<PAGE>
As filed with the U.S. Securities and Exchange Commission on June 20, 1997
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-
U.S. 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/or
Registration Statement under the Investment Company Act of 1940 [x]
Amendment No. [ ]
(check appropriate box or boxes)
PROSPECT STREET INTREPID FUND INC.
(Exact Name of Registrant as Specified in Charter)
60 State Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 742-3800
RICHARD E. OMOHUNDRO, JR., PRESIDENT
WARREN J. ISABELLE, VICE PRESIDENT
PROSPECT STREET INTREPID FUND INC.
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 742-3800
(NAME AND ADDRESS OF AGENT FOR SERVICE)
With copies to:
G. DAVID BRINTON, ESQ.
LAURENCE E. CRANCH, ESQ. THOMAS A. DECAPO, ESQ.
ROGERS & WELLS SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
200 PARK AVENUE ONE BEACON STREET
NEW YORK, NEW YORK 10166 BOSTON, MASSACHUSETTS 02108
(212) 878-8000 (617) 573-4800
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ------------------- ------------- -------------- -------- ------------
Common Stock, $0.01
par value 3,450,000 shares $20.00 $60,000,000 $18,182
(1) Includes 450,000 shares subject to the underwriters' over-allotment
option.
(2) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
CROSS REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
---------------------------------- ----------------------
<S> <C> <C>
1. Outside Front Cover Front Cover Page
2. Inside Front and Outside Back Cover
Pages Front Cover Page; Inside Front Cover Page
3. Fee Table and Synopsis Prospectus Summary; Fee Table
4. Financial Highlights Not Applicable
5. Plan of Distribution Cover Page; Prospectus Summary; Underwriting
6. Selling Shareholders Not Applicable
7. Use of Proceeds Use of Proceeds
8. General Description of the Registrant Cover Page; Prospectus Summary; The Fund;
Risk Factors and Special Considerations;
Investment Objective and Policies;
Investment Restrictions; Common Stock;
Automatic Conversion to an Open-end
Investment Company
9. Management Prospectus Summary; Management of the Fund;
Investment Adviser; Portfolio Transactions
and Brokerage; Common Stock; Dividend Paying
Agent, Transfer Agent and Registrar
10. Capital Stock, Long-Term Debt and
Other Securities Prospectus Summary; Dividends and
Distributions; Dividend Reinvestment and
Cash Purchase Plan; Taxation; Common Stock;
Automatic Conversion to an Open-end
Investment Company; Underwriting
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 The Fund
17. Investment Objective and Policies Investment Objective and Policies;
Investment Restrictions
18. Management Management of the Fund
19. Control Persons and Principal Holders Not Applicable
of Securities
20. Investment Advisory and Other Services Management of the Fund; Investment Adviser;
Dividend Paying Agent, Transfer Agent and
Registrar; Experts
21. Brokerage Allocation and Other
Practices Portfolio Transactions and Brokerage
22. Tax Status Taxation
23. Financial Statements Report of Independent Accountants; Statement
of Assets and Liabilities
* As permitted under the General Instructions to Form N-2, all information
required to be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus.
</TABLE>
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
[red herring legend]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JUNE 20, 1997
3,000,000 SHARES
PROSPECT STREET(R) INTREPID FUND INC.
COMMON STOCK
Prospect Street(R) Intrepid Fund Inc. (the "Fund") is a newly organized,
diversified, closed-end management investment company. The Fund's investment
objective is to seek capital appreciation by investing in a diversified
portfolio of securities consisting primarily of common stocks. In addition to
common stocks, the Fund may also invest in securities convertible into or
exchangeable for common stock or otherwise participating in a portion of the
economic characteristics of common stock, such as convertible bonds and
convertible preferred stocks. While there is no requirement to do so, the Fund
intends, as a matter of operating policy which may be changed by the Fund's
Board of Directors, to invest at least 80% of its assets in common stocks and
limit investments in foreign securities to no more than 25% of its assets. The
Fund will seek to achieve its investment objective by investing primarily in
common stocks and other securities of issuers that Prospect Street(R) Investment
Management Co., Inc., the Fund's investment adviser (the "Investment Adviser"),
believes to be undervalued in the market, taking into account the Investment
Adviser's assessment of, among other factors, the issuer's existing assets and
cash flow generating potential over a period of two to three years. Under
current market conditions, the Investment Adviser, consistent with its
"aggressive value" approach described herein, anticipates that it will invest
the Fund's assets primarily in securities of issuers with market capitalizations
of less than $1 billion ("Small-cap Issuers"). The Fund, as a matter of
operating policy, which may be changed by the Fund's Board of Directors, does
not intend to invest more than 15% of its total assets in unlisted securities or
other securities that are illiquid as determined by or under the direction of
the Board of Directors of the Fund. There can be no assurances that the Fund's
investment objective will be achieved.
Warren J. Isabelle, Chief Investment Officer -- Equities and Vice
President of the Investment Adviser, will be responsible for the day-to-day
management of the Fund's investments. Prior to joining the Investment Adviser,
Mr. Isabelle was a Senior Vice President with Pioneering Management Corporation
("PMC"), which he joined in 1984. At PMC, he was responsible for the day-to-day
management of Pioneer Capital Growth Fund from inception of that fund in July
1990 through January 1997. The Fund's investment objective and policies are
substantially similar to the investment objective and policies of the Pioneer
Capital Growth Fund. For more information concerning Mr. Isabelle, including the
historical performance of the Pioneer Capital Growth Fund during the period that
Mr. Isabelle served as portfolio manager, see "Management of the
Fund--Investment Adviser."
INVESTMENT IN THE FUND INVOLVES SPECIAL CONSIDERATIONS AND RISKS THAT
INVESTORS SHOULD CONSIDER PRIOR TO INVESTING IN THE FUND. SUCH RISKS INCLUDE
THOSE ASSOCIATED WITH INVESTING IN COMMON STOCKS GENERALLY AND IN SECURITIES OF
SMALL-CAP ISSUERS, WHICH TEND TO BE MORE SENSITIVE TO CHANGES IN EARNINGS
EXPECTATIONS AND TO EXPERIENCE GREATER PRICE VOLATILITY AS COMPARED TO
SECURITIES OF LARGER CAPITALIZATION ISSUERS. INVESTMENT IN COMMON STOCK
GENERALLY SHOULD BE CONSIDERED SPECULATIVE. SHARES OF CLOSED-END INVESTMENT
COMPANIES HAVE IN THE PAST FREQUENTLY TRADED AT DISCOUNTS TO THEIR NET ASSET
VALUES AND INITIAL OFFERING PRICES. THE RISKS ASSOCIATED WITH THIS
CHARACTERISTIC OF CLOSED-END INVESTMENT COMPANIES MAY BE GREATER FOR INVESTORS
EXPECTING TO SELL SHARES OF A CLOSED-END INVESTMENT COMPANY SOON AFTER THE
COMPLETION OF AN INITIAL PUBLIC OFFERING OF THE COMPANY'S SHARES.
SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS."
Prior to this offering, there has been no public market for the Fund's
Shares. The Fund intends to apply to the list the Shares on the New York Stock
Exchange under the symbol " ."
This Prospectus sets forth concisely the information about the Fund that
a prospective investor ought to know before investing and should be read and
retained for future reference.
The Fund's Articles of Incorporation contain an automatic conversion
feature (the "Automatic Conversion Feature") which will cause the Fund
to convert to an open-end investment company automatically upon the occurrence
of certain conditions. This feature provides that, beginning
(continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
===========================================================================================
<CAPTION>
Price to Proceeds to
Public Sales Load(1) the Fund(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............ $20.00 $ $
- -------------------------------------------------------------------------------------------
Total(3)............. $60,000,000 $ $
===========================================================================================
</TABLE>
(footnotes on following page)
The Shares are offered, subject to prior sale, when, as and if delivered
to and accepted by the Underwriters and subject to their right to reject orders
in whole or in part. It is expected that delivery of the Shares will be made in
Boston, Massachusetts, on or about , 1997.
TUCKER ANTHONY
INCORPORATED
The date of this Prospectus is , 1997
<PAGE>
(continued from cover page)
18 months after the closing of the Fund's initial public offering, the Fund will
automatically convert into an open-end investment company if its shares close at
a market price (on the principal exchange on which the Fund's shares are traded)
that is a [5]% or greater discount to the net asset value per share of the Fund
on the last business day of any week and for each of the next 14 business days
(the "Conversion Event"). Upon the occurence of the Conversion Event, the Fund
may continue to operate as a closed-end investment company for [90] days
following the Conversion Event. No further approval of the stockholders of the
Fund would be necessary to convert the Fund to an open-end investment company,
although the Fund's Board of Directors may, within [90] days following the
Conversion Event, convene a meeting of stockholders of the Fund at which the
holders of not less than 75% of the Fund's shares may vote to amend the Articles
of Incorporation to remove the Automatic Conversion Feature and continue the
Fund as a closed-end investment company. See "Automatic Conversion to an
Open-end Investment Company."
The address of the Fund and the Investment Adviser is 60 State Street,
Boston, Massachusetts 02109.
Additional Information about the Fund has been filed with the Securities
and Exchange Commission and is available upon request without charge and on the
Commission's web site (http://www.sec.gov). See "Additional Information."
--------------------------------
(footnotes from cover page)
(1) The Fund and the Investment Adviser have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting organizational and offering expenses payable by the
Fund, estimated at $ and $ , respectively. Organizational
expenses will be amortized over a period not to exceed 60 months from
the date the Fund commences operations.
(3) The Fund has granted the Underwriters an option, exercisable for 45 days
from the date hereof, to purchase up to an aggregate of 450,000
additional Shares at the price to public for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total price to public, sales load and proceeds to the Fund will
be $69,000,000, $ and $ , respectively. See "Underwriting."
--------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET
PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKETS OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus.
THE FUND Prospect Street(R)Intrepid Fund Inc. (the "Fund")
is a newly organized, diversified, closed-end
management investment company designed for
investors desiring to invest a portion of their
assets in a diversified portfolio of securities
consisting primarily of common stocks.
INVESTMENT OBJECTIVE AND
POLICIES The investment objective of the Fund is to seek
capital appreciation by investing in a diversified
portfolio of securities consisting primarily of
common stocks. In addition to common stocks, the
Fund may also invest in securities convertible
into or exchangeable for common stock or otherwise
participating in a portion of the economic
characteristics of common stock, such as
convertible bonds and convertible preferred
stocks. While there is no requirement to do so,
the Fund intends, as a matter of operating policy
which may be changed by the Fund's Board of
Directors, to invest at least 80% of its assets in
common stocks and limit investments in foreign
securities to no more than 25% of its assets.
The Fund will seek to achieve its investment
objective by investing primarily in common stocks
and other securities of issuers that Prospect
Street(R) Investment Management Co., Inc., the
Fund's investment adviser (the "Investment
Adviser"), believes to be undervalued in the
market, taking into account the Investment
Adviser's assessment of, among other factors, the
issuer's existing assets and cash flow generating
potential over a period of two to three years.
Under current market conditions, the Investment
Adviser, consistent with its "aggressive value"
approach described below, anticipates that it will
invest the Fund's assets primarily in securities
of issuers with market capitalizations of less
than $1 billion ("Small-cap Issuers").
In selecting individual stocks, the Investment
Adviser intends to focus on issuers which the
Investment Adviser believes have a longer-term
intrinsic value that is greater than the issuer's
current stock price. In order to assess the
intrinsic value of an issuer, the Investment
Adviser generally will perform in-depth research
of the issuer, including an analysis of the cash
flow generating potential of its business, and may
conduct in-person visits or discussions with
management. The Investment Adviser will select
attractive investment opportunities from among
issuers which it believes have intrinsic values
significantly higher than the trading prices of
their stocks. The Investment Adviser has adopted
this approach because it believes that, over the
longer-term, the price of a stock ultimately will
reflect the intrinsic economic value of the
issuer's underlying business. Consistent with this
approach, the Fund generally will have a
longer-term investment horizon and expects to hold
securities for an average of two to three years.
The Investment Adviser believes that this strategy
is necessary in order to provide sufficient time
for the issuer to demonstrate its true cash flow
generating potential and to implement any planned
corporate or strategic changes.
In connection with the Investment Adviser's
selection of individual stocks, the Investment
Adviser will seek to identify and invest in the
securities of issuers the managements of which the
Investment Adviser has a high degree of confidence
in or issuers that the Investment Adviser believes
have potentially successful business strategies.
The Investment Adviser believes that this
"aggressive value" approach can provide
substantial investment returns while, in the
Investment Adviser's opinion, potentially limiting
downside risks.
Any current income produced by a security is not a
primary factor in the selection of investments.
The Fund, as a matter of operating policy, which
may be changed by the Fund's Board of Directors,
does not intend to invest more than 15% of its
total assets in unlisted securities or other
securities that are illiquid as determined by or
under the direction of the Board of Directors of
the Fund.
In pursuit of its objective, the Fund may, but
does not currently intend to, employ certain
active investment management techniques including
forward foreign currency exchange contracts,
options and futures contracts on currencies,
securities and securities indices and options on
such futures contracts (commonly referred to as
"derivatives"). These techniques may be employed
in an attempt to hedge foreign currency and other
risks associated with the Fund's portfolio
securities. In addition, the Fund may seek to
enhance the Fund's return through the use of
options on securities and through the use of
futures and options thereon. See "Investment
Objective and Policies -- Other Investment
Practices -- Foreign Currency Hedging
Transactions; Options and Futures Contracts" and
Appendix A. See also "The Fund," "Investment
Objective and Policies" and "Risk Factors and
Special Considerations."
INVESTMENT ADVISER Prospect Street(R)Investment Management Co., Inc.
will manage the investments of the Fund pursuant
to an Investment Advisory Agreement with the Fund
(the "Advisory Agreement"). As of May 31, 1997,
the Investment Adviser had approximately $ under
management. The Investment Adviser is a registered
investment adviser under the U.S. Investment
Advisers Act of 1940 (the "Advisers Act"). See
"Management of the Fund--Investment Adviser."
Warren J. Isabelle, Chief Investment Officer --
Equities and Vice President of the Investment
Adviser, will be responsible for the day-to-day
management of the Fund's investments. Prior to
joining the Investment Adviser, Mr. Isabelle was a
Senior Vice President with Pioneering Management
Corporation ("PMC") from 1984 through January 1997
and Chief Investment Officer -- Equities and a
Senior Vice President with Keystone Corp. from
February 1997 through May 1997. At PMC, he was
responsible for the day-to-day management of
Pioneer Capital Growth Fund from inception of that
fund in July 1990 through January 1997. The Fund's
investment objective and policies are
substantially similar to the investment objective
and policies of the Pioneer Capital Growth Fund.
For more information concerning Mr. Isabelle,
including the historical performance of the
Pioneer Capital Growth Fund during the period that
Mr. Isabelle served as portfolio manager, see
"Management of the Fund--Investment Adviser."
RISK FACTORS AND SPECIAL
CONSIDERATIONS The Fund is a newly organized management
investment company with no prior operating
history.
Under current market conditions, the Investment
Adviser expects that pursuit of the Fund's
"aggressive value" investment strategy will result
in the Fund's assets being invested primarily in
securities of Small-cap Issuers. While in the
Investment Adviser's opinion the securities of a
Small-cap Issuer may offer the potential for
greater capital appreciation than investments in
securities of mid- or large-cap issuers,
securities of Small-cap Issuers may also present
greater risks. For example, Small-cap Issuers
often have limited product lines, markets, or
financial resources. They may have no or only a
limited history of profitable operation and may be
subject to high volatility in revenues, expenses
and earnings. They may be dependent for management
on one or a few key persons, and can be more
susceptible to losses and risks of bankruptcy.
Their securities may be thinly traded (and
therefore have to be sold at a discount from
current market prices or sold in small lots over
an extended period of time), may be followed by
fewer investment research analysts and may be
subject to wider price swings and thus may create
a greater chance of loss than when investing in
securities of larger-cap issuers. In addition,
Small-cap Issuers may not be well-known to the
investing public and may have only limited
institutional ownership. The market prices of
securities of Small-cap Issuers generally are more
sensitive to changes in earnings expectations, to
corporate developments and to market rumors than
are the market prices of large-cap issuers.
Transaction costs in securities of Small-cap
Issuers may be higher than in those of larger-cap
issuers.
The Fund may, but does not currently intend to,
employ certain active investment management
techniques including forward foreign currency
exchange contracts, options and futures contracts
on currencies, securities and securities indices
and options on such futures contracts (commonly
referred to as "derivatives"). While the judicious
use of derivatives by experienced investment
advisers can be beneficial, derivatives also
involve risks different from, and, in certain
cases, greater than, the risks presented by more
traditional investments, including market risk,
liquidity risk, risk of mispricing or improper
valuation of derivatives and risk that derivatives
do not correlate perfectly with underlying assets,
rates and indices. See Appendix A.
The Fund may invest a portion of its assets in
securities issued by foreign issuers. Foreign
issuers are generally subject to accounting,
auditing and financial standards and requirements
that differ, in some cases significantly, from
those applicable to U.S. issuers. The economies of
certain foreign countries may differ favorably or
unfavorably from the U.S. economy. In addition,
some foreign countries prohibit certain kinds of
investment or impose substantial restrictions on
investments in their capital markets, particularly
their equity markets, by foreign entities such as
the Fund.
The Fund's assets may be invested in equity
securities denominated in foreign currencies.
Accordingly, changes in foreign currency exchange
rates will affect the value of securities in the
Fund's portfolio and the unrealized appreciation
or depreciation of investments.
The securities markets of certain foreign
countries have substantially less market
capitalization and trading volume than the
securities markets of the United States. Further,
securities of non-U.S. issuers may be less liquid
and more volatile than securities of comparable
U.S. issuers.
The Fund may invest in equity securities purchased
directly from issuers or in unregulated
over-the-counter markets or other unlisted
securities markets which may involve a high degree
of business and financial risk that can result in
substantial losses.
The Fund's Articles of Incorporation contain
certain anti-takeover provisions that may have the
effect of inhibiting the Fund's conversion to
open-end status in a manner other than through the
Automatic Conversion Feature (as defined herein)
and limiting the ability of other persons to
acquire control of the Fund. In certain
circumstances, these provisions might also inhibit
the ability of stockholders to sell their shares
at a premium over prevailing market prices. See
"Risk Factors and Special Considerations," "Common
Stock" and "Automatic Conversion to an Open-End
Investment Company."
Shares of closed-end investment companies
frequently trade at a discount from net asset
value. This characteristic of shares of a
closed-end fund is a risk separate and distinct
from the risk that the Fund's net asset value will
decrease. The Fund cannot predict whether its
shares will trade at, above or below net asset
value. The risk of purchasing shares of a
closed-end investment company which might trade at
a discount from net asset value is more pronounced
for investors who purchase in the initial public
offering and who wish to sell their shares in a
relatively short period of time. To reduce or
eliminate any discount to net asset value, the
Fund's Articles of Incorporation provide that the
Fund will automatically convert to an open-end
investment company upon certain conditions.
However, notwithstanding the elimination of the
market discount upon conversion of the Fund to an
open-end investment company, a stockholder will
incur a loss upon the sale of its shares of the
Fund if such stockholder sells or redeems his
shares at a price less than the amount for which
such stockholder purchased his shares. See "Risk
Factors and Special Considerations -- Net Asset
Value Discount; Lack of Operating History" and
"Automatic Conversion to an Open-End Investment
Company."
Investors should carefully consider their ability
to assume the foregoing risks before making an
investment in the Fund. An investment in shares of
the Fund may not be appropriate for all investors
and should not be considered as a complete
investment program. See "Risk Factors and Special
Considerations."
AUTOMATIC CONVERSION TO
AN OPEN-END INVESTMENT
COMPANY The Fund's Articles of Incorporation contain an
automatic conversion feature (the "Automatic
Conversion Feature") which will cause the Fund to
convert to an open-end investment company
automatically upon the occurrence of the
conditions and in the circumstances described
below, without requiring a vote of the
shareholders of the Fund.
The Fund's Articles of Incorporation provide that,
beginning 18 months after the closing of the
Fund's initial public offering, the Fund will
automatically convert into an open-end investment
company if its shares close at a market price (on
the principal exchange on which the Fund's shares
are traded) that is a [5]% or greater discount to
the net asset value per share of the Fund on the
last business day of any week and for each of the
next 14 business days (the "Conversion Event"). No
further approval of the stockholders of the Fund
would be necessary, although the Fund's Board of
Directors may, within [90] days following the
Conversion Event, convene a meeting of
stockholders of the Fund at which the holders of
not less than 75% of the Fund's shares may vote to
amend the Articles of Incorporation to remove the
Automatic Conversion Feature and continue the Fund
as a closed-end investment company. A business day
is any day that the New York Stock Exchange is
open. The Automatic Conversion Feature may be
amended only by the affirmative vote of the
holders at least 75% of the Fund's outstanding
voting securities. See "Automatic Conversion to an
Open-end Investment Company."
Upon the occurrence of the Conversion Event, the
Fund may continue to operate as a closed-end
investment company for [90] days following the
Conversion Event and thereafter only if the Fund's
Board of Directors has, within [90] days following
the Conversion Event, convened a meeting of
stockholders of the Fund at which the holders of
not less than 75% of the Fund's shares vote to
amend the Articles of Incorporation to remove the
Automatic Conversion Feature and continue the Fund
as a closed-end investment company.
If the Fund converts to an open-end investment
company, it will be able continuously to issue and
offer for sale shares of the Fund, and each such
share could be presented to the Fund at the option
of the holder for redemption at a price based on
the then-current net asset value per share. In
addition, shares of the Fund would no longer be
listed on the New York Stock Exchange and the Fund
would no longer hold annual meetings of its
stockholders unless required by law or requested
by the Board of Directors. Further, after
conversion, the Board of Directors will have the
ability to increase or decrease the authorized
capital of the Fund without any stockholder
approval.
