks of failure to pay interest and principal, default and price volatility.
Investors should carefully consider these risks before investing. See "Risk
Factors and Special Considerations."
THE INVESTMENT ADVISER
The Fund's Investment Adviser is Nomura Corporate Research and Asset
Management Inc. (the "Investment Adviser" or "NCRAM"). As of May 31, 1996,
NCRAM managed in excess of $1.5 billion in high yield bonds.
Historical Investment Results of the Investment Adviser. Set forth
below is certain performance data provided by the Investment Adviser relating
to investment results of a composite of all client accounts whose portfolios
were managed by the Investment Adviser during a four and a half year period
commencing in 1991, which had the same investment objectives as the Fund and
were managed using substantially similar, though not necessarily identical,
investment strategies and techniques as those contemplated by the Fund (the
"Advisory Accounts"). See "Investment Objectives and Policies". Because of
the similarities in investment strategies and techniques, the Investment
Adviser believes that the Advisory Accounts are sufficiently comparable to
the Fund to make performance data listed below relevant to investors in the
Fund. The results presented (the "Total Return Composite") are not intended
to predict or suggest the returns that will be experienced by the Fund or the
return an investor will achieve by investing in the Fund. Different methods
of determining performance from those described in the footnotes to the
charts below may result in different performance figures. An investor should
not rely on the following performance figures as an indication of future
performance of either the Investment Adviser's separate Advisory Accounts or
the Fund.
4
<PAGE>
NCRAM High Yield Total Return Figures
Total Return Composite October 1, 1991 to March 31, 1996
Average Total Return Net of Fees
1991 (Fourth Quarter) 4.22%
1992 18.70%
1993 25.37%
1994 8.39%
1995 22.43%
1996 (First Quarter) 2.43%
Annualized Total Return Since Inception 18.03%
Another way to consider the above schedule is as follows: $10,000
invested in an Advisory Account on October 1, 1991 which received a return
based on the Total Return Composite would have grown to $21,081, including
reinvestment of dividends, by May 31, 1996.
5
<PAGE>
<TABLE>
<CAPTION>
Performance of NCRAM High Yield Total Return Composite vs. Lipper High Yield Fund Average
(Net of Fees) Q1 Q2 Q3 Q4 Annual
<S> <C> <C> <C> <C> <C>
1996
NCRAM +2.43% N/A N/A N/A N/A
Lipper* +2.82% N/A N/A N/A N/A
1995
NCRAM +5.97% +6.19% +3.64% +4.99% +22.43%
Lipper* +4.37% +5.28% +3.13% +2.95% +16.66%
1994
NCRAM +3.60% +1.22% +0.51% +2.83% +8.39%
Lipper* -1.10% -1.37% -0.13% -1.32% -3.87%
1993
NCRAM +9.41% +5.17% +2.79% +6.00% +25.37%
Lipper* +6.71% +4.74% +2.04% +4.43% +19.10%
1992
NCRAM +5.45% +2.98% +7.29% +1.89% +18.70%
Lipper* +8.03% +3.21% +4.11% +1.11% +17.37%
1991
NCRAM N/A N/A N/A +4.22% N/A
Lipper* N/A N/A N/A +5.04% N/A
</TABLE>
*Source: Lipper Analytical Services, Inc.
See "Notes to Investment Performance" below. The indices above each
represent past performance, are shown solely for comparative purposes and may
not be indicative of future returns. Past performance is no guarantee of
future results.
6
<PAGE>
Notes to Investment Performance
The schedule on page 6 represents the average investment results for the
periods ending after October 1, 1991 for all clients whose portfolios were
included in the Advisory Accounts managed by the Investment Adviser.
1. TYPES OF ACCOUNTS AND ELIGIBLE ACCOUNTS FOR COMPOSITE
The Total Return Composite contains accounts that are aggressively
managed for a high level of current income and capital appreciation.
Accounts in the Total Return Composite invest primarily in fixed income
securities of U.S. issuers which are rated in the lower rating
categories of the established rating services or are unrated securities
of comparable quality. Investments in fixed income securities include
cash pay securities, pay-in-kind and zero coupon notes, convertible debt
securities and increasing rate and resettable notes. These investments
include both new issues and issues traded in the secondary market.
New accounts are eligible for inclusion in the composite rate of
return calculations upon completion of the first full quarter under
management. Closed accounts are eligible for inclusion in the composite
rate of return calculations through the completion of the last full
quarter under management. All existing accounts under management are
reevaluated for possible inclusion in the composite on a quarterly
basis.
2. CALCULATION OF RATES OF RETURN
All rate of return calculations conform to standards established by
the Association for Investment Management and Research. All accounts
are valued monthly based on principal market values plus accrued income.
Account returns are calculated monthly utilizing the modified Dietz
methodology where security and cash flows are "day-weighted" during the
month. All amounts are rounded to the nearest one-hundredth of one
percent. Monthly returns are geometrically linked to determine
quarterly returns.
3. COMPOSITE CHANGES AND OTHER MATTERS
No alteration of Total Return Composite as presented here has
occurred at any time because of changes in personnel. The composition
of the composite has been amended only where a change in the investment
mandates of an account so dictates. Leverage has not been used in
portfolios included in the Total Return Composite. An affiliated
account which represents an average of approximately 7.58% of the total
assets of the Total Return Composite (for the period October 1, 1992
through March 31, 1994) was a non-fee paying account. Due to a change
of investment strategy, this account was removed from the Total Return
Composite as of April 1, 1994.
There has been no linkage with simulated portfolios.
7
<PAGE>
4. TOTAL RETURN COMPOSITE
During the term of its existence, the Total Return Composite
comprised five or fewer separate accounts. As of May 31, 1996, assets
in the Total Return Composite Accounts aggregated approximately $103.3
million (approximately 4.84% of the Investment Adviser's total assets
under management). As of May 31, 1996, the Investment Adviser also
managed approximately $1.0 billion of assets in portfolios comprised of
collateralized bond obligations ("CBOs") and approximately $700 million
of assets in a high yield mutual fund registered in Japan.
5. FEES
Fees range from .50% to 1% of assets under management.
6. LIPPER HIGH CURRENT YIELD FUND AVERAGE
The Lipper High Current Yield Fund Average (the "Index") is a
published average total return net of fees figure for approximately 140
high current yield funds monitored by Lipper Analytical Services
("Lipper"). Lipper defines High Current Yield Funds as those that "aim
at high (relative) current income from fixed income securities." The
Index has no quality or maturity restrictions and the funds comprising
the Index tend to invest in lower-grade debt securities. Typically,
such funds have concentration, diversification, liquidity, portfolio
turnover and distribution restrictions which may result in lower returns
than aggressively traded accounts such as those included in the Total
Return Composite.
Experienced Management. NCRAM is 80% owned by Nomura Holding America
Inc. ("NHA") and 20% owned by The Nomura Securities Co., Ltd. ("NSC"), the
parent of NHA. NCRAM is affiliated with NSI, a dually registered broker-
dealer and investment adviser with the SEC. NSC and the Investment Adviser
are part of an affiliated group of Nomura companies.
Mr. Robert Levine founded the Investment Adviser in 1991 and is its
current President and Chief Executive Officer. He is a member of the Board
of Directors of the Investment Adviser and an Executive Managing Director of
NHA. Mr. Levine is responsible for the structuring, credit selection and
management of all the Investment Adviser's high yield portfolios. Mr. Levine
will be the chief portfolio manager for the Fund. Prior to his present
position at NCRAM, Mr. Levine was with Kidder, Peabody & Co., Inc. ("Kidder")
for thirteen years. His most recent position at Kidder was President of
Kidder, Peabody High Yield Asset Management, Inc. and Managing Director for
Kidder. Mr. Richard A. Buch heads up the Investment Adviser's trading
operations and also is a member of its Board of Directors. Mr. Buch joined
the Investment Adviser from Kidder in 1993. He has extensive experience in
credit selection and the management of high yield portfolios. Messrs. Levine
and Buch are supported by six credit analysts who specialize in different
high yield industry sectors.
Investment Philosophy. NCRAM believes that the domestic high yield
market provides attractive investment opportunities for investors who
approach it with a long-term, diligent research-intensive approach. NCRAM's
investment approach is based upon identifying and investing in those
companies that it believes to be the strongest in the high yield market.
8
<PAGE>
NCRAM's investment philosophy, style and approach in managing high yield
bonds are less dependent on interest rate exposure and forecasts and more
dependent on company success, i.e., credit risk. Credit research is the
fundamental basis for decision making. NCRAM seeks companies (bottom-up
approach) which it believes are improving their ability to service debt.
NCRAM refers to these companies as "strong horses". The securities of these
"strong horses" constitute the core holdings of NCRAM's high yield
portfolios. Credit research is the fundamental basis for decision making.
Research constitutes the backbone of NCRAM and thus substantial
resources are allocated to the Investment Adviser's analysts, including six
in-house trained industry-specific research analysts plus two senior
analysts/managers, who provide in-depth coverage.
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund's primary investment objective is to provide shareholders with
a high level of current income by investing principally in fixed income
securities which are rated in the lower rating categories of the established
rating services or are unrated securities of comparable quality. As a
secondary objective, the Fund will seek capital appreciation. The foregoing
investment objectives are fundamental policies of the Fund and may not be
changed without a vote of a majority of the outstanding shares of the Fund.
No assurance can be given that the Fund's investment objectives will be
realized.
Under normal circumstances, the Fund will invest at least 80% of its
total assets in fixed income securities rated Ba1 or lower by Moody's
Investors Service, Inc. ("Moody's") or BB+ or lower by Standard & Poor's
Ratings Group ("S&P"), or unrated securities of comparable quality.
Securities rated below Baa by Moody's or below BBB by S&P, and unrated
securities of comparable quality, are commonly known as "junk bonds." See
Appendix A - "Ratings of High Yield Debt Securities" for a description of
these rating categories. The high yield market is generally defined as
including bonds with ratings below investment grade. However, when
prevailing economic conditions cause a narrowing of spreads between the
yields derived from medium to lower rated or comparable non-rated securities
and those derived from higher rated securities, the Fund may invest in higher
rated fixed income securities which provide similar yields with less risk.
Since some issuers do not seek ratings for their securities, unrated
securities also will be considered for investment, but only when the
Investment Adviser believes that the financial condition of the issuers of
such securities and/or the protection afforded by the terms of the securities
themselves limit the risk to the Fund to a degree comparable to that of the
rated securities which are consistent with the Fund's objectives and
policies.
The Fund will seek to achieve its primary objective of high current
income by investing in a variety of high yield securities including both
convertible and non-convertible debt securities, preferred stock, units of
high yield securities (including warrants), pay-in-kind bonds or notes,
contingent interest securities and increasing rate and resettable and
extendable notes. In seeking its secondary objective, however, the Fund also
may invest in zero coupon bonds or notes, or common stock, rights or other
equity securities which do not provide high current income but offer the
potential for capital appreciation. See "Risk Factors and Special
Considerations."
The average maturity of the Fund's portfolio securities will vary based
upon the Investment Adviser's assessment of economic and market conditions.
The Fund reserves the right, as a temporary defensive measure or in
anticipation of purchasing high yield securities, to hold cash or short-term,
high quality securities such as United States Government securities, United
States Government agency or instrumentality securities, domestic bank or
savings institution certificates of deposit and bankers' acceptances, short-
term debt securities such as commercial paper and other corporate debt, and
repurchase agreements.
OTHER INVESTMENT POLICIES AND PRACTICES
Convertible Securities. The convertible securities to be held by the
Fund include any corporate debt security or preferred stock which may be
converted into underlying shares of common stock. Convertible securities
entitle the holder to receive interest payments paid on corporate debt
10
<PAGE>
securities or the dividend preference on a preferred stock until such time as
the convertible security matures or is redeemed or until the holder elects to
exercise the conversion privilege. Although the Fund generally expects that
it will sell convertible securities rather than convert such securities into
common stock, the Fund may, at various times, exercise conversion rights on
convertible securities.
Non-U.S. Securities. The Fund may invest up to 25% of its total assets
in U.S. dollar-denominated securities issued by non-U.S. issuers. Of such
investments, the Fund may invest up to 15% of its total assets in U.S.
dollar-denominated securities issued by issuers in emerging markets.
Investment in securities of foreign issuers involves risks not typically
related to domestic investment. See "Risk Factors and Special
Considerations."
Corporate Loans. The Fund may invest in corporate loans made by banks
or other financial institutions either at origination or by acquiring
participation in, assignments of or novations of corporate loans. Corporate
loans generally are not readily marketable and may be subject to restrictions
on resale and are therefore subject to the Fund's limitation on illiquid
securities, as set forth below. The corporate loans in which the Fund
invests typically are originated, negotiated and structured by a syndicate of
co-lenders, one or more of which administers the loan on behalf of the
syndicate. The value of a corporate loan depends primarily on the
creditworthiness of the borrower. The Fund will invest in a corporate loan
only if, in the Investment Adviser's judgment, the borrower can meet debt
service on such loan; however, the Investment Adviser has set no minimum
credit rating criteria regarding the borrowers. Although the Investment
Adviser will continue to monitor the creditworthiness of the borrowers of
corporate loans in which the Fund invests, there can be no assurance that
such analysis will disclose factors that may impair the value of a corporate
loan.
Asset-Backed Securities. The Fund may invest in asset-backed
securities, which are securities that directly or indirectly represent an
interest in, or are backed by and payable from, receivables (including lease
receivables) on pools of assets such as (but not limited to) mortgage loans
secured by real property, notes secured by property, equipment or lease
payments, credit card debt, automobile loans or student loans. Asset-backed
securities are issued in structured financings wherein the sponsor is often a
special purpose entity established for the purpose of securitizing the
underlying assets in order to increase the liquidity of those assets or to
achieve certain other financial goals. In choosing asset-backed securities
in which the Fund will invest, the Investment Adviser will take into
consideration, among other things, the underwriting standards of the
originator of the underlying obligations, applicable loan-to-value ratios and
the general sensitivity of the securities to economic conditions and trends.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. U.S. dollar-denominated repurchase agreements may be
entered into only with a member bank of the Federal Reserve System or a
primary dealer in U.S. Government securities or an affiliate thereof. Under
such agreements, the bank or primary dealer or an affiliate thereof agrees,
upon entering into the contract, to repurchase the security at a mutually
agreed upon time and price, thereby determining the yield during the term of
the agreement. This results in a fixed rate of return insulated from market
fluctuations during such period. Repurchase agreements may be construed to
be collateralized loans by the purchaser to the seller secured by the
securities transferred to the purchaser. As a purchaser, the Fund will
require the seller to provide additional collateral if the market value of
the securities that are the subject of the repurchase agreement falls below
the repurchase price at any time during the term of the repurchase agreement.
In the event of default by
11
<PAGE>
the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Fund but only constitute
collateral for the seller's obligation to pay the repurchase price.
Therefore, the Fund may suffer time delays and incur costs or possible losses
in connection with disposition of the collateral.
"When-Issued" and "Delayed Delivery" Transactions. The Fund may
purchase and sell portfolio securities on a "when issued" and "delayed
delivery" basis. No income accrues to the Fund in such securities in
connection with such transactions prior to the date the Fund actually takes
delivery of such securities. These transactions are subject to market
fluctuation; the value of the securities at delivery may be more or less than
their purchase price, and yields generally available on such securities when
delivery occurs may be higher or lower than yields on the securities obtained
pursuant to such transactions. Failure of the buyer or seller, as the case
may be, to consummate the transaction may result in a missed opportunity to
obtain the best price or yield available on the purchase or sale of the
subject security.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the United States
Government which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. During the
period of this loan, the Fund receives the income on the loaned securities
and either receives the income on the collateral or other compensation (i.e.,
negotiated loan premium or fee) for entering into the loan and thereby
increases its yield. In the event that the borrower defaults on its
obligation to return borrowed securities, because of insolvency or otherwise,
the Fund could experience delays and costs in gaining access to the
collateral and could suffer a loss to the extent that the value of the
collateral falls below the market value of the borrowed securities.
Illiquid Securities. The Fund may invest up to 15% of its net assets in
securities that are not readily marketable, including securities that are
restricted as to disposition under the federal securities laws or otherwise.
If registration of such securities under the Securities Act of 1933 (the
"Securities Act") is required, such registration may not be readily
accomplished, and if such securities may be resold without registration, such
resale may be permissible only in limited quantities. In either event, the
inability to sell securities at the most opportune time may affect negatively
the net asset value of the Fund. Notwithstanding the foregoing, the Fund may
purchase certain restricted securities ("Rule 144A securities") for which
there is a secondary market of qualified institutional buyers as defined by
Rule 144A under the Securities Act. Rule 144A securities held by the Fund
that are determined to be liquid securities, either by the Fund's Board of
Directors or by the Investment Adviser pursuant to guidelines approved by the
Fund's Board, will not be subject to the Fund's limitation on illiquid
securities. See "Investment Objectives and Policies - Rule 144A Securities"
in the Statement of Additional Information for additional information
regarding Rule 144A securities.
Portfolio Turnover. Generally, the Fund does not purchase securities
for short-term trading profits. However, the Fund may dispose of securities
without regard to the time they have been held when such actions, for
defensive or other reasons, appear advisable to the Investment Adviser in
light of a change in circumstances in general market, economic or financial
conditions. As a result of its investment policies, the Fund may engage in a
substantial number of portfolio transactions. Accordingly, while the Fund
anticipates that its annual portfolio turnover rate should not exceed
12
<PAGE>
200% under normal conditions, it is impossible to predict portfolio turnover
rates. The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of the securities in the
portfolio during the year. Higher portfolio turnover (over 100%) involves
correspondingly greater transaction costs and may result in the realization
of greater net short-term capital gains. In order to continue to qualify as
a regulated investment company for federal income tax purposes, less than 30%
of the annual gross income of the Fund must be derived from the sale or other
disposition of securities and certain other investments held by the Fund for
less than three months. See "Taxes" in the Statement of Additional
Information.
Leverage. Although the Fund does not presently intend to utilize
leverage to purchase portfolio securities, it is authorized to borrow from
banks amounts of up to 33 1/3% of its total assets (including the amount
borrowed). The Fund may also utilize its borrowing authority to obtain funds
to meet redemption requests or settle investment transactions or for
temporary or emergency purposes.
