<PAGE>
Subject to Completion
Preliminary Prospectus dated December 4, 1996
A Registration Statement relating to these securities has been filed
with the Securities and Exchange Commission but has not yet become effective.
Information contained herein is subject to completion or amendment. 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 the 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.
PROSPECTUS
1,500,000 Shares
CAM BALANCED FUND, INC.
Common Stock
CAM Balanced Fund, Inc. (the "Fund") is a newly organized, closed-end
diversified management investment company. The Fund's investment objective is
capital appreciation with a secondary objective of income. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
equity and fixed income securities. Under normal conditions, at least 50% of the
Fund's total assets will be invested in equity securities and at least 25% of
the Fund's assets will be invested in fixed income senior securities. There can
be no assurance the Fund's investment objective will be achieved. See
"Investment Strategies."
CAM Investment Advisors, Inc. will be the Fund's Investment Advisor and
Wolf, Webb Asset Management will be the Fund's Sub-Advisor. See "Management."
The address of the Fund is c/o Rodney Square Management Corporation, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890, and its
telephone number is (610) 995-2525.
Rodney Square Distributors, Inc. (the "Underwriter") acts as the
principal underwriter of the Fund's shares under a best efforts underwriting
arrangement. See "Plan of Distribution." The shares of the Fund's Common Stock
are being offered subject to the subscription and payment for not less than
1,500,000 shares offered hereby for an initial offering period of 30 days (which
may be extended for an additional 30 days).
Prior to this offering, there has been no public market for the Common
Stock of the Fund. The Underwriter does not intend to stabilize or otherwise
make a market in the Fund's shares. The Common Stock has been approved for
listing on the NASDAQ SmallCap Market under the symbol "CAMB."
<PAGE>
Shares of closed-end investment companies have in the past frequently
traded at discounts from their net asset values. The risk of loss associated
with this characteristic of closed-end investment companies may be greater for
investors purchasing shares in the initial public offering and expecting to sell
shares soon after the completion thereof.
This Prospectus sets forth concisely the information that stockholders
should consider before investing in the Fund. Stockholders should retain this
Prospectus for future reference. Additional information about the Fund,
contained in a Statement of Additional Information, has been filed with the
Securities and Exchange Commission and is available upon request without charge
by contacting the Fund at its telephone number or address shown above. The
Statement of Additional Information bears the same date as, and is incorporated
by reference in its entirety into, this Prospectus. The table of contents of the
Statement of Additional Information appears at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Proceeds to
Registrant or Other
Price to Public Sales Load(1) Persons(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $10.00 $0.70 $9.30
- -----------------------------------------------------------------------------------------------------------------------------
Total Minimum(3) $15,000,000 $1,050,000 $13,950,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum(3) $15,000,000 $1,050,000 $13,950,000
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund, the Investment Advisor and Consolidated Asset Management,
Inc. (the parent of the Investment Advisor) have agreed to indemnify
the Underwriter against certain liabilities, including liability under
the Securities Act of 1933.
(2) Before deduction of organizational and offering expenses payable by the
Fund, estimated at $100,000.
(3) A minimum of 1,500,000 shares and a maximum of 1,500,000 shares are
being offered by the Fund.
Consummation of the offering is conditioned upon the subscription of at
least 1,500,000 shares by ____________, 1997 (subject to extension for up to
30 days in the discretion of the Fund). Subscriptions for shares received will
be placed in an escrow
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<PAGE>
account at Wilmington Trust Company and will remain uninvested pending the
closing of the offering made by this Prospectus. The Fund has the right to
reject any subscription offer, in whole or in part, in which case an amount
equal to the rejected portion of such subscription offer will be returned to the
subscriber. If at least 1,500,000 shares offered hereby are not subscribed for,
all subscription payments held in escrow will be repaid to subscribers as
promptly after the end of the offering period as is practicable.
It is expected that delivery for the Fund shares will be made in
Wilmington, Delaware on or about _______________, 1997.
____________, 1997
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
The Fund
CAM Balanced Fund, Inc. (the "Fund") is a newly organized, Maryland
corporation that is a closed-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund is a balanced fund which intends to invest in equity securities,
fixed income securities^ and cash equivalents. See "Investment Strategies."
The Offering
The Fund is offering a minimum of 1,500,000 shares and a maximum of
1,500,000 shares of Common Stock, par value $0.001 per share. Fund shares are
being offered on a "best efforts" basis by the Underwriter. If the Fund has not
received subscriptions for at least 1,500,000 shares by ____________, 1997,
subject to extension for up to 30 days in the discretion of the Fund, all
subscriptions will be returned to the subscribers. See "Plan of Distribution"
and "Dividends, Voting and Liquidation Rights."
Investment Objective
The Fund's investment objective is capital appreciation, with a
secondary objective of income. The Fund seeks to achieve its objective by
investing in a diversified portfolio of equity and fixed income securities.
Under normal conditions, at least 50% of the Fund's total assets will be
invested in equity securities and at least 25% of the Fund's total assets will
be invested in fixed income senior securities. The Fund is designed for
investors seeking long-term capital appreciation. See "Investment Strategies."
Investment Advisor and Sub-Advisor
CAM Investment Advisors, Inc. (the "Investment Advisor"), a registered
investment adviser, will act as the Fund's investment adviser. The Investment
Advisor is a newly organized company and has no previous experience managing
mutual funds. The Investment Advisor has retained Wolf, Webb Asset Management
(the "Sub-Advisor") pursuant to a sub-advisory agreement to select and manage
the Fund's assets under the general supervision of the Investment Advisor. The
Sub-Advisor currently manages over $300 million. Although it does not presently
provide advisory services to any mutual funds, it has previously served as
sub-advisor to a mutual fund. Both the Investment Advisor and the Sub-Advisor
are wholly-owned subsidiaries of Consolidated Asset Management, Inc. See
"Management."
<PAGE>
Administrator
Rodney Square Management Corporation (the "Administrator") will act as
the Fund's administrator, and accounting and pricing agent. The Administrator
currently provides administrative services to a number of registered investment
companies. See "Management."
Custodian; and Transfer Agent
Wilmington Trust Company will serve as the Fund's custodian.
___________ will serve as the Fund's transfer agent, dividend disbursing agent
and Automatic Dividend and Cash Purchase Plan Agent. See "Management."
Listing
The Fund's shares have been accepted for listing on the NASDAQ
SmallCap Market, which is expected to provide a liquid trading market for the
Fund's shares. Prior to this offering, there has been no public market for the
Common Stock of the Fund, and there can be no assurance that an active trading
market for the Common Stock will develop or be sustained in the future. Shares
of closed-end investment companies frequently trade at a discount to net asset
value, but in some cases trade at net asset value or a premium. Because the
market price of the Fund's shares will be determined by factors including
trading volume, general market and economic conditions, and other factors beyond
the control of the Fund, the Fund cannot predict whether its shares will trade
at, below or above their net asset value.
Dividends and Distributions
The Fund intends to distribute its net investment income on a
semi-annual basis and to distribute its net capital gains (if any) at least
annually. See "Distributions and Taxes."
Automatic Dividend Reinvestment and Cash Purchase Plan
The Fund has an automatic dividend reinvestment and cash purchase plan
(the "Plan") under which all dividends and capital gains distributions are
automatically reinvested in additional shares of the Fund unless a stockholder
elects to receive such dividends and distributions in cash. Stockholders who
intend to hold their shares through a broker or nominee should contact such
broker or nominee to confirm that they may participate in the Plan.
Additionally, a participant in the Plan may make voluntary cash contributions to
his or her account to be invested in shares of the Fund's Common Stock purchased
in the open market. See "Automatic Dividend Reinvestment and Cash Purchase
Plan."
-4-
<PAGE>
FEE TABLE
Shareholder Transaction Expenses
Sales Load (as a percentage of
offering price) 7%
Dividend Reinvestment Plan Fees None
Annual Expenses (as a percentage of net assets)
Management Fees 1.00%
Other Expenses 0.52%
----
Total Annual Expenses 1.52%
====
- -------------------------------------------------------------------------------
Example 1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------
You would pay
the following
expenses on a
$1,000
investment,
assuming a 5%
annual return $84 $115 $147 $239
- -------------------------------------------------------------------------------
The purpose of the Fee Table is to assist stockholders in understanding
the various costs and expenses that stockholders bear directly or indirectly.
"Other Expenses" are based on estimated amounts for the Fund's current fiscal
year. For a more complete description of these costs and expenses, see
"MANAGEMENT--Expenses of the Fund."
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
-5-
<PAGE>
PLAN OF DISTRIBUTION
Rodney Square Distributors, Inc. (the "Underwriter") serves as
underwriter of the shares on a "best efforts" basis. The Underwriter's offices
are located at Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890. The Underwriter's affiliates, Rodney Square Management
Corporation and Wilmington Trust Company, will provide administrative,
custodial and accounting ^ services to the Fund. See "Management." Wilmington
Trust Company will also serve as escrow agent for the Fund.
See "Subscription Procedures."
The Fund has been advised by the Underwriter that it proposes to offer
the shares of Common Stock to the public initially at the price to the public
set forth on the cover page of this Prospectus.
The shares offered hereby are being offered and sold by the Fund,
subject to the subscription and payment for not less than 1,500,000 shares
during an initial offering period of 30 days (which may be extended by the Fund,
without notice, for up to an additional 30 day period).
Solicitation of subscriptions for shares is expected to be made through
certain participating broker-dealers approved by the Fund and the Underwriter
to whom the Underwriter will pay a commission of 7% (or $0.70 per share) for
each share sold through them. It is anticipated that _____________ will be
participating broker-dealers. However, there may be other participating
broker-dealers in addition to or in lieu of such broker-dealers. The
Underwriter reserves the right to terminate the status of participating
broker-dealers at any time and/or to approve additional participating
broker-dealers. No specific amount of shares has been allotted for sale by any
broker-dealer.