In the event of a conversion to an open-end
investment company, the Fund may institute a
distribution plan pursuant to Rule 12b-1 of the
Investment Company Act of 1940, as amended (the
"1940 Act"). Pursuant to such a 12b-1 plan, the
Fund would be permitted to incur distribution
expenses related to the sale of its shares. The
12b-1 plan would provide that the Fund may finance
activities which are primarily intended to result
in the sale of the Fund's shares, including, but
not limited to, advertising, printing of
prospectuses and reports for other than existing
shareholders, preparation and distribution of
advertising material and sales literature and
payments to dealers and shareholder servicing
agents who enter into agreements with the Fund or
its distributor. Prior to the implementation of a
12b-1 plan, the Fund would be required to seek
approval of such plan from the stockholders of the
Fund to which such plan is applicable. In
addition, if the Fund converts to an open-end
investment company, its total annual expenses may
increase. See "Automatic Conversion to an Open-end
Investment Company."
THE OFFERING The Fund is offering 3,000,000 shares of Common
Stock, $.01 par value (the "Shares"), through a
group of underwriters (the "Underwriters") for
which Tucker Anthony Incorporated is acting as
lead representative. The Underwriters also have
been granted an option, exercisable for 45 days
from the date hereof, to purchase up to 450,000
additional Shares solely to cover over-allotments,
if any. The initial public offering price is
$20.00 per Share. See "Underwriting."
USE OF PROCEEDS The Fund expects that, under normal market
conditions, the net proceeds of this offering will
be fully invested in accordance with the Fund's
investment objective and policies within two
months from the closing of this offering. See "Use
of Proceeds."
LISTING The Fund intends to apply to list the Shares on
the New York Stock Exchange under the symbol " ."
MANAGEMENT FEES AND
ESTIMATED EXPENSES Under the Advisory Agreement with the
Fund, the Investment Adviser is entitled to
receive a monthly advisory fee equal to 1.00% (on
an annual basis) of the Fund's average weekly net
assets.
The Fund will be responsible for all of its
operating expenses. The Fund's annual normal
operating expenses, including advisory,
administration, transfer agency and custodial
fees, are estimated to be approximately $
exclusive of organization expenses estimated to be
$ (which are to be amortized over five
years). The expenses of this offering, estimated
to be $ (which includes up to $ to be paid to the
Underwriters in partial reimbursement of their
expenses), will be paid by the Fund and deducted
from net proceeds of this offering. See
"Management of the Fund--Estimated Expenses."
DIVIDEND DISTRIBUTIONS AND
REINVESTMENT The Fund generally intends to distribute to
stockholders at least annually substantially all
of its net investment income and any net realized
capital gains, although the Fund may elect
annually to retain net realized long-term capital
gains for reinvestment. If the Fund retains for
reinvestment or otherwise an amount of such net
long-term capital gains, it will be subject to a
tax of up to 35% of the amount retained. See
"Taxation-- U.S. Federal Income Taxes. Unless the
Fund is otherwise instructed in writing in the
manner described under "Dividends and
Distributions; Dividend Reinvestment and Cash
Purchase Plan," stockholders will be presumed to
have elected to have all distributions
automatically reinvested in shares of the Fund.
Stockholders who have distributions automatically
reinvested may also make additional payments into
the dividend reinvestment and cash purchase plan
to purchase shares of the Fund on the open market.
See "Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan." Reinvested
dividends will generally give rise to tax without
a corresponding amount of cash. See "Taxation --
U.S. Federal Income Taxes."
CUSTODIAN [ ] will act as custodian for the Fund's
assets and may employ sub-custodians. See
"Management of the Fund--Custodian."
QUALIFICATION AS
REGULATED INVESTMENT
COMPANY The Fund intends to qualify as a regulated
investment company under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended. See
"Taxation."
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Sales Load (as percentage of offering price) %
Dividend Reinvestment and Cash Purchase Plan Fees %
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO COMMON STOCK):
Management Fees 1.00%
Other Expenses %
Total Annual Expenses %
=====
</TABLE>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
EXAMPLE:
An investor would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return $ $ $ $
The above table is intended to assist investors in understanding the
costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Management of the Fund--Estimated Expenses."
The Example of Expenses set forth above is a hypothetical example that
illustrates the expenses associated with a $1,000 investment in the Fund over
periods of one, three, five and ten years, based upon the estimated expenses in
the Fee Table above and an assumed annual rate of return of 5%. The tables above
and the assumption in the Example of a 5% annual return are required by the
Securities and Exchange Commission (the "Commission") regulations applicable to
all investment companies. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE EXPENSES OR ANNUAL RATES OF RETURN. Actual expenses and annual rates
of return may be more or less than those assumed for purposes of the Example. In
addition, the Example assumes that all dividends and distributions are
reinvested at net asset value and assumes that all percentage amounts set forth
under Annual Expenses in the Fee Table above remain the same for the years shown
in the Example. Although the Example assumes reinvestment of all dividends and
distributions at net asset value, participants in the Fund's Dividend
Reinvestment and Cash Purchase Plan may receive shares purchased or issued at a
price or value different from net asset value. See "Dividends and Distributions;
Dividend Reinvestment and Cash Purchase Plan."
The figures provided under "Other Expenses" in the table above are based
upon estimated amounts for the Fund's first fiscal year based upon net proceeds
from the offering of $ . See "Management of the Fund" for additional
information.
<PAGE>
THE FUND
The Fund, incorporated in Maryland on June 19, 1997, is a newly
organized, diversified, closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Fund's investment objective is to seek capital appreciation by investing in a
diversified portfolio of securities consisting primarily of common stocks. There
can be no assurances that the Fund's investment objective will be achieved.
Investment in shares of Common Stock of the Fund should not be considered a
complete investment program and may not be appropriate for all investors.
Investors should carefully consider their ability to assume these risks before
making an investment in the Fund.
Through this Prospectus, the Fund is offering 3,000,000 shares of Common
Stock, $.01 par value (the "Shares"), through a group of underwriters (the
"Underwriters") for which Tucker Anthony Incorporated is acting as lead
representative. The Underwriters also have been granted an option, exercisable
for 45 days from the date hereof, to purchase up to 450,000 additional Shares
solely to cover over-allotments, if any. The initial public offering price is
$20.00 per Share. See "Underwriting."
USE OF PROCEEDS
The Fund expects that, under normal market conditions, the net proceeds
of this offering (estimated to be approximately $ if the Underwriters'
over-allotment option is not exercised) will be fully invested in accordance
with the Fund's investment objective and policies within two months from the
closing of this offering. See "Investment Objective and Policies." Pending such
investment, the net proceeds of this offering may be invested in the manner
described under "Investment Objective and Policies -- Temporary Investments."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation by
investing in a diversified portfolio of securities consisting primarily of
common stocks. The Fund's investment objective is a fundamental policy which may
not be changed without the approval of a majority of the Fund's outstanding
voting securities. As used herein, a "majority of the Fund's outstanding voting
securities" means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented and (ii) more
than 50% of the outstanding shares. There is no assurance the Fund will be able
to achieve its investment objective.
In addition to common stocks, the Fund may also invest in securities
convertible into or exchangeable for common stock or otherwise participating in
a portion of the economic characteristics of common stock, such as convertible
bonds and convertible preferred stocks. While there is no requirement to do so,
the Fund intends, as a matter of operating policy which may be changed by the
Fund's Board of Directors, to invest at least 80% of its assets in common stocks
and limit investments in foreign securities to no more than 25% of its assets.
The Fund will seek to achieve its investment objective by investing
primarily in common stocks and other securities of issuers that Prospect
Street(R) Investment Management Co., Inc., the Fund's investment adviser (the
"Investment Adviser"), believes to be undervalued in the market, taking into
account the Investment Adviser's assessment of, among other factors, the
issuer's existing assets and cash flow generating potential over a period of two
to three years. Under current market conditions, the Investment Adviser,
consistent with its "aggressive value" approach described below, anticipates
that it will invest the Fund's assets primarily in securities of issuers with
market capitalizations of less than $1 billion ("Small-cap Issuers").
In selecting individual stocks, the Investment Adviser intends to focus
on issuers which the Investment Adviser believes have a longer-term intrinsic
value that is greater than the issuer's current stock price. In order to assess
the intrinsic value of an issuer, the Investment Adviser generally will perform
in- depth research of the issuer, including an analysis of the cash flow
generating potential of its business, and may conduct in-person visits or
discussions with management. The Investment Adviser will select attractive
investment opportunities from among issuers which it believes have intrinsic
values significantly higher than the trading prices of their stocks. The
Investment Adviser has adopted this approach because it believes that, over the
longer-term, the price of a stock ultimately will reflect the intrinsic economic
value of the issuer's underlying business. Consistent with this approach, the
Fund generally will have a longer-term investment horizon and expects to hold
securities for an average of two to three years. The Investment Adviser believes
that this strategy is necessary in order to provide sufficient time for the
issuer to demonstrate its true cash flow generating potential and to implement
any planned corporate or strategic changes.
The Investment Adviser believes that its selection process will provide
the Fund with a diversified portfolio of securities, including securities of
issuers which the Investment Adviser believes are in a position to benefit from
(i) turnaround opportunities or corporate transitions resulting from changes in
strategy, new products or business lines, changes in management or strategic
corporate transactions, such as mergers, acquisitions or joint ventures or (ii)
cyclical opportunities arising from, among other factors, common cyclical
patterns or changes in their respective industries. In addition, the Investment
Adviser anticipates that the Fund's portfolio will include securities of issuers
which the Investment Adviser believes will emerge as prosperous companies when
their products or services become more widely known by their respective
customers or clientele and the market in general. In connection with the
Investment Adviser's selection of individual stocks, the Investment Adviser will
seek to identify and invest in the securities of issuers the managements of
which the Investment Adviser has a high degree of confidence in or issuers that
the Investment Adviser believes have potentially successful business strategies.
The Investment Adviser believes that this "aggressive value" approach can
provide substantial investment returns while, in the Investment Adviser's
opinion, potentially limiting downside risks.
In pursuit of its objective, the Fund may, but does not currently intend
to, employ certain active investment management techniques including forward
foreign currency exchange contracts, options and futures contracts on
currencies, securities and securities indices and options on such futures
contracts (commonly referred to as "derivatives"). These techniques may be
employed in an attempt to hedge foreign currency and other risks associated with
the Fund's portfolio securities. In addition, the Fund may seek to enhance the
Fund's return through the use of options on securities and through the use of
futures and options thereon. See "Investment Objective and Policies -- Other
Investment Practices -- Foreign Currency Hedging Transactions; Options and
Futures Contracts" and Appendix A.
For temporary defensive purposes, the Fund may invest all or a portion of
its assets in debt securities of the kind described under "Temporary
Investments" below.
It is the policy of the Fund not to engage in trading for short-term
profits. Accordingly, it is anticipated that the annual portfolio turnover rate
normally will not exceed 100%, although in any particular year, market
conditions could result in portfolio activity at a greater or lesser rate than
anticipated. The portfolio turnover rate for a year is calculated by dividing
the lesser of sales or purchases of portfolio securities during that year by the
average monthly value of the Fund's portfolio securities, excluding money market
instruments. The rate of portfolio turnover will not be a limiting factor when
the Fund deems it appropriate to purchase or sell securities for the Fund.
However, the U.S. federal tax requirement that the Fund derive less than 30% of
its gross income from the sale or disposition of securities held less than three
months may limit the Fund's ability to dispose of its securities. See
"Taxation--U.S. Federal Income Taxes."
The investment objective and policies described herein will not change if
the Fund converts to an open-end investment company. See "Automatic Conversion
to an Open-End Investment Company."
OTHER INVESTMENT PRACTICES
Convertible Securities. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities of
the same or similar issuers. The price of a convertible security will normally
vary with changes in the price of the underlying stock, although the higher
yield tends to make the convertible security less volatile than the underlying
common stock. As with debt securities, the market value of convertible
securities tends to decline as interest rates increase and increase as interest
rates decline. While convertible securities generally offer lower interest or
dividend yields than non-convertible debt securities of similar quality, they
enable investors to benefit from increases in the market price of the underlying
common stock.
Repurchase Agreements. The Fund may enter into repurchase agreements, not
to exceed seven days, with broker-dealers and any member bank of the Federal
Reserve System. The Investment Adviser will review and monitor the
creditworthiness of any institution which enters into a repurchase agreement
with the Fund. Such repurchase agreements will be fully collateralized with U.S.
Treasury and/or agency obligations with a market value of not less than 100% of
the obligations, valued daily. Collateral will be held by the Fund's custodian
in a segregated, safekeeping account for the benefit of the Fund.
Repurchase agreements are contracts under which a buyer of a security
simultaneously commits to resell the security to the seller at an agreed upon
price and date. Under a repurchase agreement, the seller is required to maintain
the value of the securities subject to the repurchase agreement at not less than
their repurchase price. The Investment Adviser will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price including accrued interest. Repurchase agreements may involve risks in the
event of default or insolvency of the seller, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
Loans of Portfolio Securities. The Fund may lend portfolio securities to
member firms of the New York Stock Exchange under agreements which would require
that the loans be secured continuously by collateral in cash, cash equivalents
or U.S. Treasury Bills maintained on a current basis at an amount at least equal
to the market value of the securities loaned. The Fund would continue to receive
the equivalent of the interest or dividends paid by the issuer on the securities
loaned as well as the benefit of an increase in the market value of the
securities loaned and would also receive compensation based on investment of the
collateral. The Fund would not, however, have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the securities
or of the giving or withholding of consent on a material matter affecting the
investment. The Fund may pay finders', administrative and custodial fees to
persons unaffiliated with the Fund in connection with the arranging of such
loans.
As with other extensions of credit, there are risks of delay in recovery
or even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund will lend portfolio securities only to firms which
have been approved in advance by the Board of Directors. The Investment Adviser
will monitor the creditworthiness of any such firms. At no time will the value
of the securities loaned exceed 30% of the value of the Fund's total assets.
Unlisted Securities. Securities in which the Fund may invest include
equity securities purchased directly from issuers or in the unregulated
over-the-counter markets or other unlisted securities markets which may involve
a high degree of business and financial risk. See "Risk Factors and Special
Considerations -- Investments in Unlisted Securities." The Fund, as a matter of
operating policy, which may be changed by the Fund's Board of Directors, does
not intend to invest more than 15% of its total assets in unlisted securities or
other securities that are illiquid as determined by or under the direction of
the Board of Directors of the Fund.
Foreign Currency Hedging Transactions; Options and Futures Contracts. In
order to hedge against foreign currency exchange rate risks, the Fund may enter
into forward foreign currency exchange contracts and foreign currency futures
contracts and may purchase and write (sell) put and call options on foreign
currency and on foreign currency futures contracts.
The Fund may seek to increase its return or hedge all or a portion of its
portfolio investments through transactions in options on securities. In
addition, the Fund may seek to hedge all or a portion of the investments held by
it, or which it intends to acquire, against adverse market fluctuations by
entering into stock index futures contracts and options thereon. Further, to the
limited extent described in Appendix A, the Fund may utilize futures and options
thereon for non-hedging purposes as permitted by the rules and regulations of
Commodity Futures Trading Commission (the "CFTC").
Under the regulations of the CFTC, the Fund will not be considered a
"commodity pool," as defined under such regulations, as a result of entering
into the transactions in futures contracts and related options described above,
provided, among other things, that:
(1) such transactions are entered into solely for bona fide hedging
purposes, as defined under CFTC regulations; or
(2) with respect to any Fund transactions in futures contracts or
related options which are not entered into for bona fide hedging
purposes, the aggregate initial margin and premiums do not exceed 5% of
its total assets (after taking into account any unrealized profits and
losses).
The Fund will only engage in transactions in futures and options on
futures which are traded on a recognized securities or futures exchange,
including non-U.S. exchanges to the extent permitted by the CFTC. Moreover, when
the Fund purchases a futures contract or a call option thereon or writes a put
option thereon, an amount of cash or liquid securities will be deposited in a
segregated account with the Fund's custodian in accordance with the regulations
of the Securities and Exchange Commission.
For a description of each of the instruments referred to above and an
explanation of certain of the associated risks, limitations on use and possible
strategies the Fund may utilize in connection therewith, see Appendix A.
TEMPORARY INVESTMENTS
During periods in which the Investment Adviser believes changes in
economic, financial or political conditions make it advisable, the Fund may for
temporary defensive purposes reduce its holdings in equity and other securities
and invest in certain short-term (less than 12 months to maturity) and
medium-term (not greater than five years to maturity) debt securities or hold
cash. The short-term and medium-term debt securities in which the Fund may
invest consist of (a) obligations of the U.S. government and its agencies and
instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. banks;
(c) finance company and corporate commercial paper and other short-term
corporate debt obligations of U.S. corporations; and (d) repurchase agreements
with banks and broker-dealers with respect to such securities. The Fund intends
to invest for temporary defensive purposes only in short-term and medium-term
debt securities that are rated A or better by Standard & Poor's Ratings Group or
Moody's Investors Service, Inc., or, if unrated, that the Investment Adviser
believes to be of comparable quality.
The Fund expects to be fully invested in accordance with its investment
objective and policies within two months from the date of completion of the
offering made hereby. Pending such investment, the Fund's assets may be invested
entirely in the investments described above.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of the Fund that may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities (as defined in "Investment Objective and
Policies"). If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes will
not be considered a violation of the restriction. Also, if the Fund receives
from an issuer of securities held by the Fund subscription rights to purchase
securities of that issuer, and if the Fund exercises such subscription rights at
a time when the Fund's portfolio holdings of securities of that issuer would
otherwise exceed the limits set forth below, it will not constitute a violation
if, prior to receipt of securities upon exercise of such rights, and after
announcement of such rights, the Fund has sold at least as many securities of
the same class as it would receive on exercise of such rights.
As a matter of fundamental policy:
1. The Fund may not borrow money, except from banks for temporary or
emergency purposes in amounts not exceeding 33 1/3% (taken at the lower of cost
or current value) of its total assets (including the amount borrowed).
2. The Fund may not invest in real estate or interests therein,
except for securities of issuers that deal in real estate, securities that are
secured by interests in real estate and securities representing interests in
real estate.
3. The Fund may not invest in commodities or commodity contracts,
except interest rate futures contracts, options on securities, securities
indices, currency and other financial instruments, futures contracts on
securities, securities indices, currency and other financial instruments and
options on such futures contracts, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants, interest rate swaps,
caps and floors and repurchase agreements entered into in accordance with the
Fund's investment policies.
4. The Fund may not purchase securities of an issuer (other than the
U.S. Government, its agencies or instrumentalities), if such purchase would at
the time result in more than 10% of the outstanding voting securities of such
issuer being held by the Fund.
5. The Fund may not make loans, provided that (i) the purchase of
debt securities or the lending of portfolio securities shall not be deemed loans
for the purposes of this restriction; and (ii) the Fund may engage in repurchase
transactions to the extent permitted by the Fund's investment objective and
policies.
6. The Fund may not issue senior securities, except as permitted by
restrictions numbered 1, 3 and 5 above, and, for purposes of this restriction,
the purchase or sale of options, futures contracts and options on futures
contracts, forward commitments, forward foreign exchange contracts and
repurchase agreements entered into in accordance with the Fund's investment
policies, and the pledge, mortgage or hypothecation of the Fund's assets within
the meaning of fundamental restriction no. 8 below are not deemed to be senior
securities.
7. The Fund may not act as an underwriter except to the extent that,
in connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under applicable securities laws.
8. The Fund may not guarantee the securities of any other company,
or mortgage, pledge, hypothecate, assign or otherwise encumber as security for
indebtedness its securities or receivables in an amount exceeding the amount of
the borrowing secured thereby.
9. The Fund may not invest more than 25% of its total assets in a
particular industry (including for this purpose any securities issued by a
government other than the U.S. government).
As a matter of non-fundamental operating policy, which may be changed by
the Fund's Board of Directors without a stockholder vote:
1. The Fund may not invest in the securities of any other domestic
or foreign investment company or investment fund, except in connection with a
plan of merger or consolidation with or acquisition of substantially all the
assets of such other investment company or investment fund.
2. Notwithstanding fundamental investment restriction number 2
above, the Fund may not invest in real estate limited partnerships, real estate
investment trusts and real estate funds.
3. Notwithstanding fundamental investment restriction number 1
above, the Fund may not borrow money in amounts exceeding 10% of its total
assets (including the amount borrowed) taken at market value.
4. The Fund may not pledge, mortgage or hypothecate its assets in
amounts exceeding 10% its total assets taken at market value.
5. The Fund may not purchase securities on margin or make short
sales.
6. The Fund may not invest more than 10% of its total assets in the
securities of any one issuer; provided, however, that this restriction does not
apply to cash items and U.S. Government securities.
7. The Fund may not write (sell) uncovered calls or puts or any
combination thereof or purchase, in an amount exceeding 5% of its assets, calls,
puts, straddles, spreads or any combination thereof.
8. The Fund may not invest more than 5% of its total assets in
financial instruments that are used for non-hedging purposes and have a leverage
effect.
9. The Fund may not make any investment for the purpose of
exercising control or management.
10. The Fund may not invest in any security, including any
repurchase agreement maturing in more than seven days, which is illiquid as
determined by or under the direction of the Board of Directors of the Fund, if
more than 15% of the total assets of the Fund, taken at market value, would be
invested in such securities.
11. The Fund may not invest in interests in oil, gas or other
mineral exploration or development leases or programs.
12. The Fund may not purchase the securities of any enterprise which
has a business history of less than three years, including the operation of any
predecessor business to which it has succeeded.
Unlike fundamental policies, operating policies of the Fund may be
changed by the Directors of the Fund, without a vote of the Fund's stockholders,
if the Directors determine such action is warranted. The Fund will notify its
stockholders of any change in any of the operating policies set forth above.
In addition to the foregoing restrictions, it is a fundamental policy
that at least 75% of the value of the Fund's total assets must be represented by
cash and cash items, government securities, securities of other investment
companies, and other securities for the purpose of this calculation limited in
respect of any one issuer to an amount not greater in value than 5% of the value
of the total assets of the Fund and to not more than 10% of the outstanding
voting securities of such issuer.