Borrowings by the Fund create an opportunity for greater total return
but, at the same time, increase exposure to capital risk. For example,
leveraging may exaggerate changes in the net asset value of Fund shares and
in the yield on the Fund's portfolio. Borrowing will create interest
expenses for the Fund which can exceed the income from the assets
attributable to the borrowed funds. To the extent the income derived from
securities purchased with borrowed funds exceeds the interest the Fund will
have to pay, the Fund's net income will be greater than if borrowing were not
used. Conversely, if the income from the assets acquired with borrowed funds
is not sufficient to cover the cost of borrowing, the net income of the Fund
will be less than if borrowing were not used, and therefore the amount
available for distribution to shareholders as dividends will be reduced.
Options and Futures Transactions. The Fund is authorized to engage in
various portfolio strategies to hedge its portfolio against investment and
interest rate risks, including the utilization of options and futures. See
Appendix B - "Hedging Transactions."
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to
the investment of its assets and its activities which are fundamental
policies and may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, as defined in the
Investment Company Act. Investors are referred to the Statement of
Additional Information for a complete description of such restrictions and
policies.
RISK FACTORS AND SPECIAL CONSIDERATIONS
High Yield Securities. Junk bonds are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the security and generally involve a greater
volatility of price than securities in higher rating categories. In
purchasing such high yield securities, the Fund will rely on the Investment
Adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. The Investment Adviser
13
<PAGE>
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters.
The market values of junk bonds tend to reflect individual issuer
developments to a greater extent than do higher rated securities, which react
primarily to fluctuations in the general level of interest rates. Issuers of
junk bonds may be highly leveraged and may not have available to them more
traditional methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers generally is greater than is the
case with higher-rated securities. For example, during an economic downturn
or a sustained period of rising interest rates, issuers of junk bonds may be
more likely to experience financial stress, especially if such issuers are
highly leveraged. During periods of economic recession, such issuers may not
have sufficient revenues to meet their interest payment obligations. The
issuer's ability to service its debt obligations also may be adversely
affected by specific issuer developments or the issuer's inability to meet
specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of high yield securities because such securities may
be unsecured and may be subordinated to other creditors of the issuer.
Junk bonds may have call or redemption features which would permit an
issuer to repurchase the securities from the Fund. If a call were exercised
by the issuer during a period of declining interest rates, the Fund likely
would have to replace such called securities with lower-yielding securities,
thus decreasing the net investment income to the Fund and dividends to
shareholders.
As with all fixed income securities, changes in the market yield will
affect the Fund's net asset value as the prices of junk bonds generally
increase when interest rates decline and decrease when interest rates rise.
Prices of longer term securities generally fluctuate more in response to
interest rate changes than do shorter term securities.
The Fund may have difficulty disposing of certain junk bonds because
there may be a thin trading market for such securities. To the extent that a
secondary trading market for high yield securities does exist, it is
generally not as liquid as the secondary market for higher-rated securities.
Reduced secondary market liquidity may have an adverse effect on market price
and the Fund's ability to dispose of particular issues which is necessary to
meet the Fund's liquidity needs or in response to a specific economic event
such as deterioration in the creditworthiness of the issuer. Reduced
secondary market liquidity for certain junk bonds also may make it more
difficult for the Fund to obtain accurate market quotations for purposes of
valuing the Fund's portfolio. Market quotations are generally available on
many junk bonds only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales. The Fund's
Directors, or the Investment Adviser pursuant to guidelines which may be
adopted by the Directors, will carefully consider the factors affecting the
market for junk bonds in determining whether any particular security is
liquid or illiquid and whether market quotations are readily available for
purposes of valuing portfolio securities.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of junk
bonds, particularly in a thinly traded market. Factors adversely affecting
the market value of junk bonds are likely to affect adversely the Fund's net
asset value. In addition, the Fund may incur additional expenses to the
extent it is required to
14
<PAGE>
seek recovery upon a default on a portfolio holding or participate in the
restructuring of the obligation.
Foreign and Emerging Market Securities. Investment in the securities of
foreign issuers involves special considerations that are not typically
associated with investment in the securities of U.S. issuers. These risks
include adverse political, economic and social developments, trading
restrictions, low trading volume, greater price volatility, settlement delays
and less governmental supervision and regulation. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rates of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
Other risks include imposition of foreign withholding taxes on Fund income,
the possible seizure or nationalization of foreign assets and the possible
establishment of exchange controls, expropriation, confiscatory taxation, or
other foreign laws or restrictions that might affect adversely payments due
on securities held by the Fund. Moreover, brokerage commissions and other
transaction costs on foreign securities are generally higher than in the
United States. In addition, in the event of a default on a foreign
obligation, it may be more difficult for the Fund to obtain or enforce a
judgment against the issuer of such obligation.
There may be less publicly available information about a foreign issuer
than a U.S. issuer, and foreign issuers may not be subject to the same
auditing and financial recordkeeping standards and requirements as U.S.
issuers. Often foreign issuers are not subject to uniform accounting,
auditing and financial reporting standards or to practices comparable to
those applicable to U.S. companies, and therefore a foreign issuer's
financial statements may not reflect its financial position or results of
operations as they would be reflected had the financial statements been
prepared in accordance with U.S. generally accepted accounting principles.
These risks may be heightened in connection with investments in issuers
in emerging markets. Investment in certain emerging market securities is
restricted or controlled to varying degrees which may at times limit or
preclude investment in or disposal of those securities and may increase the
costs and expenses of trading in those securities to the Fund. In addition,
certain emerging market countries may significantly restrict foreign
investment, require governmental approval for investment by foreign investors
or to repatriate investment income, capital or the proceeds of sales of
securities by foreign investors, which also may adversely affect the Fund.
In addition to the risks described above, investors will be subject to
risks resulting from the Fund's investment policies described under
"Investment Objectives and Policies -- Other Investment Policies and
Practices."
15
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS
The Directors of the Fund consist of five individuals, three of whom are
not "interested persons" as defined in the Investment Company Act. The
Directors are responsible for the overall supervision of the operations of
the Fund and perform the various duties imposed on the directors of
investment companies by the Investment Company Act.
The Directors are:
(to be provided by amendment)
MANAGEMENT AND ADVISORY ARRANGEMENTS
Subject to the direction of the Directors, the Investment Adviser is
responsible for the actual management of the Fund's portfolio and constantly
reviews the Fund's holdings in light of its own research analysis and that
from other relevant sources. The responsibilities for making decisions to
buy, sell or hold a particular security rest with the Investment Adviser.
The Investment Adviser performs certain of the other administrative services
and provides all the office space, facilities, equipment and personnel
necessary for management of the Fund.
Pursuant to the management agreement between the Investment Adviser and
the Fund (the "Investment Advisory Agreement"), the Investment Adviser is
entitled to receive from the Fund a monthly fee based upon the average daily
net assets of the Fund at an annual rate of 0.65%. During the Fund's first
year of operations, the Investment Adviser has agreed to waive that portion
of the investment advisory fee necessary to limit the total operating
expenses of each class of the Fund to 1.25% of average daily net assets. The
Investment Adviser may discontinue this waiver any time after the Fund's
first year of operations.
The Investment Advisory Agreement obligates the Fund to pay certain
expenses incurred in the Fund's operations, including, among other things,
the management fee, legal and audit fees, unaffiliated Directors' fees and
expenses, registration fees, custodian and transfer agency fees, accounting
and pricing costs, and certain of the costs of printing proxies, shareholder
reports, prospectuses and statements of additional information. To the
extent that accounting services are provided to the Fund by the Investment
Adviser, the Fund will reimburse the Investment Adviser for its costs in
connection with such services.
TRANSFER AGENCY SERVICES
----------------------------------------------------------------,
acts as the Fund's transfer agent pursuant to a transfer agency, dividend
disbursing agency and shareholder servicing agency agreement (the "Transfer
Agency Agreement"). Pursuant to the Transfer Agency Agreement, the Transfer
Agent is responsible for the issuance, transfer and redemption of shares and
the opening and maintenance of shareholder accounts.
16
<PAGE>
PURCHASE OF SHARES
Shares of the Fund are offered continuously for sale by the Distributor
and other eligible securities dealers. The minimum initial purchase for
Class A shares is $1,000 and the minimum subsequent purchase is $100; the
minimum initial purchase for Class D shares is $1 million.
The Fund offers its shares in two classes at a public offering price
equal to the next determined net asset value per share plus, in the case of
Class A shares, a sales charge imposed at the time of purchase. Class A
shares and Class D shares of the Fund may be purchased through securities
dealers that have entered into selected dealer agreements with the
Distributor, or, in the case of Class D shares only, from the Transfer Agent.
Class D share purchases directly from the Transfer Agent should be made by
sending a check payable to ___________ to the Transfer Agent at (address on
back cover) (telephone #____________). Purchase orders for Class A shares of
the Fund must be submitted through a securities dealer to the Fund's Transfer
Agent. The applicable offering price for purchase orders is based upon the
net asset value of the Fund next determined after receipt of the purchase
orders by the Transfer Agent. As to purchase orders received by securities
dealers prior to the close of business on the New York Stock Exchange (the
"NYSE") (generally 4:00 p.m., New York time), which includes orders received
after the close of business on the previous day, the applicable offering
price will be based on the net asset value determined as of 15 minutes after
the close of business on the NYSE on that day, provided the Transfer Agent in
turn receives the order from the securities dealer prior to 30 minutes after
the close of business on the NYSE on that day. If the purchase orders are
not received by the Transfer Agent prior to 30 minutes after the close of
business on the NYSE, such orders shall be deemed received on the next
business day.
The Fund or the Distributor may suspend the continuous offering of any
class of the Fund's shares at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Any order may be rejected by the Distributor or the Fund.
Neither the Distributor nor the dealers are permitted to withhold placing
orders to benefit themselves by a price change.
Each Class A share and Class D share of the Fund represents an identical
interest in the investment portfolio of the Fund and has the same rights,
except that Class A shares bear the expenses of the ongoing distribution fees
and that Class A shares may convert to Class D shares. See "Class A Shares -
Conversion of Class A Shares to Class D Shares." The distribution fees that
are imposed on Class A shares will be imposed directly against the assets
represented by Class A shares and not against all assets of the Fund and,
accordingly, such charges will not affect the net asset value of Class D
shares or have any impact on investors choosing Class D shares. Dividends
paid by the Fund for both classes of shares will be calculated in the same
manner at the same time and will differ only to the extent that distribution
fees and any incremental costs relating to a particular class are borne
exclusively by that class. Class A shares have exclusive voting rights with
respect to the Class A Rule 12b-1 distribution plan. See "Distribution Plan"
below. Each class has an exchange privilege with the _______________ Money
Market Fund. See "Shareholder Services--Exchange Privilege."
CLASS A SHARES
The public offering price of Class A shares is the next determined net
asset value plus varying sales charges (i.e., sales loads) as set forth in
the table below:
17
<PAGE>
<TABLE>
<CAPTION> Sales Charge as a (Discount to
Sales Charge as a Percentage* of the Selected Dealers
Amount of Percentage of Net Amount Invested as a Percentage
Purchase Offering Price of the Offering
Price)
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% __%
$50,000 - $99,999 4.00% 4.17% __%
$100,000 - $249,999 3.25% 3.36% __%
$250,000 - $499,999 2.50% 2.56% __%
$500,000 - $999,999 2.00% 2.04% __%
$1,000,000 or more 0.00% 0.00% N/A
</TABLE>
____________________
* Rounded to the nearest one-hundredth percent.
Reduced initial sales charges are applicable to Class A share purchases
aggregating $50,000 or more made within a 13 month period starting with the
first purchase pursuant to a letter of intention in the form provided in this
prospectus. The letter of intention is not a binding obligation to purchase
any amount of Class A shares; however, its execution will result in the
purchaser paying a lower sales charge at the appropriate quantity level. For
details regarding letters of intention, see "Purchase of Shares-Letter of
Intention" in the Statement of Additional Information.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A
shares of the Fund will receive a concession equal to a substantial portion
of the sales charge, they may be deemed underwriters under the Securities
Act.
Class A shares are available to certain qualified investors and other
entities (herein referred to as "Qualified Investors") without a sales
charge. Qualified Investors include:
- employees (and their spouses and minor children) of the
Investment Adviser, NSI, NHA and their subsidiaries and
affiliates;
- charitable organizations (as defined in section 501(c) of
the Internal Revenue Code of 1986, as amended) investing
$100,000 or more;
- any U.S. pension fund, corporation, state or local
government, Taft Hartley plan, foundation and/or
endowment which is a client of a consulting firm, if that
firm has made appropriate arrangements with the Fund,
NHA, NCRAM or any affiliate of NHA or NCRAM with respect
to furnishing advice to the client or with respect to the
purchase of Fund shares by such client;
18
<PAGE>
- accounts as to which a U.S. bank or broker-dealer charges
an account management fee, provided the bank or broker-
dealer has an agreement with NCRAM or NHA relating to
investment in the Fund;
- U.S. investors, and their spouses and minor children, who
are investment advisory clients of NCRAM or NHA or any of
their affiliates or who are affiliated persons or
sponsoring companies of those clients; and
- U.S. purchasers which place orders through a broker that
maintains an omnibus account with the Fund and makes such
purchases: (i) through U.S. investment advisers or
financial planners placing trades for their accounts or
the accounts of their clients, and who charge a fee for
their services; (ii) U.S. clients of such investment
adviser or financial planner who place trades for their
own accounts if the accounts are linked to a master
account of such investment adviser or financial planner
on the books and records of the broker or agent; or (iii)
for U.S. retirement and deferred compensation plans, and
trusts used to fund those plans, including but not
limited to those defined in section 401(a), 403(b) or 457
of the Internal Revenue Code or "rabbi trusts."
Distribution Plan. The Fund has adopted a distribution plan for Class A
shares pursuant to Rule 12b-1 under the Investment Company Act (the "Class A
Distribution Plan") with respect to the distribution fees paid by the Fund to
the Distributor with respect to such class.
Under the Distribution Plan the Distributor may be paid a fee in an
amount computed at an annual rate of .25 of 1% of the average daily net
assets of Class A shares to finance any activity which is principally
intended to result in the sale of Class A shares. The Distributor may select
financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or
customers.
Under the Distribution Plan, the Fund makes no payments to the
Distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the Distributor, including amounts expended by the
Distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts
expended or the Distributor's overhead expenses. However, the Distributor
may be able to recover such amounts or may earn a profit from future payments
made by Class A shares under the Distribution Plan.
In addition, the Distribution Plan provides that the Fund may enter into
a Shareholder Services Agreement with (the Transfer Agent) under which the
Fund may make additional payments up to .25 of 1% of the average daily net
asset value of Class A shares to obtain certain personal services for certain
shareholders and the maintenance of certain shareholder accounts. Under this
Shareholder Services Agreement, (the Transfer Agent) would either perform
shareholder services directly or will select financial institutions to
perform shareholder services, and financial institutions would receive fees
based upon Class A shares owned by their clients or customers. The schedules
of such fees and the basis upon which such fees would be paid will be
determined from time to time by
19
<PAGE>
the Fund and (the Transfer Agent). The Fund has no current intention to
enter into any Shareholder Services Agreement.
Supplemental Payments to Financial Institutions. The Distributor may
also pay financial institutions a fee for providing certain services to
shareholders. This fee is in addition to the amounts paid under the
Distribution Plan and/or the Shareholder Services Agreement and, if paid,
will be reimbursed by the Investment Adviser and not the Fund. State
securities laws may require certain financial institutions, such as
depository institutions, to register as dealers.
Conversion of Class A Shares to Class D Shares. When the aggregate net
investments of clients of a financial planner with appropriate arrangements
with the Fund or NCRAM or the investment of a single investor in Class A
shares reaches $1 million, such Class A shares will convert to Class D shares
upon written request by the financial planner or investor. Thereafter, such
financial planner or individual investor will be offered Class D shares of
the Fund so long as such investor has at least $1 million invested in the
Fund at the date the purchase order is accepted by the Transfer Agent.
Conversion of Class A shares into Class D shares will occur at least once
each month (on the "Conversion Date") on the basis of the relative net asset
values of the shares of the two classes on the Conversion Date, without the
imposition of any fee or other charge.
Share certificates for Class A shares of the Fund to be converted must
be delivered to the Transfer Agent at least one week prior to the Conversion
Date applicable to those shares. In the event such certificates are not
received by the Transfer Agent at least one week prior to the Conversion
Date, the related Class A shares will convert to Class D shares on the next
scheduled Conversion Date after such certificates are delivered.
Reinstatement Privilege. Shareholders who have redeemed their Class A
shares have a one-time privilege to reinstate their accounts by purchasing
Class A shares of the Fund, at net asset value without a sales charge, up to
the dollar amount redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount to be
reinstated to the Transfer Agent within 90 days of the date the request for
redemption was accepted by the Transfer Agent. The reinstatement will be
made at the net asset value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the redemption
proceeds. The reinstatement privilege is a one-time privilege and may be
exercised only the first time a Class A shareholder makes a redemption.
CLASS D SHARES
Class D shares are offered at net asset value without a sales charge to
Qualified Investors investing at least $1 million in the Fund. In addition,
Directors of the Fund, the Distributor and its subsidiaries and their
directors and employees, and any trust, pension, profit-sharing or other
benefit plan for such persons, may purchase Class D shares of the Fund if the
initial purchase is at least $1 million.
20
<PAGE>
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund upon
receipt of a written request in proper form. The redemption price is the net
asset value per share next determined after the initial receipt of proper
notice of redemption. There will be no charge for redemption. Shareholders
liquidating their holdings will receive on redemption all dividends
reinvested through the date of redemption. The value of shares at the time
of redemption may be more or less than the shareholder's cost, depending on
the market value of the securities held by the Fund at such time.
