As filed with the Securities and Exchange Commission
on October 20, 1997
Registration Nos. 333-33365 811-8323
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. 2 / X /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 2 / X /
SAMCO FUND, INC.
(Exact Name of Registrant as Specified in Charter)
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 332-5211
Christina Seix
Seix Investment Advisors Inc.
300 Tice Boulevard
Woodcliff Lake, NJ 07675-7633
(Name and Address of Agent for Service)
Copies to:
William Goodwin, Esq.
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
-------------------
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
Registrant has registered an indefinite number of shares pursuant to Rule 24f-2
under the Investment Company Act of 1940. The Registrant has not completed its
first fiscal year.
The Registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said the provisions of Section 8(a), may
determine.
N-1A Item No.
SAMCO FUND, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
Under the Securities Act of 1933
N-1A Item No. Location
Part A Prospectus Caption
Item 1. Cover Page................................. Cover Page
Item 2. Synopsis................................... The Fund's
Expenses
Item 3. Condensed Financial
Information.................................Not Applicable
Item 4. General Description of
Registrant..................................Additional
Information --
Organization of
the Fund;
Investment
Objectives and
Policies;
Investment
Limitations; Risk
Factors; Appendix
Item 5. Management of the Fund......................Management of the
Fund
Item 5A. Management's Discussion
of Fund Performance ....................... Not Applicable
Item 6. Capital Stock and Other
Securities................................. Additional
Information --
Organization of
the Fund;
Additional
Information --
Dividends and
Distributions;
Additional
Information --
Shareholder
Inquiries;
Additional
Information --
Taxes
Item 7. Purchase of Securities
Being Offered.......................... Additional
Information --
Determination of
Net Asset Value;
Purchase of Shares
Item 8. Redemption or Repurchase................ Redemption of
Shares
Item 9. Legal Proceedings....................... Not Applicable
Statement of
Additional
Part B Information
Caption
Item 10. Cover Page................................. Cover Page
Item 11. Table of Contents.......................... Table of Contents
Item 12. General Information and
History.................................... Not Applicable
Item 13. Investment Objectives and
Policies................................... Additional
Information on
Portfolio
Instruments and
Investment
Policies;
Investment
Restrictions
Item 14. Management of the
Registrant............................. Management of the
Fund
Item 15. Control Persons and
Principal Holders of
Securities............................. Not Applicable
Item 16. Investment Advisory and
Other Services......................... Management of the
Fund
Item 17. Brokerage Allocation.................. Portfolio
Transactions and
Brokerage
Item 18. Capital Stock and Other
Securities.............................. Not Applicable
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered........................... Purchase of
Shares;
Determination of
Net Asset Value
Item 20. Tax Status............................... Taxation
Item 21. Underwriters............................. Purchase of Shares
Item 22. Calculation of
Performance Data......................... Performance Data
Item 23. Financial Statements...................... Not Applicable
N-1A Item No.
Part C
.........Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this Registration
Statement.
SAMCO Fixed Income Portfolio
Class A Shares
SAMCO Fixed Income Portfolio (the "Fund") is a portfolio of
SAMCO Fund, Inc. an open-end management investment company. The
investment objective of the Fund is to provide investors with a total
return which consistently exceeds the total return of the broad U.S.
investment grade bond market. The Fund is professionally managed and
seeks to achieve its objective through superior security selection
and emphasis on current income, while maintaining a duration neutral
posture. There can be no assurance that the Fund will achieve its
investment objective. See "Risk Factors."
Class A shares of the Fund may be purchased directly from
AMT Capital Services, Inc. (the "Distributor"), 600 Fifth Avenue, New
York, NY 10020 (800)762-4848. The minimum initial purchase is
$1,000,000. See "Purchase of Shares." A shareholder may redeem his
or her shares at any time at net asset value of the shares. See
"Redemption of Shares."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Fund
that is relevant to making an investment in Class A shares of the Fund. This
Prospectus should be retained for future reference. A statement containing
additional information about the Fund, dated November 1, 1997 (the "Statement of
Additional Information"), has been filed with the Securities and Exchange
Commission and can be obtained, without charge, by calling or by writing the
Distributor at the above telephone number or address. The Statement of
Additional Information is hereby incorporated by reference into this Prospectus.
SEIX INVESTMENT ADVISORS INC.--INVESTMENT ADVISER
AMT CAPITAL SERVICES, INC.--DISTRIBUTOR
The date of this Prospectus is November 1, 1997.
Table of Contents
Page SAMCO FIXED INCOME PORTFOLIO
PROSPECTUS SUMMARY
THE Fund's
EXPENSES
INVESTMENT
OBJECTIVE AND
POLICIES...
DESCRIPTION OF
INVESTMENTS..
RISK FACTORS.....
INVESTMENT
LIMITATIONS
MANAGEMENT OF THE
FUND........
PURCHASE OF SHARES
REDEMPTION OF
SHARES.....
THE Fund's
PERFORMANCE.
ADDITIONAL
INFORMATION.
SERVICE PROVIDERS
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND, THE DISTRIBUTOR OR THE INVESTMENT ADVISER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this Prospectus and in the Statement of
Additional Information.
The Fund and Its Investment Objective
The Fund is a no-load investment portfolio of the SAMCO Fund, Inc., an
open-end management investment company (the "Company") incorporated in the state
of Maryland on August 4, 1997. The investment objective of the Fund is to
provide investors with a total return which consistently exceeds the total
return of the broad U.S. investment grade bond market. The Fund is
professionally managed and seeks to achieve its objective through superior
security selection and emphasis on current income, while maintaining a duration
neutral posture. A duration neutral posture infers that the Fund's interest rate
sensitivity will be similar to that of its benchmark. Duration is a measure of
the expected life of a fixed-income security on a present value basis which
factors into account a bond's yield, coupon interest payments, final maturity
and call features. The current duration of the Fund's benchmark is 4.57 years
which may fluctuate on a daily basis. There can be no assurance that the Fund
will achieve its investment objective. See "Investment Objective and Policies."
The Investment Adviser
Seix Investment Advisors Inc. (the "Investment Adviser") serves as
the Fund's investment adviser. For its services as investment adviser, the
Fund pays the Investment Adviser a monthly fee at an annual rate of 0.25% of
the Fund's average daily net assets. The Investment Adviser believes the
advisory fee is comparable to that of other investment companies with similar
investment objectives. See "Management of the Fund."
Purchasing Shares
Shares of the Fund may be purchased without any sales charges at its
net asset value next determined after receipt of the order by submitting an
Account Application to the Distributor and wiring federal funds to the
Distributor's "Fund Purchase Account" at Investors Bank & Trust Company (the
"Transfer Agent"). Shares may be purchased directly from the Distributor. The
Fund is not available for sale in all states. For information about the Fund's
availability, contact an account representative at the Distributor.
The minimum initial investment is $1,000,000. The Fund reserves the
right to waive the minimum initial investment amount. There are no sales
commissions (loads) or 12b-1 fees. For more information, refer to "Purchase of
Shares."
Redemption of Shares
Shares of the Fund may be redeemed, without charge, at the next
determined net asset value after receipt by either the Transfer Agent or the
Distributor of the redemption request. There is no redemption fee. For more
information, refer to "Redemption of Shares."
Dividends and Distributions
The Fund will distribute substantially all of its net investment income
to shareholders in the form of monthly dividends. Dividends are reinvested on
the last Business Day or paid in cash on the first Business Day of the following
month. If any net capital gains are realized from the sale of the underlying
securities, the Fund will distribute such gains with the last dividend for the
calendar year. All distributions are reinvested automatically, unless otherwise
specified in writing by the investor, in shares of the Fund. See "Additional
Information".
Risk Factors
Prospective investors in the Fund should consider certain risks
including interest rate risk which is the risk of bond price fluctuations due to
changing interest rates; prepayment risk which is the possibility that, during
periods of declining interest rates, higher-yielding securities with optional
prepayment rights will be repaid before scheduled maturity, and the Fund will be
forced to reinvest the unanticipated payments at lower interest rates; and
credit risk which is the risk that an issuer of securities held by the Fund will
be unable to make payments of interest or principal. A more detailed description
of the Fund's risks may be found under the heading "Risk Factors," and
"Supplemental Discussion of Risks Associated with the Fund's Investment Policies
and Investment Techniques" in the Statement of Additional Information.
THE Fund's EXPENSES
The following expense table is provided to assist investors in
understanding the various costs and expenses that an investor will incur, either
directly or indirectly, as a shareholder in the Fund, which are calculated as a
percentage of average daily net assets. These are the only fund related expenses
that an investor bears.
Annual Fund Operating Expenses (as a percentage of average net assets)
Management fees 0.25%
Other expenses after reimbursement of expenses 0.20%
Total Fund operating expenses (after reimbursement of expenses) 0.45%
See "Management of the Fund" for a description of fees and expenses.
"Other expenses" include fees for shareholder services, custodial,
administration, dividend disbursing and transfer agency fees, legal and
accounting fees, printing costs and registration fees. The Investment Adviser
and the Administrator have voluntarily agreed to limit the total expenses of the
Fund (excluding interest, taxes, brokerage, and extraordinary expenses) to an
annual rate of 0.45% of the Fund's average daily net assets for an indefinite
time period. As long as this temporary expense limitation continues, it may
lower the Fun's expenses and increase its total return. In the event the
Investment Adviser and the Administrator remove such expense cap, the Fund's
expenses may increase and its total return may be reduced depending on the total
assets of the Fund. Without such cap, the other expenses (on an annualized
basis) are expected to be approximately 0.50%, and the total annual operating
expenses (on an annualized basis) are expected to be approximately 0.75%. Such
figure is based on estimated amounts for the current fiscal year. See
"Management of the Fund."
Example: The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based upon payments by
the Fund of operating expenses set forth in the table above, and are also based
upon the following assumptions:
A shareholder would pay the following expenses on a $1,000,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
After 1 year $5,000
After 3 years $15,000
The purpose of this table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. This example should not be considered a representation of future
expenses and actual expenses may be greater or less than those shown. Moreover,
while the example assumes a 5% annual return, the Fund's performance will vary
and may result in a return greater or less than 5%.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide investors with a
total return which consistently exceeds the total return of the broad U.S.
investment grade bond market. The Fund is professionally managed and seeks to
achieve its objective through superior security selection and emphasis on
current income, while maintaining a duration neutral posture. This is a
fundamental investment objective and may not be changed without the affirmative
vote of the holders of a majority of the Fund's outstanding voting securities,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund seeks to achieve its objective through investments in fixed income
securities.
The Investment Adviser will manage the Fund based on its fixed income
approach which is founded upon four cornerstones: (1) Targeted Duration; (2)
Yield Tilt; (3) Comprehensive Sector Construction; and (4) the use of
Proprietary Analytics. Targeted Duration: The Fund will be managed with a
duration that is close to the duration of the Fund's benchmark, the Lehman
Brothers Aggregate Bond Index. Value is added through sector, security, and
yield curve decisions rather than maturity management. Yield Tilt: Although the
Fund is managed on a total return basis, a premium is placed on yield. Income is
considered the most powerful contributor to fixed income returns. Non-Treasury
sectors generally play a dominant role in the Fund. The yield of the benchmark
is used as a performance goal in addition to its total return. Comprehensive
Sector Construction: Sector allocation is generally determined on a bottom up
basis, depending on value areas within the fixed income market. Since the Fund
does not incur any of the risks of market timing, the Investment Adviser allows
larger than average allocations to different sectors. The Fund's portfolio will
usually maintain an overweighting in obligations of domestic or foreign
corporations Corporates and an underweighting of United States Treasury
securities, giving the Fund's portfolio a strategic yield advantage over the
Lehman Aggregate Index. Proprietary Analytics: Because of the growing complexity
of the bond market, the firm believes that the use of proprietary techniques is
key to identifying value and to adequately controlling risk.
Under normal circumstances, at least 65% of the Fund's total assets
will be invested in the broad universe of available U.S. dollar fixed income
securities, including but not limited to: (1) obligations issued or guaranteed
by the United States Government, such as United States Treasury securities; (2)
obligations backed by the full faith and credit of the United States, such as
obligations of the Government National Mortgage Association and the
Export-Import Bank; (3) obligations issued or guaranteed by United States
Government agencies, Government-Sponsored Enterprises (GSE's) or
instrumentalities where the Fund must look principally to the issuing or
guaranteeing agency for ultimate repayment; (4) obligations issued or guaranteed
by a foreign government, or any of its political subdivisions, authorities,
agencies, or instrumentalities or by supranational organizations; (5)
obligations of domestic or foreign corporations or other entities, including
securities issued under Rule 144A; (6) obligations of domestic or foreign banks;
(7) mortgage- and asset-backed securities (including Commercial Mortgage Backed
Securities and Collateralized Mortgage Obligations); (8) short-term investments
such as: time deposits, certificates of deposit (including marketable variable
rate certificates of deposit), bankers' acceptances issued by a commercial bank
or savings and loan association; and custodian's short-term investment fund
(STIF); (9) preferred stock; and (10) municipals (taxable and tax-exempt). The
Fund may only invest in investment grade securities that are those rated by one
or more nationally recognized statistical rating organizations (NRSRO) in one of
the four highest rating categories at the time of purchase (e.g. AAA, AA, A or
BBB by Standard & Poor's Corporation (Standard & Poor's), Duff & Phelps Credit
Rating Co. ("Duff & Phelps"), or Fitch Investors Service, Inc., (Fitch) or Aaa,
Aa, A or Baa by Moody's Investors Service, Inc. (Moody's). If the security is
unrated, it must meet, in the judgement of the Investment Adviser, the above
minimum credit quality standards.
The Fund's investment policies (other than its investment objective)
are not fundamental and may be changed by the Board of Directors of the Fund
without the approval of shareholders.
DESCRIPTION OF INVESTMENTS
The Fund may invest in the securities defined below in accordance with
their listing of allowable investments and any quality or policy constraints.
Agencies
The Fund may invest in agencies which are securities that are not
guaranteed by the United States Government, but which are issued, sponsored or
guaranteed by a federal agency or federally sponsored agency such as the Student
Loan Marketing Association or any of several other agencies.
Bank Obligations.
The Fund may invest in obligations of domestic and foreign banks,
including time deposits, certificates of deposit, bankers' acceptances, bank
notes, deposit notes, Eurodollar time deposits, Eurodollar certificates of
deposit, variable rate notes, loan participations, variable amount master demand
notes, and custodial receipts. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is adjusted periodically
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer, or storage of goods). The Fund will not concentrate more than
25% of its total assets in domestic bank obligations. Domestic bank obligations
include instruments that are issued by United States (domestic) banks; United
States branches of foreign banks, if such branches are subject to the same
regulations as United States banks; and foreign branches of United States banks,
if the Investment Adviser determines that the investment risk associated with
investing in instruments issued by such branches is the same as that of
investing in instruments issued by the United States parent bank, in that the
United States parent bank would be unconditionally liable in the event that the
foreign branch fails to pay on its instruments. Bank obligations entail varying
amounts of interest rate and credit risk, with the lowest-rated and
longest-dated bank obligations entailing the greatest risk of loss to the Fund.
CMOs--Collateralized Mortgage Obligations
The Fund may purchase collateralized mortgage obligations which are
derivatives that are collateralized by mortgage pass-through securities. Cash
flows from the mortgage pass-through securities are allocated to various
tranches (a "tranche" is essentially a separate security) in a predetermined,
specified order. Each tranche has a stated maturity - the latest date by which
the tranche can be completely repaid, assuming no prepayments - and has an
average life - the average of the time to receipt of a principal payment
weighted by the size of the principal payment. The average life is typically
used as a proxy for maturity because the debt is amortized (repaid a portion at
a time), rather than being paid off entirely at maturity, as would be the case
in a straight debt instrument.
Corporates
The Fund may invest in corporates which are debt instruments issued by
private corporations. Bondholders, as creditors, have a prior legal claim over
common and preferred stockholders of the corporation as to both income and
assets for the principal and interest due to the bondholder. The Fund will buy
corporates subject to any quality constraints. If a security held by the Fund is
downgraded, the Fund may retain the security if the Investment Adviser deems
retention of the security to be in the best interests of the Fund.
Floaters
Floaters--Floating and Variable Rate Obligations are debt obligations
with a floating or variable rate of interest, i.e. the rate of interest varies
with changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity.
Foreign Government and International and Supranational Agency Debt
Securities.
The Fund may purchase U.S. dollar denominated debt obligations issued
or guaranteed by foreign governments or their subdivisions, agencies, and
instrumentalities, and debt obligations issued or guaranteed by international
agencies and supranational entities.
Investment Grade Debt Securities
The Fund may invest in investment grade securities that are those rated
by one or more NRSROs in one of the four highest rating categories at the time
of purchase (e.g., AAA, AA, A or BBB by Standard & Poor's, Fitch, Duff & Phelps,
or Aaa, Aa, A or Baa by Moody's). Securities rated BBB or Baa represent the
lowest of four levels of investment grade securities and are regarded as
borderline between definitely sound obligations and those in which the
speculative element begins to predominate. Mortgage-backed securities, including
mortgage pass-throughs and collateralized mortgage obligations (CMOs), deemed
investment grade by the Investment Adviser, will either carry a guarantee from
an agency of the U.S. Government or a private issuer of the timely payment of
principal and interest (such guarantees do not extend to the market value of
such securities or the net asset value per share of the Fund) or, in the case of
unrated securities, be sufficiently seasoned that they are considered by the
Investment Adviser to be investment grade quality. The Investment Adviser may
retain securities if their ratings fall below investment grade if it deems
retention of the security to be in the best interests of the Fund. The Fund may
hold unrated securities if the Investment Adviser considers the risks involved
in owning that security to be equivalent to the risks involved in holding an
Investment Grade Security.
Mortgage-Backed Securities and Asset-Backed Debt Securities.
Mortgage-backed debt securities are secured or backed by mortgages or
other mortgage-related assets. Such securities may be issued by such entities as
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, savings and loan associations, mortgage banks, or by issuers
that are affiliates of or sponsored by such entities. Other asset-backed
securities are secured or backed by assets other than mortgage-related assets,
such as automobile and credit card receivables, and are issued by such
institutions as finance companies, finance subsidiaries of industrial companies,
and investment banks. The Fund will purchase only asset-backed securities that
the Investment Adviser determines to be liquid. The Fund will not purchase
mortgage backed or asset-backed securities that do not meet the above minimum
credit standards.
An important feature of mortgage-and asset-backed securities is that
the principal amount is generally subject to partial or total prepayment at any
time because the underlying assets (i.e., loans) generally may be prepaid at any
time. If an asset-backed security is purchased at a premium to par, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if an asset-backed security is
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. It should
also be noted that these securities may not have any security interest in the
underlying assets, and recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
Municipal Debt Securities.
The Fund may, from time to time, purchase municipal debt securities
when, in the Investment Adviser's opinion, such instruments will provide a
greater return than taxable instruments of comparable quality. It is not
anticipated that such securities will ever represent a significant portion of
the Fund's assets. Fund distributions that are derived from interest on
municipal debt securities will be taxable to shareholders in the same manner as
distributions derived from taxable debt securities.
Preferred Stock.
The Fund may invest in preferred stock which is non-voting ownership
shares in a corporation which pay a fixed or variable stream of dividends.
Repurchase Agreements.
Repurchase agreements are transactions by which the Fund purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the Fund to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Investment
Adviser will continually monitor the value of the underlying collateral to
ensure that its value, including accrued interest, always equals or exceeds the
repurchase price.
When-lssued and Forward Commitment Securities.
The Fund may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. In such
transactions, instruments are bought with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. Delivery of and payment for these
securities may take more than a month after the date of the purchase commitment,
but will take place no more than 120 days after the trade date. No income
accrues prior to delivery on securities that have been purchased pursuant to a
forward commitment or on a when-issued basis. However, interest is generated on
the short-term investments that are segregated for the settlement of these
securities. At the time the Fund enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash or liquid
securities equal to the value of the when-issued or forward commitment
securities will be established in the Fund and maintained in the Fund and will
be marked to market daily. A short term investment in this segregated account
may not have a duration that exceeds 180 days. Forward commitments, or delayed
deliveries, are deemed to be outside the normal corporate settlement structure.
They are subject to segregation requirements; however, when a forward commitment
purchase is made to close a forward commitment sale, or vice versa, the
difference between the two may be netted for segregation purposes until
settlement date.
Zero Coupon Debt Securities.
The Fund may invest in zero coupon debt securities (bonds that pay no
interest but are originally sold at an original issue discount). Because they do
not pay interest until maturity, zero coupon securities tend to be subject to
greater fluctuation of market value in response to changes in interest rates
than interest-paying securities of similar maturities.
RISK FACTORS
Interest Rate Risk.
Interest rate risk is the risk of fluctuations in bond prices due to
changing interest rates. As a rule, bond prices vary inversely with market
interest rates. For a given change in interest rates, longer duration bonds
fluctuate more in price than shorter duration bonds. To compensate investors for
these larger fluctuations, longer duration bonds usually offer higher yields
than shorter duration bonds, other factors, including credit quality, being
equal. As the Fund's benchmark is the Lehman Brothers Aggregate Bond Index, it
is expected to be subject to a moderate level of interest rate risk, consistent
with that of the index.
Prepayment Risk.
Prepayment risk is the possibility that, during periods of declining
interest rates, higher-yielding securities with optional prepayment rights will
be repaid before scheduled maturity, and the Fund will be forced to reinvest the
unanticipated payments at lower interest rates. Debt obligations that can be
prepaid (including most mortgage-and asset-backed securities) will not enjoy as
large a gain in market value as other bonds when interest rates fall. In part to
compensate for prepayment risk, mortgage-and asset-backed securities generally
offer higher yields than bonds of comparable credit quality and maturity.
Credit Risk.
Credit risk is the risk that an issuer of securities held by the Fund
will be unable to make payments of interest or principal. The credit risk
assumed by the Fund is a function of the credit quality of its underlying
securities. The average credit quality of the Fund is expected to be high, and
thus credit risk, in the aggregate, should be low. The Fund will also be exposed
to event risk, the risk that corporate debt securities held by the Fund may
suffer a substantial decline in credit quality and market value due to a
corporate restructuring. Corporate restructurings, such as mergers, leveraged
buyouts, takeovers, or similar events, are often financed by a significant
increase in corporate debt. As a result of the added debt burden, the credit
quality and market value of a firm's existing debt securities may decline
significantly. While event risk may be high for certain securities held by the
Fund, event risk for the Fund in the aggregate should be low because of the
extensive diversification expected in the Fund. For further discussion of credit
risk, see "Investment Grade Debt Securities". The ratings of fixed income
securities by S&P, Moody's, Duff & Phelps, and Fitch are a generally accepted
barometer of credit risk. They are, however, subject to certain limitations from
an investor's standpoint. The rating of an issuer is heavily weighted by past
developments and does not necessarily reflect probable future conditions. There
is frequently a lag between the time a rating is assigned and the time it is
updated. In addition, there may be varying degrees of difference in credit risk
of securities within each rating category.
Non-Diversified Status
The Fund is classified as a "non-diversified" investment company under
the 1940 Act, which means the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. However, the Fund intends to conduct its operations so as to qualify as
a regulated investment company for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which generally will relieve the Fund of any
liability for federal income tax to the extent its earnings are distributed to
shareholders. See "Additional Information Taxes." To so qualify, among other
requirements, the Fund will limit its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market value of the
Fund's total assets will be invested in securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer.
Under these investment requirements, the Fund must invest in at least
twelve securities positions. Ten of the positions may not exceed 5% of total
assets each at the time of purchase; the remaining two positions could each
comprise 25% of total assets at the time of purchase. Generally, it is
anticipated that the portfolio will consist of more than twelve positions. To
the extent that the Fund is less diversified, it may be more susceptible to
adverse economic, political, or regulatory developments affecting a single
issuer than would be the case if it were more broadly diversified.
INVESTMENT LIMITATIONS
The Fund may not:
(1) borrow money (including entering into reverse repurchase
agreements);
(2) make loans except that it may enter into Repurchase Agreements;
(3) invest more than 25% of the total assets of the Fund in the
securities of issuers having their principal activities in any particular
industry, except for tax-exempt obligations issued or guaranteed by the U.S.
government, its agencies, GSE's, instrumentalities or by any state, territory or
any possession of the United States or any of their authorities, agencies,
instrumentalities or political subdivisions, or with respect to repurchase
agreements collateralized by any of such obligations. For purposes of this
restriction, supranational issuers will be considered to comprise an industry as
will each foreign government that issues securities purchased by the Fund. In
the case of Asset Backed Securities, the industry will be defined by the
underlying assets in each trust. (For example, credit card receivables and auto
loans would each be considered separate industries); and
(4) invest the cash securing a forward commitment in mortgage backed
securities in investments that have a duration exceeding 180 days.
The limitations contained above may be changed only with the
affirmative vote of the holders of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act. The percentage limitations contained
above as well as elsewhere in this Prospectus and in the Statement of Additional
Information apply only at the time of purchase and the Fund will not be required
to dispose of securities upon subsequent fluctuations in market value.
MANAGEMENT OF THE FUND
Board of Directors
The Board of Directors of the Company consists of five individuals,
two of whom are not "interested persons" of the Fund as defined in the 1940
Act. The Directors of the Fund are responsible for the overall supervision of
the operations of the Fund and perform the various duties imposed on the
directors of investment companies by the 1940 Act. The Fund's Directors are
Christina Seix, John G. Talty, Peter J. Bourke, John E. Manley, Sr., and John
R. O'Brien. Additional information about the Directors and the Fund's
executive officers may be found in the Statement of Additional Information
under the heading "Management of the Fund."
Investment Adviser
Seix Investment Advisors Inc., established in 1992, is a registered
investment adviser that specializes in professional fixed income management for
corporations, public funds, endowments, foundations and hospitals. The
Investment Adviser currently has approximately $1.5 billion in assets under
management. The Investment Adviser is located at 300 Tice Boulevard, Woodcliff
Lake, NJ 07675.
Seix Investment Advisors Inc. acts as the investment adviser to the
Fund and provides the Fund with management and investment advisory services. The
advisory agreement with the Investment Adviser (the "Advisory Agreement")
provides that, subject to the direction of the Board of Directors of the Fund,
the Investment Adviser is responsible for the actual management of the Fund. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by the Board of Directors.
The Investment Adviser also is obligated to provide all the office space,
facilities, equipment and personnel necessary to perform its duties under the
Advisory Agreement.
The Investment Adviser receives monthly compensation at the annual
rate of 0.25% of the average daily net assets of the Fund. The Investment
Adviser may waive all or part of its fee from time to time in order to increase
the Fund's net income available for distribution to shareholders. The Fund will
not be required to reimburse the Investment Adviser for any advisory fees
waived. In addition, the Investment Adviser and the Administrator have
voluntarily agreed to limit the total expenses of the Fund [(excluding interest,
taxes, brokerage, and extraordinary expenses)] to an annual rate of 0.45% of the
Fund's average daily net assets for an indefinite time period. As long as this
temporary expense limitation continues, it may lower the Fund's expenses and
increase its total return. In the event the Investment Adviser and the
Administrator remove the expense cap, the Fund's expenses may increase and its
total return may be reduced depending on the total assets of the Fund.
The Fund is responsible for paying certain expenses incurred in its
operations including, among other things, the investment advisory and
administrative fees, legal and audit fees, unaffiliated Directors' fees and
expenses, custodian and transfer agency fees, certain insurance premiums,
accounting and pricing costs, federal and state registration fees, the costs of
issuing and redeeming shares, costs of shareholder meetings, any extraordinary
expenses and certain of the costs of printing proxies, shareholders reports,
prospectuses and statements of additional information. The Fund also pays for
brokerage fees and commissions in connection with the purchase and sale of
portfolio securities.
Portfolio Managers
Christina Seix, CFA, Chairman, CEO & Chief Investment Officer
Formerly, Chairman & CEO, Head of Investment Policy, MacKay-Shields
Total Investment Experience: 24 years
BA, Fordham University, Mathematics
MA, SUNY, Mathematics
John Talty, CFA, President & Senior Portfolio Manager
Formerly, Chief Fixed Income Strategist, J.P. Morgan Securities
Total Investment Experience: 16 years
B.A., Connecticut College, Economics, Phi Beta Kappa, Magna Cum Laude
Barbara Hoffmann, Managing Director and Senior Portfolio Manager
Formerly, Senior Portfolio Manager, MetLife Investment Management Co.
Total Investment Experience: 18 years
BS, University of Maine, Education/Mathematics
Michael McEachern, CFA, Director and Senior Portfolio Manager
Formerly, Vice President, Fixed Income, American General Corp.
Total Investment Experience: 13 years
BA, University of California, Operations Research
MBA, Rice University, Accounting/Public Administration
Joseph Calabrese, Director and Senior Portfolio Manager
Formerly, Director, Fixed Income, MetLife Insurance Company
Total Investment Experience: 10 years
BS, New Jersey Institute of Technology, Industrial Engineering
MBA, New York University, Finance
Administrator
AMT Capital Services, Inc., (in its capacity as administrator, the
"Administrator") acts as the Fund's administrator pursuant to an administration
agreement (the "Administration Agreement"). Pursuant to the Administration
Agreement, the Administrator is responsible for providing administrative
services to the Fund and assists in managing and supervising all aspects of the
general day-to-day business activities and operations of the Fund other than
investment advisory activities, including certain accounting, auditing,
clerical, bookkeeping, custodial, transfer agency, dividend disbursing,
compliance and related services, Blue Sky compliance, corporate secretarial
services and assistance in the preparation and filing of tax returns and reports
to shareholders and the SEC. The Fund pays the Administrator a monthly fee at
the annual rate of 0.15% of the Fund's average daily net assets and the
Administrator is entitled to reimbursement from the Fund for its out-of-pocket
expenses incurred under the Administration Agreement.
Transfer Agent
The Transfer Agent, with offices located at 200 Clarendon Street,
Boston, Massachusetts 02116, acts as the Fund's transfer agent pursuant to a
transfer agency, dividend disbursing agency and shareholder servicing agency
agreement (the "Transfer Agent Agreement"). Pursuant to the Transfer Agent
Agreement, the Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
The Transfer Agent is entitled to reimbursement from the Fund for out-of-pocket
expenses incurred by the Transfer Agent under the Transfer Agent Agreement.