The Underwriter is serving in that capacity without compensation from
the Fund. In the Underwriting Agreement, the Fund, the Investment Advisor and
Consolidated Asset Management, Inc. (the parent of the Investment Advisor) have
agreed to indemnify the Underwriter against certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended.
Subscriptions for shares, whether solicited by participating
broker-dealers or the ^ Underwriter, are subject to acceptance by the Fund and
the Underwriter, and to the sale of the minimum number of shares offered hereby,
and subscription payments will be held in escrow and disbursed, all as described
under "Subscription Procedures."
SUBSCRIPTION PROCEDURES
In order to subscribe for the shares offered hereby, investors will be
required to execute a subscription agreement and deliver the executed
subscription agreement, together
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<PAGE>
with a check payable to "Wilmington Trust Company, Escrow Agent" in the full
amount of the investor's aggregate subscription price, directly to Wilmington
Trust Company (referred to in this Section as the "Escrow Agent") at the
following address:
Wilmington Trust Company
Att: David B. Young
1100 North Market Street
Wilmington, Delaware 19890-0001
Forms of subscription agreements may be obtained from the Fund, the
Underwriter or from participating broker-dealers. See "Plan of Distribution."
Execution and delivery of a subscription agreement by an investor to the Escrow
Agent for the Fund will constitute an offer by the investor to subscribe for
shares. If a subscription offer is accepted by the Fund, a counterpart of the
subscription agreement or other notice of acceptance, executed by the Fund, will
be mailed to the investor, until which time the investor's subscription will not
be deemed to have been accepted by the Fund. Neither acknowledgment of receipt
of, nor deposit and collection of, the check delivered by an investor will
constitute acceptance of an investor's subscription offer.
Prior to the Fund's acceptance of an investor's subscription offer,
either the Fund or the Underwriter will have the right, in its sole discretion,
to reject any subscription offer, in whole or in part, or to reduce the amount
of such investor's subscription. In the event an investor's subscription offer
is rejected or the amount of his subscription is reduced, the Escrow Agent
will return the amount of the rejected or reduced portion of his subscription
price to the investor.
All monies received from investors will be deposited in a segregated
escrow account with the Escrow Agent to be held by the Escrow Agent for the
benefit of the investors until the closing of the Fund's offering (the
"Closing"). The funds held by the Escrow Agent will not accrue interest during
the offering period. The fees and expenses of the Escrow Agent will be borne by
the Investment Advisor.
If subscriptions for at least 1,500,000 shares have been received by
the Fund prior to the termination of the initial 30-day offering period (which
may be extended by the Fund, without notice, for up to an additional 30-day
period), a Closing will be held in which shares of Common Stock of the Fund will
be issued to subscribers at the public offering price. The Fund will commence
operations following the Closing.
If less than 1,500,000 shares are subscribed for during the initial or
extended offering period, the offering will terminate and all of the
subscribers' funds will be returned to subscribers as soon as practicable.
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<PAGE>
USE OF PROCEEDS
The net proceeds of this offering, after deduction of the
organizational and offering expenses (estimated to be $100,000), will be
invested in accordance with the policies set forth under "Investment
Strategies." A portion of the organization and offering expenses of the Fund has
been advanced by the Investment Advisor and will be repaid by the Fund without
interest upon Closing of this offering.
The Fund estimates that the net proceeds of this offering will be fully
invested in accordance with the Fund's investment objective and policies within
3 months of the initial offering. Pending such investment, the proceeds may be
invested in securities of the U.S. Government, its agencies or
instrumentalities, and short-term, high quality money market instruments. See
"Investment Strategies."
INVESTMENT STRATEGIES
The Fund expects to allocate its investments among a diversified
portfolio of equity securities combined with a selection of fixed income
securities to provide additional current income and reduced volatility. The
allocation of the Fund's assets among various investment vehicles will be based
primarily on an assessment of the phase of the business cycle and long-term
growth potential of the U.S. and world economies to help determine those
industry sectors in which the Fund should invest. Within such allocations, the
Sub-Advisor, under the general supervision of the Investment Advisor, will seek
to identify equity and fixed-income investments which are expected to achieve
the Fund's objective. See "Management--Investment Advisor" and
"Management--Sub-Advisor."
The Sub-Advisor begins the investment process by examining
approximately 50 key macro-economic and monetary indicators to determine the
current phase of the economic cycle and its outlook for the next several months.
This top-down approach, emphasizing current and prospective economic trends, is
central to its selection of average maturities for fixed income securities and
the allocation of resources between equity and fixed income securities.
Equity Securities. The equity portion of the Fund's portfolio will be
diversified among highly liquid common stocks that, in the Sub-Advisor's
opinion, have above average price appreciation potential at the time of
purchase. In general, these securities are characterized as having above average
dividend yields and below average price earnings ratios relative to the stock
market in general, as measured by the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500"). Other factors, such as earnings and dividend growth
prospects as well as industry outlook and market share, also are considered.
Under normal conditions, at least 50% of the Fund's assets will be invested in
equity securities, most of which will pay regular dividends. No less than 30% of
the Fund's assets will be invested in the common stock of issuers with total
market capitalization of $1 billion or
-8-
<PAGE>
greater at the time of purchase. The majority of the equity securities in which
the Fund will invest will be domestic issues, although the Fund may invest in
American Depository Receipts ("ADRs") as well. ADRs are receipts issued by a
bank or trust company in the United States evidencing ownership of underlying
securities of a foreign issuer.
The equity selection process begins with the "value" screens. During
this process each industry sector is subjected to a rigorous screening process
that identifies companies which together produce a "universe" of stocks which
the Sub-Advisor believes will compare favorably to many of the stocks included
in the S&P 500 with respect to some or all of the following characteristics: a
lower price to earnings ratio, a higher dividend yield, a lower price to book
value ratio, lower debt levels and a higher return on shareholders' equity.
The second step of the equity selection process is an earnings momentum
screen. During this process the Sub-Advisor reduces the universe by screening
for the companies that exhibit rising earnings expectations and actual earnings
acceleration. This step leads the Sub-Advisor to candidates whose earnings
momentum are expected to generate higher valuations in the near term. The
technical screens support fundamental research and aid in the timing of the
purchase and sale decisions.
The Sub-Advisor has a rigid sell discipline with its equity
investments. The Sub-Advisor thoroughly examines any stock which loses 15% or
more of its value from the time of purchase. The goal is to determine whether
the initial analysis remains valid. A position will normally be sold if the
Sub-Advisor sees any negative fundamental change in the company or its industry.
The Sub-Advisor will also review for sale any position whose price appreciation
has exceeded expectations.
Fixed Income Securities. The fixed income portion of the Fund's
portfolio will be invested in securities of the U.S. Government, its agencies
and instrumentalities, investment grade corporate bonds, debentures,
non-convertible fixed income preferred stocks, mortgage related securities,
government stripped mortgage related securities and other domestic asset backed
securities, Eurodollar certificates of deposit and Eurodollar bonds. The Fund
may invest up to 15% of its assets in "Yankee Bonds" (dollar-denominated bonds
sold in the United States by non-U.S. issuers). The fixed income securities held
by the Fund will be actively managed.
The Fund will limit its investments to securities that are considered
to be "investment grade." Investment grade bonds are bonds that are rated within
the four highest rating categories by a nationally recognized statistical rating
organization, i.e., BBB or better by Standard & Poor's Ratings Group, Division
of McGraw Hill ("S&P") or Baa or better by Moody's Investors Service, Inc.
("Moody's"). Bonds with the lowest investment grade rating (i.e., BBB or Baa) do
not have outstanding investment characteristics and may have speculative
characteristics as well. While bonds rated BBB or Baa are regarded as having
adequate capacity to pay interest and repay principal, adverse economic
conditions or changing circumstances could lead to a weakened capacity to pay
interest and repay
-9-
<PAGE>
principal. The Fund currently intends to limit its investment in bonds rated BBB
or Baa to 10% of its total assets. This limitation is not a fundamental policy
and can be changed by the Board of Directors of the Fund. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event will require sale of these securities by the Fund, but the Sub-Advisor
will consider this event in its determination of whether the Fund should
continue to hold the securities.
The market value of the fixed income obligations held by the Fund can
be expected to vary inversely to changes in prevailing interest rates. The
average maturity of the Fund's holdings may be shortened if the Sub-Advisor
anticipates a rise in interest rates. Conversely, the average maturity may be
lengthened if interest rates are expected to decline.
The fixed income selection process employs three decision making
processes. First the Sub-Advisor makes a decision on the desired average
portfolio maturity. Based on its evolving economic outlook, this judgment is
reviewed from time to time. In an effort to reduce downside risk, the
Sub-Advisor will shorten maturities if it believes that interest rates will move
higher. Conversely, it will lengthen maturities as it believes that the prospect
for declining rates increases.
The second step in the process is the sector decision. The Sub-Advisor
will aim to take advantage of perceived valuation and yield disparities by
adjusting portfolio weightings, within the investment guidelines, among
securities of the U.S. government, its agencies and instrumentalities, and
mortgage-related securities, in addition to investment grade corporate issues.
The third part of the decision making process is the individual
security analysis. The Sub-Advisor will endeavor to choose those with the
appropriate characteristics to enhance the Fund. Regarding corporate securities,
the Sub-Advisor utilizes not only traditional fixed income ratios and ratings,
but also the equity outlook for each company under consideration.
Certain Securities, Investment Techniques and Risk Factors
Subject to the Fund's investment objective and policies described
above, the Fund may make certain other investments and use certain investment
practices as described below.