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, (Name and Address). Proper notice of
redemption in the case of shares deposited with the Transfer Agent may be
accomplished by a written letter requesting redemption. Proper notice of
redemption in the case of shares for which certificates have been issued may
be accomplished by a written letter as noted above accompanied by
certificates for the shares to be redeemed. Redemption requests should not
be sent to the Fund. A redemption request requires the signature(s) of all
persons in whose name(s) the shares are registered, signed exactly as such
name(s) appear(s) on the Transfer Agent's register or on the certificate, as
the case may be. The signature(s) on the redemption request must be
guaranteed by an "eligible guarantor institution" as such is defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, the existence
and validity of which may be verified by the Transfer Agent through the use
of industry publications. Notarized signatures are not sufficient. In
certain instances, the Transfer Agent may require additional documents such
as, but not limited to, trust instruments, death certificates, appointments
as executor or administrator, or certificates of corporate authority. For
shareholders redeeming directly with the Transfer Agent, payments will be
mailed within seven days of receipt of a proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment (e.g., cash, Federal funds or certified
check drawn on a United States bank). The Fund may delay or cause to be
delayed the mailing of a redemption check until such time as it has assured
itself that good payment has been collected for the purchase of such Fund
shares, which will not exceed 10 days.
_______________________
Due to the relatively high cost of maintaining accounts of less than
$500, the Fund reserves the right to redeem shares in any Class A share
account for their then current net asset value (which will be promptly paid
to the shareholder), if at any time the total investment does not have a
value of at least $500. Shareholders will be notified that the value of
their account is less than $500 and allowed 60 days to make an additional
investment before the redemption is processed. In such event, the $100
minimum on subsequent investment will not be applicable.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Fund. Full details as to each of such
21
<PAGE>
services can be obtained from the Fund by calling the telephone number on the
cover page hereof or from the Transfer Agent. Included in such services are
the following:
INVESTMENT ACCOUNT
An Investment Account is established by the Transfer Agent for each
shareholder. The shareholder will receive statements with respect to share
transactions showing the activity in the shareholder's Investment Account.
Share certificates for full shares will be issued without charge upon the
request of the shareholder to the Transfer Agent.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method
of payment of dividends and capital gains distributions, dividends and
distributions will automatically be reinvested in additional shares of the
Fund. Such reinvestment will be at the net asset value of shares of the
Fund, without sales charge, as of the close of business on the ex-dividend
date of the dividend or distribution. Shareholders may elect in writing to
receive either their income dividends or capital gains distributions, or
both, in cash, in which event payment will be mailed on the payment date.
Shareholders may, at any time, notify the Transfer Agent in writing that
they no longer wish to have their dividends and/or distributions reinvested
in shares of the Fund or vice versa, and commencing ten days after the
receipt by the Transfer Agent of such notice, those instructions will be
effected.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with individual
retirement accounts. Copies of plans establishing such accounts are
available from dealers offering shares of the Fund.
Capital gains and income received in retirement plans are generally
exempt from federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange
privilege with ____________ Money Market Fund, a money market mutual fund
advised by __________, an affiliate of ____________. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in
accordance with the rules of the SEC. Exchanges of Class A shares and Class
D shares are made on the basis of the relative net asset values per Class A
shares or Class D shares, respectively, without the imposition of any fee or
other charge.
Should the relationship between the Fund and ______________ terminate,
the Fund will seek to enter into arrangements with another similar money
market fund to continue to provide the exchange privilege. Should
__________________ be replaced, former Fund shareholders who
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exchanged their shares of the Fund for shares of ______________ will be given
a one-time opportunity to exchange their shares of ____ for shares of the new
money market fund and thus preserve the ability to exchange their money
market fund shares for shares of the Fund at a future date.
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not
its shareholders) will not be subject to Federal income tax on the part of
its net ordinary income and net realized capital gains which it distributes
to Class A and Class D shareholders (together, the "shareholders"). The Fund
intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains
or losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Any
loss upon the sale or exchange of Fund shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis
of a holder's shares and, after such adjusted tax basis is reduced to zero,
will constitute capital gains to such holder (assuming the shares are held as
a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of the
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or
capital gains, generally will not be eligible for the dividends received
deduction allowed to corporations under the Code. If the Fund pays a
dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign individuals
and entities unless a reduced rate of withholding or a withholding exemption
is provided under applicable treaty law. Nonresident shareholders are urged
to consult their own tax advisers concerning the applicability of the United
States withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
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Under certain provisions of the Code, some shareholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments ("backup withholding"). Generally, shareholders
subject to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account,
an investor must certify under penalty of perjury that such number is correct
and that such investor is not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain
debt instruments, from certain forward contracts, from futures contracts that
are not "regulated futures contracts" and from unlisted options will
generally be treated as ordinary income or loss. Such Code Section 988 gains
or losses will generally increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders
as ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not
be able to make any ordinary income dividend distributions, and all or a
portion of distributions made before the losses were realized but in the same
taxable year would be recharacterized as a return of capital to shareholders,
thereby reducing the basis of each shareholder's Fund shares and resulting in
a capital gain for any shareholder who received a distribution greater than
the shareholder's tax basis in Fund shares (assuming the shares were held as
a capital asset).
No gain or loss will be recognized on the conversion of Class A shares
into Class D shares in the circumstances described in the Prospectus. A
shareholder's basis in the shares acquired will be the same as such
shareholder's basis in the shares converted, and the holding period of the
acquired shares will include the holding period for the converted shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales
charge paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
24
<PAGE>
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return
and yield for various specified time periods in advertisements or information
furnished to present or prospective shareholders. Average annual total
return and yield are computed separately for Class A and Class D shares in
accordance with formulas specified by the SEC.
Average annual total return quotations for the specified period will be
computed by finding the average annual compounded rates of return (based on
net investment income and any realized and unrealized capital gains or losses
on portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of each
period. Average annual total return will be computed assuming all dividends
and distributions are reinvested and taking into account all applicable
recurring and nonrecurring expenses, and the maximum sales charge in the case
of Class A shares. Dividends paid by the Fund with respect to all shares, to
the extent any dividends are paid, will be calculated in the same manner at
the same time on the same day and will be in the same amount, except that
account maintenance and distribution fees and any incremental transfer agency
costs relating to each class of shares will be borne exclusively by that
class. The Fund will include performance data for all classes of shares of
the Fund in any advertisement or information including performance data of
the Fund.
The Fund also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual
annual, annualized or aggregate rates of return and (2) the maximum
applicable sales charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the effect on the
performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the
average annual rates of return reflect compounding; aggregate total return
data generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time.
In advertisements distributed to investors whose purchases are subject to
waiver of the sales charges in the case of Class A shares, the performance
data may not take the Class A sales charge into account and therefore may
reflect greater total return since a lower amount of expenses is deducted.
See "Purchase of Shares." The Fund's total return may be expressed either as
a percentage or as a dollar amount in order to illustrate such total return
on a hypothetical $1,000 investment in the Fund at the beginning of each
specified period.
Yield quotations will be computed based on a 30-day period by dividing
(a) net income based on the yield of each security earned during the period
by (b) the average daily number of shares outstanding during that period that
were entitled to receive dividends multiplied by the maximum offering price
per share on the last day of the period.
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<PAGE>
Total return and yield figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
total return and yield will vary depending on market conditions, the
securities comprising the Fund's portfolio, the Fund's operating expenses and
the amount of realized and unrealized net capital gains or losses during the
period. The value of an investment in the Fund will fluctuate and an
investor's shares, when redeemed, may be worth more or less than their
original cost.
On occasion, the Fund may compare its performance to performance data
published by Lipper Analytical Services, Inc., Morningstar Publications,
Inc., Money Magazine, U.S. News & World Report, Business Week, CDA Investment
Technology, Inc., Forbes Magazine and Fortune Magazine. From time to time,
the Fund may include the Fund's Morningstar risk-adjusted performance ratings
in advertisements or supplemental sales literature. As with other
performance data, performance comparisons should not be considered indicative
of the Fund's relative performance for any future period.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund,
the Investment Adviser is primarily responsible for the execution of the
Fund's portfolio transactions. In executing such transactions, the
Investment Adviser seeks to obtain the best results for the Fund, taking into
account such factors as price (including the applicable brokerage commission
or dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While the Investment Adviser generally seeks reasonably
competitive commission rates or spreads, the Fund does not necessarily pay
the lowest commission or spread available.
The Fund has no obligation to deal with any broker or dealer in
execution of transactions in portfolio securities. Subject to obtaining the
best price and execution, securities firms which provided supplemental
investment research to the Investment Adviser, including NSI, may receive
orders for transactions by the Fund. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Investment Adviser under the Investment Advisory Agreement, and the expenses
of the Investment Adviser will not necessarily be reduced as a result of the
receipt of such supplemental information.
The securities in which the Fund invests are traded primarily in the
over-the-counter market. Since portfolio transactions will generally not be
effected on foreign securities exchanges, the Fund does not expect typically
to incur potential settlement delays which may occur on certain of such
exchanges. Where possible, the Fund will deal directly with the dealers who
make a market in the securities involved except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually
are acting as principal for their own account. On occasion, securities may
be purchased directly from the issuer. Such portfolio securities are
generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. Securities firms may receive brokerage
commissions on certain portfolio transactions, including options, futures and
options on futures transactions and the purchase and sale of underlying
securities upon exercise of options. Under the Investment Company Act,
persons affiliated with the Fund, including NSI, are prohibited from dealing
with the Fund as a principal in the purchase and sale of securities unless a
26
<PAGE>
permissive order allowing such transactions is obtained from the SEC. An
affiliated person of the Fund may serve as its broker in transactions
conducted on an exchange and in over-the-counter transactions conducted on an
agency basis.
Section 11(a) of the Securities Exchange Act of 1934, as amended,
generally prohibits members of United States national securities exchanges
from executing exchange transactions for their affiliates and institutional
accounts which they manage unless the member (i) has obtained prior express
authorization from the account to effect such transactions, (ii) at least
annually furnished the account with the aggregate compensation received by
the member in effecting such transactions, and (iii) complies with any rules
the SEC has prescribed with respect to the requirements of clauses (i) and
(ii). To the extent Section 11(a) would apply to NSI acting as a broker for
the Fund in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been obtained
from the Fund and annual statements as to aggregate compensation will be
provided to the Fund.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income. Dividends
from such net investment income will be declared daily prior to the
determination of net asset value on that day and paid monthly. Shares will
accrue dividends as long as they are issued and outstanding. Shares are
issued and outstanding from the settlement date of a purchase order to the
settlement date of a redemption order. All net realized long-term and
short-term capital gains, if any, will be distributed to the Fund's
shareholders at least annually.
The per share dividends and distributions on each class of shares will
be reduced as a result of any fees or expenses applicable with respect to
such class of shares. See "Additional Information--Determination of Net
Asset Value". Dividends and distributions may be reinvested automatically in
shares of the Fund at net asset value. Shareholders may elect to receive any
such dividends or distributions, or both, in cash. Dividends and
distributions are taxable to shareholders as discussed under "Taxes" whether
they are reinvested in shares of the Fund or received in cash.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is
determined once daily 15 minutes after the close of business on the NYSE
(generally, 4:00 P.M., New York time), on each day during which the NYSE is
open for trading. Any assets or liabilities initially expressed in terms of
non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of
valuation. The net asset value per share is computed by dividing the value
of the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares outstanding at
such time, rounded to the nearest cent. Expenses, including the fees payable
to the Investment Adviser and any account maintenance and/or distribution
fees payable to the Distributor, are accrued daily.
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The per share net asset value of the Class D shares generally will be
higher than the per share net asset value of the Class A shares, reflecting
the daily expense accruals of the (account maintenance and) distribution fees
applicable to Class A shares. It is expected, however, that the per share
net asset value of the classes will tend to converge (although not
necessarily meet) immediately after the payment of dividends or
distributions, which will differ by approximately the amount of the expense
accrual differentials between the classes.
ORGANIZATION OF THE FUND
The Fund is the only existing series of the Company, a series-type
investment company incorporated under Maryland law on June 4, 1996. The
Company has an authorized capital of 200,000,000 shares of common stock, par
value $0.001 per share, of which 50,000,000 shares are initially classified
as one series, namely the Fund, consisting of two classes, designated Class A
and Class D common stock, each of which consists of 25,000,000 shares and the
remainder of 150,000,000 shares are not classified as to any class or series.
Shares of Class A and Class D common stock represent interests in the same
assets of the Fund and are identical in all respects except that the Class A
shares bear certain expenses related to the shareholder services and
distribution associated with such shares and may cease to be subject to such
expenses if they are converted to Class D shares. Class A shareholders have
exclusive voting rights with respect to matters relating to that class'
shareholder services and distribution expenditures, as applicable. See
"Purchase of Shares." The Directors of the Fund may classify and reclassify
the unissued shares of the Fund and of the Company into additional classes or
series of common stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors
and any other matter submitted to a shareholder vote. The Fund does not
intend to hold meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act upon the election of
directors. Also, the By-laws of the Fund require that a special meeting of
stockholders be held upon the written request of shareholders of the Fund as
required by Maryland corporate law and the Investment Company Act. Voting
rights for Directors are not cumulative. Shares issued are fully paid and
nonassessable and have no preemptive rights. Shares have the conversion
features described in this Prospectus. Each share of common stock is
entitled to participate equally in dividends and distributions declared by
the Fund and in the net assets of the Fund upon liquidation or dissolution
after satisfaction of outstanding liabilities except, as noted above, the
Class A shares bear certain additional expenses.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of
the number of accounts such shareholder has. If a shareholder wishes to
receive separate copies of each report and communication for each of the
shareholder's related accounts, the shareholder should notify in writing:
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(Name and Address)
The written notification should include the shareholder's name, address,
tax identification number and account numbers. If you have any questions
regarding this please call __________________________ at _____________.
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APPENDIX A
RATINGS OF HIGH YIELD DEBT SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE
RATINGS
Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca-Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NOTE: Moody's applies numerical modifiers l, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") CORPORATE DEBT RATINGS
An S&P corporate or municipal rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information,
or for other circumstances.
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The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. nature of and provisions of the obligation; and
III. protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as having
predominantly speculative characteristics with respect to capacity to
pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayment of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-
rating.
CC The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been
filed but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is being
paid.
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D Debt rated D is in payment default. The D rating category is also used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
D rating also will be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing with the
major ratings categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or risk of default upon
failure of, such completion. The investor should exercise judgment with
respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp. or
the Federal Deposit Insurance Corp. and interest is adequately
collateralized.
* Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not
take into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, Bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "investment
grade" ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments may impose
certain rating or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies and fiduciaries
generally.
The ratings are based on current information furnished to S&P by the
issuer, and obtained by S&P from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of such information.
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APPENDIX B
HEDGING TECHNIQUES
The Fund may engage in various portfolio strategies to hedge its
portfolio against interest rate risks. These strategies include use of
options on portfolio positions, futures and options on such futures. The
Fund may enter into such transactions only in connection with its hedging
strategies. While the Fund's use of hedging strategies is intended to reduce
the volatility of the net asset value of Fund shares, the Fund's net asset
value will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective and the Fund may not necessarily be engaging
in hedging activities when movements in interest rates occur. See
"Investment Objectives and Policies" in the Fund's Prospectus for further
information concerning these strategies.
Although certain risks are involved in options and futures transactions
(as discussed below in "Risk Factors in Options and Futures Transactions"),
the Investment Adviser believes that, because the Fund will only engage in
these transactions for hedging purposes, the options and futures portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of options and futures transactions. Tax
requirements may limit the Fund's ability to engage in the hedging
transactions and strategies described below. See "Taxes" in the Statement of
Additional Information.
The Fund may use the hedging instruments described below to hedge
against interest rate risks:
Options. The Fund may purchase and write (i.e., sell) call options and
put options on securities and engage in transactions in financial futures and
related options, as described below.
The Fund may write covered call options with respect to securities it
owns and enter into closing purchase transactions with respect to such
options. A covered call option provides the holder of the option with the
right to buy the underlying security covered by the option at the stated
exercise price until the option expires. A covered call option is an option
where the Fund, in return for a premium, gives another party a right to buy
particular securities held by the Fund at a specified price for a certain
period of time. In return for the premium income realized from the sale of
the option, the Fund gives up the opportunity to profit from a price increase
in the underlying security above the option exercise price while the option
is in effect. In addition, the Fund's ability to sell the underlying
security will be limited until the option is closed or expires. A closing
purchase transaction cancels out the Fund's position as the writer of an
option by means of an offsetting purchase of an identical option prior to the
expiration of the option it has written. The Fund also may purchase call
options on securities held in its portfolio on which it has written call
options or on securities which it intends to purchase. There is no
percentage limitation with respect to portfolio securities on which the Fund
may write call options.
The Fund may purchase put options on portfolio securities. In return
for payment of a premium, the purchase of a put option gives the holder
thereof the right to sell the security underlying the option to another party
at a specified price until the put option is closed out, expires or is
exercised. The Fund will purchase put options to seek to reduce the risk of
a decline in value of the
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underlying security owned by the Fund. The Fund does not intend to purchase
uncovered puts in excess of 10% of its total assets. The total return on the
security may be reduced by the amount of the premium paid for the option.
The Fund may write put options which give the holder of the option the right
to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so
long as the Fund is obligated as the writer of the option it will have
deposited and maintained with its custodian cash or liquid securities with a
value equal to or greater than the exercise price of the underlying
securities. By writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of
that security at the time of exercise for as long as the option is
outstanding. The Fund may engage in closing transactions in order to
terminate put options that it has written or purchased. The Fund intends to
limit its writing of covered puts so that the aggregate value of the
obligations underlying the puts will not exceed 5% of its net assets.
Futures. The Fund also may purchase and sell financial futures
contracts ("futures contracts") as a hedge against adverse changes in
interest rates, as described below. A futures contract is an agreement
between two parties which obligates the purchaser of the futures contract to
buy and the seller of a futures contract to sell a security for a set price
on a future date. The Fund may effect transactions in futures contracts in
United States and foreign agency and government securities and corporate debt
securities. Transactions by the Fund in futures contracts are subject to
limitation as described below under "Restrictions on the Use of Futures
Transactions".
The Fund may sell futures contracts in anticipation of an increase in
the general level of interest rates. Generally, as interest rates rise, the
market value of securities held by the Fund will fall, thus reducing the net
asset value of the Fund. As interest rates rise, however, the value of the
Fund's short position in the futures contract also will tend to increase,
thus offsetting all or a portion of the depreciation in the market value of
the Fund's investments which are being hedged. While the Fund will incur
commission expenses in selling and closing out futures positions, these
commissions are generally less than the transaction expenses which would have
been incurred had the Fund sold portfolio securities in order to reduce its
exposure to increases in interest rates.