PURCHASE OF SHARES
There is no sales charge imposed by the Fund. The minimum initial
investment in any Portfolio of the Fund is $1,000,000; additional purchases may
be of any amount.
The offering of shares of the Fund is continuous and purchases of
shares of the Fund may be made Monday through Friday, except for the holidays
declared by the Federal Reserve Banks of New York or Boston (a "Business Day").
At the present time, these holidays are: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day, Fourth of July, Labor Day, Columbus Day,
Veterans Day, Thanksgiving, and Christmas. The Fund's shares are offered at a
public offering price equal to the net asset value next determined after receipt
of a purchase order.
In order to purchase shares on a particular Business Day, subject to
the offering dates described above, a purchaser must submit a completed Account
Application Form (and other required documents) and call the Distributor at
(800) 762-4848 [or within the City of New York, (212) 332-5211] prior to 4:00
p.m. Eastern time to inform the Fund of the incoming wire transfer. If Federal
funds are received by the Fund that same day, the order will be effective on
that day. If the Fund receives notification after 4:00 p.m. Eastern time, or if
Federal funds are not received by the Transfer Agent, such purchase order shall
be executed as of the date that Federal funds are received. Shares purchased
will begin accruing dividends on the day Federal funds are received.
Purchases of shares must be made by wire transfer of Federal funds.
Please note that the shareholder's bank may impose a charge to execute the wire
transfer. The wiring instructions for purchasing shares of the Fund are:
Investors Bank & Trust Company
Boston, MA
ABA # xx-xxxx-xxx
Acct: 999XXXXXXX
Benf: SAMCO Fixed Income Fund
F/F/C (Shareholder's Account at Fund)
REDEMPTION OF SHARES
The Fund will redeem all full and fractional shares of the Fund upon
request of shareholders. The redemption price is the net asset value per share
next determined after receipt by the Transfer Agent of proper notice of
redemption as described below. If such notice is received by the Transfer Agent
by 12:00 p.m. Eastern time on any Business Day, the redemption will be effective
on the date of receipt. If such notice of redemption is received by the Transfer
Agent after 12:00 p.m. Eastern time, the redemption of the shareholder shall be
effective on the following Business Day. Payment will ordinarily be made by wire
on the next Business Day but within no more than seven days from the date of
receipt. If the notice is received on a day that is not a Business Day or after
the above-mentioned cut-off times, the redemption notice will be deemed received
as of the next Business Day.
There is no charge imposed by the Fund to redeem shares of the Fund;
however, a shareholder's bank may impose its own wire transfer fee for receipt
of the wire. Redemptions may be executed in any amount requested by the
shareholder up to the amount such shareholder has invested in the Fund.
To redeem shares, a shareholder or any authorized agent (so designated
on the Account Application Form) must provide the Transfer Agent with the dollar
or share amount to be redeemed, the account to which the redemption proceeds
should be wired (which account shall have been previously designated by the
shareholder on its Account Application Form), the name of the shareholder and
the shareholder's account number. Shares redeemed receive dividends up to and
including the day preceding the day the redemption proceeds are wired.
A shareholder may change its authorized agent or the account designated
to receive redemption proceeds at any time by writing to the Transfer Agent with
an appropriate signature guarantee. Further documentation may be required when
deemed appropriate by the Transfer Agent.
A shareholder may request redemption by calling the Transfer Agent at
(800) 247-0473. Telephone redemption is made available to shareholders of the
Fund on the Account Application Form. The Fund and the Transfer Agent may employ
reasonable procedures designed to confirm that instructions communicated by
telephone are genuine. If either the Fund or the Transfer Agent does not employ
such procedures, it may be liable for losses due to unauthorized or fraudulent
instructions. The Fund or the Transfer Agent may require personal identification
codes and will only wire funds through pre-existing bank account instructions.
No bank instruction changes will be accepted via telephone.
THE Fund's PERFORMANCE
Total Return
From time to time, the Fund may advertise certain information about
its performance. The Fund may present its "average annual total return" over
various periods of time. Such total return figures show the average annual
percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the end of the measuring period. These figures
reflect changes in the price of the Fund's shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested in shares of the Fund. Figures may be given for the most current
one-, five- and ten-year periods (or the life of the Fund, if it has not been in
existence for any such period) and may be given for other periods as well. When
considering "average" total return figures for periods longer than one year, it
is important to note that the Fund's annual total return for any one year in the
period might have been greater or less than the average for the entire period.
In addition, the Fund may make available information as to its respective
"yield" and "effective yield" over a thirty-day period, as calculated in
accordance with the Securities and Exchange Commission's prescribed formula. The
"effective yield" assumes that the income earned by an investment in the Fund is
reinvested, and will therefore be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
Furthermore, in reports or other communications to shareholders or in
advertising material, the Fund may compare its performance with that of other
mutual funds as listed in the rankings prepared by Lipper Analytical Services,
Inc. or similar independent services which monitor the performance of mutual
funds, other industry or financial publications or financial indices such as the
Lehman Brothers Aggregate Bond Index or a composite benchmark index. It is
important to note that the total return figures are based on historical returns
and are not intended to indicate future performance.
ADDITIONAL INFORMATION
Dividends and Distributions
Dividends are automatically reinvested in additional shares of the Fund
on the last day of each month at the net asset value per share on the last
Business Day of that month. Shareholders must indicate their desire to receive
dividends in cash (payable on the first Business Day of the following month) on
the Account Application Form. Otherwise all dividends will be reinvested in
additional shares as described above. In the event that the Fund realizes net
long-term capital gains (i.e., with respect to assets held more than 18 months),
it will distribute them at least annually by automatically reinvesting (unless a
shareholder has elected to receive cash) such long-term capital gains in
additional shares of the Fund at the net asset value on the date the
distribution is declared.
The net investment income (including accrued but unpaid interest and
amortization of original issue and market discount or premium) of the Fund will
be declared as a dividend payable monthly to shareholders of record as of the
last Business Day of each month. The Fund will also declare, to the extent
necessary, a net short-term capital gain dividend once per year. Dividends are
paid on the first Business Day of the month.
Determination of Net Asset Value
The net asset value per share of the Fund is determined each Business
Day the Fund is open. The net asset value per share is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. Expenses, including the
investment advisory fees payable to the Investment Adviser, are accrued daily.
The following methods are used to calculate the value of the Fund's
assets: (1) all portfolio securities for which over-the-counter market
quotations are readily available (including asset-backed securities) are valued
at the latest bid price; (2) deposits and repurchase agreements are valued at
their cost plus accrued interest unless the Investment Adviser determines in
good faith, under procedures established by and under the general supervision of
the Fund's Board of Directors, that such value does not approximate the fair
value of such assets; (3) positions (e.g., futures and options) listed or traded
on an exchange are valued at their last sale price on that exchange (or if there
were no sales that day for a particular position, that position is valued at the
closing bid price); and (4) the value of other assets will be determined in good
faith by the Investment Adviser at fair value under procedures established by
and under the general supervision of the Fund's Board of Directors.
Taxes
The following discussion is only a brief summary of some of the
important tax considerations affecting the Fund and its shareholders. No attempt
is made to present a detailed explanation of all federal, state, local and
foreign income tax considerations, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, potential investors are urged
to consult their own tax advisers with specific reference to their own tax
situation.
The Fund intends to qualify and elect to be treated as a "regulated
investment company" for federal income tax purposes under Subchapter M of the
Code. If so qualified, the Fund will not be subject to federal income taxes on
its net investment income (i.e., its investment company taxable income) as that
term is defined in the Code, determined without regard to the deduction for
dividends paid) and net capital gain (i.e., the excess of the Fund's net
long-term capital gain over its net short-term capital loss), if any, that it
distributes to its shareholders in each taxable year. To qualify as a regulated
investment company, the Fund must, among other things, distribute to its
shareholders at least 90% of its net investment company taxable income for such
taxable year. However, the Fund would be subject to corporate federal income tax
at a rate of 35% on any undistributed income or net capital gain. The Fund will
be subject to a 4% nondeductible excise tax on its taxable income to the extent
it does not meet certain other distribution requirements. If in any year the
Fund should fail to qualify as a regulated investment company, the Fund would be
subject to federal income tax in the same manner as an ordinary corporation and
distributions to shareholders would be taxable to such holders as ordinary
income to the extent of the earnings and profits of the Fund. Such distributions
would qualify for the dividends-received deduction available to corporate
shareholders. Distributions in excess of earnings and profits would be treated
as a tax-free return of capital, to the extent of a holder's basis in its
shares, and any excess, as a long- or short-term capital gain.
Distributions paid by the Fund from net investment income are
designated by the Fund as "ordinary income dividends" and, whether paid in cash
or reinvested in additional shares, will be taxable to Fund shareholders that
are otherwise subject to tax as ordinary income. Distributions made from the
Fund's net capital gain which are designated by the Fund as "capital gains" of
the length of time the shareholder has owned Fund shares. Shareholders receiving
distributions from the Fund in the form of additional shares will be treated for
federal income tax purposes as receiving a distribution in an amount equal to
the net asset value of the additional shares on the date of such a distribution.
Gain or loss, if any, recognized on the sale or other disposition of
shares of the Fund will be taxed as capital gain or loss if the shares are
capital assets in the shareholder's hands. Generally, a shareholder's gain or
loss will be a long-term gain or loss if the shares have been held for more than
18 months. If a shareholder sells or otherwise disposes of a share of the Fund
before holding it for more than six months, any loss on the sale or other
disposition of such share shall be treated as a long-term capital loss to the
extent of any capital gain dividends received by the shareholder with respect to
such share. A loss realized on a sale or exchange of shares may be disallowed if
other shares are acquired within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of.
Dividends and distributions by the Fund are generally taxable to the
shareholders at the time the dividend or distribution is made. Any dividend
declared in December of any year, however, that is payable to shareholders of
record on a specified date in such month will be deemed to have been received by
the shareholders and paid by the Fund on December 31 of such year in the event
such dividends are actually paid during January of the following year.
The Fund may be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number, (ii) the Internal Revenue Service ("IRS") notifies the
Fund that the shareholder has failed to report properly certain interest and
dividend income to the IRS and to respond to notices to that effect, or (iii)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding.
Organization of the Fund
The Fund is a portfolio of SAMCO Fund, Inc., an open-end management
investment company, which was incorporated under Maryland law on August 4, 1997.
The Company has an authorized capital of 2,500,000,000 shares of Common Stock,
par value $0.001 per share. The Fund currently is the only organized series of
the Company. The Board of Directors may, in the future, establish additional
portfolios which may have different investment objectives. All shares of each
fund will have equal voting rights and each shareholder is entitled to one vote
for each full share held and fractional votes for fractional shares held and
will vote on the election of Directors and any other matter submitted to a
shareholder vote. The Company is not required and does not intend to hold
meetings of shareholders. The Fund has undertaken to call a meeting of
shareholders upon a written request of 10% of the Fund's outstanding shares, for
the purpose of voting on removal of one or more directors and the Fund will
assist shareholder communications with regard to such a meeting, as provided
under Section 16(c) of the 1940 Act. Shares of the Fund will, when issued, be
fully paid and non-assessable and have no preemptive or conversion rights. Each
share is entitled to participate equally in dividends and distributions declared
by the Fund and in the net assets of the Fund on liquidation or dissolution
after satisfaction of outstanding liabilities. The Fund also issues another
class of shares which may have different operating and other expenses. For more
information about other classes of the Fund's shares, investors should contact
the Distributor at the address or phone number set forth on the cover of this
Prospectus.
SERVICE PROVIDERS
Custodian and Accounting Agent
Investors Bank & Trust Company, 200 Clarendon Street, Boston,
Massachusetts 02116, is Custodian and Accounting Agent for the Fund.
Transfer and Dividend Disbursing Agent
Investors Bank & Trust Company, 200 Clarendon Street, Boston,
Massachusetts 02116, is Transfer Agent for the shares of the Fund, and
Dividend Disbursing Agent for the Fund.
Legal Counsel
Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York 10112,
is legal counsel for the Fund.
Independent Auditors
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, is the
independent auditor for the Fund. Ernst & Young LLP also renders accounting
services to the Investment Adviser.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Fund or the Distributor
at the addresses or telephone numbers set forth on the cover page of this
Prospectus.
APPENDIX A
Duff & Phelps Credit Rating Co.
AAA: Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs are not used in the AAA category.
Fitch Investors Service, Inc.
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality
and carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation
AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
APPENDIX B
Description of Commercial Paper Ratings
Moody's Investors Service, Inc.
Prime-1 Issuers (or related supporting institutions) rated "P-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2 Issuers (or related supporting institutions) rated "P-2" have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
Standard & Poor's Corporation
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
* As described by the rating companies themselves.
STATEMENT OF ADDITIONAL INFORMATION
(Class A shares only)
SAMCO FIXED INCOME PORTFOLIO
600 Fifth Avenue, 26th Floor
New York, New York 10020
(212) 332-5211
SAMCO Fixed Income Portfolio (the "Fund") is a portfolio of
SAMCO Fund, Inc. an open-end management investment company. Shares of
the Fund may be purchased through AMT Capital Services, Inc. (the
"Distributor").
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Fund, dated November 1, 1997
(the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling or
writing the Distributor at the telephone number or address stated below. This
Statement of Additional Information incorporates by reference the Prospectus.
Distributed by: AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, New York 10020
(212) 332-5211
(800) 762-4848 (outside New York City)
The date of this Statement of Additional
Information is November 1, 1997
TABLE OF CONTENTS
Page
Organization of the Fund......................................................
Management of the Fund........................................................
Board of Directors and Officers......................................
Investment Adviser....................................................
Administrator........................................................
Distribution of Fund Shares...................................................
Supplemental Descriptions of Investments......................................
Supplemental Investment Techniques.............................................
Supplemental Discussion of Risks Associated With the
Fund's Investment Policies and Investment Techniques........................
Options..............................................................
Futures Contracts and Options on Futures Contracts..................
Investment Restrictions......................................................
Portfolio Transactions.........................................................
Tax Considerations.............................................................
Shareholder Information.......................................................
Calculation of Performance Data...............................................
Financial Statements...........................................................
Appendix ....................................................................
Quality Rating Descriptions.........................................
ORGANIZATION OF THE FUND
The authorized capital stock of the Fund consists of 2,500,000,000
shares with $.001 par value. Every share issued by the Fund has equal voting
rights; shareholders receive one vote for each share held. All shares issued and
outstanding are fully paid and non-assessable, transferable, and redeemable at
net asset value at the option of the shareholder. Shares have no preemptive or
conversion rights.
The shares of the Fund have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS AND OFFICERS
The Fund is managed by its Board of Directors. The Directors and
officers of the Fund and their principal occupations during the past five years
are set forth below. An asterisk (*) has been placed next to the name of each
director who is an "interested person" of the Fund, as such term is defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), by virtue of
his affiliation with the Fund or the Fund's investment adviser, Seix Investment
Advisors Inc. (the "Investment Adviser").
<TABLE>
<S> <C> <C>
Name, Address and Age Office Principal Occupation During Past Five Years
*Christina Seix Director Seix Investment Advisors Inc., Chairman and Chief
300 Tice Blvd. Investment Officer 1992-Present
Woodcliff Lake, NJ 07675
Age: 47
*John G. Talty Director Seix Investment Advisors Inc., President 1993-Present
300 Tice Blvd.
Woodcliff Lake, NJ 07675
Age: 39
*Peter J. Bourke Director Seix Investment Advisors Inc., Managing Director 1993-Present
300 Tice Blvd. Assistant Secretary
Woodcliff Lake, NJ 07675
Age: 46
John R. O'Brien Director Retired
275 manor Road
Ridgewood, NJ 07450
Age: 66
John E. Manley, Sr. Director Consultant to Mutual of America
86505 Holmes April 1996- March 1997
Chapel Hill, NC 27514 Senior Vice President, Mutual of America
Age: 64 July 1985-March 1996
Carla E. Dearing Assistant Treasurer AMT Capital Services, Inc., President, Principal and
AMT Capital Services, Inc. Director, 1/92 - present; AMT Capital Advisers, Inc.,
600 Fifth Avenue, 26th Floor Principal and Senior Vice President, 1/92 - present; Morgan
New York, NY 10020 Stanley & Co., Vice President, 11/88 - 1/92.
Age: 35
William E. Vastardis Secretary AMT Capital Services, Inc., Managing Director 7/92 - present;
AMT Capital Services, Inc. Vanguard Group Inc., Vice President, 1/87 - 4/92.
600 Fifth Avenue, 26th Floor
New York, NY 10020
Age: 41
Paul Brook Treasurer AMT Capital Services, Inc., Managing Director 8/97-Present
AMT Capital Services, Inc. Ernst & Young LLP, Partner March 1978- July 1997
600 Fifth Avenue, 26th Floor
New York, NY 10020
Age: 36
</TABLE>
No employee of the Investment Adviser nor the Distributor receives any
compensation from the Fund for acting as an officer or director of the Fund. The
Fund pays each director who is not a director, officer or employee of the
Investment Adviser or the Distributor or any of their affiliates, a fee of $500
for each meeting attended, and each of the Directors receive an annual retainer
of $1,000 which is paid in quarterly installments.
Estimated Director's Compensation Table
Fiscal Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
Director Aggregate Compensation Pension or Estimated Total Compensation
From Registrant Retirement Benefits Annual From Registrant
Accrued As Part of benefits Upon and Fund Complex
Fund Expenses Retirement Paid to Directors
John E. Manley, Sr. $2,500 $0 $0 $0
John R. O'Brien $2,500 $0 $0 $0
</TABLE>
By virtue of the responsibilities assumed by the Investment Adviser and the
Distributor and their affiliates under their respective agreements with the
Fund, the Fund itself requires no employees in addition to its officers.
INVESTMENT ADVISER AND ADVISORY AGREEMENT
Seix Investment Advisors Inc., established in 1992, is a registered
investment adviser that specializes in professional fixed income management for
corporations, public funds, endowments, foundations and hospitals. Christina
Seix may be deemed a "controlling person" of the Investment Adviser on the basis
of her ownership of the Investment Adviser's stock.
Pursuant to the terms of the advisory agreement between the Fund and
the Investment Adviser (the "Advisory Agreement"), the Investment Adviser,
subject to the control and supervision of the Fund's Board of Directors and in
conformance with the stated investment objectives and policies of the Fund,
shall manage the investment and reinvestment of the assets of the Fund. In this
regard, it is the responsibility of the Investment Adviser to make investment
decisions for the Fund and to place the Fund's purchase and sales orders for
investment securities.
The Advisory Agreement shall remain in effect for two years following
its date of execution and thereafter will automatically continue for successive
annual periods, so long as such continuance is specifically approved at least
annually by (a) the Board of Directors or (b) the vote of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding shares voting as a single
class; provided, that in either event the continuance is also approved by at
least a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Investment Adviser by vote cast in
person at a meeting called for the purpose of voting on such approval.
The Advisory Agreement is terminable without penalty on not less than
60 days' notice by the Board of Directors or by a vote of the holders of a
majority of the Fund's outstanding shares voting as a single class, or upon not
less than 60 days' notice by the Investment Adviser. The Advisory Agreement will
terminate automatically in the event of its "assignment" (as defined in the 1940
Act).
The Investment Adviser pays all of its expenses arising from the
performance of its obligations under the Advisory Agreement, including all
executive salaries and expenses of the directors and officers of the Fund who
are employees of the Investment Adviser or its affiliates, and office rent of
the Fund. Subject to the expense reimbursement provisions described in the
Prospectus under "Fund Expenses," other expenses incurred in the operation of
the Fund are borne by the Fund, including, without limitation, investment
advisory fees, brokerage commissions, interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents, transfer agents, taxes, cost
of stock certificates and any other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares, expenses of registering and
qualifying shares of the Fund under federal and state laws and regulations,
expenses of printing and distributing reports, notices and proxy materials to
existing shareholders, expenses of printing and filing reports and other
documents filed with governmental agencies, expenses of annual and special
shareholders' meetings, fees and expenses of Directors of the Fund who are not
employees of the Investment Adviser or its affiliates, membership dues in the
Investment Company Institute, insurance premiums and extraordinary expenses such
as litigation expenses.
As compensation for its services, the Investment Adviser receives
monthly compensation at the annual rate of 0.25% of the average daily net assets
of the Fund. The Investment Adviser may waive all or part of its fee from time
to time in order to increase the Fund's net income available for distribution to
shareholders. The Fund will not be required to reimburse the Investment Adviser
for any advisory fees waived. In addition, the Investment Adviser and the
Administrator have voluntarily agreed to limit the total expenses of the Fund
[(excluding taxes, interest, brokerage, and extraordinary expenses)] to an
annual rate of 0.45% of the Fund's average daily net assets for an indefinite
time period. As long as this temporary expense limitation continues, it may
lower the Fund's expenses and increase its total return. In the event the
Investment Adviser and/or the Administrator remove the expense cap, the Fund's
expenses may increase and its total return may be reduced depending on the total
assets of the Fund.
The Advisory Agreement was approved on October 9, 1997 by the Fund's
Directors, including a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of the Fund or the Investment Adviser.
ADMINISTRATOR
The administration agreement (the "Administration Agreement") between
the Fund and AMT Capital Services, Inc., the "Administrator," will remain in
effect for a period of five successive annual periods. The Administrator
provides for, or assists in managing and supervising all aspects of, the general
day-to-day business activities and operations of the Fund other than investment
advisory activities, including custodial, transfer agency, dividend disbursing,
accounting, auditing, compliance and related services. The Fund pays the
Administrator a monthly fee at the annual rate of 0.15% of the Fund's average
daily net assets and the Administrator is entitled to reimbursement from the
Fund for its out-of-pocket expenses incurred under the Administration Agreement.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by the Distributor pursuant to the
distribution agreement (the "Distribution Agreement") between the Fund and the
Distributor, which is subject to the approval of the Fund's Board of Directors.
No fees are payable by the Fund pursuant to the Distribution Agreement, and the
Distributor bears the expense of its distribution activities. The Fund and the
Distributor have agreed to indemnify one another against certain liabilities.
SUPPLEMENTAL DESCRIPTIONS OF INVESTMENTS
The investment objective of the Fund is to provide investors with a
total return which consistently exceeds the total return of the broad U.S.
investment grade bond market. The different types of securities in which the
Fund may invest, subject to its investment objective, policies and restrictions,
are described in the Prospectus under "Descriptions of Investments." Additional
information concerning the characteristics of certain of the Fund's investments
are set forth below.
Bank Obligations. The Fund limits its investments in U.S.
bank obligations to obligations of U.S. banks that in the Investment
Adviser's opinion meet sufficient creditworthiness criteria.
The Fund limits its investments in foreign bank obligations to
obligations of foreign banks (including U.S. branches of foreign banks) that, in
the opinion of the Investment Adviser, are of an investment quality comparable
to obligations of U.S. banks in which the Fund may invest.
Eurodollar and Yankee Obligations. Eurodollar bank
obligations are dollar-denominated certificates of deposit and time
deposits issued outside the U.S. capital markets by foreign branches
of U.S. banks and by foreign banks. Yankee bank obligations are
dollar- denominated obligations issued in the U.S. capital markets by
foreign banks.
Investment Funds. The Fund is permitted to invest in investment funds and will
make such investments only where appropriate given that the Fund's shareholders
will bear indirectly the layer of expenses of the underlying investment funds in
addition to their proportionate share of the expenses of the Fund.
Mortgage-Backed Securities. Mortgage-backed securities are securities
which represent ownership interests in, or are debt obligations secured entirely
or primarily by, "pools" of residential or commercial mortgage loans or other
mortgage-backed securities (the "Underlying Assets"). In the case of
mortgage-backed securities representing ownership interests in the Underlying
Assets, the principal and interest payments on the underlying mortgage loans are
distributed monthly to the holders of the mortgage-backed securities. In the
case of mortgage-backed securities representing debt obligations secured by the
Underlying Assets, the principal and interest payments on the underlying
mortgage loans, and any reinvestment income thereon, provide the funds to pay
debt service on such mortgage-backed securities.
Certain mortgage-backed securities represent an undivided fractional
interest in the entirety of the Underlying Assets (or in a substantial portion
of the Underlying Assets, with additional interests junior to that of the
mortgage-backed security), and thus have payment terms that closely resemble the
payment terms of the Underlying Assets.
In addition, many mortgage-backed securities are issued in multiple
classes. Each class of such multi-class mortgage-backed securities ("MBS"),
often referred to as a "traunche", is issued at a specific fixed or floating
coupon rate and has a stated maturity or final distribution date. Principal
prepayment on the Underlying Assets may cause the MBSs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all or most classes of the MBSs on a periodic
basis, typically monthly or quarterly. The principal of and interest on the
Underlying Assets may be allocated among the several classes of a series of a
MBS in many different ways. In a relatively common structure, payments of
principal (including any principal prepayments) on the Underlying Assets are
applied to the classes of a series of a MBS in the order of their respective
stated maturities so that no payment of principal will be made on any class of
MBSs until all other classes having an earlier stated maturity have been paid in
full.
Municipal Instruments. Municipal notes may include such instruments as
tax anticipation notes, revenue anticipation notes, and bond anticipation notes.
Municipal notes are issued by state and local governments and public authorities
as interim financing in anticipation of tax collections, revenue receipts or
bond sales. Municipal bonds, which may be issued to raise money for various
public purposes, include general obligation bonds and revenue bonds. General
obligation bonds are backed by the taxing power of the issuing municipality and
are considered the safest type of bonds. Revenue bonds are backed by the
revenues of a project or facility such as the tolls from a toll bridge.
Industrial development revenue bonds are a specific type of revenue bond backed
by the credit and security of a private user. Revenue bonds are generally
considered to have more potential risk than general obligation bonds.
Municipal obligations can have floating, variable or fixed rates. The
value of floating and variable rate obligations generally is more stable than
that of fixed rate obligations in response to changes in interest rate levels.
Variable and floating rate obligations usually carry rights that permit the Fund
to sell them at par value plus accrued interest upon short notice. The issuers
or financial intermediaries providing rights to sell may support their ability
to purchase the obligations by obtaining credit with liquidity supports. These
may include lines of credit, which are conditional commitments to lend, and
letters of credit, which will ordinarily be irrevocable, both issued by domestic
banks or foreign banks which have a branch, agency or subsidiary in the United
States. When considering whether an obligation meets the Fund's quality
standards, the Investment Adviser will look at the creditworthiness of the party
providing the right to sell as well as to the quality of the obligation itself.
Municipal securities may be issued to finance private activities, the
interest from which is an item of tax preference for purposes of the federal
alternative minimum tax. Such "private activity" bonds might include industrial
development revenue bonds, and bonds issued to finance such projects as solid
waste disposal facilities, student loans or water and sewage projects
Other Asset-Backed Securities. The Fund may invest in other
asset-backed securities (unrelated to mortgage loans) including securities
backed by automobile loans and credit card receivables.
Repurchase Agreements. When participating in repurchase agreements, the
Fund buys securities from a vendor (e.g., a bank or securities firm) with the
agreement that the vendor will repurchase the securities at the same price plus
interest at a later date. Repurchase agreements may be characterized as loans
secured by the underlying securities. Such transactions afford an opportunity
for the Fund to earn a return on available cash at minimal market risk, although
the Fund may be subject to various delays and risks of loss if the vendor
becomes subject to a proceeding under the U.S. Bankruptcy Code or is otherwise
unable to meet its obligation to repurchase. The securities underlying a
repurchase agreement will be marked to market every business day so that the
value of such securities is at least equal to the value of the repurchase price
thereof, including the accrued interest thereon.
In addition, repurchase agreements may also involve the securities of certain
foreign governments in which there is an active repurchase market. The
Investment Adviser expects that such repurchase agreements will primarily
involve government securities of countries belonging to the Organization for
Economic Cooperation and Development ("OECD"). Transactions in foreign
repurchase agreements may involve additional risks.
U.S. Treasury and U.S. Government Agency Securities. U.S. Government
Securities include instruments issued by the U.S. Treasury, including bills,
notes and bonds. These instruments are direct obligations of the U.S. Government
and, as such, are backed by the full faith and credit of the United States. They
differ primarily in their interest rates, the lengths of their maturities and
the dates of their issuances. In addition, U.S. Government Securities include
securities issued by instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), which are also backed by the
full faith and credit of the United States. U.S. Government Agency Securities
include instruments issued by instrumentalities established or sponsored by the
U.S. Government, such as the Student Loan Marketing Association ("SLMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). While these securities are issued, in general,
under the authority of an Act of Congress, the U.S. Government is not obligated
to provide financial support to the issuing instrumentalities.
Variable Amount Master Demand Notes. Variable amount master demand
notes permit the investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangements between the Fund (as lender) and the borrower.
These notes are direct lending arrangements between lenders and borrowers, and
are generally not transferable, nor are they ordinarily rated by either Moody's
Investors Service, Inc., Standard & Poor's Corporation, Fitch Investors Service,
Inc., or Duff & Phelps Credit Rating Co.
Zero Coupon Securities and Custodial Receipts. Zero coupon securities
include securities issued directly by the U.S. Treasury, and U.S. Treasury bonds
or notes and their unmatured interest coupons and receipts for their underlying
principal (the "coupons") which have been separated by their holder, typically a
custodian bank or investment brokerage firm. A holder will separate the interest
coupons from the underlying principal (the "corpus") of the U.S. Treasury
security. A number of securities firms and banks have stripped the interest
coupons and receipts and then resold them in custodial receipt programs with a
number of different names, including "Treasury Income Growth Receipts" ("TIGRS")
and "Certificate of Accrual on Treasuries" ("CATS"). The underlying U.S.
Treasury bonds and notes themselves are held in book-entry form at the Federal
Reserve Bank or, in the case of bearer securities (i.e., unregistered securities
which are owned ostensibly by the bearer or holder thereof), in trust on behalf
of the owners thereof. Counsel to the underwriters of these certificates or
other evidences of ownership of the U.S. Treasury securities have stated that
for Federal tax and securities law purposes, in their opinion, purchasers of
such certificates, such as the Fund, most likely will be deemed the beneficial
holders of the underlying U.S. Treasury securities.