The Fund may be prohibited under the 1940 Act, absent exemptive relief,
from purchasing the securities of any company that, in its most recent fiscal
year, derived more than 15% of its gross revenues from securities-related
activities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should recognize that investing in the Fund involves certain
special considerations and risk factors, including those set forth below.
Investment in shares of Common Stock of the Fund should not be considered a
complete investment program and may not be appropriate for all investors.
Investors should carefully consider their ability to assume these risks before
making an investment in the Fund. Investment in common stock, including common
stock of Small-cap Issuers, generally should be considered speculative.
SMALL-CAP ISSUERS
Under current market conditions, the Investment Adviser expects that
pursuit of the Fund's "aggressive value" investment strategy will result in the
Fund's assets being invested primarily in securities of Small-cap Issuers. While
in the Investment Adviser's opinion the securities of a Small-cap Issuer may
offer the potential for greater capital appreciation than investments in
securities of mid- or large-cap issuers, securities of Small-cap Issuers may
also present greater risks. For example, Small-cap Issuers often have limited
product lines, markets, or financial resources. They may have no or only a
limited history of profitable operation and may be subject to high volatility in
revenues, expenses and earnings. They may be dependent for management on one or
a few key persons, and can be more susceptible to losses and risks of
bankruptcy. Their securities may be thinly traded (and therefore have to be sold
at a discount from current market prices or sold in small lots over an extended
period of time), may be followed by fewer investment research analysts and may
be subject to wider price swings and thus may create a greater chance of loss
than when investing in securities of larger-cap issuers. In addition, Small-cap
Issuers may not be well-known to the investing public and may have only limited
institutional ownership. The market prices of securities of Small-cap Issuers
generally are more sensitive to changes in earnings expectations, to corporate
developments and to market rumors than are the market prices of large-cap
issuers. Transaction costs in securities of Small-cap Issuers may be higher than
in those of larger-cap issuers.
INVESTMENTS IN UNLISTED SECURITIES
The Fund may invest in equity securities purchased directly from issuers
or in unregulated over-the-counter markets or other unlisted securities markets
which may involve a high degree of business and financial risk that can result
in substantial losses. Because of the absence of active and regulated trading
markets for these investments, and because of the difficulties in determining
market values accurately, the Fund may take longer to liquidate these positions
than would be the case for publicly listed securities. Although these securities
may be resold in privately negotiated transactions, the prices realized on these
sales could be less than those originally paid by the Fund. Further, companies
whose securities are not publicly listed may not be subject to public disclosure
and other investor protection requirements applicable to publicly traded
securities. The Fund, as a matter of operating policy, which may be changed by
the Fund's Board of Directors, does not intend to invest more than 15% of its
total assets in unlisted securities or other securities that are illiquid as
determined by or under the direction of the Board of Directors of the Fund.
NET ASSET VALUE DISCOUNT; LACK OF OPERATING HISTORY
The Fund is a newly organized investment company with no prior operating
history. Prior to this offering, there has been no public market for the Fund's
shares. Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic of shares of a closed-end fund is a
risk separate and distinct from the risk that a fund's net asset value will
decrease. The Fund cannot predict whether its own shares will trade at, below or
above net asset value. The risk of purchasing shares of a closed-end investment
company which might trade at a discount from net asset value is more pronounced
for investors who purchase in the initial public offering and who wish to sell
their shares in a relatively short period of time.
To reduce or eliminate any discount to net asset value, the Fund's
Articles of Incorporation provide that the Fund will automatically convert to an
open-end investment company upon certain conditions. See "Automatic Conversion
to an Open-End Investment Company." However, notwithstanding the elimination of
the market discount upon conversion of the Fund to an open-end investment
company, a stockholder will incur a loss upon the sale of its shares of the Fund
if such stockholder sells or redeems his shares at a price less than the amount
for which such stockholder purchased his shares.
FOREIGN INVESTMENTS
The Fund may invest in securities issued by foreign issuers. Issuers of
securities in foreign jurisdictions are generally not subject to the same degree
of regulation as are U.S. issuers with respect to such matters as insider
trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting and
auditing standards of foreign countries may differ, in some cases significantly,
from U.S. standards in important respects and less information may be available
to investors in foreign securities than to investors in U.S. securities.
Substantially less information is publicly available about certain non-U.S.
issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self- sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization or other confiscation, the Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Fund than that provided by U.S. laws.
The assets of the Fund may be invested in securities denominated in
foreign currencies, and a corresponding portion of the Fund's revenues will be
received in such currencies. Therefore, the Fund's net asset value, and possibly
the corresponding market value of the Fund's shares, may be adversely affected
by reductions in the value of certain foreign currencies relative to the U.S.
dollar. If the value of the foreign currencies in which the Fund receives its
income falls relative to the U.S. dollar between receipt of the income and the
making of the Fund's distributions, the Fund may be required to liquidate
securities in order to make distributions if it has insufficient cash in U.S.
dollars to meet distribution requirements that the Fund must satisfy to qualify
as a regulated investment company for federal income tax purposes. See
"Taxation." In light of these risks, the Fund may engage in certain currency
hedging transactions, which themselves involve certain special risks. See
"Appendix A."
The securities markets of many foreign countries are relatively small,
with the majority of market capitalization and trading volume concentrated in a
limited number of issuers representing a small number of industries.
Consequently, the Fund which may own securities of such issuers may experience
greater price volatility and lower liquidity than a portfolio invested solely in
equity securities of U.S. issuers, including Small-cap Issuers in the United
States. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States.
Securities settlements may in some instances be subject to delays and
related administrative uncertainties. These problems are particularly severe in
certain countries where settlement is through physical delivery. Certain foreign
countries require governmental approval prior to investments by foreign persons
or limit investment by foreign persons to only a specified percentage of an
issuer's outstanding securities or a specific class of securities which may have
less advantageous terms (including price) than securities of the company
available for purchase by nationals. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the costs
and expenses of the Fund. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from certain of the countries is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. The Fund could be adversely affected by delays
in, or a refusal to grant, any required governmental approval for repatriation,
as well as by the application to it of other restrictions on investment.
Investing in local markets may require the Fund to adopt special procedures,
which may involve additional costs to the Fund. The liquidity of the Fund's
investments in any country in which any of these factors exists could be
affected and the Investment Adviser will monitor the effect of any such factor
or factors on the Fund's investments. Furthermore, transaction costs including
brokerage commissions for transactions both on and off the securities exchanges
in many foreign countries are generally higher than in the U.S.
ADDITIONAL CONSIDERATIONS
The Fund may, but does not currently intend to, employ certain active
investment management techniques including forward foreign currency exchange
contracts, options and futures contracts on currencies, securities and
securities indices and options on such futures contracts (commonly referred to
as "derivatives"). While the judicious use of derivatives by experienced
investment advisers can be beneficial, derivatives also involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments, including market risk, liquidity risk, risk of
mispricing or improper valuation of derivatives and risk that derivatives do not
correlate perfectly with underlying assets, rates and indices. See "Investment
Objective and Policies -- Other Investment Practices -- Foreign Currency Hedging
Transactions; Options and Futures Contracts" and Appendix A.
The Fund's Articles of Incorporation contain certain anti-takeover
provisions that may have the effect of inhibiting the Fund's conversion to
open-end status in a manner other than through the Automatic Conversion Feature
(as defined herein) and limiting the ability of other persons to acquire control
of the Fund. In certain circumstances, these provisions might also inhibit the
ability of stockholders to sell their shares at a premium over prevailing market
prices. See "Common Stock" and "Automatic Conversion to an Open-End Investment
Company."
Certain considerations concerning the Fund's ability to enter into
repurchase agreements and lend portfolio securities are discussed below under
"Investment Objective and Policies" and "--Lending of Portfolio Securities."
The Fund may be subject to withholding taxes, including withholding taxes
on realized capital gains that may exist or may be imposed by the governments of
the countries in which the Fund invests. As a result, the Fund could become
subject to local tax liabilities in the future that it did not anticipate in
conducting its investment activities or valuing its assets.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS OF THE FUND
The Directors and officers of the Fund are listed below together with
their respective positions and a brief statement of their principal occupations
during the past five years and, in the case of Directors, their positions with
publicly held companies.
<TABLE>
<CAPTION>
Position Principal Occupation During
Name and Address with Fund Age Past Five Years
---------------- --------- --- ---------------------------
<S> <C> <C> <C>
Richard E. Omohundro, Jr.* President and 56 President or Co-President of the
60 State Street Director Investment Adviser since June
Boston, MA 02109 1988.
Joseph G. Cote* Director 55 Co-President of the Investment
60 State Street Adviser from August 1995 to
Boston, MA 02109 present and from February 1989 to
November 1993.
Shareholder of the
Investment Adviser
from 1989 to
present.
Warren J. Isabelle* Director and 45 Chief Investment Officer--
60 State Street Vice President Equities and Vice President of
Boston, MA 02109 and Treasurer the Investment Adviser since May
1997. Previously,
a Senior Vice
President with
Pioneering
Management
Corporation from
1984 through
January 1997 and
Chief Investment
Officer - Equities
and a Senior Vice
President with
Keystone Corp.
from February 1997
to May 1997.
Karen J. Thelen Secretary 45 Vice President of the Investment
60 State Street Adviser since December 1992.
Boston, MA 02109 Assistant Vice President of the
Investment Adviser
from December 1988
to December 1992.
</TABLE>
- ----------
* Directors who are "interested persons" of the Fund, as defined in the
1940 Act.
Messrs. Omohundro, Cote and Isabelle and Ms. Thelen are officers of the
Investment Adviser.
The officers of the Fund, together with the Investment Adviser, conduct
and supervise the Fund's daily business operations. The Directors review and
supervise the actions of the officers and the Fund's Investment Adviser and
decide general policy.
The Fund pays each Director not affiliated with the Investment Adviser a
fee of $10,000 per year plus $2,000 per Directors' meeting attended in person
and $1,000 per Directors' meeting attended by telephone, together with actual
out-of-pocket expenses relating to attendance at such meetings. In addition, the
members of the Fund's Audit Committee, which consists of certain of the Fund's
Directors who are not interested persons, receive $1,000 for each Audit
Committee meeting attended, together with actual out-of-pocket expenses relating
to attendance at such meetings.
Set forth below is a table showing the aggregate compensation paid by the
Fund to each of its Directors, as well as the total compensation paid to each
Director by other U.S. registered investment companies advised by the Investment
Adviser or its affiliates (collectively the "Fund Complex") for their services
as directors of such investment companies for the fiscal year ended October 31,
1996.
<TABLE>
<CAPTION>
Number
Pension or of Funds
Retirement Total Currently
Benefits Estimated Compensation in Fund
Accrued as Annual From Fund Complex for
Aggregate Part of the Benefits Complex which
Compensation Fund's upon Paid to Director
Name of Director From Fund Expenses Retirement Directors Serves
---------------- ------------ ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Richard E. Omohundro, Jr.* $ 0 NONE NONE $ 0 2
Joseph G. Cote* 0 NONE NONE 0 2
Warren J. Isabelle* 0 NONE NONE 0 1
</TABLE>
- ----------
* Messrs. Omohundro, Cote and Isabelle are officers of the Investment
Adviser, and therefore are "interested persons" of the Fund within the
meaning of the 1940 Act. As such, Messrs. Omohundro, Cote and Isabelle do
not receive any compensation from the Fund or any other investment
company in the Fund Complex for their services as a director of such
investment companies.
The Fund's Board of Directors has an Audit Committee that is responsible
for reviewing financial and accounting matters. The members of the Audit
Committee are Messrs. .
As of the date of this Prospectus, none of the officers or Directors of
the Fund own any shares of the Fund's Common Stock.
[The Board of Directors is divided into three classes, each class having
a term of three years. Each year the term of one class expires. The Fund's
By-Laws provide that each Director holds office until (i) the expiration of his
term and until his successor has been elected and qualified, (ii) his death,
(iii) his resignation, (iv) December 31 of the year in which he reaches
seventy-three years of age or (v) his removal as provided by statute or the
Articles of Incorporation.
See "Common Stock."]
The Articles of Incorporation of the Fund contain a provision permitted
under the Maryland General Corporation Law (the "MGCL") which by its terms
eliminates the personal liability of the Fund's Directors and officers to the
Fund or its stockholders for monetary damages for breach of fiduciary duty as a
director or officer, subject to certain qualifications described below. The
Articles of Incorporation and the By-Laws of the Fund provide that the Fund will
indemnify directors, officers, employees or agents of the Fund to the full
extent permitted by the MGCL. Under Maryland law, a corporation may indemnify
any director or officer made a party to any proceeding by reason of service in
that capacity unless it is established that (1) the act or omission of the
director or officer was material to the matter giving rise to the proceeding and
(A) was committed in bad faith or (B) was the result of active and deliberate
dishonesty; (2) the director or officer actually received an improper personal
benefit in money, property or services; or (3) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. The Articles of Incorporation further provide that to
the fullest extent permitted by the MGCL, and subject to the requirements of the
1940 Act, no Director or officer will be liable to the Fund or its stockholders
for money damages. Under Maryland law, a corporation may restrict or limit the
liability of directors or officers to the corporation or its stockholders for
money damages, except to the extent that (1) it is proved that the person
actually received an improper benefit or profit in money, property, or services
or (2) a judgment or other final adjudication adverse to the person is entered
in a proceeding based on a finding in the proceeding that the person's action,
or failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. Nothing in the
Articles of Incorporation or the By-Laws of the Fund protects or indemnifies a
Director, officer, employee or agent against any liability to which he would
otherwise be subject by reason of acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, or protects or
indemnifies a Director or officer of the Fund against any liability to the Fund
or its stockholders 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.
INVESTMENT ADVISER
The Investment Adviser is Prospect Street(R) Investment Management Co.,
Inc., a Massachusetts corporation having its principal offices at 60 State
Street, Boston, Massachusetts 02109. Organized in June 1988, the Investment
Adviser provides institutional clients with investment management services. As
of May 31, 1997, the Investment Adviser had approximately $ under management.
The Investment Adviser is a registered investment adviser under the U.S.
Investment Advisers Act of 1940, as amended (the "Advisers Act"). The Investment
Adviser is under no restriction and remains free, at any time, to sponsor and
advise new investment vehicles with investment restrictions similar or identical
to those of the Fund.
Richard E. Omohundro, Jr., Co-President of the Investment Adviser, served
as a Vice President (1978 to 1983) and a Managing Director (1983 to 1988) of
Merrill Lynch and was Co-Manager of the Merrill Lynch High-yield Bond Group from
1978 through 1987. During that period, the Group raised approximately $13.6
billion in new "high-yield" securities through 107 issues and provided one of
the largest secondary trading markets for "high-yield" securities. In 1987, the
Group raised approximately $5.8 billion in new offerings of "high-yield"
securities and employed over 40 persons. Mr. Omohundro provides general advisory
assistance to, analyzes certain policy considerations with, and consults on a
regular basis with, the Fund's portfolio manager although the portfolio manager
has full discretionary authority concerning the selection of the Fund's
investments.
Portfolio Manager, Background and Experience. Warren J. Isabelle, Chief
Investment Officer -- Equities and Vice President of the Investment Adviser,
will be responsible for the day-to-day management of the Fund's investments.
Prior to joining the Investment Adviser, Mr. Isabelle was a Senior Vice
President with Pioneering Management Corporation ("PMC") from 1984 through
January 1997 and Chief Investment Officer -- Equities and a Senior Vice
President with Keystone Corp. from February 1997 through May 1997. At PMC, Mr.
Isabelle was responsible for the day-to-day management of Pioneer Capital Growth
Fund, a series fund of Pioneer Growth Trust, from the inception of that fund in
July 1990 through January 1997. The Fund's investment objective and policies are
substantially similar to the investment objective and policies of the Pioneer
Capital Growth Fund. At October 31, 1996, that fund had approximately $1.9
billion in net assets. As portfolio manager of the Pioneer Capital Growth Fund,
Mr. Isabelle had full discretionary authority over the selection of investments
for that fund and no other person played a significant part in achieving that
fund's prior performance. Average annual returns of the Pioneer Capital Growth
Fund for the periods during which Mr. Isabelle managed the Pioneer Capital
Growth Fund are set forth below and compared with the performance of the
Standard & Poor's 500 Composite Stock Price Index and the Russell 2000 Index.
<TABLE>
<CAPTION>
Pioneer Capital
Growth Fund(1)(2)(3)
----------------------------------
Average Annual Class A Class B Class C S&P 500 Russell 2000
Total Returns Shares(4) Shares(5) Shares(6) Index(7) Index(8)
-------------- --------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
One Year Period
Ended October 31, 1996....... % % %* % %
One Year Period
Ended October 31, 1995....... --
One Year Period
Ended October 31, 1994....... * --
One Year Period
Ended October 31, 1993....... -- --
One Year Period
Ended October 31, 1992....... -- --
One Year Period
Ended October 31, 1991....... -- --
For the Period From
Commencement of
Operations through
October 31, 1990............. (1) -- --
Five Years..................... -- --
For the Period From
Commencement of
Operations through
October 31, 1996............. (1) (1) (1)
</TABLE>
- ----------
* From commencement of participation in operations of such shares to the
period then ended.
(1) Class A shares of Pioneer Capital Growth Fund commenced participation in
operations on July 25, 1990. Class B shares of Pioneer Capital Growth
Fund commenced participation in operations on April 4, 1994. Class C
shares of Pioneer Capital Growth Fund commenced participation in
operations on January 31, 1996.
(2) Average annual total return reflects changes in share prices of the
applicable class and reinvestment of dividends and distributions and is
net of fund expenses, excluding deduction of (i) a maximum 5.75% sales
charge applicable to Class A shares at the beginning of the period, (ii)
a maximum 4% contingent deferred sales charge applicable to Class B
shares upon redemption and (iii) a maximum 1% contingent deferred sales
charge applicable to Class C shares upon redemption.
(3) The portfolio turnover rate for the Pioneer Capital Growth Fund for the
fiscal years ended October 31, 1996, 1995, 1994, 1993, 1992, 1991 and for
the period from July 25, 1990 (commencement of operations) through
October 31, 1990 was %, %, %, %, %, % and %, respectively.
(4) The expense ratio, net of any reimbursed expenses, of the Class A shares
of the Pioneer Capital Growth Fund for the fiscal years ended October 31,
1996, 1995, 1994, 1993, 1992, 1991 and for the period from July 25, 1990
(commencement of operations) through October 31, 1990 was %, %, %,
%, %, % and % (annualized), respectively.
(5) The expense ratio, net of any reimbursed expenses, of the Class B shares
of the Pioneer Capital Growth Fund for the fiscal years ended October 31,
1996 and 1995 and for the period from April 4, 1994 (commencement of
operations) through October 31, 1994 was %, % and % (annualized),
respectively.
(6) The expense ratio, net of any reimbursed expenses, of the Class C shares
of the Pioneer Capital Growth Fund for the period from January 31, 1996
(commencement of operations) through October 31, 1996 was %
(annualized).
(7) The Standard & Poor's 500 Composite Stock Price Index is an unmanaged
index of common stocks that is considered to be generally representative
of the U.S. stock market. The Index is adjusted to reflect reinvestment
of dividends, but does not reflect any fees, expenses or sales charges.
(8) The Russell 2000 Index is an unmanaged index that tracks the performance
of 2000 smaller- capitalization stocks. The Index is adjusted to reflect
reinvestment of dividends, but does not reflect any fees, expenses or
sales charges.
The historical performance information set forth above with respect to
the Pioneer Capital Growth Fund is derived from that fund's annual reports,
which are publicly available. Historical performance is not indicative of future
performance. The Pioneer Capital Growth Fund is a separate fund and its
historical performance is not indicative of the potential performance of the
Fund, which is a newly organized investment company with no operating history.
Share prices and investment returns will fluctuate reflecting market conditions,
as well as changes in company-specific fundamentals of portfolio securities.
Although the Fund is a closed-end investment company, the Fund has adopted an
investment objective and policies generally applicable to an open-end investment
company, such as the Pioneer Capital Growth Fund.
For the three- and five-year periods ended December 31, 1996 during which
Mr. Isabelle managed the Pioneer Capital Growth Fund, the Pioneer Capital Growth
Fund -- Class A shares had a -star and a -star Morningstar
risk-adjusted performance rating, respectively, when rated among other domestic
equity funds. Morningstar, Inc., is an independent publisher of financial
information and investment company ratings. Morningstar ratings involve
comparisons of funds with similar investment objectives and represent a
proprietary measure of risk- adjusted performance relative to three-month U.S.
Treasury bill returns. A five-star rating is characterized as "Highest" and is
limited to the top 10% of scores in a rating group; a four-star rating is
characterized as "Above Average" and is limited to the next 22.5% of scores in
the rating group. A three-star rating is characterized as "Average" or "Neutral"
and is limited to the next 35% of scores in the rating group. The Pioneer
Capital Growth Fund is included among open-end funds in Morningstar's
"Small Company" investment category. Morningstar ratings may change every four
weeks and do not take into account brokerage commissions, sales loads or other
charges that may be payable in connection with the purchase of shares.
Morningstar ratings are based on historical performance and are not predictive
of future results.
<PAGE>
ADVISORY AGREEMENT
The Investment Advisory Agreement between the Investment Adviser and the
Fund (the "Advisory Agreement") provides that, subject to the direction of the
Board of Directors of the Fund and the applicable provisions of the 1940 Act,
the Investment Adviser is responsible for the actual management of the Fund's
portfolio. The responsibility for making decisions to buy, sell or hold a
particular investment rests with the Investment Adviser, subject to review by
the Board of Directors of the Fund and compliance with the applicable provisions
of the 1940 Act.
The Investment Adviser is not dependent on any other party in providing
the investment advisory services required for management of the Fund's
portfolio. The Investment Adviser may, however, consider analyses from various
sources, including broker-dealers with which the Fund does business. The
Investment Adviser is also responsible for providing the Fund with such
executive, data processing, clerical, accounting and bookkeeping services and
statistical and research data as are deemed advisable by the Fund's Board of
Directors (although certain of such expenses will be borne by the Fund), except
to the extent these services are provided by an administrator or an accounting
firm hired by the Fund.