The Fund may purchase futures contracts in anticipation of a decline in
interest rates when it is not fully invested in a particular market in which
it intends to make investments to gain market exposure that may in part or
entirely offset an increase in the cost of securities it intends to purchase.
The Fund does not consider purchases of futures contracts to be a speculative
practice under these circumstances. In a substantial majority of these
transactions, the Fund will purchase securities upon termination of the
futures contract.
The Fund also may purchase and write call and put options on futures
contracts in connection with its hedging activities. Generally, these
strategies are utilized under the same market and market sector conditions
(i.e., conditions relating to specific types of investments) in which the
Fund enters into futures transactions. The Fund may purchase put options or
write call options on futures contracts rather than selling the underlying
futures contract in anticipation of an increase in interest rates.
Similarly, the Fund may purchase call options or write put options on futures
contracts as a substitute for the purchase of such futures to hedge against
the increased cost resulting from a decline in interest rates of securities
which the Fund intends to purchase. Limitations on transactions in options
on futures contracts are described below.
B-2
<PAGE>
The Fund may engage in options and futures transactions on exchanges and
in the over-the-counter ("OTC") markets. In general, exchange-traded
contracts are third-party contracts (i.e., performance of the parties'
obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. OTC transactions are
two-party contracts with price and terms negotiated by the buyer and seller.
The Fund will engage in OTC options only with member banks of the Federal
Reserve System and primary dealers in U.S. Government securities or with
affiliates of such banks or dealers which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million.
The staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased OTC options and the assets used as
cover for written OTC options are illiquid securities. Therefore, the Fund
has adopted an investment policy pursuant to which it will not purchase or
sell OTC options (including OTC options on futures contracts) if, as a result
of such transaction, the sum of the market value of OTC options currently
outstanding which are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding which were sold
by the Fund and margin deposits on the Funds existing OTC options on futures
contracts exceed 15% (10% to the extent required by certain state laws) of
the net assets of the Fund, taken at market value, together with all other
assets of the Fund which are illiquid or are not otherwise readily
marketable. However, if the OTC option is sold by the Fund to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New
York and the Fund has the unconditional contractual right to repurchase such
OTC option from the dealer at a predetermined price, then the Fund will treat
as illiquid such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is "in-the-money" (i.e.,
current market value of the underlying security minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option plus the amount by which the option is "in-the-money". This policy as
to OTC options is not a fundamental policy of the Fund and may be amended by
the Directors of the Fund without the approval of the Fund's shareholders.
However, the Fund will not change or modify this policy prior to the change
or modification by the SEC staff of its position.
To trade futures contracts, the Fund is not required to deposit funds
equal to the value of the futures contract. The Fund need only make a
deposit, called an "initial margin deposit", equal to a percentage (typically
15% or less) of the value of the futures contract. As a result, a relatively
small adverse move in the price of a futures contract may result in a
substantial loss. For example, if at the time of purchase 10% of the price
of a futures contract is deposited as margin, a 10% decrease in the price of
that contract would, if the contract were then closed out, result in a total
loss of the initial margin deposit before any deduction for brokerage
commissions and other transaction costs. A decrease of more than 10% would
result in a loss of more than the total initial margin deposit. Options on
futures contracts are generally similarly or even more highly leveraged.
However, when the Fund purchases a futures contract, or writes a put option
or purchases a call option thereon, an amount of cash and cash equivalents
will be deposited in a segregated account with the Fund's custodian so that
the amount so segregated, plus the amount of initial and variation margin
held in the account of its broker, equals the market value of the futures
contract, thereby minimizing the effect of leverage from such futures
contract.
B-3
<PAGE>
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission (the "CFTC") applicable to the Fund
permit the Fund's futures and options on futures transactions to include (I)
bona fide hedging transactions without regard to the percentage of the Fund's
assets committed to margin and option premiums, and (ii) non-hedging
transactions, provided that the Fund not enter into such non-hedging
transactions if, immediately thereafter, the sum of the amount of initial
margin and option premiums required to establish non-hedging transactions
would exceed 5% of the market value of the Fund's liquidation value, after
taking into account unrealized profits and unrealized losses on any such
transactions. However, as stated above, the Fund intends to engage in
options and futures transactions only for hedging purposes.
When the Fund purchases a futures contract or writes a put option or
purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., high grade commercial paper and daily tender adjustable
notes) or short-term high grade fixed income securities in a segregated
account with the Fund's custodian so that the amount so segregated, plus the
amount of initial and variation margin held in the account of its broker,
equals the market value of the futures contract, thereby ensuring that the
use of such futures is unleveraged.
Risk Factors in Options and Futures Transactions. Utilization of
futures transactions involves the risk of imperfect correlation in movements
in the price of futures contracts and movements in the price of the
securities and currencies which are the subject of the hedge. If the price
of the futures contract moves more or less than the price of the security or
currency, the Fund will experience a gain or loss which will not be
completely offset by movements in the price of the debt securities which are
the subject of the hedge. There is also a risk of imperfect correlations
where the securities underlying futures contracts have different maturities
than the portfolio securities being hedged. Transactions in options on
futures contracts involve similar risks.
The Fund intends to enter into options and futures transactions, on an
exchange or in the OTC market, only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions,
management believes the Fund can receive on each business day a bid or offer.
There can be no assurance, however, that a liquid secondary market will exist
at any specific time. Thus, it may not be possible to close an options or
futures transaction. The inability to close options and futures positions
also could have an adverse impact on the Fund's ability to effectively hedge
its portfolio. There is also the risk of loss by the Fund of margin deposits
or collateral in the event of bankruptcy of a broker with whom the Fund has
an open position in an option, a futures contract or related option.
The exchanges on which options on portfolio securities are traded have
generally established limitations governing the maximum number of call or put
options on the same underlying security (whether or not covered) which may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or
more brokers). "Trading limits" are imposed on the maximum number of
contracts which any person may trade on a particular trading day. The
Investment Adviser does not believe that these trading and position limits
will have any adverse impact on the portfolio strategies; for hedging the
Fund's portfolio.
Interest Rate Hedging Transactions. In order to hedge the value of the
Fund's portfolio against interest rate fluctuations, the Fund may enter into
various hedging transactions, such as
B-4
<PAGE>
interest rate swaps and the purchase or sale of interest rate caps and
floors. The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the
Fund anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment.
The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor.
In an interest rate swap the Fund exchanges with another party their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The net amount of the
excess, if any, of the Fund's obligations over its entitlement with respect
to each interest rate swap will be accrued on a daily basis and an amount of
cash, cash equivalents or high grade liquid debt securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's custodian.
The Fund will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying ability of
the other party thereto is rated in one of the highest two rating categories
of at least one nationally recognized statistical rating organization at the
time of entering into such transaction or whose creditworthiness is believed
by the Investment Adviser to be equivalent to such rating. If there is a
default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The Investment Adviser believes that the swap market is relatively liquid.
Caps and floors, however, are less liquid than swaps. The Fund will not
enter into a cap or floor transaction in an amount which, together with other
illiquid investments of the Fund, exceeds 15% of the Fund's total assets (or
10% of the Fund's total assets as presently required by certain state laws).
B-5
<PAGE>
(PURCHASE APPLICATION to be provided by amendment)
C-1
<PAGE>
No person has been authorized to give any
information or to make any representations, other
than those contained in this Prospectus, in
connection with the offer contained in this
Prospectus and, if given or made, such other
information or representation must not be relied
upon as having been authorized by the Fund, the
Investment Adviser or Distributor. This Prospectus
does not constitute an offering in any state in which
such offering may not lawfully be made.
BATTERY PARK
HIGH YIELD FUND
--------------
BATTERY PARK
HIGH YIELD FUND
Investment NOMURA CORPORATE RESEARCH
Adviser AND ASSET MANAGEMENT INC.
2 World Financial Center
Building B, 25th Floor
New York, NY 10281-1198
Distributor NOMURA SECURITIES INTERNATIONAL, INC.
2 World Financial Center
Building B, 25th Floor
New York, NY 10281-1198
Transfer Agent
Custodian
Independent
Auditors
Counsel BROWN & WOOD
One World Trade Center
New York, NY 10048-0557
PROSPECTUS
____________, 1996
This prospectus should be
retained for future
reference.
2
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 19, 1996
STATEMENT OF ADDITIONAL INFORMATION
- - -----------------------------------
BATTERY PARK HIGH YIELD FUND
2 WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10281-1198, (212) 667 - 9300
Battery Park High Yield Fund (the "Fund") is the only existing series of
Battery Park Funds, Inc., a newly organized, diversified, open-end series-
type investment company. The Fund's primary investment objective is to
provide shareholders with a high level of current income by investing
principally in fixed income securities of U.S. companies which are rated in
the lower rating categories of the established rating services or are unrated
securities of comparable quality. As a secondary objective, the Fund will
seek capital appreciation. No assurance can be given that the Fund's
investment objectives will be realized.
The Fund offers two classes of shares with different fees and other
features. Shares may be purchased from securities dealers which have entered
into selected dealer agreements with Nomura Securities International, Inc.
(the "Distributor"). The minimum initial purchase for Class A shares is
$1,000 and the minimum subsequent purchase is $100. The minimum initial
purchase for Class D shares is $1,000,000.
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated
_______ __, 1996 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission (the "SEC") and can be obtained, without charge, by
calling or by writing the Transfer Agent at ___________________. This
Statement of Additional Information has been incorporated by reference into
the Prospectus.
NOMURA CORPORATE RESEARCH AND ASSET MANAGEMENT INC.--INVESTMENT ADVISER
NOMURA SECURITIES INTERNATIONAL, INC.--DISTRIBUTOR
The date of this Statement of Additional Information is _________, 1996.
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Reference is made to "Investment Objectives and Policies" in the
Prospectus for a discussion of the investment objectives and policies of the
Fund.
The Fund's primary investment objective is to provide shareholders with
a high level of current income by investing principally in fixed income
securities of U.S. companies which securities are rated in the lower rating
categories of the established rating services or are unrated securities of
comparable quality. Under normal circumstances, the Fund will invest at
least 80% of the Fund's total assets in fixed income securities rated Ba1 or
lower by Moody's Investors Service, Inc. ("Moody's") or BB+ or lower by
Standard & Poor's Ratings Group ("S&P"). As a secondary objective, the Fund
will seek capital appreciation. The Fund is authorized to, but does not
currently intend to, engage in various portfolio strategies to enhance income
and to hedge its portfolio against investment and interest rate risks,
including the utilization of leverage and the use of options and futures.
See "Risk Factors and Special Considerations" in the Prospectus for a
discussion of these risks.
Portfolio Turnover. The rate of portfolio turnover is not a limiting
factor when management deems it appropriate to purchase or sell securities.
The Fund expects that its annual turnover rate should not generally exceed
100%; however, during periods when interest rates fluctuate significantly, as
they have during the past few years, the portfolio turnover rate may be
substantially higher. In any particular year, however, market conditions
could result in portfolio activity at a greater or lesser rate than
anticipated. Higher turnover rates may increase transaction costs and may
increase taxable capital gains.
Investment in Foreign and Emerging Markets. Investment in the
securities of foreign markets involve certain risk factors and special
considerations in addition to those discussed under "Investment Objectives
and Policies--Risk Factors and Special Considerations--Foreign and Emerging
Market Securities" in the Fund's Prospectus, and these risks are often
amplified in connection with investments in emerging markets. Certain
emerging market countries require prior governmental approval of foreign
investors, limit the amount of investment by foreign investors in a
particular issuer, limit the investment by foreign investors only to a
specified class of securities that may have less advantageous rights than
other classes, restrict investment opportunities in issuers in industries
deemed important to national interests and/or impose additional taxes on
foreign investors. It may be difficult to find qualified subcustodians in
emerging market countries with extensive operating experience, and the Fund
may be more limited in its ability to recover assets in the event of a
subcustodian's bankruptcy than it would be in more developed countries.
Investing in local markets in emerging market countries may require the Fund
to adopt special procedures, seek local government approvals or take other
actions, each of which may involve additional costs to the Fund. See
"Investment Objectives and Policies-Investment in Foreign and Emerging
Markets" in the Prospectus for additional information regarding foreign and
emerging market securities.
The securities markets of emerging market countries are not as large as
the U.S. securities markets and have substantially less trading volume,
resulting in a lack of liquidity with high price volatility. Certain markets
are in only the earliest stages of development. There is also a high
concentration of market capitalization and trading volume in a small number
of issuers representing
2
<PAGE>
a limited number of industries, as well as a high concentration of investors
and financial intermediaries. Many of such markets also may be affected by
developments with respect to more established markets in the region. Brokers
in emerging market countries typically are fewer in number and less
capitalized than brokers in the United States. These factors, combined with
the U.S. regulatory requirements for open-end investment companies and the
restrictions on foreign investment discussed in the Prospectus, may result in
potentially fewer investment opportunities for the Fund and may have an
adverse effect on the investment performance of the Fund.
Rule 144A Securities. In promulgating Rule 144A under the Securities
Act, the Securities and Exchange Commission (the "SEC") stated that the
ultimate responsibility for liquidity determinations rests with a fund's
board of directors; however, the board may delegate the day-to-day function
of determining liquidity to the investment adviser provided the board retains
sufficient oversight. The Board of Directors of the Fund has adopted
policies and procedures for the purpose of determining whether securities
that are eligible for resale under Rule 144A are liquid or illiquid and has
approved guidelines under these policies and procedures pursuant to which the
Investment Adviser makes these determinations on an ongoing basis. In making
these determinations, consideration is given to, among other things, the
frequency of trades and quotes for the security, the number of dealers
willing to sell the security and the number of potential purchasers, dealer
undertakings to make a market in the security, the nature of the security and
the time needed to dispose of the security. The Board of Directors
periodically reviews fund purchases and sales of Rule 144A securities.
To the extent that liquid Rule 144A securities become illiquid, due to
the lack of sufficient qualified institutional buyers or market or other
conditions, the percentage of the fund's assets invested in illiquid assets
would increase. The Investment Adviser, under the supervision of the Board
of Directors, will monitor Fund investments in Rule 144A securities and will
consider appropriate measures to enable the Fund to maintain sufficient
liquidity for operating purposes and to meet redemption requests.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus,
the Fund has adopted both fundamental and nonfundamental restrictions and
policies relating to the investment of its assets and its activities.
Fundamental restrictions and policies may not be changed without the approval
of the holders of a majority of the Fund's outstanding voting securities
(which for this purpose and under the Investment Company Act of 1940, as
amended (the "Investment Company Act") means the lesser of (a) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (b) more than 50% of the outstanding shares).
Under these fundamental restrictions, the Fund may not:
1. Invest more than 25% of its assets, taken at market
value, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and
instrumentalities). The electric, telecommunications and oil and
gas industries are deemed to be separate industries for purposes of
this restriction.
3
<PAGE>
2. Make investments for the purpose of exercising control or
management.
3. Purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may invest in securities
directly or indirectly secured by real estate or interests therein
or issued by companies which invest in real estate or interests
therein.
4. Make loans to other persons, except that the acquisition
of bonds, debentures or other corporate debt securities and
investment in government obligations, commercial paper, pass-
through instruments, certificates of deposit, bankers acceptances,
repurchase agreements or any similar instruments shall not be
deemed to be the making of a loan, and except further that the Fund
may lend its portfolio securities, provided that the lending of
portfolio securities may be made only in accordance with applicable
law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from
time to time, provided that purchases of assignments or
participations in loans (including bridge loans) will not be
prohibited by this paragraph.
5. Issue senior securities to the extent such issuance would
violate applicable law.
6. Borrow money, except that (i) the Fund may borrow from
banks (as defined in the Investment Company Act) in amounts up to
331/3% of its total assets (including the amount borrowed), (ii)
the Fund may borrow up to an additional 5% of its total assets for
temporary purposes, (iii) the Fund may obtain such short-term
credit as may be necessary for the clearance of purchases and sales
of portfolio securities and (iv) the Fund may purchase securities
on margin to the extent permitted by applicable law. The Fund may
not pledge its assets other than to secure such borrowings or, to
the extent permitted by the Fund's investment policies as set forth
in its Prospectus and Statement of Additional Information, as they
may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
7. Underwrite securities of other issuers except insofar as
the Fund technically may be deemed an underwriter under the
Securities Act of 1933, as amended (the "Securities Act"), in
selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities,
except to the extent that the Fund may do so in accordance with
applicable law and the Fund's Prospectus and Statement of
Additional Information, as they may be amended from time to time,
and without registering as a commodity pool operator under the
Commodity Exchange Act.
9. Make any investment inconsistent with the Fund's
classification as a diversified investment company under the
Investment Company Act.
4
<PAGE>
Nonfundamental restrictions may be amended by a majority vote of the
Board of Directors of the Fund. Under the non-fundamental investment
restrictions, the Fund may not:
a. Purchase securities of other investment companies, except
to the extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short
position, except to the extent permitted by applicable law. The
Fund currently does not intend to engage in short sales.
c. Invest in securities which cannot be readily resold
because of legal or contractual restrictions or which cannot
otherwise be marketed, redeemed or put to the issuer or a third
party, if at the time of acquisition more than 15% of its total
assets would be invested in such securities. This restriction
shall not apply to securities which mature within seven days or
securities which the Board of Directors of the Fund has otherwise
determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws
of any state in which the Fund's shares are registered or qualified
for sale require a lower limitation, the Fund will observe such
limitation. As of the date hereof, therefore, the Fund will not
invest more than 10% of its total assets in securities which are
subject to this investment restriction (c). Securities purchased
in accordance with Rule 144A under the Securities Act (a "Rule 144A
security") and determined to be liquid by the Fund's Board of
Directors are not subject to the limitations set forth in this
investment restriction (c).
d. Invest in warrants if, at the time of acquisition, its
investments in warrants, valued at the lower of cost or market
value, would exceed 5% of the Fund's net assets; included within
such limitation, but not to exceed 2% of the Fund's net assets, are
warrants which are not listed on the New York Stock Exchange or
American Stock Exchange or a major foreign exchange. For purposes
of this restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
e. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund or the officers and
directors of the Investment Adviser or the officers and directors
of any subsidiary thereof each owning beneficially more than 1/2 of
1% of the securities of such issuer own in the aggregate more than
5% of the securities of such issuer.
f. Invest in real estate limited partnership interests or
interests in oil, gas or other mineral leases, or exploration or
development programs, except that the Fund may invest in securities
issued by companies that engage in oil, gas or other mineral
exploration or development activities.