Recently, the Treasury has facilitated transfer of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "Separate Trading
of Registered Interest and Principal of Securities" ("STRIPS"). Under the STRIPS
program, the Fund can be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
holding certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
SUPPLEMENTAL DISCUSSION OF RISKS ASSOCIATED WITH THE Fund's
INVESTMENT POLICIES AND INVESTMENT TECHNIQUES
The risks associated with the different types of securities in which
the Fund may invest are described in the Prospectus under "Risks Associated With
the Fund's Investment Policies and Investment Techniques." Additional
information concerning risks associated with certain of the Fund's investments
is set forth below.
Eurodollar and Yankee Obligations. Eurodollar and Yankee obligations
are subject to the same risks that pertain to domestic issues, notably credit
risk, market risk and liquidity risk. Additionally, Eurodollar (and to a limited
extent, Yankee) obligations are subject to certain sovereign risks. One such
risk is the possibility that a sovereign country might prevent capital, in the
form of dollars, from flowing across their borders. Other risks include: adverse
political and economic developments; the extent and quality of government
regulation of financial markets and institutions; the imposition of foreign
withholding taxes; and the expropriation or nationalization of foreign issuers.
Futures contracts. The Fund may enter into contracts for the purchase
or sale for future delivery (a "futures contract") of fixed-income securities or
foreign currencies, or contracts based on financial indices including any index
of U.S. Government Securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which have
been designated as "contracts markets" by the CFTC, and must be executed through
a futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
The Fund will enter into futures contracts that are based on debt securities
that are backed by the full faith and credit of the U.S. Government, such as
long-term U.S. Treasury Bonds, Treasury Notes, GNMA-modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills.
The Fund would purchase or sell futures contracts to attempt to protect
the U.S. dollar-equivalent value of its securities from fluctuations in interest
or foreign exchange rates without actually buying or selling securities or
foreign currency. For example, if the Fund expected the value of a foreign
currency to increase against the U.S. dollar, the Fund might enter into futures
contracts for the sale of that currency. Such a sale would have much the same
effect as selling an equivalent value of foreign currency. If the currency did
increase, the value of the securities in the portfolio would decline, but the
value of the futures contracts to the Fund would increase at approximately the
same rate, thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities or currency, in most cases the contractual
obligation is fulfilled before the date of the contract without having to make
or take delivery of the securities or currency. The offsetting of a contractual
obligation is accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities or
currency. Since all transactions in the futures market are made, offset or
fulfilled through a clearinghouse associated with the exchange on which the
contracts are traded, the Fund will incur brokerage fees when it purchases or
sells futures contracts.
At the time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial margin"). It is
expected that the initial margin on U.S. exchanges may range from approximately
3% to approximately 15% of the value of the securities or commodities underlying
the contract. Under certain circumstances, however, such as periods of high
volatility, the Fund may be required by an exchange to increase the level of its
initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. An outstanding futures
contract is valued daily and the payment in cash of "variation margin" may be
required, a process known as "marking to the market." Each day the Fund will be
required to provide (or will be entitled to receive) variation margin in an
amount equal to any decline (in the case of a long futures position) or increase
(in the case of a short futures position) in the contract's value since the
preceding day.
Futures contracts entail special risks. Among other things, the
ordinary spreads between values in the cash and futures markets, due to
differences in the character of these markets, are subject to distortions
relating to (1) investors' obligations to meet additional variation margin
requirements, (2) decisions to make or take delivery, rather than entering into
offsetting transactions and (3) the difference between margin requirements in
the securities markets and margin deposit requirements in the futures market.
The possibility of such distortion means that a correct forecast of general
market, foreign exchange rate or interest rate trends by the Investment Adviser
may still not result in a successful transaction.
Although the Investment Adviser believes that use of such contracts and
options thereon will benefit the Fund, if the Investment Adviser's judgment
about the general direction of securities market movements, foreign exchange
rates or interest rates is incorrect, the Fund's overall performance would be
poorer than if it had not entered into any such contracts or purchased or
written options thereon. For example, if the Fund had hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decreased
instead, the Fund would lose part or all of the benefit of the increased value
of its assets which it had hedged because it would have offsetting losses in its
futures positions. In addition, particularly in such situations, if the Fund has
insufficient cash, it may have to sell assets from its portfolio to meet daily
variation margin requirements. Any such sale of assets may, but will not
necessarily, be at increased prices which reflect the rising market.
Consequently, the Fund may have to sell assets at a time when it may be
disadvantageous to do so.
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of a liquid market. Although the Fund generally will purchase or
sell only those futures contracts and options thereon for which there appears to
be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option thereon at any
particular time. Where it is not possible to effect a closing transaction in a
contract to do so at a satisfactory price, the Fund would have to make or take
delivery under the futures contract or, in the case of a purchased option,
exercise the option. In the case of a futures contract that the Fund has sold
and is unable to close out, the Fund would be required to maintain margin
deposits on the futures contract and to make variation margin payments until the
contract is closed.
Under certain circumstances, exchanges may establish daily limits in
the amount that the price of a futures contract or related option contract may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because the limit may prevent the liquidation of unfavorable positions. Futures
or options contract prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions and subject some traders to substantial losses.
Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as
hedging devices similar to those associated with options on foreign currencies
described above. Further, settlement of a foreign currency futures contract must
occur within the country issuing the underlying currency. Thus, the Fund must
accept or make delivery of the underlying foreign currency in accordance with
any U.S. or foreign restrictions or regulations regarding the maintenance of
foreign banking arrangements by U.S. residents and may be required to pay any
fees, taxes or charges associated with such delivery that are assessed in the
country of the underlying currency.
Illiquid and Restricted Securities. Under the 1940 Act, the Fund may
invest up to 15% of the value of its assets in illiquid assets. Illiquid assets
are investments that are difficult to sell at the price at which such assets are
valued by the Fund within seven days of the date a decision to sell them is
made. Securities treated as illiquid assets include: over-the-counter options;
repurchase agreements, time deposits, and dollar roll transactions maturing in
more than seven days; loan participations; securities without readily available
market quotations, including interests in private commingled investment vehicles
in which the Fund might invest; and certain restricted securities. Iliiquid and
restricted securities, including private placements, are generally subject to
legal or contractual restrictions on resale. They can be eligible for purchase
without SEC registration by certain institutional investors known as "qualified
institutional buyers."
The Board of Directors of the Fund may consider certain restricted
securities (including but not limited to Rule 144A and Section 4(2) commercial
paper) liquid if such securities meet specified criteria established by the
Fund's Board of Directors. Due to the absence of an organized market for such
securities, interim valuations of the market value of illiquid securities used
in calculating Fund net asset values for purchases and redemptions can diverge
substantially from their true value, notwithstanding the application of
appraisal methods deemed appropriate and prudent by the Fund's Board and the
Fund's independent accountants. Due to possible restrictions on the
transferability of illiquid securities, forced liquidation of such securities to
meet redemption requests could produce large losses. Although, the 1940 Act
permits the Fund to invest up to 15% of its assets in these securities; the
Investment Adviser does not anticipate investing over 5% of the Fund's assets in
these securities.
Mortgage and Other Asset-Backed Securities. Prepayments on securitized
assets such as mortgages, automobile loans and credit card receivables
("Securitized Assets") generally increase with falling interest rates and
decrease with rising interest rates; furthermore, prepayment rates are
influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. In addition to prepayment risk, borrowers on the underlying
Securitized Assets may default in their payments creating delays or loss of
principal.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of a security interest in assets underlying the related mortgage
collateral. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Some forms of asset-backed securities are relatively new forms of
investments. Although the Fund will only invest in asset-backed securities that
the Investment Adviser believes are liquid, because the market experience in
certain of these securities is limited, the market's ability to sustain
liquidity through all phases of a market cycle may not have been tested.
Options on Foreign Currencies. The Fund may purchase and sell (or
write) put and call options on foreign currencies to protect against a decline
in the U.S. dollar-equivalent value of its portfolio securities or payments due
thereon or a rise in the U.S. dollar-equivalent cost of securities that it
intends to purchase. A foreign currency put option grants the holder the right,
but not the obligation, at a future date to sell a specified amount of a foreign
currency to its counterparty at a predetermined price. Conversely, a foreign
currency call option grants the holder the right, but not the obligation, to
purchase at a future date a specified amount of a foreign currency at a
predetermined price.
As in the case of other types of options, the benefit to the Fund
deriving from the purchase of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of advantageous
changes in such rates.
The Fund may write options on foreign currencies for hedging purposes.
For example, where the Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the decrease in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar costs of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased costs up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if rates move in
the expected direction. If this movement does not occur, the option may be
exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be fully offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund also may be
required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements in exchange rates.
Options on Futures Contracts. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security or currency. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying securities or currency, it may or may not be less
risky than ownership of the futures contract or the underlying securities or
currency. As with the purchase of futures contracts, when the Fund is not fully
invested it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates or a change in foreign exchange
rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss that will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions in such options
is subject to the maintenance of a liquid secondary market. To mitigate this
problem, the Fund will not purchase or write options on foreign currency futures
contracts unless and until, in the Investment Adviser's opinion, the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with transactions in the
underlying foreign currency futures contracts. Compared to the purchase or sale
of foreign currency futures contracts, the purchase of call or put options
thereon involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a foreign
currency futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract, when use
of the underlying futures contract would not.
Options on Securities. The Fund may also enter into closing sale
transactions with respect to options it has purchased. A put option on a
security grants the holder the right, but not the obligation, at a future date
to sell the security to its counterparty at a predetermined price. Conversely, a
call option on a security grants the holder the right, but not the obligation,
to purchase at a future date the security underlying the option at a
predetermined price.
The Fund would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio or securities it
intends to purchase. If the Fund purchased a put option and the value of the
security in fact declined below the strike price of the option, the Fund would
have the right to sell that security to its counterparty for the strike price
(or realize the value of the option by entering into a closing transaction), and
consequently would protect itself against any further decrease in the value of
the security during the term of the option.
Conversely, if the Investment Adviser anticipates that a security that
it intends to acquire will increase in value, it might cause the Fund to
purchase a call option on that security or securities similar to that security.
If the value of the security does rise, the call option may wholly or partially
offset the increased price of the security. As in the case of other types of
options, however, the benefit to the Fund will be reduced by the amount of the
premium paid to purchase the option and any related transaction costs. If,
however, the value of the security fell instead of rose, the Fund would have
foregone a portion of the benefit of the decreased price of the security in the
amount of the option premium and the related transaction costs.
The Fund would purchase put and call options on securities indices for
the same purposes as it would purchase options on securities. Options on
securities indices are similar to options on securities except that the options
reflect the change in price of a group of securities rather than an individual
security and the exercise of options on securities indices are settled in cash
rather than by delivery of the securities comprising the index underlying the
option.
Transactions by the Fund in options on securities and securities
indices will be governed by the rules and regulations of the respective
exchanges, boards of trade or other trading facilities on which the options are
traded.
Considerations Concerning Options. The writer of an option receives a
premium which it retains regardless of whether the option is exercised. The
purchaser of a call option has the right, for a specified period of time, to
purchase the securities or currency subject to the option at a specified price
(the "exercise price"). By writing a call option, the writer becomes obligated
during the term of the option, upon exercise of the option, to sell the
underlying securities or currency to the purchaser against receipt of the
exercise price. The writer of a call option also loses the potential for gain on
the underlying securities or currency in excess of the exercise price of the
option during the period that the option is open.
Conversely, the purchaser of a put option has the right, for a
specified period of time, to sell the securities or currency subject to the
option to the writer of the put at the specified exercise price. The writer of a
put option is obligated during the term of the option, upon exercise of the
option, to purchase securities or currency underlying the option at the exercise
price. A writer might, therefore, be obligated to purchase the underlying
securities or currency for more than their current market price or U.S. dollar
value, respectively.
The Fund may purchase and sell both exchange-traded and OTC options.
Currently, although many options on equity securities and options on currencies
are exchange-traded, options on debt securities are primarily traded in the
over-the-counter market. The writer of an exchange-traded option that wishes to
terminate its obligation may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. Options of the same series are options with respect to the same
underlying security or currency, having the same expiration date and the same
exercise price. Likewise, an investor who is the holder of an option may
liquidate a position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction can be effected.
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. For a number of
reasons, a secondary market may not exist for options held by the Fund, or
trading in such options might be limited or halted by the exchange on which the
option is trading, in which case it might not be possible to effect closing
transactions in particular options the Fund has purchased with the result that
the Fund would have to exercise the options in order to realize any profit. If
the Fund is unable to effect a closing purchase transaction in a secondary
market in an option the Fund has written, it will not be able to sell the
underlying security or currency until the option expires or deliver the
underlying security or currency upon exercise or otherwise cover its position.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees every exchange-traded option transaction. In contrast, OTC
options are contracts between the Fund and its counterparty with no clearing
organization guarantee. Thus, when the Fund purchases OTC options, it relies on
the dealer from which it purchased the OTC option to make or take delivery of
the securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as the loss of the
expected benefit of the transaction. The Investment Adviser will only purchase
options from dealers determined by the Investment Adviser to be creditworthy.
Exchange-traded options generally have a continuous liquid market
whereas OTC options may not. Consequently, the Fund will generally be able to
realize the value of an OTC option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes an OTC
option, it generally will be able to close out the OTC option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the OTC option. Although the Fund will enter
into OTC options only with dealers that agree to enter into, and that are
expected to be capable of entering into, closing transactions with the Fund,
there can be no assurance that the Fund will be able to liquidate an OTC option
at a favorable price at any time prior to expiration. Until the Fund is able to
effect a closing purchase transaction in a covered OTC call option the Fund has
written, it will not be able to liquidate securities used as cover until the
option expires or is exercised or different cover is substituted. In the event
of insolvency of the counterparty, the Fund may be unable to liquidate an OTC
option. In the case of options written by the Fund, the inability to enter into
a closing purchase transaction may result in material losses to the Fund. For
example, since the Fund must maintain a covered position with respect to any
call option on a security it writes, the Fund may be limited in its ability to
sell the underlying security while the option is outstanding. This may impair
the Fund's ability to sell the Fund security at a time when such a sale might be
advantageous.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options market until they
reopen. Because foreign currency transactions occurring in the interbank market
involve substantially larger amounts than those that may be involved in the use
of foreign currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
The use of options to hedge the Fund's foreign currency-denominated
portfolio, or to enhance return raises additional considerations. As described
above, the Fund may, among other things, purchase call options on securities it
intends to acquire in order to hedge against anticipated market appreciation in
the price of the underlying security or currency. If the market price does
increase as anticipated, the Fund will benefit from that increase but only to
the extent that the increase exceeds the premium paid and related transaction
costs. If the anticipated rise does not occur or if it does not exceed the
amount of the premium and related transaction costs, the Fund will bear the
expense of the options without gaining an offsetting benefit. If the market
price of the underlying currency or securities should fall instead of rise, the
benefit the Fund obtains from purchasing the currency or securities at a lower
price will be reduced by the amount of the premium paid for the call options and
by transaction costs.
The Fund also may purchase put options on currencies or portfolio
securities when it believes a defensive posture is warranted. Protection is
provided during the life of a put option because the put gives the Fund the
right to sell the underlying currency or security at the put exercise price,
regardless of a decline in the underlying currency's or security's market price
below the exercise price. This right limits the Fund's losses from the
currency's or security's possible decline in value below the exercise price of
the option to the premium paid for the option and related transaction costs. If
the market price of the currency or the Fund's securities should increase,
however, the profit that the Fund might otherwise have realized will be reduced
by the amount of the premium paid for the put option and by transaction costs.
The value of an option position will reflect, among other things, the
current market price of the underlying currency or security, the time remaining
until expiration, the relationship of the exercise price to the market price,
the historical price volatility of the underlying currency or security and
general market conditions. For this reason, the successful use of options as a
hedging strategy depends upon the ability of the Investment Adviser to forecast
the direction of price fluctuations in the underlying currency or securities
market.
Options normally have expiration dates of up to nine months. The
exercise price of the options may be below, equal to or above the current market
values of the underlying securities or currency at the time the options are
written. Options purchased by the Fund that expire unexercised have no value,
and therefore a loss will be realized in the amount of the premium paid (and
related transaction costs). If an option purchased by the Fund is in-the-money
prior to its expiration date, unless the Fund exercises the option or enters
into a closing transaction with respect to that position, the Fund will not
realize any gain on its option position.
The Fund's activities in the options market may result in higher
portfolio turnover rates and additional brokerage costs. Nevertheless, the Fund
may also save on commissions and transaction costs by hedging through such
activities rather than buying or selling securities or foreign currencies in
anticipation of market moves or foreign exchange rate fluctuations.
Repurchase Agreements. The use of repurchase agreements involves
certain risks. For example, if the seller of the agreements defaults on its
obligation to repurchase the underlying securities at a time when the value of
these securities has declined, the Fund may incur a loss upon disposition of
them. If the seller of the agreement becomes insolvent and subject to
liquidation or reorganization under the Bankruptcy Code or other laws, a
bankruptcy court may determine that the underlying securities are collateral not
within the control of the Fund and therefore subject to sale by the trustee in
bankruptcy. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying securities. While the Fund's
management acknowledges these risks, it is expected that they can be controlled
through stringent security selection criteria and careful monitoring procedures.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions listed below relating to the
investment of the Fund's assets and its activities. These are fundamental
policies that may not be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund (which for this
purpose and under the 1940 Act means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares). The Fund may not:
(1) borrow money, including entering into reverse repurchase agreements; (2)
make loans except that it may enter into repurchase agreements; (3) issue senior
securities; (4) purchase securities on margin (although deposits referred to as
"margin" will be made in connection with investments in futures contracts, as
explained above, and the Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities); (5)
underwrite securities of other issuers; (6) invest in companies for the purpose
of exercising control or management; (7) purchase or sell real estate (other
than marketable securities representing interests in, or backed by, real
estate); or (8) purchase or sell physical commodities or related commodity
contracts.
Whenever an investment policy or limitation states a maximum percentage of the
Fund's assets that may be invested in any security or other asset or sets forth
a policy regarding quality standards, such standard or percentage limitation
shall be determined immediately after and as a result of the Fund's acquisition
of such security or other asset. Accordingly, any later increase or decrease in
a percentage resulting from a change in values, net assets or other
circumstances will not be considered when determining whether that investment
complies with the Fund's investment policies and limitations.
The Fund's investment objectives and other investment policies not designated as
fundamental in this Statement of Additional Information are non-fundamental and
may be changed at any time by action of the Board of Directors.
Illiquid Securities. The staff of the Commission has taken the position
that purchased OTC options and the assets used as cover for written OTC options
are illiquid securities. Therefore, the Fund has adopted an investment policy
pursuant to which it generally will not purchase or sell OTC options if, as a
result of such transaction, the sum of the market value of OTC options currently
outstanding that are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding that were sold by
the Fund and margin deposits on the Fund's existing OTC options on futures
contracts exceed 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund that are illiquid or are not
otherwise readily marketable. This policy as to OTC options is not a fundamental
policy of the Fund and may be amended by the Directors of the Fund without the
approval of the Fund's or the Fund's shareholders. However, the Fund will not
change or modify this policy prior to a change or modification by the Commission
staff of its position.
PORTFOLIO TURNOVER
The Fund may engage in portfolio trading when considered appropriate,
but short-term trading will not be used as the primary means of achieving its
investment objective. Although the Fund cannot accurately predict its portfolio
turnover rate, it is not expected to exceed 400% in normal circumstances.
However, there are no limits on the rate of portfolio turnover, and investments
may be sold without regard to length of time held when, in the opinion of the
Investment Adviser, investment considerations warrant such actions. Higher
portfolio turnover rates, such as rates in excess of 400%, and short-term
trading involve correspondingly greater commission expenses and transactions
costs.
PORTFOLIO TRANSACTIONS
The debt securities in which the Fund invests are traded primarily in
the over-the-counter market by dealers who are usually acting as principal for
their own account. On occasion, securities may be purchased directly from the
issuer. Such securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. The Fund enters into
financial futures and options contracts which normally involve brokerage
commissions.
The cost of executing transactions will consist primarily of dealer
spreads. The spread is not included in the expenses of the Fund and therefore is
not subject to the expense cap described above under "Investment Adviser and
Advisory Agreement"; nevertheless, the incurrence of this spread, ignoring the
other intended positive effects of each such transaction, will decrease the
total return of the Fund. However, the Fund will buy one asset and sell another
only if the Investment Adviser believes it is advantageous to do so after
considering the effect of the additional custodial charges and the spread on the
Fund's total return.
All purchases and sales will be executed with major dealers and banks
on a best net price basis. No trades will be executed with the Investment
Adviser, their affiliates, officers or employees acting as principal or agent
for others, although such entities and persons may be trading contemporaneously
in the same or similar securities.
TAX CONSIDERATIONS
The following summary of tax consequences, which does not purport to be
complete, is based on U.S. federal tax laws and regulations in effect on the
date of this Statement of Additional Information, which are subject to change by
legislative or administrative action.
Qualification as a Regulated Investment Company. The Fund intends to
qualify annually and to elect in the future to be treated as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a RIC, the Fund must, among other things, (a) derive
at least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures or forward contracts) derived from its business of
investing in securities or foreign currencies (the "Qualifying Income
Requirement"); (b) diversify its holdings so that, at the end of each quarter of
the Fund's taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government Securities, securities of other RICs and other securities, with such
other securities of any one issuer limited to an amount not greater than 5% of
the value of the Fund's total assets and not greater 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 of any one issuer (other than
U.S. Government Securities or the securities of other RICs); and (c) distribute
at least 90% of its investment company taxable income (which includes, among
other items, interest and net short-term capital gains in excess of net
long-term capital losses). The U.S. Treasury Department has authority to
promulgate regulations pursuant to which gains from foreign currency (and
options, futures and forward contracts on foreign currency) not directly related
to a RIC's principal business of investing in stocks and securities would not be
treated as qualifying income for purposes of the Qualifying Income Requirement.
To date, such regulations have not been promulgated.
If for any taxable year the Fund does not qualify as a RIC, all of its
taxable income will be taxed to the Fund at corporate rates. For each taxable
year that the Fund qualifies as a RIC, it will not be subject to federal income
tax on that part of its investment company taxable income and net capital gains
(the excess of net long-term capital gain over net short-term capital loss) that
it distributes to its shareholders. In addition, to avoid a nondeductible 4%
federal excise tax, the Fund must distribute during each calendar year an amount
at least equal to the sum of 98% of its ordinary income (not taking into account
any capital gains or losses), determined on a calendar year basis, 98% of its
capital gains in excess of capital losses, determined in general on an October
31 year-end basis, and any undistributed amounts from previous years. The Fund
intends to distribute all of its net income and gains by automatically
reinvesting such income and gains in additional shares of the Fund. The Fund
will monitor its compliance with all of the rules set forth in the preceding
paragraph.
Distributions. The Fund's automatic reinvestment of its ordinary
income, net short-term capital gains and net long-term capital gains in
additional shares of the Fund and distribution of such shares to shareholders
will be taxable to the Fund's shareholders. In general, such shareholders will
be treated as if such income and gains had been distributed to them by the Fund
and then reinvested by them in shares of the Fund, even though no cash
distributions have been made to shareholders. The automatic reinvestment of
ordinary income and net realized short-term capital gains of the Fund will be
taxable to the Fund's shareholders as ordinary income. The Fund's automatic
reinvestment of any net long-term capital gains designated by the Fund as
capital gain dividends will be taxable to the shareholders as long-term capital
gain, regardless of how long they have held their Fund shares. None of the
amounts treated as distributed to the Fund's shareholders will be eligible for
the corporate dividends received deduction. A distribution will be treated as
paid on December 31 of the current calendar year if it is declared by the Fund
in October, November or December with a record date in such a month and paid by
the Fund during January of the following calendar year. Such distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than in the calendar year in which the distributions are
received. The Fund will inform shareholders of the amount and tax status of all
amounts treated as distributed to them not later than 60 days after the close of
each calendar year.
Sale of Shares. Upon the sale or other disposition of shares of the
Fund, or upon receipt of a distribution in complete liquidation of the Fund, a
shareholder generally will realize a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on the sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after 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 the shareholder on a disposition of Fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
deemed received by the shareholder with respect to such shares.
Zero Coupon Securities. Investments by the Fund in zero coupon
securities will result in income to the Fund equal to a portion of the excess of
the face value of the securities over their issue price (the "original issue
discount") each year that the securities are held, even though the Fund receives
no cash interest payments. This income is included in determining the amount of
income which the Fund must distribute to maintain its status as a RIC and to
avoid the payment of Federal income tax and the 4% excise tax.
Hedging Transactions. Certain options, futures and forward contracts in
which the Fund may invest are "section 1256 contracts." Gains and losses on
section 1256 contracts are generally treated as 60 percent long-term and 40
percent short-term capital gains or losses ("60/40 treatment"), regardless of
the Fund's actual holding period for the contract. Also, a section 1256 contract
held by the Fund at the end of each taxable year (and generally, for the
purposes of the 4% excise tax, on October 31 of each year) must be treated as if
the contract had been sold at its fair market value on that day ("mark to market
treatment"), and any deemed gain or loss on the contract is subject to 60/40
treatment. Foreign currency gain or loss (discussed below) arising from section
1256 contracts may, however, be treated as ordinary income or loss.
The hedging transactions undertaken by the Fund may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains or losses realized by the Fund. In addition, losses realized
by the Fund on positions that are part of a straddle may be deferred under the
straddle rules rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Further, the Fund
may be required to capitalize, rather than deduct currently, any interest
expense on indebtedness incurred or continued to purchase or carry any positions
that are part of a straddle. Because only a few regulations implementing the
straddle rules have been implemented, the tax consequences to the Funds of
engaging in hedging transactions are not entirely clear. Hedging transactions
may increase the amount of short-term capital gain realized by the Funds which
is taxed as ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Code
that are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
accelerate the recognition of gains or losses from the affected straddle
positions.
Because the straddle rules may affect the amount, character and timing
of gains or losses from the positions that are part of a straddle, the amount of
Fund income that is distributed to shareholders and that is taxed to them as
ordinary income or long-term capital gain may be increased or decreased as
compared to a fund that did not engage in such hedging transactions.
The distribution requirements applicable to the Fund's assets may limit
the extent to which the Fund will be able to engage in transactions in options,
futures and forward contracts.
Backup Withholding. The Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all amounts deemed to be distributed as a
result of the automatic reinvestment by the Fund of its income and gains in
additional shares of the Fund and all redemption payments made to shareholders
who fail to provide the Fund with their correct taxpayer identification number
or to make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Backup withholding
is not an additional tax. Any amounts withheld will be credited against a
shareholder's U.S. federal income tax liability. Corporate shareholders and
certain other shareholders are exempt from such backup withholding.
Foreign Shareholders. U.S. taxation of a shareholder who,
as to the United States, is a non-resident alien individual, a
foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder") depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on
by such shareholder.
If the income from the Fund is not "effectively connected" with a U.S.
trade or business carried on by the foreign shareholder, deemed distributions by
the Fund of investment company taxable income will be subject to a U.S. tax of
30% (or lower treaty rate), which tax is generally withheld from such
distributions. Deemed distributions of capital gain dividends and any gain
realized upon redemption, sale or exchange of shares will not be subject to U.S.
tax at the rate of 30% (or lower treaty rate) unless the foreign shareholder is
a nonresident alien individual who is physically present in the U.S. for more
than 182 days during the taxable year and meets certain other requirements.
However, this 30% tax on capital gains of non-resident alien individuals who are
physically present in the United States for more than the 182-day period only
applies in exceptional cases because any individual present in the United States
for more than 182 days during the taxable year is generally treated as a
resident for U.S. federal income tax purposes. In that case, he or she would be
subject to U.S. federal income tax on his or her worldwide income at the
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a foreign shareholder who is a non-resident alien individual, the
Fund may be required to withhold U.S. federal income tax at a rate of 31% of
deemed distributions of net capital gains unless the foreign shareholder
certifies his or her non-U.S. status under penalties of perjury or otherwise
establishes an exemption. See "Backup Withholding" above.
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then deemed distributions of
investment company taxable income and capital gain dividends and any gain
realized upon the redemption, sale or exchange of shares of the Fund will be
subject to U.S. Federal income tax at the graduated rates applicable to U.S.
citizens or domestic corporations. Such shareholders may also be subject to the
branch profits tax at a 30% rate.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are advised to consult their own advisers with
respect to the particular tax consequences to them of an investment in the Fund.
SHAREHOLDER INFORMATION
Certificates representing shares of the Fund will not be issued to
shareholders. Investors Bank & Trust Company, the Fund's transfer agent (the
"Transfer Agent"), will maintain an account for each shareholder upon which the
registration and transfer of shares are recorded, and any transfers shall be
reflected by bookkeeping entry, without physical delivery. Detailed
confirmations of each purchase or redemption are sent to each shareholder.
Monthly statements of account are sent which include shares purchased as a
result of a reinvestment of the Fund's distributions.
The Transfer Agent will require that a shareholder provide requests in
writing, accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.). Neither the Fund, the Administrator, or the Transfer Agent will be
responsible for the validity of written or telephonic requests.
The Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption of the Fund by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value
(redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting the securities to cash.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
The Fund was incorporated on August 4, 1997 as a Maryland corporation and is
authorized to issue 2,500,000,000 shares of Common Stock, $0.001 par value. The
Fund's shares have no preemptive, conversion, exchange or redemption rights.
Each share has equal voting, dividend, distribution and liquidation rights. All
shares of the Fund, when duly issued, will be fully paid and nonassessable.
Shareholders are entitled to one vote per share. All voting rights for the
election of directors are noncumulative, which means that the holders of more
than 50% of the shares can elect 100% of the Directors then nominated for
election if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any Directors. The foregoing
description is subject to the provisions contained in the Fund's Articles of
Incorporation and By-laws.
The Board of Directors is authorized to reclassify and issue any
unissued shares of the Fund without shareholder approval. Accordingly, in the
future, the Directors may create additional series of portfolios with different
investment objectives, policies and restrictions. Any issuance of shares of
another class would be governed by the 1940 Act and Maryland law.
The Fund also issues another class of shares which may have different
operating and other expenses. For more information about other classes of the
Fund's shares, investors should contact the Distributor at the address or phone
number set forth on the cover of this Statement of Additional Information.