Temporary Investments. For temporary defensive purposes during periods
when the Sub-Advisor believes, in consultation with the Investment Advisor, that
pursuing the Fund's basic investment strategy may be inconsistent with the best
interests of its stockholders, the Fund may invest its assets in the following
money market instruments: securities of the U.S. government, its agencies and
instrumentalities, repurchase agreements, certificates of deposit and bankers'
acceptances issued by U.S. banks or savings and loan associations having assets
of at least $500 million as of the end of their most recent fiscal year and high
quality commercial paper. In addition, for the same purposes the Sub-Advisor may
invest in
-10-
<PAGE>
short-term obligations issued or guaranteed by foreign governments or by any of
their political subdivisions, authorities, agencies or instrumentalities that
are rated at least AA by S&P or Aa by Moody's or, if unrated, are determined by
the Sub-Advisor to be of equivalent quality. The Fund may also invest in
obligations issued by foreign banks, but will limit its investments in such
obligations to U.S. dollar-denominated obligations of foreign banks which at the
time of investment: (i) have assets with a value of more than $10 billion; (ii)
are among the 75 largest foreign banks in the world, based on gross assets;
(iii) have branches in the United States; and (iv) in the opinion of the
Sub-Advisor are of comparable quality to obligations issued by United States
banks identified in the first sentence of this paragraph. See "Foreign
Securities" below. The Fund also may hold a portion of its assets in money
market instruments in amounts designed to pay expenses or pending investments
in accordance with its objectives and policies. Any temporary investments may be
purchased on a when-issued basis.
Repurchase Agreements. The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System and certain non-bank dealers approved by the
Board of Directors. Under each repurchase agreement, the selling institution is
required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. The Sub-Advisor, acting under
the supervision of the Investment Advisor, reviews on an ongoing basis the value
of the collateral and the creditworthiness of those non-bank dealers with whom
the Fund enters into repurchase agreements. In entering into a repurchase
agreement, the Fund bears a risk of loss in the event that the other party to
the transaction defaults on its obligations and the Fund is delayed or prevented
from exercising its rights to dispose of the underlying securities, including
the risk of a possible decline in the value of the underlying securities during
the period in which the Fund seeks to assert its rights to them, the risk of
incurring expenses associated with asserting those rights and the risk of losing
all or a part of the income from the agreement. Repurchase agreements are
considered to be loans under the 1940 Act.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. Pursuant to such agreements, the Fund would sell
portfolio securities to banks and other financial institutions, and agree to
repurchase them at an agreed upon date and price. At the time the Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account liquid assets or high grade debt securities having a value equal to or
greater than the repurchase price, and the Sub-Advisor will continuously monitor
the account to ensure that the value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price the
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<PAGE>
Fund is obligated to repurchase. Reverse repurchase agreements are considered to
be borrowings under the 1940 Act.
U.S. Government Obligations. The Fund may invest in securities which
are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Some U.S. Government obligations, such as U.S. Treasury
bills, Treasury notes and Treasury bonds, which differ only in their interest
rates, maturities and times of issuance, are supported by the full faith and
credit of the United States. Others are supported by: (i) the right of the
issuer to borrow from the U.S. Treasury, such as securities of the Federal Home
Loan Banks; (ii) the discretionary authority of the U.S. Government to purchase
the agency's obligations, such as securities of the Federal National Mortgage
Association; or (iii) only the credit of the issuer, such as securities of the
Student Loan Marketing Association. No assurance can be given that the U.S.
Government will provide financial support in the future to any agency or
instrumentality if it is not obligated to do so by law.
Securities guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities include: (i) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or any of its agencies or
instrumentalities; and (ii) participations in loans made to foreign governments
or other entities that are so guaranteed. The secondary market for certain of
these participations is limited and, therefore, may be regarded as illiquid.
U.S. Government obligations may include zero coupon securities that may
be purchased when yields are attractive and/or to enhance portfolio liquidity.
Zero coupon U.S. Government obligations are debt obligations that are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue and compound over the
period until maturity or the particular interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon U.S. Government obligations do not require the periodic payment of
interest. These investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. Government obligations
that make regular payments of interest. The Fund accrues income on these
investments for tax and accounting purposes, which is distributable to
stockholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations, in which case the Fund will forego the purchase of
additional income producing assets with these funds.
The Fund may invest in "stripped" securities, which are U.S. Treasury
bonds and notes the unmatured interest coupons of which have been separated from
the underlying principal obligation. Stripped securities are zero coupon
obligations that are normally issued at a discount to their "face value," and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. A
number of securities firms and banks have stripped the interest coupons and
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<PAGE>
resold them in custodian receipt programs with proprietary names such as
Treasury Income Growth Receipts ("TIGRs") and Certificates of Accrual on
Treasuries ("CATS"). Privately-issued stripped securities such as TIGRs and
CATS are not themselves guaranteed by the U.S. Government, but the future
payment of principal or interest on U.S. Treasury obligations which they
represent is so guaranteed. Such securities will be purchased only when the
credit risk with respect thereto is deemed to be minimal.
When-Issued and Delayed-Delivery Securities. To secure prices deemed
advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a "when, as and if issued" basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash or other marketable securities in an
amount equal to the amount of its when-issued or delayed-delivery purchase
commitments, and will subsequently monitor the account to insure that such
equivalent value is maintained.
Securities purchased on a when-issued or delayed-delivery basis may
expose the Fund to risk because the securities may experience fluctuations in
value prior to their actual delivery. The Fund does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when issued or delayed-delivery basis
can involve the additional risk that the yield available from other securities
when the delivery takes place may be higher than that obtained from the
delivered security.
Mortgage Related Securities. The Fund may invest in mortgage related
securities. There are several risks associated with mortgage related securities
generally. One is that the monthly cash inflow from the underlying loans may not
be sufficient to meet the monthly payment requirements of the mortgage related
security. Prepayment of principal by mortgagors or mortgage foreclosures will
shorten the term of the underlying mortgage pool for a mortgage related
security. Early returns of principal will affect the average life of the
mortgage related securities remaining in the Fund. The occurrence of mortgage
prepayments is affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions. In periods of rising interest rates, the rate
of prepayment tends to decrease, thereby lengthening the average life of a pool
of mortgage related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of the Fund. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that the Fund will have to reinvest the
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proceeds of prepayments at lower interest rates than those at which the assets
were previously invested. Thus, mortgage related securities may have less
potential for capital appreciation in periods of falling interest rates than
other fixed income securities of comparable maturity, although these securities
may have a comparable risk of decline in market value in periods of rising
interest rates. To the extent that the Fund purchases mortgage related
securities at a premium, unscheduled prepayments, which are made at par, will
result in a loss equal to any unamortized premium. The Fund currently intends to
limit its investments in mortgage-backed securities to 40% of its total assets.
This limitation is not a fundamental policy and can be changed by the Board of
Directors of the Fund.
Asset-Backed Securities. The Fund may purchase asset-backed securities.
Asset-backed securities consist of undivided fractional interests in pools of
mortgages, consumer loans or receivables held in a trust. Examples include
mortgage-backed securities, certificates for automobile receivables ("CARS") and
credit card receivables ("CARDS"). Payments of principal and interest on the
mortgages, loans or receivables are passed through to certificate holders.
Asset-backed securities may be issued by either governmental or non-governmental
entities. Payment on asset-backed securities of private issuers is typically
supported by some form of credit enhancement, such as a letter of credit, surety
bond, limited guaranty, or subordination. The extent of credit enhancement
varies, but usually amounts to only a fraction of the asset-backed security's
par value until exhausted. Ultimately, asset-backed securities are dependent
upon payment of the mortgages, consumer loans or receivables by individuals,
and the certificate holder frequently has no recourse to the entity that
originated the loans or receivables.
Forward Roll Transactions. In order to enhance current income, the Fund
may enter into forward roll transactions with respect to mortgage related
securities issued by the Government National Mortgage Association, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation.
In a forward roll transaction, the Fund sells a mortgage related security to a
financial institution, such as a bank or broker-dealer, and simultaneously
agrees to repurchase a similar security from the institution at a later date at
an agreed-upon price. The mortgage related securities that are repurchased will
bear the same interest rate as those sold, but generally will be collateralized
by different pools of mortgages with different prepayment histories than those
sold. During the period between the sale and repurchase, the Fund will not be
entitled to receive interest and principal payments on the securities sold.
Proceeds of the sale will be invested in short term instruments, particularly
repurchase agreements, and the income from these investments, together with any
additional fee income received on the sale, is intended to generate income for
the Fund exceeding the yield on the securities sold. Forward roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of the securities to be acquired. At the time
the Fund enters into a forward roll transaction, it will place in a segregated
custodial account cash, U.S. Government obligations or high quality debt
obligations having a value equal to the repurchase price (including accrued
interest) and will subsequently monitor the account to insure that the
equivalent value is maintained. Some forward roll transactions are accounted
for as financings and some forward roll transactions
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are accounted for as purchases and sales of securities. Only forward roll
transactions that are accounted for as financings shall be considered to be
borrowings under the 1940 Act.
Supranational Entities. The Fund may invest up to 25% of its total
assets in debt securities issued by supranational organizations such as the
International Bank for Reconstruction and Development (commonly referred to as
the World Bank), which was chartered to finance development projects in
developing member countries; the European Community, which is a twelve-nation
organization engaged in cooperative economic activities; the European Coal and
Steel Community, which is an economic union of various European nations' steel
and coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions. As
supranational entities do not possess taxing authority, they are dependent upon
their members' continued support in order to meet interest and principal
payments.