Under the Advisory Agreement with the Fund, the Investment Adviser is
entitled to receive a monthly advisory fee equal to 1.00% (on an annual basis)
of the Fund's average weekly net assets.
The Fund bears all costs of its operation other than those incurred by
the Investment Adviser under the Advisory Agreement. In particular, the Fund
pays, among others, investment advisory fees; fees and expenses associated with
the Fund's administration, record keeping and accounting; fees and expenses for
the custodian and sub-custodians of the Fund's assets; legal, accounting and
auditing fees; taxes; registration fees and expenses; fees and expenses for the
registrar, transfer and dividend disbursing agent; expenses for portfolio
pricing services by a pricing agent, if any; dues and expenses incurred in
connection with membership in investment company organizations; expenses
relating to investor and public relations; freight, insurance and other charges
in connection with the shipment of the Fund's portfolio securities; brokerage
commissions and other costs of acquiring or disposing of any portfolio holding
of the Fund; expenses of preparation and distribution of reports, notices and
dividends to stockholders; expenses of the dividend reinvestment and cash
purchase plan (except for brokerage expenses paid by participants in such plan);
costs of stationery; any litigation expenses or other extraordinary expenses;
and costs of stockholders' and other meetings. The Fund also pays the
compensation and expenses of the Directors who are not otherwise employed by or
affiliated with the Investment Adviser or any of its affiliates. Under the
Advisory Agreement, the Investment Adviser provides the Fund with office space,
facilities and business equipment and provides the services of executive and
clerical personnel for administering certain of the other affairs of the Fund.
The Investment Adviser compensates Directors of the Fund if such persons are
employed by the Investment Adviser or its affiliates. However, the Fund will
bear travel expenses or an appropriate fraction thereof of officers and
Directors of the Fund who are directors, officers or employees of the Investment
Adviser or its affiliates to the extent that such expenses relate to attendance
at meetings of the Fund's Board of Directors or any committee thereof.
Under the Advisory Agreement, the Investment Adviser is permitted to
provide investment advisory services to other clients, including clients who may
invest in the same issuers as the Fund. However, information furnished by others
to the Investment Adviser in the course of providing services to clients other
than the Fund may be useful to the Investment Adviser in providing services to
the Fund.
The Advisory Agreement will initially be effective for a period of two
years and will continue in effect from year to year thereafter provided such
continuance is specifically approved at least annually by (i) a vote of a
majority of those members of the Board of Directors who are not "interested
persons" of the Investment Adviser or the Fund, cast in person at a meeting
called for the purpose of voting on such approval and (ii) by a majority vote of
either the Fund's Board of Directors or the Fund's outstanding voting
securities. The Advisory Agreement may be terminated at any time, without
payment of penalty, by the Fund's Board of Directors, by a vote of a majority
the Fund's outstanding voting securities, or by the Investment Adviser upon 60
days' written notice. The Advisory Agreement will automatically terminate in the
event of its assignment, as defined under the 1940 Act.
The Advisory Agreement provides that the Investment Adviser will not be
liable for any act or omission, error of judgment or mistake of law, or for any
loss suffered by the Fund in connection with matters to which the Advisory
Agreement relates, and that the Investment Adviser will be indemnified by the
Fund for any loss suffered by the Investment Adviser in connection with the
performance of its obligations and duties under the Advisory Agreement, in each
case except for any loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties, or from reckless disregard by it of its obligations and duties under the
Advisory Agreement.
CUSTODIAN
[ ] will act as custodian for the Fund's assets (the
"Custodian"). The principal business address of the Custodian is [address].
For its services the Custodian will receive a fee calculated as a
percentage of the Fund's assets in its custody, plus an amount for each
transaction effected in the Fund's account. In addition, the Custodian will be
reimbursed by the Fund for any out-of-pocket expenses incurred by it in
connection with the performance of its duties under the Custody Agreement. The
Custody Agreement provides that the Fund shall indemnify the Custodian against
any liability, loss or expense (including attorneys fees and disbursements)
incurred in connection with the Custody Agreement, except to the extent such
liability, loss or expense results from the negligence or willful misconduct of
or breach by the Custodian.
The Custodian may employ one or more sub-custodians outside the U.S. The
fees and expenses of any such sub-custodians are paid by the Custodian.
ESTIMATED EXPENSES
On the basis of the anticipated size of the Fund immediately following
the receipt of the net proceeds from this offering, the Investment Adviser
estimates that the Fund's normal annual operating expenses, including advisory,
administrative and custodial fees, exclusive of amortization of organization
expenses, will be approximately $ . While this estimate has been made in good
faith on the basis of information made available to the Investment Adviser,
there can be no assurance that actual operating expenses will not be
substantially more or less than such estimate.
Costs incurred by the Fund in connection with its initial registration
and public offering of shares, estimated at $ , will be charged to the capital
of the Fund upon the Fund's commencement of operations; costs incurred in
connection with the Fund's organization, estimated at $ , will be deferred and
amortized on a straight-line basis over five years starting with the
commencement of the Fund's operations.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser is responsible for decisions to buy and sell
securities and other portfolio holdings for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of brokerage
commissions, if any. In placing orders for portfolio securities of the Fund, the
Investment Adviser is required to give primary consideration to obtaining the
most favorable price and efficient execution. This means that the Investment
Adviser will seek to execute each transaction at a price and commission, if any,
which provides the most favorable total cost or proceeds reasonably attainable
in the circumstances. In seeking the most favorable price and execution, the
Investment Adviser, having in mind the Fund's best interests, will consider all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions. Though the Investment Adviser generally seeks competitive spreads
or commissions, the Fund will not necessarily be paying the lowest spread of
commission available. In underwritten offerings, securities are usually
purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
The placing and execution of orders for the Fund also may be subject to
restrictions under U.S. securities laws, including certain prohibitions against
trading among the Fund and its affiliates (including the Investment Adviser or
its affiliates).
Within the framework of the policy of obtaining the most favorable price
and efficient execution, the Investment Adviser will consider research and
investment services provided by brokers and dealers who effect or are parties to
portfolio transactions with the Fund, the Investment Adviser or the Investment
Adviser's other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular issuers and
industries. Such services are used by the Investment Adviser in connection with
all of its investment activities and some of such services obtained in
connection with the execution of transactions for the Fund may be used in
managing other investment accounts. Conversely, brokers furnishing such services
may be selected for the execution of transactions for such other accounts, and
the services furnished by such brokers may be used by the Investment Adviser in
providing investment management for the Fund. Commission rates are established
pursuant to negotiations based on the quality and quantity of execution services
provided by the broker or dealer in light of generally prevailing rates. The
management fee paid by the Fund will not be reduced because the Investment
Adviser and/or other clients receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the Investment Adviser may cause the Fund to pay a
broker-dealer which provides "brokerage and research services" (as defined in
the 1934 Act) to the Investment Adviser, an amount of disclosed commission for
effecting a securities transaction for the Fund in excess of the commission
which another broker-dealer would have charged for effecting that transaction.
Research provided to the Investment Adviser in advising the Fund will be
in addition to and not in lieu of the services required to be performed by the
Investment Adviser itself, and the Investment Adviser's fees will not be reduced
as a result of the receipt of such supplemental information. It is the opinion
of the management of the Fund that such information is only supplementary to the
Investment Adviser's own research efforts, because the information must still be
analyzed, weighed and reviewed by the Investment Adviser's staff. Such
information may be useful to the Investment Adviser in providing services to
clients other than the Fund, and not all such information is necessarily used by
the Investment Adviser in connection with the Fund. Conversely, information
provided to the Investment Adviser by brokers and dealers through whom other
clients of the Investment Adviser effect securities transactions may prove
useful to the Investment Adviser in providing services to the Fund.
The Fund's Board of Directors will review at least annually the
commissions allocated by the Investment Adviser on behalf of the Fund to
determine if such allocations were reasonable in relation to the benefits
inuring to the Fund.
NET ASSET VALUE
The Fund intends to determine its net asset value no less frequently than
the close of business on the last business day of each week by dividing the
value of the net assets of the Fund (the value of its assets less its
liabilities) by the total number of shares of Common Stock outstanding. The Fund
will calculate the net asset value per share daily during the relevant periods
in which the Automatic Conversion Feature may become operative. See "Automatic
Conversion to an Open-end Investment Company." In valuing the Fund's assets,
portfolio securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, will be valued at the mean between the most recently quoted
bid and asked prices provided by the principal market makers. Any security or
option for which the primary market is on an exchange will be valued at the last
sale price on such exchange on the day of valuation or, if there was no sale on
such day, the last bid price quoted on such day. Options for which the primary
market is not on an exchange or which are not listed on an exchange will be
valued at market value or fair value if no market exists. Securities and assets
for which market quotations are not readily available will be valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Fund. While no single standard for determining fair value
exists, as a general rule, the current fair value of a security would appear to
be the amount which the Fund could expect to receive upon its current sale.
Some, but not necessarily all, of the general factors which may be considered in
determining fair value include: (i) the fundamental analytical data relating to
the investment; (ii) the nature and duration of restrictions on disposition of
the securities; and (iii) an evaluation of the forces which influence the market
in which these securities are purchased and sold. Without limiting or including
all of the specific factors which may be considered in determining fair value,
some of the specific factors include: type of security, financial condition of
the issuer, cost at date of purchase, size of holding, discount from market
value, value of unrestricted securities of the same type at the time of
purchase, special reports prepared by analysts, information as to any
transaction or offers with respect to the security, existence of merger
proposals or tender offers affecting the securities, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.
Short-term debt securities which mature in less than 60 days will be
valued at amortized cost if their term to maturity from the date of acquisition
by the Fund was less than 60 days or by amortizing their value on the 61st day
prior to maturity if their term to maturity from the date of acquisition by the
Fund was more than 60 days, unless this method is determined by the Board of
Directors not to represent fair value. Repurchase agreements will be valued at
cost plus accrued interest. All assets and liabilities of the Fund not
denominated in U.S. dollars will be initially valued in the currency in which
they are denominated and then will be translated into U.S. dollars at the
prevailing foreign exchange rate on the date of valuation. The Fund's obligation
to pay any local taxes, such as tax on remittances from any foreign country,
will become a liability on the date the Fund recognizes income or
marks-to-market its assets and will have the effect of reducing the Fund's net
asset value.
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund generally intends to distribute to stockholders, at least
annually, substantially all of its investment company taxable income from
dividends and interest earnings and net realized capital gains, although the
Fund may elect annually to retain any net realized long-term capital gains for
reinvestment. If the Fund retains for reinvestment or otherwise an amount of
such net long-term capital gains, it will be subject to a tax of up to 35% of
the amount retained. See "Taxation -- U.S. Federal Income Taxes."
Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), each stockholder will be deemed to have elected, unless the Plan Agent
(as defined below) is otherwise instructed by the stockholder in writing, to
have all distributions automatically reinvested by [ ] (the "Plan Agent") in
Fund shares pursuant to the Plan. Stockholders who do not participate in the
Plan will receive all distributions in cash paid by check in U.S. dollars mailed
directly to the stockholder by [ ], as paying agent. Stockholders who do not
wish to have distributions automatically reinvested should notify the Fund, c/o
the Plan Agent for Prospect Street(R) Intrepid Fund Inc. at [plan agent
address].
The Plan Agent will serve as agent for the stockholders in administering
the Plan. If the Directors of the Fund declare an income dividend or realized
capital gains distribution payable either in the Fund's Common Stock or in cash,
as stockholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive Common Stock to be issued by the Fund
or to be purchased in the open market by the Plan Agent. If the market price per
share on the valuation date equals or exceeds the net asset value per share on
that date, the Fund will issue new shares to participants at net asset value,
unless the net asset value is less than 95% of the market price on the valuation
date, in which case, the Fund will issue shares at 95% of the market price. The
valuation date will be the dividend or distribution payment date or, if that
date is not a trading day on the exchange on which the Fund's shares are then
listed, the next preceding trading day. If the net asset value exceeds the
market price of Fund shares on such valuation date, or if the Fund should
declare a dividend or distribution payable only in cash, the Plan Agent will, as
agent for the participants, buy Fund shares in the open market with the cash in
respect of such dividend or distribution, for the participants' account on, or
shortly after, the payment date.
Participants in the Plan have the option of making additional payments to
the Plan Agent, annually, in any amount from $100 to $3,000, for investment in
the Fund's Common Stock. The Plan Agent will use all funds received from
participants (as well as any dividends and distributions received in cash) to
purchase Fund shares in the open market on or about January 15 of each year. No
participant will have any authority to direct the time or price at which the
Plan Agent may purchase the Common Stock on its behalf. Any voluntary cash
payments received more than thirty days prior to such date will be returned by
the Plan Agent, and interest will not be paid on any uninvested cash payments.
To avoid unnecessary cash accumulations, and also to allow ample time for
receipt and processing by the Plan Agent, it is suggested that participants send
in voluntary cash payments to be received by the Plan Agent approximately ten
days before January 15. A participant may withdraw a voluntary cash payment by
written notice, if the notice is received by the Plan Agent not less than
forty-eight hours before such payment is to be invested. All voluntary cash
payments should be made by check drawn on a U.S. bank (or a non-U.S. bank, if
U.S. currency is imprinted on the check) payable in U.S. dollars and should be
mailed to the Plan Agent for Prospect Street(R) Intrepid Fund Inc. at [plan
agent and address].
The Plan Agent will maintain all stockholder accounts in the Plan and
will furnish written confirmations of all transactions in the account, including
information needed by stockholders for personal and tax records. Shares in the
account of each Plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each stockholder's
proxy will include those shares purchased pursuant to the Plan.
In the case of stockholders, such as banks, brokers or nominees, which
hold shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time to
time by the stockholder as representing the total amount registered in the
stockholder's name and held for the account of beneficial owners who are
participating in the Plan.
There is no charge to participants for reinvesting dividends or
distributions. The Plan Agent's fees for the handling of the reinvestment of
dividends and distributions will be paid by the Fund. However, each
participant's account will be charged a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or distributions. A participant will also pay
brokerage commissions incurred in purchases from voluntary cash payments made by
the participant. Brokerage charges for purchasing small amounts of stock for
individual accounts through the Plan are expected to be less than the usual
brokerage charges for such transactions, because the Plan Agent will be
purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and distributions will not
relieve participants of any income tax which may be payable on such dividends
and distributions. See "Taxation -- U.S. Federal Income Taxes."
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payment made and any dividend or distribution paid
subsequent to notice of the change sent to all stockholders at least 90 days
before the record date for such dividend or distribution. The Plan also may be
amended or terminated by the Plan Agent by at least 90 days' written notice to
all stockholders. All correspondence concerning the Plan should be directed to
the Plan Agent for Prospect Street(R) Intrepid Fund Inc. at [plan agent and
address].
TAXATION
U.S. FEDERAL INCOME TAXES
The Fund intends to qualify and to elect to be treated as a regulated
investment company under the U.S. Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, the Fund must, among other things: (a) derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities and gains from the sale or other disposition of foreign currencies,
or other income (including gains from options, futures contracts and forward
contracts) derived with respect to the Fund's business of investing in stocks,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of the following assets held for less than three
months -- (i) stock and securities, (ii) options, futures and forward contracts
(other than options, futures and forward contracts on foreign currencies), and
(iii) foreign currencies (and options, futures and forward contracts on foreign
currencies) which are not directly related to the Fund's principal business of
investing in stocks and securities (or options and futures with respect to stock
or securities); and (c) diversify its holdings so that, at the end of each
quarter, (i) at least 50% of the value of the Fund's total assets is represented
by cash and cash items (including receivables), U.S. Government securities,
securities of other regulated investment companies, and other securities, with
such other securities limited in respect of any one issuer to an amount not
greater in value than 5% of the Fund's total assets and to not more than 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of the Fund's total assets is invested in the securities (other than
U.S. Government securities or securities of other regulated investment
companies) of any one issuer or of any two or more issuers that the Fund
controls and that are determined to be engaged in the same business or similar
or related businesses. The Fund expects that all of its foreign currency gains
will be directly related to its principal business of investing in stock and
securities. Legislation is currently pending before the U.S. Congress that would
repeal the requirement that a regulated investment company must derive less than
30% of its gross income from the sale or other disposition of assets described
in (b) above, that are held for less than three months. However, it cannot be
predicted whether such legislation will become law and, if enacted, what form it
will take.
As a regulated investment company, provided that the Fund distributes to
its stockholders at least 90% of its investment company taxable income for the
taxable year, the Fund will not be subject to U.S. federal income tax on the
portion of its investment company taxable income that it distributes to its
stockholders; however, the Fund will be subject to tax on the portion of its
income and gains that it does not distribute to its stockholders. Investment
company taxable income includes, among other things, dividends, interest and net
short-term capital gains in excess of net long-term capital losses, but does not
include net long-term capital gains in excess of net short-term capital losses.
The Fund intends to distribute annually to its stockholders substantially all of
its investment company taxable income. If necessary, the Fund may borrow money
temporarily or liquidate assets to make such distributions. As discussed below,
however, it is possible that the Fund may not distribute net long-term capital
gains in excess of short-term capital losses. Dividend distributions of
investment company taxable income are taxable to a U.S. stockholder as ordinary
income to the extent of the Fund's current and accumulated earnings and profits,
whether paid in cash or in shares of Common Stock. Thus, reinvested dividends
will give rise to tax without a corresponding receipt of cash. Distributions in
excess of the Fund's current and accumulated earnings and profits will first
reduce the adjusted tax basis of a holder's stock and, to the extent such
distributions exceed the positive adjusted tax basis of such stock, will
constitute capital gains to such holder (assuming the stock is held as a capital
asset). However, distributions to corporate stockholders of the Fund may be
entitled to the deduction for dividends received by corporations to the extent
such distributions are attributable to dividends received by the Fund on stock
of U.S. corporations. If the Fund fails to satisfy the 90% distribution
requirement or fails to qualify as a regulated investment company in any taxable
year, it will be subject to tax in such year on all of its taxable income,
whether or not the Fund makes any distributions to its stockholders. To qualify
again as a regulated investment company in a subsequent year, the Fund may be
required to pay an interest charge on 50% of its earnings and profits
attributable to non-regulated investment company years and would be required to
distribute such earnings and profits to stockholders (less any interest charge).
In addition, if the Fund failed to qualify as a regulated investment company for
its first taxable year or, if immediately after qualifying as a regulated
investment company for any taxable year, it failed to qualify for a period
greater than one taxable year, the Fund would be required to recognize any net
built-in gains (the excess of aggregate gains, including items of income, over
aggregate losses that would have been realized if it had been liquidated) in
order to qualify as a regulated investment company in a subsequent year.
As a regulated investment company, the Fund also will not be subject to
U.S. federal income tax on the portion of its net long-term capital gains in
excess of net short-term capital losses and capital loss carryovers from the
prior eight years, if any, that it distributes to its stockholders. If the Fund
retains for reinvestment or otherwise an amount of such net long-term capital
gains, it will be subject to U.S. federal income tax at a maximum effective rate
of 35% on the amount retained. The Board of Directors of the Fund will determine
at least once a year whether to distribute any net long-term capital gains in
excess of net short-term capital losses and capital loss carryovers from prior
years. The Fund expects to designate amounts retained as undistributed capital
gains in a notice to its stockholders who are stockholders of record as of the
close of a taxable year of the Fund and who, if subject to U.S. federal income
taxation, (a) will be required to include in income for U.S. federal income tax
purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, and (b) will be entitled to credit against their U.S.
federal income tax liabilities their proportionate shares of the tax paid by the
Fund on the undistributed amount and to claim refunds to the extent that their
credits exceed their liabilities. For U.S. federal income tax purposes, the
basis of shares owned by a stockholder of the Fund will be increased by an
amount equal to 65% of the amount of undistributed capital gains included in the
stockholder's income. Distributions of net long-term capital gains, if any, by
the Fund are taxable to its stockholders as long-term capital gains whether paid
in cash or in shares and regardless of how long the stockholder has held the
Fund's shares. Such distributions of net long-term capital gains are not
eligible for the dividends received deduction. Under the Code, net long-term
capital gains will be taxed at a rate not greater than 28% for individuals and
35% for corporations. Stockholders will be notified annually as to the U.S.
federal income tax status of their dividends and distributions.
Stockholders receiving dividends or distributions in the form of
additional shares pursuant to the Plan should be treated for U.S. federal income
tax purposes as receiving a distribution in an amount equal to the amount of
money that the stockholders receiving cash dividends or distributions will
receive, and should have a cost basis in the shares equal to such amount.
Investors considering buying shares prior to a dividend or capital gain
distribution payment date should be aware that the price of shares purchased at
that time may reflect the amount of the forthcoming distribution, and those who
purchase prior to the record date for a distribution will receive a distribution
which will be taxable to them (even though such distribution from an investment
standpoint may represent a partial return of capital rather than income).
If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are included in
the Fund's gross income not as of the date received but as of the later of (a)
the date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock,
either of which dates may be earlier than the date the dividend is received.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated income, and stockholders
may receive dividends in an earlier year than would otherwise be the case.
Under the Code, the Fund may be subject to a nondeductible 4% excise tax
on amounts not distributed to stockholders on a timely basis in accordance with
a calendar year distribution requirement. To avoid the tax, the Fund must
distribute (or be deemed to have distributed) annually the sum of (1) at least
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) at least 98% of its capital gain net income for the
12-month period ending, as a general rule, on October 31 of the calendar year
and (3) all ordinary income and capital gains for previous years that were not
distributed during such years. For this purpose, any income or gain retained by
the Fund that is subject to corporate income tax will be treated as having been
distributed at year-end. For purposes of the excise tax, a regulated investment
company shall: (1) reduce its capital gain net income, but not below its net
capital gain, by the amount of any net ordinary loss for the calendar year; and
(2) exclude foreign currency gains and losses incurred after, as a general rule,
October 31 of any year in determining the amount of ordinary taxable income for
the current calendar year and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year. In
addition, the minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any amount by which the
distribution in a prior year is less or greater, as the case may be, than 100%
of the Fund's ordinary income for the relevant calendar year and 100% of its
capital gain net income for the 12-month period ending, as a general rule, on
October 31 of the calendar year. For a distribution to qualify under the
foregoing test, the distribution generally must be declared and paid during the
year.