CALCULATION OF PERFORMANCE DATA
The Fund may, from time to time, include the yield and total return in
reports to shareholders or prospective investors. Quotations of yield for the
Fund will be based on all investment income per share during a particular 30-day
(or one month) period (including dividends and interest), less expenses accrued
during the period ("net investment income"), and are computed by dividing net
investment income by the maximum, offering price per share on the last day of
the period, according to the following formula which is prescribed by the
Commission:
YIELD = 2[( a - b + 1)6 - 1]
cd
Where a = dividends and interest earned
during the period,
b = expenses accrued for the period
(net of reimbursements),
c = the average daily number of Shares of the
Fund outstanding during he period that were
entitled to receive dividends, and
d = the maximum offering price per
share on the last day of the
period.
Quotations of average annual total return will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5 and 10 years (up to the life of the
Fund), calculated pursuant to the following formula which is prescribed by the
SEC:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of
$1,000,
T = the average annual total return, n = the number
of years, and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the period.
All total return figures assume that all dividends are
reinvested when paid.
QUALITY RATING DESCRIPTIONS
Standard & Poors Corporation
AAA. Bonds rated AAA are highest grade debt obligations.
This rating indicates an extremely strong capacity to pay principal
and interest.
AA. Bonds rated AA also qualify as high-quality obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay
interest or principal. Although these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and principal.
The ratings AA to D may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Municipal notes issued since July 29, 1984 are designated "SP-1",
"SP-2", and "SP-3". The designation SP-1 indicates a very strong capacity to pay
principal and interest. A "+" is added to those issues determined to possess
overwhelming safety characteristics.
A-1. Standard & Poor's Commercial Paper ratings are current assessments
of the likelihood of timely payments of debts having original maturity of no
more than 365 days. The A-1 designation indicates the degree of safety regarding
timely payment is very strong.
A-2. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's Investors Service, Inc.
Aaa. Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes
and may be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa. Baa rated bonds are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade ("MIG"). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of the
first importance in long-term borrowing risk are of lesser importance in the
short run.
MIG-1. Notes bearing this designation are of the best quality enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
MIG-2. Notes bearing this designation are of favorable quality, with
all security elements accounted for, but lacking the undeniable strength of the
previous grade. Market access for refinancing, in particular, is likely to be
less well established.
P-1. Moody's Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. The designation "Prime-1" or "P-1" indicates
the highest quality repayment capacity of the rated issue.
P-2. Issuers have a strong capacity for repayment of short-term
promissory obligations.
Thomson Bankwatch, Inc.
A. Company possess an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and unquestioned access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.
A/B. Company is financially very solid with a favorable track record
and no readily apparent weakness. Its overall risk profile, while low, is not
quite as favorable as companies in the highest rating category.
IBCA Limited
A1. Short-term obligations rated A1 are supported by a very strong
capacity for timely repayment. A plus sign is added to those issues determined
to possess the highest capacity for timely payment.
SAMCO Fixed Income Portfolio
Class B Shares
SAMCO Fixed Income Portfolio (the "Fund") is a portfolio of
SAMCO Fund, Inc. an open-end management investment company. The
investment objective of the Fund is to provide investors with a total
return which consistently exceeds the total return of the broad U.S.
investment grade bond market. The Fund is professionally managed and
seeks to achieve its objective through superior security selection
and emphasis on current income, while maintaining a duration neutral
posture. There can be no assurance that the Fund will achieve its
investment objective. See "Risk Factors."
Class B shares of the Fund may be purchased directly from
AMT Capital Services, Inc. (the "Distributor"), 600 Fifth Avenue, New
York, NY 10020 (800)762-4848. The minimum initial purchase is
$1,000. See "Purchase of Shares." A shareholder may redeem his or
her shares at any time at net asset value of the shares. See
"Redemption of Shares."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Fund
that is relevant to making an investment in Class B shares of the Fund. This
Prospectus should be retained for future reference. A statement containing
additional information about the Fund, dated November 1, 1997 (the "Statement of
Additional Information"), has been filed with the Securities and Exchange
Commission and can be obtained, without charge, by calling or by writing the
Distributor at the above telephone number or address. The Statement of
Additional Information is hereby incorporated by reference into this Prospectus.
SEIX INVESTMENT ADVISORS INC.--INVESTMENT ADVISER
AMT CAPITAL SERVICES, INC.--DISTRIBUTOR
The date of this Prospectus is November 1, 1997.
Table of Contents
Page SAMCO FIXED INCOME PORTFOLIO
PROSPECTUS SUMMARY
THE Fund's
EXPENSES
INVESTMENT
OBJECTIVE AND
POLICIES...
DESCRIPTION OF
INVESTMENTS..
RISK FACTORS.....
INVESTMENT
LIMITATIONS
MANAGEMENT OF THE
FUND........
PURCHASE OF SHARES
REDEMPTION OF
SHARES.....
THE Fund's
PERFORMANCE.
ADDITIONAL
INFORMATION.
SERVICE PROVIDERS
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND, THE DISTRIBUTOR OR THE INVESTMENT ADVISER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this Prospectus and in the Statement of
Additional Information.
The Fund and Its Investment Objective
The Fund is a no-load investment portfolio of the SAMCO Fund, Inc., an
open-end management investment company (the "Company") incorporated in the state
of Maryland on August 4, 1997. The investment objective of the Fund is to
provide investors with a total return which consistently exceeds the total
return of the broad U.S. investment grade bond market. The Fund is
professionally managed and seeks to achieve its objective through superior
security selection and emphasis on current income, while maintaining a duration
neutral posture. A duration neutral posture infers that the Fund's interest rate
sensitivity will be similar to that of its benchmark. Duration is a measure of
the expected life of a fixed-income security on a present value basis which
factors into account a bond's yield, coupon interest payments, final maturity
and call features. The current duration of the Fund's benchmark is 4.57 years
which may fluctuate on a daily basis. There can be no assurance that the Fund
will achieve its investment objective. See "Investment Objective and Policies."
The Investment Adviser
Seix Investment Advisors Inc. (the "Investment Adviser") serves as
the Fund's investment adviser. For its services as investment adviser, the
Fund pays the Investment Adviser a monthly fee at an annual rate of 0.25% of
the Fund's average daily net assets. The Investment Adviser believes the
advisory fee is comparable to that of other investment companies with similar
investment objectives. See "Management of the Fund."
Purchasing Shares
Shares of the Fund may be purchased without any sales charges at its
net asset value next determined after receipt of the order by submitting an
Account Application to the Distributor and wiring federal funds to the
Distributor's "Fund Purchase Account" at Investors Bank & Trust Company (the
"Transfer Agent"). Shares may be purchased directly from the Distributor. The
Fund is not available for sale in all states. For information about the Fund's
availability, contact an account representative at the Distributor.
The minimum initial investment is $1,000. The Fund reserves the right
to waive the minimum initial investment amount. There are no sales commissions
(loads). For more information, refer to "Purchase of Shares."
Redemption of Shares
Shares of the Fund may be redeemed, without charge, at the next
determined net asset value after receipt by either the Transfer Agent or the
Distributor of the redemption request. There is no redemption fee. For more
information, refer to "Redemption of Shares."
Dividends and Distributions
The Fund will distribute substantially all of its net investment income
to shareholders in the form of monthly dividends. Dividends are reinvested on
the last Business Day or paid in cash on the first Business Day of the following
month. If any net capital gains are realized from the sale of the underlying
securities, the Fund will distribute such gains with the last dividend for the
calendar year. All distributions are reinvested automatically, unless otherwise
specified in writing by the investor, in shares of the Fund. See "Additional
Information".
Risk Factors
Prospective investors in the Fund should consider certain risks
including interest rate risk which is the risk of bond price fluctuations due to
changing interest rates; prepayment risk which is the possibility that, during
periods of declining interest rates, higher-yielding securities with optional
prepayment rights will be repaid before scheduled maturity, and the Fund will be
forced to reinvest the unanticipated payments at lower interest rates; and
credit risk which is the risk that an issuer of securities held by the Fund will
be unable to make payments of interest or principal. A more detailed description
of the Fund's risks may be found under the heading "Risk Factors," and
"Supplemental Discussion of Risks Associated with the Fund's Investment Policies
and Investment Techniques" in the Statement of Additional Information.
THE Fund's EXPENSES
The following expense table is provided to assist investors in
understanding the various costs and expenses that an investor will incur, either
directly or indirectly, as a shareholder in the Fund, which are calculated as a
percentage of average daily net assets. These are the only fund related expenses
that an investor bears.
Annual Fund Operating Expenses (as a percentage of average net assets)
Management fees
0.25%
Rule 12b-1 fees
0.25%
Other expenses after reimbursement of expenses.
0.20%
Total Fund operating expenses (after reimbursement of expenses).
0.65%
See "Management of the Fund" for a description of fees and expenses.
"Other expenses" include fees for shareholder services, custodial,
administration, dividend disbursing and transfer agency fees, legal and
accounting fees, printing costs and registration fees. The Investment Adviser
and the Administrator have voluntarily agreed to limit the total expenses of the
Fund [(excluding interest, taxes, brokerage, and extraordinary expenses)] to an
annual rate of 0.45% of the Fund's average daily net assets for an indefinite
time period. As long as this temporary expense limitation continues; it may
lower the Fund's expenses and increase its total return. In the event the
Investment Adviser and the Administrator remove such expense cap, the Fund's
expenses may increase and its total return may be reduced depending on the total
assets of the Fund. Without such cap, the other expenses (on an annualized
basis) are expected to be approximately 0.50%, and the total annual operating
expenses (on an annualized basis) are expected to be approximately 0.75%. Such
figure is based on estimated amounts for the current fiscal year. See
"Management of the Fund."
Example: The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based upon payments by
the Fund of operating expenses set forth in the table above, and are also based
upon the following assumptions:
A shareholder would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
After 1 year $7
After 3 years $21
The purpose of this table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. This example should not be considered a representation of future
expenses and actual expenses may be greater or less than those shown. Moreover,
while the example assumes a 5% annual return, the Fund's performance will vary
and may result in a return greater or less than 5%.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide investors with a
total return which consistently exceeds the total return of the broad U.S.
investment grade bond market. The Fund is professionally managed and seeks to
achieve its objective through superior security selection and emphasis on
current income, while maintaining a duration neutral posture. This is a
fundamental investment objective and may not be changed without the affirmative
vote of the holders of a majority of the Fund's outstanding voting securities,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund seeks to achieve its objective through investments in fixed income
securities.
The Investment Adviser will manage the Fund based on its fixed income
approach which is founded upon four cornerstones: (1) Targeted Duration; (2)
Yield Tilt; (3) Comprehensive Sector Construction; and (4) the use of
Proprietary Analytics. Targeted Duration: The Fund will be managed with a
duration that is close to the duration of the Fund's benchmark, the Lehman
Brothers Aggregate Bond Index. Value is added through sector, security, and
yield curve decisions rather than maturity management. Yield Tilt: Although the
Fund is managed on a total return basis, a premium is placed on yield. Income is
considered the most powerful contributor to fixed income returns. Non-Treasury
sectors generally play a dominant role in the Fund. The yield of the benchmark
is used as a performance goal in addition to its total return. Comprehensive
Sector Construction: Sector allocation is generally determined on a bottom up
basis, depending on value areas within the fixed income market. Since the Fund
does not incur any of the risks of market timing, the Investment Adviser allows
larger than average allocations to different sectors. The Fund's portfolio will
usually maintain an overweighting in obligations of domestic or foreign
corporations Corporates and an underweighting of United States Treasury
securities, giving the Fund's portfolio a strategic yield advantage over the
Lehman Aggregate Index. Proprietary Analytics: Because of the growing complexity
of the bond market, the firm believes that the use of proprietary techniques is
key to identifying value and to adequately controlling risk.
Under normal circumstances, at least 65% of the Fund's total assets
will be invested in the broad universe of available U.S. dollar fixed income
securities, including but not limited to: (1) obligations issued or guaranteed
by the United States Government, such as United States Treasury securities; (2)
obligations backed by the full faith and credit of the United States, such as
obligations of the Government National Mortgage Association and the
Export-Import Bank; (3) obligations issued or guaranteed by United States
Government agencies, Government-Sponsored Enterprises (GSE's) or
instrumentalities where the Fund must look principally to the issuing or
guaranteeing agency for ultimate repayment; (4) obligations issued or guaranteed
by a foreign government, or any of its political subdivisions, authorities,
agencies, or instrumentalities or by supranational organizations; (5)
obligations of domestic or foreign corporations or other entities, including
securities issued under Rule 144A; (6) obligations of domestic or foreign banks;
(7) mortgage- and asset-backed securities (including Commercial Mortgage Backed
Securities and Collateralized Mortgage Obligations); (8) short-term investments
such as: time deposits, certificates of deposit (including marketable variable
rate certificates of deposit), bankers' acceptances issued by a commercial bank
or savings and loan association; and custodian's short-term investment fund
(STIF); (9) preferred stock; and (10) municipals (taxable and tax-exempt). The
Fund may only invest in investment grade securities that are those rated by one
or more nationally recognized statistical rating organizations (NRSROs) in one
of the four highest rating categories at the time of purchase (e.g. AAA, AA, A
or BBB by Standard & Poor's Corporation (Standard & Poor's), Duff & Phelps
Credit Rating Co. ("Duff & Phelps"), or Fitch Investors Service, Inc., (Fitch)
or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's). If the
security is unrated, it must meet, in the judgement of the Investment Adviser,
the above minimum credit quality standards.
The Fund's investment policies (other than its investment objective)
are not fundamental and may be changed by the Board of Directors of the Fund
without the approval of shareholders.
DESCRIPTION OF INVESTMENTS
The Fund may invest in the securities defined below in accordance with
their listing of allowable investments and any quality or policy constraints.
Agencies
The Fund may invest in agencies which are securities that are not
guaranteed by the United States Government, but which are issued, sponsored or
guaranteed by a federal agency or federally sponsored agency such as the Student
Loan Marketing Association or any of several other agencies.
Bank Obligations.
The Fund may invest in obligations of domestic and foreign banks,
including time deposits, certificates of deposit, bankers' acceptances, bank
notes, deposit notes, Eurodollar time deposits, Eurodollar certificates of
deposit, variable rate notes, loan participations, variable amount master demand
notes, and custodial receipts. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is adjusted periodically
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer, or storage of goods). The Fund will not concentrate more than
25% of its total assets in domestic bank obligations. Domestic bank obligations
include instruments that are issued by United States (domestic) banks; United
States branches of foreign banks, if such branches are subject to the same
regulations as United States banks; and foreign branches of United States banks,
if the Investment Adviser determines that the investment risk associated with
investing in instruments issued by such branches is the same as that of
investing in instruments issued by the United States parent bank, in that the
United States parent bank would be unconditionally liable in the event that the
foreign branch fails to pay on its instruments. Bank obligations entail varying
amounts of interest rate and credit risk, with the lowest-rated and
longest-dated bank obligations entailing the greatest risk of loss to the Fund.
CMOs--Collateralized Mortgage Obligations
The Fund may purchase collateralized mortgage obligations which are
derivatives that are collateralized by mortgage pass-through securities. Cash
flows from the mortgage pass-through securities are allocated to various
tranches (a "tranche" is essentially a separate security) in a predetermined,
specified order. Each tranche has a stated maturity - the latest date by which
the tranche can be completely repaid, assuming no prepayments - and has an
average life - the average of the time to receipt of a principal payment
weighted by the size of the principal payment. The average life is typically
used as a proxy for maturity because the debt is amortized (repaid a portion at
a time), rather than being paid off entirely at maturity, as would be the case
in a straight debt instrument.
Corporates
The Fund may invest in corporates which are debt instruments issued by
private corporations. Bondholders, as creditors, have a prior legal claim over
common and preferred stockholders of the corporation as to both income and
assets for the principal and interest due to the bondholder. The Fund will buy
corporates subject to any quality constraints. If a security held by the Fund is
downgraded, the Fund may retain the security if the Investment Adviser deems
retention of the security to be in the best interests of the Fund.
Floaters
Floaters--Floating and Variable Rate Obligations are debt obligations
with a floating or variable rate of interest, i.e. the rate of interest varies
with changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity.
Foreign Government and International and Supranational Agency Debt
Securities.
The Fund may purchase U.S. dollar denominated debt obligations issued
or guaranteed by foreign governments or their subdivisions, agencies, and
instrumentalities, and debt obligations issued or guaranteed by international
agencies and supranational entities.
Investment Grade Debt Securities
The Fund may invest in investment grade securities that are those rated
by one or more NRSROs in one of the four highest rating categories at the time
of purchase (e.g. AAA, AA, A or BBB by Standard & Poor's, Fitch, Duff & Phelps,
or Aaa, Aa, A or Baa by Moody's). Securities rated BBB or Baa represent the
lowest of four levels of investment grade securities and are regarded as
borderline between definitely sound obligations and those in which the
speculative element begins to predominate. Mortgage-backed securities, including
mortgage pass-throughs and collateralized mortgage obligations (CMOs), deemed
investment grade by the Investment Adviser, will either carry a guarantee from
an agency of the U.S. Government or a private issuer of the timely payment of
principal and interest (such guarantees do not extend to the market value of
such securities or the net asset value per share of the Fund) or, in the case of
unrated securities, be sufficiently seasoned that they are considered by the
Investment Adviser to be investment grade quality. The Investment Adviser may
retain securities if their ratings fall below investment grade if it deems
retention of the security to be in the best interests of the Fund. The Fund may
hold unrated securities if the Investment Adviser considers the risks involved
in owning that security to be equivalent to the risks involved in holding an
Investment Grade Security.
Mortgage-Backed Securities and Asset-Backed Debt Securities.
Mortgage-backed debt securities are secured or backed by mortgages or
other mortgage-related assets. Such securities may be issued by such entities as
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, savings and loan associations, mortgage banks, or by issuers
that are affiliates of or sponsored by such entities. Other asset-backed
securities are secured or backed by assets other than mortgage-related assets,
such as automobile and credit card receivables, and are issued by such
institutions as finance companies, finance subsidiaries of industrial companies,
and investment banks. The Fund will purchase only asset-backed securities that
the Investment Adviser determines to be liquid. The Fund will not purchase
mortgage backed or asset-backed securities that do not meet the above minimum
credit standards.
An important feature of mortgage-and asset-backed securities is that
the principal amount is generally subject to partial or total prepayment at any
time because the underlying assets (i.e., loans) generally may be prepaid at any
time. If an asset-backed security is purchased at a premium to par, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if an asset-backed security is
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity. It should
also be noted that these securities may not have any security interest in the
underlying assets, and recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
Municipal Debt Securities.
The Fund may, from time to time, purchase municipal debt securities
when, in the Investment Adviser's opinion, such instruments will provide a
greater return than taxable instruments of comparable quality. It is not
anticipated that such securities will ever represent a significant portion of
the Fund's assets. Fund distributions that are derived from interest on
municipal debt securities will be taxable to shareholders in the same manner as
distributions derived from taxable debt securities.
Preferred Stock.
The Fund may invest in preferred stock which is non-voting ownership
shares in a corporation which pay a fixed or variable stream of dividends.
Repurchase Agreements.
Repurchase agreements are transactions by which the Fund purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the Fund to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Investment
Adviser will continually monitor the value of the underlying collateral to
ensure that its value, including accrued interest, always equals or exceeds the
repurchase price.
When-lssued and Forward Commitment Securities.
The Fund may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. In such
transactions, instruments are bought with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. Delivery of and payment for these
securities may take more than a month after the date of the purchase commitment,
but will take place no more than 120 days after the trade date. No income
accrues prior to delivery on securities that have been purchased pursuant to a
forward commitment or on a when-issued basis. However, interest is generated on
the short-term investments that are segregated for the settlement of these
securities. At the time the Fund enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash or liquid
securities equal to the value of the when-issued or forward commitment
securities will be established in the Fund and maintained in the Fund and will
be marked to market daily. A short term investment in this segregated account
may not have a duration that exceeds 180 days. Forward commitments, or delayed
deliveries, are deemed to be outside the normal corporate settlement structure.
They are subject to segregation requirements; however, when a forward commitment
purchase is made to close a forward commitment sale, or vice versa, the
difference between the two may be netted for segregation purposes until
settlement date.
Zero Coupon Debt Securities.
The Fund may invest in zero coupon debt securities (bonds that pay no
interest but are originally sold at an original issue discount). Because they do
not pay interest until maturity, zero coupon securities tend to be subject to
greater fluctuation of market value in response to changes in interest rates
than interest-paying securities of similar maturities.
RISK FACTORS
Interest Rate Risk.
Interest rate risk is the risk of fluctuations in bond prices due to
changing interest rates. As a rule, bond prices vary inversely with market
interest rates. For a given change in interest rates, longer duration bonds
fluctuate more in price than shorter-maturity bonds. To compensate investors for
these larger fluctuations, longer duration bonds usually offer higher yields
than shorter-maturity bonds, other factors, including credit quality, being
equal. As the Fund's benchmark is the Lehman Brothers Aggregate Bond Index, it
is expected to be subject to a moderate level of interest rate risk, consistent
with that of the index.
Prepayment Risk.
Prepayment risk is the possibility that, during periods of declining
interest rates, higher-yielding securities with optional prepayment rights will
be repaid before scheduled maturity, and the Fund will be forced to reinvest the
unanticipated payments at lower interest rates. Debt obligations that can be
prepaid (including most mortgage-and asset-backed securities) will not enjoy as
large a gain in market value as other bonds when interest rates fall. In part to
compensate for prepayment risk, mortgage-and asset-backed securities generally
offer higher yields than bonds of comparable credit quality and maturity.
Credit Risk.
Credit risk is the risk that an issuer of securities held by
the Fund will be unable to make payments of interest or principal. The credit
risk assumed by the Fund is a function of the credit quality of its underlying
securities. The average credit quality of the Fund is expected to be high, and
thus credit risk, in the aggregate, should be low. The Fund will also be exposed
to event risk, the risk that corporate debt securities held by the Fund may
suffer a substantial decline in credit quality and market value due to a
corporate restructuring. Corporate restructurings, such as mergers, leveraged
buyouts, takeovers, or similar events, are often financed by a significant
increase in corporate debt. As a result of the added debt burden, the credit
quality and market value of a firm's existing debt securities may decline
significantly. While event risk may be high for certain securities held by the
Fund, event risk for the Fund in the aggregate should be low because of the
extensive diversification expected in the Fund. For further discussion of credit
risk, see "Investment Grade Debt Securities". The ratings of fixed income
securities by S&P, Moody's, Duff & Phelps, and Fitch are a generally accepted
barometer of credit risk. They are, however, subject to certain limitations from
an investor's standpoint. The rating of an issuer is heavily weighted by past
developments and does not necessarily reflect probable future conditions. There
is frequently a lag between the time a rating is assigned and the time it is
updated. In addition, there may be varying degrees of difference in credit risk
of securities within each rating category.
Non-Diversified Status
The Fund is classified as a "non-diversified" investment company under
the 1940 Act, which means the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. However, the Fund intends to conduct its operations so as to qualify as
a regulated investment company for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which generally will relieve the Fund of any
liability for federal income tax to the extent its earnings are distributed to
shareholders. See "Additional Information - Taxes." To so qualify, among other
requirements, the Fund will limit its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market value of the
Fund's total assets will be invested in securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer.
Under these investment requirements, the Fund must invest in at least
twelve securities positions. Ten of the positions may not exceed 5% of total
assets each at the time of purchase; the remaining two positions could each
comprise 25% of total assets at the time of purchase. Generally, it is
anticipated that the portfolio will consist of more than twelve positions. To
the extent that the Fund is less diversified, it may be more susceptible to
adverse economic, political, or regulatory developments affecting a single
issuer than would be the case if it were more broadly diversified.
INVESTMENT LIMITATIONS
The Fund may not:
(1) borrow money (including entering into reverse repurchase
agreements);
(2) make loans except that it may enter into Repurchase Agreements;
(3) invest more than 25% of the total assets of the Fund in the
securities of issuers having their principal activities in any particular
industry, except for tax-exempt obligations issued or guaranteed by the U.S.
government, its agencies, GSE's, instrumentalities or by any state, territory or
any possession of the United States or any of their authorities, agencies,
instrumentalities or political subdivisions, or with respect to repurchase
agreements collateralized by any of such obligations. For purposes of this
restriction, supranational issuers will be considered to comprise an industry as
will each foreign government that issues securities purchased by the Fund. In
the case of Asset Backed Securities, the industry will be defined by the
underlying assets in each trust. (For example, credit card receivables and auto
loans would each be considered separate industries); and
(4) invest the cash securing a forward commitment in mortgage backed
securities in investments that have a duration exceeding 180 days.
The limitations contained above may be changed only with the
affirmative vote of the holders of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act. The percentage limitations contained
above as well as elsewhere in this Prospectus and in the Statement of Additional
Information apply only at the time of purchase and the Fund will not be required
to dispose of securities upon subsequent fluctuations in market value.
MANAGEMENT OF THE FUND
Board of Directors
The Board of Directors of the Company consists of five individuals,
two of whom are not "interested persons" of the Fund as defined in the 1940
Act. The Directors of the Fund are responsible for the overall supervision of
the operations of the Fund and perform the various duties imposed on the
directors of investment companies by the 1940 Act. The Fund's Directors are
Christina Seix, John G. Talty, Peter J. Bourke, John E. Manley, Sr., and John
R. O'Brien. Additional information about the Directors and the Fund's
executive officers may be found in the Statement of Additional Information
under the heading "Management of the Fund."
Investment Adviser
Seix Investment Advisors Inc., established in 1992, is a registered
investment adviser that specializes in professional fixed income management for
corporations, public funds, endowments, foundations and hospitals. The
Investment Adviser currently has approximately $1.5 billion in assets under
management. The Investment Adviser is located at 300 Tice Boulevard, Woodcliff
Lake, NJ 07675.
Seix Investment Advisors Inc. acts as the investment adviser to the
Fund and provides the Fund with management and investment advisory services. The
advisory agreement with the Investment Adviser (the "Advisory Agreement")
provides that, subject to the direction of the Board of Directors of the Fund,
the Investment Adviser is responsible for the actual management of the Fund. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by the Board of Directors.
The Investment Adviser also is obligated to provide all the office space,
facilities, equipment and personnel necessary to perform its duties under the
Advisory Agreement.
The Investment Adviser receives monthly compensation at the annual
rate of 0.25% of the average daily net assets of the Fund. The Investment
Adviser may waive all or part of its fee from time to time in order to increase
the Fund's net income available for distribution to shareholders. The Fund will
not be required to reimburse the Investment Adviser for any advisory fees
waived. In addition, the Investment Adviser and the Administrator have
voluntarily agreed to limit the total expenses of the Fund [(excluding interest,
taxes, brokerage, and extraordinary expenses)] to an annual rate of 0.45% of the
Fund's average daily net assets for an indefinite time period. As long as this
temporary expense limitation continues, it may lower the Fund's expenses and
increase its total return. In the event the Investment Adviser and the
Administrator remove the expense cap, the Fund's expenses may increase and its
total return may be reduced depending on the total assets of the Fund.
The Fund is responsible for paying certain expenses incurred in its
operations including, among other things, the investment advisory and
administrative fees, legal and audit fees, unaffiliated Directors' fees and
expenses, custodian and transfer agency fees, certain insurance premiums,
accounting and pricing costs, federal and state registration fees, the costs of
issuing and redeeming shares, costs of shareholder meetings, any extraordinary
expenses and certain of the costs of printing proxies, shareholders reports,
prospectuses and statements of additional information. The Fund also pays for
brokerage fees and commissions in connection with the purchase and sale of
portfolio securities.
Portfolio Managers
Christina Seix, CFA, Chairman, CEO & Chief Investment Officer
Formerly, Chairman & CEO, Head of Investment Policy, MacKay-Shields
Total Investment Experience: 24 years
BA, Fordham University, Mathematics
MA, SUNY, Mathematics
John Talty, CFA, President & Senior Portfolio Manager
Formerly, Chief Fixed Income Strategist, J.P. Morgan Securities
Total Investment Experience: 16 years
B.A., Connecticut College, Economics, Phi Beta Kappa, Magna Cum Laude
Barbara Hoffmann, Managing Director and Senior Portfolio Manager
Formerly, Senior Portfolio Manager, MetLife Investment Management Co.
Total Investment Experience: 18 years
BS, University of Maine, Education/Mathematics
Michael McEachern, CFA, Director and Senior Portfolio Manager
Formerly, Vice President, Fixed Income, American General Corp.
Total Investment Experience: 13 years
BA, University of California, Operations Research
MBA, Rice University, Accounting/Public Administration
Joseph Calabrese, Director and Senior Portfolio Manager
Formerly, Director, Fixed Income, MetLife Insurance Company
Total Investment Experience: 10 years
BS, New Jersey Institute of Technology, Industrial Engineering
MBA, New York University, Finance
Administrator
AMT Capital Services, Inc., (in its capacity as administrator, the
"Administrator") acts as the Fund's administrator pursuant to an administration
agreement (the "Administration Agreement"). Pursuant to the Administration
Agreement, the Administrator is responsible for providing administrative
services to the Fund and assists in managing and supervising all aspects of the
general day-to-day business activities and operations of the Fund other than
investment advisory activities, including certain accounting, auditing,
clerical, bookkeeping, custodial, transfer agency, dividend disbursing,
compliance and related services, Blue Sky compliance, corporate secretarial
services and assistance in the preparation and filing of tax returns and reports
to shareholders and the SEC. The Fund pays the Administrator a monthly fee at
the annual rate of 0.15% of the Fund's average daily net assets and the
Administrator is entitled to reimbursement from the Fund for its out-of-pocket
expenses incurred under the Administration Agreement.
Transfer Agent
The Transfer Agent, with offices located at 200 Clarendon Street,
Boston, Massachusetts 02116, acts as the Fund's transfer agent pursuant to a
transfer agency, dividend disbursing agency and shareholder servicing agency
agreement (the "Transfer Agent Agreement"). Pursuant to the Transfer Agent
Agreement, the Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
The Transfer Agent is entitled to reimbursement from the Fund for out-of-pocket
expenses incurred by the Transfer Agent under the Transfer Agent Agreement.
Rule 12b-1 Plan
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Fund may pay a quarterly
distribution related fee at an amount not to exceed 0.25% of the average daily
value of the Fund's net assets. Such amounts received under the Plan are to be
used to for payments to qualifying dealers for their assistance in the
distribution of the Fund's shares and the provision of shareholder services and
for other expenses such as advertising costs and the payment for the printing
and distribution of prospectuses to prospective investors.
