As filed with the Securities and Exchange Commission on May 2, 1997
Securities Act File No. 33-_____
Investment Company Act File No. 811-7861
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM N-2
Registration Statement Under the Securities Act of 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and
Registration Statement Under the Investment Company Act of 1940 /x/
Amendment No. 1 /x/
(Check appropriate box or boxes)
----------------------
THE MALLARD FUND, INC.
(Exact name of Registrant as specified in charter)
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: ( ) -
------------------- --- --- ----
RICHARD F. BERDIK
Secretary and Treasurer
THE MALLARD FUND, INC.
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890
(Name and Address of agent for service)
Copies to:
ARTHUR J. BROWN, ESQ.
MARC R. DUFFY, ESQ.
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
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Approximate date of proposed public offering: As soon as possible after
this Registration Statement becomes effective.
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------- ------------------------------ --------------------------------
Title of Securities Amount Proposed Maximum Aggregate Amount of
Being Registered Being Registered Offering Price (1) Registration Fee
<S> <C> <C> <C> <C>
- --------------------------------- ---------------------- ------------------------- -------------------
Common Stock, $.001 Par Value - 330,033 $100
- --------------------------------- ---------------------- ------------------------- -------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
The registrant hereby amends this Registration Statement under the
Securities Act of 1933 on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this Registration statement shall thereafter become
effective in accordance with the provisions of Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section (a), may determine.
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<PAGE>
<TABLE>
<CAPTION>
The Mallard Fund, Inc.
Form N-2 Cross Reference Sheet
Items in Part A and Part B of Form N-2* Prospectus Caption
--------------------------------------- ------------------
<S> <C>
1 Outside Front Cover ..................... Outside Front Cover of Prospectus
2 Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Page of
Prospectus
3 Fee Table and Synopsis .................. Prospectus Summary; Fund Expenses
4 Financial Highlights .................... Not Applicable
5 Plan of Distribution .................... Outside Front Cover; Prospectus Summary;
Purchase of Shares
6 Selling Shareholders .................... Not Applicable
7 Use of Proceeds ......................... Use of Proceeds
8 General Description of Registrant ....... The Fund; Investment Objective and Policies;
Investment Restrictions; Special
Considerations and Risk Factors; Description
of Capital Stock
9 Management .............................. Control Persons; Management; Investment
Advisory and Other Services; Administrator,
Transfer and Dividend Disbursing Agent,
Custodian
10 Capital Stock, Long-Term Debt and Other
Securities .............................. Risk Factors and Other Investment Practices;
Purchase of Shares; Liquidation; Dividends and
Other Distributions; Description of Capital
Stock; Taxes
11 Defaults and Arrears on Senior Securities Not Applicable
12 Legal Proceedings ....................... Not Applicable
13 Table of Contents of the Statement of
Additional Information .................. Not Applicable
14 Cover Page .............................. Not Applicable
15 Table of Contents ....................... Not Applicable
16 General Information and History ......... Not Applicable
17 Investment Objectives and Policies ...... Investment Objective and Policies; Investment
Restrictions; Special Considerations and Risk
Factors; Portfolio Transactions
18 Management .............................. Management
19 Control Persons and Principal Holders of
Securities .............................. Control Persons; Management
20 Investment Advisory and Other Services .. Investment Advisory and other Services;
Administrator, Transfer and Dividend
Disbursing Agent, Custodian; Additional
Information
21 Brokerage Allocation and Other Practices Portfolio Transactions
22 Tax Status .............................. Taxes
23 Financial Statements .................... Financial Statements
</TABLE>
* All information required to be set forth in Part B: Statement of Additional
Information has been included in Part A: Prospectus
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 2, 1997
THE MALLARD FUND, INC.
Common Stock
The Mallard Fund, Inc. (the "Fund") is a newly organized,
non-diversified, closed-end investment company. The Fund's investment objective
is to seek high total return (primarily from capital appreciation and
secondarily from current income). The Fund invests primarily in other investment
vehicles. These vehicles include open-end and closed-end investment companies,
private investment companies, and other collective investment funds. The Fund
also invests in securities directly and holds cash and/or U.S. Government
securities and other short-term money market instruments. There can be no
assurance that the Fund will achieve its investment objective. The Fund is
managed by its officers under the supervision of its board of directors. The
Fund does not employ an outside investment adviser.
Shares of Common Stock of the Fund will be offered at a price equal to
the net asset value of a share of Common Stock of the Fund on the third business
day following the close of the subscription offering period, expected to end on
__________, 1997, unless extended. The subscriptions will be payable and the
Common Stock will be issued on that third day after the subscription offering
period. The minimum initial purchase during the subscription offering period is
[$1,000,000.]
Shares of Common Stock of the Fund are available exclusively to
organizations that are exempt from federal income taxation under Section
501(c)(3) of the Internal Revenue Code, as amended (the "Code") and to
charitable remainder trusts described in Section 664 of the Code. (See "Eligible
Investors").
No market presently exists for the Fund's Common Stock and it is not
currently expected that a secondary market will develop. Shares of Common Stock
cannot be transferred without the approval of the Fund. Since the Fund's Common
Stock will not be readily marketable and may be considered illiquid, the Board
of Directors of the Fund will consider, on an annual basis, the possibility of
making tender offers to repurchase all of the Common Stock of the Fund from
stockholders at the net asset value per share. There can be no assurance,
however, that the Board will decide to make any tender offers. See "Tender
Offers." If the Board of Directors of the Fund does not make a tender offer to
repurchase all of the Common Stock of the Fund by December 31, 2000, the Fund
will be liquidated as soon as practical thereafter unless the Fund obtains
unanimous approval from all stockholders not to liquidate the Fund. See
"Liquidation."
The Common Stock of the Fund involves investment risks, including
fluctuations in value and the possible loss of some or all of the principal
investment. The Fund is authorized to borrow money to finance additional
investments as well as to finance tender offers and for temporary, extraordinary
or emergency purposes. The leverage caused by such borrowings creates certain
<PAGE>
risks for holders of Common Stock, including the risk of higher volatility of
the net asset value of the Common Stock. See "Special Considerations and Risk
Factors -- Leveraging."
The Fund's Common Stock does not represent a deposit or obligation of,
and is not guaranteed or endorsed by, any bank or other insured depository
institution, and is not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
This Prospectus sets forth information about the Fund that an investor
should know before investing. It should be read and retained for future
reference. Additional information concerning the Fund may be obtained by writing
to the Fund at Rodney Square North, 1100 N. Market Street, Wilmington, DE 19890
or by calling (___)
- --------.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price to Sales Proceeds to
Public (1) Load Fund(3)
---------- ---- -------
Per Share $__ None $__
Total(2) $ None $
- --------------------------------------------------------------------------------
(1) Estimated based on the net asset value of a share of the Fund on , 1997. The
Common Stock is offered on a best efforts basis at a price equal to net asset
value.
(2) Assuming all shares offered by this Prospectus are sold.
(3) Before deducting the costs of the offering (estimated at $ ), and
excluding organizational expenses (estimated at $ ). Organizational expenses
will be amortized over a period not to exceed 60 months from the date the Fund
commenced investment operations.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or an offer to
buy nor shall there be any sale of these securities in any state in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
- -----------------------------
2
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary ............................................. 4
Fund Expenses .................................................. 9
The Fund ....................................................... 10
Use of Proceeds ................................................ 10
Investment Objective and Policies .............................. 10
Investment Restrictions ........................................ 12
Special Considerations and Risk Factors ........................ 13
Purchase of Shares ............................................. 17
Restrictions on Transferability ................................ 17
Control Persons ................................................ 18
Tender Offers .................................................. 18
Liquidation .................................................... 19
Management ..................................................... 20
Portfolio Transactions ......................................... 21
Investment Advisory and Other Services ......................... 22
Dividends and Other Distributions .............................. 22
Taxes .......................................................... 23
Net Asset Value ................................................ 25
Description of Capital Stock ................................... 26
Performance Information ........................................ 27
Administrator, Transfer and Dividend Disbursing Agent, Custodian 27
Additional Information ......................................... 28
Financial Statements ........................................... 28
Appendix A ..................................................... A-1
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD
CAREFULLY CONSIDER INFORMATION SET FORTH UNDER THE HEADING "SPECIAL
CONSIDERATIONS AND RISK FACTORS."
The Fund.......................... The Mallard Fund, Inc. (the "Fund") is a
newly organized, non-diversified, closed-end
management investment company. See "The
Fund".
The Offering ..................... Rodney Square Distributors, Inc. (the
"Underwriter") and other securities dealers
that may enter into selected dealer
agreements with the Underwriter will solicit
subscriptions for shares of Common Stock of
the Fund during a period expected to end on
__________, 1997, unless extended. On the
third business day after the conclusion of
this subscription offering period, the
subscriptions will be payable and the Common
Stock will be issued. Shares of Common Stock
of the Fund will be offered at a price equal
to the net asset value of a share of Common
Stock of the Fund on the third business day
following the close of the subscription
offering period. The offering will be made
on a "best efforts" basis.
The minimum purchase during the subscription
period is [$1,000,000]. The Fund reserves
the right to waive or modify the minimum
investment requirement at any time. The
number of shares of Common Stock offered
hereby is limited to [___,000.]
Eligible Investors .................The Fund is available exclusively to
organizations that qualify for exemption
from federal income taxation under Section
501(c)(3) of the Internal Revenue Code, as
amended (the "Code") and to charitable
remainder trusts described in Section 664 of
the Code. Shares of Common Stock cannot be
transferred without the approval of the
Fund. See "Restrictions on Transferability."
Investment Objective
and Policies .....................The investment objective of the Fund is to
provide high total return (primarily from
capital appreciation and secondarily from
current income). The Fund seeks to achieve
its investment objective by investing
primarily in other investment vehicles.
These vehicles include open-end and
closed-end investment companies, private
investment companies and other collective
investment funds. The Fund also may invest
in securities directly and may hold cash
and/or U.S. Government securities and other
short-term money market instruments. There
can be no assurance that the Fund will
achieve its investment objective.
Leverage ...........................The Fund may borrow money in amounts up to
33-1/3% of the value of its total assets to
finance additional investments as well as to
finance tender offers and for temporary,
extraordinary or emergency purposes. See
"Tender Offers." The Fund intends, from time
to time, to borrow money to finance
additional investments, but only when it
believes that the return that may be earned
on investments purchased with the proceeds
of such borrowings will exceed the costs,
including interest, associated therewith.
However, to the extent such costs exceed the
return on the additional investments, the
return realized by the Fund's common
stockholders will be adversely affected.
Moreover, if the
4
<PAGE>
return is negative during a period, not only
will the Fund's common stockholders be
adversely affected thereby but the Fund also
will pay the costs associated with the
borrowing.
Leverage creates certain risks for holders
of Common Stock, including the risk of
higher volatility of the net asset value of
the Common Stock, and the risk that interest
rates on the indebtedness will affect the
yield and return to holders of Common Stock.
Under adverse conditions, the benefit of
leverage to holders of Common Stock would be
reduced or eliminated and the Fund's
leveraged capital structure would result in
a lower rate of return to holders of Common
Stock than if the Fund were not leveraged.
The Articles of Incorporation of the Fund
authorize the issuance of preferred shares,
but the Fund has no present intention of
issuing preferred stock. Any issuance of
preferred shares by the Fund and any bank
borrowings by the Fund are subject to and
will comply with the requirements of the
1940 Act. Pursuant to the 1940 Act, among
other things, the Fund may not issue
preferred shares unless immediately after
their issuance the Fund is able to maintain
asset coverage of at least 200%. In the case
of bank borrowings, asset coverage of at
least 300% must be maintained. See "Special
Considerations and Risk Factors -
Leveraging."
Management .........................The business and affairs of the Fund are
managed under the direction of the Board of
Directors. The President of the Fund is its
Chief Investment Officer. As Chief
Investment Officer, the President is
responsible for making decisions to buy,
sell, or hold a particular security after
consultation with the Board of Directors.
The Fund does not employ an outside
investment adviser. The Fund invests in
various other investment vehicles all, or
almost all, of which have investment
advisers for portfolio management.
Administrator and
Custodian ........................Rodney Square Management Corporation
provides administrative services to the Fund
necessary for the Fund's operations. Mellon
Bank, N.A. serves as custodian of the Fund's
assets.
Dividends and Other
Distributions ....................The policy of the Fund is to distribute
quarterly an amount that on an annual basis
is equal to approximately 20% of the Fund's
average net asset value. This fixed
distribution rate will not be related to the
amount of the Fund's net investment income
or net realized capital gains or losses. If,
for any calendar year, the total
distributions required by the 20% pay-out
policy exceed the Fund's net investment
income and net realized capital gains, which
normally is expected to be the case, the
excess generally will be treated as a
tax-free return of capital, reducing the
shareholder's adjusted basis in its shares.
See "Taxes."
5
<PAGE>
Tender Offers and
Liquidation ......................The Fund's Common Stock will not be listed
on any exchange and it is not currently
anticipated that a secondary market will
develop. Moreover, the shares of Common
Stock of the Fund cannot be transferred
without the approval of the Fund. Since the
Fund's Common Stock will not be readily
marketable and may be considered illiquid
securities, the Board of Directors of the
Fund will consider, on an annual basis, the
possibility of making tender offers (each a
"Tender Offer") to repurchase all of the
Common Stock of the Fund at a price equal to
the net asset value per share of the Common
Stock. Any Tender Offer will be on an "all
or none" basis. The Board of Directors,
however, is under no obligation to authorize
the making of a Tender Offer and no
assurance can be given that in any
particular year a Tender Offer will be made.
See "Tender Offers."
If the Board of Directors does not commence
a Tender Offer by December 31, 2000, the
Fund will be liquidated as soon as practical
thereafter unless the Fund obtains unanimous
approval from all stockholders not to
liquidate the Fund. See "Liquidation."
Special Considerations
and Risk Factors .................As a newly organized entity, the Fund has no
operating history. In addition, the members
of the Board of Directors and the officers
of the Fund have no previous experience in
managing an investment company. The
transferability of shares of Common Stock of
the Fund is severely restricted; all
transfers must be approved by the Fund prior
to transfer. Accordingly, it is not
anticipated that there will be a public
trading market for the Fund's Common Stock.
Share Liquidity ....................Because of the anticipated lack of a
secondary market for shares of its Common
Stock, the Fund is designed primarily for
long-term investors and should not be
considered a vehicle for trading purposes or
for investors who need more liquidity than
is provided under the arrangements described
herein.
Non-Diversified ....................The Fund has registered as a
"non-diversified" investment company so that
it will be able to invest more than 5% of
its assets in the obligations of any single
issuer, subject to the diversification
requirements of Subchapter M of the Code,
applicable to the Fund. Since the Fund may
invest a relatively high percentage of its
assets in the obligations of a limited
number of issuers, the Fund may be more
susceptible than a more widely diversified
fund to any single economic, political or
regulatory occurrence.
6
<PAGE>
Investment Risk ....................The Fund will concentrate its investments in
the shares of open-end and closed-end
investment companies and other pooled
investment vehicles. Pooled investment
vehicles generally pool the investments of
many investors and use professional
management to select and purchase securities
of different issuers for their portfolios.
Any investment in pooled investment vehicles
involves risk. The Fund may invest up to
100% of its total assets in open-end and
closed-end investment companies and may
invest up to 25% of its total assets in any
one open-end or closed-end investment
company. The Fund also may invest up to 30%
of its total assets in private investment
companies and may invest up to 10% of its
total assets in any one private investment
company. In addition, the Fund may invest up
to 20% of its total assets in separate
accounts managed by investment advisers. The
Fund may purchase only up to 3% of the total
outstanding securities of a registered
investment company. Open-end investment
companies stand ready to redeem their shares
at net asset value, but an open-end
investment company is obliged to redeem
shares held by the Fund only in an amount up
to 1% of the mutual fund's outstanding
securities during any period of 30 days.
Shares of closed-end funds are not
redeemable but generally trade on exchanges
at prices that typically are lower than
their net asset value. See "Investment
Objective and Policies" and "Investment
Restrictions."
Some or all of the pooled investment
vehicles in which the Fund may invest will
be considered to be illiquid, which may
impair the Fund's ability to realize the
full value of its interest. The Board of
Directors of the Fund will consider the
liquidity of the Fund's securities in
determining whether a tender offer should be
made by the Fund.
7
<PAGE>
The ability of the Fund to achieve its
investment objective will depend on its
ability to allocate successfully its assets
among different asset categories and to
select and monitor portfolio investments
within each specified category.
Specifically, the Fund will select from a
broad range of asset categories, including
speculative equity securities vehicles, such
as emerging markets funds and aggressive
growth funds, and conservative debt
securities vehicles, such as short-term U.S.
government securities funds. Thus, the Fund
may choose among asset categories that range
from the most aggressive to the most
conservative. The Fund's decisions to invest
more heavily in aggressive or conservative
vehicles, equity or debt-oriented vehicles,
or U.S. or foreign-oriented vehicles will
impact significantly the results of the
Fund. This asset allocation risk is separate
from the risk of selecting particular
investments.
There can be no assurance that the
investment objective of the Fund, or of any
of the investment vehicles in which it
invests, will be achieved.
Control Persons ....................On ________, 1997, the William S. Dietrich
II Charitable Remainder Annuity Trust (the
"Dietrich CRAT") contributed a substantial
portion of its assets (consisting
principally of interests in investment
companies valued at approximately $___
million) to the Fund in exchange for shares
of Common Stock of the Fund. On the same
date, the William S. Dietrich II Charitable
Remainder Unit Trust (the "Dietrich CRUT")
contributed a substantial portion of its
assets (consisting principally of interests
in public and private investment companies
valued at approximately $___ million) to the
Fund in exchange for shares of Common Stock
of the Fund. As a result of these
transactions, as of the date of this
Prospectus, the Dietrich CRAT and the
Dietrich CRUT own 100% of the shares of
Common Stock of the Fund. If all shares
offered pursuant to the public offering are
sold and issued, it is anticipated that the
Dietrich CRAT individually still will own
more than 50% of the shares of Common Stock
of the Fund. As a result of this stock
ownership, the Dietrich CRAT would be deemed
to control the Fund within the meaning of
Section 2(a)(9) of the 1940 Act. Because of
its ownership, the Dietrich CRAT will be
able to vote on and control all matters
relating to the management and policies of
the Fund, such as the election of directors
and the change in the Fund's investment
policies. See "Control Persons."
8
<PAGE>
FUND EXPENSES
The following tables are intended to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear, directly
or indirectly.
STOCKHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)............... None(1)
Dividend Reinvestment Fees................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO COMMON STOCK)
Investment management fee(2)........................................ None
Other expenses(3)............................................ ____%
Total annual operating expenses ............................. ____%
- -------------
(1) No sales load or commission will be payable in connection with this offer.