5
<PAGE>
g. Write, purchase or sell puts, calls, straddles, spreads
or combinations thereof, except to the extent permitted in the
Fund's Prospectus and Statement of Additional Information, as they
may be amended from time to time.
Portfolio securities of the Fund generally may not be purchased from,
sold or loaned to the Investment Adviser or its affiliates or any of their
directors, officers or employees, acting as principal, unless pursuant to a
rule or exemptive order under the Investment Company Act.
Because of the affiliation of the Investment Adviser with the Fund and
the Distributor, the Fund is prohibited from engaging in portfolio
transactions with the Distributor or its affiliates acting as principal and
from purchasing securities in public offerings which are not registered under
the Securities Act in which the Distributor or any of its affiliates
participate as an underwriter or dealer. See "Portfolio Transactions and
Brokerage."
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is 2
World Financial Center, New York, New York 10281-1198.
(Insert Information Regarding Officers and Directors of the Fund)
(1) Interested person, as defined in the Investment Company Act, of the
Fund.
At _____________, 1996, the Directors and officers of the Fund as a
group (___ persons) owned an aggregate of less than 1% of the outstanding
shares of the Fund.
Compensation of Directors. Pursuant to the terms of the Fund's
investment advisory agreement with the Investment Adviser relating to the
Fund (the "Investment Advisory Agreement"), the Investment Adviser pays all
compensation of officers and employees of the Fund as well as the fees of all
Directors of the Fund who are affiliated persons of the Distributor or its
subsidiaries. Each unaffiliated Director is paid $________ by the Fund plus
actual out-of-pocket expenses for each meeting of the Board of Directors
which he or she attends. The Fund also compensates each member of the Audit
Committee, which consists of the unaffiliated Directors. It is anticipated
that each unaffiliated Director will receive aggregate compensation of
approximately $________ from the Fund during its first fiscal year. As of
the date of this Statement of Additional Information, none of the
unaffiliated Directors serves on the board of another registered investment
company that (a) holds itself out to the public as related to the Fund for
purposes of investment or investor services or (b) has as its investment
adviser the Investment Adviser or one of its affiliates.
6
<PAGE>
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund - Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund. As of ____________, 1996,
the Investment Adviser or its affiliate owned approximately ___% of the
outstanding Class D shares of the Fund.
The Investment Advisory Agreement provides that, subject to the
direction of the Board of Directors of the Fund, the Investment Adviser is
responsible for the actual management of the Fund and for the review of the
Fund's holdings in light of its own research analysis and analyses from other
relevant sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser, subject to
review by the Board of Directors. The Investment Adviser supplies the
portfolio managers for the Fund, who consider analyses from various sources,
make the necessary investment decisions and place transactions accordingly.
The Investment Adviser also is obligated to perform certain administrative
and management services for the Fund and is required to provide all the
office space, facilities, equipment and personnel necessary to perform its
duties under the Investment Advisory Agreement. As compensation for its
services to the Fund, the Investment Adviser will receive from the Fund a
monthly fee based on the average daily value of the Fund's net assets at an
annual rate of 0.65%.
Securities held by the Fund also may be held by or be appropriate
investments for other funds for which the Investment Adviser or its
affiliates act as adviser or by investment advisory clients of the Investment
Adviser. Because of different investment objectives or other factors, a
particular security may be bought for one or more clients when one or more
clients are selling the same security. If purchases or sales of securities
for the Fund or other funds for which the Investment Adviser or its
affiliates act as investment adviser or for their advisory clients arise for
consideration at or about the same time, transactions in such securities will
be made, insofar as feasible, for the respective funds and clients in a
manner deemed equitable to all. To the extent that transactions on behalf of
more than one client of the Investment Adviser or its affiliates during the
same period may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
The State of California imposes limitations on the expenses of the Fund.
At the date of this Statement of Additional Information, the limitations
require that the Investment Adviser reimburse the Fund in an amount necessary
to prevent the aggregate ordinary operating expenses of the Fund (excluding
interest, taxes, brokerage fees and commissions and extraordinary charges
such as litigation costs) from exceeding in any fiscal year 2.5% of the
Fund's first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of the remaining average daily
net assets. No fee payment will be made to the Investment Adviser during any
fiscal year which will cause such expenses to exceed the pro rata expense
limitation at the time of such payment.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and
furnish office space for officers and employees of the Fund connected with
investment and economic research, trading and investment management of the
Fund, as well as the fees of all Directors of the Fund who are affiliated
persons of the Investment Adviser
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or the Distributor or any of their subsidiaries. The Fund pays all other
expenses incurred in its operation, including redemption expenses, expenses
of portfolio transactions, shareholder servicing costs, expenses of
registering the shares under Federal and state securities laws, pricing costs
(including the daily calculation of net asset value), interest, certain
taxes, charges of the Custodian and Transfer Agent, directors' fees, legal
expenses, state franchise taxes, auditing services, costs of printing
proxies, stock certificates, shareholder reports and prospectuses (except to
the extent paid by the Distributor), SEC fees, accounting costs and other
expenses properly payable by the Fund. To the extent accounting services are
provided for the Fund by the Investment Adviser, the Fund will reimburse the
Investment Adviser for its costs in connection with such services. As
required by the Distribution Agreement, the Distributor will pay certain of
the expenses of the Fund incurred in connection with the offering of shares
of the Fund, including the expenses of printing the prospectuses and
statements of additional information used in connection with the continuous
offering of shares by the Fund.
Duration and Termination. Unless earlier terminated as described below,
the Investment Advisory Agreement for the Fund will remain in effect from
year to year if approved annually (a) by the Board of Directors of the Fund
or by a majority of the outstanding shares of the Fund and (b) by a majority
of the Directors who are not parties to such contract or interested persons
(as defined in the Investment Company Act) of any such party. Such contract
is not assignable and may be terminated without penalty on 60 days' written
notice at the option of either party or by the majority vote of the
outstanding voting securities of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" and "Redemption of Shares" in
the Prospectus for certain information as to the purchase of shares of the
Fund.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class
D shares of the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children
under the age of 21 years purchasing shares for his or her own account and to
single purchases by a trustee or other fiduciary purchasing shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company," as that term is defined in the Investment Company Act, but does
not include purchases by any such company which has not been in existence for
at least six months or which has no purpose other than the purchase of shares
of the Fund or shares of other registered investment companies at a discount;
provided, however, that it shall not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein
are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment
adviser.
REDUCED INITIAL SALES CHARGES
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $_______ or more of the Class A shares of the Fund made within a
13-month period starting with the first purchase
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pursuant to the Letter of Intention in the form provided in the Prospectus.
The Letter of Intention is available only to investors whose accounts are
maintained at the Fund's transfer agent. The Letter of Intention is not a
binding obligation to purchase any amount of Class A shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant
to a Letter of Intention may be included under a subsequent Letter of
Intention executed within 90 days of such purchase if the Transfer Agent is
informed in writing of this intent within such 90-day period. The value of
Class A shares of the Fund may be included as a credit toward the completion
of such Letter, but the reduced sales charge applicable to the amount covered
by such Letter will be applied only to new purchases. If the total amount of
shares does not equal the amount stated in the Letter of Intention (minimum
of $_________), the investor will be notified and must pay, within 20 days of
the expiration of such Letter, the difference between the sales charge on the
Class A shares purchased at the reduced rate and the sales charge applicable
to the shares actually purchased through the Letter. Class A shares equal to
at least five percent of the intended amount will be held in escrow during
the 13-month period (while remaining registered in the name of the purchaser)
for this purpose. The first purchase under the Letter of Intention must be
at least five percent on the dollar amount of such Letter. The value of any
shares redeemed or otherwise disposed of by the purchaser prior to
termination or completion of the Letter of Intention will be deducted from
the total purchases made under such Letter.
Acquisition of Certain Investment Companies. The public offering price
of Class A shares may be reduced to the net asset value per Class A share in
connection with the acquisition of the assets of or merger or consolidation
with a personal holding company or a public or private investment company.
The issuance of Class A shares for consideration other than cash is limited
to bona fide reorganizations, statutory mergers or other acquisitions of
portfolio securities which (i) meet the investment objective and policies of
the Fund; (ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall
at all times remain within its control); and (iii) are liquid securities, the
value of which is readily ascertainable, which are not restricted as to
transfer either by law or liquidity of market (except that the Fund may
acquire through such transactions restricted or illiquid securities to the
extent the Fund does not exceed the applicable limits on acquisition of such
securities set forth under "Investment Objectives and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due
to the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments. Under such programs, the Fund realizes
economies of scale and reduction of sales related expenses by virtue of
familiarity with the Fund.
DISTRIBUTION PLAN
Reference is made to "Purchase of Shares--Class A Shares--Class A
Distribution Plan" in the Prospectus for certain information with respect to
the distribution plan for Class A shares pursuant to Rule 12b-1 under the
Investment Company Act (the "Distribution Plan") with respect to the
distribution fees paid by the Fund to the Distributor with respect to such
class.
Payments of the distribution fees are subject to the provisions of Rule
12b-1 under the Investment Company Act. Among other things, the Distribution
Plan provides that the Distributor shall provide and
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the Directors shall review quarterly reports of the disbursement of the
distribution fees paid to the Distributor. In their consideration of the
Distribution Plan, the Directors must consider all factors they deem
relevant, including information as to the benefits of the Distribution Plan
to the Fund and its shareholders. The Distribution Plan further provides
that so long as the Distribution Plan remains in effect, the selection and
nomination of Directors who are not "interested persons" of the Fund, as
defined in the Investment Company Act (the "Independent Directors"), shall be
committed to the discretion of the Independent Directors then in office. In
approving the Distribution Plan in accordance with Rule 12b-1, the
Independent Directors concluded that there is a reasonable likelihood
that such Distribution Plan will benefit the Fund and its related class of
shareholders. The Distribution Plan can be terminated at any time, without
penalty, by the vote of a majority of the Independent Directors or by the
vote of the holders of a majority of the outstanding related class of
voting securities of the Fund. The Distribution Plan cannot be amended to
increase materially the amount to be spent by the Fund without the approval
of the related class of shareholders, and all material amendments are
required to be approved by the vote of Directors, including a majority of the
Independent Directors who have no direct or indirect financial interest in
such Distribution Plan, cast in person at a meeting called for that purpose.
Rule 12b-1 further requires that the Fund preserve copies of the Distribution
Plan and any reports made pursuant to the plan for a period of not less than
six years from the date of such Distribution Plan or such report, the first
two years in an easily accessible place.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for
certain information as to the redemption and repurchase of shares of the
Fund.
The right to redeem shares or to receive payment with respect to any
such redemption may be suspended only for any period during which trading on
the New York Stock Exchange is restricted as determined by the SEC or such
Exchange is closed (other than customary weekend and holiday closings), for
any period during which an emergency exists as defined by the SEC as a result
of which disposal of portfolio securities or determination of the net asset
value of any Fund is not reasonably practicable, and for such other periods
as the SEC may by order permit for the protection of shareholders of the
Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Portfolio Transactions" in the Prospectus.
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the portfolio decisions of
the Fund and the placing of the portfolio transactions for the Fund. With
respect to such transactions, the Investment Adviser seeks to obtain the best
net results for the Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive commission rates,
the Fund will not necessarily be paying the lowest commission or spread
available. Transactions with respect to the high yield securities in which
the Fund invests may involve specialized services on the part of the broker or
dealer and thereby entail higher commissions or spreads than would be the case
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with transactions involving more widely traded securities. The Fund has no
obligation to deal with any broker in the execution of transactions for its
portfolio securities. In addition, consistent with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. and policies
established by the Directors of the Fund, the Investment Adviser may consider
sales of shares of the Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Fund.
The securities in which the Fund invests are traded primarily in the
over-the-counter market. Transactions in the over-the-counter market
generally are principal transactions with dealers and the costs of such
transactions involve dealer spreads. With respect to over-the-counter
transactions, the Fund, where possible, will deal directly with the dealers
who make a market in the securities involved except in those circumstances
where better prices and execution are available elsewhere. Such dealers
usually act as principals for their own account. On occasion, securities may
be purchased directly from the issuer. Bonds and money market securities are
generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. The cost of portfolio securities transactions
of the Fund will consist primarily of dealer or underwriter spreads.
Under the Investment Company Act, persons affiliated with the Fund are
prohibited from dealing with the Fund as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is
obtained from the SEC. Since transactions in the over-the-counter market
usually involve transactions with dealers acting as principal for their own
account, affiliated persons of the Fund, including the Distributor, may not
serve as the Fund's dealer in connection with such transactions. See
"Investment Objectives and Policies - Investment Restrictions." However, an
affiliated person of the Fund may serve as its broker in over-the-counter
transactions conducted on an agency basis.
The Board of Directors of the Fund has considered the possibilities of
seeking to recapture for the benefit of the Fund brokerage commissions,
dealer spreads and other expenses of possible portfolio transactions, such as
underwriting commissions and tender offer solicitation fees, by conducting
such portfolio transactions through affiliated entities, including the
Distributor. For example, brokerage commissions received by the Distributor
could be offset against the advisory fee payable by the Fund to the
Investment Adviser. The Board will reconsider this matter from time to time.
The Investment Adviser has arranged for the Fund's custodian to receive any
tender offer solicitation fees on behalf of the Fund payable with respect to
portfolio securities of the Fund.
Section 11(a) of the Securities Exchange Act of 1934 generally prohibits
members of the national securities exchanges from executing exchange
transactions for their affiliates and institutional accounts which they
manage unless the member (i) has obtained prior express authorization from
the account to effect such transactions, (ii) at least annually furnishes the
account with the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the SEC has prescribed
with respect to the requirements of clauses (i) and (ii). To the extent
Section 11(a) would apply to the Distributor acting as a broker for the Fund
in any of the portfolio transactions executed on any such securities exchange
of which it is a member, appropriate consents have been obtained from the
Fund, and annual statements as to aggregate compensation will be provided to
the Fund. The SEC has the authority to issue regulations to broaden the
prohibition contained in Section 11(a) to extend to transactions executed
otherwise than on a national securities exchange. While there is no
indication that
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<PAGE>
it will do so, the SEC could under this authority issue regulations at any
time which would prohibit affiliates from executing portfolio transactions
for the Fund on foreign securities exchanges.
PORTFOLIO TURNOVER
The Fund intends to comply with the various requirements of the Code so
as to qualify as a "regulated investment company" thereunder. See "Taxes."
Among such requirements is a limitation to less than 30% on the amount of
gross income which the Fund may derive from gain on the sale or other
disposition of securities held for less than three months. Accordingly, the
Fund's ability to effect certain portfolio transactions may be limited.
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information - Determination of Net
Asset Value" in the Prospectus concerning the determination of net asset
value. The net asset value of the shares of the Fund is determined once
daily Monday through Friday as of 4:15 P.M., New York time, on each day
during which the New York Stock Exchange is open for trading. The New York
Stock Exchange is not open on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the day of valuation. The
Fund also will determine its net asset value on any day in which there is
sufficient trading in its portfolio securities that the net asset value might
be affected materially, but only if on any such day the Fund is required to
sell or redeem shares. The net asset value per share of the Fund is computed
by dividing the sum of the value of the securities held by the Fund plus any
cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time, rounded to the nearest cent.
Expenses, including the investment advisory fees and distribution fees, are
accrued daily. The per share net asset value of the Class A shares of the
Fund generally will be lower than the per share net asset value of the Class
D shares of the Fund reflecting the daily expense accruals of the
distribution or shareholder service fees applicable with the respect to the
Class A shares. It is expected, however, that the per share net asset value
of the two classes will tend to converge immediately after the payment of
dividends or distributions, which will differ by approximately the amount of
the expense accrual differential between the classes.
Portfolio securities which are traded on U.S. stock exchanges are valued
at the last sale price, on the principal market on which such securities are
traded, as of the close of business on the day the securities are being
valued, or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last quoted bid
prices at the close of trading on the New York Stock Exchange on each day by
brokers that make markets in the securities. Portfolio securities which are
traded both in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market and it is expected
that for debt securities this ordinarily will be the over-the-counter market.
Options on debt securities, which are traded on exchanges, are valued at the
last asked price for options written and the last bid price for options
purchased. Other investments, including futures contracts and related
options, are stated at market value. Securities and assets for which
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<PAGE>
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors
of the Fund.
Option Accounting Principles. When a Fund sells an option, an amount
equal to the premium received by the Fund is included in the Fund's Statement
of Assets and Liabilities as a deferred credit. The amount of such liability
will be subsequently marked to market to reflect the current market value of
the option written. If current market value exceeds the premium received
there is an unrealized loss; conversely, if the premium exceeds current
market value there is an unrealized gain. The current market value of a
traded option is the last sale price or, in the absence of a sale, the last
offering price. If an option expires on its stipulated expiration date or if
a Fund enters into a closing purchase transaction, the affected Fund will
realize a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability related
to such option will be extinguished. If an option is exercised, the Fund
will realize a gain or loss from the sale of the underlying security and the
proceeds of sale are increased by the premium originally received.
SHAREHOLDER SERVICES
A number of shareholder services and investment plans are available
which are designed to facilitate investment in the Fund's shares. Full
details as to each of such services, copies of the various plans described
below and instructions as to how to participate in the various services or
plans, or how to change options with respect thereto, can be obtained from
the Fund by calling the telephone number on the cover page hereof or from the
Transfer Agent.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions of the Fund are reinvested
automatically in full and fractional shares of the Fund, at the net asset
value per share next determined on the ex-dividend date of such dividend or
distribution. A shareholder may, at any time, by written notification to the
Transfer Agent, elect to have subsequent dividends or both dividends and
capital gains distributions paid in cash and held in such shareholder's IRA
account rather than reinvested.
SYSTEMATIC REDEMPTION AND AUTOMATIC INVESTMENT PLANS
At age 59 1/2, a Class A or Class D shareholder may elect to receive
systematic redemption payments from his or her Investment Account in the form
of payments by check or through automatic payment by direct deposit to his or
her bank account on either a monthly or quarterly basis.