PURCHASE OF SHARES
There is no sales charge imposed by the Fund. The minimum initial
investment in the Fund is $100,000; additional purchases may be of any amount.
The offering of shares of the Fund is continuous and purchases of
shares of the Fund may be made Monday through Friday, except for the holidays
declared by the Federal Reserve Banks of New York or Boston (a "Business Day").
At the present time, these holidays are: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day, Fourth of July, Labor Day, Columbus Day,
Veterans Day, Thanksgiving, and Christmas. The Fund's shares are offered at a
public offering price equal to the net asset value next determined after receipt
of a purchase order.
In order to purchase shares on a particular Business Day, subject to
the offering dates described above, a purchaser must submit a completed Account
Application Form (and other required documents) and call the Distributor at
(800) 762-4848 [or within the City of New York, (212) 332-5211] prior to 4:00
p.m. Eastern time to inform the Fund of the incoming wire transfer. If Federal
funds are received by the Fund that same day, the order will be effective on
that day. If the Fund receives notification after 4:00 p.m. Eastern time, or if
Federal funds are not received by the Transfer Agent, such purchase order shall
be executed as of the date that Federal funds are received. Shares purchased
will begin accruing dividends on the day Federal funds are received.
Purchases of shares must be made by wire transfer of Federal funds.
Please note that the shareholder's bank may impose a charge to execute the wire
transfer. The wiring instructions for purchasing shares of the Fund are:
Investors Bank & Trust Company
Boston, MA
ABA # xx-xxxx-xxx
Acct: 999XXXXXXX
Benf: SAMCO Fixed Income Fund
F/F/C (Shareholder's Account at Fund)
REDEMPTION OF SHARES
The Fund will redeem all full and fractional shares of the Fund upon
request of shareholders. The redemption price is the net asset value per share
next determined after receipt by the Transfer Agent of proper notice of
redemption as described below. If such notice is received by the Transfer Agent
by 12:00 p.m. Eastern time on any Business Day, the redemption will be effective
on the date of receipt. If such notice of redemption is received by the Transfer
Agent after 12:00 p.m. Eastern time, the redemption of the shareholder shall be
effective on the following Business Day. Payment will ordinarily be made by wire
on the next Business Day but within no more than seven days from the date of
receipt. If the notice is received on a day that is not a Business Day or after
the above-mentioned cut-off times, the redemption notice will be deemed received
as of the next Business Day.
There is no charge imposed by the Fund to redeem shares of the Fund;
however, a shareholder's bank may impose its own wire transfer fee for receipt
of the wire. Redemptions may be executed in any amount requested by the
shareholder up to the amount such shareholder has invested in the Fund.
To redeem shares, a shareholder or any authorized agent (so designated
on the Account Application Form) must provide the Transfer Agent with the dollar
or share amount to be redeemed, the account to which the redemption proceeds
should be wired (which account shall have been previously designated by the
shareholder on its Account Application Form), the name of the shareholder and
the shareholder's account number. Shares redeemed receive dividends up to and
including the day preceding the day the redemption proceeds are wired.
A shareholder may change its authorized agent or the account designated
to receive redemption proceeds at any time by writing to the Transfer Agent with
an appropriate signature guarantee. Further documentation may be required when
deemed appropriate by the Transfer Agent.
A shareholder may request redemption by calling the Transfer Agent at
(800) 247-0473. Telephone redemption is made available to shareholders of the
Fund on the Account Application Form. The Fund and the Transfer Agent may employ
reasonable procedures designed to confirm that instructions communicated by
telephone are genuine. If either the Fund or the Transfer Agent does not employ
such procedures, it may be liable for losses due to unauthorized or fraudulent
instructions. The Fund or the Transfer Agent may require personal identification
codes and will only wire funds through pre-existing bank account instructions.
No bank instruction changes will be accepted via telephone.
THE Fund's PERFORMANCE
Total Return
From time to time, the Fund may advertise certain information about
its performance. The Fund may present its "average annual total return" over
various periods of time. Such total return figures show the average annual
percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the end of the measuring period. These figures
reflect changes in the price of the Fund's shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested in shares of the Fund. Figures may be given for the most current
one-, five- and ten-year periods (or the life of the Fund, if it has not been in
existence for any such period) and may be given for other periods as well. When
considering "average" total return figures for periods longer than one year, it
is important to note that the Fund's annual total return for any one year in the
period might have been greater or less than the average for the entire period.
In addition, the Fund may make available information as to its respective
"yield" and "effective yield" over a thirty-day period, as calculated in
accordance with the Securities and Exchange Commission's prescribed formula. The
"effective yield" assumes that the income earned by an investment in the Fund is
reinvested, and will therefore be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
Furthermore, in reports or other communications to shareholders or in
advertising material, the Fund may compare its performance with that of other
mutual funds as listed in the rankings prepared by Lipper Analytical Services,
Inc. or similar independent services which monitor the performance of mutual
funds, other industry or financial publications or financial indices such as the
Lehman Brothers Aggregate Bond Index or a composite benchmark index. It is
important to note that the total return figures are based on historical returns
and are not intended to indicate future performance.
ADDITIONAL INFORMATION
Dividends and Distributions
Dividends are automatically reinvested in additional shares of the Fund
on the last day of each month at the net asset value per share on the last
Business Day of that month. Shareholders must indicate their desire to receive
dividends in cash (payable on the first Business Day of the following month) on
the Account Application Form. Otherwise all dividends will be reinvested in
additional shares as described above. In the event that the Fund realizes net
long-term capital gains (i.e., with respect to assets held more than 18 months),
it will distribute them at least annually by automatically reinvesting (unless a
shareholder has elected to receive cash) such long-term capital gains in
additional shares of the Fund at the net asset value on the date the
distribution is declared.
The net investment income (including accrued but unpaid interest and
amortization of original issue and market discount or premium) of the Fund will
be declared as a dividend payable monthly to shareholders of record as of the
last Business Day of each month. The Fund will also declare, to the extent
necessary, a net short-term capital gain dividend once per year. Dividends are
paid on the first Business Day of the month.
Determination of Net Asset Value
The net asset value per share of the Fund is determined each Business
Day the Fund is open. The net asset value per share is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. Expenses, including the
investment advisory fees payable to the Investment Adviser, are accrued daily.
The following methods are used to calculate the value of the Fund's
assets: (1) all portfolio securities for which over-the-counter market
quotations are readily available (including asset-backed securities) are valued
at the latest bid price; (2) deposits and repurchase agreements are valued at
their cost plus accrued interest unless the Investment Adviser determines in
good faith, under procedures established by and under the general supervision of
the Fund's Board of Directors, that such value does not approximate the fair
value of such assets; (3) positions (e.g., futures and options) listed or traded
on an exchange are valued at their last sale price on that exchange (or if there
were no sales that day for a particular position, that position is valued at the
closing bid price); and (4) the value of other assets will be determined in good
faith by the Investment Adviser at fair value under procedures established by
and under the general supervision of the Fund's Board of Directors.
Taxes
The following discussion is only a brief summary of some of the
important tax considerations affecting the Fund and its shareholders. No attempt
is made to present a detailed explanation of all federal, state, local and
foreign income tax considerations, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, potential investors are urged
to consult their own tax advisers with specific reference to their own tax
situation.
The Fund intends to qualify and elect to be treated as a "regulated
investment company" for federal income tax purposes under Subchapter M of the
Code. If so qualified, the Fund will not be subject to federal income taxes on
its net investment income (i.e., its investment company taxable income) as that
term is defined in the Code, determined without regard to the deduction for
dividends paid) and net capital gain (i.e., the excess of the Fund's net
long-term capital gain over its net short-term capital loss), if any, that it
distributes to its shareholders in each taxable year. To qualify as a regulated
investment company, the Fund must, among other things, distribute to its
shareholders at least 90% of its net investment company taxable income for such
taxable year. However, the Fund would be subject to corporate federal income tax
at a rate of 35% on any undistributed income or net capital gain. The Fund will
be subject to a 4% nondeductible excise tax on its taxable income to the extent
it does not meet certain other distribution requirements. If in any year the
Fund should fail to qualify as a regulated investment company, the Fund would be
subject to federal income tax in the same manner as an ordinary corporation and
distributions to shareholders would be taxable to such holders as ordinary
income to the extent of the earnings and profits of the Fund. Such distributions
would qualify for the dividends-received deduction available to corporate
shareholders. Distributions in excess of earnings and profits would be treated
as a tax-free return of capital, to the extent of a holder's basis in its
shares, and any excess, as a long- or short-term capital gain.
Distributions paid by the Fund from net investment income are
designated by the Fund as "ordinary income dividends" and, whether paid in cash
or reinvested in additional shares, will be taxable to Fund shareholders that
are otherwise subject to tax as ordinary income. Distributions made from the
Fund's net capital gain which are designated by the Fund as "capital gains
dividends" are taxable to shareholders as long-term capital gains, regardless of
the length of time the shareholder has owned Fund shares. Shareholders receiving
distributions from the Fund in the form of additional shares will be treated for
federal income tax purposes as receiving a distribution in an amount equal to
the net asset value of the additional shares on the date of such a distribution.
Gain or loss, if any, recognized on the sale or other disposition of
shares of the Fund will be taxed as capital gain or loss if the shares are
capital assets in the shareholder's hands. Generally, a shareholder's gain or
loss will be a long-term gain or loss if the shares have been held for more than
18 months. If a shareholder sells or otherwise disposes of a share of the Fund
before holding it for more than six months, any loss on the sale or other
disposition of such share shall be treated as a long-term capital loss to the
extent of any capital gain dividends received by the shareholder with respect to
such share. A loss realized on a sale or exchange of shares may be disallowed if
other shares are acquired within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of.
Dividends and distributions by the Fund are generally taxable to the
shareholders at the time the dividend or distribution is made. Any dividend
declared in December of any year, however, that is payable to shareholders of
record on a specified date in such month will be deemed to have been received by
the shareholders and paid by the Fund on December 31 of such year in the event
such dividends are actually paid during January of the following year.
The Fund may be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number, (ii) the Internal Revenue Service ("IRS") notifies the
Fund that the shareholder has failed to report properly certain interest and
dividend income to the IRS and to respond to notices to that effect, or (iii)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding.
Organization of the Fund
The Fund is a portfolio of SAMCO Fund, Inc., an open-end management
investment company, which was incorporated under Maryland law on August 4, 1997.
The Company has an authorized capital of 2,500,000,000 shares of Common Stock,
par value $0.001 per share. The Fund currently is the only organized series of
the Company. The Board of Directors may, in the future, establish additional
portfolios which may have different investment objectives. All shares of each
fund will have equal voting rights and each shareholder is entitled to one vote
for each full share held and fractional votes for fractional shares held and
will vote on the election of Directors and any other matter submitted to a
shareholder vote. The Company is not required and does not intend to hold
meetings of shareholders. The Fund has undertaken to call a meeting of
shareholders upon a written request of 10% of the Fund's outstanding shares, for
the purpose of voting on removal of one or more directors and the Fund will
assist shareholder communications with regard to such a meeting, as provided
under Section 16(c) of the 1940 Act. Shares of the Fund will, when issued, be
fully paid and non-assessable and have no preemptive or conversion rights. Each
share is entitled to participate equally in dividends and distributions declared
by the Fund and in the net assets of the Fund on liquidation or dissolution
after satisfaction of outstanding liabilities. The Fund also issues another
class of shares which may have different operating and other expenses. For more
information about other classes of the Fund's shares, investors should contact
the Distributor at the address or phone number set forth on the cover of this
Prospectus.
SERVICE PROVIDERS
Custodian and Accounting Agent
Investors Bank & Trust Company, 200 Clarendon Street, Boston,
Massachusetts 02116, is Custodian and Accounting Agent for the Fund.
Transfer and Dividend Disbursing Agent
Investors Bank & Trust Company, 200 Clarendon Street, Boston,
Massachusetts 02116, is Transfer Agent for the shares of the Fund, and
Dividend Disbursing Agent for the Fund.
Legal Counsel
Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York 10112,
is legal counsel for the Fund.
Independent Auditors
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, is the
independent auditor for the Fund. Ernst & Young LLP also renders accounting
services to the Investment Adviser.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Fund or the Distributor
at the addresses or telephone numbers set forth on the cover page of this
Prospectus.
APPENDIX A
Description of Bond Ratings*
Duff & Phelps Credit Rating Co.
AAA: Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs are not used in the AAA category.
Fitch Investors Service, Inc.
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality
and carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation
AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
APPENDIX B
Description of Commercial Paper Ratings
Moody's Investors Service, Inc.
Prime-1 Issuers (or related supporting institutions) rated "P-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2 Issuers (or related supporting institutions) rated "P-2" have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
Standard & Poor's Corporation
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
- --------
* As described by the rating companies themselves.
STATEMENT OF ADDITIONAL INFORMATION
(Class B shares only)
SAMCO FIXED INCOME PORTFOLIO
600 Fifth Avenue, 26th Floor
New York, New York 10020
(212) 332-5211
SAMCO Fixed Income Portfolio (the "Fund") is a portfolio of
SAMCO Fund, Inc. an open-end management investment company. Shares of
the Fund may be purchased through AMT Capital Services, Inc. (the
"Distributor").
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Fund, dated November 1, 1997
(the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling or
writing the Distributor at the telephone number or address stated below. This
Statement of Additional Information incorporates by reference the Prospectus.
Distributed by: AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, New York 10020
(212) 332-5211
(800) 762-4848 (outside New York
City)
The date of this Statement of Additional
Information is November 1, 1997
TABLE OF CONTENTS
Page
Organization of the Fund.....................................................
Management of the Fund........................................................
Board of Directors and Officers......................................
Investment Adviser...................................................
Administrator........................................................
Distribution of Fund Shares....................................................
Supplemental Descriptions of Investments.....................................
Supplemental Investment Techniques............................................
Supplemental Discussion of Risks Associated With the
Fund's Investment Policies and Investment Techniques........................
Options.............................................................
Futures Contracts and Options on Futures Contracts...................
Investment Restrictions.......................................................
Portfolio Transactions.........................................................
Tax Considerations............................................................
Shareholder Information........................................................
Calculation of Performance Data...............................................
Financial Statements...........................................................
Appendix ......................................................................
Quality Rating Descriptions..........................................
ORGANIZATION OF THE FUND
The authorized capital stock of the Fund consists of 2,500,000,000
shares with $.001 par value. Every share issued by the Fund has equal voting
rights; shareholders receive one vote for each share held. All shares issued and
outstanding are fully paid and non-assessable, transferable, and redeemable at
net asset value at the option of the shareholder. Shares have no preemptive or
conversion rights.
The shares of the Fund have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS AND OFFICERS
The Fund is managed by its Board of Directors. The Directors and
officers of the Fund and their principal occupations during the past five years
are set forth below. An asterisk (*) has been placed next to the name of each
director who is an "interested person" of the Fund, as such term is defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), by virtue of
his affiliation with the Fund or the Fund's investment adviser, Seix Investment
Advisors Inc. (the "Investment Adviser").
<TABLE>
<S> <C> <C>
Name, Address and Age Office Principal Occupation During Past Five Years
*Christina Seix Director Seix Investment Advisors Inc., Chairman and Chief
Investment Officer 1992-Present
300 Tice Blvd.
Woodcliff Lake, NJ 07675
Age: 47
*John G. Talty Director Seix Investment Advisors Inc., President 1993-Present
300 Tice Blvd.
Woodcliff Lake, NJ 07675
Age: 39
*Peter J. Bourke Director Seix Investment Advisors Inc., Managing Director 1993-Present
300 Tice Blvd. Assistant Secretary
Woodcliff Lake, NJ 07675
Age: 46
John R. O'Brien Director Retired
275 manor Road
Ridgewood, NJ 07450
Age: 66
John E. Manley, Sr. Director Consultant to Mutual of America
86505 Holmes April 1996- March 1997
Chapel Hill, NC 27514 Senior Vice President, Mutual of America
Age: 64 July 1985-March 1996
Carla E. Dearing Assistant Treasurer AMT Capital Services, Inc., President, Principal and
AMT Capital Services, Inc. Director, 1/92 - present; AMT Capital Advisers, Inc.,
600 Fifth Avenue, 26th Floor Principal and Senior Vice President, 1/92 - present; Morgan
New York, NY 10020 Stanley & Co., Vice President, 11/88 - 1/92.
Age:35
William E. Vastardis Secretary AMT Capital Services, Inc., Managing Director 7/92 - present;
AMT Capital Services, Inc. Vanguard Group Inc., Vice President, 1/87 - 4/92.
600 Fifth Avenue, 26th Floor
New York, NY 10020
Age:41
Paul Brook Treasurer AMT Capital Services, Inc., Managing Director 8/97-Present
AMT Capital Services, Inc. Ernst & Young LLP,
600 Fifth Avenue, 26th Floor
New York, NY 10020
Age:44
</TABLE>
No employee of the Investment Adviser nor the Distributor receives any
compensation from the Fund for acting as an officer or director of the Fund. The
Fund pays each director who is not a director, officer or employee of the
Investment Adviser or the Distributor or any of their affiliates, a fee of $500
for each meeting attended, and each of the Directors receive an annual retainer
of $1,000 which is paid in quarterly installments.
Estimated Director's Compensation Table
Fiscal Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
Director Aggregate Pension or Estimated Total
Compensation From Retirement Benefits Annual Compensation
Registrant Accrued As Part of benefits Upon From Registrant
Fund Expenses Retirement and Fund Complex
Paid to Directors
John E. Manley, Sr. $2,500 $0 $0 $0
John R. O'Brien $2,500 $0 $0 $0
</TABLE>
By virtue of the responsibilities assumed by the Investment Adviser and the
Distributor and their affiliates under their respective agreements with the
Fund, the Fund itself requires no employees in addition to its officers.
INVESTMENT ADVISER AND ADVISORY AGREEMENT
Seix Investment Advisors Inc., established in 1992, is a registered
investment adviser that specializes in professional fixed income management for
corporations, public funds, endowments, foundations and hospitals. Christina
Seix may be deemed a "controlling person" of the Investment Adviser on the basis
of her ownership of the Investment Adviser's stock.
Pursuant to the terms of the advisory agreement between the Fund and
the Investment Adviser (the "Advisory Agreement"), the Investment Adviser,
subject to the control and supervision of the Fund's Board of Directors and in
conformance with the stated investment objectives and policies of the Fund,
shall manage the investment and reinvestment of the assets of the Fund. In this
regard, it is the responsibility of the Investment Adviser to make investment
decisions for the Fund and to place the Fund's purchase and sales orders for
investment securities.
The Advisory Agreement shall remain in effect for two years following
its date of execution and thereafter will automatically continue for successive
annual periods, so long as such continuance is specifically approved at least
annually by (a) the Board of Directors or (b) the vote of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding shares voting as a single
class; provided, that in either event the continuance is also approved by at
least a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Investment Adviser by vote cast in
person at a meeting called for the purpose of voting on such approval.
The Advisory Agreement is terminable without penalty on not less than
60 days' notice by the Board of Directors or by a vote of the holders of a
majority of the Fund's outstanding shares voting as a single class, or upon not
less than 60 days' notice by the Investment Adviser. The Advisory Agreement will
terminate automatically in the event of its "assignment" (as defined in the 1940
Act).
The Investment Adviser pays all of its expenses arising from the
performance of its obligations under the Advisory Agreement, including all
executive salaries and expenses of the directors and officers of the Fund who
are employees of the Investment Adviser or its affiliates, and office rent of
the Fund. Subject to the expense reimbursement provisions described in the
Prospectus under "Fund Expenses," other expenses incurred in the operation of
the Fund are borne by the Fund, including, without limitation, investment
advisory fees, brokerage commissions, interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents, transfer agents, taxes, cost
of stock certificates and any other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares, expenses of registering and
qualifying shares of the Fund under federal and state laws and regulations,
expenses of printing and distributing reports, notices and proxy materials to
existing shareholders, expenses of printing and filing reports and other
documents filed with governmental agencies, expenses of annual and special
shareholders' meetings, fees and expenses of Directors of the Fund who are not
employees of the Investment Adviser or its affiliates, membership dues in the
Investment Company Institute, insurance premiums and extraordinary expenses such
as litigation expenses.
As compensation for its services, the Investment Adviser receives
monthly compensation at the annual rate of 0.25% of the average daily net assets
of the Fund. The Investment Adviser may waive all or part of its fee from time
to time in order to increase the Fund's net income available for distribution to
shareholders. The Fund will not be required to reimburse the Investment Adviser
for any advisory fees waived. In addition, the Investment Adviser and the
Administrator have voluntarily agreed to limit the total expenses of the Fund
[(excluding taxes, interest, brokerage, and extraordinary expenses)] to an
annual rate of 0.45% of the Fund's average daily net assets for an indefinite
time period. As long as this temporary expense limitation continues, it may
lower the Fund's expenses and increase its total return. In the event the
Investment Adviser and/or the Administrator remove the expense cap, the Fund's
expenses may increase and its total return may be reduced depending on the total
assets of the Fund.
The Advisory Agreement was approved on October 9, 1997 by the Fund's
Directors, including a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of the Fund or the Investment Adviser.
ADMINISTRATOR
The administration agreement (the "Administration Agreement") between
the Fund and AMT Capital Services, Inc., the "Administrator" will remain in
effect for a period of five successive annual periods. The Administrator
provides for, or assists in managing and supervising all aspects of, the general
day-to-day business activities and operations of the Fund other than investment
advisory activities, including custodial, transfer agency, dividend disbursing,
accounting, auditing, compliance and related services. The Fund pays the
Administrator a monthly fee at the annual rate of 0.15% of the Fund's average
daily net assets and the Administrator is entitled to reimbursement from the
Fund for its out-of-pocket expenses incurred under the Administration Agreement.
DISTRIBUTION OF FUND SHARES
Distribution Agreement. Shares of the Fund are distributed by the
Distributor pursuant to the distribution agreement (the "Distribution
Agreement") between the Fund and the Distributor, which is subject to the
approval of the Fund's Board of Directors. [No fees are payable by the Fund
pursuant to the Distribution Agreement, and the Distributor bears the expense of
its distribution activities.] The Fund and the Distributor have agreed to
indemnify one another against certain liabilities.
Distribution Plan. The Fund has adopted a Distribution Plan and related
agreements pursuant to Rule 12b-1 under the 1940 Act, which provides that
investment companies may pay distribution expenses, directly or indirectly,
pursuant to a distribution plan adopted by the investment company's board and
approved by its shareholders. Under the Distribution Plan, the Fund makes
assistance payments to brokers, financial institutions and other financial
intermediaries ("payee(s)") for shareholder accounts ("qualified accounts") as
to which a payee has rendered distribution assistance services to the Class B
shares at an annual rate of 0.25% of the average net asset value of the Class B
shares. Substantially all such monies are paid by the Investment Adviser to
payees for their distribution assistance with any remaining amounts being used
to partially defray other expenses incurred by the Investment Adviser in
distributing Fund shares. In addition to the amounts required by the
Distribution Plan, the Investment Adviser may, in its discretion, pay additional
amounts from its own resources. The rate of any additional amounts that may be
paid will be based upon the Investment Adviser's analysis of the contribution
that a payee makes to the Fund by increasing assets under management and
reducing expense ratios and the cost to the Fund if such services were provided
directly by the Fund or other authorized persons. The Investment Adviser will
also consider the need to respond to competitive offers of others, which could
result in assets being withdrawn from the Fund and an increase in the expense
ratio for the Fund. The Investment Adviser may elect to retain a portion of the
distribution assistance payments to pay for sales material or other promotional
activities. The Directors have determined that there is a reasonable likelihood
the Distribution Plan will benefit the Fund and its shareholders.
The Glass-Steagall Act prohibits all entities which receive deposits
from engaging to any extent in the business of issuing, underwriting, selling,
or distributing securities, although national and state chartered banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. Those persons who wish to provide assistance in the form of
activities not primarily intended to result in the sale of Fund shares (such as
administrative and account maintenance services) may include banks, upon advice
of counsel that they are permitted to do so under applicable laws and
regulations, including the Glass-Steagall Act. In such event, no preference will
be given to securities issued by such banks as investments and the assistance
payments received by such banks under the Distribution Plan may or may not
compensate the banks for their administrative and account maintenance services
for which the banks may also receive compensation from the bank accounts they
service. It is Fund management's position that payments to banks pursuant to the
Distribution Plan for activities not primarily intended it result in the sale of
Fund shares, such as administrative and account maintenance services, do not
violate the Glass-Steagall Act. However, this is an unsettled area of the law
and if a determination contrary to management's position is made by a bank
regulatory agency or court concerning payments to banks contemplated by the
Distribution Plan, any such payments will be terminated and any shares
registered in the bank's name, for its underlying customer, will be registered
in the name of that customer. Financial institutions providing distribution
assistance or administrative services for the Fund may be required to register
as a securities dealer in certain states.
Under the Distribution Plan, the Fund's Controller or Treasurer reports
quarterly the amounts and purposes of assistance payments. During the
continuance of the Distribution Plan the selection and nomination of the
disinterested Directors are at the discretion of the disinterested Directors
currently in office.
The Distribution Plan and related agreements were duly approved by
shareholders and may be terminated at any time by a vote of a majority of the
outstanding voting securities or by vote of the disinterested Directors. The
Distribution Plan and related agreements may be renewed from year to year if
approved by a vote of the majority of the Board of Directors, and by the vote of
a majority of the disinterested Directors cast in person at a meeting called for
the purpose of voting on such renewal. The Distribution Plan may not be amended
to increase materially the amount to be spent for distribution without
shareholder approval. All material amendments to the Distribution Plan must be
approved by a vote of the Board of Directors and of the disinterested Directors,
cast in person at a meeting called for the purpose of such vote.
SUPPLEMENTAL DESCRIPTIONS OF INVESTMENTS
The investment objective of the Fund is to provide investors with a
total return which consistently exceeds the total return of the broad U.S.
investment grade bond market. The different types of securities in which the
Fund may invest, subject to its investment objective, policies and restrictions,
are described in the Prospectus under "Descriptions of Investments." Additional
information concerning the characteristics of certain of the Fund's investments
are set forth below.
Bank Obligations. The Fund limits its investments in U.S.
bank obligations to obligations of U.S. banks that in the Investment
Adviser's opinion meet sufficient creditworthiness criteria.
The Fund limits its investments in foreign bank obligations to
obligations of foreign banks (including U.S. branches of foreign banks) that, in
the opinion of the Investment Adviser, are of an investment quality comparable
to obligations of U.S. banks in which the Fund may invest.
Eurodollar and Yankee Obligations. Eurodollar bank
obligations are dollar-denominated certificates of deposit and time
deposits issued outside the U.S. capital markets by foreign branches
of U.S. banks and by foreign banks. Yankee bank obligations are
dollar- denominated obligations issued in the U.S. capital markets by
foreign banks.
Investment Funds. The Fund is permitted to invest in investment funds
and will make such investments only where appropriate given that the Fund's
shareholders will bear indirectly the layer of expenses of the underlying
investment funds in addition to their proportionate share of the expenses of the
Fund.
Mortgage-Backed Securities. Mortgage-backed securities are securities
which represent ownership interests in, or are debt obligations secured entirely
or primarily by, "pools" of residential or commercial mortgage loans or other
mortgage-backed securities (the "Underlying Assets"). In the case of
mortgage-backed securities representing ownership interests in the Underlying
Assets, the principal and interest payments on the underlying mortgage loans are
distributed monthly to the holders of the mortgage-backed securities. In the
case of mortgage-backed securities representing debt obligations secured by the
Underlying Assets, the principal and interest payments on the underlying
mortgage loans, and any reinvestment income thereon, provide the funds to pay
debt service on such mortgage-backed securities.
Certain mortgage-backed securities represent an undivided fractional
interest in the entirety of the Underlying Assets (or in a substantial portion
of the Underlying Assets, with additional interests junior to that of the
mortgage-backed security), and thus have payment terms that closely resemble the
payment terms of the Underlying Assets.
In addition, many mortgage-backed securities are issued in multiple
classes. Each class of such multi-class mortgage-backed securities ("MBS"),
often referred to as a "traunche", is issued at a specific fixed or floating
coupon rate and has a stated maturity or final distribution date. Principal
prepayment on the Underlying Assets may cause the MBSs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all or most classes of the MBSs on a periodic
basis, typically monthly or quarterly. The principal of and interest on the
Underlying Assets may be allocated among the several classes of a series of a
MBS in many different ways. In a relatively common structure, payments of
principal (including any principal prepayments) on the Underlying Assets are
applied to the classes of a series of a MBS in the order of their respective
stated maturities so that no payment of principal will be made on any class of
MBSs until all other classes having an earlier stated maturity have been paid in
full.
Municipal Instruments. Municipal notes may include such instruments as
tax anticipation notes, revenue anticipation notes, and bond anticipation notes.
Municipal notes are issued by state and local governments and public authorities
as interim financing in anticipation of tax collections, revenue receipts or
bond sales. Municipal bonds, which may be issued to raise money for various
public purposes, include general obligation bonds and revenue bonds. General
obligation bonds are backed by the taxing power of the issuing municipality and
are considered the safest type of bonds. Revenue bonds are backed by the
revenues of a project or facility such as the tolls from a toll bridge.
Industrial development revenue bonds are a specific type of revenue bond backed
by the credit and security of a private user. Revenue bonds are generally
considered to have more potential risk than general obligation bonds.
Municipal obligations can have floating, variable or fixed rates. The
value of floating and variable rate obligations generally is more stable than
that of fixed rate obligations in response to changes in interest rate levels.
Variable and floating rate obligations usually carry rights that permit the Fund
to sell them at par value plus accrued interest upon short notice. The issuers
or financial intermediaries providing rights to sell may support their ability
to purchase the obligations by obtaining credit with liquidity supports. These
may include lines of credit, which are conditional commitments to lend, and
letters of credit, which will ordinarily be irrevocable, both issued by domestic
banks or foreign banks which have a branch, agency or subsidiary in the United
States. When considering whether an obligation meets the Fund's quality
standards, the Investment Adviser will look at the creditworthiness of the party
providing the right to sell as well as to the quality of the obligation itself.