(2) The Fund is internally managed. See "Management" for additional
information.
(3) "Other Expenses" include director and officer compensation, administrative,
custodial, transfer agency, legal, audit, and other miscellaneous Fund
expenses. Because the Fund has no operating history, "Other Expenses" have
been estimated for the current fiscal year.
EXAMPLE
The following Example demonstrates the projected dollar amount of total
cumulative expense that would be incurred over various periods with
respect to a hypothetical investment in the Fund. These amounts are
based upon payment by the Fund of operating expenses at the levels set
forth in the above table.
An investor would directly or indirectly pay the following expenses of
a $1,000 investment in the Fund, assuming (i) a 5% annual return and
(ii) reinvestment of all dividends and other distributions at net asset
value:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$ $ $ $
This Example assumes that the percentage amounts listed under Total
Annual Operating Expenses remain the same in the years shown, except as
to Ten Years, for the completion of organizational expense
amortization. The above tables and the assumption in the Example of a
5% annual return and reinvestment at net asset value are required by
regulation of the Securities and Exchange Commission applicable to all
closed-end investment companies; the assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual
performance of the Common Stock. Actual expenses and annual rates of
return may be more or less than those assumed for purposes of the
Example.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN.
9
<PAGE>
THE FUND
The Fund is a newly organized, non-diversified, closed-end management
investment company. The Fund was incorporated under the laws of the State of
Maryland on October 15, 1996 and is registered under the 1940 Act. The Fund's
principal office is located at Rodney Square North, 1100 N. Market Street,
Wilmington, DE 19890, and its telephone number is (___) ___-____.
USE OF PROCEEDS
The net proceeds of the offering, assuming all shares of common stock
are sold at an assumed subscription price of $_____ per share, are estimated to
be approximately $_____, assuming all shares are sold at the net asset value of
a share of the Fund on _______________. The Fund will invest the net proceeds in
accordance with the Fund's investment objective and policies within
approximately three months after completion of the offering of Common Stock,
depending on the availability of securities and other relevant conditions.
Pending such investment, it is anticipated that the proceeds will be held in
U.S. Government securities (which term includes obligations of the United States
Government, its agencies or instrumentalities) and other short-term money market
instruments. See "Investment Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective, (which is established by the Board of
Directors and is subject to change only with shareholder approval) is to seek
high total return (primarily from capital appreciation and secondarily from
current income). In furtherance of this objective, the Fund will invest
primarily in other pooled investment vehicles. These vehicles will include
open-end and closed-end investment companies ("Underlying Funds"), private
investment companies ("Underlying Private Funds") and other collective
investment funds ("Underlying Collective Funds") (together, "Underlying
Investment Vehicles"). Underlying Funds are public investment companies that are
registered with the Securities and Exchange Commission. Underlying Private Funds
are private investment companies that may be organized in either the United
States or a foreign jurisdiction. Underlying Private Funds invest predominately
in securities and may sell securities short as well as use borrowed funds to
make investments in securities. Underlying Private Funds are often referred to
as "hedge funds." Underlying Collective Funds are separate accounts managed by
investment advisers, who invest the assets on a discretionary basis. The Fund
also may invest in securities directly and may hold cash and/or U.S. Government
securities and other short-term money market instruments. There can be no
assurance that the Fund will achieve its investment objective.
The business and affairs of the Fund are managed under the direction of
the Board of Directors ("Directors"). The President of the Fund is the Chief
Investment Officer. As Chief Investment Officer, the President is responsible
for making decisions to buy, sell or hold a particular security, after
consultations with the Directors. The Chief Investment Officer is assisted by
the officers of the Fund in the investment selection process. The Fund uses a
"top down" approach to buying and selling securities, although it is not limited
to this approach. Under a "top down" approach, categories of investments are
identified that offer the best risk/reward opportunities. These categories may
include, but are not limited to, investments in corporate debt, high-yield or
junk bonds, small-capitalization stocks, large-capitalization stocks, and
foreign securities of developed markets and of emerging markets. The Fund
allocates its assets within these categories by selecting specific Underlying
Investment Vehicles. The allocation among asset categories reflects the Fund's
long range view of the markets. Generally, Underlying Investment Vehicles within
a particular asset category are compared against similar vehicles in the same
10
<PAGE>
category. Selection of particular Underlying Investment Vehicles will be based
on a variety of factors, including, but not limited to, the part performance of
the vehicle, the investment style of the managers of the vehicles, the cost
structure of the vehicle, as well as various other factors. The Fund currently
anticipates that it will overweight the asset categories of foreign securities
in developed markets and emerging market, including debt and equity securities.
The Fund's relative weighing among asset categories is not subject to any
limitations and there can be no assurance that any weighing will be maintained
in the future.
In pursuit of its investment objective, the policy of the Fund is not
to restrict itself as to the type of Underlying Investment Vehicle in which it
can invest or as to the proportion of the value of its assets that may be
invested in any type of Underlying Investment Vehicle. However, the Fund will
follow certain guidelines regarding its investments. The Fund may invest up to
100% of its total assets in Underlying Funds and may invest up to 25% of its
total assets in any one Underlying Fund. The Fund may invest up to 30% of its
total assets in Underlying Private Funds and may invest up to 10% of its assets
in any one Underlying Private Fund. The Fund may invest up to 20% of its total
assets in Underlying Collective Funds. The Fund also may invest up to 15% of its
total assets directly in equity and debt securities other than cash and money
market instruments. These percentage limitations are subject to change by the
Board of Directors. In addition, the Fund together with any affiliated persons
of the Funds (as that term is defined in the 1940 Act) may purchase only 3% of
the total outstanding securities of a registered investment company. See
"Special Considerations and Risk Factors."
Pending investment, for temporary defensive purposes, or for other
purposes such as to pay distributions, the Fund may hold up to 100% of its
assets in cash and/or U.S. Government securities and other money market
instruments, including money market funds. To the extent the Fund employs a
temporary defensive strategy, it will not be invested so as to achieve directly
its investment objective.
Investment in shares of Common Stock of the Fund offers several
benefits. The Fund offers investors the opportunity to benefit from economies of
scale inherent in many aspects of investing. These potential economies of scale
include enhanced diversification of assets across numerous Underlying Investment
Vehicles and reduced investment-related expenses. Because the Fund will not
incur a management fee, the Fund is expected to be a lower cost investment
vehicle than other registered investment companies that operate in a "fund of
funds" manner. The Fund also relieves the investor of the burdensome
administrative details involved in managing a portfolio of such investments.
These benefits are at least partially offset by the expenses involved in
operating an investment company. Such expenses primarily consist of the
administrative fees and operational costs of the Fund.
OTHER INVESTMENT POLICIES
The Fund has adopted certain other policies as set forth below:
ILLIQUID SECURITIES: The Fund has no limitation on the amount of its
assets that may be invested in investments which are not readily marketable or
are subject to restrictions on resale. Such investments, which may be considered
illiquid, may affect the Fund's ability to realize the net asset value in the
event of a voluntary or involuntary liquidation of its assets. To the extent
that such investments are illiquid, the Fund may have difficulty disposing of
securities in order to enable the Fund to repurchase shares of its Common Stock
pursuant to tender offers, if any. Interests in Underlying Private Funds and
Underlying Collective Funds generally are not readily marketable and may be
subject to restrictions on resale. The Board of Directors of the Fund will
consider the liquidity of the Fund's investments in determining whether a tender
offer should be made by the Fund. See "Net Asset Value."
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LEVERAGE. The Fund is authorized to borrow money in amounts of up to
33-1/3% of the value of its total assets at the time of such borrowings.
Borrowings by the Fund (commonly known as "leveraging") create an opportunity
for greater total return but, at the same time, increase exposure to capital
risk. In addition, borrowed funds are subject to interest costs that may offset
or exceed the return earned on the borrowed funds. See "Special Considerations
and Risk Factors -- Leverage."
SECURITIES LENDING. The Fund may from time to time lend securities from
its portfolio with a value not exceeding 33-1/3% of its total assets to banks,
brokers and other financial institutions and receive collateral in cash or
securities issued or guaranteed by the United States Government. Such collateral
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. This limitation is a fundamental
policy, and it may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, as defined in the 1940
Act. The purpose of such loans is to permit the borrower to use such securities
for delivery to purchasers when such borrower has sold short. If cash collateral
is received by the Fund, it is invested in short-term money market securities,
and a portion of the yield received in respect of such investment is retained by
the Fund. Alternatively, if securities are delivered to the Fund as collateral,
the Fund and the borrower negotiate a rate for the loaned premium to be received
by the Fund for lending its portfolio securities. In either event, the total
yield on the Fund is increased by loans of its securities. The Fund will have
the right to regain record ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to dividends,
interest or other distributions. Such loans are terminable at any time. The Fund
may pay reasonable finder's, administrative and custodial fees in connection
with such loans. In the event that the borrower defaults on its obligation to
return borrowed securities, because of insolvency or otherwise, the Fund could
experience delays and costs in gaining access to the collateral and could suffer
a loss to the extent that the value of the collateral falls below the market
value of the borrowed securities. The Fund has no present intention of lending
its portfolio securities.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
with respect to its permitted investments but currently intends to do so only
with member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. Under a repurchase agreement, the Fund buys a security at
one price and simultaneously promises to sell the same security back to the
seller at a higher price. The Fund's repurchase agreements will provide that the
value of the collateral underlying the repurchase agreement will always be at
least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement, and will be marked to market daily. The repurchase
date usually is within seven days of the original purchase date. Repurchase
agreements are deemed to be loans under the 1940 Act. In all cases, the Board of
Directors must be satisfied with the creditworthiness of the other party to the
agreement before entering into a repurchase agreement. In the event of the
bankruptcy (or other insolvency proceeding) of the other party to a repurchase
agreement, the Fund might experience delays in recovering its cash. To the
extent that, in the meantime, the value of the securities the Fund purchases may
have declined, the Fund could experience a loss. The Fund has no present
intention of entering into repurchase agreements.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund and,
prior to issuance of any preferred stock, may not be changed without the
approval of the holders of a majority of the Fund's outstanding shares of Common
Stock (which for this purpose and under the 1940 Act means the lesser of (iii)
67% of the shares of Common Stock represented at a meeting at which more than
50% of the outstanding shares of Common Stock are represented or (iv) more than
50% of the outstanding shares). Subsequent to the issuance of a class of
preferred stock, the following investment restrictions may not be changed
without the approval of a majority of the outstanding shares of Common Stock and
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of the preferred stock, voting together as a class, and the approval of a
majority of the outstanding shares of preferred stock, voting separately by
class. The Fund may not:
(1) Invest more than 25% of its total assets in the securities of
issuers in any one industry, provided that this limitation shall not apply with
respect to obligations issued or guaranteed by the U.S. government or by its
agencies or instrumentalities, and further provided that Underlying Funds,
Underlying Private Funds and Underlying Collective Funds each will not be
considered an industry for this purpose.
(2) Borrow money in excess of 33 1/3% of the value of its total assets
(including amounts borrowed) at the time of such borrowing, (except that the
Fund may borrow from a bank in an amount not in excess of 5% of the Fund's total
assets as a temporary measure for extraordinary or emergency purposes).
(3) Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Fund may purchase commodities contracts relating to
financial instruments, such as financial futures or index contracts and options
on such contracts.
(4) Invest in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
(5) Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
(6) Make loans, except that the Fund may purchase debt securities,
entering into repurchase agreements and lend its portfolio securities.
The Fund's investment objective is fundamental. The Fund may issue
senior securities representing debt, provided the Fund has an asset coverage of
300% after such issuance. In addition, although it has no present intention to
do so, the Fund may issue senior securities representing stock, provided the
Fund has an asset coverage of 200% after such issuance.
All other policies described herein are treated as non-fundamental
investment limitations that may be changed by the Fund's Board without a vote of
shareholders.
If a percentage restriction on investment policies or the investment or
use of assets set forth above is adhered to at the time a transaction is
effected, later changes in the percentage resulting from changing values will
not be considered a violation.
SPECIAL CONSIDERATIONS AND RISK FACTORS
NON-DIVERSIFICATION. The Fund is classified under the 1940 Act as a
"non-diversified" fund; therefore, the Fund will be able, with respect to 50% of
its total assets, to invest more than 5% of their total assets in obligations of
one issuer. To the extent that the Fund invests in a smaller number of issuers,
the value of the Fund's shares may fluctuate more widely and the Fund may be
subject to greater investment and credit risk with respect to its portfolio.
RISKS AND OTHER CONSIDERATIONS: The Fund will concentrate its
investments in the shares of open-end and closed-end investment companies and
private investment companies. Investment companies pool the investments of many
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investors and use professional management to select and purchase securities of
different issuers for their portfolios. Some investment companies invest in
particular types of securities (i.e. equity or debt), some concentrate in
certain industries, and others may invest in a variety of securities to achieve
a particular type of return or tax result. Any investment in an investment
company involves risk. Even though the Fund may invest in a number of investment
companies, this investment strategy cannot eliminate investment risk. Investing
in investment companies through the Fund may involve additional and duplicative
expenses and certain tax results that would not be present if an investor were
to make a direct investment in the Underlying Funds or Underlying Private Funds.
The Fund, together with any "affiliated persons" (as such term is defined in the
1940 Act) may purchase only up to 3% of the total outstanding securities of an
Underlying Fund. The Fund has no present intention of investing in open-end
funds that impose a sales load, contingent deferred sales load or redemption
fee. The Underlying Funds may incur distribution expenses in the form of "Rule
12b-1 fees."
The Underlying Funds that are "open-end" funds stand ready to redeem
their shares. The 1940 Act provides that an open-end fund whose shares are
purchased by the Fund is obliged to redeem shares held by the Fund only in an
amount up to 1% of the open-end fund's outstanding securities during any period
of 30 days. Under certain circumstances, an open-end fund may determine to make
payment of a redemption by the Fund (wholly or in part) by a
distribution-in-kind of securities from its portfolio, instead of in cash. As a
result, the Fund may hold securities distributed by an open-end fund until such
time as the Board determines it is appropriate to dispose of such securities.
The Fund could incur brokerage, tax or other charges in converting such
portfolio securities to cash.
Shares of closed-end funds are typically offered to the public in a
one-time initial public offering by a group of underwriters who retain a spread
or underwriting commission of between 4% and 6% of the initial public offering
price. Such securities are then listed for trading on the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") and, in some cases, may be traded
in other over-the-counter markets. Because the shares of closed-end funds cannot
be redeemed upon demand to the issuer like the shares of an open-end fund,
shares of closed-end funds trade, if at all, in the secondary market.
The Fund generally will purchase shares of closed-end funds only in the
secondary market. The Fund will incur normal brokerage costs on such purchases
similar to the expenses to the Fund would incur for the purchase of equity
securities in the secondary market. The Fund, however, also may purchase
securities of a closed-end fund in an initial public offering when, in the
opinion of the Chief Investment Officer based on a consideration of the nature
of the closed-end fund's proposed investments, the prevailing market conditions
and the level of demand for such securities, securities of closed-end funds
represent an attractive opportunity for growth of capital. The initial offering
price typically will include a dealer spread, which may be higher than the
applicable brokerage cost if the Fund purchased such securities in the secondary
market.
The shares of many closed-end funds, after their initial public
offering, frequently trade at a price per share that is less than the net asset
value per share, the difference representing the "market discount" of such
shares. This market discount may be due in part to the investment objective of
long-term appreciation, which is sought by many closed-end funds, as well as to
the fact that the shares of closed-end funds are not redeemable by the holder
upon demand in the secondary market. A relative lack of secondary market
purchases of closed-end fund shares also may contribute to such shares trading
at a discount to their net asset value.
The Fund may invest in shares of closed-end funds that are trading at a
discount to net asset value or at a premium to net asset value. There can be no
assurance that the market discount on shares of any closed-end fund purchased by
the Fund will ever decrease. In fact, it is possible that this market discount
may increase and the Fund may suffer realized or unrealized capital losses due
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<PAGE>
to further decline in the market price of the securities of such closed-end
funds, thereby adversely affecting the net asset value of the Fund's shares.
Similarly, there can be no assurance that any shares of a closed-end fund
purchased by the Fund at a premium will continue to trade at a premium or that
the premium will not decrease subsequent to a purchase of such shares by the
Fund.
Closed-end funds may issue senior securities (including preferred stock
and debt obligations) or borrow money for the purpose, and with the effect of,
leveraging the closed-end fund's common shares in an attempt to enhance the
current return to such closed-end funds common shareholders. The Fund's
investment in the common shares of closed-end funds that are financially
leveraged may create an opportunity for greater total return on its investment,
but at the same time may be expected to exhibit more volatility in market price
and net asset value than an investment in shares of investment companies without
a leveraged capital structure. The Fund has no present intention to invest in
senior securities issued by closed-end funds.
An investor could invest directly in the Underlying Funds. By investing
in investment companies indirectly through the Fund, the investor bears not only
his proportionate share of the expenses of the Fund (including operating costs
and administrative fees) but also, indirectly, similar expenses of the
Underlying Funds. An investor may indirectly bear expenses paid by Underlying
Funds related to the distribution of their shares. As a result of the Fund's
policies of investing in Underlying Funds, an investor may receive capital gains
distributions to a greater extent than would be the case if he invested directly
in the Underlying Funds.
RISK OF UNDERLYING INVESTMENT VEHICLES. Investment decisions of the
Underlying Investment Vehicles are made by their investment advisers entirely
independently of the Fund. Indeed, at any particular time, one Underlying
Investment Vehicle may be purchasing shares of an issuer whose shares are being
sold by another Underlying Investment Vehicle. As a result, the Fund would incur
indirectly certain transactions costs without accomplishing any investment
purpose.
Some of the Underlying Investment Vehicles also incur more risks than
others. For example, they may trade their portfolios more actively (which
results in higher brokerage costs), may engage in investment practices that
entail greater risk, or invest in companies whose securities and other
investments are more volatile. In addition, the Underlying Investment Vehicles
in which the Fund invests may or may not have the same investment limitations as
those of the Fund itself. In the case of an Underlying Investment Vehicle that
concentrates in a particular industry or industry group, events may occur that
impact that industry or industry group more significantly than the stock market
as a whole. In the case of a Underlying Investment Vehicle that employs
leverage, i.e., borrows money to invest, there may be increased risk of
volatility and other risks of "leveraged transactions." If an Underlying
Investment Vehicle sells securities short, there may be an increased risk of
loss if the value of the securities sold short increase in value because the
Underlying Investment Vehicle may have posted only a small percentage of the
value of the securities as collateral but would be liable for the entire value
of the securities sold short. In addition, investing in Underlying Investment
Vehicles that invest in foreign securities and emerging markets involves risks
related to political and economic developments and changes in foreign currency
exchange rates. Investments in Underlying Investment Vehicles that invest in
lower quality debt securities commonly known as "junk bonds" involves a high
degree of risk and could be considered speculative investments. The risks
associated with investments in foreign securities and junk bonds are described
in the Appendix to this Registration Statement.