Foreign Securities. As noted above, the Fund may invest in ADRs.
Investing in ADRs does not eliminate the risk inherent in investing in the
securities of foreign issuers. However, by investing in ADRs rather than
directly in stock of foreign issuers, the Fund can avoid currency risks during
the settlement period for either purchases or sales. In general, there is a
large, liquid market in the United States for ADRs. The information available
for ADRs is subject to the accounting, auditing and financial reporting
standards of the domestic market or exchange on which they are traded, which
standards are more uniform and more exacting than those to which many foreign
issuers may be subject.
Investing in securities issued by foreign companies and governments
involves considerations and potential risks not typically associated with
investing in domestic securities. Substantially less information may be
available about foreign companies, particularly emerging market country
companies, than about domestic companies and, even when public information about
such companies is available, it may be less reliable than information concerning
U.S. companies. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards and such standards may
differ, in some cases significantly, from standards in other countries,
including the United States. The values of foreign investments are affected by
changes in currency rates or exchange control regulations, restrictions or
prohibitions on the repatriation of foreign currencies, application of foreign
tax laws, including withholding taxes, changes in governmental administration or
economic or monetary policy (in the United States or abroad) or changed
circumstances in dealings between nations. Costs are also incurred in connection
with conversions between various currencies. In addition, foreign brokerage
commissions and custody fees are generally higher than those charged in the
United States, and foreign securities markets may be less liquid, more volatile
and less subject to governmental supervision than in the United States.
Investments in foreign countries could be affected by other factors not present
in the United States, including nationalization, expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
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<PAGE>
difficulties in enforcing contractual obligations and could be subject to
extended clearance and settlement periods.
Certain Investment Policies
The Fund has adopted certain investment restrictions that are
enumerated in detail in the Statement of Additional Information. Among other
restrictions, the Fund may not, with respect to 75% of its total assets taken at
market value, invest more than 5% of its total assets in the securities of any
one issuer, except securities issued by the U.S. Government, its agencies or
instrumentalities, or acquire more than 10% of any class of the outstanding
voting securities of any one issuer. In addition, the Fund may not invest more
than 25% of its total assets in securities of issuers in any one industry. The
Fund may not borrow money or issue senior securities, as defined in the 1940
Act, in an aggregate amount exceeding 33-1/3% of the value of the Fund's total
assets less liabilities (excluding borrowings other than certain temporary
borrowings) or mortgage, pledge, or hypothecate its assets. Forward roll
transactions that are accounted for as financings and reverse repurchase
agreements will be deemed to be senior securities for purposes of this
calculation.
The investment restrictions identified in the preceding paragraph are
"fundamental" policies, which means that they may not be changed without the
approval of a majority of the outstanding shares of the Fund, as defined in the
1940 Act. Unless otherwise specifically stated, however, the investment policies
and practices of the Fund are not fundamental and may be changed by its Board of
Directors.
Portfolio Turnover
Generally, the Fund will not trade in equity securities for short-term
profits but, when circumstances warrant, securities may be sold without regard
to the length of time held. The Fund may engage in active short-term trading to
benefit from yield disparities among different issues of fixed-income
securities, to seek short-term profits during periods of fluctuating interest
rates or for other reasons. Active trading will increase the Fund's rate of
turnover, certain transaction expenses and the incidence of short-term capital
gain taxable as ordinary income. The Fund expects that its annual turnover rate
will not exceed 50% for both its equity and fixed income investments. An annual
turnover rate of 100% would occur when all the securities held by the Fund are
replaced one time during a period of one year.
Portfolio Transactions
In allocating purchase and sale orders for portfolio securities
(involving the payment of brokerage commissions), the Investment Advisor and
Sub-Advisor may consider the sale of Fund shares by broker-dealers in the Fund's
initial public offering, provided it believes the
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<PAGE>
quality of the transaction and the amount of the commission are not less
favorable than what they would be with any other qualified firm.
MANAGEMENT
Board of Directors
The Board of Directors of the Fund is responsible for the overall
management and operations of the Fund. The Statement of Additional Information
contains information concerning the directors.
Investment Advisor
CAM Investment Advisors, Inc. serves as the investment advisor to the
Fund. The Investment Advisor's address is Three Radnor Corporate Center, Suite
300, Radnor, PA 19087. The Investment Advisor is a newly-organized, wholly-owned
subsidiary of Consolidated Asset Management, Inc. The Investment Advisor has no
previous experience as an advisor.
Subject to the general supervision of the Board of Directors, the
Investment Advisor manages the Fund's portfolio, makes decisions with respect to
and places orders for all purchases and sales of the Fund's securities, and
maintains records relating to such purchases and sales. The Fund pays the
Advisor a monthly fee at the annual rate of 1.00% of the first $100 million of
the Fund's average weekly net assets and 0.75% of the Fund's average weekly net
assets in excess of $100 million.
Sub-Advisor
Wolf, Webb Asset Management serves as sub-advisor to the Fund. The
Sub-Advisor's address is 1525 Locust Street, 11th Floor, Philadelphia, PA 19102.
The Sub-Advisor is a wholly-owned subsidiary of Consolidated Asset Management,
Inc. Wolf, Webb Asset Management was founded in 1980. Its investment
professionals have over 125 years of combined investment experience in the
business of managing fixed income, equity and balanced portfolios for
corporations, governments, unions, foundations and individuals. The Sub-Advisor
currently manages over $300 million in assets employing its value oriented
investment philosophy.
Subject to the general supervision of the Investment Advisor, the
Sub-Advisor will select and manage the Fund's investment portfolio. For its
services to the Fund, the Sub-Advisor is entitled to a fee equal to 75% of the
fees (after subtracting any fee waivers) paid to the Investment Advisor by the
Fund for the preceding calendar month under the investment advisory agreement.
The Sub-Advisor's fee is paid by the Investment Advisor and not by the Fund.
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<PAGE>
Fund Manager
Raymond J. Munsch and Andrew L. Newcomb are the persons primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Munsch is the President and Chief Investment Officer of the Sub-Advisor.
Mr. Munsch has over 25 years of investment experience and has been with the
Sub-Advisor since 1989. Mr. Munsch is a member of the Pennsylvania Governor's
Labor and Industry Task Force, the Financial Analysts of Philadelphia, and the
Association for Investment Management and Research. Mr. Newcomb is a Vice
President and portfolio manager of the Sub-Advisor. Formerly with Prudential
Securities, Mr. Newcomb has over five years of investment management experience.
Mr. Newcomb has been associated with the Sub-Advisor since 1992. He is a member
of the Pennsylvania Governor's Labor and Industry Task Force and is a current
member of the Financial Analysts of Philadelphia and the Association for
Investment Management and Research.
Administrator
Rodney Square Management Corporation serves as the Fund's Administrator
pursuant to an Administration and Accounting Services Agreement with the Fund.
The Administrator is a wholly-owned subsidiary of Wilmington Trust Company, the
Fund's custodian, and is affiliated with the Underwriter. The Administrator's
address is Rodney Square North, 1100 North Market Street, Wilmington, DE
19890. The Administrator supplies office facilities, non-investment related
statistical and research data, stationery and office supplies, executive and
administrative services, corporate secretarial services, internal auditing and
regulatory compliance services to the Fund. The Administrator prepares
information for meetings of the Board of Directors, assists in the preparation
of reports to stockholders, prepares proxy statements and makes filings with the
SEC and state securities authorities. The Administrator also performs certain
accounting and pricing services for the Fund, including the weekly calculation
of the Fund's net asset value, and certain budgeting and financial reporting and
compliance monitoring activities. For its services as Administrator, Rodney
Square receives a fee, payable monthly, which consists of $35,000 per year,
plus the annual rate of 0.05% of the Fund's average weekly net assets in excess
of $50 million. In addition, the Fund has agreed to pay the Administrator a fee
for its services as accounting services agent, accrued and payable monthly, at
the annual rate of $40,000 per year on the first $100 million in average weekly
net assets, plus .02% of the average weekly net assets of the Fund in excess of
$100 million. The Administrator also receives reimbursement from the Fund for
out-of-pocket expenses.
Custodian; and Transfer Agent
Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, DE 19890, serves as the Fund's custodian. _______________,
serves as the Fund's transfer agent, dividend disbursing agent, and Automatic
Dividend Reinvestment and Cash Purchase Plan Agent.
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<PAGE>
Expenses of the Fund
The Fund pays all of its expenses other than those expressly assumed by
the Fund's service providers. The expenses payable by the Fund may include, but
are not limited to: advisory fees payable to the Investment Advisor;
administration and accounting services fees payable to the Administrator; audits
by independent public accountants; fees payable to Wilmington Trust Company as
custodian; transfer agency fees; taxes and the preparation of the Fund's tax
returns; brokerage fees and commissions; interest; cost of director and
stockholder meetings; printing and mailing reports to stockholders; fees for
filing reports with regulatory bodies; membership dues for investment company
industry trade associations; legal fees; fees to federal and state authorities
for the registration of shares; fees and expenses of directors who are not
officers, employees or stockholders of the Investment Advisor or its affiliates;
insurance and fidelity bond premiums; and any extraordinary expenses.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). This qualification
generally relieves the Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
stockholders an amount equal to at least 90% of its investment company taxable
income for such taxable year. In general, the Fund's investment company taxable
income will be its taxable income, including dividends, interest and the excess,
if any, of net short-term capital gain over net long-term capital loss, subject
to certain adjustments, and excluding the excess, if any, of net long-term
capital gain for the taxable year over net short-term capital loss. Dividends
attributable to investment company taxable income will be taxable to
stockholders as ordinary income, whether the dividends are paid in cash or
reinvested in shares. The dividends received deduction for corporations that own
shares in the Fund will apply to ordinary income distributions from the Fund to
the extent of such stockholders' ratable share of the total qualifying dividends
received by the Fund from domestic corporations for the taxable year. An
investment in the Fund is not expected to create items of tax preference or
otherwise tend to cause a stockholder to be liable for the federal alternative
minimum tax.