Any dividend declared by the Fund in October, November or December of any
year and payable to stockholders of record on a specified date in such a month
shall be deemed to have been received by each stockholder on December 31 of such
year and to have been paid by the Fund not later than December 31 of such year,
provided that such dividend is actually paid by the Fund during January of the
following year. Accordingly, such distributions will be taxable to shareholders
in the year the distributions are declared and become payable, rather than the
year in which the distributions are received by the shareholders.
The Fund will maintain accounts and calculate income by reference to the
U.S. dollar for U.S. federal income tax purposes. Certain investments will be
maintained and income therefrom calculated by reference to non-U.S. currencies,
and such calculations will not necessarily correspond to the Fund's
distributable income and capital gains for U.S. federal income tax purposes as a
result of fluctuations in currency exchange rates. Furthermore, exchange control
regulations may restrict the ability of the Fund to repatriate investment income
or the proceeds of sales of securities. These restrictions and limitations may
limit the Fund's ability to make sufficient distributions to satisfy the 90% and
98% distribution requirements for avoiding income and excise taxes.
The Fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to stockholders. These provisions
also may require the Fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were sold for fair value at the close
of the taxable year) which may cause the Fund to recognize income without
receiving cash with which to make distributions in amounts necessary to satisfy
the 90% and 98% distribution requirements for avoiding income and excise taxes.
The Fund will monitor its transactions, will make the appropriate tax elections,
and will make the appropriate entries in its books and records when it acquires
any foreign currency, option, futures contract, forward contract, or hedged
investment to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company and minimize the imposition of income
and excise taxes.
The Fund may make investments that accrue income that is not matched by a
current receipt of cash by the Fund, such as investments in certain obligations
having original issue discount (i.e., an amount equal to the excess of the
stated redemption price of the security at maturity over its issue price), or
market discount (i.e., an amount equal to the excess of the stated redemption
price of the security at maturity over its basis immediately after it was
acquired) if the Fund elects to accrue market discount on a current basis on
debt instruments. In addition, income may continue to accrue for U.S. federal
income tax purposes with respect to a non-performing investment. Any of the
foregoing income would be treated as income earned by the Fund and therefore
would be subject to the distribution requirements of the Code. Because such
income may not be matched by a concurrent receipt of cash to the Fund, the Fund
may be required to borrow money temporarily or liquidate other securities to be
able to make distributions to its investors. The extent to which the Fund may
liquidate securities at a gain may be limited by the 30% limitation discussed
above.
Some of the Fund's investment practices are subject to special provisions
of the Code that may, among other things, defer the use of losses of the Fund
and affect the holding period of securities held by the Fund and the character
of the gains or losses realized by the Fund. These provisions (and proposed
changes to the tax laws) may also require the Fund to mark-to-market some of the
positions in its portfolio (i.e., treat them as if they were disposed of at the
close of each taxable year at their fair market value), which may cause the Fund
to recognize income without receiving the cash with which to make distributions
in amounts necessary to satisfy the distribution requirements for avoiding U.S.
federal income taxes. The Fund will monitor its transactions and may make
certain tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
For backup withholding purposes, the Fund may be required to withhold 31%
of reportable payments (which may include dividends and capital gain
distributions) to certain noncorporate shareholders. A stockholder, however, may
avoid becoming subject to this requirement by filing an appropriate form
certifying under penalty of perjury that such stockholder's taxpayer
identification number is correct and such stockholder is not subject to backup
withholding, or that such stockholder is exempt from backup withholding. Backup
withholding is not an additional tax. Any amounts withheld under the backup
withholding rules from payments made to a shareholder may be credited against
such shareholder's U.S. federal income tax liability.
The sale or exchange of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for U.S.
federal income tax purposes. Selling stockholders will generally recognize gain
or loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. Such gain or loss will be treated as capital
gain or loss if the shares are capital assets in the stockholder's hands, and
will be treated as long-term capital gain or loss if (in addition to the
requirements for being treated as capital gain or loss) the stockholder's
holding period for the shares is more than 12 months and otherwise will be
short-term capital gain or loss. Any loss realized on a sale or exchange will be
disallowed to the extent that the shares disposed of are replaced (including
replacement through the reinvestment of dividends and capital gains
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a stockholder on the sale of Fund shares held by the
stockholder for six months or less will be treated for U.S. federal income tax
purposes as a long-term capital loss to the extent of any distributions of
long-term capital gains received by the stockholder with respect to such shares.
For purposes of determining whether shares have been held for six months or
less, the holding period is suspended for any periods during which the
stockholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.
A repurchase by the Fund of shares generally will be treated as a sale of
the shares by a stockholder provided that after the repurchase the stockholder
does not own, either directly or by attribution under Section 318 of the Code,
any shares. If, after a repurchase a stockholder continues to own, directly or
by attribution, any shares, and has not experienced a meaningful reduction in
its proportionate interest in the Fund, it is possible that any amounts received
in the repurchase by such stockholder will be taxable as a dividend to such
stockholder. If, in addition, the Fund has made such repurchases as part of a
series of redemptions, there is a risk that stockholders who do not have any of
their shares repurchased would be treated as having received a dividend
distribution as a result of their proportionate increase in the ownership of the
Fund.
Foreign Tax Investments
Income and gains received by the Fund from sources outside the United
States may be subject to income, withholding and other taxes imposed by foreign
countries and U.S. possessions. Stockholders of the Fund will be unable to claim
any deduction or foreign tax credit with respect to such taxes.
Foreign Stockholders
Taxation of a stockholder who, as to the United States, is a foreign
investor depends, in part, on whether the stockholder's income and gain from
shares of the Fund are "effectively connected" with a U.S. trade or business
carried on by the stockholder.
If the foreign investor is not a resident alien and the income and gain
from shares of the Fund are not effectively connected with a U.S. trade or
business carried on by the foreign investor, distributions of net investment
income and net realized short-term capital gains will be subject to a 30% (or
lower treaty rate) U.S. withholding tax. Legislation is currently pending before
the U.S. Congress that would exempt from U.S. withholding tax the portion of
dividends paid by the Fund to a foreign investor that are attributable to
certain U.S. source interest income and short-term capital gains. However, it
cannot be predicted whether such legislation will become law and, if enacted,
what form it will take. Distributions of net realized long-term capital gains,
amounts retained by the Fund which are designated as undistributed capital
gains, and gains realized upon the sale of shares of the Fund will not be
subject to U.S. tax unless a foreign investor who is a nonresident alien
individual is physically present in the United States for more than 182 days
during the taxable year and, in the case of gain realized upon the sale of Fund
shares, unless (i) such gain is attributable to an office or fixed place of
business in the United States or (ii) such nonresident alien individual has a
tax home in the United States and such gain is not attributable to an office or
fixed place of business located outside the United States. If the Fund retains
capital gains and designates such amounts as undistributed capital gains as
described above, foreign stockholders who are not subject to U.S. federal income
tax on net capital gains can obtain a refund of their proportionate shares of
the taxes paid by the Fund on such undistributed capital gains by filing a U.S.
federal income tax return. In the case of a foreign investor who is a
nonresident alien individual, the Fund may be required to withhold U.S. federal
income tax at a rate of 31%, unless the foreign investor files an appropriate
form certifying under penalty of perjury as to his nonresident alien status.
If a foreign investor is a resident alien or if income and gain from
shares of the Fund are effectively connected with a U.S. trade or business
carried on by the foreign investor, dividends of net investment income,
distributions of net short-term and long-term capital gains, amounts retained by
the Fund that are designated as undistributed capital gains and any gains
realized upon the sale or disposition of shares of the Fund will be subject to
U.S. income tax at the rates applicable to U.S. citizens or domestic
corporations. If the income and gain from shares of the Fund are effectively
connected with a U.S. trade or business carried on by a foreign investor that is
a corporation, then such foreign investor also may be subject to U.S. branch
profits tax at a 30% rate (or lower treaty rate) on its effectively connected
earnings and profits withdrawn from its U.S. trade or business.
The tax consequences to a foreign stockholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Stockholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income and gain from shares of the Fund are effectively connected
with a U.S. trade or business carried on by them, (b) whether they may claim the
benefits of an applicable tax treaty and (c) any other tax consequences to them
resulting from an investment in the Fund.
Notices
Stockholders will be notified annually by the Fund as to the U.S. federal
income tax status of the dividends, distributions and deemed distributions made
by the Fund to its stockholders. Furthermore, stockholders will be sent, if
appropriate, various written notices after the close of the Fund's taxable year
as to the U.S. federal income tax status of certain dividends, distributions and
deemed distributions that were paid (or that were treated as having been paid)
by the Fund to its stockholders during the preceding taxable year.
OTHER TAXATION
Dividends, distributions and deemed distributions also may be subject to
additional state, local and foreign taxes depending on each stockholder's
particular position. Investors should consult with their tax advisers concerning
the federal, state, local and foreign tax consequences, if any, resulting from
an investment in the Fund.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE
OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT ITS OWN TAX ADVISER
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO IT OF PARTICIPATION IN THE
FUND, INCLUDING THE EFFECT AND APPLICABILITY OF FEDERAL, STATE, LOCAL, FOREIGN,
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock, $.01 par value. Shares of the Fund, when issued, will be fully paid and
nonassessable and will have no conversion, preemptive or other subscription
rights. Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by stockholders and are not able to cumulate their
votes in the election of Directors. Thus, holders of more than 50% of the shares
voting for the election of Directors have the power to elect 100% of the
Directors. All shares are equal as to assets, earnings and the receipt of
dividends and distributions, if any, as may be declared by the Fund's Board of
Directors out of funds available therefor. In the event of liquidation,
dissolution or winding up of the Fund, each share of Common Stock is entitled to
receive its proportion of the Fund's assets remaining after payment of all debts
and expenses. The Fund's Board of Directors has the authority to classify and
reclassify any authorized but unissued shares of capital stock and to establish
the rights and preferences of such unclassified shares.
Subject to the Fund's possible conversion to an open-end investment
company as discussed below, the Fund does not presently intend to offer
additional shares of Common Stock, except that additional shares may be issued
under the Plan. During such period as the Fund is a closed-end investment
company, other offerings of the Fund's shares will require approval of the
Fund's Board of Directors and may require stockholder approval. Any such
additional offerings would also be subject to the requirements of the 1940 Act,
including the requirement that shares may not be sold at a price below the then
current net asset value (exclusive of underwriting discounts and commissions)
except in connection with an offering to existing stockholders or with the
consent of a majority of the Fund's shares.
The Fund is currently a closed-end investment company, and as such its
stockholders will not have the right to cause the Fund to redeem their shares of
Common Stock unless the Fund becomes an open-end investment company. See
"Automatic Conversion to an Open-end Investment Company."
The Fund's shares of Common Stock will trade in the open market at a
price which is a function of several factors, including their net asset value.
The shares of closed-end investment companies frequently sell at a discount
from, but sometimes at or at a premium over, their net asset values. See "Risk
Factors and Special Considerations" and "Automatic Conversion to an Open-end
Investment Company." There can be no assurance that it will be possible for
investors to resell shares of the Fund at or above the price at which shares are
offered by this Prospectus or that the market price of the Fund's shares will
equal or exceed net asset value.
The Fund's Articles of Incorporation and By-Laws include provisions that
could limit the ability of others to acquire control of the Fund, to modify the
structure of the Fund or to cause it to engage in certain transactions. These
provisions, described below, also could have the effect of depriving
stockholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging third parties from seeking to obtain control of
the Fund in a tender offer or similar transaction. In the opinion of the Fund,
however, these provisions offer several possible advantages. They potentially
require persons seeking control of the Fund to negotiate with its management
regarding the price to be paid for the shares required to obtain such control,
they promote continuity and stability and they enhance the Fund's ability to
pursue long-term strategies that are consistent with its investment objective.
The Fund's Articles of Incorporation provide that the Fund's Board of
Directors have the sole power to adopt, alter or repeal the Fund's By-Laws. The
Directors are divided into three classes, each having a term of three years,
with the term of one class expiring each year. In addition, a Director may be
removed from office only with cause and only by holders of a majority of the
Fund's shares, and the affirmative vote of 75% or more of the Fund's outstanding
shares is required to amend, alter or repeal the provisions in the Fund's
Articles of Incorporation relating to amendments to the Fund's By-Laws and to
removal of Directors. See "Management of the Fund--Directors and Officers of the
Fund." These provisions could delay the replacement of a majority of the
Directors and have the effect of making changes in the Board of Directors more
difficult than if such provisions were not in place.
The affirmative vote of the holders of 75% or more of the outstanding
shares is required to (1) voluntarily convert the Fund from a closed-end to an
open-end investment company, (2) merge or consolidate with any other entity or
enter into a share exchange transaction in which the Fund is not the successor
corporation, (3) dissolve or liquidate the Fund, (4) sell all or substantially
all of its assets, (5) cease to be an investment company registered under the
1940 Act or (6) issue to any person securities in exchange for property worth
$1,000,000 or more, exclusive of sales of securities in connection with a public
offering, issuance of securities pursuant to a dividend reinvestment plan or
other stock dividend or issuance of securities upon the exercise of any stock
subscription rights. However, if such action has been approved or authorized by
the affirmative vote of at least 70% of the entire Board of Directors, the
affirmative vote of only a majority of the outstanding shares would be required
for approval, except in the case of the issuance of securities, in which no
stockholder vote would be required unless otherwise required by applicable law.
The affirmative vote of the holders of 75% or more of the outstanding shares
entitled to vote thereon is required to amend, alter or repeal the foregoing
provisions of the Fund's Articles of Incorporation as well as the provisions of
the Fund's Articles of Incorporation relating to the automatic conversion of the
Fund from a closed-end investment company to an open-end investment company. See
"Automatic Conversion to an Open-end Investment Company." The principal purpose
of the above provisions is to increase the Fund's ability to resist takeover
attempts and attempts to change the fundamental nature of the business of the
Fund that are not supported by either the Board of Directors or a large majority
of the stockholders. These provisions make it more difficult to liquidate,
takeover or voluntarily open-end the Fund and thereby are intended to discourage
investors from purchasing its shares with the hope of making a quick profit by
forcing the Fund to change its structure. These provisions, however, would apply
to all actions proposed by anyone, including management, and would make changes
in the Fund's structure accomplished through a transaction covered by the
provisions more difficult to achieve. The foregoing provisions also could impede
or prevent transactions in which holders of shares of Common Stock might obtain
prices for their shares in excess of the current market prices at which the
Fund's shares were then trading. Although these provisions could have the effect
of depriving stockholders of an opportunity to sell their shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund, the Fund believes the conversion of the Fund from a
closed-end to an open-end investment company in a manner other than contemplated
in the Fund's Articles of Incorporation relating to the automatic conversion of
the Fund to an open-end investment company may not be desired by stockholders,
who purchased their Common Stock in preference to stock of the many mutual funds
available.
The Fund intends to hold annual meetings of its stockholders as required
by the rules of the New York Stock Exchange; provided, however, that the Fund
will cease to hold annual meetings upon conversion of the Fund to an open-end
investment company unless required by law or requested by the Board of
Directors. See "Automatic Conversion to an Open-end Investment Company." Under
Maryland law and the Fund's By-Laws, the Fund will call a special meeting of its
stockholders upon the written request of stockholders entitled to cast at least
25% of all the votes at such meeting. Such request for such a special meeting
must state the purpose of the meeting and the matters proposed to be acted on at
it. The secretary of the Fund is required to (i) inform the stockholders who
make the request of the reasonably estimated cost of preparing and mailing a
notice of the meeting and (ii) on payment of these costs to the Fund, notify
each stockholder entitled to notice of the meeting. Notwithstanding the above,
under Maryland law and the Fund's By-Laws, unless requested by stockholders
entitled to cast a majority of all the votes entitled to be cast at the meeting,
a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding 12 months.
AUTOMATIC CONVERSION TO
AN OPEN-END INVESTMENT COMPANY
AUTOMATIC CONVERSION FEATURE
The Fund's Articles of Incorporation contain an automatic conversion
feature (the "Automatic Conversion Feature") which will cause the Fund to
convert to an open-end investment company automatically upon the occurrence of
the conditions described below, without requiring a vote of the shareholders of
the Fund. The Automatic Conversion Feature may be amended only by the
affirmative vote of the holders at least 75% of the Fund's outstanding voting
securities.
The Fund's Articles of Incorporation provide that, beginning 18 months
after the closing of the Fund's initial public offering, the Fund will
automatically convert into an open-end investment company if its shares close at
a market price (on the principal exchange on which the Fund's shares are traded)
that is a [5]% or greater discount to the net asset value per share of the Fund
on the last business day of any week and for each of the next 14 business days
(the "Conversion Event"). No further approval of the stockholders of the Fund
would be necessary, although the Fund's Board of Directors may, within [90] days
following the Conversion Event, convene a meeting of stockholders of the Fund at
which the holders of not less than 75% of the Fund's shares may vote to amend
the Articles of Incorporation to remove the Automatic Conversion Feature and
continue the Fund as a closed-end investment company. A business day is any day
that the New York Stock Exchange is open.
Upon the occurrence of the Conversion Event, the Fund may continue to
operate as a closed-end investment company for [90] days following the
Conversion Event and thereafter only if the Fund's Board of Directors has,
within [90] days following the Conversion Event, convened a meeting of
stockholders of the Fund at which the holders of not less than 75% of the Fund's
shares vote to amend the Articles of Incorporation to remove the Automatic
Conversion Feature and continue the Fund as a closed-end investment company.
Within [30 days] after the Conversion Event, the Fund will file a registration
statement with the Securities and Exchange Commission to register as an open-end
investment company with the intent of seeking to have the Securities and
Exchange Commission declare such registration statement effective as soon as
practicable after the [90-day] period following the Conversion Event if the
stockholders of the Fund have not vote to amend the Fund's Articles of
Incorporation as described above. The disclosure concerning the Fund contained
in such registration statement is expected to be substantially identical to the
disclosure contained in this offering document except for the provisions
concerning the purchase and sale of shares of the Fund and any other item
pertaining to open-end investment companies.
If the Fund converts to an open-end investment company, it will be able
continuously to issue and offer for sale shares of the Fund, and each such share
could be presented to the Fund at the option of the holder for redemption at a
price based on the then-current net asset value per share. Further, shares of
the Fund would no longer be listed on the New York Stock Exchange and the Fund
would no longer hold annual meetings of its stockholders unless required by law
or requested by the Board of Directors. In addition, after conversion, the Board
of Directors will have the ability to increase or decrease the authorized
capital of the Fund without any stockholder approval.
In the event of a conversion to an open-end investment company, the Fund
may institute a distribution plan pursuant to Rule 12b-1 of the 1940 Act.
Pursuant to such a 12b-1 plan, the Fund would be permitted to incur distribution
expenses related to the sale of its shares, which expenses would be based upon
the Fund's average daily net assets. The 12b-1 plan would provide that the Fund
may finance activities which are primarily intended to result in the sale of the
Fund's shares, including, but not limited to, advertising, printing of
prospectuses and reports for other than existing shareholders, preparation and
distribution of advertising material and sales literature and payments to
dealers and shareholder servicing agents who enter into agreements with the Fund
or its distributor. Prior to the implementation of a 12b-1 plan, the Fund would
be required to seek approval of such plan from the stockholders of the Fund to
which such plan is applicable. In addition, if the Fund converts to an open-end
investment company, its total annual expenses may increase.
PURCHASING SHARES AFTER CONVERSION
Investors will be permitted to purchase shares of the Fund from the Fund's
transfer agent or from other selected securities brokers or dealers following
conversion to an open-end investment company. A buyer whose purchase order is
received by the transfer agent before the close of trading on the New York Stock
Exchange, currently 4:00 p.m., New York time, will acquire shares of the Fund at
the net asset value determined as of that day. A buyer whose purchase order is
received by the transfer agent after the close of trading on the New York Stock
Exchange will acquire shares of the Fund at the net asset value set as of the
close of trading of the New York Stock Exchange on the next day such exchange is
open. A broker may charge a transaction fee for the purchase.
The Fund anticipates that, should it convert to an open-end investment
company, the minimum initial investment in the Fund will be $[2,500] for regular
accounts and $[1,000] for tax-qualified retirement plans. The Fund anticipates
that the minimum additional investment in the Fund will be $[1,000] for regular
accounts and $[500] for tax-qualified retirement plans. The Fund may impose
front-end sales charges in connection with the purchase of shares of the Fund or
contingent deferred sales charges borne by shareholders upon redemption of
shares of the Fund. The Fund may further reduce or waive the minimums or sales
charges for certain retirement and other employee benefit plans; for the
Investment Adviser's employees, clients and their affiliates; for advisers or
financial institutions offering investors a program of services; or any other
person or organization deemed appropriate by the Fund's Board of Directors.
Investors will be permitted to purchase shares of the Fund by check or by wire.
The Fund will provide a pre-authorized investment plan to investors.
REDEEMING SHARES AFTER CONVERSION
Investors will be permitted to redeem shares of the Fund through the
transfer agent of the Fund or through other selected securities brokers or
dealers following conversion to an open-end investment company. A shareholder
whose redemption order is received by the transfer agent of the Fund before the
close of trading on the New York Stock Exchange, currently 4:00 p.m., New York
time, will redeem shares of the Fund at the net asset value determined as of
that day. A shareholder whose redemption order is received by the transfer agent
of the Fund after the close of trading on the New York Stock Exchange will
redeem shares of the Fund at the net asset determined as of the close of trading
on the New York Stock Exchange on the next day such exchange is open. A broker
may charge a transaction fee for the redemption.