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. If it so
qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital
gains
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<PAGE>
which it distributes to Class A and Class D shareholders (together, the
"shareholders"). The Fund intends to distribute substantially all of such
income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains
or losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Any
loss upon the sale or exchange of Fund shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis
of a holder's shares and, after such adjusted tax basis is reduced to zero,
will constitute capital gains to such holder (assuming the shares are held as
a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or
capital gains, generally will not be eligible for the dividends received
deduction allowed to corporations under the Code. If the Fund pays a
dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign individuals
and entities unless a reduced rate of withholding or a withholding exemption
is provided under applicable treaty law. Nonresident shareholders are urged
to consult their own tax advisers concerning the applicability of the United
States withholding tax.
To the extent the Fund invests in securities issued by issuers in
foreign countries, dividends and interest received by the Fund may give rise
to withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes.
Under certain provisions of the Code, some shareholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments ("backup withholding"). Generally, shareholders
subject to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account,
an investor must certify under penalty of perjury that such number is correct
and that such investor is not otherwise subject to backup withholding.
No gain or loss will be recognized on the conversion of Class A shares
into Class D shares in the circumstances described in the Prospectus. A
shareholder's basis in the shares acquired will be the
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<PAGE>
same as such shareholder's basis in the shares converted, and the holding
period of the acquired shares will include the holding period for the
converted shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring such shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales
charge paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the
absence of the exchange privilege. Instead, such sales charge will be
treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the
extent the RIC does not distribute, during each calendar year, 98% of its
ordinary income, determined on a calendar year basis, and 98% of its capital
gains, determined, in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While the Fund intends to
distribute its income and capital gains in the manner necessary to minimize
imposition of the 4% excise tax, there can be no assurance that sufficient
amounts of the Fund's taxable income and capital gains will be distributed to
avoid entirely the imposition of the tax. In such event, the Fund will be
liable for the tax only on the amount by which it does not meet the foregoing
distribution requirements.
The Fund will invest in securities rated in the lower rating categories
of nationally recognized rating organizations, and in unrated securities
("high yield securities"), as described in the Prospectus. Some of these
high yield securities may be purchased at a discount and may therefore cause
the Fund to accrue income before amounts due under the obligations are paid.
In addition, a portion of the interest payments on such high yield securities
may be treated as dividends for Federal income tax purposes; in such case, if
the issuer of such high yield securities is a domestic corporation, dividend
payments by the Fund will be eligible for the dividends received deduction to
the extent of the deemed dividend portion of such interest payments.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may write, purchase or sell options and futures. Options and
futures contracts that are "Section 1256 contracts" will be "marked to
market" for Federal income tax purposes at the end of each taxable year,
i.e., each such option or futures contract will be treated as sold for its
fair market value on the last day of the taxable year. In general, unless an
election is available to the Fund or an exception applies, options and
futures contracts that are "Section 1256 contracts" will be "marked to
market" for Federal income tax purposes at the end of each taxable year,
i.e., each such option or futures contract will be treated as sold for its
fair market value on the last day of the taxable year, and any gain or loss
attributable to Section 1256 contracts will be 60% long-term and 40% short-
term capital gain or loss. Application of these rules to Section 1256
contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above,
however, will not apply to
15
<PAGE>
certain transactions entered into by the Fund solely to reduce the risk of
changes in price or interest or currency exchange rates with respect to its
investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options and
futures contracts. Under Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in options and futures contracts.
One of the requirements for qualification as a RIC is that less than 30%
of the Fund's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Fund may be restricted in effecting closing transactions within three months
after entering into an options or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
Under Code Section 988, foreign currency gains or losses from certain
debt instruments, from certain forward contracts, from futures contracts that
are not "regulated futures contracts" and from unlisted options will
generally be treated as ordinary income or loss. Such Code Section 988 gains
or losses will generally increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders
as ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not
be able to make any ordinary income dividend distributions, and all or a
portion of distributions made before the losses were realized but in the same
taxable year would be recharacterized as a return of capital to shareholders,
thereby reducing the basis of each shareholders' Fund shares and resulting in
a capital gain for any shareholder who received a distribution greater than
the shareholder's tax basis in Fund shares (assuming the shares were held as
a capital asset).
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding
specific questions as to Federal, foreign, state or local taxes. Foreign
investors should consider applicable foreign taxes in their evaluation of an
investment in the Fund.
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<PAGE>
PERFORMANCE DATA
From time to time the Fund may include its average total return and
other total return data, as well as yield, in advertisements or information
furnished to present or prospective shareholders. Total return and yield
figures will be based on the Fund's historical performance and are not
intended to indicate future performance. Average annual total return and
yield are determined separately for Class A and Class D shares of the Fund in
accordance with formulae specified by the SEC.
Average annual total return quotations for the Fund for the specified
periods will be computed by finding the average annual compounded rates of
return (based on net investment income and any realized and unrealized
capital gains or losses on portfolio investments over such periods) that
would equate the initial amount invested to the redeemable value of such
investment at the end of each period. Average annual total return will be
computed assuming all dividends and distributions are reinvested and taking
into account all applicable recurring and nonrecurring expenses, including
the maximum sales charge in the case of Class A shares.
The Fund also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
computed as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum applicable sales charges will
not be included with respect to annual or annualized rates of return
calculations. Aside from the impact on the performance data calculations of
including or excluding the maximum applicable sales charges, actual annual or
annualized total return data generally will be lower than average annual
total return data since the average rates of return reflect compounding of
return; aggregate total return data generally will be higher than average
annual total return since the aggregate rates of return reflect compounding
over a longer period of time. The Fund's total return may be expressed
either as a percentage or as a dollar amount in order to illustrate the
effect of such total return on a hypothetical $1,000 investment in a Fund at
the beginning of each specified period.
Yield quotations for the Fund will be computed based on a 30-day period
by dividing (a) the net income based on the yield of each security earned
during the period by (b) the average daily number of shares outstanding in
the Fund during the period that were entitled to receive dividends multiplied
by the maximum offering price/net asset value per share of the Fund on the
last day of the period.
Total return figures and yield figures are based on the Fund's
historical performance and are not intended to indicate future performance.
The Fund's total return will vary depending on market conditions, the
securities comprising the Fund's holdings, operating expenses and the amount
of realized and unrealized net capital gains or losses during the period.
The value of an investment in the Fund will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
On occasion, the Fund may compare its performance to that of the
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, or performance data published by Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine and Fortune
Magazine.
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As with other performance data, performance comparisons should not be
considered representative of the Fund's relative performance for any future
period.
GENERAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Reference is made to "Additional Information - Dividends and
Distributions" in the Prospectus.
DESCRIPTION OF SHARES
The Fund is the only existing series of Battery Park Funds, Inc. (the
"Company"), a series investment company incorporated under Maryland law on
June 4, 1996. The Company has an authorized capital of 200,000,000 shares of
common stock, par value $0.001 per share, of which 50,000,000 shares are
initially classified as one series, namely the Fund, consisting of two
classes, designated Class A and Class D Common Stock, each of which consists
of 25,000,000 shares and the remainder of 150,000,000 shares are not
classified as to any class or series. Shares of Class A and Class D Common
Stock represent interests in the same assets of the Fund and are identical in
all respects except that the Class A shares bear certain expenses related to
the distribution associated with such shares. Class A shareholders each have
exclusive voting rights with respect to matters relating to expenditures made
under that class's Rule 12b-1 plan, as applicable. The Board of Directors of
the Company may classify and reclassify the shares of the Fund into
additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors
and any other matter submitted to a shareholder vote. The Fund does not
intend to hold meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act upon election of Directors.
The By-laws of the Company provide that a special meeting of shareholders may
be called for any purpose on the written request of the holders of at least
10% of the outstanding shares of the Fund. Voting rights for Directors are
not cumulative. Shares issued are fully paid and non-assessable and have no
preemptive or conversion rights. Redemption rights are discussed elsewhere
herein and in the Prospectus. Each share is entitled to participate equally
in dividends and distributions declared by the Fund and in the net assets of
the Fund on liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates are issued by the Transfer Agent only on
specific request. Certificates for fractional shares are not issued in any
case.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the initial offering price for
Fund shares, based on the projected value of the Fund's estimated net assets
and projected number of shares outstanding on the date its shares are first
offered for sale to public investors is as follows:
18
<PAGE>
<TABLE>
<CAPTION> Class A Class D
<S> <C> <C>
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Number of Shares Outstanding . . . . . . . . . . . . . . . . .
Net Asset Value Per Share (net assets divided by
number of shares outstanding) . . . . . . . . . . . . . . . . $ $
Sales Charge . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Offering Price . . . . . . . . . . . . . . . . . . . . . . . . $ $
</TABLE>
INDEPENDENT AUDITORS
__________________, has been selected as the independent auditors of the
Fund. The selection of independent auditors is subject to ratification by
the shareholders of the Fund. The independent auditors are responsible for
auditing the annual financial statements of the Fund.
CUSTODIAN
__________________, acts as Custodian of the Fund's assets. The
Custodian is responsible for safeguarding and controlling the Fund's cash and
securities, handling the receipt and delivery of securities and collecting
interest and dividends on the Fund's investments.
TRANSFER AGENT
__________________, acts as the Fund's transfer agent. The Transfer
Agent is responsible for the issuance, transfer and redemption of shares and
the opening, maintenance and servicing of shareholder accounts. See
"Management of the Fund - Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on July 31 of each year. The Fund will
send to its shareholders at least semiannually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each
year. After the end of each calendar year, shareholders will receive Federal
income tax information regarding dividends and capital gains distributions.
19
<PAGE>
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not
contain all the information set forth in the Registration Statement and the
exhibits relating thereto which the Fund has filed with the SEC, Washington,
D.C., under the Securities Act of 1933 and the Investment Company Act to
which reference is hereby made.
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Battery Park High Yield Fund of
Battery Park Funds, Inc.
We have audited the accompanying statement of assets and liabilities of
Battery Park High Yield Fund (the "Fund") of Battery Park Funds, Inc. as of
_____________, 1996. This financial statement is the responsibility of the
Fund's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Fund as of
_____________, 1996, in conformity with generally accepted accounting
principles.
(AUDITORS)
____________, 1996
21
<PAGE>
BATTERY PARK HIGH YIELD FUND
OF
BATTERY PARK FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
___________, 1996
Assets:
Cash in bank . . . . . . . . . . . . . . . . . . . . . . . . $
Prepaid registration fees (Note 3) . . . . . . . . . . . . .
Deferred organization expenses (Note 4) . . . . . . . . . . ---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities-accrued expenses . . . . . . . . . . . . . . . . . . ---------
Net Assets (equivalent to $_____ per share on
______ shares of common stock (par value $0.001)
outstanding with __________ shares
authorized) (Note 1) . . . . . . . . . . . . . . . . . . . . $
=========
_______________________
(1) Battery Park High Yield Fund (the "Fund") is the only existing series of
Battery Park Funds, Inc. (the "Company") which was organized as a
Maryland corporation on June 4, 1996. The Company is registered under
the Investment Company Act of 1940 as an open-end investment company.
(2) The Fund has entered into an Investment Advisory Agreement (the
"Investment Advisory Agreement") with Nomura Corporate Research and
Asset Management Inc. (the "Investment Adviser"), and distribution
agreements (the "Distribution Agreements") with Nomura Securities
International, Inc. (the "Distributor"). See "Management and Advisory
Arrangements" in the Statement of Additional Information. (Certain
officers and/or directors of the Fund are officers and/or directors of
the Investment Adviser and/or the Distributor.)
(3) Prepaid registration fees are charged to income as the related shares
are issued.
(4) Deferred organization expenses will be amortized over a period from the
date the Fund commences operations not exceeding five years. In the
event that the Investment Adviser (or any subsequent holder) redeems any
of its original shares prior to the end of the five-year period, the
proceeds of the redemption payable in respect of such shares shall be
reduced by the pro rata share (based on the proportionate share of the
original shares redeemed to the total number of original shares
outstanding at the time of redemption) of the unamortized deferred
organization expenses as of the date of such redemption. In the event
that the Fund is liquidated prior to the end of the five-year period,
the Investment Adviser (or any subsequent holder) shall bear the
unamortized deferred organization expenses.
22
<PAGE>
TABLE OF CONTENTS Dividends and Distributions . 18
Page Description of Shares . . . . 18
--- Computation of Offering Price
- per Share . . . . . . . . . 18
Investment Objectives and Policies
2 Independent Auditors . . . . 19
Investment Restrictions . . . 3 Custodian . . . . . . . . . . 19
Management of the Fund . . . . 6 Transfer Agent . . . . . . . 19
Directors and Officers . . . 6 Legal Counsel . . . . . . . . 19
Management and Advisory Reports to Shareholders . . . 19
Arrangements . . . . . . . . . 7 Additional Information . . . 20
Purchase of Shares . . . . . . 8 Independent Auditors' Report . 21
Reduced Initial Sales Charges 9 Statement of Assets and
Distribution Plan . . . . . . 9 Liabilities . . . . . . . . . . 22
Redemption of Shares . . . . . 10 Appendix--Hedging Techniques A-1
Portfolio Transactions and
Brokerage . . . . . . . . . . . 10
Portfolio Turnover . . . . . 12
Determination of Net Asset Value 12
Shareholder Services . . . . . 13
Automatic Reinvestment of
Dividends and Capital Gains
Distributions . . . . . . . . . 13
Systematic Redemption and
Automatic Investment Plans . . 13
Taxes . . . . . . . . . . . . . 14
Tax Treatment of Options and
Futures Transactions . . . . . 15
Special Rules for Certain
Foreign Currency Transactions . 16
Performance Data . . . . . . . 17
General Information . . . . . . 18
BATTERY PARK HIGH
YIELD FUND
STATEMENT OF ADDITIONAL
INFORMATION
_______________, 1996
DISTRIBUTOR:
NOMURA SECURITIES INTERNATIONAL,
INC.
23
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
--------------------
Included in Part B:
Independent Auditors' Report
Statement of Assets and Liabilities as of ___________, 1996
(b) Exhibits:
--------
1. Articles of Incorporation of the Registrant.
2. By-Laws of the Registrant.
3. None.
4.(a) Portion of the Articles of Incorporation and By-Laws of
the Registrant defining the rights of shareholders.(a)
(b) Class A Specimen Share Certificate.(b)
(c) Class D Specimen Share Certificate.(b)
5. Form of Investment Advisory Agreement between the Registrant
and Nomura Corporate Research and Asset Management Inc. (the
"Investment Adviser").(b)
6.(a) Form of Class A Shares Distribution Agreement between the
Registrant and Nomura Securities International, Inc. (the
"Distributor").(b)
(b) Form of Class D Shares Distribution Agreement between the
Registrant and the Distributor.(b)
7. None.
8. Form of Custody Agreement between the Registrant and _____.(b)
9. Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the Registrant
and _____ (the "Transfer Agent").(b)
10. Opinion of Brown & Wood, counsel to the Registrant.(b)
11. Consent of _____, independent accountants for the
Registrant.(b)
12. None.
13. None.
14. None.
15.(a) Form of Class A Shares Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as
amended ("1940 Act").(b)
(b) Form of Class D Shares Distribution Plan pursuant to Rule
12b-1 under the 1940 Act.(b)
16. None.
17. None.
18. Form of Plan pursuant to Rule 18f-3 under the 1940 Act.(b)
C-1
<PAGE>
________________________
(a) Reference is made to Articles IV, V, VI, VII and IX of the Registrant's
Articles of Incorporation, filed herewith as Exhibit 1 to this
Registration Statement on Form N-1A and to Articles II, III, VII, XIII
and XIV of the Registrant's By-Laws, filed herewith as Exhibit 2 to this
Registration Statement on Form N-1A.
(b) To be filed by Amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
Prior to the effective date of this Registration Statement, the Fund
will sell _____ Class A shares of its Common Stock and _____ Class D shares
of its Common Stock to the Investment Adviser for an aggregate of $100,000.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record
Holders as of
Title of Class , 1996
--------------
Class A Shares of Common Stock, par value $.001 per share
Class D Shares of Common Stock, par value $.001 per share
ITEM 27. INDEMNIFICATION
Reference is made to Article V of the Registrant's Articles of
Incorporation and to Article VI of the Registrant's By-Laws, incorporated by
reference to Exhibits 1 and 2 to this Registration Statement, and to Section
2-418 of the Maryland General Corporation Law.
Insofar as the conditional advancing of indemnification moneys for
actions based on the 1940 Act may be concerned, Article VI of the
Registrant's By-Laws provides that such payments will be made only on the
following conditions: (i) the person seeking indemnification shall provide to
the Registrant a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Registrant has been
met and a written undertaking to repay any such advance, if it ultimately
should be determined that the standard of conduct has not been met, and (ii)
at least one of the following additional conditions is met: (a) the person
seeking indemnification shall provide a security in form and amount
acceptable to the Registrant for his or her undertaking, (b) the Registrant
is insured against losses arising by reason of the advance, or (c) a majority
of a quorum of non-party independent directors, or independent legal counsel
in a written opinion shall determine, based upon a review of facts readily
available to the Registrant at the time the advance is proposed to be made,
that there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "1933 Act")
C-2
<PAGE>
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and therefore is unenforceable. In the event that a claim for
indemnification against such liabilities (other than for expenses paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant, unless the matter has been settled by controlling
precedent in the opinion of its counsel, will submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by
the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
The address of the Investment Adviser is 2 World Financial Center,
Building B, New York, New York 10281-1198.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or
employment of a substantial nature in which each such person or entity has
been engaged since _____, 1994, for his or its own account or in the capacity
of director, officer, partner or trustee.
<TABLE>
<CAPTION> OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME POSITION(S) WITH INVESTMENT ADVISER VOCATION OR EMPLOYMENT
<S> <C> <C>
Robert Levine President and CEO Executive Managing Director,
Nomura Holdings America, Inc.
Richard A. Buch Managing Director None
Lance B. Fraser Director None
Steven Sorensen Director Director of Institutional Services,
Neuberger & Berman
</TABLE>
Information on the Investment Adviser is incorporated by reference to
the Prospectus included in this Registration Statement.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The Registrant's principal underwriter, Nomura Securities
International, Inc. (the "Distributor"), also serves as principal underwriter
for Nomura Pacific Basin Fund, Inc.