The Fund intends to designate as capital gain dividends any
distributions by the Fund of the excess of net long-term capital gain over net
short-term capital loss. Such capital gain dividends will be taxable to
stockholders as long-term capital gain, regardless of how long the stockholder
has held the Shares and whether such distributions are received in cash or
reinvested in additional shares of Common Stock. Such distributions are not
eligible for the dividends received deduction for corporations.
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Any distributions by the Fund in excess of its investment company
taxable income and capital gains generally constitute a nontaxable return of
capital to stockholders to the extent of each stockholder's tax basis in his or
her shares (causing a reduction in such basis), and thereafter, to the extent of
any excess over such basis, capital gain.
Dividends declared in October, November or December of any year payable
to stockholders of record as of a specified date in such months will be deemed
to have been received by stockholders and paid by the Fund on December 31 of
such year, if such dividends are actually paid during January of the following
year.
A taxable gain or loss may be recognized by a stockholder upon his or
her sale of shares of the Fund depending upon the tax basis and their price at
the time of sale. Generally, a stockholder may include brokerage costs incurred
upon the purchase and/or sale of Fund shares in his or her tax basis for such
shares for the purpose of determining gain or loss on a sale of such shares. If
a stockholder holds shares for six months or less and during that time receives
a capital gain dividend on those shares, any loss recognized on the sale or
exchange of those shares will be treated as long-term capital loss to the extent
of the capital gain dividend.
Stockholders will be advised at least annually as to the federal income
tax consequences of distributions made each year.
The foregoing discussion summarizes some of the important federal tax
considerations generally affecting the Fund and its stockholders who are U.S.
citizens or residents or domestic corporations, and is not intended as a
substitute for careful tax planning. Accordingly, investors in the Fund should
consult their tax advisors with specific reference to their own tax situations.
Stockholders are also advised to consult their tax advisors concerning state and
local taxes, which may differ from the federal income taxes described above.
AUTOMATIC DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
All distributions to stockholders whose shares are registered in their
own names will be automatically reinvested pursuant to the Automatic Dividend
Reinvestment Plan (the "Plan") in additional shares of the Fund, unless
stockholders elect to receive cash as provided below. Stockholders who choose to
hold their shares in the name of a broker or nominee should contact such broker
or nominee to determine whether or how they may participate in the Plan. There
is no service charge for participation in the Plan.
A stockholder may elect to withdraw from the Plan at any time and
thereby elect to receive future dividends in cash in lieu of shares of the Fund.
There will be no penalty for
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withdrawal from the Plan and stockholders who have previously withdrawn from the
Plan may rejoin it at any time. Changes in elections must be in writing and
should include the stockholder's name and address as they appear on the Fund's
records. They should be sent to ______________________ (referred to in this
Section as the "Agent"). An election to withdraw from the Plan will, until such
election is changed, be deemed to be an election by a stockholder to take all
subsequent distributions in cash. Elections will only be effective for
subsequent distributions with a record date of at least fifteen (15) days after
such elections are received by the Agent.
Funds credited to a participant's account will be used to purchase
shares of the Fund's Common Stock (the "Purchase"). The Agent will attempt,
commencing on the first trading day and ending on the tenth trading day
following the record date, to acquire shares in the open market at a price, plus
commission, which is less than the net asset value per share most recently
published by the Fund prior to any purchase (the "Net Asset Value"). If and to
the extent that the Agent is unable to acquire sufficient shares of the Fund's
Common Stock at a price plus commission less than the Net Asset Value, the Fund
will issue to the Agent shares of the Fund's Common Stock, valued at the Net
Asset Value, in the aggregate amount of the remaining value of the distribution.
The automatic reinvestment of dividends and distributions will not
relieve participants of any income taxes that may be payable (or required to be
withheld) on dividends or distributions. See "Distributions and Taxes."
Stockholders participating in the Plan may receive benefits not
available to stockholders not participating in the Plan. If the market price
plus commissions of the Fund's shares is above the net asset value, participants
in the Plan will receive shares of the Fund at net asset value, which is less
than they could otherwise purchase them in the open market and will have shares
with a market value greater than the value of any cash distribution they would
have received. There can be no assurance that the market price of the Fund's
shares of common stock will exceed their net asset value.
The Fund will increase the price at which its shares may be issued to
the Plan if the net asset value of the shares is less than 95% of the fair
market value of such shares on the payment date of any distribution of net
investment income or net capital gain, unless the Fund receives a legal opinion
from independent counsel that the issuance of shares at net asset value under
these circumstances will not have a material effect upon the federal income tax
liability of the Fund.
A participant may from time to time make voluntary cash contributions
to his or her account by sending to the Agent a check or money order payable to
the Agent in an amount not less than $50 and not in excess of $10,000 per month
to acquire additional shares of the Fund. In the case of any voluntary cash
contribution which exceeds $10,000 per month, the excess will be returned to the
participant by the Agent. All cash contributions to a participant's account made
pursuant to this paragraph will be invested in shares of the Fund's
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Common Stock purchased in the open market (irrespective of net asset value). The
Agent will invest all voluntary cash contributions on or about the last business
day of the month, provided it receives the contributions at least two business
days before the last business day of the month (the "Cut-off date"). Because
interest is not paid on voluntary cash contributions, participants should make
such contributions shortly before the Cut-off Date, allowing sufficient time for
mail delivery. Voluntary cash contributions received after the Cut-off Date will
be used to acquire additional shares of the Fund on or about the last business
day of the following month. Following any monthly investment of voluntary cash
contributions, the Agent will send each investing participant a confirmation of
such investment. Voluntary cash contributions will be returned to the
participant upon written request, provided that such request is received more
than two days before the Cut-off Date.
The Fund reserves the right to amend the Plan.
Additional information about the Plan may be obtained from the Agent.
See "Management--Custodian; and Transfer Agent."
DIVIDENDS, VOTING AND LIQUIDATION RIGHTS
The Fund has one class of shares of Common Stock, par value $0.001 per
share, of which 100,000,000 shares are authorized. When issued, shares of Common
Stock are fully paid and non-assessable. The Fund's shares have no pre-emptive,
conversion, exchange or redemption rights. Each share of the Fund's Common Stock
has one vote and shares equally in dividends and distributions when and if
declared by the Fund and in the Fund's net assets upon liquidation. All voting
rights for the election of directors are non-cumulative. Consequently, the
holders of more than 50% of the shares can elect 100% of the directors then
nominated for election if they choose to do so and, in such event, the holders
of the remaining shares will not be able to elect any directors.
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Fund is contained in a Statement of
Additional Information, which is available upon request without charge by
contacting the Fund. Set forth below is the Table of Contents of the Statement
of Additional Information:
TABLE OF CONTENTS
The Fund
Investment Objectives and Policies
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Management
Principal Holders of Securities
Investment Advisory and Other Services
Net Asset Value
Brokerage Allocation and Other Practices
Tax Status
Financial Statements
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No person has been authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information must not be relied upon as having been authorized by the Fund or the
Advisor. The Prospectus does not constitute an offering by the Fund in any
jurisdiction in which such offering may not be lawfully made.
- ------------------------------------
TABLE OF CONTENTS
Prospectus Summary........................................................
Fee Table.................................................................
Plan of Distribution......................................................
Subscription Procedures...................................................
Use of Proceeds...........................................................
Investment Strategies.....................................................
Management ...............................................................
Distributions and Taxes...................................................
Automatic Dividend Reinvestment and Cash
Purchase Plan....................................................
Dividends, Voting and Liquidation
Rights...........................................................
Statement of Additional
Information......................................................
CAM BALANCED FUND, INC.
-------------------------
PROSPECTUS
-------------------------
____________, 1997
Cover-2
<PAGE>
SUBJECT TO COMPLETION
Preliminary Statement of Additional Information dated December 4, 1996
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 any
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.
CAM BALANCED FUND, INC.
Part B
Statement of Additional Information
_________, 1997
TABLE OF CONTENTS
Page
----
THE FUND .................................................................. 2
INVESTMENT OBJECTIVE AND POLICIES.......................................... 2
MANAGEMENT................................................................. 8
PRINCIPAL HOLDERS OF SECURITIES............................................ 10
INVESTMENT ADVISORY AND OTHER SERVICES..................................... 10
NET ASSET VALUE............................................................ 14
BROKERAGE ALLOCATION AND OTHER PRACTICES................................... 14
TAX STATUS................................................................. 15
FINANCIAL STATEMENTS....................................................... 17
This Statement of Additional Information applies to the CAM Balanced
Fund, Inc. (the "Fund"). This Statement of Additional Information is meant to be
read in conjunction with the Prospectus dated ___________, 1997 (the
"Prospectus"), which describes the Fund. This Statement of Additional
Information is incorporated by reference in its entirety into the Prospectus.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Fund should be made solely upon the information
contained herein. Copies of the Prospectus may be obtained by calling
___________________, at (__) ___________. Capitalized terms used but not defined
herein have the same meaning as in the Prospectus.
<PAGE>
THE FUND
The Fund is a newly organized Maryland corporation that is a
closed-end, diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act").
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus for the Fund describes the investment objective and
policies of the Fund. The following is a discussion of the various investments
of, and techniques employed by, the Fund. The following information supplements
and should be read in conjunction with the description of the investment
objective and policies of the Fund in the Prospectus.