LEVERAGE. The Fund may borrow money in amounts up to 33-1/3% of the
value of its total assets to finance additional investments as well as to
finance tender offers or for temporary, extraordinary or emergency purposes. See
"Tender Offers." The Fund has received a private letter ruling from the Internal
Revenue Service premised on the Fund having no more than one class of shares
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outstanding. See "Taxes." As a result, although the Fund is permitted, by its
articles of incorporation and the 1940 Act, to issue one or more series of
preferred shares, it has no present intention to do so. The Fund may borrow to
finance additional investments or issue a class of preferred shares only when it
believes that the return that may be earned on investments purchased with the
proceeds of such borrowings or offerings will exceed the costs, including debt
service and dividend obligations, associated therewith. However, to the extent
such costs exceed the return on the additional investments, the return realized
by the Fund's common stockholders will be adversely affected. Moreover, if the
return is negative during a period, not only will the Fund's common stockholders
be adversely affected, but the Fund also will pay the costs associated with the
borrowing or preferred stock.
Capital raised through leverage will be subject to interest costs or
dividend payments which may or may not exceed the interest on the assets
purchased. The Fund also may be required to maintain minimum average balances in
connection with borrowings or to pay a commitment or other fee to maintain a
line of credit; either of these requirements will increase the cost of borrowing
over the stated interest rate. The issuance of additional classes of preferred
shares involves offering expenses and other costs and may limit the Fund's
freedom to pay dividends on shares of Common Stock or to engage in other
activities. Borrowings and the issuance of a class of preferred stock having
priority over the Fund's Common Stock create an opportunity for greater income
per share of Common Stock, but at the same time such borrowing or issuance is a
speculative technique in that it will increase the Fund's exposure to capital
risk. Unless the income and appreciation, if any, on assets acquired with
borrowed funds or offering proceeds exceeds the costs of borrowing or issuing
additional classes of securities, the use of leverage will diminish the
investment performance of the Fund compared with what it would have been without
leverage.
Under the 1940 Act, the Fund is not permitted to incur indebtedness
unless immediately after such incurrence the Fund has an asset coverage of 300%
of the aggregate outstanding principal balance of indebtedness. Additionally,
under the 1940 Act the Fund may not declare any dividend or other distribution
upon any class of its capital stock, or purchase any such capital stock, unless
the aggregate indebtedness of the Fund has at the time of the declaration of any
such dividend or distribution or at the time of any such purchase, an asset
coverage of at least 300% after deducting the amount of such dividend,
distribution, or purchase price, as the case may be.
The Fund's willingness to borrow money for investment purposes, and the
amount it will borrow, will depend on many factors, the most important of which
are investment outlook, market conditions and interest rates. Successful use of
a leveraging strategy depends on the ability of the Chief Investment Officer to
predict correctly interest rates and market movements, and there is no assurance
that a leveraging strategy will be successful during any period in which it is
employed.
FUND INVESTMENT STRUCTURE. An investor should be aware that the Fund,
unlike other investment companies that directly acquire and manage their own
portfolios of securities, seeks to achieve its investment objective primarily by
investing all of its investable assets in the Underlying Investment Vehicles
(although the Fund may temporarily hold a de minimis amount of cash). Therefore,
the Fund's interest in the securities owned by the Underlying Investment
Vehicles is indirect. Funds that invest all their assets in interests in
separate unaffiliated investment companies are a relatively new development in
the investment company industry and, therefore, the Fund may be subject to
additional regulations than historically structured funds. The Underlying
Investment Vehicles also may sell interests to other affiliated and
non-affiliated investment companies or institutional investors.
If the Fund withdraws all of its assets from an Underlying Investment
Vehicle, or the Board of Directors of the Fund determines that the investment
objective of an Underlying Investment Vehicle is no longer consistent with the
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investment objective of the Fund, the Directors would consider what action might
be taken, including investing the assets of the Fund in another pooled
investment vehicle or retaining an investment adviser to manage the Fund's
assets in accordance with its investment objective. The Fund's investment
performance may be affected by a withdrawal of all of some or the Funds assets
from an Underlying Investment Vehicle.
Whenever the Fund, as an investor in an Underlying Fund is requested to
vote on matters pertaining to the Underlying Fund, the Fund will hold a meeting
of its stockholders and will vote its interest in the Underlying Fund for or
against such matters proportionately to the instructions to vote for or against
such matters received from Fund stockholders. The Fund shall vote shares for
which it receives no voting instructions in the same proportion as the shares
for which it receives voting instructions.
LACK OF OPERATING HISTORY AND SECONDARY MARKET: As a newly organized
entity, the Fund has no operating history. In addition, the members of the Board
and the Fund's officers have no previous experience in managing an investment
company. Moreover, the shares of Common Stock are restricted and cannot be
transferred without the approval of the Fund. It is not anticipated that there
will be a public trading market for the Fund's Common Stock. To the extent that
a secondary market exists and a transfer is permitted, however, investors should
be aware that the shares of closed-end funds frequently trade in the secondary
market at a discount from their net asset value. Should there be a secondary
market for the Fund's shares of Common Stock, the market price of the shares may
vary from net asset value. The Fund is designed primarily for long-term
investors and should not be considered a vehicle for trading purposes.
PURCHASE OF SHARES
SUBSCRIPTION OFFERING. Shares of Common Stock of the Fund will be
offered at a price equal to the net asset value of a share of Common Stock of
the Fund on the third business day following the close of the subscription
offering period, expected to end on __________, 1997, unless extended. The
subscriptions will be payable and the Common Stock will be issued on that third
day after the offering period. The minimum initial purchase during the
subscription offering period is [$1,000,000].
Rodney Square Distributors, Inc. (the "Underwriter") acts as the
underwriter of shares of Common Stock of the Fund. The Underwriter, and other
securities dealers that may enter into selected dealer agreements with the
Underwriter, will solicit subscriptions for shares of the Fund for a 60-day
period expected to end on _________, 1997. The subscription period may be
extended for up to an additional 30 days upon agreement between the Fund and the
Underwriter. On the third business day after the conclusion of the subscription
offering period, the subscriptions will be payable and the shares will be
issued. The subscription offering may be terminated by the Fund or the
Underwriter at any time, in which event no shares will be issued (and,
therefore, the Fund will not commence a public offering, no amounts will be
payable by subscribers, any payments by subscribers will be refunded in full
without interest) or a limited number of shares will be issued. The offering
will be made on a "best efforts" based under which the Underwriter is required
to take and pay for only such securities as it may sell to the public.
RESTRICTIONS ON TRANSFERABILITY
Shares of Common Stock of the Fund cannot be transferred without the
written approval of the Fund. The Secretary of the Fund must approve all
transfers. The Secretary will not approve transfers unless the transferee meets
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the definition of Eligible Investors (as defined herein) and the transfer is for
at least [$1,000,000] worth of Common Stock. The Board of Directors may from
time to time by resolution modify qualifications for transferees.
CONTROL PERSONS
CONTROL OF FUND. The Fund raised capital through a private placement
offering. On ________, 1997, the William S. Dietrich II Charitable Remainder
Annuity Trust (the "Dietrich CRAT") contributed a substantial portion of its
assets (consisting principally of interests in public investment companies
valued at approximately $___ million) to the Fund in exchange for shares of
Common Stock of the Fund equal in value to the transferred assets. On this same
date, the William S. Dietrich II Charitable Remainder Unit Trust (the "Dietrich
CRUT") contributed a substantial portion of its assets (consisting principally
of interests in public and private investment companies valued at approximately
$___ million) to the Fund in exchange for shares of Common Stock of the Fund. As
a result of these transactions, as of the date of this Prospectus, the Dietrich
CRAT and the Dietrich CRUT own (both beneficially and of record) 100% of the
shares of Common Stock of the Fund. If all shares offered pursuant to the public
offering are sold and issued, it is anticipated that the Dietrich CRAT
individually still will own more than 50% of the Shares of Common Stock of the
Fund. As a result of this stock ownership, the Dietrich CRAT would be deemed to
control the Fund within the meaning of Section 2(a)(9) of the 1940 Act. Because
of its ownership, the Dietrich CRAT will be able to vote on and control all
matters relating to the management and policies of the Fund, such as the
election of directors and the change in the Fund's investment policies. The
address of the Dietrich CRAT is 500 Grant Street, Suite 2226, Pittsburgh, PA
15219-2502.
TENDER OFFERS
No market presently exists for the Fund's Common Stock and it is not
currently expected that a secondary market will develop. In recognition of the
possibility that a secondary market for the Fund's shares will not exist, the
Fund may take actions that will provide liquidity to stockholders. Commencing
with the second year of Fund operations, the Board of Directors of the Fund will
consider each year the making of Tender Offers, i.e., offers to repurchase all
of its shares of Common Stock from stockholders of the Fund's Common Stock at a
price per share equal to the net asset value per share of the Common Stock.
There can be no assurance that the Board will decide to undertake the making of
a Tender Offer in any particular year. If the Directors determine to make a
Tender Offer, such offer will be on an "all or none" basis. Thus, shareholders
who accept the offer would have all their shares repurchased by the Fund,
thereby reducing each such shareholder's interest in the Fund to zero. Subject
to the Fund's investment restriction with respect to borrowings, the Fund may
borrow money to finance the repurchase of shares pursuant to any Tender Offers.
See "Special Considerations and Risk Factors -- Leverage" and "Investment
Restrictions."
The Fund's assets will consist primarily of its interest in the
Underlying Investment Vehicles. Therefore, in order to finance the repurchase of
Fund shares pursuant to Tender Offers, the Fund may find it necessary to
liquidate all or a portion of its interest in the Underlying Investment
Vehicles.
The Fund expects that ordinarily there will be no secondary market for
the Fund's Common Stock. Nevertheless, if a secondary market develops for the
Common Stock of the Fund, the market price of the shares may vary from net asset
value from time to time. Such variance may be affected by, among other factors,
relative demand and supply of shares and the performance of the Fund. A Tender
Offer for shares of Common Stock of the Fund at net asset value could reduce any
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spread between net asset value and market price that may otherwise develop.
However, there can be no assurance that such action would result in the Fund's
Common Stock trading at a price that equals or approximates net asset value.
Although the Board of Directors believes that the Tender Offers
generally would be beneficial to holders of the Fund's Common Stock, the
acquisition of shares of Common Stock by the Fund will decrease the total assets
of the Fund and therefore have the likely effect of increasing the Fund's
expense ratio (assuming such acquisition is not offset by the issuance of
additional shares of Common Stock). Furthermore, to the extent the Fund borrows
to finance the making of Tender Offers, interest on such borrowings reduce the
Fund's net investment income.
It is the Board of Director's announced policy, which may be changed by
the Board, not to repurchase shares pursuant to a Tender Offer if (1) such
repurchases would terminate the Fund's status as a regulated investment company
("RIC") under the Code (which would make the Fund a taxable entity, causing its
income to be taxed at the corporate level in addition to the taxation of
non-exempt stockholders who receive dividends from the Fund); (2) the Fund would
not be able to liquidate portfolio securities in a manner that is orderly and
consistent with the Fund's investment objective and policies in order to
repurchase Common Stock tendered pursuant to the Tender Offer; or (3) there is,
in the Board's judgment, any (a) legal action or proceeding instituted or
threatened challenging the Tender Offer or otherwise materially adversely
affecting the Fund, (b) commencement of war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States which is material to the Fund, or (c) other event or condition which
would have a material adverse effect on the Fund or its stockholders if shares
of Common Stock tendered pursuant to the Tender Offer were purchased. Thus,
there can be no assurance that the Board will proceed with any Tender Offer. The
Board of Directors may modify these conditions in light of circumstances
existing at the time. If the Board of Directors determines to repurchase the
Fund's shares of Common Stock pursuant to a Tender Offer, such purchases could
significantly reduce the asset coverage of any borrowing or outstanding senior
securities. The Fund may not purchase shares of Common Stock to the extent such
purchases would result in the asset coverage with respect to such borrowing or
senior securities being reduced below the asset coverage requirement set forth
in the 1940 Act. Accordingly, in order to repurchase all shares of Common Stock
tendered, the Fund may have to repay all or part of any then outstanding
borrowing or redeem all or part of any then outstanding senior securities to
maintain the required asset coverage. See "Special Considerations and Risk
Factors -- Leverage."
Each Tender Offer will be made and stockholders notified in accordance
with the requirements of the Securities Exchange Act of 1934 and the 1940 Act,
either by publication or mailing or both. The offering documents will contain
such information as is prescribed by such laws and the rules and regulations
promulgated thereunder. The repurchase of tendered shares by the Fund will be a
taxable event to a non-exempt shareholder. See "Taxes." The Fund will pay all
costs and expenses associated with the making of any Tender Offer.
LIQUIDATION
If the Board of Directors does not commence a Tender Offer by December
31, 2000, the Fund will be liquidated as soon as practical thereafter unless the
Fund obtains unanimous approval from all shareholders of the Fund's Common Stock
not to liquidate the Fund. If unanimous shareholder approval is obtained after
this three year period, the Fund will continue in existence for three successive
three year periods. If no tender offer is made within any three year period, the
Fund will be liquidated as soon as practical thereafter, unless the Fund obtains
unanimous approval from all shareholders of the Fund's Common Stock not to
liquidate the Fund. In all cases, the Fund shall cease to exist at the close of
business on December 31, 2009.
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MANAGEMENT
The Fund's Board of Directors has overall supervision over the affairs
of the Fund. Pursuant to this responsibility, the Board has appointed officers
and engaged other companies to provide certain administrative services required
by the Fund.
The Fund does not employ an outside investment adviser. The Chief
Investment Officer is responsible for the actual management of the Fund. As part
of his responsibilities, the Chief Investment Officer, with the assistance of
the Fund's officers and consultation with the Board of Directors, is responsible
for making decisions to buy, sell, or hold a particular security. The Board of
Directors has served as such since the Fund commenced operations on _______,
1997, when shares were issued to _______.
William S. Dietrich II is the President and Chief Investment Officer of
the Fund. In this capacity, he is responsible for making investment decisions
for the Fund, after consultation with the Board of Directors. In the event that
Mr. Dietrich is unable to perform in this capacity, the Board of Directors, in
its discretion, may appoint another officer of the Fund as Chief Investment
Officer.
The principal sources of information used by the Fund in making
investment decisions include many financial newspapers and magazines, including
ones focusing on mutual funds, closed-end investment companies, hedge funds and
other investment vehicles, information prepared by the various investment
vehicles and publications of corporate rating services, such as Moody's
Investors Service, Inc. and Standard & Poor's Ratings Group. In addition, the
Board of Directors and the officers of the Fund may hold in-person meetings with
management and advisers. Although nearly all investment decisions are a result
of internal research, the Fund may use brokers, investment banks and outside
consultants to supplement its own research.
Directors and Officers. Set forth in the table below is a listing of the
Directors and officers of the Fund, their ages and their business experience the
last five years. Unless otherwise noted, the address of each Director and
officer is Rodney Square North, 1106 N. Market Street, Wilmington, DE 19890.
<TABLE>
<CAPTION>
Position(s) with Principal Occupation(s)
Name, Address, and Age Registrant During Past 5 Years
---------------------- ---------- -------------------
<S> <C> <C>
William S. Dietrich II*, 59 Director, President Until December, 1995, Mr. Dietrich was President
and sole shareholder of Dietrich Industries,
Inc.
Jennings R. Lambeth#, 76 Director Business Consultant - Self-employed;
2 Gateway Center, Suite 680 Director, J&L Specialty Steel, Inc.
Pittsburgh, Pennsylvania 15222
Evans Rose, Jr.#, 65 Director Lawyer, Cohen & Grigsby, P.C.
2900 CNG Tower
Pittsburgh, Pennsylvania 15222
Richard F. Berdik, 53 Secretary and Treasurer
</TABLE>
* Mr. Dietrich is an "interested person" of the Fund as defined in Section
2(a)(19) of the 1940 Act.
20
<PAGE>
# Prior to February, 1996, both Mr. Lambeth and Mr. Rose served as directors
of Dietrich Industries, Inc. The law firm of Cohen & Grigsby, P.C.
performed legal services for Dietrich Industries, Inc.
[To be completed by amendment.]
REMUNERATION OF DIRECTORS AND OFFICERS. The following table sets forth for each
of the persons named below the aggregate current remuneration paid by the Fund
for the current fiscal year ending , 1997 for services in all
capacities:
<TABLE>
<CAPTION>
Capacity in Which Aggregate
Compensation Compensation Total Compensation
Name of Person Was Received From Fund From Fund(1)
-------------- ------------ --------- ------------
<S> <C> <C> <C>
</TABLE>
The Fund pays each Director $5,000 per annum and reimburses travel and other
expenses incurred in connection with attendance at board meetings. For the
fiscal year ended ____________, 1997, Mr. Dietrich, Mr. Lambeth and Mr. Rose
each received $_______________ from the Fund. The Directors and officers own
none of the Common Stock of the Fund.
(1) Compensation paid by the Fund contains no accrued or payable pension or
retirement benefits.
PORTFOLIO TRANSACTIONS
The Chief Investment Officer is responsible for the selection of
brokers and dealers who execute portfolio transactions on behalf of the Fund.
The Chief Investment Officer directs portfolio transactions to brokers-dealers
for execution on terms and at rates which he believes, in good faith, to be
reasonable in view of the overall nature and quality of services provided by a
particular broker-dealer, including brokerage and research services. The Chief
Investment Officer seeks the best net results for the Fund, taking into account
such factors as the price (including the applicable brokerage commission or
dealer spread), size of the order, difficulty of execution and operational
facilities of the firm involved. While the Chief Investment Officer generally
seeks reasonable competitive commission rates and spreads, payment of the lowest
commission or spread is not necessarily consistent with the best net results.
Accordingly, the Fund will not necessarily be paying the lowest spread or
commission available.