Municipal securities may be issued to finance private activities, the
interest from which is an item of tax preference for purposes of the federal
alternative minimum tax. Such "private activity" bonds might include industrial
development revenue bonds, and bonds issued to finance such projects as solid
waste disposal facilities, student loans or water and sewage projects
Other Asset-Backed Securities. The Fund may invest in other
asset-backed securities (unrelated to mortgage loans) including securities
backed by automobile loans and credit card receivables.
Repurchase Agreements. When participating in repurchase agreements, the
Fund buys securities from a vendor (e.g., a bank or securities firm) with the
agreement that the vendor will repurchase the securities at the same price plus
interest at a later date. Repurchase agreements may be characterized as loans
secured by the underlying securities. Such transactions afford an opportunity
for the Fund to earn a return on available cash at minimal market risk, although
the Fund may be subject to various delays and risks of loss if the vendor
becomes subject to a proceeding under the U.S. Bankruptcy Code or is otherwise
unable to meet its obligation to repurchase. The securities underlying a
repurchase agreement will be marked to market every business day so that the
value of such securities is at least equal to the value of the repurchase price
thereof, including the accrued interest thereon.
In addition, repurchase agreements may also involve the securities of
certain foreign governments in which there is an active repurchase market. The
Investment Adviser expects that such repurchase agreements will primarily
involve government securities of countries belonging to the Organization for
Economic Cooperation and Development ("OECD"). Transactions in foreign
repurchase agreements may involve additional risks.
U.S. Treasury and U.S. Government Agency Securities. U.S. Government
Securities include instruments issued by the U.S. Treasury, including bills,
notes and bonds. These instruments are direct obligations of the U.S. Government
and, as such, are backed by the full faith and credit of the United States. They
differ primarily in their interest rates, the lengths of their maturities and
the dates of their issuances. In addition, U.S. Government Securities include
securities issued by instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), which are also backed by the
full faith and credit of the United States. U.S. Government Agency Securities
include instruments issued by instrumentalities established or sponsored by the
U.S. Government, such as the Student Loan Marketing Association ("SLMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). While these securities are issued, in general,
under the authority of an Act of Congress, the U.S. Government is not obligated
to provide financial support to the issuing instrumentalities.
Variable Amount Master Demand Notes. Variable amount master demand
notes permit the investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangements between the Fund (as lender) and the borrower.
These notes are direct lending arrangements between lenders and borrowers, and
are generally not transferable, nor are they ordinarily rated by either Moody's
Investors Service, Inc., Standard & Poor's Corporation, Fitch Investors Service,
Inc., or Duff & Phelps Credit Rating Co.
Zero Coupon Securities and Custodial Receipts. Zero coupon securities
include securities issued directly by the U.S. Treasury, and U.S. Treasury bonds
or notes and their unmatured interest coupons and receipts for their underlying
principal (the "coupons") which have been separated by their holder, typically a
custodian bank or investment brokerage firm. A holder will separate the interest
coupons from the underlying principal (the "corpus") of the U.S. Treasury
security. A number of securities firms and banks have stripped the interest
coupons and receipts and then resold them in custodial receipt programs with a
number of different names, including "Treasury Income Growth Receipts" ("TIGRS")
and "Certificate of Accrual on Treasuries" ("CATS"). The underlying U.S.
Treasury bonds and notes themselves are held in book-entry form at the Federal
Reserve Bank or, in the case of bearer securities (i.e., unregistered securities
which are owned ostensibly by the bearer or holder thereof), in trust on behalf
of the owners thereof. Counsel to the underwriters of these certificates or
other evidences of ownership of the U.S. Treasury securities have stated that
for Federal tax and securities law purposes, in their opinion, purchasers of
such certificates, such as the Fund, most likely will be deemed the beneficial
holders of the underlying U.S. Treasury securities.
Recently, the Treasury has facilitated transfer of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "Separate Trading
of Registered Interest and Principal of Securities" ("STRIPS"). Under the STRIPS
program, the Fund can be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
holding certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
SUPPLEMENTAL DISCUSSION OF RISKS ASSOCIATED WITH THE Fund's
INVESTMENT POLICIES AND INVESTMENT TECHNIQUES
The risks associated with the different types of securities in which
the Fund may invest are described in the Prospectus under "Risks Associated With
the Fund's Investment Policies and Investment Techniques." Additional
information concerning risks associated with certain of the Fund's investments
is set forth below.
Eurodollar and Yankee Obligations. Eurodollar and Yankee obligations
are subject to the same risks that pertain to domestic issues, notably credit
risk, market risk and liquidity risk. Additionally, Eurodollar (and to a limited
extent, Yankee) obligations are subject to certain sovereign risks. One such
risk is the possibility that a sovereign country might prevent capital, in the
form of dollars, from flowing across their borders. Other risks include: adverse
political and economic developments; the extent and quality of government
regulation of financial markets and institutions; the imposition of foreign
withholding taxes; and the expropriation or nationalization of foreign issuers.
Futures contracts. The Fund may enter into contracts for the purchase
or sale for future delivery (a "futures contract") of fixed-income securities or
foreign currencies, or contracts based on financial indices including any index
of U.S. Government Securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which have
been designated as "contracts markets" by the CFTC, and must be executed through
a futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
The Fund will enter into futures contracts that are based on debt securities
that are backed by the full faith and credit of the U.S. Government, such as
long-term U.S. Treasury Bonds, Treasury Notes, GNMA-modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills.
The Fund would purchase or sell futures contracts to attempt to protect
the U.S. dollar-equivalent value of its securities from fluctuations in interest
or foreign exchange rates without actually buying or selling securities or
foreign currency. For example, if the Fund expected the value of a foreign
currency to increase against the U.S. dollar, the Fund might enter into futures
contracts for the sale of that currency. Such a sale would have much the same
effect as selling an equivalent value of foreign currency. If the currency did
increase, the value of the securities in the portfolio would decline, but the
value of the futures contracts to the Fund would increase at approximately the
same rate, thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities or currency, in most cases the contractual
obligation is fulfilled before the date of the contract without having to make
or take delivery of the securities or currency. The offsetting of a contractual
obligation is accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities or
currency. Since all transactions in the futures market are made, offset or
fulfilled through a clearinghouse associated with the exchange on which the
contracts are traded, the Fund will incur brokerage fees when it purchases or
sells futures contracts.
At the time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial margin"). It is
expected that the initial margin on U.S. exchanges may range from approximately
3% to approximately 15% of the value of the securities or commodities underlying
the contract. Under certain circumstances, however, such as periods of high
volatility, the Fund may be required by an exchange to increase the level of its
initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. An outstanding futures
contract is valued daily and the payment in cash of "variation margin" may be
required, a process known as "marking to the market". Each day the Fund will be
required to provide (or will be entitled to receive) variation margin in an
amount equal to any decline (in the case of a long futures position) or increase
(in the case of a short futures position) in the contract's value since the
preceding day.
Futures contracts entail special risks. Among other things, the
ordinary spreads between values in the cash and futures markets, due to
differences in the character of these markets, are subject to distortions
relating to (1) investors' obligations to meet additional variation margin
requirements, (2) decisions to make or take delivery, rather than entering into
offsetting transactions and (3) the difference between margin requirements in
the securities markets and margin deposit requirements in the futures market.
The possibility of such distortion means that a correct forecast of general
market, foreign exchange rate or interest rate trends by the Investment Adviser
may still not result in a successful transaction.
Although the Investment Adviser believes that use of such contracts and
options thereon will benefit the Fund, if the Investment Adviser's judgment
about the general direction of securities market movements, foreign exchange
rates or interest rates is incorrect, the Fund's overall performance would be
poorer than if it had not entered into any such contracts or purchased or
written options thereon. For example, if the Fund had hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decreased
instead, the Fund would lose part or all of the benefit of the increased value
of its assets which it had hedged because it would have offsetting losses in its
futures positions. In addition, particularly in such situations, if the Fund has
insufficient cash, it may have to sell assets from its portfolio to meet daily
variation margin requirements. Any such sale of assets may, but will not
necessarily, be at increased prices which reflect the rising market.
Consequently, the Fund may have to sell assets at a time when it may be
disadvantageous to do so.
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of a liquid market. Although the Fund generally will purchase or
sell only those futures contracts and options thereon for which there appears to
be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option thereon at any
particular time. Where it is not possible to effect a closing transaction in a
contract to do so at a satisfactory price, the Fund would have to make or take
delivery under the futures contract or, in the case of a purchased option,
exercise the option. In the case of a futures contract that the Fund has sold
and is unable to close out, the Fund would be required to maintain margin
deposits on the futures contract and to make variation margin payments until the
contract is closed.
Under certain circumstances, exchanges may establish daily limits in
the amount that the price of a futures contract or related option contract may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because the limit may prevent the liquidation of unfavorable positions. Futures
or options contract prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions and subject some traders to substantial losses.
Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as
hedging devices similar to those associated with options on foreign currencies
described above. Further, settlement of a foreign currency futures contract must
occur within the country issuing the underlying currency. Thus, the Fund must
accept or make delivery of the underlying foreign currency in accordance with
any U.S. or foreign restrictions or regulations regarding the maintenance of
foreign banking arrangements by U.S. residents and may be required to pay any
fees, taxes or charges associated with such delivery that are assessed in the
country of the underlying currency.
Illiquid and Restricted Securities. Under the 1940 Act, the Fund may
invest up to 15% of the value of its assets in illiquid assets. Illiquid assets
are investments that are difficult to sell at the price at which such assets are
valued by the Fund within seven days of the date a decision to sell them is
made. Securities treated as illiquid assets include: over-the-counter options;
repurchase agreements, time deposits, and dollar roll transactions maturing in
more than seven days; loan participations; securities without readily available
market quotations, including interests in private commingled investment vehicles
in which the Fund might invest; and certain restricted securities. Iliiquid and
restricted securities, including private placements, are generally subject to
legal or contractual restrictions on resale. They can be eligible for purchase
without SEC registration by certain institutional investors known as "qualified
institutional buyers."
The Board of Directors of the Fund may consider certain restricted
securities (including but not limited to Rule 144A and Section 4(2) commercial
paper) liquid if such securities meet specified criteria established by the
Fund's Board of Directors. Due to the absence of an organized market for such
securities, interim valuations of the market value of illiquid securities used
in calculating Fund net asset values for purchases and redemptions can diverge
substantially from their true value, notwithstanding the application of
appraisal methods deemed appropriate and prudent by the Fund's Board and the
Fund's independent accountants. Due to possible restrictions on the
transferability of illiquid securities, forced liquidation of such securities to
meet redemption requests could produce large losses. Although, the 1940 Act
permits the Fund to invest up to 15% of its assets in these securities; the
Investment Adviser does not anticipate investing over 5% of the Fund's assets in
these securities.
Mortgage and Other Asset-Backed Securities. Prepayments on securitized
assets such as mortgages, automobile loans and credit card receivables
("Securitized Assets") generally increase with falling interest rates and
decrease with rising interest rates; furthermore, prepayment rates are
influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. In addition to prepayment risk, borrowers on the underlying
Securitized Assets may default in their payments creating delays or loss of
principal.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of a security interest in assets underlying the related mortgage
collateral. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Some forms of asset-backed securities are relatively new forms of
investments. Although the Fund will only invest in asset-backed securities that
the Investment Adviser believes are liquid, because the market experience in
certain of these securities is limited, the market's ability to sustain
liquidity through all phases of a market cycle may not have been tested.
Options on Foreign Currencies. The Fund may purchase and sell (or
write) put and call options on foreign currencies to protect against a decline
in the U.S. dollar-equivalent value of its portfolio securities or payments due
thereon or a rise in the U.S. dollar-equivalent cost of securities that it
intends to purchase. A foreign currency put option grants the holder the right,
but not the obligation, at a future date to sell a specified amount of a foreign
currency to its counterparty at a predetermined price. Conversely, a foreign
currency call option grants the holder the right, but not the obligation, to
purchase at a future date a specified amount of a foreign currency at a
predetermined price.
As in the case of other types of options, the benefit to the Fund
deriving from the purchase of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of advantageous
changes in such rates.
The Fund may write options on foreign currencies for hedging purposes.
For example, where the Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the decrease in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar costs of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased costs up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if rates move in
the expected direction. If this movement does not occur, the option may be
exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be fully offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund also may be
required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements in exchange rates.
Options on Futures Contracts. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security or currency. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying securities or currency, it may or may not be less
risky than ownership of the futures contract or the underlying securities or
currency. As with the purchase of futures contracts, when the Fund is not fully
invested it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates or a change in foreign exchange
rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss that will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions in such options
is subject to the maintenance of a liquid secondary market. To mitigate this
problem, the Fund will not purchase or write options on foreign currency futures
contracts unless and until, in the Investment Adviser's opinion, the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with transactions in the
underlying foreign currency futures contracts. Compared to the purchase or sale
of foreign currency futures contracts, the purchase of call or put options
thereon involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a foreign
currency futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract, when use
of the underlying futures contract would not.
Options on Securities. The Fund may also enter into closing sale
transactions with respect to options it has purchased. A put option on a
security grants the holder the right, but not the obligation, at a future date
to sell the security to its counterparty at a predetermined price. Conversely, a
call option on a security grants the holder the right, but not the obligation,
to purchase at a future date the security underlying the option at a
predetermined price.
The Fund would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio or securities it
intends to purchase. If the Fund purchased a put option and the value of the
security in fact declined below the strike price of the option, the Fund would
have the right to sell that security to its counterparty for the strike price
(or realize the value of the option by entering into a closing transaction), and
consequently would protect itself against any further decrease in the value of
the security during the term of the option.
Conversely, if the Investment Adviser anticipates that a security that
it intends to acquire will increase in value, it might cause the Fund to
purchase a call option on that security or securities similar to that security.
If the value of the security does rise, the call option may wholly or partially
offset the increased price of the security. As in the case of other types of
options, however, the benefit to the Fund will be reduced by the amount of the
premium paid to purchase the option and any related transaction costs. If,
however, the value of the security fell instead of rose, the Fund would have
foregone a portion of the benefit of the decreased price of the security in the
amount of the option premium and the related transaction costs.
The Fund would purchase put and call options on securities indices for
the same purposes as it would purchase options on securities. Options on
securities indices are similar to options on securities except that the options
reflect the change in price of a group of securities rather than an individual
security and the exercise of options on securities indices are settled in cash
rather than by delivery of the securities comprising the index underlying the
option.
Transactions by the Fund in options on securities and securities
indices will be governed by the rules and regulations of the respective
exchanges, boards of trade or other trading facilities on which the options are
traded.
Considerations Concerning Options. The writer of an option receives a
premium which it retains regardless of whether the option is exercised. The
purchaser of a call option has the right, for a specified period of time, to
purchase the securities or currency subject to the option at a specified price
(the "exercise price"). By writing a call option, the writer becomes obligated
during the term of the option, upon exercise of the option, to sell the
underlying securities or currency to the purchaser against receipt of the
exercise price. The writer of a call option also loses the potential for gain on
the underlying securities or currency in excess of the exercise price of the
option during the period that the option is open.
Conversely, the purchaser of a put option has the right, for a
specified period of time, to sell the securities or currency subject to the
option to the writer of the put at the specified exercise price. The writer of a
put option is obligated during the term of the option, upon exercise of the
option, to purchase securities or currency underlying the option at the exercise
price. A writer might, therefore, be obligated to purchase the underlying
securities or currency for more than their current market price or U.S. dollar
value, respectively.
The Fund may purchase and sell both exchange-traded and OTC options.
Currently, although many options on equity securities and options on currencies
are exchange-traded, options on debt securities are primarily traded in the
over-the-counter market. The writer of an exchange-traded option that wishes to
terminate its obligation may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. Options of the same series are options with respect to the same
underlying security or currency, having the same expiration date and the same
exercise price. Likewise, an investor who is the holder of an option may
liquidate a position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction can be effected.
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. For a number of
reasons, a secondary market may not exist for options held by the Fund, or
trading in such options might be limited or halted by the exchange on which the
option is trading, in which case it might not be possible to effect closing
transactions in particular options the Fund has purchased with the result that
the Fund would have to exercise the options in order to realize any profit. If
the Fund is unable to effect a closing purchase transaction in a secondary
market in an option the Fund has written, it will not be able to sell the
underlying security or currency until the option expires or deliver the
underlying security or currency upon exercise or otherwise cover its position.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees every exchange-traded option transaction. In contrast, OTC
options are contracts between the Fund and its counterparty with no clearing
organization guarantee. Thus, when the Fund purchases OTC options, it relies on
the dealer from which it purchased the OTC option to make or take delivery of
the securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as the loss of the
expected benefit of the transaction. The Investment Adviser will only purchase
options from dealers determined by the Investment Adviser to be creditworthy.
Exchange-traded options generally have a continuous liquid market
whereas OTC options may not. Consequently, the Fund will generally be able to
realize the value of an OTC option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes an OTC
option, it generally will be able to close out the OTC option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the OTC option. Although the Fund will enter
into OTC options only with dealers that agree to enter into, and that are
expected to be capable of entering into, closing transactions with the Fund,
there can be no assurance that the Fund will be able to liquidate an OTC option
at a favorable price at any time prior to expiration. Until the Fund is able to
effect a closing purchase transaction in a covered OTC call option the Fund has
written, it will not be able to liquidate securities used as cover until the
option expires or is exercised or different cover is substituted. In the event
of insolvency of the counterparty, the Fund may be unable to liquidate an OTC
option. In the case of options written by the Fund, the inability to enter into
a closing purchase transaction may result in material losses to the Fund. For
example, since the Fund must maintain a covered position with respect to any
call option on a security it writes, the Fund may be limited in its ability to
sell the underlying security while the option is outstanding. This may impair
the Fund's ability to sell the Fund security at a time when such a sale might be
advantageous.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options market until they
reopen. Because foreign currency transactions occurring in the interbank market
involve substantially larger amounts than those that may be involved in the use
of foreign currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
The use of options to hedge the Fund's foreign currency-denominated
portfolio, or to enhance return raises additional considerations. As described
above, the Fund may, among other things, purchase call options on securities it
intends to acquire in order to hedge against anticipated market appreciation in
the price of the underlying security or currency. If the market price does
increase as anticipated, the Fund will benefit from that increase but only to
the extent that the increase exceeds the premium paid and related transaction
costs. If the anticipated rise does not occur or if it does not exceed the
amount of the premium and related transaction costs, the Fund will bear the
expense of the options without gaining an offsetting benefit. If the market
price of the underlying currency or securities should fall instead of rise, the
benefit the Fund obtains from purchasing the currency or securities at a lower
price will be reduced by the amount of the premium paid for the call options and
by transaction costs.
The Fund also may purchase put options on currencies or portfolio
securities when it believes a defensive posture is warranted. Protection is
provided during the life of a put option because the put gives the Fund the
right to sell the underlying currency or security at the put exercise price,
regardless of a decline in the underlying currency's or security's market price
below the exercise price. This right limits the Fund's losses from the
currency's or security's possible decline in value below the exercise price of
the option to the premium paid for the option and related transaction costs. If
the market price of the currency or the Fund's securities should increase,
however, the profit that the Fund might otherwise have realized will be reduced
by the amount of the premium paid for the put option and by transaction costs.
The value of an option position will reflect, among other things, the
current market price of the underlying currency or security, the time remaining
until expiration, the relationship of the exercise price to the market price,
the historical price volatility of the underlying currency or security and
general market conditions. For this reason, the successful use of options as a
hedging strategy depends upon the ability of the Investment Adviser to forecast
the direction of price fluctuations in the underlying currency or securities
market.
Options normally have expiration dates of up to nine months. The
exercise price of the options may be below, equal to or above the current market
values of the underlying securities or currency at the time the options are
written. Options purchased by the Fund that expire unexercised have no value,
and therefore a loss will be realized in the amount of the premium paid (and
related transaction costs). If an option purchased by the Fund is in-the-money
prior to its expiration date, unless the Fund exercises the option or enters
into a closing transaction with respect to that position, the Fund will not
realize any gain on its option position.
The Fund's activities in the options market may result in higher
portfolio turnover rates and additional brokerage costs. Nevertheless, the Fund
may also save on commissions and transaction costs by hedging through such
activities rather than buying or selling securities or foreign currencies in
anticipation of market moves or foreign exchange rate fluctuations.
Repurchase Agreements. The use of repurchase agreements involves
certain risks. For example, if the seller of the agreements defaults on its
obligation to repurchase the underlying securities at a time when the value of
these securities has declined, the Fund may incur a loss upon disposition of
them. If the seller of the agreement becomes insolvent and subject to
liquidation or reorganization under the Bankruptcy Code or other laws, a
bankruptcy court may determine that the underlying securities are collateral not
within the control of the Fund and therefore subject to sale by the trustee in
bankruptcy. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying securities. While the Fund's
management acknowledges these risks, it is expected that they can be controlled
through stringent security selection criteria and careful monitoring procedures.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions listed below relating to the
investment of the Fund's assets and its activities. These are fundamental
policies that may not be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund (which for this
purpose and under the 1940 Act means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares). The Fund may not:
(1) borrow money, including entering into reverse repurchase agreements; (2)
make loans except that it may enter into repurchase agreements; (3) issue senior
securities; (4) purchase securities on margin (although deposits referred to as
"margin" will be made in connection with investments in futures contracts, as
explained above, and the Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities); (5)
underwrite securities of other issuers; (6) invest in companies for the purpose
of exercising control or management; (7) purchase or sell real estate (other
than marketable securities representing interests in, or backed by, real
estate); or (8) purchase or sell physical commodities or related commodity
contracts.
Whenever an investment policy or limitation states a maximum percentage
of the Fund's assets that may be invested in any security or other asset or sets
forth a policy regarding quality standards, such standard or percentage
limitation shall be determined immediately after and as a result of the Fund's
acquisition of such security or other asset. Accordingly, any later increase or
decrease in a percentage resulting from a change in values, net assets or other
circumstances will not be considered when determining whether that investment
complies with the Fund's investment policies and limitations.
The Fund's investment objectives and other investment policies not
designated as fundamental in this Statement of Additional Information are
non-fundamental and may be changed at any time by action of the Board of
Directors.
Illiquid Securities. The staff of the Commission has taken the position
that purchased OTC options and the assets used as cover for written OTC options
are illiquid securities. Therefore, the Fund has adopted an investment policy
pursuant to which it generally will not purchase or sell OTC options if, as a
result of such transaction, the sum of the market value of OTC options currently
outstanding that are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding that were sold by
the Fund and margin deposits on the Fund's existing OTC options on futures
contracts exceed 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund that are illiquid or are not
otherwise readily marketable. This policy as to OTC options is not a fundamental
policy of the Fund and may be amended by the Directors of the Fund without the
approval of the Fund's or the Fund's shareholders. However, the Fund will not
change or modify this policy prior to a change or modification by the Commission
staff of its position.
PORTFOLIO TURNOVER
The Fund may engage in portfolio trading when considered appropriate,
but short-term trading will not be used as the primary means of achieving its
investment objective. Although the Fund cannot accurately predict its portfolio
turnover rate, it is not expected to exceed 400% in normal circumstances.
However, there are no limits on the rate of portfolio turnover, and investments
may be sold without regard to length of time held when, in the opinion of the
Investment Adviser, investment considerations warrant such actions. Higher
portfolio turnover rates, such as rates in excess of 400%, and short-term
trading involve correspondingly greater commission expenses and transactions
costs.
PORTFOLIO TRANSACTIONS
The debt securities in which the Fund invests are traded primarily in
the over-the-counter market by dealers who are usually acting as principal for
their own account. On occasion, securities may be purchased directly from the
issuer. Such securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. The Fund enters into
financial futures and options contracts which normally involve brokerage
commissions.
The cost of executing transactions will consist primarily of dealer
spreads. The spread is not included in the expenses of the Fund and therefore is
not subject to the expense cap described above under "Investment Adviser and
Advisory Agreement"; nevertheless, the incurrence of this spread, ignoring the
other intended positive effects of each such transaction, will decrease the
total return of the Fund. However, the Fund will buy one asset and sell another
only if the Investment Adviser believes it is advantageous to do so after
considering the effect of the additional custodial charges and the spread on the
Fund's total return.
All purchases and sales will be executed with major dealers and banks
on a best net price basis. No trades will be executed with the Investment
Adviser, their affiliates, officers or employees acting as principal or agent
for others, although such entities and persons may be trading contemporaneously
in the same or similar securities.
TAX CONSIDERATIONS
The following summary of tax consequences, which does not purport to be
complete, is based on U.S. federal tax laws and regulations in effect on the
date of this Statement of Additional Information, which are subject to change by
legislative or administrative action.
Qualification as a Regulated Investment Company. The Fund intends to
qualify annually and to elect in the future to be treated as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a RIC, the Fund must, among other things, (a) derive
at least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures or forward contracts) derived from its business of
investing in securities or foreign currencies (the "Qualifying Income
Requirement"); (b) diversify its holdings so that, at the end of each quarter of
the Fund's taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government Securities, securities of other RICs and other securities, with such
other securities of any one issuer limited to an amount not greater than 5% of
the value of the Fund's total assets and not greater 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 of any one issuer (other than
U.S. Government Securities or the securities of other RICs); and (c) distribute
at least 90% of its investment company taxable income (which includes, among
other items, interest and net short-term capital gains in excess of net
long-term capital losses). The U.S. Treasury Department has authority to
promulgate regulations pursuant to which gains from foreign currency (and
options, futures and forward contracts on foreign currency) not directly related
to a RIC's principal business of investing in stocks and securities would not be
treated as qualifying income for purposes of the Qualifying Income Requirement.
To date, such regulations have not been promulgated.
If for any taxable year the Fund does not qualify as a RIC, all of its
taxable income will be taxed to the Fund at corporate rates. For each taxable
year that the Fund qualifies as a RIC, it will not be subject to federal income
tax on that part of its investment company taxable income and net capital gains
(the excess of net long-term capital gain over net short-term capital loss) that
it distributes to its shareholders. In addition, to avoid a nondeductible 4%
federal excise tax, the Fund must distribute during each calendar year an amount
at least equal to the sum of 98% of its ordinary income (not taking into account
any capital gains or losses), determined on a calendar year basis, 98% of its
capital gains in excess of capital losses, determined in general on an October
31 year-end basis, and any undistributed amounts from previous years. The Fund
intends to distribute all of its net income and gains by automatically
reinvesting such income and gains in additional shares of the Fund. The Fund
will monitor its compliance with all of the rules set forth in the preceding
paragraph.
Distributions. The Fund's automatic reinvestment of its ordinary
income, net short-term capital gains and net long-term capital gains in
additional shares of the Fund and distribution of such shares to shareholders
will be taxable to the Fund's shareholders. In general, such shareholders will
be treated as if such income and gains had been distributed to them by the Fund
and then reinvested by them in shares of the Fund, even though no cash
distributions have been made to shareholders. The automatic reinvestment of
ordinary income and net realized short-term capital gains of the Fund will be
taxable to the Fund's shareholders as ordinary income. The Fund's automatic
reinvestment of any net long-term capital gains designated by the Fund as
capital gain dividends will be taxable to the shareholders as long-term capital
gain, regardless of how long they have held their Fund shares. None of the
amounts treated as distributed to the Fund's shareholders will be eligible for
the corporate dividends received deduction. A distribution will be treated as
paid on December 31 of the current calendar year if it is declared by the Fund
in October, November or December with a record date in such a month and paid by
the Fund during January of the following calendar year. Such distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than in the calendar year in which the distributions are
received. The Fund will inform shareholders of the amount and tax status of all
amounts treated as distributed to them not later than 60 days after the close of
each calendar year.
Sale of Shares. Upon the sale or other disposition of shares of the
Fund, or upon receipt of a distribution in complete liquidation of the Fund, a
shareholder generally will realize a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on the sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after 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 the shareholder on a disposition of Fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
deemed received by the shareholder with respect to such shares.
Zero Coupon Securities. Investments by the Fund in zero coupon
securities will result in income to the Fund equal to a portion of the excess of
the face value of the securities over their issue price (the "original issue
discount") each year that the securities are held, even though the Fund receives
no cash interest payments. This income is included in determining the amount of
income which the Fund must distribute to maintain its status as a RIC and to
avoid the payment of Federal income tax and the 4% excise tax.
Hedging Transactions. Certain options, futures and forward contracts in
which the Fund may invest are "section 1256 contracts." Gains and losses on
section 1256 contracts are generally treated as 60 percent long-term and 40
percent short-term capital gains or losses ("60/40 treatment"), regardless of
the Fund's actual holding period for the contract. Also, a section 1256 contract
held by the Fund at the end of each taxable year (and generally, for the
purposes of the 4% excise tax, on October 31 of each year) must be treated as if
the contract had been sold at its fair market value on that day ("mark to market
treatment"), and any deemed gain or loss on the contract is subject to 60/40
treatment. Foreign currency gain or loss (discussed below) arising from section
1256 contracts may, however, be treated as ordinary income or loss.
The hedging transactions undertaken by the Fund may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains or losses realized by the Fund. In addition, losses realized
by the Fund on positions that are part of a straddle may be deferred under the
straddle rules rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Further, the Fund
may be required to capitalize, rather than deduct currently, any interest
expense on indebtedness incurred or continued to purchase or carry any positions
that are part of a straddle. Because only a few regulations implementing the
straddle rules have been implemented, the tax consequences to the Funds of
engaging in hedging transactions are not entirely clear. Hedging transactions
may increase the amount of short-term capital gain realized by the Funds which
is taxed as ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Code
that are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
accelerate the recognition of gains or losses from the affected straddle
positions.
Because the straddle rules may affect the amount, character and timing
of gains or losses from the positions that are part of a straddle, the amount of
Fund income that is distributed to shareholders and that is taxed to them as
ordinary income or long-term capital gain may be increased or decreased as
compared to a fund that did not engage in such hedging transactions.
The distribution requirements applicable to the Fund's assets may limit
the extent to which the Fund will be able to engage in transactions in options,
futures and forward contracts.
Backup Withholding. The Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all amounts deemed to be distributed as a
result of the automatic reinvestment by the Fund of its income and gains in
additional shares of the Fund and all redemption payments made to shareholders
who fail to provide the Fund with their correct taxpayer identification number
or to make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Backup withholding
is not an additional tax. Any amounts withheld will be credited against a
shareholder's U.S. federal income tax liability. Corporate shareholders and
certain other shareholders are exempt from such backup withholding.