Portfolio Turnover
The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities at the time of acquisition were one year or less. Portfolio turnover
may vary greatly from year to year as well as within a particular year, and may
also be affected by requirements which enable the Fund to receive certain
favorable tax treatment. Portfolio turnover will not be a limiting factor in
making portfolio decisions.
Types of Obligations, Investment Risks, and Other Investment Information
The following discussion supplements the description of such
investments in the Prospectus.
Bank Certificates of Deposit, Bankers' Acceptances and Interest-Bearing
Savings Deposits. Certificates of deposit, bankers' acceptances and
interest-bearing savings deposits are eligible investments for the Fund.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Interest-bearing savings deposits are non-negotiable deposits maintained at a
banking institution for a specified period of time at a specified interest rate.
Commercial Paper. The investment policies of the Fund permit investment
in commercial paper. Commercial paper consists of unsecured promissory notes
issued by corporations. Issues of commercial paper will normally have maturities
of less than nine
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<PAGE>
months and fixed rates of return, although such instruments may have maturities
of up to one year.
Repurchase Agreements. The Fund is permitted to enter into repurchase
agreements with respect to its portfolio securities. Pursuant to such
agreements, the Fund acquires securities from financial institutions such as
banks and broker-dealers as are deemed to be creditworthy subject to the
seller's agreement to repurchase and the agreement of the Fund to resell such
securities at a mutually agreed upon date and price. The repurchase price
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the underlying portfolio security). Securities subject to repurchase agreements
will be held by a custodian or sub-custodian of the Fund or in the Federal
Reserve/Treasury Book-Entry System. The seller under a repurchase agreement will
be required to deliver instruments the value of which is 102% of the repurchase
price (excluding accrued interest), provided that notwithstanding such
requirement, the Investment Advisor or Sub-Advisor shall require that the value
of the collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, shall be equal to or greater
than the resale price (including interest) provided in the agreement. If the
seller defaulted on its repurchase obligation, the Fund would suffer a loss
because of adverse market action or to the extent that the proceeds from a sale
of the underlying securities were less than the repurchase price under the
agreement. Bankruptcy or insolvency of such a defaulting seller may cause the
Fund's rights with respect to such securities to be delayed or limited.
Repurchase agreements are considered to be loans by the Fund under the 1940 Act.
U.S. Government Obligations. The Fund is permitted to make investments
in U.S. Government obligations. Such obligations include Treasury bills,
certificates of indebtedness, notes and bonds, and issues of such entities as
the Government National Mortgage Association, Export-Import Bank of the United
States, Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association, Federal Home Loan Mortgage Corporation,
and the Student Loan Marketing Association. Treasury bills have maturities of
one year or less, Treasury notes have maturities of one to ten years and
Treasury bonds generally have maturities of more than ten years. Some of these
obligations, such as those of the Governmental National Mortgage Association,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Export-Import Bank of the United States, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to any agency or instrumentality if
it were not obligated to do so by law.
-3-
<PAGE>
Asset-Backed Securities. The Fund may invest in asset-backed
securities, including mortgage-backed securities representing an undivided
ownership interest in a pool of mortgages, such as certificates of the
Government National Mortgage Association ("GNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These certificates are in most cases
pass-through instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees. The average life of a mortgage-backed security varies with
the underlying mortgage instruments, which have maximum maturities of 40 years.
The average life is likely to be substantially less than the original maturity
of the mortgage pools underlying the securities as the result of prepayments,
mortgage refinancings or foreclosure. Mortgage prepayment rates are affected by
factors including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
Such prepayments are passed through to the registered holder with the regular
monthly payments of principal and interest and have the effect of reducing
future payments.
The Fund may also invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities may also be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Non-mortgage backed
securities are not issued or guaranteed by the U.S. Government or its agencies
or instrumentalities; however, the payment of principal and interest on such
obligations may be guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities.
The purchase of non-mortgage backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in the
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most of the
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments
-4-
<PAGE>
on those securities. In addition, various state and federal laws give the motor
vehicle owner the right to assert against the holder of the owner's obligation
certain defenses such owner would have against the seller of the motor vehicle.
The assertion of such defenses could reduce payments on the related asset-backed
securities. Insofar as credit card receivables are concerned, credit card
holders are entitled to the protection of a number of state and federal consumer
credit laws, many of which give such holders the right to set off certain
amounts against balances owed on the credit card, thereby reducing the amounts
paid on such receivables. In addition, unlike most other asset-backed
securities, credit card receivables are unsecured obligations of the cardholder.
The development of non-mortgage backed securities is at an early stage
compared to mortgage backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for mortgage backed
securities issued by certain private organizations and non-mortgage backed
securities is not as well developed as that for mortgage backed securities
guaranteed by government agencies or instrumentalities.
Reverse Repurchase Agreements. As described in the Prospectus, the Fund
is permitted to borrow funds by entering into reverse repurchase agreements with
such financial institutions as banks and broker-dealers. Reverse repurchase
agreements are considered to be borrowings by the Fund under the 1940 Act.
Whenever the Fund enters into a reverse repurchase agreement, it will place in a
segregated account maintained with its custodian liquid assets such as cash,
U.S. Government securities or other liquid high grade debt securities having a
value equal to the repurchase price (including accrued interest) and the
Investment Advisor or Sub-Advisor will subsequently continuously monitor the
account for maintenance of such equivalent value. Reverse repurchase agreements
are considered to be borrowings by the Fund under the 1940 Act.
Foreign Investments. In determining whether to invest in the securities
of foreign issuers, the Investment Advisor or Sub-Advisor will consider such
factors as the characteristics of the particular issuer, differences between
economic trends and the performance of securities markets within the U.S. and
those within other countries, and also factors relating to the general economic,
governmental and social conditions of the country or countries where the issuer
is located. The extent to which the Fund will be invested in foreign issuers
will fluctuate from time to time depending on the Investment Advisor's or
Sub-Advisor's assessment of prevailing market, economic and other conditions.
Bonds of Supranational Entities. The Fund may invest in bonds of
supranational entities. A supranational entity is an entity established or
financially supported by the national governments of one or more countries to
promote reconstruction or development. Examples of supranational entities
include, among others, the World Bank, the European Economic Community, the
European Coal and Steel Community, the European Investment Bank, the
Inter-American Development Bank, the Export-Import Bank and the Asian
Development Bank.
-5-
<PAGE>
When-Issued Securities and Delayed Settlements. When the Fund agrees to
purchase securities on a "when-issued" or delayed settlement basis, its
custodian will set aside cash or liquid portfolio securities equal to the amount
of the commitment in a separate account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment. In such a case, the Fund
may be required subsequently to place additional assets in the separate account
in order to assure that the value of the account remains equal to the amount of
the commitment. It may be expected that the net assets of the Fund will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. The Fund does not intend
to engage in these transactions for speculative purposes but only in furtherance
of its investment objective.
The Fund will purchase securities on a when-issued or delayed
settlement basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases the Fund may realize a taxable
capital gain or loss.
When the Fund engages in when-issued and delayed settlement
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued
commitment to purchase securities, or a delayed settlement and any subsequent
fluctuations in their market value is taken into account when determining the
market value of the Fund starting on the day the Fund agrees to purchase the
securities. The Fund does not earn interest on the securities it has committed
to purchase until they are paid for and delivered on the settlement date.
Other Investment Limitations
The Prospectus for the Fund summarizes certain fundamental policies
that may not be changed with respect to the Fund without the affirmative vote of
the holders of the majority of the Fund's outstanding shares. The following is a
complete list of fundamental policies which may not be changed with respect to
the Fund without such a vote.
The Fund may not:
1. Purchase securities (except securities issued by the U.S.
Government, its agencies or instrumentalities) if, as a result more than 5% of
its total assets will be invested in the securities of any one issuer, except
that up to 25% of its total assets may be invested without regard to this 5%
limitation.
-6-
<PAGE>
2. Act as a securities underwriter except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter under the Securities Act of 1933.
3. Purchase or sell real estate, except that the Fund may invest in
securities and instruments guaranteed by agencies or instrumentalities of the
U.S. Government and securities issued by companies which invest in real estate
or interests therein.
4. Purchase securities on margin (except for such short-term credits as
may be necessary for the clearance of transactions), make short sales of
securities or maintain a short position. For this purpose, the deposit or
payment by the Fund for initial or maintenance margin in connection with futures
contracts is not considered to be the purchase or sale of a security on margin.
5. Purchase or sell commodities or commodity contracts, or invest in
oil, gas or mineral exploration or development programs, except that: (a) it may
invest in securities issued by companies which purchase or sell commodities or
commodity contracts or which invest in such programs; and (b) it may purchase
and sell futures contracts and options on futures contracts.
6. Purchase securities of other investment companies, except: (a) in
connection with a merger, consolidation, acquisition or reorganization; (b) as
may otherwise be permitted by the 1940 Act.
7. Purchase any securities which would cause 25% or more of the value
of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that: (a) there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government and its agencies and instrumentalities; (b) each utility (such as
gas, gas transmission, electric and telephone service) will be considered a
single industry for purposes of this policy; and (c) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents.
8. Purchase securities of any issuer if as a result it would own more
than 10% of the voting securities of such issuer.
9. Borrow money or issue senior securities, as defined in the 1940 Act,
in an amount exceeding 33-1/3% of the value of its total assets less liabilities
(excluding borrowings other than certain temporary borrowings) or mortgage,
pledge, or hypothecate its assets. Forward roll transactions that are accounted
for as financings and reverse repurchase agreements will be deemed to be senior
securities for purposes of this calculation. This
-7-
<PAGE>
restriction shall not apply to temporary borrowings, transactions in currency,
options, futures contracts and options on futures contracts, or forward
commitment transactions.