UNDERWRITING
The Underwriters named below for whom Tucker Anthony Incorporated, One
Beacon Street, Boston, Massachusetts, 02108, and __________________ and
_______________ are acting as representatives (the "Representatives") have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, dated the date hereof, to purchase from the Fund the number of Shares
of Common Stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such Shares if any are
purchased.
NUMBER
UNDERWRITERS OF SHARES
Tucker Anthony Incorporated........................................
---------
Total...................................................... 3,000,000
=========
The Underwriters have advised the Fund that they propose to offer the
Shares to the public on the terms set forth on the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not more
than $ per Share, and the Underwriters may allow, and such dealers may re-allow,
a concession of not more than $ per Share to certain other dealers. After the
public offering, the price and concessions and reallowances to dealers may be
changed by the Underwriters. The Shares are offered subject to receipt and
acceptance by the Underwriters and to certain other conditions, including the
right to reject orders in whole or in part.
Investors must pay for the Shares on the third business day following the
date of the final Prospectus. Investors should consult their brokers concerning
the manner and method of payment.
The Fund has granted the Underwriters an option exercisable for 45 days
after the date of this Prospectus to purchase up to a maximum of 450,000
additional Shares to cover over-allotments, if any. If the Underwriters exercise
such option, the Underwriters have severally agreed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the foregoing table. The Underwriters may exercise
such option only to cover over-allotments, if any, in connection with this
offering.
The Underwriters have informed the Fund that they do not expect to make
any sales to accounts over which the Underwriters exercise discretionary
authority.
The Underwriting Agreement provides that the Fund and the Investment
Adviser will indemnify the several Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Fund as agreed not to offer, sell or otherwise dispose of any Shares
or any equity securities or securities convertible into or exchangeable for
equity securities or any options, rights or warrants with respect to any equity
securities for a period of 180 days after the date of this Prospectus without
the prior written consent of the Underwriters, except for the sale of the Shares
hereunder and the issuance by the Fund of Shares pursuant to the Fund's Dividend
Reinvestment and Cash Purchase Plan.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the 1934 Act. Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specific
maximum. Syndicate covering transactions involve purchases of the Shares in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Representatives to reclaim a
selling concession from a syndicate member when the Shares originally sold by
such syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Shares to be higher
than it would otherwise be in the absence of such transactions. These
transactions may be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time. In addition, physical delivery of
certificates representing Shares initially may be required to transfer
ownership.
The Fund has agreed to pay to the Underwriters an amount not to exceed $
in partial reimbursement of their expenses incurred in connection with this
offering.
The Fund anticipates that from time to time certain Underwriters may act
as broker or dealer in connection with the execution of its portfolio
transactions after they have ceased to be an Underwriter and, subject to certain
restrictions, may act as broker while an Underwriter.
The Underwriting Agreement provides that it may be terminated in the
absolute discretion of the Representatives, without liability on the part of any
Underwriter to the Fund or the Investment Adviser, if prior to the closing date
for the purchase of the Shares or the closing date for the purchase of the
Shares pursuant to the over- allotment option, as the case may be, [(1) trading
in securities generally on any national securities exchange or the Nasdaq
National Market or the Nasdaq Stock Market shall have been suspended or
materially limited or trading in Shares of the Fund shall have been suspended or
materially limited; (2) additional material governmental restrictions, not in
force on the date of the Underwriting Agreement, have been imposed upon trading
in securities generally or a general moratorium on commercial banking activities
in New York or Massachusetts shall have been declared by either federal or state
authorities; or (3) any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions occurs, the effect of which is such as to make it in the
reasonable judgment of the Representatives impractical or inadvisable to
commence or continue the offering of the Shares at the price to public set forth
on the cover page of this Prospectus or to enforce contracts for the resale of
the Shares by the Underwriters.]
Prior to the offering, there has been no public market for the Shares or
any other securities of the Fund. Consequently, the initial public offering
price has been determined by negotiations among the Fund, the Investment Adviser
and the Underwriters. There can be no assurance, however, that the price at
which the Shares will sell in the public market after the offering will not be
lower than the price at which they are sold by the Underwriters.
In order to satisfy one of the requirements for listing of the Fund's
Shares on the New York Stock Exchange, the Underwriters will undertake to sell
lots of 100 or more Shares to a minimum of 2,000 beneficial holders in the
United States.
[Employees of the Investment Adviser and its affiliates, and directors
and officers of the Fund and any other investment company managed by the
Investment Adviser, may purchase Shares in this offering at the price appearing
on the cover page of this Prospectus, provided that the Shares must be held by
the investor for at least 180 days and, provided further, that if the Shares
trade in the secondary market at a premium over the public offering price when
secondary trading commences, sales to these associated persons will be
canceled.]
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
[ ] (the "Transfer Agent") acts as the Fund's dividend paying
agent, transfer agent and the registrar for the Fund's Common Stock. The
principal address of the Transfer Agent is [address].
EXPERTS
The statement of assets and liabilities of the Fund has been included in
this Prospectus in reliance upon the report of Arthur Andersen LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The address of Arthur Andersen LLP is 225 Franklin Street, Boston,
Massachusetts 02110.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Fund by its special counsel, Rogers & Wells, New York, New York and by its
special Maryland counsel, Piper & Marbury L.L.P., Baltimore, Maryland. Certain
legal matters will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, Boston, Massachusetts.
It is likely that foreign persons, such as any sub-custodians of the
Fund, will not have assets in the United States that could be attached in
connection with any U.S. action, suit or proceeding. The Fund has been advised
that there is substantial doubt as to the enforceability in the countries in
which such persons reside of the civil remedies and criminal penalties afforded
by the U.S. federal securities laws. It is also unclear if extradition treaties
now in effect between the United States and any such countries would subject
such persons to effective enforcement of criminal penalties.
The books and records of the Fund required under U.S. law will be
maintained at the Fund's principal office in the United States and will be
subject to inspection by the Securities and Exchange Commission.
ADDITIONAL INFORMATION
The Fund has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the Common Stock offered hereby. Further
information concerning the Shares and the Fund may be found in the Registration
Statement, of which this Prospectus constitutes a part. The Registration
Statement may be inspected without charge at the Commission's office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of the fees prescribed by the Commission. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Fund, that file electronically with the Commission.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Prospect Street(R) Intrepid Fund Inc.
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Prospect
Street(R) Intrepid Fund Inc. (the "Fund") at , 1997 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Fund's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this financial
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
Arthur Andersen LLP
225 Franklin Street
Boston, Massachusetts 02110
, 1997
<PAGE>
PROSPECT STREET(R) INTREPID FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
, 1997
ASSETS
Assets:
Cash $
Deferred organization expenses (Note 1)
----------
Total Assets $
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Organization Expenses Payable $
Commitments and Contingencies (Note 2
----------
Total Liabilities $
==========
Stockholder's Equity:
Common Stock, $.01 par value, authorized 100,000,000 shares;
shares issued and outstanding
----------
Paid-in Surplus
----------
Total Stockholder's Equity
----------
Total Liabilities and Stockholder's Equity $
==========
Net Assets $
==========
Net Asset Value per share $
==========
NOTE 1. ORGANIZATION:
Prospect Street(R) Intrepid Fund Inc. (the "Fund") was organized in
Maryland on June 19, 1997 and is registered with the Securities and Exchange
Commission as a diversified closed-end management investment company under the
Investment Company Act of 1940. The Fund has had no operations other than the
issue of shares of its common stock on , 1997 to Prospect Street(R) Investment
Management Co., Inc. (the "Investment Adviser"). Organization costs estimated at
$ will be deferred and amortized on a straight-line basis over a 60-month period
from the date the Fund commences operations.
NOTE 2. AGREEMENTS:
<PAGE>
APPENDIX A
DESCRIPTION OF VARIOUS FOREIGN CURRENCY HEDGES AND OPTIONS
ON SECURITIES AND FUTURES CONTRACTS AND RELATED OPTIONS
FORWARD FOREIGN CURRENCY TRANSACTIONS
The Fund and may engage in foreign currency transactions. These
transactions may be conducted on a spot, cash basis, at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. The
Fund also may deal in forward foreign currency exchange contracts involving
currencies of the different countries in which the Fund may invest as a hedge
against possible variations in the foreign exchange rate between these
currencies and the U.S. dollar. This hedging strategy is accomplished through
contractual agreements to purchase or sell a specified currency at a specified
future date and price set at the time of the contract. The Fund's dealings in
forward foreign currency contracts will be limited to hedging either specific
transactions or portfolio positions. Transaction hedging is the purchase or sale
of forward foreign currency contracts with respect to specific receivables or
payables of the Fund, accrued in connection with the purchase and sale of its
portfolio securities denominated in foreign currencies. Portfolio hedging is the
use of forward foreign currency contracts to offset portfolio security positions
denominated or quoted in such foreign currencies. There is no guarantee that the
Fund will be engaged in hedging activities when adverse exchange rate movements
occur. The Fund will not attempt to hedge all of its foreign portfolio
positions, and the Fund will enter into such transactions only to the extent, if
any, deemed appropriate by the Investment Adviser. The Fund will not enter into
speculative forward foreign currency contracts.
If the Fund enters into a forward contract to purchase foreign currency,
the Custodian will segregate cash or liquid securities in a separate account in
an amount equal to the value of the total assets committed to the consummation
of such forward contract. Those assets will be valued at market daily and if the
value of the assets in the separate account declines, additional cash or
securities will be placed in the accounts so that the value of the account will
equal the amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also limit the opportunity
for gain if the value of the hedged currency should rise. Moreover, it may not
be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is unable to contract to sell the currency at a price
above the devaluation level anticipated.
The cost to the Fund of engaging in foreign currency transactions varies
with such factors as the currency involved, the size of the contract, the length
of the contract period and the market conditions then prevailing. Since
transactions in foreign currency and forward contracts are usually conducted on
a principal basis, no fees or commissions are involved. The Fund may close out a
forward position in a currency by selling the forward contract or by entering
into an offsetting forward contract.
OPTIONS ON SECURITIES
The Fund may write (sell) covered call options on certain portfolio
securities, but options may not be written on more than 25% of the aggregate
market value of any single portfolio security (determined each time a call is
sold as of the date of such sale). [The Fund does not currently intend to write
covered call options on portfolio securities with an aggregate market value
exceeding 5% of the Fund's total assets.] As the writer of a call option, the
Fund receives a premium less commission, and, in exchange, foregoes the
opportunity to profit from increases in the market value of the security
covering the call above the sum of the premium and the exercise price of the
option during the life of the option. The purchaser of such a call written by
the Fund has the option of purchasing the security from the Fund at the option
price during the life of the option. Portfolio securities on which options may
be written are purchased solely on the basis of investment considerations
consistent with the Fund's investment objectives. [The Fund intends to write
only call options which are covered.] The Fund may cover a call option by owning
the securities subject to the option so long as the option is outstanding or
using the other methods described below. In addition, a written call option may
be covered by purchasing an offsetting option or any other option which, by
virtue of its exercise price or otherwise, covers the Fund's net exposure on its
written option position. The Fund does not consider a security covered by a call
option to be "pledged" as that term is used in the Fund's policy which limits
the pledging or mortgaging of its assets.
The Fund may purchase call options on securities for entering into a
"closing purchase transaction," i.e., a purchase of a call option on the same
security with the same exercise price and expiration date as a "covered" call
already written by the Fund. These closing purchase transactions enable the Fund
to immediately realize gains or minimize losses on its options positions. There
is no assurance that the Fund will be able to effect such closing purchase
transactions at a favorable price. If the Fund cannot enter into such a
transaction it may be required to hold a security that it might otherwise have
sold. The Fund's portfolio turnover may increase through the exercise of options
if the market price of the underlying securities goes up and the Fund has not
entered into a closing purchase transaction. The commission on purchase or sale
of a call option is higher in relation to the premium than the commission in
relation to the price on purchase or sale of the underlying security.
OPTIONS ON SECURITIES INDICES
The Fund may purchase call and put options on securities indices for
the purpose of hedging against the risk of unfavorable price movements adversely
affecting the value of the Fund's securities or the securities which the Fund
intends to buy. Securities index options will not be used for speculative
purposes.
The Fund may only purchase and sell options that are traded only in a
regulated market which is open to the public. Currently, options on stock
indices are traded only on national securities exchanges or over-the-counter,
both in the U.S. and in foreign countries. A securities index fluctuates with
changes in the market values of the securities included in the index. For
example, some stock index options are based on a broad market index such as the
S&P 500 or the Value Line Composite Index in the U.S., the Nikkei in Japan or
the FTSE 100 in the United Kingdom. Index options may also be based on a
narrower market index such as the S&P 100 or on an industry or market segment
such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index.
The Fund may purchase put options in order to hedge against an
anticipated decline in securities prices that might adversely affect the value
of the Fund's portfolio securities. If the Fund purchases a put option on a
securities index, the amount of the payment it would receive upon exercising the
option would depend on the extent of any decline in the level of the securities
index below the exercise price. Such payments would tend to offset a decline in
the value of the Fund's portfolio securities. However, if the level of the
securities index increases and remains above the exercise price while the put
option is outstanding, the Fund will not be able profitably to exercise the
option and will lose the amount of the premium and any transaction costs. Such
loss may be partially offset by an increase in the value of the Fund's portfolio
securities.
The Fund may purchase call options on securities indices in order to remain
fully invested in a particular foreign stock market or to lock in a favorable
price on securities that it intends to buy in the future. If the Fund purchases
a call option on a securities index, the amount of the payment it receives upon
exercising the option depends on the extent of an increase in the level of other
securities indices above the exercise price. Such payments would in effect allow
the Fund to benefit from securities market appreciation even though it may not
have had sufficient cash to purchase the underlying securities. Such payments
may also offset increases in the price of securities that the Fund intends to
purchase. If, however, the level of the securities index declines and remains
below the exercise price while the call option is outstanding, the Fund will not
be able to exercise the option profitably and will lose the amount of the
premium and transaction costs. Such loss may be partially offset by a reduction
in the price the Fund pays to buy additional securities for its portfolio.
The Fund may sell the securities index option it has purchased or write a
similar offsetting securities index option in order to close out a position in a
securities index option which it has purchased. These closing sale transactions
enable the Fund to immediately realize gains or minimize losses on their
respective options positions. However, there is no assurance that a liquid
secondary market on an options exchange will exist for any particular option, or
at any particular time, and for some options no secondary market may exist. In
addition, securities index prices may be distorted by interruptions in the
trading of securities of certain companies or of issuers in certain industries,
or by restrictions that may be imposed by an exchange on opening or closing
transactions, or both, which would disrupt trading in options on such indices
and preclude the Fund from closing out its options positions. If the Fund is
unable to effect a closing sale transaction with respect to options that it has
purchased, it would have to exercise the options in order to realize any profit.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that can not
be reflected in the options markets. The purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions.
In addition to the risks of imperfect correlation between the Fund's
portfolio and the index underlying the option, the purchase of securities index
options involves the risk that the premium and transaction costs paid by the
Fund in purchasing an option will be lost. This could occur as a result of
unanticipated movements in prices of the securities comprising the securities
index on which the option is based.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in securities prices or currency exchange rates,
the Fund may purchase and sell various kinds of futures contracts, and purchase
and write (sell) call and put options on any of such futures contracts. The Fund
may also enter into closing purchase and sale transactions with respect to any
of such contracts and options. The futures contracts may be based on various
securities (such as U.S. Government securities), securities indices, foreign
currencies and other financial instruments and indices. The Fund will engage in
futures and related options transactions for bona fide hedging as described
below, and to the limited extent described below, for non-hedging purposes as
permitted by the rules and regulations of the Commodity Futures Trading
Commission (the "CFTC"). All futures contracts entered into by the Fund will be
traded on U.S. exchanges or boards of trade that are licensed and regulated by
the CFTC or on foreign exchanges.
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, the Fund
can seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, the Fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when the Fund effects anticipated purchases. Similarly,
the Fund can sell futures contracts on a specified currency to protect against a
decline in the value of such currency and a decline in the value of its
portfolio securities which are denominated in such currency. The Fund can
purchase futures contracts on a foreign currency to establish the price in U.S.
dollars of a security denominated in such currency that the Fund has acquired or
expects to acquire.
Positions taken in the futures markets are not normally held to maturity
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures contracts on securities or currency will usually
be liquidated in this manner, the Fund may instead make, or take, delivery of
the underlying securities or currency whenever it appears economically
advantageous to do so. A clearing corporation associated with the exchange on
which futures on securities or currency are traded guarantees that, if still
open, the sale or purchase will be performed on the settlement date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to
establish with more certainty the effective price, rate of return and currency
exchange rate on portfolio securities and securities that the Fund owns or
proposes to acquire. The Fund may, for example, take a "short" position in the
futures market by selling futures contracts in order to hedge against an
anticipated rise in interest rates or a decline in market prices or foreign
currency rates that would adversely affect the value of the Fund's portfolio
securities. Such futures contracts may include contracts for the future delivery
of securities held by the Fund or securities with characteristics similar to
those of the Fund's portfolio securities. Similarly, the Fund may sell futures
contracts in a foreign currency in which its portfolio securities are
denominated or in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if there is an established
historical pattern of correlation between the two currencies. If, in the opinion
of the Investment Adviser, there is a sufficient degree of correlation between
price trends for the Fund's portfolio securities and futures contracts based on
other financial instruments, securities indices or other indices, the Fund may
also enter into such futures contracts as part of its hedging strategies.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the
Investment Adviser will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having the Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting
the Fund's portfolio securities. When hedging of this character is successful,
any depreciation in the value of portfolio securities will be substantially
offset by appreciation in the value of the futures position. On the other hand,
any unanticipated appreciation in the value of the Fund's portfolio securities
would be substantially offset by a decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing
futures contracts. This may be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
The Fund anticipates that when it takes a long futures or option position
(involving the purchase of futures contracts), the Fund will have purchased, or
will be in the process of purchasing, equivalent amounts of related securities
or assets denominated in the related currency in the cash market at the time
when the futures or option position is closed out. However, in particular cases,
when it is economically advantageous for the Fund to do so, a long futures
position may be terminated or an option may expire without the corresponding
purchase of securities or other assets.
Options on Futures Contracts. The acquisition of put and call options on
futures contracts will give the Fund the right (but not the obligation) for a
specified price to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, the Fund obtains the benefit of the futures position if
prices move in a favorable direction but limits its risk of loss in the event of
an unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of the Fund's assets. By
writing a call option, the Fund becomes obligated, in exchange for the premium,
to sell a futures contract (if the option is exercised), which may have a value
higher than the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium which may partially offset an increase in
the price of securities that the Fund intends to purchase. However, the Fund
becomes obligated to purchase a futures contract (if the option is exercised)
which may have a value lower than the exercise price. Thus, the loss incurred by
the Fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. The Fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE FUND'S INVESTMENT ADVISER OR ANY UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE FUND SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
THIS PROSPECTUS WILL BE SUPPLEMENTED OR AMENDED ACCORDINGLY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
TABLE OF CONTENTS
PAGE
Prospectus Summary......................................................... 3
Fee Table.................................................................. 10
The Fund................................................................... 11
Use of Proceeds............................................................ 11
Investment Objective and Policies.......................................... 11
Investment Restrictions.................................................... 14
Risk Factors and Special
Considerations........................................................... 16
Management of the Fund..................................................... 19
Portfolio Transactions and
Brokerage................................................................ 24
Net Asset Value............................................................ 25
Dividends and Distributions;
Dividend Reinvestment
and Cash Purchase Plan................................................... 26
Taxation................................................................... 27
Common Stock............................................................... 34
Automatic Conversion to an Open-end
Investment Company....................................................... 34
Underwriting............................................................... 36
Dividend Paying Agent, Transfer
Agent and Registrar...................................................... 38
Experts.................................................................... 38
Legal Matters.............................................................. 38
Additional Information..................................................... 38
Report of Independent
Accountants.............................................................. 39
Statement of Assets and
Liabilities.............................................................. 40
Appendix A................................................................. A-1
[PROSPECT STREET LOGO]
3,000,000 Shares
Prospect Street(R)
Intrepid Fund Inc.
Common Stock
-------------
PROSPECTUS
-------------
Tucker Anthony Incorporated
-------------
, 1997
<PAGE>
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
--Report of Independent Accountants
--Statement of Assets and Liabilities dated , 1997
(2) Exhibits
(a) -- Articles of Incorporation*
(b) -- By-Laws*
(c) -- Not applicable
(d) -- Specimen certificate for Common Stock, par value $.01
per share**
(e) -- Dividend Reinvestment and Cash Purchase Plan**
(f) -- Not applicable
(g) -- Form of Investment Advisory Agreement with the
Investment Adviser**
(h) (1) -- Form of Underwriting Agreement**
(2) -- Form of Master Agreement Among Underwriters**
(3) -- Form of Master Dealer Agreement**
(i) -- Not applicable
(j) -- Form of Custody Agreement**
(k) -- Form of Agreement for Stock Transfer Services**
(l) (1) -- Opinion and Consent of Rogers & Wells**
(2) -- Opinion and Consent of Piper & Marbury L.L.P.**
(m) -- Not applicable
(n) -- Consent of Independent Accountants**
(o) -- Not applicable
(p) -- Form of Investment Letter**
(q) -- Not applicable
(r) -- Not applicable
* Filed herewith.
** To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit 2(h) of Item 24 to this Registration Statement.
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. These
expenses will be paid by the Fund and charged to capital upon the closing of the
initial public offering.
Securities and Exchange Commission Registration fees $18,182
New York Stock Exchange listing fees *
Printing (other than stock certificates) *
Engraving and printing stock certificates *
Fees and expenses of qualification under state securities
laws (excluding fees of counsel) *
Auditing and accounting fees *
Legal fees and expenses *
NASD fee *
Miscellaneous *
-------
Total $ *
=======
* To be completed by amendment.