Foreign Shareholders. U.S. taxation of a shareholder who,
as to the United States, is a non-resident alien individual, a
foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder") depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on
by such shareholder.
If the income from the Fund is not "effectively connected" with a U.S.
trade or business carried on by the foreign shareholder, deemed distributions by
the Fund of investment company taxable income will be subject to a U.S. tax of
30% (or lower treaty rate), which tax is generally withheld from such
distributions. Deemed distributions of capital gain dividends and any gain
realized upon redemption, sale or exchange of shares will not be subject to U.S.
tax at the rate of 30% (or lower treaty rate) unless the foreign shareholder is
a nonresident alien individual who is physically present in the U.S. for more
than 182 days during the taxable year and meets certain other requirements.
However, this 30% tax on capital gains of non-resident alien individuals who are
physically present in the United States for more than the 182-day period only
applies in exceptional cases because any individual present in the United States
for more than 182 days during the taxable year is generally treated as a
resident for U.S. federal income tax purposes. In that case, he or she would be
subject to U.S. federal income tax on his or her worldwide income at the
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a foreign shareholder who is a non-resident alien individual, the
Fund may be required to withhold U.S. federal income tax at a rate of 31% of
deemed distributions of net capital gains unless the foreign shareholder
certifies his or her non-U.S. status under penalties of perjury or otherwise
establishes an exemption. See "Backup Withholding" above.
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then deemed distributions of
investment company taxable income and capital gain dividends and any gain
realized upon the redemption, sale or exchange of shares of the Fund will be
subject to U.S. Federal income tax at the graduated rates applicable to U.S.
citizens or domestic corporations. Such shareholders may also be subject to the
branch profits tax at a 30% rate.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are advised to consult their own advisers with
respect to the particular tax consequences to them of an investment in the Fund.
SHAREHOLDER INFORMATION
Certificates representing shares of the Fund will not be issued to
shareholders. Investors Bank & Trust Company, the Fund's transfer agent (the
"Transfer Agent"), will maintain an account for each shareholder upon which the
registration and transfer of shares are recorded, and any transfers shall be
reflected by bookkeeping entry, without physical delivery. Detailed
confirmations of each purchase or redemption are sent to each shareholder.
Monthly statements of account are sent which include shares purchased as a
result of a reinvestment of the Fund's distributions.
The Transfer Agent will require that a shareholder provide requests in
writing, accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.). Neither the Fund, the Administrator, or the Transfer Agent will be
responsible for the validity of written or telephonic requests.
The Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption of the Fund by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value
(redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting the securities to cash.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
The Fund was incorporated on August 4, 1997 as a Maryland corporation
and is authorized to issue 2,500,000,000 shares of Common Stock, $0.001 par
value. The Fund's shares have no preemptive, conversion, exchange or redemption
rights. Each share has equal voting, dividend, distribution and liquidation
rights. All shares of the Fund, when duly issued, will be fully paid and
nonassessable. Shareholders are entitled to one vote per share. All voting
rights for the election of directors are noncumulative, which means that the
holders of more than 50% of the shares can elect 100% of the Directors then
nominated for election if they choose to do so and, in such event, the holders
of the remaining shares will not be able to elect any Directors. The foregoing
description is subject to the provisions contained in the Fund's Articles of
Incorporation and By-laws.
The Board of Directors is authorized to reclassify and issue any
unissued shares of the Fund without shareholder approval. Accordingly, in the
future, the Directors may create additional series of portfolios with different
investment objectives, policies and restrictions. Any issuance of shares of
another class would be governed by the 1940 Act and Maryland law.
The Fund also issues another class of shares which may have different
operating and other expenses. For more information about other classes of the
Fund's shares, investors should contact the Distributor at the address or phone
number on the cover of this Statement of Additional Information.
CALCULATION OF PERFORMANCE DATA
The Fund may, from time to time, include the yield and total return in
reports to shareholders or prospective investors. Quotations of yield for the
Fund will be based on all investment income per share during a particular 30-day
(or one month) period (including dividends and interest), less expenses accrued
during the period ("net investment income"), and are computed by dividing net
investment income by the maximum, offering price per share on the last day of
the period, according to the following formula which is prescribed by the
Commission:
YIELD = 2[( a - b + 1)6 - 1]
cd
Where a = dividends and interest earned
during the period,
b = expenses accrued for the period
(net of reimbursements),
c = the average daily number of Shares of the
Fund outstanding during he period that were
entitled to receive dividends, and
d = the maximum offering price per
share on the last day of the
period.
Quotations of average annual total return will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5 and 10 years (up to the life of the
Fund), calculated pursuant to the following formula which is prescribed by the
SEC:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of
$1,000,
T = the average annual total return, n = the number
of years, and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the period.
All total return figures assume that all dividends are
reinvested when paid.
QUALITY RATING DESCRIPTIONS
Standard & Poors Corporation
AAA. Bonds rated AAA are highest grade debt obligations.
This rating indicates an extremely strong capacity to pay principal
and interest.
AA. Bonds rated AA also qualify as high-quality obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay
interest or principal. Although these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and principal.
The ratings AA to D may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Municipal notes issued since July 29, 1984 are designated "SP-1",
"SP-2", and "SP-3". The designation SP-1 indicates a very strong capacity to pay
principal and interest. A "+" is added to those issues determined to possess
overwhelming safety characteristics.
A-1. Standard & Poor's Commercial Paper ratings are current assessments
of the likelihood of timely payments of debts having original maturity of no
more than 365 days. The A-1 designation indicates the degree of safety regarding
timely payment is very strong.
A-2. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's Investors Service, Inc.
Aaa. Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes
and may be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa. Baa rated bonds are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade ("MIG"). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of the
first importance in long-term borrowing risk are of lesser importance in the
short run.
MIG-1. Notes bearing this designation are of the best quality enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
MIG-2. Notes bearing this designation are of favorable quality, with
all security elements accounted for, but lacking the undeniable strength of the
previous grade. Market access for refinancing, in particular, is likely to be
less well established.
P-1. Moody's Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. The designation "Prime-1" or "P-1" indicates
the highest quality repayment capacity of the rated issue.
P-2. Issuers have a strong capacity for repayment of short-term
promissory obligations.
Thomson Bankwatch, Inc.
A. Company possess an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and unquestioned access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.
A/B. Company is financially very solid with a favorable track record
and no readily apparent weakness. Its overall risk profile, while low, is not
quite as favorable as companies in the highest rating category.
IBCA Limited
A1. Short-term obligations rated A1 are supported by a very strong
capacity for timely repayment. A plus sign is added to those issues determined
to possess the highest capacity for timely payment.
PART C. OTHER INFORMATION
Financial Statements and Exhibits.
Financial Statements:
Statement of Assets and Liabilities*
Independent Auditors' Report*
Exhibits:
Exhibit
Number Description
1 -- Registrant's Articles of Incorporation (previously filed
as Exhibit 1 to the Registrant's Registration Statement on Form N-1A, File No.
333-33365, filed on August 4, 1997) and incorporated herein by reference.
2 -- By-Laws (previously filed as Exhibit 2 to the
Registrant's Registration Statement on Form N-1A, File No. 333-33365, filed on
August 4, 1997) and incorporated herein by reference.
3 -- None.
4 -- None.
5 -- Form of Advisory Agreement between Registrant and Seix
Investment Advisors Inc. (previously filed as Exhibit 5 to the Registrant's
Registration Statement on Form N-1A, File No. 333-33365, filed on August 4,
1997) and incorporated herein by reference.
6 -- Form of Distribution Agreement between Registrant and AMT
Capital Services, Inc. (previously filed as Exhibit 6 to the Registrant's
Registration Statement on Form N-1A, File No. 333-33365, filed on August 4,
1997) and incorporated herein by reference.
7 -- None.
8 -- Custodian Agreement between Registrant and Investors Bank
& Trust Company (filed herewith).
9(a) -- Form of Administration Agreement between Registrant
and AMT Capital Services, Inc. (previously filed as Exhibit 9(a) to the
Registrant's Registration Statement on Form N-1A, File No. 333-33365, filed on
August 4, 1997) and incorporated herein by reference.
9(b) -- Transfer Agency and Service
Agreement between Registrant and Investors Bank & Trust Company
(filed herewith).
10 -- Opinion and Consent of Dechert
Price & Rhoads.*
11(a) -- Consent of Auditors*
11(b) -- Powers of Attorney (filed
herewith).
12 -- None.
13(a) -- Share Purchase Agreement between
Registrant and Seix Investment Advisors Inc. (filed herewith).
14 -- None.
15 -- Services and Distribution Plan
between the Registrant and AMT Capital Services, Inc. (filed
herewith).
16-17 -- None.
18 -- Multiple Class Plan (filed
herwith).
* To Be Filed by Amendment.
Persons Controlled by or under Common Control with Registrant
Not Applicable. The Registrant is a recently
organized corporation and has no outstanding shares of common stock.
Number of Holders of Securities
The Registrant is a recently organized corporation and has not issued
any securities as of the date of this Registration Statement.
Indemnification.
The Registrant shall indemnify directors, officers, employees and
agents of the Registrant against judgements, fines, settlements and expenses to
the fullest extent allowed, and in the manner provided, by applicable federal
and Maryland law, including Section 17(h)and (i) of the Investment Company Act
of 1940. In this regard, the Registrant undertakes to abide by the provisions of
Investment Company Act Releases No. 11330 and 7221 until amended or superseded
by subsequent interpretation of legislative or judicial action.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Business and Other Connections of Investment Adviser.
Seix Investment Advisors Inc. (the "Investment Adviser") is a company
organized under the laws of New Jersey State and it is an investment adviser
registered under the Investment Advisers Act of 1940 (the "Advisers Act").
The list required by this Item 28 of officers and directors of the
Investment Adviser, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by the Investment Adviser pursuant to the
Advisers Act (SEC File No.
801-42070).
Principal Underwriter.
In addition to Registrant, AMT Capital Services, Inc. currently acts
as distributor to FFTW Fund, Inc., Harding Loevner Fund, Inc.,
Holland Series Fund, Inc. and TIFF Investment Program, Inc. AMT
Capital Services, Inc. is registered with the Securities and Exchange
Commission as a broker/dealer and is a member of the National
Association of Securities Dealers, Inc.
For each Director or officer of AMT Capital Services, Inc.
Name and Principal
Business Address Positions & Officers
with Underwriter with Registrant
Positions & Officers
Alan M. Trager Director, Chairman and None
600 Fifth Avenue Treasurer
26th Floor
New York, NY 10020
Carla E. Dearing Director, President None
600 Fifth Avenue
26th Floor
New York, NY 10020
Ruth L. Lanser Secretary None
Gilbert, Segall & Young
430 Park Avenue
New York, NY 10022
Paul Brook Managing Director None
600 Fifth Avenue
26th Floor
New York, NY 10020
William E. Vastardis Managing Director None
600 Fifth Avenue
26th Floor
New York, NY 10020
F. Michael Gozzillo Vice President None
600 Fifth Avenue
26th Floor
New York, NY 10020
Gary Vogel Vice President None
600 Fifth Avenue
26th Floor
New York, NY 10020
Not applicable.
Location of Accounts and Records.
All accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940, as amended
(the "1940 Act"), and the rules thereunder will be maintained at the offices of
the Investment Adviser, the Custodian and the Administrator.
Seix Investment Advisors Inc.
300 Tice Boulevard
Woodcliff Lake, NJ 07675-7633
AMT Capital Services, Inc.
600 Fifth Avenue
New York, New York 10020
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02117-9130
Management Services.
Not applicable.
Undertakings.
Not applicable
Registrant hereby undertakes to file a post-effective amendment, containing
financial statements as of a reasonably current date which need not be
certified, within four to six months from the effective date of the Fund's
registration statement.
Registrant hereby undertakes to call a meeting of shareholders for the purpose
of voting upon the question of removal of one or more of the Registrant's
directors when requested in writing to do so by the holders of at least 10% of
the Registrant's outstanding shares of common stock and, in connection with such
meeting, to assist in communications with other shareholders in this regard, as
provided under Section 16(c) of the 1940 Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it has duly caused this Registration Statement to be signed on its behalf
by the undersigned thereto duly authorized, in the City of Woodcliff Lake and
State of New Jersey on the 20st day of October 1997.
SAMCO FUND, INC.
By: /s/
Christina Seix
Christina Seix
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities indicated on the 20st day of October, 1997.
Signature Title
/s/ Christina Seix
Director
Christina Seix
/s/ John G. Talty President
John G. Talty
/s/ Peter J. Bourke Director
Peter J. Bourke
*/s/ John E. Manley, Sr. Director
John E. Manley, Sr.
*/s/ John R. O'Brien Director
John R. O'Brien
* Attorney-in-Fact /s/ William E. Vastardis
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
EXHIBITS
TO
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND THE
INVESTMENT COMPANY ACT OF 1940
-----------------
SAMCO FUND, INC.
SAMCO FUND, INC.
INDEX TO EXHIBITS
Exhibit
Sequentially
Number Description of Exhibit
Numbered Page
8 Custodian Agreement between Registrant and
Investors Bank & Trust Company.
9(b) Transfer Agency and Service Agreement between
Registrant and Investors Bank & Trust Company.
11(b) -- Powers of Attorney.
13(a) -- Share Purchase Agreement between Registrant and
Seix Investment Advisors Inc.
15 -- Services and Distribution Plan between the
Registrant and AMT Capital Services, Inc.
18 -- Multiple Class Plan
CUSTODIAN AGREEMENT
BETWEEN
SAMCO Fund, Inc.
AND
INVESTORS BANK & TRUST COMPANY
TABLE OF CONTENTS
Page
1. Bank Appointed Custodian............................................1
2. Definitions.........................................................1
2.1 Authorized Person.................................1
2.2 Board .........................................1
2.3 Security ........................................ 1
2.4 Portfolio Security................................1
2.5 Officers' Certificate.............................1
2.6 Book-Entry System.................................2
2.7 Depository........................................2
2.8 Proper Instructions...............................2
3. Separate Accounts ..................................................2
4. Certification as to Authorized Persons..............................2
5. Custody of Cash ..................................................3
5.1 Purchase of Securities............................3
5.2 Redemptions .................................3
5.3 Distributions and Expenses of Fund................3
5.4 Payment in Respect of Securities..................3
5.5 Repayment of Loans................................3
5.6 Repayment of Cash................................ 3
5.7 Foreign Exchange Transactions.....................4
5.8 Other Authorized Payments.........................4
5.9 Termination.......................................4
6. Securities..........................................................4
6.1 Segregation and Registration......................4
6.2 Voting and Proxies................................5
6.3 Corporate Action .................................5
6.4 Book-Entry System.................................6
6.5 Use of a Depository...............................6
6.6 Use of Book-Entry System for Commercial Paper 7
6.7 Use of Immobilization Programs....................8
6.8 Eurodollar CDs .................................8
6.9 Options and Futures Transactions..................8
(a) Puts and Calls Traded on
Securities Exchanges,
NASDAQ or Over-the-Counter.............. 8
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges................ 9
6.10 Segregated Account................................9
Page
6.11 Interest Bearing Call or Time Deposits...........10
6.12 Transfer of Securities...........................10
7. Redemptions .................................................12
8. Merger, Dissolution, etc. of Fund ................................12
9. Actions of Bank Without Prior Authorization........................12
10. Collection and Defaults........................................... 13
11. Maintenance of Records and Accounting Services.................... 13
12. Fund Evaluation and Yield Calculation............................. 13
12.1 Fund Evaluation..................................13
12.2 Yield Calculation............................... 14
13. Additional Services ........................................15
14. Duties of the Bank ....................................... 15
14.1 Performance of Duties and
Standard of Care ............................... 15
14.2 Agents and Subcustodians with Respect to Property
of the Fund Held in the United States............15
14.3 Duties of the Bank with Respect to Property
Held Outside of the United States................16
14.4 Insurance........................................18
14.5 Fees and Expenses of Bank........................18
14.6 Advances by Bank................................18
15. Limitation of Liability............................................19
16. Termination....................................................... 20
17. Confidentiality................................................... 21
18. Notices ..........................................................21
19. Amendments........................................................ 21
20. Parties ......................................................... 21
21. Governing Law..................................................... 22
Page
22. Counterparts...................................................... 22
23. Entire Agreement...................................................22
24. Limitation of Liability............................................22
25. Several Obligations of the Portfolios..............................22
APPENDICES
Appendix A ................................... Fee Schedule
Appendix B ................................... Additional
Services
CUSTODIAN AGREEMENT
AGREEMENT made as of this ___ day of __________, 1997, between SAMCO
Fund, Inc., a corporation organized under the laws of the state of Maryland (the
"Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the
"Bank").
The Fund, an open-end management investment company, desires to place
and maintain all of its portfolio securities and cash in the custody of the
Bank. The Bank has at least the minimum qualifications required by Section
17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to act as
custodian of the portfolio securities and cash of the Fund, and has indicated
its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1.Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on Appendix A
hereto.
2.Definitions. Whenever used herein, the terms listed
below will have the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
Trustees of the Fund, as the case may be.
2.3 Security. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 Portfolio Security. Portfolio Security will mean
any security owned by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3.Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this Agreement
to any actions to be taken by the Fund shall be deemed to refer to the Fund
acting on behalf of one or more of its series, any reference in this Agreement
to any assets of the Fund, including, without limitation, any portfolio
securities and cash and earnings thereon, shall be deemed to refer only to
assets of the applicable series, any duty or obligation of the Bank hereunder to
the Fund shall be deemed to refer to duties and obligations with respect to such
individual series and any obligation or liability of the Fund hereunder shall be
binding only with respect to such individual series, and shall be discharged
only out of the assets of such series.
4.Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5.Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the repurchase
or redemption of common shares of the Fund offered for repurchase or redemption
in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account
of the Fund of dividends or other distributions to shareholders as may from time
to time be declared by the Board, interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as provided hereunder,
fees of any transfer agent, fees for legal, accounting, and auditing services,
or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but,
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
(a) For payments in connection with foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements") which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of the
Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 16 of this Agreement.
6.Securities.
6.1 Segregation and Registration. Except as otherwise provided herein,
and except for securities to be delivered to any subcustodian appointed pursuant
to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank
appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action within twenty-four (24) hours of receipt of such materials by
the Bank.
(a)......The Bank shall act upon a required Response only
after receipt by the Bank of Proper Instructions from the Fund no later than
5:00 p.m. on the date specified as the Response Deadline and only if the Bank
(or its agent or subcustodian hereunder) has actual possession of all necessary
Securities, consents and other materials no later than 5:00 p.m. on the date
specified as the Response Deadline.
(b)......The Bank shall have no duty to act upon a required
Response if Proper Instructions relating to such Response and all necessary
Securities, consents and other materials are not received by and in the
possession of the Bank no later than 5:00 p.m. on the date specified as the
Response Deadline. Notwithstanding, the Bank may, in its sole discretion, use
its best efforts to act upon a Response for which Proper Instructions and/or
necessary Securities, consents or other materials are received by the Bank after
5:00 p.m. on the date specified as the Response Deadline, it being acknowledged
and agreed by the parties that any undertaking by the Bank to use its best
efforts in such circumstances shall in no way create any duty upon the Bank to
complete such Response prior to its expiration.
(c)......In the event that the Fund notifies the Bank of a
Corporate Action requiring a Response and the Bank has received no other notice
of such Corporate Action, the Response Deadline shall be 48 hours prior to the
Response expiration time set by the depository processing such Corporate Action.
(d)......Section 14.3(g) of this Agreement shall
govern any Corporate Action involving Foreign Portfolio Securities
held by a Selected Foreign Sub-Custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Fund assets
in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a)......The Bank may keep Portfolio Securities in the
Book-Entry System provided that such Portfolio Securities are represented in an
account ("Account") of the Bank (or its agent) in such System which shall not
include any assets of the Bank (or such agent) other than assets held as a
fiduciary, custodian, or otherwise for customers;
(b)......The records of the Bank (and any such agent) with
respect to the Fund's participation in the Book-Entry System through the Bank
(or any such agent) will identify by book entry the Portfolio Securities which
are included with other securities deposited in the Account and shall at all
times during the regular business hours of the Bank (or such agent) be open for
inspection by duly authorized officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall also, by book
entry or otherwise, identify as belonging to the Fund a quantity of securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c)......The Bank (or its agent) shall pay for securities
purchased for the account of the Fund or shall pay cash collateral against the
return of Portfolio Securities loaned by the Fund upon (i) receipt of advice
from the Book-Entry System that such Securities have been transferred to the
Account, and (ii) the making of an entry on the records of the Bank (or its
agent) to reflect such payment and transfer for the account of the Fund. The
Bank (or its agent) shall transfer securities sold or loaned for the account of
the Fund upon
.........(i) receipt of advice from the
Book-Entry System that payment for securities sold or payment of the
initial cash collateral against the delivery of securities loaned by
the Fund has been transferred to the Account; and
.........(ii) the making of an entry on the
records of the Bank (or its agent) to reflect such transfer and
payment for the account of the Fund. Copies of all advices from the
Book-Entry System of transfers of securities for the account of the
Fund shall identify the Fund, be maintained for the Fund by the Bank
and shall be provided to the Fund at its request. The Bank shall send
the Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of
any transfers to or from the account of the Fund;
(d)......The Bank will promptly provide the Fund with any
report obtained by the Bank or its agent on the Book-Entry System's accounting
system, internal accounting control and procedures for safeguarding securities
deposited in the Book-Entry System;
6.5 Use of a Depository. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a)......The Bank may use a Depository to hold, receive,
exchange, release, lend, deliver and otherwise deal with Portfolio Securities
including stock dividends, rights and other items of like nature, and to receive
and remit to the Bank on behalf of the Fund all income and other payments
thereon and to take all steps necessary and proper in connection with the
collection thereof;
(b)......Registration of Portfolio Securities may
be made in the name of any nominee or nominees used by such
Depository;
(c)......Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Securities to
or for the account of the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment therefor or, in the
event Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d)......The Bank shall use its best efforts to
provide that:
.........(i) The Depository obtains replacement
of any certificated Portfolio Security deposited with it in the event
such Security is lost, destroyed, wrongfully taken or otherwise not
available to be returned to the Bank upon its request;
.........(ii) Proxy materials received by a
Depository with respect to Portfolio Securities deposited with such
Depository are forwarded immediately to the Bank for prompt
transmittal to the Fund;
.........(iii) Such Depository promptly forwards
to the Bank confirmation of any purchase or sale of Portfolio
Securities and of the appropriate book entry made by such Depository
to the Fund's account;
.........(iv) Such Depository prepares and
delivers to the Bank such records with respect to the performance of
the Bank's obligations and duties hereunder as may be necessary for
the Fund to comply with the recordkeeping requirements of Section
31(a) of the 1940 Act and Rule 31(a) thereunder; and
.........(v) Such Depository delivers to the
Bank all internal accounting control reports, whether or not audited
by an independent public accountant, as well as such other reports as
the Fund may reasonably request in order to verify the Portfolio
Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry
Paper, the Bank agrees that:
(a)......The Bank will maintain all Book-Entry Paper held by
the Fund in an account of the Bank that includes only assets held by it for
customers;
(b)......The records of the Bank with respect to the Fund's
purchase of Book-Entry Paper through the Bank will identify, by book-entry,
commercial paper belonging to the Fund which is included in the Book-Entry
System and shall at all times during the regular business hours of the Bank be
open for inspection by duly authorized officers, employees or agents of the
Fund;
(c)......The Bank shall pay for Book-Entry Paper purchased for
the account of the Fund upon contemporaneous (i) receipt of advice from the
Issuer that such sale of Book-Entry Paper has been effected, and (ii) the making
of an entry on the records of the Bank to reflect such payment and transfer for
the account of the Fund;
(d)......The Bank shall cancel such Book-Entry Paper
obligation upon the maturity thereof upon contemporaneous (i) receipt of advice
that payment for such Book-Entry Paper has been transferred to the Fund, and
(ii) the making of an entry on the records of the Bank to reflect such payment
for the account of the Fund; and
(e)......The Bank will send to the Fund such reports on its
system of internal accounting control with respect to the Book-Entry Paper as
the Fund may reasonably request from time to time. .
6.7 Use of Immobilization Programs. Provided (i) the Bank has received
a certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank as belonging
to the Fund and that the books of the Bank identify the European Branch holding
such Portfolio Securities. Notwithstanding any other provision of this Agreement
to the contrary, except as stated in the first sentence of this subsection 6.8,
the Bank shall be under no other duty with respect to such Eurodollar CDs
belonging to the Fund.
6.9 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities
Exchanges, NASDAQ or Over-the-Counter.
(i) The Bank shall take action as to
put options ("puts") and call options ("calls") purchased or sold (written) by
the Fund regarding escrow or other arrangements (i) in accordance with the
provisions of any agreement entered into upon receipt of Proper Instructions
among the Bank, any broker-dealer registered with the National Association of
Securities Dealers, Inc. (the "NASD"), and, if necessary, the Fund, relating to
the compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations.
(ii) Unless another agreement requires
it to do so, the Bank shall be under no duty or obligation to see that the Fund
has deposited or is maintaining adequate margin, if required, with any broker in
connection with any option, nor shall the Bank be under duty or obligation to
present such option to the broker for exercise unless it receives Proper
Instructions from the Fund. The Bank shall have no responsibility for the
legality of any put or call purchased or sold on behalf of the Fund, the
propriety of any such purchase or sale, or the adequacy of any collateral
delivered to a broker in connection with an option or deposited to or withdrawn
from a Segregated Account (as defined in subsection 6.10 below). The Bank
specifically, but not by way of limitation, shall not be under any duty or
obligation to: (i) periodically check or notify the Fund that the amount of such
collateral held by a broker or held in a Segregated Account is sufficient to
protect such broker or the Fund against any loss; (ii) effect the return of any
collateral delivered to a broker; or (iii) advise the Fund that any option it
holds, has or is about to expire. Such duties or obligations shall be the sole
responsibility of the Fund.
(b) Puts, Calls and Futures Traded on
Commodities Exchanges
(i) The Bank shall take action as to
puts, calls and futures contracts ("Futures") purchased or sold by the Fund in
accordance with the provisions of any agreement entered into upon the receipt of
Proper Instructions among the Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund.
(ii) The responsibilities of the Bank
as to futures, puts and calls traded on commodities exchanges, any Futures
Commission Merchant account and the Segregated Account shall be limited as set
forth in subparagraph (a)(2) of this Section 6.9 as if such subparagraph
referred to Futures Commission Merchants rather than brokers, and Futures and
puts and calls thereon instead of options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions
of any agreement among the Fund, the Bank and a broker-dealer registered under
the Exchange Act and a member of the NASD or any Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Options Clearing Corporation and of any registered national
securities exchange or the Commodity Futures Trading Commission or any
registered Contract Market, or of any similar organizations regarding escrow or
other arrangements in connection with transactions by the Fund;
(ii) for the purpose of segregating
cash or securities in connection with options purchased or written by
the Fund or commodity futures purchased or written by the Fund;
(iii) for the deposit of liquid assets,
such as cash, U.S. Government securities or other portfolio securities, having a
market value (marked to market on a daily basis) at all times equal to not less
than the aggregate purchase price due on the settlement dates of all the Fund's
then outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by
the Fund with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
Segregated Accounts by registered investment companies;
(v) for other proper corporate
purposes, but only, in the case of this clause (e), upon receipt of, in addition
to Proper Instructions, a certified copy of a resolution of the Board, or of the
executive committee of the Board signed by an officer of the Fund and certified
by the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such Segregated Account and declaring such purposes to be proper
corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited
in accordance with the provisions of any agreements referenced in
(a)(i) or (a)(ii) above, in accordance with the provisions of such
agreements;
(ii) with respect to assets deposited
pursuant to (a)(iii) or (a)(iv) above, for sale or delivery to meet the Fund's
obligations under outstanding forward commitment or when-issued agreements for
the purchase of Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets
of equal or greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's
outstanding forward commitment or when-issued agreements for the purchase of
portfolio securities or reverse repurchase agreements are sold to other parties
or the Fund's obligations thereunder are met from assets of the Fund other than
those in the Segregated Account;
(v) for delivery upon settlement of a
forward commitment or when-issued agreement for the sale of Portfolio
Securities; or
(vi) with respect to assets deposited
pursuant to (a)(v) above, in accordance with the purposes of such account as set
forth in Proper Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section only upon receipt of Proper
Instructions. The Proper Instructions shall state that such transfer, exchange
or delivery is for a purpose permitted under the terms of this Section 6.11, and
shall specify the applicable subsection, or describe the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection. After receipt of such Proper Instructions, the Bank will
transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided, however, that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian hereunder) has actual possession
of such Security at least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities
pursuant to their terms into other securities;
(d) For the purpose of redeeming in-kind
shares of the Fund upon authorization from the Fund;
(e) In the case of option contracts owned by
the Fund, for presentation to the endorsing broker;
(f) When such Portfolio Securities are called,
redeemed or retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund
to a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7.Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of outstanding
common shares, the Bank will rely on notification by the Fund's transfer agent
of receipt of a request for redemption and certificates, if issued, in proper
form for redemption before such payment is made. Payment shall be made in
accordance with the Articles of Incorporation or Declaration of Trust and
By-laws of the Fund (the "Articles"), from assets available for said purpose.
8.Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall be released from any and all obligations hereunder.
9.Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10.Collections and Defaults. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal.
11.Maintenance of Records and Accounting Services. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall perform fund accounting and shall keep the books of
account and render statements or copies from time to time as reasonably
requested by the Treasurer or any executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Yield Calculation
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of the Fund, such determination to be made in accordance with the
provisions of the Articles and By-laws of the Fund and the Prospectus and
Statement of Additional Information relating to the Fund, as they may from time
to time be amended, and any applicable resolutions of the Board at the time in
force and applicable; and promptly to notify the Fund, the proper exchange and
the NASD or such other persons as the Fund may request of the results of such
computation and determination. In computing the net asset value hereunder, the
Bank may rely in good faith upon information furnished to it by any Authorized
Person in respect of (i) the manner of accrual of the liabilities of the Fund
and in respect of liabilities of the Fund not appearing on its books of account
kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security for
which no price quotations are available, and (v) the method of computation of
the public offering price on the basis of the net asset value of the shares, and
the Bank shall not be responsible for any loss occasioned by such reliance or
for any good faith reliance on any quotations received from a source pursuant to
(iii) above.