10. Make loans, except that it may purchase or hold debt obligations in
accordance with its investment objective, policies and limitations; may enter
into repurchase agreements with respect to securities; and may lend portfolio
securities against collateral consisting of cash or securities of the U.S.
Government and its agencies and instrumentalities which are consistent with its
permitted investments.
* * *
If a percentage restriction is satisfied at the time of investment or
other action by the Fund, a later increase or decrease in such percentage
resulting from a change in asset value will not constitute a violation of such
restriction.
For the purposes of Investment Limitation 8 above, the Fund treats, in
accordance with the current views of the staff of the Securities and Exchange
Commission (the "SEC") and as a matter of non-fundamental policy that may be
changed without a vote of shareholders, all supranational organizations as a
single industry and each foreign government (and all of its agencies) as a
separate industry.
In order to permit the sale of the Fund's shares in certain states, the
Fund may make commitments more restrictive than the investment policies and
limitations described above.
MANAGEMENT
Directors and Officers of the Fund
The directors and officers of the Fund, their addresses, ages
and principal occupations during the past five years are:
-8-
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
<S> <C> <C> <C>
Name and Address Age Position with Fund Principal Occupations
- -----------------------------------------------------------------------------------------------------------------------------------
*J. Kenneth Croney, Jr. 28 Director and President President, CAM Investment Advisors, Inc. (since
Three Radnor Corporate 1996); President, Secretary and Treasurer,
Center Consolidated Asset Management, Inc. (since 1994);
Suite 300 prior thereto, Investment Consultant, Kidder Peabody
Radnor, PA 19087 & Co. (from 1992-1994); Analyst, Viking Graham Inc.
(private investment firm), prior thereto.
- -----------------------------------------------------------------------------------------------------------------------------------
*John P. McNiff 35 Chairman of the Board of Chairman of the Board and Vice-President, CAM
Three Radnor Corporate Directors and Treasurer Investment Advisors, Inc. (since 1996); Shareholder,
Center Consolidated Asset Management, Inc. (since 1994);
Suite 300 Director, Lincoln Mortgage Co. (since 1991); Managing
Radnor, PA 19087 Director, Longwood Partners (registered investment
advisor) (since 1993); Corporate Secretary, WinCup
Holdings, Inc. (manufacturing) (since 1992);
Managing Director, Trinity Capital Partners
(private investment firm), prior thereto.
- ----------------------------------------------------------------------------------------------------------------------
Michael T. Byrne 35 Director General Partner, Mid Coast Capital (private investment
15 Muirfield Ct. firm), (since 1994); prior thereto, Stockbroker, Kidder
Medford, NJ 08055 Peabody & Co.
- -----------------------------------------------------------------------------------------------------------------------------------
Marvin P. Bush 39 Director President, Winston Partners Group, L.P. (registered
6292 Ft. Hunt Road investment advisor) (since 1993); prior thereto, Vice
Alexandria, VA 22307 President, John Stewert Darrell & Co. (registered
investment advisor) prior thereto; Director, Custom Paper
Group, Inc.; Director, Kerrco, Inc. (oil and gas company).
- -----------------------------------------------------------------------------------------------------------------------------------
Mark R. Graham 38 Director President and Director, Drake, Goodwin & Graham (private
230 Park Avenue investment firm), (since 1992); prior thereto, Vice
New York, NY 10169 President, Morgan Stanley & Co.; Vice Chairman and
Director, NATC Holdings USA, Inc. (paper manufacturing);
President and Director, London Energy, L.L.C. (oil and gas
exploration company); Chairman of the Board and President,
Millennium III Enterprises, Inc. (international video game
company).
- -----------------------------------------------------------------------------------------------------------------------------------
*Michael T. Kennedy 42 Director Shareholder, CAM Investment Advisors, Inc. (since 1996);
Three Radnor Corporate President and Chief Executive Officer, WinCup Holdings,
Center Inc. (since 1991); President and Chief Executive Officer,
Suite 300 Trinity Capital Partners (private investment firm) (since
Radnor, PA 19087 1991); President and Chief Executive Officer, Radnor
Holdings Corp. (manufacturing) (since 1991); Partner,
Longwood Partners (registered investment adviser) (since
1990).
- -----------------------------------------------------------------------------------------------------------------------------------
Henry S. Hilles, Jr. 57 Secretary Partner in the law firm of Drinker Biddle & Reath.
1345 Chestnut Street
Philadelphia National
Bank Building
Suite 1100
Philadelphia, PA 19107
===================================================================================================================================
</TABLE>
* Messrs. Croney, McNiff and Kennedy are "interested directors" of the Fund as
defined in the 1940 Act.
No officer or director of the Fund who is also an officer or director
of the Investment Advisor receives any compensation for services as a director
of the Fund.
-9-
<PAGE>
After the Fund begins investment operations, it will pay each director who is
not affiliated with the Investment Advisor an annual fee of $2,000 plus $500 for
each meeting attended in person and $250 for each meeting attended by telephone
conference call. Each director is reimbursed for out-of-pocket expenses incurred
as a director. Drinker Biddle & Reath, of which Mr. Hilles is a partner,
receives legal fees as counsel to the Fund.
The Fund has begun investment operations. The following chart
represents the estimated aggregate compensation to be paid to each director for
a fiscal year.
<TABLE>
<CAPTION>
===============================================================================================================================
Pension or
Estimated Retirement Total Compensa-
Aggregate Benefits Accrued Estimated Annual tion from
Name of Compensation as part of Fund Benefits upon Registrant Paid
Person/Position from the Fund Expenses Retirement to Director
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. Kenneth Croney, Jr. $0 $0 $0 $0
Director
- -------------------------------------------------------------------------------------------------------------------------------
John P. McNiff $0 $0 $0 $0
Director
- -------------------------------------------------------------------------------------------------------------------------------
Michael T. Byrne $4,000 $0 $0 $4,000
Director
- -------------------------------------------------------------------------------------------------------------------------------
Marvin P. Bush $4,000 $0 $0 $4,000
Director
- -------------------------------------------------------------------------------------------------------------------------------
Mark R. Graham $4,000 $0 $0 $4,000
Director
- -------------------------------------------------------------------------------------------------------------------------------
Michael T. Kennedy $0 $0 $0 $0
Director
===============================================================================================================================
</TABLE>
The Audit Committee of the Board is comprised of the directors who are
not "interested directors." Members of the Audit Committee will be entitled to
receive a fee of $500 for each meeting that is not held in conjunction with a
regular meeting of the Board. The Board does not have an Executive Committee.
PRINCIPAL HOLDERS OF SECURITIES
The Directors and Officers as a group own less than 1% of the common
stock of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Advisor
The Fund's investment advisor is CAM Investment Advisors, Inc. The
Investment Advisor and Sub-Advisor are both wholly-owned subsidiaries of
Consolidated
-10-
<PAGE>
Asset Management, Inc. ("CAM"). CAM is controlled by J. Kenneth Croney, Jr.,
John P. McNiff and Michael T. Kennedy, directors of the Fund. CAM is a Delaware
corporation founded in 1994 which acquires and consolidates middle market
investment advisors.
In the Investment Advisory Agreement dated ____________,
199_ between the Fund and the Investment Advisor (the "Investment Advisory
Agreement"), the Investment Advisor has agreed to provide a continuous
investment program and strategy for the Fund, including investment research and
management with respect to all of its securities, other investments, and cash
equivalents and to make decisions with respect to and place orders for all
purchases and sales of portfolio securities; provide personnel to act as
officers of the Fund and pay the salaries of such officers; transmit information
concerning purchases and sales of the Fund's portfolio securities to the
custodian for proper settlement; supply the Fund and its Board of Directors with
reports and statistical data as requested; and prepare a quarterly brokerage
allocation summary and a monthly security transaction listing for the Fund. The
Investment Advisor has also agreed to pay all expenses incurred by it in
connection with its activities other than the cost of securities, including
brokerage commissions, if any, purchased for the Fund. The Investment Advisory
Agreement also provides that the advisory fee shall be reduced as required by
expense limitations imposed upon the Fund by any state in which shares of the
Fund are sold.
The Investment Advisor is authorized by the Investment Advisory
Agreement to employ or associate with itself such persons as it believes are
appropriate to assist it in the performance of its duties. Any such person is
required to be compensated by the Investment Advisor and not the Fund, and to be
approved by the stockholders of the Fund as required by the 1940 Act.
Additionally, the Investment Advisory Agreement specifies that in the event of
the termination of any sub-advisory relationship for any reason, the Investment
Advisor may provide investment advisory services directly to the Fund without
further stockholder approval.
The Investment Advisory Agreement provides that the Investment Advisor
shall not be liable for any error of judgement or mistake of law or for any loss
suffered by the Fund in connection with the performance of the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Investment
Advisor in the performance of its duties and obligations under the Investment
Advisory Agreement.
The Investment Advisory Agreement provides further that, unless sooner
terminated, it shall continue in effect until _______________, 199_, and
thereafter, shall continue in effect for successive annual periods, provided
such continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Fund's Board of Directors who are not
interested persons of any party to the Investment Advisory Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Fund's Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund.
-11-
<PAGE>
Notwithstanding the foregoing, the Investment Advisory Agreement may be
terminated at any time, without the payment of any penalty, by the Fund (by vote
of the Fund's Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund), or by the Investment Advisor on sixty days'
written notice. The Investment Advisory Agreement will immediately and
automatically terminate in the event of its assignment.