Under "soft dollar" arrangements, the Chief Investment Officer may
select brokers to execute the Fund's portfolio transactions on the basis of the
research and brokerage services provided to the Fund. Such services may include
furnishing analyses, reports and information concerning issuers, industries,
securities, economic factors and trends and portfolio strategy. The Fund has no
obligation to deal with any broker-dealer in the execution of portfolio
transactions. Any soft dollar arrangements will satisfy the criteria of Section
28(e) of the Securities Exchange Act of 1934 or other applicable laws. Section
28(e) specifies that a person with investment discretion shall not be "deemed to
have acted unlawfully or to have breached a fiduciary duty" solely because the
person has caused the account to pay a higher commission than the lowest
available under certain circumstances. To obtain the benefits of Section 28(e),
the person so exercising investment discretion must make a good faith
determination that the commissions paid are "reasonable in relation to the value
of the brokerage and research services provided ... viewed in terms of either
the particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion." Thus, although the
Chief Investment Officer may direct portfolio transactions without necessarily
21
<PAGE>
obtaining the lowest price at which such broker-dealer, or another, may be
willing to do business, the Chief Investment Officer seeks best value to the
Fund on each trade that circumstances in the marketplace permit, including the
value inherent in on-going relationships with quality brokers.
The policy of the Fund with respect to portfolio turnover is to make
such changes in its portfolio as its Directors and officers shall from time
approve, provided that the bulk of the Fund's investments shall consist of
long-term investments. The Fund's portfolio turnover rate is not expected to
exceed 100%, but may vary greatly from year to year and will not be a limiting
factor when the Fund deems portfolio changes appropriate. A 100% portfolio
turnover rate would occur if the lesser of the value of purchases or sales of
the Fund's securities for a year (excluding purchases of U.S. Treasury and other
securities with a maturity at the date of purchase of one year or less) were
equal to 100% of the average monthly value of the securities, excluding
short-term investments, held by the Fund during such year. Higher portfolio
turnover involves correspondingly greater brokerage commissions and other
transaction costs that the Fund will bear directly.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund does not have an investment adviser. All investment decisions
are made by the Chief Investment Officer with the assistance of the Fund's
officers and after consultation with the Board of Directors . The Fund may hire
various consultants to provide research services similar to the services
described above under soft dollar arrangements. See "Portfolio Transactions."
The Fund, however, will pay cash for consultant services. Information provided
by consultants will assist the Chief Investment Officer in making investment
decisions although such information will not be the sole source of information
relied on by the Chief Investment Officer. Consultants will have no investment
discretion over the Fund's assets and the Fund will be under no obligation to
hire consultants. Presently, the Fund does not contemplate the use on any
particular consultant. The estimated cost of hiring consultants in not expected
to exceed $[____] or [___] basis points of the Fund's assets on an annual basis.
See "Management" and "Portfolio Transactions."
DIVIDENDS AND OTHER DISTRIBUTIONS
Distribution Policy. The policy of the Fund is to pay distributions on
shares of its common stock equal to approximately 20% of its average net asset
value per year, payable in quarterly installments equal to approximately 5% of
the Fund's net asset value on the Friday prior to each quarterly declaration
date. The fixed distributions will not be related to the amount of the Fund's
net investment income or net realized capital gains or losses. If, for any
calendar year, the total distributions required by the 20% pay-out policy exceed
the Fund's net investment income and net realized capital gains, which normally
is expected to be the case, the excess generally will be treated as a tax-free
return of capital, reducing the shareholder's adjusted basis in its shares. Such
excess, however, will be treated first as ordinary dividend income up to the
amount of the Fund's current and accumulated earnings and profits, and then as
return of capital and capital gains as set forth above.
Under the 1940 Act, the Fund is not permitted to incur indebtedness
unless immediately after such incurrence it has an asset coverage of at least
300% of the aggregate outstanding principal balance of the indebtedness.
Additionally, under the 1940 Act, the Fund may not declare any dividend or other
distribution on any class of its capital stock or purchase any such capital
stock unless it has, at the time of the declaration of any such distribution or
at the time of any such purchase, asset coverage of at least 300% of the
aggregate indebtedness after deducting the amount of such distribution, or
purchase price, as the case may be. This latter limitation -- and a limitation
on the Fund's ability to declare any cash dividends or other distributions on
the Common Stock while any shares of preferred stock are outstanding -- could
22
<PAGE>
under certain circumstances impair its ability to maintain its qualification for
taxation as a RIC. See "Special Considerations and Risk Factors -- Leverage" and
"Taxes."
DIVIDEND PAYMENTS. Each holder of Common Stock of the Fund will be
deemed to have elected to have all dividends and other distributions, net of any
applicable withholding taxes, automatically reinvested in additional shares of
Common Stock, unless _______________________________, the Fund's transfer agent
(the "Transfer Agent"), is otherwise instructed by the stockholder in writing.
Stockholders who do not elect to have dividends and other distributions
reinvested in additional shares will receive all dividends and other
distributions in cash, net of any applicable withholding taxes, paid in U.S.
dollars by check mailed directly to the stockholder by ________________________
as dividend-paying agent. Dividends and other distributions will be treated as
income to stockholders whether they are so reinvested in shares of the Fund or
received in cash. See "Taxes."
TAXES
TAXATION OF THE FUND
The Fund intends to qualify for the special tax treatment afforded RICs
under the Code. To qualify for that treatment, the Fund must distribute to its
stockholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gains, and net gains from certain foreign currency transactions) and
must meet several additional requirements. Among these requirements are the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing in
securities or those currencies; (2) the Fund must derive less than 30% of its
gross income each taxable year from the sale or other disposition of securities,
or foreign currencies that are not directly related to its principal business of
investing in securities, held for less than three months; and (3) at the close
of each quarter of the Fund's taxable year, (i) at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. Government
securities, and other securities limited, in respect of any one issuer, to an
amount that does not exceed 5% of the value of the Fund's total assets and that
does not represent more than 10% of the issuer's voting securities, and (ii) not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities) of any one issuer.
The Fund, as an investor in the Underlying Investment Vehicles, will be
deemed to own a proportionate share of the Underlying Investment Vehicles'
assets, and to earn a proportionate share of the Underlying Investment Vehicles'
income, for purposes of determining whether the Fund satisfies all the
requirements described above to qualify as a RIC. In each taxable year that it
so qualifies, the Fund (but not its stockholders) will not be subject to federal
income tax on that part of its investment company taxable income and net capital
gain (the excess of net long-term capital gain over net short-term capital loss
derived from the sale of securities) that it distributes to its stockholders.
The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts. The Fund
intends to plan its distributions in order to minimize this excise tax
liability.
23
<PAGE>
TAXATION OF THE STOCKHOLDERS
Dividends paid by the Fund from its investment company taxable income,
whether received in cash or reinvested in Fund shares pursuant to the Plan, are
ordinary income to the Fund's stockholders to the extent of the Fund's earnings
and profits. (Any distributions in excess of the Fund's earnings and profits
first will reduce the adjusted tax basis of a holder's Common Stock and, after
that basis is reduced to zero, will constitute capital gain to the stockholder,
assuming the Common Stock is held as a capital asset). Distributions, if any,
from the Fund's net capital gain, when designated as such, will be long-term
capital gains to the Fund's stockholders, regardless of the length of time they
have owned their Fund shares and whether received by them in cash or reinvested
in Fund shares pursuant to the Plan. The Fund annually will provide its
stockholders with a written notice designating the amounts of any capital gain
distributions.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Distributions by the Fund generally will not be eligible for the
dividends-received deduction allowed to corporations. Dividends and other
distributions declared by the Fund in, and payable to stockholders of record as
of a date in, October, November, or December of any year will be deemed to have
been paid by the Fund and received by the stockholders on December 31 of that
year if the distributions are paid by the Fund during the following January.
Accordingly, those distributions will be taxed to any stockholders that are
subject to income taxes for the year in which that December 31 falls.
The Fund must withhold 31% from dividends, capital gain distributions,
and proceeds from sales of Common Stock pursuant to a Tender Offer, if any,
payable to any taxable organization or trust that has not furnished to the Fund
a correct taxpayer identification number ("TIN") or a properly completed claim
for exemption on Form W-8 or W-9 ("backup withholding"). Withholding at that
rate also is required from dividends and capital gain distributions payable to
such stockholders who otherwise are subject to backup withholding.
A loss realized on a sale of share of the Fund will be disallowed if
other Fund shares are acquired (whether through investment of distributions
under the Plan or otherwise) within a 61 day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
IRS LETTER RULING
Organizations that qualify as Eligible Investors (See "Eligible
Investors"), although they are not generally subject to federal taxes on income
or capital gains, may be subject to federal tax on certain unrelated business
income, which includes income from property with respect to which an Eligible
Investor, or any partnership in which the Eligible Investor has a direct
investment, has any acquisition indebtedness, and an Eligible Investor's share
of any income of a partnership in which it has an interest that is neither
purely passive nor related to the organization's exempt purpose. Unrelated
business income, for this purpose, excludes dividends from corporations and gain
from the sale or exchange of capital assets, unless the Eligible Investor has
incurred indebtedness to acquire or maintain its interest in the corporation
paying the dividend or the capital asset, as the case may be. The Fund has
obtained a private letter ruling from the Internal Revenue Service to the effect
that (i) the Fund will be recognized as a separate taxpayer from its
stockholders, who will be considered stockholders in the Fund; (ii) the Fund,
and not its stockholders, will be considered the holder of interests in
Underlying Investment Vehicles organized as partnerships and as the borrower,
should the Fund incur indebtedness; and (iii) distributions from the Fund to its
24
<PAGE>
stockholders (including funds deemed to be distributed and reinvested pursuant
to the Plan) will be treated either as dividends, as proceeds from the sale or
exchange of capital assets, or as a return of capital. Thus, provided an
Eligible Investor has not borrowed to acquire its interest in the Fund, income
of the Eligible Investors from the Fund will not be taxable unrelated business
income. Eligible Investors should consult their tax advisers regarding whether
any borrowing by an Eligible Investor could give rise to acquisition
indebtedness with respect to the Eligible Investor's interests in the Fund.
Certain Eligible Investors that are "Private Foundations" for purposes
of the Code, are subject to the requirement that they make no jeopardizing
investments. According to applicable Treasury regulations, a jeopardizing
investment occurs when foundation managers have failed to exercise ordinary
business care and prudence in providing for the long- and short-term financial
needs of the foundation to carry out its exempt purpose. Such foundations also
are required to make annual distributions equal to five percent of the average
value of the foundation's assets. A private foundation that is considering an
investment in the Fund should consult its tax advisers concerning the potential
application of these provisions to its investment in the Fund.
TENDER OFFERS
A taxable holder of Common Stock who, pursuant to any Tender Offer,
tenders all shares of Common Stock owned by such stockholder, and any shares
considered owned thereby under attribution rules contained in the Code, will
realize a gain or loss depending upon such stockholder's basis for the shares.
Such gain or loss will be treated as capital gain or loss if the shares are held
as capital assets and will be long-term or short-term depending on the
stockholder's holding period for the shares.
* * * *
The foregoing is a general and abbreviated summary of certain federal
tax considerations affecting the Fund and its stockholders. For further
information, reference should be made to the pertinent Code sections and the
regulations promulgated thereunder, which are subject to change by legislative,
judicial, or administrative action either prospectively or retroactively.
Investors are urged to consult their tax advisers regarding specific questions
as to federal, state or local taxes.
NET ASSET VALUE
The net asset value of the Fund's shares of Common Stock is determined
quarterly as of the close of regular trading on the NYSE (generally, 4:00 p.m.,
New York time), on the last day of the quarter on which the NYSE is open for
trading. The NYSE is not open on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For purposes of determining the net asset value of a share of Common Stock of
the Fund, the value of the securities of the Underlying Investment Vehicles plus
any cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) of the Fund is
divided by the total number of shares of Common Stock outstanding.
The Fund's assets consist primarily of shares of open-end and
closed-end funds. Shares of open-end funds are valued at their respective net
asset values under the 1940 Act. An open-end fund values securities in its
portfolio for which market quotations are readily available at their current
market value (generally the last reported sales price) and all other securities
and assets at fair value pursuant to methods established in good faith by the
board of directors of the underlying fund. Money market funds with portfolio
securities that mature in 397 days or less may use the amortized cost or
penny-rounding methods to value their securities. Shares of closed-end funds
that are listed on U.S. exchanges are valued at the last sales price on the day
25
<PAGE>
the securities are valued or, lacking any sales on such day, at the last
available bid price. Shares of closed-end funds traded in the OTC market and
listed on NASDAQ are valued at the last trade price on NASDAQ at 4:00 p.m., New
York time; other shares traded in the OTC market are valued at the last bid
price available prior to valuation.
Other Fund assets are valued at current market value or, where
unavailable, at fair value as determined in good faith by or under the direction
of the Board of Directors. Securities having 60 days or less remaining to
maturity are valued at their amortized cost.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue 100 million shares of capital stock,
$.001 par value, all of which is classified as Common Stock. Although it has no
current intention of doing so, the Board of Directors of the Fund is authorized
to classify and reclassify any unissued shares of capital stock from time to
time by setting or changing the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or terms and conditions of
redemption of such shares by the Fund. The description of the capital stock are
subject to the provisions contained in the Fund's Articles of Incorporation and
By-Laws.
Shares of the Common Stock have no preemptive, conversion, exchange, or
redemption rights. Each share has equal voting, dividend, distribution and
liquidation rights. The outstanding shares of Common Stock are, and those
offered hereby, when issued, will be, fully paid and nonassessable. Stockholders
are entitled to one vote per share. All voting rights for the election of
directors are noncumulative, which means that 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.
Shares of Common Stock of the Fund cannot be transferred without the
approval of the Fund. Transferees must meet certain eligibility criteria. The
Fund has the right to reject any transfer. See "Restrictions on
Transferability."
Any additional offerings of the Fund's Common Stock, if made, will
require approval of its Board of Directors and will be subject to the
requirement of the 1940 Act that shares may not be sold at a price below the
then-current net asset value, exclusive of underwriting discounts and
commissions, except, among other things, in connection with an offering to
existing stockholders or with the consent of a majority of the holders of the
Fund's outstanding voting securities.
As of the date of this registration statement, the Dietrich CRAT and
the Dietrich CRUT own substantially all of the outstanding voting securities of
the Fund. Moreover, even if all the shares of Common Stock offered hereby are
issued to other persons, the Dietrich CRAT will continue to hold over 50% of the
outstanding voting securities of the Fund and will thereby be deemed to control
the Fund. As a result of this control relationship, the Dietrich CRAT will be
able to vote its shares of Common Stock to elect the directors it prefers
regardless of how any other holders of Common Stock vote for the election of
directors.
26
<PAGE>
The following chart indicates the Funds' Common Stock outstanding as of
May __, 1997.
<TABLE>
<CAPTION>
Amount Outstanding
Amount Held by Exclusive of
Registrant or Amount Held by Registrant or
Title of Class Amount Authorized for Its Account for its Account
-------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
Common Stock 100,000,000 - [___,000]
</TABLE>
PERFORMANCE INFORMATION
From time to time the Fund may include its total return for various
specified time periods in advertisements or information furnished to present or
prospective stockholders.
The Fund may quote annual total return and aggregate total return
performance data. Total return quotations for the specified periods will be
computed by finding the rate of return (based on net investment income and any
capital gains or losses on portfolio investments over such periods) that would
equate the initial amount invested to the value of such investment at the end of
the period.
The calculation of yield and total return does not reflect the amount
of any stockholder's tax liability.
From time to time, quotations of the Fund's average annual total return
("Standardized Return") may be included in advertisements, sales literature or
shareholder reports. Standardized Return shows percentage rates reflecting the
average annual change in the value of an assumed initial investment of $1,000
assuming the investment has been held for periods of one year, five years and
ten years as of a stated ending date. If a five and/or ten-year period has not
yet elapsed, data will be provided as of the end of a period corresponding to
the life of the Fund. Standardized Return assumes that all dividends and capital
gain distributions were reinvested in shares of the Fund.
In addition, other total return performance data ("Non-Standardized
Return") regarding the Fund may be included in advertisements, sales, literature
or shareholder reports. Non-Standardized Return shows a percentage rate of
return encompassing all elements of return (i.e., income and capital
appreciation or depreciation); and it assumes reinvestment of all dividends and
capital gain distributions. Non-Standardized Return may be quoted for the same
or different periods as those for which Standardized Return is quoted.
Non-Standardized Return may consist of cumulative total returns, average annual
total returns, year-by-year rates or any combination thereof. Cumulative total
return represents the cumulative change in value of an investment in the Fund
for various periods. Average annual total return refers to the annual compound
rate of return of an investment in the Fund. Total return figures are based on
historical performance of the Fund, show the performance of a hypothetical
investment and are not intended to indicate future performance.
ADMINISTRATOR, TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN
Rodney Square Management Corporation ("RSMC") serves as administrator
for the Fund. As administrator, RSMC provides office facilities and supplies and
administrative services and also assists in the preparation of reports to
shareholders, proxy statements and filings with the SEC and state securities
authorities. RSMC also performs certain accounting services (including
determining the Fund's net asset value per share), financial reporting, and
compliance monitoring activities. For the services provided as Administrator,
27
<PAGE>
RSMC receives an annual fee equal to $80,000 from the Fund plus an amount equal
to 0.03% of the average daily net assets of the Fund in excess of $100 million.
__________________________ serves as the Fund's Transfer Agent and
Dividend Disbursing Agent. For providing transfer and dividend disbursing
services, the Fund pays ___________ a minimum annual fee of $_____ plus
transaction fees.
________________________ serves as custodian of the Fund's assets. The
Fund pays ______ an annual fee equal to the greater of $_____ or _____% of the
average daily net assets of the Fund up to $___ million and 0.___% of the
average daily net assets of the Fund in excess of $___ million. In addition, the
Fund pays transaction fees of $__ per [DTC and PTC] to ___ for providing
custodian services.
ADDITIONAL INFORMATION
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered
hereby will be passed on for the Fund by Kirkpatrick & Lockhart LLP, Washington,
D.C.
INDEPENDENT ACCOUNTANTS
The Fund's independent accountants are _______________________ will
conduct an annual audit of the Fund, assist in the preparation of the Fund's
federal and state income tax returns and consult with the Fund as to matters of
accounting, regulatory filings, and federal and state income taxation.
FURTHER INFORMATION
Further information concerning the Common Stock and the Fund may be
found in the Registration Statement, on file with the SEC.
FINANCIAL STATEMENTS
The Fund will send unaudited semiannual and audited annual financial
statements of the Fund to stockholders, including a list of the portfolio of
investments held by the Fund.
The financial statement included in this Prospectus has been included
in reliance on the report of _______________________ independent accountants,
given on the authority of that firm as experts in auditing and accounting.
The audited financial statements of the Fund as of __________, 1997
appears on the following pages.