<PAGE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant and the following corporations (as indicated) are under common
control of Richard E. Omohundro, Jr. ("Omohundro, Jr."), Joseph G. Cote
("Cote"), John A. Frabotta ("Frabotta") and/or Warren J. Isabelle ("Isabelle")
by virtue of their stock ownership and positions with such corporations which
are indicated below. None of the corporations are subsidiaries of the
Registrant.
1. Prospect Street Investment Management Co., Inc.
(a Massachusetts corporation) ("PSIM")
Business: Investment adviser registered under the Investment Advisers Act
of 1940. PSIM serves as investment adviser of the Registrant, Prospect
Street High Income Portfolio Inc. and Prospect International High Income
Portfolio N.V.
Control Persons Positions
--------------- ---------
Omohundro, Jr. 30% shareholder, Co-President, Chairman of the Board,
Chief Executive Officer, Treasurer and Director
Cote 30% shareholder, Co-President and Director
Frabotta 20% shareholder, Vice President, Secretary and
Director
Isabelle 20% shareholder, Vice President and Director
2. Prospect Street Mezzanine Management Co., Inc.
(a Massachusetts corporation)
Business: Investment Adviser to and general partner of Bridge Investors,
L.P., a private investment partnership.
Control Persons Positions
--------------- ---------
Omohundro, Jr. 40% shareholder, Co-President, Chief Executive
Officer, Treasurer and Director
Cote 40% shareholder, Co-President and Director
Frabotta 20% shareholder, Vice President, Secretary and
Director
3. Prospect Street Senior Loan Management Co., Inc.
(a Massachusetts corporation)
Business: Investment Adviser to Prospect Street Senior Portfolio, L.P.,
("Senior Portfolio")
Control Persons Positions
--------------- ---------
Omohundro, Jr. 37.5% shareholder, Co-President, Chief Executive
Officer, Treasurer and Director
Cote 37.5% shareholder, Co-President and Director
Frabotta 20% shareholder
4. Prospect Street Senior Loan Corp.
(a Massachusetts corporation)
Business: General Partner to Senior Portfolio
Control Persons Positions
--------------- ---------
Omohundro, Jr. 37.5% shareholder, Co-President, Chief Executive
Officer, Treasurer and Director
Cote 37.5% shareholder, Co-President and Director
Frabotta 20% shareholder
5. COMO Securities, Inc.
(a Massachusetts corporation) ("COMO")
Business: COMO is a registered broker/dealer.
Control Persons Positions
--------------- ---------
Omohundro, Jr. 30% shareholder, Co-President, Chief Executive
Officer, Treasurer and Director
Cote 30% shareholder, Co-President and Director
Frabotta 10% shareholder, Vice President, Secretary and
Director
6. Prospect Street Connecticut Capital Inc.
(a Massachusetts corporation)
Business: Investment Adviser to and general partner of Prospect St.
Financial Developments L.P.
Control Persons Positions
--------------- ---------
Omohundro, Jr. 27.55% shareholder, Co-President and Director
Cote 27.55% shareholder, Co-President and Director
Frabotta 13.27% shareholder, Vice President, Secretary and
Director
7. Prospect Street Discovery Fund Inc.
(a Massachusetts corporation)
Business: Investment Adviser to and general partner of Prospect St. NYC
Discovery Fund L.P.
Control Persons Positions
--------------- ---------
Omohundro, Jr. 26.56% shareholder, Co-President and Director
Cote 26.56% shareholder, Co-President and Director
Frabotta 10.42% shareholder, Vice President and Director
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
As of the effective date of the Registration Statement:
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
Common Stock, $.01 par value One
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article SEVENTH of the Fund's Articles of Incorporation, Article VII of the
Fund's By-laws, the Investment Advisory Agreement, the Underwriting Agreement
and the Custody Agreement provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund 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 Fund of
expenses incurred or paid by a director, officer or controlling person of the
Fund 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 Fund will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The description of the business of Prospect Street Investment Management
Co., Inc. is set forth under the caption "The Investment Adviser" in the
Prospectus forming part of this Registration Statement.
The information as to the Directors and officers of Prospect Street
Investment Management Co., Inc. set forth in Prospect Street Investment
Management Co., Inc.'s Form ADV filed with the Securities and Exchange
Commission on July 7, 1988 (File No. 801-32529) and as amended through the date
hereof is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Registrant: Prospect Street Intrepid Fund Inc.
60 State Street
Boston, Massachusetts 02109
Investment Adviser: Prospect Street Investment
Management Co., Inc.
60 State Street
Boston, Massachusetts 02109
Transfer Agent for Common Stock: [transfer agent]
[address]
Custodian: [custodian]
[address]
ITEM 32. MANAGEMENT SERVICES
Not applicable
ITEM 33. UNDERTAKINGS
(a) The Fund undertakes to suspend offering its shares until it amends
its prospectus contained herein if (1) subsequent to the effective
date of its Registration Statement, the net asset value declines
more than 10 percent from its net asset value as of the effective
date of this Registration Statement; or (2) the net asset value
increases to an amount greater than its net proceeds as stated in
the prospectus.
(b) The Fund hereby undertakes that:
(1) For purposes of determining any liability under the Act, 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 Fund under Rule
497(h) under the Act shall be deemed to be part of this
Registration Statement as of the time it was declared
effective; and
(2) For the purpose of determining any liability under the Act,
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on the 19th day of June, 1997.
PROSPECT STREET INTREPID FUND INC.
By: /s/ Richard E. Omohundro, Jr.
------------------------------
Richard E. Omohundro, Jr.
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard E. Omohundro, Jr. and Warren J. Isabelle,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all Amendments (including
pre-effective and post-effective amendments) to this Registration Statement, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Richard E. Omohundro, Jr. Director and President June 19, 1997
- --------------------------------
Richard E. Omohundro, Jr. (Principal Executive
Officer)
/s/ Joseph G. Cote Director June 19, 1997
- --------------------------------
Joseph G. Cote
/s/ Warren J. Isabelle Director, Vice President June 19, 1997
- -------------------------------- and Treasurer (Principal
Warren J. Isabelle Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
(a) Articles of Incorporation
(b) By-Laws
<PAGE>
EXHIBIT A
ARTICLES OF INCORPORATION
OF
PROSPECT STREET INTREPID FUND INC.
THE UNDERSIGNED, Paul B. Goucher, whose post office address is c/o Rogers
& Wells, 200 Park Avenue, New York, New York 10166, being at least eighteen
years of age, does hereby act as an incorporator, under and by virtue of the
general laws of the State of Maryland authorizing the formation of corporations
and with the intention of forming a corporation.
FIRST: The name of the corporation (hereinafter called the "Corporation")
is Prospect Street Intrepid Fund Inc.
SECOND: The Corporation was formed for the following purposes:
(1) To act as a closed-end investment company of the management type
registered as such with the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940, as amended.
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold all or part of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts
and on such terms and conditions and for such purposes and for such amount or
kind of consideration as may now or hereafter be permitted by law.
(4) To enter into management, supervisory, advisory, administrative,
underwriting and other contracts and otherwise do business with other
corporations, and subsidiaries or affiliates thereof, or any other firm or
organization, notwithstanding that the Board of Directors of the Corporation may
be composed in part of officers, directors or employees of such corporation,
firm or organization and, in the absence of fraud, the Corporation and such
corporation, firm or organization may deal freely with each other and neither
such management, supervisory, advisory, administrative or underwriting contract
nor any other contract or transaction between the Corporation and such
corporation, firm or organization shall be invalidated or in any way affected
thereby.
(5) To do any and all additional acts and exercise any and all
additional powers or rights as may be necessary, incidental, appropriate or
desirable for the accomplishment of all or any of the foregoing purposes.
The Corporation shall be authorized to exercise and generally to
enjoy all of the powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or hereafter in
force.
THIRD: The post office address of the place at which the principal office
of the Corporation in the State of Maryland is located is c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland 21202.
The name of the Corporation's resident agent is The Corporation
Trust Incorporated, and its post office address is 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a corporation of the State of Maryland.
FOURTH: Section 1. (1) The total number of shares of capital stock that the
Corporation has authority to issue is 100,000,000 shares of capital stock of the
par value of $0.01 each, having an aggregate par value of $1,000,000, all of
which 100,000,000 shares are initially classified as "Common Stock."
(2) The following is a description of the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the Common Stock of the
Corporation:
(a) Each share of Common Stock shall have one vote, and, except
as otherwise provided in respect of any class of stock hereafter
classified or reclassified, the exclusive voting power for all
purposes shall be vested in the holders of the Common Stock.
(b) Subject to the provisions of law and any preferences of any
class of stock hereafter classified or reclassified, dividends,
including dividends payable in shares of another class of the
Corporation's stock, may be paid on the Common Stock of the
Corporation at such time and in such amounts as the Board of
Directors may deem advisable.
(c) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of
the Common Stock shall be entitled, after payment or provision for
payment of the debts and other liabilities of the Corporation and
the amount to which the holders of any class of stock hereafter
classified or reclassified having a preference on distributions in
the liquidation, dissolution or winding up of the Corporation shall
be entitled, together with the holders of any other class of stock
hereafter classified or reclassified not having a preference on
distributions in the liquidation, dissolution or winding up of the
Corporation, to share ratably in the remaining net assets of the
Corporation.
Section 2. (1) Without the assent or vote of the stockholders, the
Board of Directors shall have the authority by resolution to classify and
reclassify any authorized but unissued shares of capital stock from time to time
by setting or changing in any one or more respects the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of the capital stock.
(2) The foregoing powers of the Board of Directors to classify and
reclassify any of the shares of capital stock shall include, without limitation,
subject to the provisions of the Charter, authority to classify or reclassify
any unissued shares of such stock into a class or classes of preferred stock,
preference stock, special stock or other stock, and to divide and classify
shares of any class into one or more series of such class, by determining,
fixing, or altering one or more of the following:
(a) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided that,
unless otherwise prohibited by the terms of such or any other class
or series, the number of shares of any class or series may be
decreased by the Board of Directors in connection with any
classification or reclassification of unissued shares and the number
of shares of such class or series may be increased by the Board of
Directors in connection with any such classification or
reclassification, and any shares of any class or series which have
been redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall become
part of the authorized capital stock and be subject to
classification and reclassification as provided in this
subparagraph;
(b) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on
shares of such class or series, whether any such dividends shall
rank senior or junior to or on a parity with the dividends payable
on any other class or series of stock, and the status of any such
dividends as cumulative, cumulative to a limited extent or
non-cumulative and as participating or non-participating;
(c) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so,
the terms of such voting rights;
(d) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and
conditions thereof, including provisions for adjustment of the
conversion or exchange rate in such events or at such times as the
Board of Directors shall determine;
(e) Whether or not shares of such class or series shall be subject
to redemption and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they
shall be redeemable and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates; and whether or not there shall be any
sinking fund or purchase account in respect thereof, and if so, the
terms thereof;
(f) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or
upon any distribution of the assets of, the Corporation, which
rights may vary depending upon whether such liquidation, dissolution
or winding up is voluntary or involuntary and, if voluntary, may
vary at different dates, and whether such rights shall rank senior
or junior to or on a parity with such rights of any other class or
series of stock;
(g) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of
dividends or making of distributions on, or the acquisition of, or
the use of moneys for purchase or redemption of, any stock of the
Corporation, or upon any other action of the Corporation, including
action under this subparagraph, and, if so, the terms and conditions
thereof; and
(h) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of
such class or series, not inconsistent with law and the Charter of
the Corporation.
(3) For the purposes hereof and of any articles supplementary to the
Charter providing for the classification or reclassification of any shares of
capital stock or of any other charter document of the Corporation (unless
otherwise provided in any such articles or document), any class or series of
stock of the Corporation shall be deemed to rank:
(a) prior to another class or series either as to dividends or upon
liquidation, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable on
liquidation, dissolution or winding up, as the case may be, in
preference or priority to holders of such other class or series;
(b) on a parity with another class or series either as to dividends
or upon liquidation, whether or not the dividend rates, dividend
payment dates or redemption or liquidation price per share thereof
be different from those of such others, if the holders of such class
or series of stock shall be entitled to receipt of dividends or
amounts distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective dividend rates
or redemption or liquidation prices, without preference or priority
over the holders of such other class or series; and
(c) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or series
shall be subject or subordinate to the rights of the holders of such
other class or series in respect of the receipt of dividends or the
amounts distributable upon liquidation, dissolution or winding up,
as the case may be.
(4) The provisions of Section 2 of this Article Fourth may not be
amended, altered or repealed except by vote of three-fourths of the shares of
capital stock of the Corporation outstanding and entitled to vote thereupon.
Section 3. The presence in person or by proxy of the holders of
record of a majority of the aggregate number of shares of capital stock issued
and outstanding and entitled to vote thereat shall constitute a quorum for the
transaction of any business at all meetings of the stockholders except as
otherwise provided by law or in these Articles of Incorporation.
Section 4. Notwithstanding any provision of the General Laws of the
State of Maryland requiring action to be taken or authorized by the affirmative
vote of the holders of a designated proportion greater than a majority of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon, such action shall, except as otherwise provided in these Articles of
Incorporation, be valid and effective if taken or authorized by the affirmative
vote of the holders of a majority of the total number of shares of capital stock
of the Corporation outstanding and entitled to vote thereupon voting together as
a single class.
Section 5. No holder of shares of capital stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for
any part of any new or additional issue of stock of any class, or of rights or
options to purchase any stock, or of securities convertible into, or carrying
rights or options to purchase, stock of any class, whether now or hereafter
authorized or whether issued for money, for a consideration other than money or
by way of a dividend or otherwise, and all such rights are hereby waived by each
holder of capital stock and of any other class of stock or securities which may
hereafter be created.
Section 6. All persons who shall acquire capital stock in the
Corporation shall acquire the same subject to the provisions of these Articles
of Incorporation.
Section 7. (1) Except as otherwise provided in subsection 2 of this
Section 7 of this Article Fourth, the affirmative vote of at least three-fourths
of the shares of capital stock of the Corporation outstanding and entitled to
vote thereupon voting together as a single class shall be necessary to authorize
any of the following actions:
(a) the conversion of the Corporation to an "open-end company" or
any amendment to these Articles of Incorporation to make the
Corporation's common stock a "redeemable security" (as such terms
are defined in the Investment Company Act of 1940);
(b) the merger or consolidation of the Corporation with or into any
other company (including, without limitation, a partnership,
corporation, joint venture, business trust, common law trust or any
other business organization) or share exchange in which the
Corporation is not the successor corporation;
(c) the dissolution or liquidation of the Corporation
notwithstanding any other provision in these Articles of
Incorporation;
(d) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) of all
or substantially all of the assets of the Corporation other than in
the ordinary course of the Corporation's business;
(e) a change in the nature of the business of the Corporation so
that it would cease to be an investment company registered under the
Investment Company Act of 1940; or
(f) the issuance or transfer by the Corporation (in one transaction
or a series of transactions) of any securities of the Corporation to
any other person in exchange for cash, securities or other property
having an aggregate fair market value of $1,000,000 or more
excluding (i) sales of any securities of the Corporation in
connection with a public offering thereof, (ii) issuances of any
securities of the Corporation pursuant to a dividend reinvestment
plan adopted by the Corporation or pursuant to a stock dividend and
(iii) issuances of any securities of the Corporation upon the
exercise of any stock subscription rights distributed by the
Corporation.
(2) If the Board of Directors approves, by a vote of at least
seventy percent of the entire Board of Directors, any action listed in
subsection (1) of this Section 7 of this Article Fourth other than the action
described in clause (1) (f), the affirmative vote of only a majority of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class shall be necessary to authorize such
action. If the Board of Directors approves, by a vote of at least seventy
percent of the entire Board of Directors, an action described in clause (1) (f)
of this Section 7 of this Article Fourth, no shareholder vote shall be required
to authorize such action.
(3) The provisions of this Section 7 of this Article Fourth may not
be amended, altered or repealed except by the approval of at least three-fourths
of the shares of capital stock of the Corporation outstanding and entitled to
vote thereupon voting together as a single class.
FIFTH: The initial number of directors of the Corporation is three (3), and the
name of the directors who shall act as such until the first annual meeting or
until their successor or successors are duly elected and qualify are Richard E.
Omohundro, Jr., Joseph G. Cote and Warren J. Isabelle. The By-Laws of the
Corporation may fix the number of directors at a number other than three and may
authorize the Board of Directors, by the vote of a majority of the entire Board
of Directors, to increase or decrease the number of directors within a limit
specified in the By-Laws, provided that in no case shall the number of directors
be less than the number prescribed by law, and to fill the vacancies created by
any such increase in the number of directors. Unless otherwise provided by the
By-Laws of the Corporation, the directors of the Corporation need not be
stockholders.
The By-Laws of the Corporation may divide the Directors of the
Corporation into classes and proscribe the tenure of office of the several
classes; but no class shall be elected for a period shorter than that from the
time of the election of such class until the next annual meeting and thereafter
for a period shorter than the interval between annual meetings or for a longer
period than five years, and the term of office of at least one class shall
expire each year.
A director may be removed only with cause, and any such removal may
be made only by the stockholders of the Corporation.
The provisions of this Article Fifth may not be amended, altered or
repealed except by a vote of three-fourths of the shares of common stock of the
Corporation outstanding and entitled to vote thereupon.
SIXTH: Section 1. All corporate powers and authority of the Corporation
(except as at the time otherwise provided by statute, by these Articles of
Incorporation or by the By-Laws) shall be vested in and exercised by the Board
of Directors.
Section 2. The Board of Directors shall have the sole power to
adopt, alter or repeal the By-Laws of the Corporation except to the extent that
the By-Laws otherwise provide. The provisions of this Section 2 of this Article
Sixth may not be amended, altered or repealed except by vote of three-fourths of
the shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class.
Section 3. The Board of Directors shall have the power from time to
time 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) or any of them shall be open to the inspection of
stockholders; and 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.
Section 4. The Board of Directors shall have the power to determine,
as provided herein, or if a provision is not made herein, in accordance with
generally accepted accounting principles, what constitutes net income, total
assets and the net asset value of the shares of capital stock of the
Corporation.
Section 5. The Board of Directors shall have the power to distribute
dividends from the funds legally available therefor in such amounts, if any, and
in such manner to the stockholders of record as of a date, as the Board of
Directors may determine.
Section 6. Without the assent or vote of the stockholders, the Board
of Directors shall have the power to authorize the issuance from time to time of
shares of the capital stock of any class of the Corporation, whether now or
hereafter authorized, and securities convertible into shares of capital stock of
the Corporation of any class or classes, whether now or hereafter authorized,
for such consideration as the Board of Directors may deem advisable.
Section 7. Without the assent or vote of the stockholders, the Board
of Directors shall have the power to authorize and issue obligations of the
Corporation, secured or unsecured, as the Board of Directors may determine, and
to authorize and cause to be executed mortgages and liens upon the real or
personal property of the Corporation.
Section 8. The provisions of Sections 6 and 7 of this Article Sixth
may not be amended, altered or repealed except by vote of three-fourths of the
shares of capital stock of the Corporation outstanding and entitled to vote
thereupon voting together as a single class.
SEVENTH: Section 1. To the fullest extent permitted by Maryland statutory or
decisional law, subject to the requirements of the Investment Company Act of
1940, as amended, no director or officer of the Corporation shall be personally
liable to the Corporation or its security holders for money damages. This
limitation on liability applies to events occurring at the time a person serves
as a director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which such liability is
asserted. No amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided to directors and
officers under this provision in connection with any act or omission that
occurred prior to such amendment or repeal.
Section 2. The Corporation shall indemnify, to the fullest extent
permitted by law (including the Investment Company Act of 1940) as currently in
effect or as the same may hereafter be amended, any person made or threatened to
be made a party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of the
Corporation or serves or served at the request of the Corporation any other
enterprises as a director or officer. To the fullest extent permitted by law
(including the Investment Company Act of 1940) as currently in effect or as the
same may hereafter be amended, expenses incurred by any such person in defending
any such action, suit or proceeding shall be paid or reimbursed by the
Corporation promptly upon receipt by it of an undertaking of such person to
repay such expenses if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation. The rights provided to any person
by this Section 2 of this Article Seventh shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director or officer as provided above. No
amendment of this Section 2 of this Article Seventh shall impair the rights of
any person arising at any time with respect to events occurring prior to such
amendment. For purposes of this Section 2 of this Article Seventh, the term
"Corporation" shall include any predecessor of the Corporation and any
constituent corporation (including any constituent of a constituent) absorbed by
the Corporation in a consolidation or merger; the term "other enterprise" shall
include any corporation, partnership, joint venture, trust or employee benefit
plan; service "at the request of the Corporation" shall include service as a
director or officer of the Corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to any employee benefit plan which
such person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation. The provisions of this Section 2 of this Article
Seventh shall be in addition to the other provisions of this Article Seventh.
Section 3. Nothing in this Article Seventh protects or purports to
protect any director or officer against any liability to the Corporation or its
security holders to which he or she 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 or her office.
Section 4. Each section or portion thereof of this Article Seventh
shall be deemed severable from the remainder, and the invalidity of any such
section or portion shall not affect the validity of the remainder of this
Article.
EIGHTH: The duration of the Corporation shall be perpetual.
NINTH: From time to time, any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment that
changes the terms of any of the outstanding stock by classification,
reclassification or otherwise), and other provisions that may, under the
statutes of the State of Maryland at the time in force, be lawfully contained in
articles of incorporation may be added or inserted, upon the vote of the holders
of a majority of the shares of common stock of the Corporation outstanding and
entitled to vote thereupon. If these Articles of Incorporation specifically so
provide, however, any such amendment, alteration, repeal, addition or insertion
may be affected only upon the vote of three-fourths of the shares of common
stock of the Corporation outstanding and entitled to vote thereupon. The
provisions of the prior sentence may not be amended, altered or repealed except
by vote of three-fourths of the shares of common stock of the corporation
outstanding and entitled to vote thereupon. All rights at any time conferred
upon the stockholders of the Corporation by these Articles of Incorporation are
subject to the provisions of this Article Ninth.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation
acknowledging the same to be my act, on June 16, 1997.