(b) Set forth below is information concerning each director and officer
of the Distributor. The principal business address of each such person is 2
World Financial Center, Building B, New York, New York 10281-1198.
C-3
<PAGE>
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH THE DISTRIBUTOR WITH REGISTRANT
---- -------------------- ----------------
(to be provided by amendment)
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained at the
offices of the Registrant, 2 World Financial Center, Building B, New York,
New York 10281-1198, and its transfer agent, _____.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the caption "Management of the Fund--
Management and Advisory Arrangements" in the Prospectus constituting Part A
of the Registration Statement and under "Management of the Fund--Management
and Advisory Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, the Registrant is not a
party to any management-related service contract.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes to file a post effective amendment using
financial statements, which need not be certified, within four to six months
from the effective date of this registration statement.
(b) Registrant undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 19th day of June, 1996.
BATTERY PARK FUNDS, INC.
(Registrant)
By: /s/ ROBERT LEVINE
------------------
(Robert Levine)
Each person whose signature appears below hereby authorizes Robert
Levine or Lance B. Fraser, or any of them, as attorney-in-fact, to sign on
his behalf, individually and in each capacity stated below, any amendment to
this Registration Statement (including post-effective amendments) and to file
the same, with all exhibits thereto, with the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
/S/ ROBERT LEVINE President (Principal June 19, 1996
(Robert Levine) Executive Officer) and
Director
/s/ LANCE B. FRASER Treasurer (Principal June 19, 1996
(Lance B. Fraser) Financial and Accounting
Officer)
C-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- - -------
1 Articles of Incorporation of the Registrant
2 By-Laws of the Registrant
C-6
<PAGE>
EXHIBIT 1
ARTICLES OF INCORPORATION
BATTERY PARK FUNDS, INC.
THE UNDERSIGNED, ROBERT J. BORZONE, JR., whose post office address is
One World Trade Center, New York, New York 10048-0557, being at least
eighteen years of age, does hereby act as an incorporator, under and by
virtue of the General Laws of the State of Maryland authorizing the formation
of corporations and with the intention of forming a corporation.
ARTICLE I
NAME
----
The name of the corporation is BATTERY PARK FUNDS, INC. (the
"Corporation").
ARTICLE II
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed, the powers,
rights and privileges that the Corporation shall be authorized to exercise
and enjoy, and the business or objects to be transacted, carried on and
promoted by it are as follows:
(1) To conduct and carry on the business of an investment company of
the management type.
(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.
<PAGE>
(3) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or
kind of consideration now or hereafter permitted by the General Laws of the
State of Maryland and by these Articles of Incorporation, as its Board of
Directors may determine.
(4) To redeem, purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock of any class or
series, as its Board of Directors may determine, in any manner and to the
extent now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation.
(5) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment,
carrying out or attainment of all or any of the foregoing purposes or
objects.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing purposes, powers, rights and privileges shall
not be deemed to exclude any powers, rights or privileges so granted or
conferred.
2
<PAGE>
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a
corporation of this State, and the post office address of the resident agent
is 32 South Street, Baltimore, Maryland 21202.
ARTICLE IV
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Two Hundred Million (200,000,000) shares of
Common Stock, of the par value of one-tenth of one cent ($.001) per share,
and of the aggregate par value of Two Hundred Thousand Dollars ($200,000).
The capital stock initially is classified into one series, which consists of
two classes of Common Stock, as follows:
Class A Class D
Common Stock Common Stock
Battery Park High Yield Fund 25,000,000 25,000,000 shares
shares
The remainder of the Corporation's capital stock, One Hundred Fifty
Million (150,000,000) shares of Common Stock is not initially classified as
to any class or series.
3
<PAGE>
(2) The Board of Directors may classify and reclassify any unissued
shares of capital stock, of any class or series, into one or more additional
or other classes or series as may be established from time to time by setting
or changing in any one or more respects the designations, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares
of stock and pursuant to such classification or reclassification to increase
or decrease the number of authorized shares of any existing class or series.
(3) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, the holders of each class or series of capital stock
shall be entitled to dividends and distributions in such amounts and at such
times as may be determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series of capital
stock may vary among such classes and series. Dividends on a class or series
may be declared or paid only out of the net assets of that class or series.
Expenses related to the distribution of, and other identified expenses that
should properly be allocated to, the shares of a particular class or series
of capital stock may be charged to and borne solely by such class or series
and the bearing of expenses solely by a class or series of capital stock may
be appropriately reflected (in a manner determined by the Board of Directors)
and cause
4
<PAGE>
differences in the net asset value attributable to, and the dividend,
redemption and liquidation rights of, the shares of each class or series of
capital stock.
(4) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Section (3)
hereof and including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to
one vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of
all classes and series shall vote together as a single class; provided,
however, that (a) as to any matter with respect to which a separate vote of
any class or series is required by the Investment Company Act of 1940, as
amended (the "Investment Company Act"), as in effect from time to time, or
any rules, regulations or orders issued thereunder, or by the Maryland
General Corporation Law, such requirement as to a separate vote by that class
or series shall apply in lieu of a general vote of all classes and series as
described above, (b) in the event that the separate vote requirements
referred to in (a) above apply with respect to one or more classes or series,
then, subject to paragraph (c) below, the shares of all other classes and
series not entitled to a separate class vote shall vote as a single class,
and (c) as to any matter which does not affect the interest of a particular
class or series, such class or series
5
<PAGE>
shall not be entitled to any vote and only the holders of shares of the
affected classes and series, if any, shall be entitled to vote.
(5) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all
classes or series of capital stock of the Corporation (or of any class or
series entitled to vote thereon as a separate class or series) to take or
authorize any action, the Corporation is hereby authorized (subject to the
requirements of the Investment Company Act as in effect from time to time,
and any rules, regulations and orders issued thereunder) to take such action
upon the concurrence of a majority of the votes entitled to be cast by
holders of capital stock of the Corporation (or a majority of the votes
entitled to be cast by holders of a class or series entitled to vote thereon
as a separate class or series).
(6) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders
of each class or series of capital stock of the Corporation shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining net assets
of the Corporation applicable to that class or series.
6
<PAGE>
(7) Any fractional shares shall carry proportionately all the rights of
a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and
the right to receive dividends.
(8) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute
a quorum at any meeting of stockholders, except with respect to any matter
which requires approval by a separate vote of one or more classes or series
of stock, in which case the presence in person or by proxy of the holders of
shares entitled to cast one-third of the votes entitled to be cast by each
class or series entitled to vote as a separate class or series shall
constitute a quorum.
(9) All persons who shall acquire stock in the Corporation, of any
class or series, shall acquire the same subject to the provisions of the
charter and By-Laws of the Corporation. As used in the charter of the
Corporation, the terms "charter" and "Articles of Incorporation" shall mean
and include the Articles of Incorporation of the Corporation as amended,
supplemented and restated from time to time by Articles of Amendment,
Articles Supplementary, Articles of Restatement or otherwise.
(10)(a) Each series of capital stock of the Corporation shall relate to
a separate portfolio of investments. All shares of stock in each series
shall be identical except that there may be variations among and within the
different classes comprising
7
<PAGE>
the series as to the purchase price, determination of net asset value,
designations, preferences, conversion or other rights, voting powers,
restrictions, special and relative rights and limitations as to dividends and
on liquidation, qualifications or terms or conditions of redemption of such
shares of stock.
(b) Subject to the power of the Board of Directors to reclassify
unissued shares of stock, each series of stock of the Corporation shall have
the following powers, preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, and terms and conditions
of redemption:
(i) All consideration received by the Corporation for the
issue or sale of stock of each series, together with all assets in which
such consideration is invested or reinvested, all income, earnings,
profits and proceeds received thereon, including any proceeds derived
from the sale, exchange or liquidation thereof, and any assets, funds or
payments derived from any reinvestment of such proceeds in whatever form
the same may be, shall irrevocably belong to the series of stock with
respect to which such assets, payments or funds were received by the
Corporation for all purposes, subject only to the rights of creditors,
and shall be so handled in the books of account of the Corporation.
Such assets, payments and funds, including any proceeds derived from the
sale, exchange or liquidation thereof, and any assets, funds or payments
derived from any reinvestment
8
<PAGE>
of such proceeds in whatever form the same may be, are herein referred
to as "assets belonging to" such series. In the event that there are
any assets, income, earnings, profits and proceeds thereof, funds or
payments that are not readily identifiable as belonging to any
particular series, the Board of Directors of the Corporation shall
allocate them among any one or more of the series established and
designated from time to time in such manner and on such basis as the
Board of Directors, in their sole discretion, deem fair and equitable.
Each allocation by the Board of Directors shall be conclusive and
binding on the shareholders of the Corporation of all series for all
purposes.
(ii) The assets belonging to each series of stock shall be
charged with the liabilities in respect to such series, and also shall
be charged with their share of the general liabilities of the
Corporation, in proportion to the relative asset values of the
respective series determined in accordance with the charter of the
Corporation or in such other manner as may be determined by the Board of
Directors in accordance with law. The determination of the Board of
Directors shall be conclusive as to the amount of liabilities, including
accrued expenses and reserves, as to the allocation of the same to a
given series, and as to whether the same or general assets of the
Corporation are allocable to one or more series.
9
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(11) At such times (which may vary within a class of stock) as may be
determined by the Board of Directors (or with the authorization of the Board
of Directors, by the officers of the Corporation) in accordance with the
Investment Company Act as in effect from time to time, applicable rules and
regulations thereunder and applicable rules of the National Association of
Securities Dealers, Inc. and reflected in the Corporation's pertinent
registration statement, shares of a particular class of stock of the
Corporation may be automatically converted into shares of another class of
stock of the Corporation within the same series based on the relative net
asset values of such classes at the time of conversion, subject, however, to
any conditions of conversion that may be imposed by the Board of Directors
(or with the authorization of the Board of Directors, by the officers of the
Corporation) and reflected in the Corporation's pertinent registration
statement as aforesaid.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
-------------------------------------
(1) The initial number of directors of the Corporation shall be two,
which number may be increased or decreased pursuant to the By-Laws of the
Corporation but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland. The names of the directors who shall
act until their successors are duly elected and qualify are:
10
<PAGE>
Robert Levine
Lance B. Fraser
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, of any
class or series, and securities convertible into shares of capital stock of
the Corporation, whether now or hereafter authorized, for such consideration
as the Board of Directors may deem advisable, subject to such limitations as
may be set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the General Laws of the State of Maryland.
(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or
sell (whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation,
of any class or series, acquired by it after the issue thereof, or otherwise)
other than such right, if any, as the Board of Directors, in its discretion,
may determine.
(4) Each director and each officer of the Corporation shall be
indemnified and advanced expenses by the Corporation to the full extent
permitted by the General Laws of the State of Maryland, subject to the
requirements of the Investment Company Act. No amendment of these Articles
of Incorporation or repeal of any provision hereof shall limit or eliminate
the benefits provided to directors and officers under this provision in
11
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connection with any act or omission that occurred prior to such amendment or
repeal.
(5) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act, no
director or officer of the Corporation shall be personally liable to the
Corporation or its security holders for money damages. No amendment of these
Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors and officers under this
provision in connection with any act or omission that occurred prior to such
amendment or repeal.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from
time to time any of the By-Laws of the Corporation except any particular By-
Law which is specified as not subject to alteration or repeal by the Board of
Directors, subject to the requirements of the Investment Company Act.
ARTICLE VI
REDEMPTION
----------
(1) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares
of capital stock of the Corporation standing in the name of such holder on
the books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at
12
<PAGE>
the redemption price of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in accordance with
the provisions hereof, subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption of shares of capital stock of
the Corporation or postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption price of shares
of capital stock of the Corporation shall be the net asset value thereof as
determined by the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such redemption fee or
liquidation fee, contingent deferred sales charge, or other fee or charge
(which fees and charges may vary within and among the classes and series of
capital stock), if any, as may be approved by the Board of Directors of the
Corporation.
(2) The Corporation shall, to the extent permitted by applicable law,
have the right at any time, at its option, to redeem the shares owned by any
holder of capital stock of the Corporation (i) if the redemption is, in the
opinion of the Board of Directors, desirable in order to prevent the
Corporation from being deemed a "personal holding company" within the meaning
of the Internal Revenue Code of 1986, as amended, or (ii) if the value of the
shares in the account maintained by the Corporation or its transfer agent for
any class of stock for the stockholder is below an amount determined from
time to time by the Board of Directors (the "Minimum Account Balance") and
the stockholder has
13
<PAGE>
been given at least 60 days' written notice of the redemption and has failed
to make additional purchases of shares in an amount sufficient to bring the
value in his account to at least the Minimum Account Balance before the
redemption is effected by the Corporation.
(3) The Corporation, at its option, pursuant to resolution of the Board
of Directors, may also cause the redemption upon the terms set forth in such
resolution and in paragraphs (1) and (4) of this Article VI of all of the
outstanding shares of capital stock of any class or series of Common Stock if
the Board of Directors has determined that it is in the best interests of the
Corporation and its stockholders to discontinue issuance of shares of capital
stock of the particular class or series. Notwithstanding any other provision
of this Article VI, if certificates representing such redeemed shares of
capital stock have been issued, the redemption price need not be paid by the
Corporation until such certificates are presented in proper form for transfer
to the Corporation or the agent of the Corporation appointed for such
purpose; however, the redemption shall be effective, in accordance with the
resolution of the Board of Directors, regardless of whether or not such
presentation has been made.
(4) Payment of the redemption price by the Corporation may be made
either in cash or in securities or other assets at the time owned by the
Corporation or partly in cash and partly in securities or other assets at the
time owned by the Corporation.
14
<PAGE>
Payment of the redemption price shall be made in such manner as may be
determined from time to time by the Board of Directors of the Corporation.
ARTICLE VII
DETERMINATION BINDING
---------------------
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to
the direction of the Board of Directors, as to the amount of assets,
obligations or liabilities of the Corporation, as to the amount of net income
of the Corporation from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as to the time of
or purpose for creating reserves or as to the use, alteration or cancellation
of any reserves or charges (whether or not any obligation or liability for
which such reserves or charges shall have been created, shall have been paid
or discharged or shall be then or thereafter required to be paid or
discharged), as to the price of any security owned by the Corporation or as
to any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board
of Directors as to whether any transaction constitutes a purchase of
securities on "margin," a sale of securities "short," or an
15
<PAGE>
underwriting or the sale of, or a participation in any underwriting or
selling group in connection with the public distribution of, any securities,
shall be final and conclusive, and shall be binding upon the Corporation and
all holders of its capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the condition and
understanding, evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such determinations shall
be binding as aforesaid. No provision in this charter shall be effective to
(a) require a waiver of compliance with any provision of the Securities Act
of 1933, as amended, or the Investment Company Act, or of any valid rule,
regulation or order of the Securities and Exchange Commission thereunder or
(b) protect or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
ARTICLE VIII
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
16
<PAGE>
ARTICLE IX
AMENDMENT
---------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in its charter, in any manner now or hereafter prescribed
by statute, including any amendment which alters the contract rights, as
expressly set forth in the charter, of any outstanding stock and
substantially adversely affects the stockholder's rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.
17
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator of BATTERY PARK FUNDS,
INC. hereby executes the foregoing Articles of Incorporation and acknowledges
the same to be his act. Dated this 4th day of June, 1996.
------------------------------
Robert J. Borzone, Jr.
18
<PAGE>
EXHIBIT 2
BY-LAWS
OF
BATTERY PARK FUNDS, INC.
ARTICLE I.
Offices
-------
Section 1. Principal Office. The principal office of the
----------------
Corporation shall be in the City of Baltimore and State of Maryland.
Section 2. Principal Executive Office. The principal executive
--------------------------
office of the Corporation shall be at 2 World Financial Center, Building B,
New York, New York 10281-1198.
Section 3. Other Offices. The Corporation may have such other
-------------
offices in such places as the Board of Directors from time to time may
determine.
ARTICLE II.
Meetings of Stockholders
------------------------
Section 1. Annual Meeting. The Corporation shall not be required to
--------------
hold an annual meeting of its stockholders in any year in which the election
of directors is not required to be acted upon under the Investment Company
Act of 1940, as amended (the "Investment Company Act"). In the event that
the Corporation shall be required to hold an annual meeting of stockholders
to elect directors by the Investment Company Act, such meeting shall be held
no later than 120 days after the occurrence of the event requiring the
meeting. Any stockholders' meeting held in accordance with this Section
shall for all
1
<PAGE>
purposes constitute the annual meeting of stockholders for the year in which
the meeting is held.
Section 2. Special Meetings. Special meetings of the stockholders,
----------------
unless otherwise provided by law, may be called for any purpose or purposes
by a majority of the Board of Directors, the President, or on the written
request of the holders of at least 10% of the outstanding shares of capital
stock of the Corporation entitled to vote at such meeting if they comply with
Section 2-502(b) or (c) of the Maryland General Corporation Law.
Section 3. Place of Meetings. Any annual meeting and any special
-----------------
meeting of the stockholders shall be held at such place within the United
States as the Board of Directors from time to time may determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the
------------------------------------
place, date and time of the holding of each annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be
given personally or by mail, not less than ten nor more than ninety days
before the date of such meeting, to each stockholder entitled to vote at such
meeting and to each other stockholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the stockholder at his or her address as it appears
on the records of the Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by
2
<PAGE>
proxy, or who, either before or after the meeting, shall submit a signed
waiver of notice which is filed with the records of the meeting. When a
meeting is adjourned to another time and place, unless the Board of
Directors, after the adjournment, shall fix a new record date for an
adjourned meeting, or unless the adjournment is for more than one hundred and
twenty days after the original record date, notice of such adjourned meeting
need not be given if the time and place to which the meeting shall be
adjourned were announced at the meeting at which the adjournment is taken.