28
<PAGE>
APPENDIX
DESCRIPTION OF THE TYPES OF SECURITIES THAT MAY BE ACQUIRED BY UNDERLYING
INVESTMENT VEHICLES AND THE VARIOUS INVESTMENT TECHNIQUES SUCH FUNDS MAY EMPLOY
Certain of these securities and restrictions apply to all the Underlying
Investment Vehicles while other securities and restrictions apply only to
Underlying Funds or Underlying Private Funds, as noted below.
FOREIGN SECURITIES
An Underlying Investment Vehicle may invest up to 100% of its assets in
securities of foreign issuers. Investments in foreign securities involve special
risks and considerations that are not present when a Fund invests in domestic
securities.
EXCHANGE RATES
Since an Underlying Investment Vehicle may purchase securities denominated in
foreign currencies, changes in foreign currency exchange rates will affect the
value of the Underlying Investment Vehicle's (and accordingly the Fund's) assets
from the perspective of U.S. investors. Changes in foreign currency exchange
rates also may affect the value of dividends and interest earned, gains and
losses realized on the sale of securities and net investment income and gains,
if any, to be distributed by a fund. The rate of exchange between the U.S.
dollar and other currencies is determined by the forces of supply and demand in
foreign exchange markets. These forces are affected by the international balance
of payments and other economic and financial conditions, government
intervention, speculation and other factors. The Underlying Investment Vehicle
may seek to protect itself against the adverse effects of currency exchange rate
fluctuations by entering into currency-forward, futures or options contracts.
Hedging transactions will not, however, always be fully effective in protecting
against adverse exchange rate fluctuations. Furthermore, hedging transactions
involve transaction costs and the risk that the Underlying Investment Vehicle
will lose money, either because exchange rates move in an unexpected direction,
because another party to a hedging contract defaults, or for other reasons.
EXCHANGE CONTROLS
The value of foreign investments and the investment income derived from them
also may be affected (either favorably or unfavorably) by exchange control
regulations. Although it is expected that Underlying Investment Vehicles will
invest only in securities denominated in foreign currencies that are fully
exchangeable into U.S. dollars without legal restriction at the time of
investment, there is no assurance that currency controls will not be imposed
after the time of investment. In addition, the value of foreign fixed-income
investments will fluctuate in response to changes in U.S. and foreign interest
rates.
LIMITATIONS OF FOREIGN MARKETS
There is often less information publicly available about a foreign issuer than
about a U.S. issuer. Foreign issuers are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers. Foreign
brokerage commissions, custodial expenses, and other fees also generally are
higher than for securities traded in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of an Underlying Investment
Vehicle's assets held abroad) and expenses not present in the settlement of
domestic investments. A delay in settlement could hinder the ability of an
A-1
<PAGE>
Underlying Investment Vehicle to take advantage of changing market conditions,
with a possible adverse effect on net asset value. There may also be
difficulties in enforcing legal rights outside the United States.
FOREIGN LAWS, REGULATIONS AND ECONOMIES
There may be a possibility of nationalization or expropriation of assets,
imposition of currency exchange controls, confiscatory taxation, political or
financial instability, and diplomatic developments that could affect the value
of an Underlying Investment Vehicle's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the United States or
in other foreign countries. The laws of some foreign countries may limit an
Underlying Investment Vehicle's ability to invest in securities of certain
issuers located in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
or gross national product, inflation rate, capital reinvestment, resource
self-sufficiency and balance of payment positions.
FOREIGN TAX CONSIDERATIONS
Income received by an Underlying Investment Vehicle from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by an Underlying Investment
Vehicle will reduce the net income of the Underlying Investment Vehicle
available for distribution to the Funds. Special tax considerations apply to
foreign securities.
EMERGING MARKETS
Risks may be intensified in the case of investments by an Underlying Investment
Vehicle in emerging markets or countries with limited or developing capital
markets. Security prices in emerging markets can be significantly more volatile
than in more developed nations, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, present the risk
of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. The economies of countries with emerging
markets may be predominantly based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer from
extreme and volatile debt or inflation rates. Local securities markets may trade
a small number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of
substantial holdings difficult or impossible at times. Securities of issuers
located in countries with emerging markets may have limited marketability and
may be subject to more abrupt or erratic price movements. Debt obligations of
developing countries may involve a high degree of risk, and may be in default or
present the risk of default. Governmental entities responsible for repayment of
the debt may be unwilling to repay principal and interest when due, and may
require renegotiation or rescheduling of debt payments. In addition, prospects
for repayment of principal and interest may depend on political as well as
economic factors.
FOREIGN CURRENCY TRANSACTIONS
An Underlying Investment Vehicle may enter into forward contracts to purchase or
sell an agreed-upon amount of a specific currency at a future date that may be
any fixed number of days from the date of the contract agreed upon by the
parties at a price set at the time of the contract. Under such an arrangement, a
fund would, at the time it enters into a contract to acquire a foreign security
for a specified amount of currency, purchase with U.S. dollars the required
amount of foreign currency for delivery at the settlement date of the purchase;
the Underlying Investment Vehicle would enter into similar forward currency
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transactions in connection with the sale of foreign securities. The effect of
such transactions would be to fix a U.S. dollar price for the security to
protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the particular foreign currency during
the period between the date the security is purchased or sold and the date on
which payment is made or received (usually 3 to 14 days). These contracts are
traded in the interbank market between currency traders (usually large
commercial banks) and their customers. A forward contract usually has no deposit
requirement and no commissions are charged for trades. While forward contracts
tend to minimize the risk of loss due to a decline in the value of the currency
involved, they also tend to limit any potential gain that might result if the
value of such currency were to increase during the contract period.
REPURCHASE AGREEMENTS
An Underlying Investment Vehicle may enter into repurchase agreements with banks
and broker-dealers under which it acquires securities, subject to an agreement
with the seller to repurchase the securities at an agreed-upon time and an
agreed-upon price. Repurchase agreements involve certain risks, such as default
by, or insolvency of, the other party to the repurchase agreement. An Underlying
Investment Vehicle's right to liquidate its collateral in the event of a default
could involve certain costs, losses or delays. To the extent that proceeds from
any sale upon default of the obligation to repurchase are less than the
repurchase price, the Underlying Investment Vehicle could suffer a loss.
ILLIQUID AND RESTRICTED SECURITIES
An Underlying Investment Vehicle that is a mutual fund may invest up to 15% of
its net assets in securities for which there is no readily available market
("illiquid securities"). This figure includes securities whose disposition would
be subject to legal restrictions ("restricted securities") and repurchase
agreements having more than seven days to maturity. Illiquid and restricted
securities often have a market value lower than the market price of unrestricted
securities of the same issuer and are not readily marketable without some time
delay. This could result in the mutual fund being unable to realize a favorable
price upon disposition of such securities, and in some cases might make
disposition of such securities at the time desired by the mutual fund
impossible.
LOANS OF PORTFOLIO SECURITIES
An Underlying Fund may lend its portfolio securities as long as: (1) the loan is
continuously secured by collateral consisting of U.S. Government securities or
cash or cash equivalents maintained on a daily mark-to-market basis in an amount
at least equal to the current market value of the securities loaned; (2) the
Underlying Fund may at any time call the loan and obtain the securities loaned;
(3) the Underlying Fund will receive any interest or dividends paid on the
loaned securities; and (4) the aggregate market value of the securities loaned
will not at any time exceed one-third of the total assets of the Underlying
Fund. Lending portfolio securities involves risk of delay in the recovery of the
loaned securities and in some cases, the loss of rights in the collateral if the
borrower fails.
SHORT SALES
An Underlying Investment Vehicle may sell securities short. In a short sale the
Underlying Investment Vehicle sells stock it does not own and makes delivery
with securities "borrowed" from a broker. The Underlying Investment Vehicle then
becomes obligated to replace the security borrowed by purchasing it at the
market-price at the time of replacement. This price may be more or less than the
price at which the security was sold by the Underlying Investment Vehicle. Until
the security is replaced, the Underlying Investment Vehicle is obligated to pay
to the lender any dividends or interest accruing during the period of the loan.
In order to borrow the security, the Underlying Investment Vehicle may be
required to pay a premium that would increase the cost of the security sold. The
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proceeds of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position is closed out.
When it engages in short sales, an Underlying Investment Vehicle that is an
Underlying Fund also must deposit in a segregated account an amount of cash or
liquid securities equal to the difference between (1) the market value of the
securities sold short at the time they were sold short and (2) the value of the
collateral deposited with the broker in connection with the short sale (not
including the proceeds from the short sale). While the short position is open,
the Underlying Investment Vehicle must maintain daily the segregated account at
such a level that (1) the amount deposited in the account plus the amount
deposited with the broker as collateral equals the current market value of the
securities sold short, and (2) the amount deposited in it plus the amount
deposited with the broker as collateral is not less than the market value of the
securities at the time they were sold short.
An Underlying Investment Vehicle will incur a loss as a result of a short sale
if the price of the security increases between the date of the short sale and
the date on which the Underlying Investment Vehicle replaces the borrowed
security. The Underlying Investment Vehicle will realize a gain if the security
declines in price between such dates. The amount of any gain will be decreased
and the amount of any loss increased by the amount of any premium, dividends or
interest the Underlying Investment Vehicle may be required to pay in connection
with a short sale.
SHORT SALES "AGAINST THE BOX"
A short sale is "against the box" if at all times when the short position is
open the Underlying Investment Vehicle owns an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. Such a transaction
serves to defer a gain or loss for Federal income tax purposes.
INDUSTRY CONCENTRATION
An Underlying Investment Vehicle may concentrate its investments within one
industry. Since the investment alternatives within an industry are limited, the
value of the shares of such a fund may be subject to greater market fluctuation
than an investment in a fund that invests in a broader range of securities.
OPTIONS
An Underlying Investment Vehicle may write (sell) listed call options ("calls")
if the calls are covered through the life of the option. A call is covered if
the Underlying Investment Vehicles owns the optioned securities. When an
Underlying Investment Vehicle writes a call, it receives a premium and gives the
purchaser the right to buy the underlying security at any time during the call
period (usually not more than nine months in the case of common stock) at a
fixed exercise price regardless of market price changes during the call period.
If the call is exercised, the Underlying Investment Vehicles will forgo any gain
from an increase in the market price of the underlying security over the
exercise price.
An Underlying Investment Vehicle may purchase a call on securities to effect a
"closing purchase transaction." This is the purchase of a call covering the same
underlying security and having the same exercise price and expiration date as a
call previously written by the fund on which it wishes to terminate its
obligation. If the fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call previously
written by the fund expires (or until the call is exercised and the fund
delivers the underlying security).
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An Underlying Investment Vehicle may write and purchase put options ("puts").
When a fund writes a put, it receives a premium and gives the purchaser of the
put the right to sell the underlying security to the Underlying Investment
Vehicles at the exercise price at any time during the option period. When an
Underlying Investment Vehicle purchases a put, it pays a premium in return for
the right to sell the underlying security at the exercise price at any time
during the option period. An Underlying Investment Vehicle also may purchase
stock index puts, which differ from puts on individual securities in that they
are settled in cash based upon values of the securities in the underlying index
rather than by delivery of the underlying securities. Purchase of a stock index
put is designed to protect against a decline in the value of the portfolio
generally rather than an individual security in the portfolio. If any put is not
exercised or sold, it will become worthless on its expiration date.
A mutual fund's option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, but there can be no
assurance that a liquid secondary market will exist at any given time for any
particular option. In this regard, trading in options on certain securities
(such as U.S. Government securities) is relatively new so that it is impossible
to predict to what extent liquid markets will develop or continue.
A custodian, or a securities depository acting for it, generally acts as escrow
agent for the securities upon which the Underlying Investment Vehicles has
written puts or calls, or as to other securities acceptable for such escrow so
that no margin deposit is required of the Underlying Investment Vehicles. Until
the underlying securities are released from escrow, they cannot be sold by the
fund.
In the event of a shortage of the underlying securities deliverable in the
exercise of an option, the Options Clearing Corporation has the authority to
permit other generally comparable securities to be delivered in fulfillment of
option exercise obligations. If the Options Clearing Corporation exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise prices of the affected options by setting different
prices at which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options Clearing
Corporation may impose special exercise settlement procedures.
OPTIONS TRADING MARKETS
Options in which the Underlying Investment Vehicles will invest are generally
listed on Exchanges. Exchanges on which such options currently are traded are
the Chicago Board Options Exchange and the American, New York, Pacific, and
Philadelphia Stock Exchanges. Options on some securities may not, however, be
listed on any Exchange but traded in the over-the-counter market. Options traded
in the over-the-counter market involve the additional risk that securities
dealers participating in such transactions would fail to meet their obligations
to the Underlying Investment Vehicle. The use of options traded in the
over-the-counter market may be subject to limitations imposed by certain state
securities authorities. In addition to the limits on the use of options
discussed herein, a mutual fund is subject to the investment restrictions
described in its Prospectus and the statement of additional information.
The staff of the SEC currently is of the view that the premiums that an
Underlying Fund that is a mutual fund pays for the purchase of unlisted options,
and the value of securities used to cover unlisted options written by the
Underlying Fund, are considered to be invested in illiquid securities or assets
for the purpose of calculating whether a mutual fund is in compliance with its
fundamental investment restriction prohibiting it from investing more than 15%
(or, in many cases, 10%) of its total assets (taken at current value) in any
combination of illiquid assets and securities.
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FUTURES CONTRACTS
An Underlying Investment Vehicle may enter into futures contracts for the
purchase or sale of debt securities and stock indexes. A futures contract is an
agreement between two parties to buy and sell a security or an index for a set
price on a future date. Futures contracts are traded on designated "contract
markets" which, through their clearing corporations, guarantee performance of
the contracts.
A financial futures contract sale creates an obligation by the seller to deliver
the type of financial instrument called for in the contract in a specified
delivery month for a stated price. A financial futures contract purchase creates
an obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a stated
price. The specific instruments delivered or taken, respectively, at settlement
date are not determined until on or near such date. The determination is made in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made. Futures contracts are traded in the United States only on
commodity exchanges or boards of trade (known as "contract markets") approved
for such trading by the Commodity Futures Trading Commission (the "CFTC"), and
must be executed through a futures commission merchant or brokerage firm that is
a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out a
futures contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. On the other hand, if the price of the offsetting purchase
exceeds the price of the initial sale, the seller realizes a loss. The closing
out of a futures contract purchase is effected by the purchaser's entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the purchaser realizes a gain, and if the purchase price exceeds the
offsetting sale price, the purchaser realizes a loss.
An Underlying Investment Vehicle may sell financial futures contracts in
anticipation of an increase in the general level of interest rates. Generally,
as interest rates rise, the market value of the securities held by an Underlying
Investment Vehicle will fall, thus reducing its net asset value. This interest
rate risk may be reduced without the use of futures as a hedge by selling such
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs in the form of dealer spreads and brokerage
commissions and would typically reduce the fund's average yield as a result of
the shortening of maturities.
The sale of financial futures contracts serves as a means of hedging against
rising interest rates. As interest rates increase, the value of an Underlying
Investment Vehicle's short position in the futures contracts will also tend to
increase, thus offsetting all or a portion of the depreciation in the market
value of the fund's investments being hedged. While an Underlying Investment
Vehicle will incur commission expenses in selling and closing out futures
positions (by taking an opposite position in the futures contract), commissions
on futures transactions tend to be lower than transaction costs incurred in the
purchase and sale of portfolio securities.
An Underlying Investment Vehicle may purchase interest rate futures contracts in
anticipation of a decline in interest rates when it is not fully invested. As
such purchases are made, an Underlying Investment Vehicle would probably expect
that an equivalent amount of futures contracts will be closed out.
Unlike when an Underlying Investment Vehicle purchases or sells a security, no
price is paid or received by the fund upon the purchase or sale of a futures
contract. Upon entering into a contract, the Underlying Investment Vehicle is
required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. Government securities. This is
known as "initial margin." Initial margin is similar to a performance bond or
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good faith deposit which is returned to an Underlying Investment Vehicle upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin", to and
from the broker (or the custodian) are made on a daily basis as the price of the
underlying security or commodity fluctuates, making the long and short positions
in the futures contract more or less valuable. This is known as "marking to the
market."
An Underlying Investment Vehicle may elect to close some or all of its futures
positions at any time prior to their expiration in order to reduce or eliminate
a hedge position then currently held by the fund. The Underlying Investment
Vehicle may close its positions by taking opposite positions that will operate
to terminate the fund's position in the futures contracts. Final determinations
of variation margin are then made, additional cash is required to be paid by or
released to the Underlying Investment Vehicles, and the fund realizes a loss or
a gain. Such closing transactions involve additional commission costs.
A stock index futures contract may be used to hedge an Underlying Investment
Vehicle's portfolio with regard to market risk as distinguished from risk
related to a specific security. A stock index futures contract is a contract to
buy or sell units of an index at a specified future date at a price agreed upon
when the contract is made. A stock index futures contract does not require the
physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date, a final cash
settlement occurs. Changes in the market value of a particular stock index
futures contract reflect changes in the specified index of equity securities on
which the future is based.
In the event of an imperfect correlation between the futures contract and the
portfolio position that is intended to be protected, the desired protection may
not be obtained and the fund may be exposed to risk of loss. Further,
unanticipated changes in interest rates or stock price movements may result in a
poorer overall performance for the fund than if it had not entered into futures
contracts on debt securities or stock indexes.
The market prices of futures contracts also may be affected by certain factors.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, you may close futures contracts through offsetting transactions,
which could distort the normal relationship between the securities and futures
markets. Second, the deposit requirements in the futures market are less
stringent than margin requirements in the securities market. Accordingly,
increased participation by speculators in the futures market also may cause
temporary price distortions.
Positions in futures contracts may be closed out only on an exchange or board of
trade providing a secondary market for such futures. There is no assurance that
a liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time.
The risk to an Underlying Investment Vehicle from investing in futures is
potentially unlimited. Gains and losses on investments in options and futures
depend upon the Underlying Investment Vehicle's investment adviser's ability to
predict correctly the direction of stock prices, interest rates and other
economic factors.
In order to assure that Underlying Funds have sufficient assets to satisfy their
obligations under their futures contracts, the Underlying Funds are required to
establish segregated accounts with their custodians. Such segregated accounts
are required to contain an amount of cash, and other liquid, securities equal in
value to the current value of the underlying instrument less the margin deposit.
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OPTIONS ON FUTURES CONTRACTS
An Underlying Investment Vehicle may also purchase and sell listed put and call
options on futures contracts. An option on a futures contract gives the
purchaser the right in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), at a specified exercise price at any time during the
option period. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Underlying Investment Vehicle also may purchase put options on
futures contracts in lieu of, and for the same purpose as, a sale of a futures
contract. An Underlying Investment Vehicle may also purchase such put options in
order to hedge a long position in the underlying futures contract in the same
manner as it purchases "protective puts" on securities.