/s/ Paul B. Goucher
------------------------
Incorporator
Witness:
/s/ Quang Ha
- ---------------------------
<PAGE>
EXHIBIT B
BY-LAWS
OF
PROSPECT STREET INTREPID FUND INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1.1. Annual Meetings. The annual meeting of the stockholders of
PROSPECT STREET HIGH INTREPID FUND INC. (the "Corporation") shall be held on a
date fixed from time to time by the Board of Directors within the thirty-one
(31) day period ending four (4) months after the end of the Corporation's fiscal
year in each year after 1997. An annual meeting may be held at the time and at
any place within or outside of the State of Maryland as may be determined by the
Board of Directors as shall be designated in the notice of the meeting. Any
business of the Corporation may be transacted at an annual meeting without being
specifically designated in the notice unless otherwise provided by statute, the
Corporation's Articles of Incorporation (for purposes hereof, references to the
"Articles of Incorporation" shall be deemed to mean and include all amendments
and/or restatements thereof) or these By-Laws. Notwithstanding the foregoing, no
annual meeting of the stockholders shall be held in any year in which:
(a) none of the following is required to be acted upon by the stockholders
under the Investment Company Act of 1940, as amended (the "1940 Act"):
1. election of directors;
2. approval of the investment advisory agreement;
3. ratification of the selection of independent
public accountants; and
4. approval of a distribution agreement; and
(b) an annual meeting is not otherwise required under the rules and
regulations of the principal exchange on which the Corporation's securities are
then traded.
SECTION 1.2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Articles of Incorporation, may be held at any place within or
outside the State of Maryland, and may be called at any time by the Board of
Directors or by the President, and shall be called by the President or Secretary
at the request in writing of a majority of the Board of Directors, at the
request in writing of stockholders entitled to cast at least twenty-five percent
(25%) of the votes entitled to be cast at the meeting upon payment by such
stockholders to the Corporation of the reasonably estimated cost of preparing
and mailing a notice of the meeting (which estimated cost shall be provided to
such stockholders by the Secretary of the Corporation), or as otherwise provided
in the Articles of Incorporation. Notwithstanding the foregoing, unless
requested by stockholders entitled to cast a majority of the votes entitled to
be cast at the meeting, a special meeting of the stockholders need not be called
at the request of stockholders to consider any matter that is substantially the
same as a matter voted on at any special meeting of the stockholders held during
the preceding twelve (12) months. A written request of a stockholder for the
holding of a special meeting shall state the purpose or purposes of the proposed
meeting.
SECTION 1.3. Notice of Meetings. Written or printed notice of the purpose
or purposes and of the time and place of every meeting of the stockholders shall
be given by the Secretary of the Corporation to each stockholder of record
entitled to vote at the meeting, by placing the notice in the mail at least ten
(10) days but not more than ninety (90) days prior to the date designated for
the meeting (except as otherwise specified in the Articles of Incorporation),
addressed to each such stockholder at his address appearing on the books of the
Corporation or supplied by the stockholder to the Corporation for the purpose of
notice. The notice of any meeting of stockholders may be accompanied by a form
of proxy approved by the Board of Directors in favor of the actions or persons
as the Board of Directors may select. Notice of any meeting of stockholders
shall be deemed waived by any stockholder who attends the meeting in person or
by proxy, or who before or after the meeting submits a signed waiver of notice
that is filed with the records of the meeting.
SECTION 1.4. Quorum. Except as otherwise provided by statute or by the
Corporation's Article of Incorporation, the presence in person or by proxy of
stockholders of the Corporation entitled to cast at least a majority of the
votes entitled to be cast shall constitute a quorum at each meeting of the
stockholders and all questions shall be decided by majority vote of the shares
so represented in person or by proxy at the meeting and entitled to vote. In the
absence of a quorum, the stockholders present in person or by proxy at the
meeting, by majority vote and without notice other than by announcement at the
meeting, may adjourn the meeting from time to time as provided in Section 1.5
until a quorum shall attend, provided however that no adjournment shall be
permitted if such adjournment is not permitted under the Corporation's Articles
of Incorporation. The stockholders present at any duly organized meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum. The absence from any meeting in
person or by proxy of holders of the number of shares of stock of the
Corporation in excess of a majority that may be required by the laws of the
State of Maryland, the 1940 Act, or other applicable statute, the Corporation's
Articles of Incorporation or these By-Laws, for action upon any given matter
shall not prevent action at the meeting on any other matter or matters that may
properly come before the meeting, so long as there are present, in person or by
proxy, holders of the number of shares of stock of the Corporation required for
action upon such other matter or matters.
SECTION 1.5. Adjournment. Any meeting of the stockholders may be adjourned
from time to time, without notice other than by announcement at the meeting at
which the adjournment is taken. At any adjourned meeting at which a quorum shall
be present any action may be taken that could have been taken at the meeting
originally called. A meeting of the stockholders may not be adjourned to a date
more than one-hundred twenty (120) days after the original record date and may
not be adjourned beyond any period specified in the Corporation's Articles of
Incorporation.
SECTION 1.6. Organization. At every meeting of the stockholders, the
Chairman of the Board, if any, or in his absence or inability to act or if there
is no Chairman of the Board, the President, or in his absence or inability to
act, a Vice President designated by the President, or in the absence or
inability to act of the Chairman of the Board, the President and all Vice
Presidents, a chairman chosen by the stockholders, shall act as chairman of the
meeting. The Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes of the meeting.
SECTION 1.7. Order of Business. The order of business at
all meetings of the stockholders shall be as determined by the
chairman of the meeting.
SECTION 1.8. Voting. Except as otherwise provided by statute or the
Corporation's Articles of Incorporation, each holder of record of shares of
stock of the Corporation having voting power shall be entitled at each meeting
of the stockholders to one (1) vote for every share of stock (and a
proportionate fractional interest for each such fractional share) standing in
his name on the records of the Corporation as of the record date determined
pursuant to Section 1.9.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney provided in the proxy. Every proxy shall be
revocable at the pleasure of the stockholder executing it, except in those cases
in which the proxy states that it is irrevocable and in which an irrevocable
proxy is permitted by law.
SECTION 1.9. Fixing of Record Date for Determining Stockholders Entitled
to Vote at Meeting. The Board of Directors may set a record date for the purpose
of determining stockholders entitled to vote at any meeting of the stockholders.
The record date for a particular meeting shall be not more than ninety (90) nor
fewer than ten (10) days before the date of the meeting. All persons who were
holders of record of shares as of the record date of a meeting, and no others,
shall be entitled to vote at such meeting and any adjournment thereof.
SECTION 1.10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one (1) or more inspectors to act at the
meeting or at any adjournment of the meeting. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the chairman of the
meeting may appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall, if required by the chairman of the meeting, take
and sign an oath to execute faithfully the duties of inspector at the meeting
with strict impartiality and according to the best of his ability. The
inspectors shall determine the number of shares outstanding and the voting power
of each share, the number of shares represented at the meeting, the existence of
a quorum and the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do those acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote at the meeting, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as inspector of an
election of directors. Inspectors need not be stockholders of the Corporation.
SECTION 1.11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute (including any provisions of the Investment
Company Act of 1940, as amended, requiring a shareholder vote) or the
Corporation's Articles of Incorporation, any action required to be taken at any
annual or special meeting of stockholders, or any action that may be taken at
any annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
with the records of stockholders' meetings: (a) a unanimous written consent that
sets forth the action and is signed by each stockholder entitled to vote on the
matter and (b) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote at the
meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1. General Powers. Except as otherwise provided in the
Corporation's Articles of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors except as conferred on or reserved to the stockholders by law, by the
Corporation's Articles of Incorporation or by these By-Laws.
SECTION 2.2. Number, Election and Term of Directors. The number of
directors and the positions on the Board to be filled by vote of the holders of
particular classes of stock to, if applicable, the exclusion of other classes of
stock, shall be fixed from time to time by resolution of the Board of Directors
adopted by a majority of the directors then in office at all times. The
directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 2.5, and each director elected shall hold office until his
successor shall have been elected and shall have qualified, or until his death,
or until he shall have resigned or have been removed as provided in these
By-Laws, or as otherwise provided by statute or the Corporations's Articles of
Incorporation. Any vacancy created by an increase in directors may be filled in
accordance with Section 2.5, the terms of the Corporation's Articles and
Incorporation and the terms of any resolution identifying positions on the Board
to be filled by the holders of particular classes of stock, if applicable.
Except as provided in the Articles of Incorporation no reduction in the number
of directors shall have the effect of removing any director from office prior to
the expiration of his term unless the director is specifically removed pursuant
to Section 2.4 at the time of the decrease. A director need not be a stockholder
of the Corporation, a citizen of the United States or a resident of the State of
Maryland.
SECTION 2.3. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors or
the Chairman of the Board or to the President or the Secretary of the
Corporation. Any resignation shall take effect at the time specified in it or,
should the time when it is to become effective not be specified in it,
immediately upon its receipt. Acceptance of a resignation shall not be necessary
to make it effective unless the resignation states otherwise.
SECTION 2.4. Removal of Directors. Any director of the Corporation may be
removed by the stockholders, having the power to elect such director with or
without cause by a vote of a majority of the votes entitled to be cast for the
election of such director at a meeting of stockholders called for that purpose,
subject to the terms of the Articles of Incorporation.
SECTION 2.5. Vacancies. Subject to the provisions of the 1940 Act and the
Corporation's Articles of Incorporation, any vacancies in the Board of
Directors, whether arising from the death, resignation, removal or any other
cause except an increase in the number of directors, shall be filled by the
Board of Directors pursuant to the vote of the majority of all directors then in
office and by a separate vote of a majority of the directors who were elected by
the class of stockholders, if applicable, that elected the director whose death,
resignation or removal caused the vacancy, provided that no vacancy or vacancies
shall be filled by action of the remaining directors if not permitted by statute
or the Corporation's Articles of Incorporation. Except as provided in the
Articles of Incorporation and subject to the immediately preceding sentence, a
majority of the entire Board may fill a vacancy that results from an increase in
the number of directors. In the event that at any time a vacancy exists in any
office of a director that may not be filled by the remaining directors, a
special meeting of the stockholders may be convened by the Board of Directors,
in its discretion, and shall be convened if required by statute, for the purpose
of filling the vacancy or vacancies. Any director appointed by the Board of
Directors to fill a vacancy shall hold office only until the next annual meeting
of stockholders of the Corporation and until a successor has been elected and
qualifies or until his earlier resignation or removal. Any director elected by
the stockholders to fill a vacancy shall hold office for the balance of the term
of the director whose death, resignation or removal occasioned the vacancy and
until a successor has been elected and qualified or until his earlier
resignation or removal.
SECTION 2.6. Place of Meetings. Meetings of the Board may be held at any
place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.
SECTION 2.7. Regular Meetings. Regular meetings of the
Board of Directors may be held without notice at the time and place
determined by the Board of Directors.
SECTION 2.8. Special Meetings. Special meetings of the
Board of Directors may be called by two (2) or more directors of the
Corporation or by the Chairman of the Board or the President.
SECTION 2.9. Notice of Special Meetings. Notice of each special meeting of
the Board of Directors shall be given by the secretary or any Assistant
Secretary as hereinafter provided. Each notice shall state the time and place of
the meeting and shall be delivered to each director, either personally or by
telephone or other standard form of telecommunication, at least twenty-four (24)
hours before the time at which the meeting is to be held, or by first-class
mail, postage prepaid, addressed to the director at his residence or usual place
of business, and mailed at least three (3) days before the day on which the
meeting is to be held.
SECTION 2.10. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice that is filed with the records of the meeting or
who shall attend the meeting.
SECTION 2.11. Quorum and Voting. Except as otherwise expressly required by
statute, the Corporation's Articles of Incorporation, these By-Laws, the 1940
Act, or any other applicable statute, one-third (1/3), but not fewer than two
(2), of the members of the entire Board of Directors shall be present in person
at any meeting of the Board so as to constitute a quorum for the transaction of
business at the meeting, and the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present may adjourn the meeting to another time and place until a quorum shall
be present. Notice of the time and place of any adjourned meeting shall be given
to the directors who were not present at the time of the adjournment and, unless
the time and place were announced at the meeting at which the adjournment was
taken, to the other directors. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 2.12. Organization. The Board of Directors may designate a
Chairman of the Board, who shall preside at each meeting of the Board. In the
absence or inability of the Chairman of the Board to act, the President, or, in
his absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside at the
meeting. The Secretary (or, in his absence or inability to act, any person
appointed by the chairman) shall act as secretary of the meeting and keep the
minutes of the meeting.
SECTION 2.13. Committees. The Board of Directors may designate one (1) or
more committees of the Board of Directors, each consisting of two (2) or more
directors. To the extent provided in the resolution, and permitted by law, the
committee or committees shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation. Any
committee or committees shall have the name or names determined from time to
time by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and provide those minutes to the Board of
Directors when required. The members of a committee present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of an absent member.
SECTION 2.14. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the 1940 Act, any action required or permitted to be taken
at any meeting of the board of Directors or of any committee of the Board may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board or committee.
SECTION 2.15. Telephone Conference. Members of the Board of Directors or
any committee of the Board may participate in any Board or committee meeting by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time. Participation by such means shall constitute presence in person at the
meeting, subject to the provisions of the 1940 Act.
SECTION 2.16. Compensation. Each director shall be entitled to receive
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for, each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by the
Corporation for all reasonable expenses incurred in traveling to and from the
place of a Board or committee meeting.
ARTICLE III
OFFICERS
SECTION 3.1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one (1)
or more Vice Presidents and may also appoint any other officers it deems
necessary or proper. Any two (2) or more offices may be held by the same person.
Each officer shall hold office until his successor shall have been duly elected
and shall have qualified, or until his death, or until he shall have resigned or
have been removed, as provided in these By-Laws. Such other officers shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
SECTION 3.2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors,
the Chairman of the Board, the President or the Secretary. Any resignation shall
take effect at the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The acceptance
of a resignation shall not be necessary to make it effective unless otherwise
stated in the resignation.
SECTION 3.3. Removal of Officer. Any officer of the Corporation may be
removed by the Board of Directors with or without cause at any time. Removal
shall be without prejudice to the person's contract rights, if any, but the
appointment of any person as an officer of the Corporation shall not of itself
create contract rights.
SECTION 3.4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office that shall be vacant, in the manner prescribed
in these By-Laws for the regular election or appointment to the office.
SECTION 3.5. Compensation. The compensation of the officers
of the Corporation shall be fixed by the Board of Directors, but
this power may be delegated to any officer with respect to other
officers under his control.
SECTION 3.6. Bonds or Other Security. If required by the Board of
Directors, any officer, agent or employee of the Corporation shall give a bond
or other security for the faithful performance of his duties, in an amount and
with any surety or sureties as the Board may require.
SECTION 3.7. President. The President shall be the chief executive officer
of the Corporation. In the absence or inability of the Chairman of the Board to
act (or if there is none) the President shall preside at all meetings of the
stockholders and of the Board of Directors. The President shall have, subject to
the control of the Board of Directors, general charge of the business and
affairs of the Corporation, and may employ and discharge employees and agents of
the Corporation and delegate any of the foregoing powers.
SECTION 3.8. Vice President. Each Vice President shall have
the powers and perform the duties that the Board of Directors or
the President may from time to time prescribe.
SECTION 3.9. Treasurer. Subject to the provisions of any contract that may
be entered into with any custodian pursuant to authority granted by the Board of
Directors, the Treasurer shall have charge of all receipts and disbursements of
the Corporation and shall have or provide for the custody of the Corporation's
funds and securities; he shall have full authority to receive and give receipts
for all money due and payable to the Corporation, and to endorse checks, drafts
and warrants, in its name and on its behalf and to give full discharge for the
same; he shall deposit all funds of the Corporation, except those that may be
required for current use, in such banks or other places of deposit as the Board
of Directors may from time to time designate; and in general he shall perform
all duties incident to the Office of Treasurer and such other duties as may from
time to time be assigned to him by the Board of Directors or the President.
SECTION 3.10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the Committees
of the Board and the stockholders;
(b) see that all notices are duly given in accordance with
the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless the
seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
of Directors or the President.
SECTION 3.11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being the powers and duties, or
any of them, of such officer upon any other officer or upon any director.
ARTICLE IV
STOCK
SECTION 4.1. Stock Certificates. The Certificates representing shares of
the Corporation's stock shall be signed by or in the name of the Corporation by
the Chairman of the Board, the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and sealed with the seal of the Corporation. Any or all of the signatures or the
seal on the certificate may be facsimiles. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before the certificate is issued, it may be issued by the Corporation with the
same effect as if the officer, transfer agent or registrar was still in office
at the date of issue.
SECTION 4.2. Stock Ledger. There shall be maintained a stock ledger
containing the name and address of each stockholder and the number of shares of
stock of each class the stockholder holds. The stock ledger may be in written
form or any other form which can be converted within a reasonable time into
written form for visual inspection. The original or a duplicate of the stock
ledger shall be kept at the principal office of the Corporation or at any other
office or agency specified by the Board of Directors.
SECTION 4.3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder of the shares, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for the shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
SECTION 4.4. Regulations. The Board of Directors may authorize the
issuance of uncertificated securities if permitted by law. If stock certificates
are issued, the Board of Directors may make any additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. The Board may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer clerks
and one or more registrars and may require all certificates for shares of stock
to bear the signature or signatures of any of them.
SECTION 4.5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing the shares of stock of the Corporation shall
immediately notify the Corporation of its loss, destruction or mutilation and
the Corporation may issue a new certificate of stock in the place of any
certificate issued by it that has been alleged to have been lost or destroyed or
that shall have been mutilated. The Board may, in its discretion, require the
owner (or his legal representative) of a lost, destroyed or mutilated
certificate: to give to the Corporation a bond in a sum, limited or unlimited,
and in a form and with any surety or sureties, as the Board in its absolute
discretion shall determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate, or issuance of a new certificate. Anything herein to the contrary
notwithstanding, the Board of Directors, in its absolute discretion, may refuse
to issue any such new certificate, except pursuant to legal proceedings under
the laws of the State of Maryland.
SECTION 4.6. Fixing of Record Date for Dividends, Distributions, etc. The
Board may fix, in advance, a date not more than ninety (90) days preceding the
date fixed for the payment of any dividend or the making of any distribution or
the allotment of rights to subscribe for securities of the Corporation, or for
the delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record , date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
SECTION 4.7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during the Corporation's usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs and voting trust agreements on
file at its principal office.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 5.1. Indemnification of Officers, Directors, Employees and Agents.
The Corporation shall indemnify and advance expenses to 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, enterprise
or employee benefit plan, to the maximum extent provided and allowed by Section
2-418 of the Annotated Code of Maryland concerning corporations, as amended from
time to time, or by any other applicable provisions of laws. Notwithstanding
anything herein to the contrary, no director, officer, investment adviser or
principal underwriter of the Corporation shall be indemnified in violation of
Section 17(h) or 17(i) of the 1940 Act.
SECTION 5.2. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, with respect to
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
directors or otherwise, both as to action by a director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
SECTION 5.3. Insurance. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or who, while a director,
officer, employee or agent of the Corporation, is or was serving at the request
of the Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, against any liability asserted against and incurred by
him in any such capacity, or arising out of his status as such, provided that no
such insurance may be obtained by the Corporation for liabilities against which
it would not have the power to indemnify him under this Article V or applicable
law.
ARTICLE VI
SEAL
SECTION 6.1. The seal of the Corporation shall be circular in form and
shall bear the name of the Corporation, the year of its incorporation, the word
"Maryland" and any emblem or device approved by the Board of Directors. The seal
may be used by causing it or a facsimile to be impressed or affixed or in any
other manner reproduced, or by placing the word "(seal)" adjacent to the
signature of the authorized officer of the Corporation.
ARTICLE VII
FISCAL YEAR
SECTION 7.1. Fiscal Year. The Corporation's fiscal year
shall be fixed by the Board of Directors.
SECTION 7.2. Accountant.
(a) The Corporation shall employ an independent public accountant or a
firm of independent public accountants of national reputation to examine the
accounts of the Corporation and to sign and certify annual financial statements
filed by the Corporation or such other financial statements of the Corporation
as the Board of Directors may request from time to time. Such independent public
accountant or firm of independent public accountants is referred to herein as
the "Accountant". 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 that term is defined in the 1940 Act of the Corporation
shall select the Accountant at any meeting held within thirty (30) days before
or after the beginning of the fiscal year of the Corporation or before any
annual stockholders' meeting in that year. Such selection shall be submitted for
ratification or rejection at the next succeeding annual stockholders' meeting,
if any. If such meeting shall reject such selection, the Accountant shall be
selected by a 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 that purpose.
(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" of the Corporation, as that
term is defined in the 1940 Act, at a meeting called for the purpose of voting
on such action.
ARTICLE VIII
CUSTODY OF SECURITIES
SECTION 8.1. 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) (herein the "Custodian") all funds, securities and similar
investments owned by the Corporation, except to the extent that margin for
futures transactions are held by a futures commission merchant, as permitted by
the Securities and Exchange Commission's Division of Investment Management and
except to the extent otherwise permitted by law or the rules and regulations
promulgated by the Securities and Exchange Commission under the 1940 Act. The
Custodian (and any sub-custodian) shall be an institution conforming to the
requirements of Section 17(f) of the 1940 Act and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder. The Custodian
shall be appointed from time to time by the Board of Directors, which shall fix
its remuneration.
SECTION 8.2. Termination of Custodian Agreement. Upon termination of the
Custodian Agreement 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 vote of the holders of a majority of the outstanding shares of stock
of the Corporation entitled to vote at such meeting, the Custodian shall deliver
and pay over all property of the Corporation held by it as specified in such
vote.
ARTICLE IX
AMENDMENTS
SECTION 9.1. These By-Laws may be amended or repealed by the affirmative
vote of a majority of the Board of Directors at any regular or special meeting
of the Board of Directors, subject to the requirements of the 1940 Act.
Dated: June 19, 1997