Section 5. Quorum. The presence in person or by proxy of the
------
holders of shares entitled to cast one-third of the votes entitled to be cast
shall constitute a quorum at any meeting of stockholders, except with respect
to any matter which requires approval by a separate vote of one or more
classes or series of stock, in which case the presence in person or by proxy
of the holders of shares entitled to cast one-third of the votes entitled to
be cast by each class or series entitled to vote as a separate class or
series shall constitute a quorum. In the absence of a quorum no business may
be transacted, except that the holders of a majority of the shares of stock
present in person or by proxy and entitled to vote may adjourn the meeting
from time to time, without notice other than announcement thereat except as
otherwise required by these By-Laws, until the holders of the requisite
amount of shares of stock shall be so present. At any such adjourned meeting
at which a quorum may be present
3
<PAGE>
any business may be transacted which might have been transacted at the
meeting as originally called. The absence from any meeting, in person or
by proxy, of holders of the number of shares of stock of the Corporation in
excess of a majority thereof which may be required by the laws of the State
of Maryland, the Investment Company Act, or other applicable statute, the
Charter, or these By-Laws, for action upon any given matter shall not prevent
action at such meeting upon any other matter or matters which properly may
come before the meeting, if there shall be present thereat, in person or by
proxy, holders of the number of shares of stock of the Corporation required
for action in respect of such other matter or matters.
Section 6. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or
inability to act of the Chairman of the Board and the President, a Vice
President, shall act as chairman of the meeting. The Secretary, or in his or
her absence or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
------
Charter, each holder of record of shares of stock of the
4
<PAGE>
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his or her
name on the record of stockholders of the Corporation as of the record date
determined pursuant to Section 9 of this Article or, if such record date
shall not have been so fixed, then at the later of (i) the close of business
on the day on which notice of the meeting is mailed or (ii) the thirtieth day
before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed
by such stockholder or his or her attorney-in-fact. No proxy shall be valid
after the expiration of eleven months from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where such proxy states that
it is irrevocable and where an irrevocable proxy is permitted by law. Except
as otherwise provided by statute, the Charter or these By-Laws, any corporate
action to be taken by vote of the stockholders (other than the election of
directors, which shall be by a plurality of votes cast) shall be authorized
by a majority of the total votes cast at a meeting of stockholders by the
holders of shares present in person or represented by proxy and entitled to
vote on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute
or these By-Laws, or determined by the
5
<PAGE>
chairman of the meeting to be advisable, any such vote need not be by ballot.
On a vote by ballot, each ballot shall be signed by the stockholder voting,
or by his or her proxy, if there be such proxy, and shall state the number of
shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
---------------------
record date for the purpose of determining stockholders entitled to vote at
any meeting of the stockholders. The record date, which may not be prior to
the close of business on the day the record date is fixed, shall be not more
than ninety nor less than ten days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time,
and not others, shall be entitled to vote at such meeting and any adjournment
thereof.
Section 10. Inspectors. The Board, in advance of any meeting of
----------
stockholders, may appoint one or more inspectors to act at such meeting or
any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and
on the request of any stockholder entitled to vote thereat shall, appoint
inspectors. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according to the best
of his or her ability. The inspectors shall determine the number of shares
outstanding and the voting powers of each, the number of shares represented
at the meeting, the existence of a quorum, and the
6
<PAGE>
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with
the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election
or vote with fairness to all stockholders. On request of the chairman of the
meeting or any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, request or matter determined by
them and shall execute a certificate of any fact found by them. No director
or candidate for the office of director shall act as inspector of an election
of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
------------------------------------------
Except as otherwise provided by statute or the Charter, any action required
to be taken at any annual or special meeting of stockholders, or any action
which may be taken at any annual or special meeting of such stockholders, may
be taken without a meeting, without prior notice and without a vote, if the
following are filed with the records of stockholders' meetings: (i) a
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and (ii) a written waiver of any
right to dissent signed by each stockholder entitled to notice of the meeting
but not entitled to vote thereat.
7
<PAGE>
ARTICLE III.
Board of Directors
------------------
Section 1. General Powers. Except as otherwise provided in the
--------------
Charter, the business and affairs of the Corporation shall be managed under
the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as
conferred on or reserved to the stockholders by law or by the Charter or
these By-Laws.
Section 2. Number of Directors. The number of directors shall be
-------------------
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that in no
event shall the number of directors be less than the minimum permitted by the
General Law of the State of Maryland nor more than fifteen. Any vacancy
created by an increase in the number of directors may be filled in accordance
with Section 6 of this Article III. No reduction in the number of directors
shall have the effect of removing any director from office prior to the
expiration of his or her term unless such director specifically is removed
pursuant to Section 5 of this Article III at the time of such decrease.
Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be
------------------------------
elected annually, by written ballot, at a meeting of stockholders held for
that purpose; provided, however, that if no meeting of the stockholders of
the Corporation is required to be held in a particular year pursuant to
Section 1 of Article II of
8
<PAGE>
these By-Laws, directors shall be elected at the next meeting held. The term
of office of each director shall be from the time of his or her election and
qualification until the election of directors next succeeding his or her
election and until his or her successor shall have been elected and shall
have qualified, or until his or her death, or until he shall have resigned or
until December 31 of the year in which he shall have reached seventy-two
years of age, or until he shall have been removed as hereinafter provided in
these By-Laws, or as otherwise provided by statute or the Charter.
Section 4. Resignation. A director of the Corporation may resign at
-----------
any time by giving written notice of his or her resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately
upon its receipt; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation
--------------------
may be removed (with or without cause) by the stockholders by a vote of a
majority of the outstanding shares of capital stock then entitled to vote in
the election of such director.
Section 6. Vacancies. Subject to the provisions of the Investment
---------
Company Act, any vacancies in the Board of Directors,
9
<PAGE>
whether arising from death, resignation, removal, an increase in the number
of directors or any other cause, shall be filled by a vote of a majority of
the Board of Directors then in office, regardless of whether they constitute
a quorum.
Section 7. Place of Meetings. Meetings of the Board may be held at
-----------------
such place as the Board from time to time may determine or as shall be
specified in the notice of such meeting.
Section 8. Regular Meeting. Regular meetings of the Board may be
---------------
held without notice at such time and place as may be determined by the Board
of Directors.
Section 9. Special Meetings. Special meetings of the Board may be
----------------
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors
------------------
or of any committee thereof may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Subject
to the provisions of the Investment Company Act, participation in a meeting
by these means constitutes presence in person at the meeting.
10
<PAGE>
Section 11. Notice of Special Meetings. Notice of each special
--------------------------
meeting of the Board shall be given by the Secretary as hereinafter provided,
in which notice shall be stated the time and place of the meeting. Notice of
each such meeting shall be delivered to each director, either personally or
by telephone or any standard form of telecommunication, at least twenty-four
hours before the time at which such meeting is to be held, or by first-class
mail, postage prepaid, addressed to him or her at his or her residence or
usual place of business, at least three days before the day on which such
meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special
----------------------------
meeting need not be given to any director who, either before or after the
meeting, shall sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two
-----------------
(unless there is only one Director), of the members of the entire Board shall
be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and except as
otherwise expressly required by statute, the Charter, these By-Laws, the
Investment Company Act, or other applicable statute, the act of a majority of
the directors present at any meeting at which a quorum is present shall be
the act of the Board. In the absence of a
11
<PAGE>
quorum at any meeting of the Board, a majority of the directors present
thereat may adjourn such meeting to another time and place until a quorum
shall be present thereat. Notice of the time and place of any such adjourned
meeting shall be given to the directors who were not present at the time of
the adjournment and, unless such time and place were announced at the meeting
at which the adjournment was taken, to the other directors. At any adjourned
meeting at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally called.
Section 14. Organization. The Board, by resolution adopted by a
------------
majority of the entire Board, may designate a Chairman of the Board, who
shall preside at each meeting of the Board. In the absence or inability of
the Chairman of the Board to preside at a meeting, the President or, in his
or her absence or inability to act, another director chosen by a majority of
the directors present, shall act as chairman of the meeting and preside
thereat. The Secretary (or, in his or her absence or inability to act, any
person appointed by the Chairman) shall act as secretary of the meeting and
keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting.
----------------------------------------- -------
Subject to the provisions of the Investment Company Act, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board
or the committee, as the case may be, consent thereto in writing, and
12
<PAGE>
the writings or writing are filed with the minutes of the proceedings of the
Board or the committee.
Section 16. Compensation. Directors may receive compensation for
------------
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the
Board.
ARTICLE IV.
Committees
----------
Section 1. Executive Committee. The Board, by resolution adopted by
-------------------
a majority of the entire board, may designate an Executive Committee
consisting of two or more of the directors of the Corporation, which
committee shall have and may exercise all of the powers and authority of the
Board with respect to all matters other than:
(1) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Charter;
(2) the filling of vacancies on the Board of Directors;
(3) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive
Committee;
(4) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the
Investment Company Act, or the taking of any other action required to be
taken by the Board of Directors by the Investment Company Act;
13
<PAGE>
(5) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(6) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(7) the declaration of dividends and, except to the extent permitted by
law, the issuance of capital stock of the Corporation; and
(8) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors
-----------------------------
from time to time, by resolution adopted by a majority of the whole Board,
may designate one or more other committees of the Board, each such committee
to consist of two or more directors and to have such powers and duties as the
Board of Directors, by resolution, may prescribe.
Section 3. General. One-third, but not less than two, of the
-------
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority present shall be the act of such
committee. The Board
14
<PAGE>
may designate a chairman of any committee and such chairman or any two
members of any committee may fix the time and place of its meetings unless
the Board shall otherwise provide. In the absence or disqualification of any
member of any committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or she or they constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
The Board shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace
any absent or disqualified member, or to dissolve any such committee.
Nothing herein shall be deemed to prevent the Board from appointing one or
more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority or power of the Board in the management of
the business or affairs of the Corporation except as may be prescribed by the
Board.
ARTICLE V.
Officers, Agents and Employees
------------------------------
Section 1. Number of Qualifications. The officers of the
------------------------
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect
or appoint one or more Vice Presidents and also may appoint such other
officers, agents and
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employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity. Such officers shall be elected by the Board of Directors
each to hold office until his or her successor shall have been duly elected
and shall have qualified, or until his or her death, or until he or she shall
have resigned, or have been removed, as hereinafter provided in these
By-Laws. The Board from time to time may elect, or delegate to the President
the power to appoint, such officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant Secre-
taries) and such agents, as may be necessary or desirable for the business of
the Corporation. Such officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board or by the
appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign
------------
at any time by giving written notice of resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall be necessary to make it effective.
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Section 3. Removal of Officer, Agent or Employee. Any officer,
-------------------------------------
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
---------
death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment to
such office.
Section 5. Compensation. The compensation of the officers of the
------------
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her
control.
Section 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount
and with such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
---------
officer of the Corporation. In the absence of the Chairman of the Board (or
if there be none), the President shall
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preside at all meetings of the stockholders and of the Board of Directors.
He or she shall have, subject to the control of the Board of Directors,
general charge of the business and affairs of the Corporation. He or she may
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he or she may delegate these powers.
Section 8. Vice President. Each Vice President shall have such
--------------
powers and perform such duties as the Board of Directors or the President
from time to time may prescribe.
Section 9. Treasurer. The Treasurer shall:
---------
(1) have charge and custody of, and be responsible for, all of the
funds and securities of the Corporation, except those which the Cor-
poration has placed in the custody of a bank or trust company or member
of a national securities exchange (as that term is defined in the
Securities Exchange Act of 1934, as amended) pursuant to a written
agreement designating such bank or trust company or member of a national
securities exchange as custodian of the property of the Corporation;
(2) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(3) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(4) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
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(5) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper
vouchers therefor; and
(6) in general, perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to
him or her by the Board or the President.
Section 10. Secretary. The Secretary shall:
---------
(1) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
(2) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(3) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its
seal;
(4) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(5) in general, perform all of the duties incident to the office of
Secretary and such other duties as from time to
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time may be assigned to him or her by the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any
--------------------
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or
any of them, of such officer upon any other officer or upon any director.
ARTICLE VI.
Indemnification
---------------
Section 1. General Indemnification. Each officer and director of
-----------------------
the Corporation shall be indemnified by the Corporation to the full extent
permitted under the General Laws of the State of Maryland, except that such
indemnity shall not protect any such person against any liability to the Cor-
poration or any stockholder thereof to which such person otherwise would be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her
office. Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, the decision by the Corporation
to indemnify such person must be based upon the reasonable determination of
independent legal counsel or the vote of a majority of a quorum of the
directors who are neither "interested persons," as defined in Section
2(a)(19) of the Investment
20
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Company Act, nor parties to the proceeding ("non-party independent
directors"), after review of the facts, that such officer or director is not
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him or her in
connection with proceedings to which he or she is a party in the manner and
to the full extent permitted under the General Laws of the State of Maryland;
provided, however, that the person seeking indemnification shall provide to
the Corporation a written affirmation of his or her good faith belief that
the standard of conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance, if it
ultimately should be determined that the standard of conduct has not been
met, and provided further that at least one of the following additional
conditions is met:
(i) the person seeking indemnification shall provide a security in form
and amount acceptable to the Corporation for his or her undertaking;
(ii) the Corporation is insured against losses arising by reason of the
advance; or
(iii) a majority of a quorum of non-party independent directors, or
independent legal counsel in a written opinion
21
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shall determine, based on a review of facts readily available to the
Corporation at the time the advance is proposed to be made, that there
is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the
General Laws of the State of Maryland, from liability arising from his or her
activities as an officer or director of the Corporation. The Corporation,
however, may not purchase insurance on behalf of any officer or director of
the Corporation that protects or purports to protect such person from
liability to the Corporation or to its stockholders to which such officer or
director otherwise would be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office.
The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who
is not an officer or director of the Corporation.
Section 2. Other Rights. The indemnification provided by this
------------
Article VI shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may
be entitled under any insurance or other agreement, vote of stockholders or
disinterested
22
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directors or otherwise, both as to action by a director or officer of the
Corporation in his or her official capacity and as to action by such person
in another capacity while holding such office or position, and shall continue
as to a person who has ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of such person.
ARTICLE VII.
Capital Stock
-------------
Section 1. Stock Certificates. Each holder of stock of the
------------------
Corporation shall be entitled upon written request to have a certificate or
certificates, in such form as shall be approved by the Board, representing
the number of shares of stock of the Corporation owned by him or her,
provided, however, that certificates for fractional shares will not be
delivered in any case. The certificates representing shares of stock shall
be signed by or in the name of the Corporation by the Chairman of the Board
of Directors, the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal
on the certificate may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate shall be issued, it may be issued by the
Corporation with the same effect as if such
23
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officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. Books of Account and Record of Stockholders. There shall
-------------------------------------------
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation.
Section 3. Transfers of Shares. Transfers of shares of stock of the
-------------------
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a
transfer agent or transfer clerk, and on surrender of the certificate or
certificates, if issued, for such shares properly endorsed or accompanied by
a duly executed stock transfer power and the payment of all taxes thereon.
Except as otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person in whose name any share or shares
stand on the record of stockholders as the owner of such share or shares for
all purposes, including, without limitation, the rights to receive dividends
or other distributions, and to vote as such owner, and the Corporation shall
not be bound to recognize any equitable or legal claim to or interest in any
such share or shares on the part of any other person.
Section 4. Regulations. The Board may make such additional rules
-----------
and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and
24
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registration of certificates for shares of stock of the Corporation. It may
appoint, or authorize any officer or officers to appoint, one or more
transfer agents or one or more transfer clerks and one or more registrars and
may require all certificates for shares of stock to bear the signature or
signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of
-----------------------------------------
any certificates representing shares of stock of the Corporation immediately
shall notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have been
mutilated, and the Board, in its discretion, may require such owner or his or
her legal representatives to give to the Corporation a bond in such sum,
limited or unlimited, and in such form and with such surety or sureties, as
the Board in its absolute discretion shall determine, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board, in
its absolute discretion, may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions.
----------------------------------------- -------------
The Board may fix, in advance, a date not more
25
<PAGE>
than ninety days preceding the date fixed for the payment of any dividend or
the making of any distribution or the allotment of rights to subscribe for
securities of the Corporation, or for the delivery of evidences of rights or
evidences of interests arising out of any change, conversion or exchange of
common stock or other securities, as the record date for the determination of
the stockholders entitled to receive any such dividend, distribution,
allotment, rights or interests, and in such case only the stockholders of
record at the time so fixed shall be entitled to receive such dividend,
distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder
--------------------------------------
of the Corporation or his or her agent may inspect and copy during usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs, and voting trust agreements
on file at its principal office.
ARTICLE VIII.
Seal
----
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner
reproduced.
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ARTICLE IX.
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of July.
ARTICLE X.
Depositories and Custodians
---------------------------
Section 1. Depositories. The funds of the Corporation shall be
------------
deposited with such banks or other depositories as the Board of Directors of
the Corporation from time to time may determine.
Section 2. Custodians. All securities and other investments shall
----------
be deposited in the safekeeping of such banks or other companies as the Board
of Directors of the Corporation from time to time may determine. Every
arrangement entered into with any bank or other company for the safekeeping
of the securities and investments of the Corporation shall contain provisions
complying with the Investment Company Act, and the general rules and
regulations thereunder.
ARTICLE XI.
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
--------------------------
acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or person or
persons as the Board of Directors by resolution from time to time shall
designate.
27
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Section 2. Sale or Transfer of Securities. Stock certificates,
------------------------------
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of
subject to any limits imposed by these By-Laws and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation
or sold, transferred or otherwise disposed of, may be transferred from the
name of the Corporation by the signature of the President or a Vice President
or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.
ARTICLE XII.
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and ratified by the stockholders in accordance with the provisions
of the Investment Company Act.
ARTICLE XIII.
Annual Statement
----------------
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed
to each stockholder of
28
<PAGE>
record of the Corporation on such date with respect to each report as may be
determined by the Board, at his or her address as the same appears on the
books of the Corporation. Such annual statement also shall be available at
any annual meeting of stockholders and shall be placed on file at the Corpor-
ation's principal office in the State of Maryland. Each such report shall
show the assets and liabilities of the Corporation as of the close of the
annual or quarterly period covered by the report and the securities in which
the funds of the Corporation then were invested. Such report also shall show
the Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required by the
Investment Company Act, and shall set forth such other matters as the Board
or such firm of independent public accountants shall determine.
ARTICLE XIV.
Amendments
----------
These By-Laws may be amended, altered or repealed by the affirmative
vote of a majority of the Board of Directors at any regular or special
meeting of the Board of Directors, except any particular By-Law which is
specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act.
29