The holder of an option may terminate the position by selling an option of the
same series. There is, however, no guarantee that such a closing transaction can
be effected. An Underlying Investment Vehicle is required to deposit initial and
maintenance margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those applicable to
futures contracts described above and, in addition, net option premiums received
will be included as initial margin deposits.
In addition to the risks which apply to all options transactions, there are
several risks relating to options on futures contracts. The ability to establish
and close out positions on such options is subject to the development and
maintenance of a liquid secondary market. It is not certain that this market
will develop. In comparison with the use of futures contracts, the purchase of
options on futures contracts involves less potential risk to a fund because the
maximum amount of risk is the premium paid for the option (plus transaction
costs). There may, however, be circumstances when the use of an option on a
futures contract would result in a loss to an Underlying Investment Vehicle when
the use of a futures contract would not, such as when there is no movement in
the prices of the underlying securities. Writing an option on a futures contract
involves risks similar to those arising in the sale of futures contracts, as
described above.
HEDGING
An Underlying Investment Vehicle may employ many of the investment techniques
described for investment and hedging purposes. For example, an Underlying
Investment Vehicle may purchase or sell put and call options on common stocks to
hedge against movements in individual common stock prices, or purchase and sell
stock index futures and related options to hedge against market wide movements
in common stock prices. Although such hedging techniques generally tend to
minimize the risk of loss that is hedged against, they also may limit the
potential gain that might have resulted had the hedging transaction not
occurred. Also, the desired protection generally resulting from hedging
transactions may not always be achieved.
WARRANTS
An Underlying Investment Vehicle may invest in warrants. Warrants are options to
purchase equity securities at specific prices valid for a specified period of
time. The prices do not necessarily move in parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer. If a warrant is not
exercised within the specified time period, it becomes worthless and the fund
loses the purchase price and the right to purchase the underlying security.
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LEVERAGE
An Underlying Fund that is a mutual fund may borrow up to 25% of the value of
its net assets on an unsecured basis from banks to increase its holdings of
portfolio securities. Under the 1940 Act, such fund is required to maintain
continuous asset coverage of 300% with respect to such borrowings and to sell
(within three days) sufficient portfolio holdings in order to restore such
coverage if it should decline to less than 300% due to market fluctuation or
otherwise. Such sale must occur even if disadvantageous from an investment point
of view. Leveraging aggregates the effect of any increase or decrease in the
value of portfolio securities on the Underlying Fund's net asset value. In
addition, money borrowed is subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances) which
may or may not exceed the interest and option premiums received from the
securities purchased with borrowed funds.
HIGH YIELD SECURITIES AND THEIR RISKS
An Underlying Investment Vehicle may invest in high yield, high-risk,
lower-rated securities, commonly known as "junk bonds." Such fund's investment
in such securities is subject to the risk factors outlined below.
YOUTH AND GROWTH OF THE HIGH YIELD BOND MARKET
The high yield, high risk market is relatively new and at times is subject to
substantial volatility. An economic downturn or increase in interest rates may
have a more significant effect on the high yield, high risk securities in an
Underlying Investment Vehicle's portfolio and their markets, as well as on the
ability of securities' issuers to repay principal and interest. Issuers of high
yield, high risk securities may be of low credit worthiness and the high yield,
high risk securities may be subordinated to the claims of senior lenders. During
periods of economic downturn or rising interest rates, the issuers of high
yield, high risk securities may have greater potential for insolvency and a
higher incidence of high yield, high risk bond defaults may be experienced.
SENSITIVITY OF INTEREST RATE AND ECONOMIC CHANGES
The prices of high yield, high risk securities have been found to be less
sensitive to interest rate changes than higher-rated investments but are more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a high yield, high risk security owned by an
Underlying Investment Vehicle defaults, the fund may incur additional expenses
in seeking recovery. Periods of economic uncertainty and changes can be expected
to result in increased volatility of market prices of high yield, high risk
securities and the Fund's net asset value. Yields on high yield, high risk
securities will fluctuate over time. Furthermore, in the case of high yield,
high risk securities structured as zero coupon or pay-in-kind securities, their
market prices are affected to a greater extent by interest rate changes and
thereby tend to be more volatile than market prices of securities which pay
interest periodically and in cash.
PAYMENT EXPECTATIONS
Certain securities held by an Underlying Investment Vehicle, including high
yield, high risk securities, may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, such fund
would have to replace the security with a lower yielding security, resulting in
a decreased return for the investor. Conversely, a high yield, high risk
security's value will decrease in a rising interest rate market, as will the
value of the Underlying Investment Vehicle's assets.
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LIQUIDITY AND VALUATION
The secondary market may at times become less liquid or respond to adverse
publicity or investor perceptions, making it more difficult for an Underlying
Investment Vehicle to accurately value high yield, high risk securities or
dispose of them. To the extent such fund owns or may acquire illiquid or
restricted high yield, high risk securities, these securities may involve
special registration responsibilities, liabilities and costs, and liquidity
difficulties, and judgment will play a greater role in valuation because there
is less reliable and objective data available.
TAXATION
Special tax considerations are associated with investing in high yield bonds
structured as zero coupon or pay-in-kind securities. An Underlying Investment
Vehicle will report the interest on these securities as income even though it
receives no cash interest until the security's maturity or payment date.
Further, an Underlying Investment Vehicle organized as a regulated investment
company must distribute substantially all of its income to you to qualify for
pass-through treatment under the tax law. Accordingly, such a fund may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash or may have to leverage itself by borrowing the cash to satisfy
distribution requirements.
CREDIT RATINGS
Credit ratings evaluate the safety of principal and interest payments, not the
market value risk of high yield, high risk securities. Since credit rating
agencies may fail to change the credit ratings in a timely manner to reflect
subsequent events, the investment adviser to an Underlying Fund that is a mutual
fund should monitor the issuers of high yield, high risk securities in the
fund's portfolio to determine if the issuers will have sufficient cash flow and
profits to meet required principal and interest payments, and to attempt to
assure the securities' liquidity so the fund can meet redemption requests. To
the extent that an Underlying Investment Vehicle invests in high yield, high
risk securities, the achievement of the fund's investment objective may be more
dependent on the Underlying Investment Vehicle's own credit analysis than is the
case for higher quality bonds. An Underlying Investment Vehicle may retain a
portfolio security whose rating has been changed.
ASSET-BACKED SECURITIES
An Underlying Investment Vehicle may invest in mortgage pass-through securities,
which are securities representing interest in pools of mortgage loans secured by
residential or commercial real property in which payments of both interest and
principal on the securities are generally made monthly, in effect passing
through monthly payments made by individual borrowers on mortgage loans which
underlie the securities (net of fees paid to the issuer or guarantor of the
securities). Early repayment of principal on some mortgage-related securities
(arising from prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs which may be incurred) may
expose an Underlying Investment Vehicle to a lower rate of return upon
reinvestment of principal. Also, if a security subject to prepayment has been
purchased at a premium, in the event of prepayment the value of the premium
would be lost.
Like other fixed income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
are declining, the value of mortgage-related securities with prepayment features
may not increase as much as other fixed income securities.
An Underlying Investment Vehicle may invest in collateralized mortgage
obligations (CMOs), which are hybrid mortgage-related instruments. Similar to a
bond, interest and pre-paid principal on a CMO are paid, in most cases,
semiannually. CMOs are collateralized by portfolios of mortgage pass-through
securities and are structured into multiple classes with different stated
maturities. Monthly payments of principal, including prepayments, are first
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returned to investors holding the shortest maturity class; investors holding the
longer maturity classes receive principal only after the first class has been
retired.
Other mortgage-related securities in which an Underlying Investment Vehicle may
invest include other securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real
property, such as CMO residuals or stripped mortgage-backed securities, and may
be structured in classes with rights to receive varying proportions of principal
and interest. In addition, the Underlying Investment Vehicles may invest in
other asset-backed securities that have been offered to investors or will be
offered to investors in the future. Several types of asset-backed securities
have already been offered to investors, including certificates for automobile
receivables, which represent undivided fractional interests in a trust whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interest in the vehicles securing the contracts.
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PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements:
Included in Part A of the Registration Statement:
The following audited financial statements as of ________, 1997 of the
Fund will be filed by amendment:
- Report of Independent Accountants
- Portfolio of Investments
- Statement of Assets and Liabilities
2. Exhibits:
a.1. Articles of Incorporation dated October 15, 1996 - Filed
herewith.
a.2. Article of Amendment to the Articles of Incorporation dated
April 21, 1997 - Filed herewith.
b. By-Laws - Filed herewith.
c. None
d. Inapplicable
e. None
f. None
g. None
h. Underwriting Contract - To be filed.
i. None
j. Custodian Agreement - To be filed.
k. Transfer Agency Agreement - To be filed.
l. Opinion and Consent of Counsel - To be filed.
m. None
n. Consent of Independent Auditors - To be filed.
o. None
p. Letter of Investment Intent - To be filed.
q. None
r. Financial Data Schedule - To be filed.
Item 25. Marketing Arrangements
Inapplicable.
II-1
<PAGE>
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
Registration Fee (estimate) ---------------------
Printing (estimate) ---------------------
Fees and Expenses of Qualification under
State Securities Laws (including fees of
counsel) (estimate) ---------------------
Legal Fees and Expenses (estimate) ---------------------
Accounting Fees and Expenses (estimate) ---------------------
Miscellaneous (estimate) ---------------------
Total ---------------------
Item 27. Persons Controlled by or Under Common Control
None.
Item 28. Number of Holders of Securities
Number of Record
Holders as of
Title of Class May _, 1997
-------------- -----------
Common Stock, par value 2
$0.001 per share
Item 29. Indemnification
Pursuant to Article IX of the Fund's By-Laws, the Fund shall indemnify
former and present directors, officers, employees and agents, to the full extent
permitted by and in accordance with the General Corporation Law of Maryland now
or hereafter in force; provide, that the Fund is not authorized to indemnify any
such person against any liability to the Fund or its security holders to which
he would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Item 30. Business and Other Connections of Investment Adviser
Inapplicable.
Item 31. Location of Accounts and Records
The accounts and records of the Fund are maintained at the Fund's
office at Rodney Square North, 1100 N. Market Street, Wilmington, DE 19890, at
the office of the Fund's custodian at ,
and at the office of the Fund's transfer agent at .
Item 32. Management Services
None.
II-2
<PAGE>
Item 33. Undertakings
(a) Registrant undertakes to suspend offering of the shares covered
hereby until it amends its Prospectus contained herein if subsequent to the
effective date of this Registration Statement, its net asset value per share
declines more than ten percent from its net asset value per share as of the
effective date of this Registration Statement.
(b) Registrant undertakes that:
(1) For the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pittsburgh and State of Pennsylvania on the 21st day
of April, 1997.
THE MALLARD FUND, INC.
By: /s/ William S. Dietrich II
--------------------------
William S. Dietrich II
Director and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 21, 1997.
Signature Title
- --------- -----
/s/ William S. Dietrich
- ----------------------- Director and President
William S. Dietrich II
/s/ Richard F. Berdik
- --------------------- Secretary
Richard F. Berdik
/s/ Evans Rose, Jr.
- ------------------- Director
Evans Rose, Jr.
/s/ Jennings R. Lambeth
- ----------------------- Director
Jennings R. Lambeth
II-3
<PAGE>
THE MALLARD FUND, INC.
EXHIBIT INDEX
Exhibit Document Description
- ------- --------------------
a.1. Articles of Incorporation dated October 15, 1996 - Filed
herewith.
a.2. Article of Amendment to the Articles of Incorporation dated
April 21, 1997 - Filed herewith.
b. By-Laws - Filed herewith.
c. None
d. Inapplicable
e. None
f. None
g. None
h. Underwriting Contract - To be filed.
i. None
j. Custodian Agreement - To be filed.
k. Transfer Agency Agreement - To be filed.
l. Opinion and Consent of Counsel - To be filed.
m. None
n. Consent of Independent Auditors - To be filed.
o. None
p. Letter of Investment Intent - To be filed.
q. None
r. Financial Data Schedule - To be filed.
II-4
Exhibit 99.2A(1)
ARTICLES OF INCORPORATION
OF
THE MALLARD FUND, INC.
FIRST: Incorporation: The undersigned, Marc R. Duffy, whose address is 1800
- ----- -------------
Massachusetts Avenue, N.W., Washington, D.C 20036, being at least eighteen years
of age, does hereby form a corporation under the general laws of the State of
Maryland.
SECOND: Name of Corporation: The name of the corporation is THE MALLARD FUND,
- ------ --------------------
INC. ("Corporation").
THIRD: Corporate Purposes: The Corporation is formed for the following purpose
- ----- ------------------
or purposes:
A. To conduct, operate and carry on the business of a closed-end
management investment company registered as such with the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940, as amended;
and
B. To exercise and enjoy all powers, rights, and privileges granted to
and conferred upon corporations by the Maryland General Corporation Law now or
hereafter in force, including:
<PAGE>
1. To hold, invest, and reinvest the funds of the Corporation,
and to purchase, subscribe for or otherwise acquire, hold
for investment, trade and deal in, sell, assign, negotiate,
transfer, exchange, lend, pledge or otherwise dispose of, or
turn to account or realize upon securities of any
corporation, company, association, trust, firm, partnership,
or other organization however or whenever established or
organized, as well as securities issued by the United States
Government, the government of any state, municipality, or
other political subdivision, foreign governments,
supranational entities, or any other governmental or
quasi-governmental agency, instrumentality, or entity. For
the purposes of these Articles, without limiting the
generality thereof, the term "securities" includes: stocks,
shares, units of beneficial interest, partnership interests,
bonds, debentures, time notes and deposits, notes,
mortgages, and any other obligations or evidence of
indebtedness; any certificates, receipts, warrants, options,
or other instruments representing rights or obligations to
receive, purchase, subscribe for or sell the same, or
evidencing or representing any other right or interest,
including all rights of equitable ownership, in any property
or assets; and any negotiable or non-negotiable instruments
- 2 -
<PAGE>
including money market instruments, bank certificates of
deposit, finance paper, commercial paper, bankers'
acceptances, and all types of repurchase and reverse
repurchase agreements;
2. To enjoy all rights, powers, and privileges of ownership or
interest in all securities held by the Corporation,
including the right to vote and otherwise act with respect
to the preservation, protection, improvement, and
enhancement in value of all such securities;
3. To issue and sell shares of its own capital stock, including
shares in fractional denominations, and securities which are
convertible or exchangeable, with or without the payment of
additional consideration, into such capital stock in such
amounts and on such terms and for such amount or kind of
consideration (including securities) now or hereafter
permitted by the laws of the State of Maryland and by these
Articles of Incorporation as its Board of Directors may, and
which is hereby authorized to, determine;
4. To purchase, repurchase or otherwise acquire, hold, dispose
of, resell, transfer, reissue, or cancel shares of its own
capital stock in any manner and to the extent now or
hereafter permitted by the laws of the State of Maryland and
by these Articles of Incorporation;
- 3 -
<PAGE>
5. To transact its business, carry on its operations, have one
or more offices, and exercise all of its corporate powers
and rights in any state, territory, district, and possession
of the United States, and in any foreign country;
6. To aid by further investment any issuer of which the
Corporation holds any obligation or in which it has a direct
or indirect interest, to perform any act designed to
protect, preserve, improve, or enhance the value of such
obligation or interest, and to guarantee or become a surety
on any or all of the contracts, stocks, bonds, notes,
debentures, and obligations of any corporation, company,
trust, association, partnership or firm; and
7. To generally transact any business in connection with or
incidental to its corporate purposes, and to do everything
necessary, suitable, or proper for the accomplishment of
such purposes or for the attainment of any object or
furtherance of any purpose set forth in these Articles,
either alone or in association with others.
C. The foregoing clauses shall be construed both as purposes and
powers, and the foregoing enumeration of specific powers shall not be held to
limit or restrict in any manner the purposes and powers of the Corporation.
- 4 -
<PAGE>
D. Incident to meeting the purposes specified above, the Corporation
also shall have the power, without limitation:
1. To make contracts and guarantees, incur liabilities and
borrow money;
2. To sell, lease, exchange, transfer, convey, mortgage,
pledge, and otherwise dispose of any or all of its assets;
3. To acquire by purchase, lease or otherwise, and take,
receive, own, hold, use, employ, improve, dispose of and
otherwise deal with any interest in real or personal
property, wherever located; and
4. To buy, sell, and otherwise deal in and with commodities,
indices of commodities or securities, and foreign exchange,
including the purchase and sale of forward contracts,
futures contracts and options on futures contracts related
thereto, subject to any applicable provisions of law.
FOURTH: Address of Principal Office. The post office address of the principal
- ------ ----------------------------
office of the Corporation in the State of Maryland is Corporation Service
Company, 11 East Chase Street, Baltimore, Maryland 21202.
- 5 -
<PAGE>
FIFTH: Name and Address of Resident Agent. The name and address of the resident
- ----- ----------------------------------
agent of the Corporation in the State of Maryland is Corporation Service
Company, 11 East Chase Street, Baltimore, Maryland 21202.
SIXTH: Capital Stock.
- ----- -------------
A. The total number of shares of all classes of stock which the
Corporation has authority to issue is 100,000,000 shares of Common Stock, $.001
par value, having an aggregate par value of $100,000.
B. Stockholders shall not have preemptive rights to acquire any shares
of the stock of the Corporation, and any or all of such shares, whenever
authorized, may be issued, or reissued and transferred if reacquired and have
treasury status, to any person, firm, corporation, trust, partnership, or
association for such lawful consideration and on such terms as the Board of
Directors determines in its discretion without first offering the shares to any
such holder.
C. The Board of Directors of the Corporation may classify or reclassify
any unissued stock from time to time by setting or changing any preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption of the stock.
- 6 -
<PAGE>
D. All shares of authorized Common Stock, when issued for such
consideration as the Board of Directors may determine, shall be fully paid and
nonassessable.
E. No shares of Common Stock shall have any conversion or exchange
rights or privileges or have cumulative voting rights.
F. Voting power for the election of directors and for all other
purposes shall be vested exclusively in the holders of the Common Stock.
SEVENTH: Board of Directors: The Corporation shall have at least three directors
- ------- ------------------
at all times; provided that if there is no stock outstanding, the number of
directors may be less than three but not less than one. William S. Dietrich II
shall act as sole director of the Corporation until the first annual meeting and
until his successor is duly chosen and qualified.
EIGHTH: Management of the Affairs of the Corporation.
- ------ --------------------------------------------
A. All corporate powers and authority of the Corporation shall be
vested in and exercised by the Board of Directors except as otherwise provided
by statute, these Articles, or the By-Laws of the Corporation.