The Sub-Advisor
As authorized by the Investment Advisory Agreement, the Investment
Advisor has entered into a sub-advisory agreement (the "Sub-Advisory Agreement")
with Wolf, Webb, Burk & Campbell, Inc. (doing business as Wolf, Webb Asset
Management) (the "Sub- Advisor"). Pursuant to the Sub-Advisory Agreement, the
Sub-Advisor is responsible for providing a continuous investment program and
strategy for the Fund, including investment research and management with respect
to all securities and investments and cash equivalents of the Fund, determining
from time to time what securities and other investments will be invested,
reinvested, owned, held or traded by the Fund.
The Sub-Advisory Agreement contains a limitation on the liability of
the Sub-Advisor as is described above similar to that set forth for the
Investment Advisor.
The Sub-Advisory Agreement will be in effect until ________________,
199_, and will continue in effect for successive annual periods, provided such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Fund's Board of Directors who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Fund's Board
of Directors or by vote of a majority of the outstanding voting securities of
the Fund. Notwithstanding the foregoing, the Sub-Advisory Agreement may be
terminated at any time on sixty days' written notice, without the payment of any
penalty, by the Fund (by vote of the Fund's Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund), by the Investment
Advisor, or by the Sub-Advisor. The Sub-Advisory Agreement will immediately and
automatically terminate in the event of its assignment.
The Administrator
Rodney Square Management Corporation (the "Administrator"), Rodney
Square North, 1100 North Market Street, Wilmington, DE 19890, is a wholly-owned
subsidiary of Wilmington Trust Company. The Administrator also serves as
administrator to several other registered investment companies.
The Administrator provides administrative services to the Fund as
described in the Fund's Prospectus. Under the Administration and Accounting
Services Agreement, the Administrator has also agreed to provide certain
accounting, bookkeeping, pricing, dividend
-12-
<PAGE>
and distribution calculation services with respect to the Fund. The Fund's
Administration and Accounting Services Agreement will continue in effect until
_________, 1999, and thereafter for successive periods of one year, provided the
agreement is not sooner terminated. The Fund's Administration and Accounting
Services Agreement is terminable at any time with respect to the Fund by the
Fund's Board of Directors or by a vote of a majority of the Fund's outstanding
shares upon 60 days' notice to the Administrator, or by the Administrator upon
180 days' notice to the Fund. The Fund has agreed to pay the Administrator a fee
for its services as Administrator and accounting services agent as described
in the Prospectus.
Custodian; and Transfer Agent
Wilmington Trust Company ("WTC"), Rodney Square North, 1100 North
Market Street, Wilmington, DE 19890, has been appointed custodian for the Fund.
WTC is a state-chartered bank organized as a Delaware corporation in 1903. WTC
is a wholly-owned subsidiary of Wilmington Trust Corporation, a publicly held
bank holding company. WTC is Delaware's largest full service bank, with
trust, custody and/or investment management responsibility over assets in excess
of $75 billion. As custodian of the assets of the Fund, WTC: (i) maintains a
separate account or accounts in the name of the Fund; (ii) holds and disburses
portfolio securities; (iii) makes receipts and disbursements of money; (iv)
collects and receives income and other payments and distributions on account of
portfolio securities; (v) responds to correspondence from security brokers and
others relating to its respective duties; and (vi) makes periodic reports
concerning its respective duties. For its services as custodian of the Fund's
assets, WTC receives a fee, payable monthly, at the annual rate of .02% on the
first $50 million of average monthly net assets, .015% on the next $50 million
of average monthly net assets, and .0125% on the assets in excess of $100
million. Such fee is subject to a minimum of $4,800 per year. WTC is also
entitled to out-of-pocket expenses for its services as custodian.
_______________ will serve as transfer agent, registrar and
dividend disbursing agent for the Fund. For its services as transfer agent,
_________ will receive a fee at annual charge of $___ per account. Such fee is
subject to a minimum of $_________ per year. _________ is also entitled to
out-of-pocket expenses for its services as transfer agent.
Counsel
Drinker Biddle & Reath (of which Henry S. Hilles, Jr., Secretary of the
Fund, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, serves as counsel to the Fund and will pass upon certain
legal matters on its behalf.
-13-
<PAGE>
Independent Accountants
Price Waterhouse LLP, with offices at 30 South 17th Street,
Philadelphia, Pennsylvania 19103, has been selected as independent accountants
of the Fund, providing audit services including (1) audit of the initial
financial statements and annual financial statements; (2) assistance and
consultation in connection with SEC filings; and (3) review of the income tax
returns filed on behalf of the Fund.
NET ASSET VALUE
The net asset value of the Fund will be calculated as of the close of
regular trading hours on the last business day the New York Stock Exchange is
open in each week. The net asset value per share is calculated by dividing the
value of the Fund's assets (including interest and dividends accrued but not
collected), less any liabilities (including accrued expenses but excluding
capital and surplus), by the number of Fund shares outstanding.
Portfolio securities listed on an exchange and over-the-counter
securities quoted on the NASDAQ system shall be valued on the basis of the last
sale on the date as of which the valuation is made or, lacking any sales, at the
closing bid prices. Over-the-counter securities not quoted on the NASDAQ
system shall be valued on the basis of the closing bid prices for that date,
securities for which reliable quotations are not readily available shall be
valued at fair value, as determined in good faith and pursuant to procedures
established by the directors, and short-term debt securities and instruments
will be valued according to amortized cost.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. There is generally no stated commission in the case of
securities traded in the over-the-counter market, but the price includes an
undisclosed commission or mark-up. The cost of securities purchased by the Fund
from underwriters generally includes an underwriting commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers or dealers,
it is the Fund's policy to seek the best overall terms available. The Investment
Advisory and Sub-Advisory Agreements provide that, in assessing the best
overall terms available for any transaction, the Investment Advisor and
Sub-Advisor shall consider factors they deem relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition,
-14-
<PAGE>
the Investment Advisory and Sub-Advisory Agreements authorize the Investment
Advisor and Sub-Advisor to cause the Fund to pay a broker-dealer which furnishes
brokerage and research services a higher commission than that which might be
charged by another broker-dealer for effecting the same transaction, provided
that such commission is deemed reasonable in terms of either that particular
transaction or the overall responsibilities of the Investment Advisor and
Sub-Advisor to the Fund. Brokerage and research services may include: (1) advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities and the availability of securities or purchasers or sellers
of securities; and (2) analyses and reports concerning industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
It is possible that certain of the brokerage and research services
received will primarily benefit one or more other accounts for which
investment discretion is exercised. Conversely, the Fund may be the primary
beneficiary of the brokerage or research services received as a result of
portfolio transactions effected for such other accounts or investment companies.
TAX STATUS
Federal
The Fund will be treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a "regulated investment company." By following this policy, the Fund expects
to eliminate or reduce to a nominal amount the federal income taxes to which it
may be subject. If for any taxable year the Fund does not qualify for the
special federal tax treatment afforded regulated investment companies, all of
the Fund's taxable income would be subject to tax at regular corporate rates
(without any deduction for distributions to stockholders). In such event, the
Fund's dividend distributions to stockholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of the
Fund and would be eligible for the dividends received deduction in the case of
corporate stockholders.
Qualification as a regulated investment company under the Code
requires, among other things, that the Fund distribute to its stockholders an
amount equal to at least the sum of 90% of its investment company taxable income
(if any) and 90% of its tax-exempt income (if any), net of certain deductions
for each taxable year. In general, the Fund's investment company taxable income
will be its taxable income, including dividends, interest, and short-term
capital gains (the excess of net short-term capital gain over net long-term
capital loss), subject to certain adjustments and excluding the excess of net
long-term capital gain, if any, for the taxable year over the net short-term
capital loss (if any), for such year. The Fund will be taxed on its
undistributed investment company taxable income, if
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any. As stated, the Fund intends to distribute at least 90% of its investment
company taxable income (if any) for each taxable year. To the extent such income
is distributed by the Fund (whether in cash or additional shares), it will be
taxable to stockholders as ordinary income.
The Fund will not be treated as a regulated investment company under
the Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "Short-Short test"): (1) stock
and securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by the Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.
Any distribution of the excess of net long-term capital gains over net
short-term capital losses is taxable to stockholders as long-term capital gains,
regardless of how long the stockholder has held Fund shares and whether such
gains are received in cash or additional Fund shares. The Fund will designate
such a distribution as a capital gain dividend in a written notice mailed to
stockholders after the close of the Fund's taxable year. It should be noted
that, upon the sale of Fund shares, if the stockholder has not held such shares
for more than six months, any loss on the sale of those shares will be treated
as long-term capital loss to the extent of the capital gain dividends received
with respect to the shares.
Ordinary income of individuals is taxable at a maximum marginal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains are
taxable at a maximum nominal rate of 28%. For corporations, long-term capital
gains and ordinary income are both taxable at a maximum nominal rate of 35%.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specific percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
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The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or 31% of gross sale proceeds
upon sale paid to stockholders (i) who have failed to provide a correct tax
identification number in the manner required, (ii) who are subject to
withholding by the Internal Revenue Service for failure to properly include on
their return payments of taxable interest or dividends or (iii) who have failed
to certify to the Fund either that they are subject to backup withholding when
required to do so or that they are "exempt recipients."
State
Depending upon the extent of activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, the
Fund may be subject to the tax laws of such states or localities.
Income distributions may be taxable to stockholders under state or
local law as dividend income even though all or a portion of such distributions
may be derived from interest on U.S. government obligations which, if realized
directly, would be exempt from such income taxes. Stockholders are advised to
consult their tax advisers concerning the application of state and local taxes.
FINANCIAL STATEMENTS
Stockholders receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements together with the
reports of the independent accountants of the Fund. The financial statements and
related notes thereto for the Fund which appear in this Statement of Additional
Information have been audited by ______________________, whose report thereon
also appears herein. Such financial statements and notes thereto have been
included herein in reliance upon the report of ______________________,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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