- 7 -
<PAGE>
B. The Board of Directors shall have the power to adopt, alter, or
repeal the By-Laws of the Corporation, unless the By- Laws otherwise provide.
C. The Board of Directors shall have the power to determine whether and
to what extent, and at what times and places, and under what conditions and
regulations the accounts and books of the Corporation (other than the stock
ledger) shall be open to inspection by stockholders. No stockholder shall have
any right to inspect any account, book, or document of the Corporation except to
the extent permitted by statute or the By-Laws.
D. The Board of Directors shall have the power to determine, in
accordance with generally accepted accounting principles, the Corporation's net
income, its total assets and liabilities, and the net asset value of the shares
of Common Stock of the Corporation. The Board of Directors may delegate such
power to any one or more of the directors or officers of the Corporation, its
investment adviser, administrator, custodian, or depositary of the Corporation's
assets, or another agent of the Corporation appointed for such purposes.
E. The Board of Directors shall have the power to make distributions,
including dividends, from any legally available funds in such amounts, and in a
manner and to the stockholders of record of such a date, as the Board of
Directors may determine.
- 8 -
<PAGE>
NINTH: Stockholder Liability. The stockholders shall not be liable to any extent
- ----- ---------------------
for the payment of any debt of the Corporation.
TENTH: Majority of Votes. To the extent permitted by law, any action may be
- ----- -----------------
taken or authorized by the Corporation upon the affirmative vote of a majority
of the votes entitled to be cast, except as otherwise provided in these
Articles.
ELEVENTH: Limitation on Liability.
- -------- -----------------------
A. To the maximum extent permitted by applicable law (including
Maryland law and the Investment Company Act of 1940, as amended) as currently in
effect or as may hereafter be amended:
1. No director or officer of the Corporation shall be liable to
the Corporation or its stockholders for money damages; and
2. The Corporation shall indemnify and advance expenses as
provided in the By-Laws of the Corporation to its present
and past directors, officers, employees and agents, and
persons who are serving or have served at the request of the
Corporation in similar capacities for other entities.
B. No amendment, alteration or repeal of this Article or the adoption,
alteration or amendment of any other provision of these Articles of
Incorporation or the By-Laws of the Corporation inconsistent with this Article,
shall adversely affect any limitation on liability or indemnification of any
person under this Article with respect to any act or failure to act which
occurred prior to such amendment, alteration, repeal or adoption.
TWELFTH: Right of Amendment. Except as set forth below, any provision of these
- ------- ------------------
Articles of Incorporation may be amended, altered or repealed upon the
affirmative vote of the holders of a majority of the outstanding shares of the
Corporation.
- 10 -
<PAGE>
Any amendment, alteration or repeal of Article ELEVENTH or TWELFTH
shall require the affirmative vote or consent of the holders of sixty-six and
two-thirds (66 2/3) percent of the outstanding shares of the Corporation.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge the same to be my act on this 15th day of October, 1996.
/s/ Marc R. Duffy
------------------------------
Marc R. Duffy
- 11 -
Exhibit 99.2A(2)
Articles of Amendment
of
The Mallard Fund, Inc.
Pursuant to Section 2-607 of the Maryland General Corporation Law, The
Mallard Fund, Inc. ("Corporation") adopts the following Articles of Amendment to
the Articles of Incorporation as of April 21, 1997.
FIRST: A new Article THIRTEENTH shall hereby be added:
THIRTEENTH: TERMINATION OF EXISTENCE. If the Board of
Directors of the Corporation does not commence a tender offer
to repurchase all of the Common Stock of the Corporation by
December 31, 2000, the Corporation shall be liquidated as soon
as practical thereafter unless the Corporation obtains
unanimous approval from all shareholders of the Corporation's
Common Stock not to liquidate the Corporation. If unanimous
shareholder approval is obtained after this three year period,
the Corporation shall continue in existence for three
successive three year periods. If no tender offer is made
within any three year period, the Corporation shall be
liquidated as soon as practical thereafter unless the
Corporation obtains unanimous approval from all shareholders
of the Corporation's Common Stock not to liquidate the
Corporation. In all cases, the Corporation shall cease to
exist at the close of business on December 31, 2009, except
that the Corporation shall continue to exist for the purpose
of paying, satisfying, and discharging any existing debts or
obligations, collecting and distributing its assets, and doing
all other acts required to liquidate and wind up its business
and affairs.
The Board of Directors may, to the extent it deems it
appropriate, adopt a plan of termination at any time during
the twelve months immediately preceding the proposed
liquidation of the Corporation, which plan of termination
shall set forth the terms and conditions for implementing the
termination of the Corporation's existence under this Article
THIRTEENTH.
SECOND: This Article of Amendment was approved by a majority of the
entire board of directors pursuant to Section 2-603 of the Maryland
General Corporation Law.
THIRD: No stock of the Corporation is outstanding or subscribed for at
this time.
The Articles of Incorporation are hereby amended.
<PAGE>
IN WITNESS WHEREOF, THE MALLARD FUND, INC. has caused this document to
be signed in its name and on its behalf by the President of the Corporation and
attested by the Corporation's Secretary on this 21st day of April, 1997.
Attest: THE MALLARD FUND, INC.
/s/ Richard F. Berdik /s/ William S. Dietrich II
By: ---------------------------- By: --------------------------
Richard F. Berdik William S. Dietrich II
Secretary President
Exhibit 99.2B
THE MALLARD FUND, INC.
A Maryland Corporation
BY-LAWS
October 15, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL............................... 1
Section 1. Name.................................................. 1
Section 2. Principal Offices..................................... 1
Section 3. Seal.................................................. 1
ARTICLE II
STOCKHOLDERS.................................. 1
Section 1. Annual Meetings....................................... 1
Section 2. Special Meetings...................................... 1
Section 3. Notice of Meetings.................................... 2
Section 4. Quorum and Adjournment of Meetings.................... 2
Section 5. Voting and Inspectors................................. 3
Section 6. Validity of Proxies................................... 3
Section 7. Stock Ledger and List of Stockholders................. 4
Section 8. Action Without Meeting................................ 4
ARTICLE III
BOARD OF DIRECTORS............................ 4
Section 1. Powers................................................ 4
Section 2. Number and Term of Directors.......................... 4
Section 3. Election.............................................. 5
Section 4. Vacancies and Newly Created Directorships............. 5
Section 5. Removal............................................... 5
Section 6. Chairman of the Board................................. 6
Section 7. Annual and Regular Meetings........................... 6
Section 8. Special Meetings...................................... 6
Section 9. Waiver of Notice...................................... 6
Section 10. Quorum and Voting.................................... 6
Section 11. Action Without a Meeting............................. 7
Section 12. Compensation of Directors............................ 7
ARTICLE IV
COMMITTEES.................................... 7
Section 1. Organization.......................................... 7
Section 2. Executive Committee................................... 7
Section 3. Proceedings and Quorum................................ 8
Section 4. Other Committees...................................... 8
ARTICLE V
OFFICERS...................................... 8
Section 1. General............................................... 8
Section 2. Election, Tenure and Qualifications................... 8
Section 3. Vacancies and Newly Created Officers.................. 9
Section 4. Removal and Resignation............................... 9
Section 5. President............................................. 9
Section 6. Vice President........................................ 9
- i -
<PAGE>
Section 7. Treasurer and Assistant Treasurers.................... 9
Section 8. Secretary and Assistant Secretaries................... 10
Section 9. Subordinate Officers.................................. 10
Section 10. Remuneration......................................... 10
Section 11. Surety Bond.......................................... 11
ARTICLE VI
CAPITAL STOCK................................... 11
Section 1. Certificates of Stock................................. 11
Section 2. Restrictions on Transfer of Shares.................... 11
Section 3. Stock Ledgers......................................... 12
Section 4. Transfer Agents and Registrars........................ 12
Section 5. Fixing of Record Date................................. 12
Section 6. Lost, Stolen or Destroyed Certificates................ 12
ARTICLE VII
FISCAL YEAR AND ACCOUNTANT....................... 13
Section 1. Fiscal Year........................................... 13
Section 2. Accountant............................................ 13
ARTICLE VIII
CUSTODY OF SECURITIES............................ 13
Section 1. Employment of a Custodian............................. 13
Section 2. Termination of Custodian Agreemen..................... 14
Section 3. Other Arrangements.................................... 14
ARTICLE IX
INDEMNIFICATION AND INSURANCE.................... 14
Section 1. Indemnification of Officers, Directors,
Employees and Agents.................................. 14
Section 2. Insurance of Officers, Directors, Employees
and Agents............................................ 14
Section 3. Amendment............................................. 15
ARTICLE X
AMENDMENTS....................................... 15
Section 1. General............................................... 15
Section 2. By Stockholders Only.................................. 15
- ii -
<PAGE>
BY-LAWS
OF
THE MALLARD FUND, INC.
(A MARYLAND CORPORATION)
ARTICLE I
---------
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
---------------------------------
Section 1. Name. The name of the Corporation is THE MALLARD FUND, INC.
- --------- ----
Section 2. Principal Offices. The principal office of the Corporation in the
- --------- ------------------
State of Maryland shall be located in the City of Baltimore. The Corporation
may, in addition, establish and maintain such other offices and places of
business as the Board of Directors may, from time to time, determine.
Section 3. Seal. The corporate seal of the Corporation shall be circular in form
and shall bear the name of the Corporation, the year of its incorporation, and
the word "Maryland." The form of the seal shall be subject to alteration by the
Board of Directors and the seal may be used by causing it or a facsimile to be
impressed or affixed or printed or otherwise reproduced. Any officer or director
of the Corporation shall have authority to affix the corporate seal of the
Corporation to any document requiring the same.
ARTICLE II
STOCKHOLDERS
------------
Section 1. Annual Meetings. An annual meeting of stockholders shall be held as
- --------- ---------------
required and for the purposes prescribed by the Investment Company Act of 1940,
as amended, and the laws of the State of Maryland and for the election of
directors and the transaction of such other business as may properly come before
the meeting. Except for the first fiscal year of the Corporation, the meeting
shall be held annually within the fourth month following the end of the
Corporation's fiscal year, at a time within that period set by the Board of
Directors, at the Corporation's principal offices, or at such place within the
United States as the Board of Directors shall select.
Section 2. Special Meetings. Special meetings of stockholders may be called at
- --------- -----------------
any time by the President or by a majority of the Board of Directors, and shall
be held at such time and place as may be stated in the notice of the meeting.
<PAGE>
Special meetings of the stockholders may be called by the Secretary
upon the written request of the holders of shares entitled to not less than
twenty-five percent of all the votes entitled to be cast at such meeting,
provided that (1) such request shall state the purposes of such meeting and the
matters proposed to be acted on, and (2) the stockholders requesting such
meeting shall have paid to the Corporation the reasonably estimated cost of
preparing and mailing the notice thereof, which the Secretary shall determine
and specify to such stockholders. No special meeting shall be called upon the
request of stockholders to consider any matter which is substantially the same
as a matter voted upon at any special meeting of the stockholders held during
the preceding twelve months, unless requested by the holders of a majority of
all shares entitled to be voted at such meeting.
Section 3. Notice of Meetings. The Secretary shall cause notice of the place,
- --------- ------------------
date and hour, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, to be mailed, postage prepaid, not less than
ten nor more than ninety days before the date of the meeting, to each
stockholder entitled to vote at such meeting at his address as it appears on the
records of the Corporation at the time of such mailing. Notice shall be deemed
to be given when deposited in the United States mail addressed to the
stockholders as aforesaid. Notice of any stockholders' meeting need not be given
to any stockholder who shall sign a written waiver of such notice whether before
or after the time of such meeting, or to any stockholder who is present at such
meeting in person or by proxy. Notice of adjournment of a stockholders' meeting
to another time or place need not be given if such time and place are announced
at the meeting. Irregularities in the notice of any meeting to, or the
nonreceipt of any such notice by, any of the stockholders shall not invalidate
any action otherwise properly taken by or at any such meeting.
Section 4. Quorum and Adjournment of Meetings. The presence at any stockholders'
- --------- ----------------------------------
meeting, in person or by proxy, of stockholders entitled to cast a majority of
the votes shall be necessary and sufficient to constitute a quorum for the
transaction of business. In the absence of a quorum, the holders of a majority
of shares entitled to vote at the meeting and present in person or by proxy, or,
if no stockholder entitled to vote is present in person or by proxy, any officer
present entitled to preside or act as secretary of such meeting may adjourn the
meeting without determining the date of the new meeting or from time to time
without further notice to a date not more than 120 days after the original
record date. Any business that might have been transacted at the meeting
originally called may be transacted at any such adjourned meeting at which a
quorum is present.
- 2 -
<PAGE>
Section 5. Voting and Inspectors. At each stockholders' meeting, each
- ---------- -----------------------
stockholder shall be entitled to one vote for each share of stock of the
Corporation validly issued and outstanding and standing in his name on the books
of the Corporation on the record date fixed in accordance with Section 5 of the
Article VI hereof, either in person or by proxy appointed by instrument in
writing subscribed by such stockholder or his duly authorized attorney, except
that no shares held by the Corporation shall be entitled to a vote. If no record
date has been fixed, the record date for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders shall be the later
of the close of business on the day on which notice of the meeting is mailed or
the thirtieth day before the meeting, or, if notice is waived by all
stockholders, at the close of business on the tenth day next preceding the day
on which the meeting is held.
Except as otherwise specifically provided in the Articles of
Incorporation or these By-Laws or as required by provisions of the Investment
Company Act of 1940, as amended, all matters shall be decided by a vote of the
majority of the votes validly cast. The vote upon any question shall be by
ballot whenever requested by any person entitled to vote, but, unless such a
request is made, voting may be conducted in any way approved by the meeting.
At any meeting at which there is an election of Directors, the chairman
of the meeting may, and upon the request of the holders of ten percent of the
stock entitled to vote at such election shall, appoint two inspectors of
election who shall first subscribe an oath or affirmation to execute faithfully
the duties of inspectors at such election with strict impartiality and according
to the best of their ability, and shall, after the election, make a certificate
of the result of the vote taken. No candidate for the office of Director shall
be appointed as an inspector.
Section 6. Validity of Proxies. The right to vote by proxy shall exist only if
- --------- -------------------
the instrument authorizing such proxy to act shall have been signed by the
stockholder or by his duly authorized attorney. Unless a proxy provides
otherwise, it shall not be valid more than eleven months after its date. All
proxies shall be delivered to the Secretary of the Corporation or to the person
acting as Secretary of the meeting before being voted, who shall decide all
questions concerning qualification of voters, the validity of proxies, and the
acceptance or rejection of votes. If inspectors of election have been appointed
by the chairman of the meeting, such inspectors shall decide all such questions.
A proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of such proxy
the Corporation receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed by or on behalf of a stockholder
shall be deemed valid unless challenged at or prior to its exercise.
- 3 -
<PAGE>
Section 7. Stock Ledger and List of Stockholders. It shall be the duty of the
- --------- ---------------------------------------
Secretary or Assistant Secretary of the Corporation to cause an original or
duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent. Such stock ledger may be in written form or any other form
capable of being converted into written form within a reasonable time for visual
inspection. Any one or more persons, each of whom has been a stockholder of
record of the Corporation for more than six months next preceding such request,
who owns in the aggregate 5% or more of the outstanding capital stock of the
Corporation, may submit (unless the Corporation at the time of the request
maintains a duplicate stock ledger at its principal office in Maryland) a
written request to any officer of the Corporation or its resident agent in
Maryland for a list of the stockholders of the Corporation. Within 20 days after
such a request, there shall be prepared and filed at the Corporation's principal
office in Maryland a list containing the names and addresses of all stockholders
of the Corporation and the number of shares of each class held by each
stockholder, certified as correct by an officer of the Corporation, by its stock
transfer agent, or by its registrar.
Section 8. Action Without Meeting. Any action required or permitted to be taken
- --------- ----------------------
by stockholders at a meeting of stockholders may be taken without a meeting if
(1) all stockholders entitled to vote on the matter consent to the action in
writing, (2) all stockholders entitled to notice of the meeting but not entitled
to vote at it sign a written waiver of any right to dissent, and (3) the
consents and waivers are filed with the records of the meetings of stockholders.
Such consent shall be treated for all purposes as a vote at the meeting.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Powers. Except as otherwise provided by operation of law, by the
- --------- ------
Articles of Incorporation, or by these By-Laws, the business and affairs of the
Corporation shall be managed under the direction of and all the powers of the
Corporation shall be exercised by or under authority of its Board of Directors.
Section 2. Number and Term of Directors. Except for the initial Board of
- ---------- ------------------------------
Directors, the Board of Directors shall consist of not fewer than three nor more
than fifteen Directors, as specified by a resolution of a majority of the entire
Board of Directors and at least one member of the Board of Directors shall be a
person who is not an "interested person" of the Corporation, as that term is
defined in the Investment Company Act of 1940, as amended. Directors need not be
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<PAGE>
stockholders of the Corporation. All other directors may be interested persons
of the Corporation if the requirements of Section 10(d) of the Investment
Company Act of 1940, as amended, are met by the Corporation and its investment
adviser. All acts done at any meeting of the Directors or by any person acting
as a Director, so long as his successor shall not have been duly elected or
appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the Directors or of such person acting as a
Director or that they or any of them were disqualified, be as valid as if the
Directors or such other person, as the case may be, had been duly elected and
were or was qualified to be Directors or a Director of the Corporation. Each
Director shall hold office until his successor is elected and qualified or until
his earlier death, resignation or removal.
Section 3. Election. At the first annual meeting of stockholders and at each
- --------- --------
annual meeting thereafter, Directors shall be elected by vote of the holders of
a majority of the shares present in person or by proxy and entitled to vote
thereon. A plurality of all the votes cast at a meeting at which a quorum is
present is sufficient to elect a Director.
Section 4. Vacancies and Newly Created Directorships. If any vacancies shall
- --------- ------------------------------------------
occur in the Board of Directors by reason of death, resignation, removal or
otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies (if not
previously filled by the stockholders) may be filled by a majority of the
Directors then in office, although less than a quorum, except that a newly
created Directorship may be filled only by a majority vote of the entire Board
of Directors; provided, however, that immediately after filling such vacancy, at
least two-thirds (2/3) of the Directors then holding office shall have been
elected to such office by the stockholders of the Corporation. In the event that
at any time, other than the time preceding the first annual stockholders'
meeting, less than a majority of the Directors of the Corporation holding office
at that time were elected by the stockholders, a meeting of the stockholders
shall be held promptly and in any event within sixty days for the purpose of
electing Directors to fill any existing vacancies in the Board of Directors,
unless the Securities and Exchange Commission shall by order extend such period.
Section 5. Removal. At any stockholders' meeting duly called, provided a quorum
- --------- -------
is present, the stockholders may remove any director from office (either with or
without cause) and may elect a successor or successors to fill any resulting
vacancies for the unexpired terms of the removed director or directors. A
majority of all votes represented at a meeting is sufficient to remove a
Director for cause.
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<PAGE>
Section 6. Chairman of the Board. The Board of Directors may, but shall not be
- --------- ---------------------
required to, elect a Chairman of the Board. Any Chairman of the Board shall be
elected from among the Directors of the Corporation and may hold such office
only so long as he or she continues to be a Director. The Chairman, if any,
shall preside at all stockholders' meetings and at all meetings of the Board of
Directors, and may be ex officio a member of all committees of the Board of
Directors. The Chairman, if any, shall have such powers and perform such duties
as may be assigned from time to time by the Board of Directors.
Section 7. Annual and Regular Meetings. The annual meeting of the Board of
- ---------- -----------------------------
Directors for choosing officers and transacting other proper business shall be
held at such other time and place as the Board may determine. The Board of
Directors from time to time may provide by resolution for the holding of regular
meetings and fix their time and place within or outside the State of Maryland.
Except as otherwise provided in the Investment Company Act of 1940, as amended,
notice of such annual and regular meetings need not be given, provided that
notice of any change in the time or place of such meetings shall be sent
promptly to each Director not present at the meeting at which such change was
made, in the manner provided for notice of special meetings. Except as otherwise
provided under the Investment Company Act of 1940, as amended, members of the
Board of Directors or any committee designated thereby may participate in a
meeting of such Board or committee by means of a conference telephone or similar
communications equipment that allows all persons participating in the meeting to
hear each other at the same time.
Section 8. Special Meetings. Special meetings of the Board of Directors shall be
- --------- ----------------
held whenever called by the Chairman of the Board, the President (or, in the
absence or disability of the President, by any Vice President), the Treasurer or
by two or more Directors, at the time and place (within or without the State of
Maryland) specified in the respective notice or waivers of notice of such
meetings. Notice of special meetings, stating the time and place, shall be (1)
mailed to each Director at his residence or regular place of business at least
three days before the day on which a special meeting is to be held or (2)
delivered to him personally or transmitted to him by telegraph, telefax, telex,
cable or wireless at least one day before the meeting.
Section 9. Waiver of Notice. No notice of any meeting need to be given to any
- --------- -----------------
Director who is present at the meeting or who waives notice of such meeting in
writing (which waiver shall be filed with the records of such meeting), either
before or after the time of the meeting.
Section 10. Quorum and Voting. At all meetings of the Board of Directors, the
- ---------- -----------------
presence of one-half or more of the number of
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<PAGE>
Directors then in office shall constitute a quorum for the transaction of
business, provided that there shall be present at least two directors. In the
absence of a quorum, a majority of the Directors present may adjourn the
meeting, from time to time, until a quorum shall be present. The action of a
majority of the Directors present at a meeting at which a quorum is present
shall be the action of the Board of Directors, unless concurrence of a greater
proportion is required for such action by law, by the Articles of Incorporation
or by these By-Laws.
Section 11. Action Without a Meeting. Except as otherwise provided under the
- ---------- -------------------------
Investment Company Act of 1940, as amended, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent to such action is signed by
all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or
committee.
Section 12. Compensation of Directors. Directors shall be entitled to receive
- ---------- --------------------------
such compensation from the Corporation for their services as may from time to
time be determined by resolution of the Board of Directors.
ARTICLE IV
COMMITTEES
----------
Section 1. Organization. By resolution adopted by the Board of Directors, the
- --------- ------------
Board may designate one or more committees of the Board of Directors, including
an Executive Committee. The Chairmen of such committees shall be elected by the
Board of Directors. Each committee must be comprised of two or more members,
each of whom must be a Director and shall hold committee membership at the
pleasure of the Board. The Board of Directors shall have the power at any time
to change the members of such committees and to fill vacancies in the
committees. The Board may delegate to these committees any of its powers, except
the power to declare a dividend or distribution on stock, authorize the issuance
of stock, recommend to stockholders any action requiring stockholders' approval,
amend these By-Laws, approve any merger or share exchange which does not require
stockholder approval, approve or terminate any contract with an "investment
adviser" or "principal underwriter," as those terms are defined in the
Investment Company Act of 1940, as amended, or to take any other action required
by the Investment Company Act of 1940, as amended, to be taken by the Board of
Directors.
Section 2. Executive Committee. Unless otherwise provided by resolution of the
- --------- --------------------
Board of Directors, when the Board of Directors is not in session, the Executive
Committee, if one is designated by the Board, shall have and may exercise all
powers of the Board
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<PAGE>
of Directors in the management of the business and affairs of the Corporation
that may lawfully be exercised by an Executive Committee. The President shall
automatically be a member of the Executive Committee.
Section 3. Proceedings and Quorum. In the absence of an appropriate resolution
- --------- ----------------------
of the Board of Directors, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it shall deem proper
and desirable. In the event any member of any committee is absent from any
meeting, the members thereof present at the meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 4. Other Committees. The Board of Directors may appoint other
- ---------- -----------------
committees, each consisting of one or more persons, who need not be Directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the Board of
Directors or a committee thereof.
ARTICLE V
OFFICERS
---------
Section 1. General. The officers of the Corporation shall be a President, a
- --------- -------
Secretary, and a Treasurer, and may include one or more Vice Presidents,
Assistant Secretaries or Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 9 of this Article.
Section 2. Election, Tenure and Qualifications. The officers of the Corporation,
- --------- -----------------------------------
except those appointed as provided in Section 9 of this Article V, shall be
elected by the Board of Directors at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting, and thereafter
annually at its annual meeting. If any officers are not elected at any annual
meeting, such officers may be elected at any subsequent regular or special
meeting of the Board. Except as otherwise provided in this Article V, each
officer elected by the Board of Directors shall hold office until the next
annual meeting of the Board of Directors and until his or her successor shall
have been elected and qualified. Any person may hold one or more offices of the
Corporation except that no one person may serve concurrently as both President
and Vice President. A person who holds more than one office in the Corporation
may not act in more than one capacity to execute, acknowledge, or verify an
instrument required by law to be executed, acknowledged, or verified by more
than one officer. No officer need be a Director.
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<PAGE>
Section 3. Vacancies and Newly Created Officers. If any vacancy shall occur in
- --------- -------------------------------------
any office by reason of death, resignation, removal, disqualification or other
cause, or if any new office shall be created, such vacancies or newly created
offices may be filled by the Board of Directors at any regular or special
meeting or, in the case of any office created pursuant to Section 9 hereof, by
any officer upon whom such power shall have been conferred by the Board of
Directors.
Section 4. Removal and Resignation. Any officer may be removed from office by
- --------- ------------------------
the vote of a majority of the members of the Board of Directors given at a
regular meeting or any special meeting called for such purpose, if the Board has
determined the best interests of the Corporation will be served by removal of
that officer. Any officer may resign from office at any time by delivering a
written resignation to the Board of Directors, the President, the Secretary, or
any Assistant Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 5. President. The President shall be the chief executive officer of the
- --------- ---------
Corporation and, in the absence of the Chairman of the Board or if no Chairman
of the Board has been elected, shall preside at all stockholders' meetings and
at all meetings of the Board of Directors and shall in general exercise the
powers and perform the duties of the Chairman of the Board. Subject to the
supervision of the Board of Directors, the President shall have general charge
of the business, affairs and property of the Corporation and general supervision
over its officers, employees and agents. Except as the Board of Directors may
otherwise order, the President may sign in the name and on behalf of the
Corporation all deeds, bonds, contracts, or agreements. The President shall
exercise such other powers and perform such other duties as from time to time
may be assigned by the Board of Directors.
Section 6. Vice President. The Board of Directors may from time to time elect
- --------- ---------------
one or more Vice Presidents who shall have such powers and perform such duties
as from time to time may be assigned to them by the Board of Directors or the
President. At the request of, or in the absence or in the event of the
disability of, the President, the Vice President (or, if there are two or more
Vice Presidents, then the senior of the Vice Presidents present and able to act)
may perform all the duties of the President and, when so acting, shall have all
the powers of and be subject to all the restrictions upon the President.
Section 7. Treasurer and Assistant Treasurers. The Treasurer shall be the
- --------- -------------------------------------
principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, the Treasurer shall have
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<PAGE>
general supervision of the funds and property of the Corporation and of the
performance by the Custodian of its duties with respect thereto. The Treasurer
shall render to the Board of Directors, whenever directed by the Board, an
account of the financial condition of the Corporation and of all transactions as
Treasurer; and as soon as possible after the close of each financial year the
Treasurer shall make and submit to the Board of Directors a like report for such
financial year. The Treasurer shall perform all acts incidental to the office of
Treasurer, subject to the control of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, may perform all the duties of the Treasurer.
Section 8. Secretary and Assistant Secretaries. The Secretary shall attend to
- --------- ------------------------------------
the giving and serving of all notices of the Corporation and shall record all
proceedings of the meetings of the stockholders and Directors in books to be
kept for that purpose. The Secretary shall keep in safe custody the seal of the
Corporation, and shall have responsibility for the records of the Corporation,
including the stock books and such other books and papers as the Board of
Directors may direct and such books, reports, certificates and other documents
required by law to be kept, all of which shall at all reasonable times be open
to inspection by any Director. The Secretary shall perform such other duties
which appertain to this office or as may be required by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, may perform all the duties of the Secretary.
Section 9. Subordinate Officers. The Board of Directors from time to time may
- --------- ---------------------
appoint such other officers and agents as it may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties. Any officer or agent
appointed in accordance with the provisions of this Section 9 may be removed,
either with or without cause, by any officer upon whom such power of removal
shall have been conferred by the Board of Directors.
Section 10. Remuneration. The salaries or other compensation of the officers of
- ---------- ------------
the Corporation shall be fixed from time to time by resolution of the Board of
Directors, except that the Board of Directors may by resolution delegate to any
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<PAGE>
person or group of persons the power to fix the salaries or other compensation
of any subordinate officers or agents appointed in accordance with the
provisions of Section 9 of this Article V.
Section 11. Surety Bond. The Board of Directors may require any officer or agent
- ---------- -----------
of the Corporation to execute a bond (including, without limitation, any bond
required by the Investment Company Act of 1940, as amended, and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder) to
the Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his or her
duties to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his hands.
ARTICLE VI
CAPITAL STOCK
-------------
Section 1. Certificates of Stock. The interest of each stockholder of the
- --------- ----------------------
Corporation may be, but shall not be required to be, evidenced by certificates
for shares of stock in such form as the Board of Directors may from time to time
authorize. No certificate shall be valid unless it is signed by the President or
a Vice President and countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer of the Corporation and sealed with the
seal of the Corporation, or bears the facsimile signatures of such officers and
a facsimile of such seal. In case any officer who shall have signed any such
certificate, or whose facsimile signature has been placed thereon, shall cease
to be such an officer (because of death, resignation or otherwise) before such
certificate is issued, such certificate may be issued and delivered by the
Corporation with the same effect as if he were such officer at the date of
issue.
Section 2. Restrictions on Transfer of Shares. Shares of the Corporation shall
- --------- ----------------------------------
not be transferable on the books of the Corporation by the holder of record
thereof unless written approval is received from the Secretary of the
Corporation. Such approval may not be granted unless the transferee meets
certain qualifications as determined by the Board of Directors of the
Corporation by resolution. If the transferee meets the qualifications set forth
by the Board of Directors, the shares of stock of the Corporation may be freely
transferred, and the Board of Directors may, from time to time, adopt rules and
regulations with reference to the method of transfer of the shares of stock of
the Corporation. The Corporation shall be entitled to treat the holder of record
of any share of stock as the absolute owner thereof for all purposes, and
accordingly shall not be bound to recognize any legal, equitable or other claim
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law or the statutes of the State of Maryland.
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Section 3. Stock Ledgers. The stock ledgers of the Corporation, containing the
- --------- -------------
names and addresses of the stockholders and the number of shares held by them
respectively, shall be kept at the principal offices of the Corporation or, if
the Corporation employs a transfer agent, at the offices of the transfer agent
of the Corporation.
Section 4. Transfer Agents and Registrars. The Board of Directors may from time
- --------- ------------------------------
to time appoint or remove transfer agents and/or registrars of transfers for
shares of stock of the Corporation, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment being made all
certificates representing shares of capital stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one countersignature by
such person shall be required.
Section 5. Fixing of Record Date. The Board of Directors may fix in advance a
- --------- ---------------------
date as a record date for the determination of the stockholders entitled to
notice of or to vote at any stockholders' meeting or any adjournment thereof, or
to express consent to corporate action in writing without a meeting, or to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, provided that
(1) such record date shall be within ninety days prior to the date on which the
particular action requiring such determination will be taken; (2) the transfer
books shall not be closed for a period longer than twenty days; and (3) in the
case of a meeting of stockholders, the record date shall be at least ten days
before the date of the meeting.
Section 6. Lost, Stolen or Destroyed Certificates. Before issuing a new
- ---------- ------------------------------------------
certificate for stock of the Corporation alleged to have been lost, stolen or
destroyed, the Board of Directors or any officer authorized by the Board may, in
its discretion, require the owner of the lost, stolen or destroyed certificate
(or his legal representative) to give the Corporation a bond or other indemnity,
in such form and in such amount as the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the Board or any such
officer, sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
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ARTICLE VII
FISCAL YEAR AND ACCOUNTANT
--------------------------
Section 1. Fiscal Year. The fiscal year of the Corporation shall be determined
- --------- -----------
by the Board of Directors, provided, however, that the Board of Directors may
change the fiscal year of the Corporation without shareholder approval.
Section 2. Accountant.
- --------- ----------
A. The Corporation shall employ an independent public accountant or a firm of
independent public accountants as its Accountant to examine the accounts of the
Corporation and to sign and certify financial statements filed by the
Corporation. The Accountant's certificates and reports shall be addressed both
to the Board of Directors and to the stockholders. The employment of the
Accountant shall be conditioned upon the right of the Corporation to terminate
the employment forthwith without any penalty by vote of a majority of the
outstanding voting securities at any stockholders' meeting called for that
purpose.
B. A majority of the members of the Board of Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940, as amended) of the
Corporation shall select the Accountant at any meeting held within thirty days
before or after the beginning of the fiscal year of the Corporation or before
the annual stockholders' meeting in that year. The selection shall be submitted
for ratification or rejection at the next succeeding annual stockholders'
meeting. If the selection is rejected at that meeting, the Accountant shall be
selected by majority vote of the Corporation's outstanding voting securities,
either at the meeting at which the rejection occurred or at a subsequent meeting
of stockholders called for the purpose of selecting an Accountant.
C. Any vacancy occurring between annual meetings due to the resignation of the
Accountant may be filled by the vote of a majority of the members of the Board
of Directors who are not interested persons.
ARTICLE VIII
CUSTODY OF SECURITIES
---------------------
Section 1. Employment of a Custodian. The Corporation shall place and at all
- --------- -------------------------
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments owned by the
Corporation. The Custodian (and any sub-custodian) shall be qualified to act as
such in accordance with the requirements of the Investment Company Act of 1940,
as amended. The Custodian shall be appointed from time to time by the Board of
Directors, which shall fix its remuneration.
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<PAGE>
Section 2. Termination of Custodian Agreement. Upon termination of the agreement
- --------- ----------------------------------
for services with the Custodian or inability of the Custodian to continue to
serve, the Board of Directors shall promptly appoint a successor Custodian, but
in the event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a Custodian or shall be liquidated. If so
directed by resolution of the Board of Directors or by vote of the holders of a
majority of the outstanding shares of stock of the Corporation, the Custodian
shall deliver and pay over all property of the Corporation held by it as
specified in such vote.
Section 3. Other Arrangements. The Corporation may make such other arrangements
- --------- ------------------
for the custody of its assets (including deposit arrangements) as may be
required by any applicable law, rule or regulation.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
Section 1. Indemnification of Officers, Directors, Employees and Agents. The
- --------- ---------------------------------------------------------------
Corporation shall indemnify its present and past directors, officers, employees
and agents, and any persons who are serving or have served at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or enterprise, to the full extent provided
and allowed by Section 2-418 of the Annotated Code of Maryland (Corporations and
Associations), as amended from time to time or any other applicable provisions
of law. Notwithstanding anything herein to the contrary, no director, officer,
investment adviser or principal underwriter of the Corporation shall be
indemnified in violation of Sections 17(h) and (i) of the Investment Company Act
of 1940, as amended. Expenses incurred by any such person in defending any
proceeding to which he is a party by reason of service in the above- referenced
capacities shall be paid in advance or reimbursed by the Corporation to the full
extent permitted by law, including Sections 17(h) and (i) of the Investment
Company Act of 1940, as amended.
Section 2. Insurance of Officers, Directors, Employees and Agents. The
- ---------- -------------------------------------------------------------
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against that person and incurred by
that person in or arising out of his or her position, whether or not the
Corporation would have the power to indemnify him or her against such liability.
- 14 -
<PAGE>
Section 3. Amendment. No amendment, alteration or repeal of this Article or the
- --------- ---------
adoption, alteration or amendment of any other provision of the Articles of
Incorporation or By-Laws inconsistent with this Article shall adversely affect
any right or protection of any person under this Article with respect to any act
or failure to act which occurred prior to such amendment, alteration, repeal or
adoption.
ARTICLE X
AMENDMENTS
----------
Section 1. General. Except as provided in Section 2 of this Article X, all
- --------- -------
By-Laws of the Corporation, whether adopted by the Board of Directors or the
stockholders, shall be subject to amendment, alteration or repeal, and new
By-Laws may be made by the affirmative vote of a majority of either: (1) the
holders of record of the outstanding shares of stock of the Corporation entitled
to vote, at any annual or special meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new Bylaw; or (2) the Directors, at any regular or special meeting the
notice or waiver of notice of which shall have specified or summarized the
proposed amendment, alteration, repeal or new Bylaw.
Section 2. By Stockholders Only. No amendment of any section of these By-Laws
- --------- ----------------------
shall be made except by the stockholders of the Corporation if the By-Laws
provide that such section may not be amended, altered or repealed except by the
stockholders. From and after the issue or any shares of the capital stock of the
Corporation no amendment, alteration or repeal of Article X shall be made except
by the affirmative vote of the holders of either: (a) more than two-thirds of
the Corporation's outstanding shares present at a meeting at which the holders
of more than fifty percent of the outstanding shares are present in person or by
proxy, or (b) more than fifty percent of the Corporation's outstanding shares.
- 15 -