12.2.Yield Calculation. The Bank will compute the performance results
of the Fund (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Fund
for the stated periods of time as shall be mutually agreed upon, and communicate
in a timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, the Bank will derive
the items of data necessary for the computation from the records it generates
and maintains for the Fund pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
(c) At the request of the Bank, the Fund shall provide, and
the Bank shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods set
forth in the Releases or any Subsequent Staff Positions as they specifically
apply to the Fund. In the event that the computation methods in the Releases or
the Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Fund, the
Fund or its designated agent shall have the full responsibility for making the
determination of how the security or payment is to be treated for purposes of
the computation and how the computation is to be made and shall inform the Bank
thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is covered by this
Section, and shall not be responsible for its computations made in accordance
with such determinations so long as such computations are mathematically
correct.
(d) The Fund shall keep the Bank informed of all publicly
available information and of any non-public advice, or information obtained by
the Fund from its independent auditors or by its personnel or the personnel of
its investment adviser, or Subsequent Staff Positions related to the
computations to be undertaken by the Bank pursuant to this Agreement and the
Bank shall not be deemed to have knowledge of such information (except as
contained in the Releases) unless it has been furnished to the Bank in writing.
13. Additional Services. The Bank shall perform the additional services
for the Fund as are set forth on Appendix B hereto. Appendix B may be amended
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix A shall be appropriately increased.
14.Duties of the Bank.
14.1 Performance of Duties and Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will
not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio
Securities by or for the Fund or the propriety of the amount for
which the same are sold;
(c) the legality of an issue or sale of any
common shares of the Fund or the sufficiency of the amount to be
received therefor;
(d) the legality of the repurchase of any
common shares of the Fund or the propriety of the amount to be paid
therefor;
(e) the legality of the declaration of any
dividend by the Fund or the legality of the distribution of any
Portfolio Securities as payment in kind of such dividend; and
(f) any property or moneys of the Fund unless and until
received by it, and any such property or moneys delivered or paid by it pursuant
to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund Held
in the United States. The Bank may employ agents in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians,
provided that any such subcustodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Fund or any other person by reason of any act or
omission of any subcustodian and the Fund shall indemnify the Bank and hold it
harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any subcustodian. Upon request
of the Bank, the Fund shall assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity. The Fund shall pay all fees and
expenses of any subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Bank to employ as sub-custodians for the Fund's
Portfolio Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated on
the Schedule attached hereto (each, a "Selected Foreign Sub-Custodian"). Upon
receipt of Proper Instructions, together with a certified resolution of the
Fund's Board of Directors, the Bank and the Fund may agree to designate
additional foreign banking institutions and foreign securities depositories to
act as Selected Foreign Sub-Custodians hereunder. Upon receipt of Proper
Instructions, the Fund may instruct the Bank to cease the employment of any one
or more such Selected Foreign Sub-Custodians for maintaining custody of the
Fund's assets, and the Bank shall so cease to employ such sub-custodian as soon
as alternate custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise
be agreed upon in writing by the Bank and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign
Sub-Custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Fund, the Fund authorizes the
deposit in Euro-clear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Portfolio Securities eligible for deposit therein and the use of
Euro-clear in connection with settlements of purchases and sales of securities
and deliveries and returns of securities, until notified to the contrary
pursuant to subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its
books as belonging to the Fund the Foreign Portfolio Securities held by each
Selected Foreign Sub-Custodian. Each agreement pursuant to which the Bank
employs a foreign banking institution shall require that such institution
establish a custody account for the Bank and hold in that account Foreign
Portfolio Securities and other assets of the Fund, and, in the event that such
institution deposits Foreign Portfolio Securities in a foreign securities
depository, that it shall identify on its books as belonging to the Bank the
securities so deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement") shall be substantially in the
form provided to the Fund and shall provide that: (a) the Fund's assets will not
be subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration (including, without
limitation, any fees or taxes payable upon transfers or reregistration of
securities); (b) beneficial ownership of the Fund's assets will be freely
transferable without the payment of money or value other than for custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (c) adequate records will be
maintained identifying the assets as belonging to the Bank; (d) officers of or
auditors employed by, or other representatives of the Bank, including to the
extent permitted under applicable law, the independent public accountants for
the Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Bank; and (e)
assets of the Fund held by the Selected Foreign Sub-Custodian will be subject
only to the instructions of the Bank or its agents.
(e) Access of Independent Accountants of the Fund. Upon
request of the Fund, the Bank will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books and
records of any foreign banking institution employed as a Selected Foreign
Sub-Custodian insofar as such books and records relate to the performance of
such foreign banking institution under its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of the securities
and other assets of the Fund held by Selected Foreign Sub-Custodians, including
but not limited to an identification of entities having possession of the
Foreign Portfolio Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Portfolio Securities shall be registered in the name
of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold
any such nominee harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this
Agreement to the contrary, settlement and payment for Foreign Portfolio
Securities received for the account of the Fund and delivery of Foreign
Portfolio Securities maintained for the account of the Fund may be effected in
accordance with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
In connection with any action to be taken
with respect to the Foreign Portfolio Securities held hereunder, including,
without limitation, the exercise of any voting rights, subscription rights,
redemption rights, exchange rights, conversion rights or tender rights, or any
other action in connection with any other right, interest or privilege with
respect to such Securities (collectively, the "Rights"), the Bank shall promptly
transmit to the Fund such information in connection therewith as is made
available to the Bank by the Foreign Sub-Custodian, and shall promptly forward
to the applicable Foreign Sub-Custodian any instructions, forms or
certifications with respect to such Rights, and any instructions relating to the
actions to be taken in connection therewith, as the Bank shall receive from the
Fund pursuant to Proper Instructions. Notwithstanding the foregoing, the Bank
shall have no further duty or obligation with respect to such Rights, including,
without limitation, the determination of whether the Fund is entitled to
participate in such Rights under applicable U.S. and foreign laws, or the
determination of whether any action proposed to be taken with respect to such
Rights by the Fund or by the applicable Foreign Sub-Custodian will comply with
all applicable terms and conditions of any such Rights or any applicable laws or
regulations, or market practices within the market in which such action is to be
taken or omitted.
(h) Liability of Selected Foreign Sub-Custodians. Each Foreign
Sub-Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each Fund from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-Custodian Agreement. The Fund acknowledges
that the Bank, as a participant in Euro-clear, is subject to the Terms and
Conditions Governing the Euro-Clear System, a copy of which has been made
available to the Fund. The Fund acknowledges that pursuant to such Terms and
Conditions, Morgan Guaranty Brussels shall have the sole right to exercise or
assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euro-clear in connection with the Fund's securities and
other assets.
(i) Monitoring Responsibilities. The Bank shall furnish
annually to the Fund information concerning the Selected Foreign Sub-Custodians
employed hereunder for use by the Fund in evaluating such Selected Foreign
Sub-Custodians to ensure compliance with the requirements of Rule 17f-5 of the
Act. In addition, the Bank will promptly inform the Fund in the event that the
Bank is notified by a Selected Foreign Sub-Custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below US$200
million (or the equivalent thereof) or that its shareholders' equity has
declined below US$200 million (in each case computed in accordance with
generally accepted U.S. accounting principles) or any other capital adequacy
test applicable to it by exemptive order, or if the Bank has actual knowledge of
any material loss of the assets of the Fund held by a Foreign Sub-Custodian.
(j) Tax Law. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or the Bank
as custodian of the Fund by the tax laws of any jurisdiction, and it shall be
the responsibility of the Fund to notify the Bank of the obligations imposed on
the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Selected Foreign Sub-custodian with
regard to such tax law shall be to use reasonable efforts to assist the Fund
with respect to any claim for exemption or refund under the tax law of
jurisdictions for which the Fund has provided such information.
14.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5.Fees and Expenses of the Bank. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness, in and to any
property at any time held by it for the Fund's benefit or in which the Fund has
an interest and which is then in the Bank's possession or control (or in the
possession or control of any third party acting on the Bank's behalf). The Fund
authorizes the Bank, in the Bank's sole discretion, at any time to charge any
overdraft or indebtedness, together with interest due thereon, against any
balance of account standing to the credit of the Fund on the Bank's books.
15. Limitation of Liability.
15.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the negligence, willful
misfeasance or bad faith of the Bank or any Indemnified Party. Without limiting
the foregoing, neither the Bank nor the Indemnified Parties shall be liable for,
and the Bank and the Indemnified Parties shall be indemnified against, any Claim
arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party
in good faith reliance upon the terms of this Agreement, any Officer's
Certificate, Proper Instructions, resolution of the Board, telegram, telecopier,
notice, request, certificate or other instrument reasonably believed by the Bank
to be genuine;
(b) Any act or omission of any subcustodian
selected by or at the direction of the Fund;
(c) Any act or omission of a Selected Foreign
Sub-Custodian to the extent such Selected Foreign Sub-Custodian is
not liable to the Bank;
(d) Any Corporate Action requiring a Response for which the
Bank has not received Proper Instructions or obtained actual possession of all
necessary Securities, consents or other materials by 5:00 p.m. on the date
specified as the Response Deadline;
(e) Any act or omission of any European Branch of a U.S.
banking institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(f) Information relied on in good faith by the Bank and
supplied by any Authorized Person in connection with the calculation of (i) the
net asset value and public offering price of the shares of capital stock of the
Fund or (ii) the Yield Calculation; or
(g) Any acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other similar
happenings or events.
15.2 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
16.Termination.
16.1 The term of this Agreement shall be three years commencing upon
the date of the effectiveness of the Fund's registration statement (the "Initial
Term"), unless earlier terminated as provided herein. After the expiration of
the Initial Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless notice of non-renewal
is delivered by the non-renewing party to the other party no later than sixty
days prior to the expiration of the Initial Term or any Renewal Term, as the
case may be.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) Either party may terminate this Agreement during any
Renewal Term upon ninety days written notice to the other party. Any termination
pursuant to this paragraph 16.1(b) shall be effective upon expiration of such
sixty days, provided, however, that the effective date of such termination may
be postponed to a date not more than ninety days after delivery of the written
notice: (i) at the request of the Bank, in order to prepare for the transfer by
the Bank of all of the assets of the Fund held hereunder; or (ii) at the request
of the Fund, in order to give the Fund an opportunity to make suitable
arrangements for a successor custodian.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (16.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of the Bank relating
to its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (i) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, NY 10020
Attention: Mike Gozzillo
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
Attention: Stacy A. Lederman
With a copy to: John E. Henry, General
Counsel
or at such other place as such party may from time to time
designate in writing.
19. Amendments. This Agreement may not be altered or
amended, except by an instrument in writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21.Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22.Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23.Entire Agreement. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24.Limitation of Liability. The Bank agrees that the obligations
assumed by the Fund hereunder shall be limited in all cases to the assets of the
Fund and that the Bank shall not seek satisfaction of any such obligation from
the officers, agents, employees, trustees, or shareholders of the Fund.
25.Several Obligations of the Portfolios. This Agreement is an
agreement entered into between the Bank and the Fund with respect to each
Portfolio. With respect to any obligation of the Fund on behalf of any Portfolio
arising out of this Agreement, the Bank shall look for payment or satisfaction
of such obligation solely to the assets of the Portfolio to which such
obligation relates as though the Bank had separately contracted with the Fund by
separate written instrument with respect to each Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
SAMCO
Fund, Inc.
By:
Name:William E. Vastardis
Title:
INVESTORS BANK & TRUST COMPANY
By:
Name:
Title:
Appendix B
(Additional Services)
None
TRANSFER AGENCY AND SERVICE AGREEMENT
Between
SAMCO Fund, Inc.
and
INVESTORS BANK & TRUST COMPANY
FORM OF
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT effective as of the ___ day of ________, 1997 by and between
SAMCO Fund, Inc., a corporation organized under the laws of Maryland (the
"Company"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company
(the "Bank").
WHEREAS, the Company desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
WHEREAS, the Bank is duly registered as a transfer agent as provided in
Section 17A(c) of the Securities Exchange Act of 1934, as amended, (the "1934
Act");
WHEREAS, the Company is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS, the Company intends to initially offer shares in one series,
SAMCO Fixed Income Portfolio (such series, together with all other series
subsequently established by the Company and made subject to this Agreement in
accordance with Article 17, being herein referred to as the "Fund(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Company and the Bank agree as follows:
ARTICLE 1. Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement,
the Company on behalf of the Fund(s) hereby employs and appoints the Bank to
act, and the Bank agrees to act, as transfer agent for each of the Fund(s)'
authorized and issued shares of beneficial interest ("Shares"), dividend
disbursing agent and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of the Company ("Shareholders") and
set out in the currently effective prospectus and statement of additional
information, as each may be amended from time to time, (the "Prospectus") of the
Company, including without limitation any periodic investment plan or periodic
withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In connection with procedures established from time to
time by agreement between the Company and the Bank, the Bank shall:
(i) Receive for acceptance orders for the
purchase of Shares and promptly deliver payment and appropriate documentation
therefor to the custodian of the Company appointed by the Board of Directors of
the Company (the "Custodian");
(ii) Pursuant to purchase orders, issue
the appropriate number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption
requests and redemption directions and deliver the appropriate
documentation therefor to the Custodian;
(iv) At the appropriate time as and when
it receives monies paid to it by the Custodian with respect to any redemption,
pay over or cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the
registered owners thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for
dividends and distributions declared by the Company on behalf of a
Fund;
(vii) Create and maintain all necessary
records including those specified in Article 10 hereof, in accordance with all
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the Investment Company Act of 1940, as amended (the
"1940 Act"), and those records pertaining to the various functions performed by
it hereunder. All records shall be available for inspection and use by the
Company. Where applicable, such records shall be maintained by the Bank for the
periods and in the places required by Rule 31a-2 under the 1940 Act;
(viii) Make available during regular
business hours all records and other data created and maintained pursuant to
this Agreement for reasonable audit and inspection by the Company, or any person
retained by the Company. Upon reasonable notice by the Company, the Bank shall
make available during regular business hours its facilities and premises
employed in connection with its performance of this Agreement for reasonable
visitation by the Company, or any person retained by the Company;
(ix) At the expense of and at the request
of the Company, maintain an adequate supply of blank share certificates for each
Fund providing for the issuance of certificates to meet the Bank's requirements
therefor. Such share certificates shall be properly signed by facsimile. The
Company agrees that, notwithstanding the death, resignation, or removal of any
officer of the Company whose signature appears on such certificates, the Bank
may continue to countersign certificates which bear such signatures until
otherwise directed by the Company. Share certificates may be issued and
accounted for entirely by the Bank and do not require any third party registrar
or other endorsing party;
(x) Issue replacement share certificates
in lieu of certificates which have been lost, stolen, mutilated or destroyed,
without any further action by the Board of Directors or any officer of the
Company, upon receipt by the Bank of properly executed affidavits and lost
certificate bonds, in form satisfactory to the Bank with the Company and the
Bank as obligees under the bond. At the discretion of the Bank, and at its sole
risk, the Bank may issue replacement certificates without requiring the
affidavits and lost certificate bonds described above and the Company agrees to
indemnify the Bank against any and all losses or claims which may arise by
reason of the issuance of such new certificates in the place of the ones
allegedly lost, stolen or destroyed; and
(xi) Record the issuance of Shares of the
Company and maintain, pursuant to Rule 17Ad-10(e) under the 1934 Act, a record
of the total number of Shares of the Company which are authorized, based upon
data provided to it by the Company, and issued and outstanding. The Bank shall
also provide the Company on a regular basis with the total number of Shares
which are authorized and issued and outstanding and shall have no obligation,
when recording the issuance of Shares, to monitor the issuance of such Shares or
to take cognizance of any laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of the Company.
(b) In addition to and not in lieu of the services set forth
in the above paragraph (a) or in any Schedule hereto, the Bank shall: (i)
perform all of the customary services of a transfer agent, dividend disbursing
agent and, as relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment plan or
periodic withdrawal program); including but not limited to maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
receiving and tabulating proxies, mailing Shareholder reports and prospectuses
to current Shareholders, withholding taxes on all accounts, including
nonresident alien accounts, preparing and filing U.S. Treasury Department Forms
1099 and other appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all purchases
and redemptions of Shares and other confirmable transactions in Shareholder
accounts, responding to Shareholder telephone calls and Shareholder
correspondence, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information; and (ii) provide a system which will
enable the Company to monitor the total number of shares sold in each State. The
Company shall (i) identify to the Bank in writing those transactions and assets
to be treated as exempt from blue sky reporting for each State and (ii) verify
the establishment of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each State. The
responsibility of the Bank for a Fund's blue sky state registration status is
solely limited to the initial establishment of transactions subject to blue sky
compliance by such Fund(s) and the reporting of such transactions to the Fund(s)
as provided above.
(c) Additionally, the Bank shall utilize a system to identify
all share transactions which involve purchase and redemption orders that are
processed at a time other than the time of the computation of net asset value
per share next computed after receipt of such orders, and shall compute the net
effect upon the Fund(s) of such transactions so identified on a daily and
cumulative basis.
ARTICLE 2. Sale of Company Shares
2.01 Whenever the Company shall sell or cause to be sold any Shares of
a Fund, the Company shall deliver or cause to be delivered to the Bank a
document duly specifying: (i) the name of the Fund whose Shares were sold; (ii)
the number of Shares sold, trade date, and price; (iii) the amount of money to
be delivered to the Custodian for the sale of such Shares and specifically
allocated to such Fund; and (iv) in the case of a new account, a new account
application or sufficient information to establish an account.
2.02 The Bank will, upon receipt by it of a check or other payment
identified by it as an investment in Shares of one of the Funds and drawn or
endorsed to the Bank as agent for, or identified as being for the account of,
one of the Funds, promptly deposit such check or other payment to the
appropriate account postings necessary to reflect the investment. The Bank will
notify the Company, or its designee, and the Custodian of all purchases and
related account adjustments.
2.03 Under procedures as established by mutual agreement between the
Company and the Bank, the Bank shall issue to the purchaser or its authorized
agent such Shares, computed to the nearest three decimal points, as he is
entitled to receive, based on the appropriate net asset value of the Funds'
Shares, determined in accordance with the prospectus and any applicable federal
law or regulation. In issuing Shares to a purchaser or its authorized agent, the
Bank shall be entitled to rely upon the latest directions, if any, previously
received by the Bank from the purchaser or its authorized agent concerning the
delivery of such Shares.
2.04 The Bank shall not be required to issue any Shares of the Company
where it has received a written instruction from the Company or written
notification from any appropriate federal or state authority that the sale of
the Shares of the Fund(s) in question has been suspended or discontinued, and
the Bank shall be entitled to rely upon such written instructions or written
notification.
2.05 Upon the issuance of any Shares of any Fund(s) in accordance with
foregoing provisions of this Section, the Bank shall not be responsible for the
payment of any original issue or other taxes, if any, required to be paid by the
Company in connection with such issuance.
2.06 The Bank may establish such additional rules and regulations
governing the transfer or registration of Shares as it may deem advisable and
consistent with such rules and regulations generally adopted by transfer agents,
or with the written consent of the Company, any other rules and regulations.
ARTICLE 3. Returned Checks
3.01 In the event that any check or other order for the transfer of
money is returned unpaid for any reason, the Bank will take such steps as the
Bank may, in its discretion, deem appropriate to protect the Company from
financial loss or as the Company or its designee may instruct. Provided that the
standard procedures, as agreed upon from time to time, between the Company and
the Bank, regarding purchases and redemptions of Shares, are adhered to by the
Bank, the Bank shall not be liable for any loss suffered by a Fund as a result
of returned or unpaid purchase or redemption transactions. Legal or other
expenses incurred to collect amounts owed to a Fund as a consequence of returned
or unpaid purchase or redemption transactions shall be an expense of that Fund.
ARTICLE 4 . Redemptions
4.01 Shares of any Fund may be redeemed in accordance with the
procedures set forth in the Prospectus of the Company and the Bank will duly
process all redemption requests.
ARTICLE 5. Transfers and Exchanges
5.01 The Bank is authorized to review and process transfers of Shares
of each Fund, exchanges between Funds on the records of the Funds maintained by
the Bank, and exchanges between the Company and any other entity as may be
permitted by the Prospectus of the Company. If Shares to be transferred are
represented by outstanding certificates, the Bank will, upon surrender to it of
the certificates in proper form for transfer, and upon cancellation thereof,
countersign and issue new certificates for a like number of Shares and deliver
the same. If the Shares to be transferred are not represented by outstanding
certificates, the Bank will, upon an order therefor by or on behalf of the
registered holder thereof in proper form, credit the same to the transferee on
its books. If Shares are to be exchanged for Shares of another Fund, the Bank
will process such exchange in the same manner as a redemption and sale of
Shares, except that it may in its discretion waive requirements for information
and documentation.
ARTICLE 6. Right to Seek Assurances
6.01 The Bank reserves the right to refuse to transfer or redeem Shares
until it is satisfied that the requested transfer or redemption is legally
authorized, and it shall incur no liability for the refusal, in good faith, to
make transfers or redemptions which the Bank, in its judgment, deems improper or
unauthorized, or until it is satisfied that there is no basis for any claims
adverse to such transfer or redemption. The Bank may, in effecting transfers,
rely upon the provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time, which in the opinion of legal counsel for the Company or the
Bank's own legal counsel, do not require certain documents in connection with
the transfer or redemption of Shares of any Fund, and the Company shall
indemnify the Bank for any act done or omitted by it in reliance upon such laws
or opinions of counsel of the Company or of the Bank.
ARTICLE 7. Distributions
7.01 The Company will promptly notify the Bank of the declaration of
any dividend or distribution. The Company shall furnish to the Bank a resolution
of the Board of Directors of the Company certified by the Secretary (a
"Certificate"): (i) authorizing the declaration of dividends on a specified
periodic basis and authorizing the Bank to rely on oral instructions or a
Certificate specifying the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
Shareholders entitled to payment shall be determined and the amount payable per
share to Shareholders of record as of such record date and the total amount
payable to the Bank on the payment date; or (ii) setting forth the date of the
declaration of any dividend or distribution by a Fund, the date of payment
thereof, the record date as of which Shareholders entitled to payment shall be
determined, and the amount payable per share to the Shareholders of record as of
that date and the total amount payable to the Bank on the payment date.
7.02 The Bank, on behalf of the Company, shall instruct the Custodian
to place in a dividend disbursing account funds equal to the cash amount of any
dividend or distribution to be paid out. The Bank will calculate, prepare and
mail checks to (at the address as it appears on the records of the Bank), or
(where appropriate) credit such dividend or distribution to the account of, Fund
Shareholders, and maintain and safeguard all underlying records.
7.03 The Bank will replace lost checks at its discretion and in
conformity with regular business practices.
7.04 The Bank will maintain all records necessary to reflect the
crediting of dividends which are reinvested in Shares of the Company, including
without limitation daily dividends.
7.05 The Bank shall not be liable for any improper payments made in
accordance with a resolution of the Board of Directors of the Company.
7.06 If the Bank shall not receive from the Custodian sufficient cash
to make payment to all Shareholders of the Company as of the record date, the
Bank shall, upon notifying the Company, withhold payment to all Shareholders of
record as of the record date until such sufficient cash is provided to the Bank
and shall not be liable for any claim arising out of such withholding.
ARTICLE 8. Other Duties
8.01 In addition to the duties expressly provided for herein, the Bank
shall perform such other duties and functions and shall be paid such amounts
therefor as may from time to time be agreed to in writing.
ARTICLE 9. Taxes
9.01 It is understood that the Bank shall file such appropriate
information returns concerning the payment of dividends and capital gain
distributions and tax withholding with the proper Federal, State and local
authorities as are required by law to be filed by the Company and shall withhold
such sums as are required to be withheld by applicable law.
ARTICLE 10. Books and Records
10.01 The Bank shall maintain confidential records showing for each
Shareholder's account the following: (i) names, addresses and tax identification
numbers; (ii) numbers of Shares held; (iii) historical information (as available
from prior transfer agents) regarding the account of each Shareholder, including
dividends paid and date and price of all transactions on a Shareholder's
account; (iv) any stop or restraining order placed against a Shareholder's
account; (v) information with respect to withholdings; (vi) any capital gain or
dividend reinvestment order, plan application, dividend address and
correspondence relating to the current maintenance of a Shareholder's account;
(vii) certificate numbers and denominations for any Shareholders holding
certificates; (viii) any information required in order for the Bank to perform
the calculations contemplated or required by this Agreement; and (ix) such other
information and data as may be required by applicable law.
10.02 Any records required to be maintained by Rule 31a-1 under the
1940 Act will be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act. Such records may be inspected by the Company during regular business
hours upon reasonable notice. The Bank may, at its option at any time, and shall
forthwith upon the Company's demand, turn over to the Company and cease to
retain in the Bank's files, records and documents created and maintained by the
Bank in performance of its service or for its protection. At the end of the
six-year retention period, such documents will either be turned over to the
Company, or destroyed in accordance with the Company's authorization.
10.03 Procedures applicable to the services to be performed hereunder
may be established from time to time by agreement between the Fund(s) and the
Bank. The Bank shall have the right to utilize any shareholder accounting and
recordkeeping systems which, in its opinion, qualifies to perform any services
to be performed hereunder. The Bank shall keep records relating to the services
performed hereunder, in the form and manner as it may deem advisable.
ARTICLE 11. Fees and Expenses.
11.01 For performance by the Bank pursuant to this Agreement, the
Fund(s) agree to pay the Bank an annual maintenance fee for each Shareholder
account as set out in the initial fee schedule attached as Appendix A hereto.
Such fees and out-of-pocket expenses and advances identified under Section 11.02
below may be changed from time to time subject to mutual written agreement
between the Fund(s) and the Bank.
11.02 In addition to the fee paid under Section 11.01 above, the
Fund(s) agree to reimburse the Bank for out-of-pocket expenses or advances
incurred by the Bank for the items set out in the fee schedule attached hereto.
In addition, any other expenses incurred by the Bank at the request or with the
consent of the Fund(s) including, without limitation, any equipment or supplies
which the Company specifically orders or requires the Bank to purchase, will be
reimbursed by the Fund(s).
11.03 The Fund(s) agree to pay all fees and reimbursable expenses
within thirty days following the mailing of the respective billing notice.
Postage for mailing of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to the Bank by the Fund(s) at least
seven (7) days prior to the mailing date of such materials. Any waiver or
extension by the Bank of the thirty and seven day time periods enumerated in
this section 11.03 shall not constitute a dismissal of any monies due under this
Agreement nor shall such waiver or extension apply to any future monies due to
the Bank hereunder.
ARTICLE 12. Representations and Warranties of the Bank
The Bank represents and warrants to the Company that:
12.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
12.02 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
12.03 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
12.04 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
ARTICLE 13. Representations and Warranties of the Company
The Company represents and warrants to the Bank that:
13.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of its incorporation as set forth in the
preamble hereto.
13.02 It is empowered under applicable laws and by its charter
documents and by-laws to enter into and perform this Agreement.
13.03 All proceedings required by said charter documents and by-laws
have been taken to authorize it to enter into and perform this Agreement.
13.04 It is an open-end investment company registered under the 1940
Act.
13.05 A registration statement on Form N-1A (including a prospectus and
statement of additional information) under the Securities Act of 1933 and the
1940 Act is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Company being offered for sale.
13.06 When Shares are hereafter issued in accordance with the terms of
the Prospectus, such Shares shall be validly issued, fully paid and
nonassessable by the Fund(s).
ARTICLE 14. Indemnification
14.01 Except as set forth in Section 14.02 hereof, the Bank shall not
be responsible for, and the Company shall indemnify and hold the Bank harmless
from and against, any and all losses, damages, costs, charges, legal fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions taken or omitted to be taken by the Bank or
its agents or subcontractors in good faith in reliance on or use by the Bank or
its agents or subcontractors of information, records and documents which (i) are
received by the Bank or its agents or subcontractors and furnished to such party
by or on behalf of the Fund(s), (ii) have been prepared and/or maintained by the
Fund(s) or any other person or firm on behalf of the Fund(s), or (iii) were
received by the Bank or its agents or subcontractors from a prior transfer
agent.
(b) Any action taken or omitted to be taken by the Bank in
good faith reliance upon any law, act, regulation (a "Regulation") may
thereafter have been altered, changed, amended or repealed.
(c) The Fund(s)' refusal or failure to comply with the terms
of this Agreement, or which arise out of the Funds' lack of good faith,
negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund(s) hereunder.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests, whether written or
oral, of the Fund(s).
(e) The offer or sale of Shares by the Company in violation of
(i) any requirement under the federal securities laws or regulations; (ii) any
requirement under the securities laws or regulations of any state; or (iii) any
stop order or other determination or ruling by any federal or state agency with
respect to the offer or sale of such Shares.
14.02 The Bank shall indemnify and hold the Fund(s) harmless from and
against any and all losses, damages, costs, charges, legal fees, payments,
expenses and liability arising out of or attributed to any action or failure or
omission to act by the Bank as a result of the Bank's lack of good faith,
negligence, willful misconduct, knowing violation of law or fraud.
14.03 At any time the Bank may apply to any officer of the Company for
instructions, and may consult with legal counsel of the Bank or the Company with
respect to any matter arising in connection with the services to be performed by
the Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Company for any action taken
or omitted by it in good faith reliance upon such instructions or upon the
opinion of such counsel except for a knowing violation of law. The Bank, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund(s), reasonably believed
to be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided to the Bank or
its agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund(s), and the Bank, its agents and
subcontractors shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund(s). The Bank,
its agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of an officer of the Company, and one proper
countersignature of any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
14.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, interruption
of electrical power or other utilities, equipment or transmission failure or
damage reasonably beyond its control, or other causes reasonably beyond its
control, such party shall not be liable to the other for any damages resulting
from such failure to perform or otherwise from such causes.
14.05 Neither party to this Agreement shall be liable to the other
party for special, incidental or consequential damages, even if the other party
has been advised of the possibility of such damages, under any provision of this
Agreement or for any act or failure to act hereunder as contemplated by this
Agreement.
14.06 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank's liability under this Agreement exceed in general money
damages a total cumulative maximum amount of one hundred percent of the amounts
actually paid by the Company to the Bank under this Agreement. The existence of
more than one claim shall not enlarge or extend this limit.
14.07 In order that the indemnification provisions contained in this
Article 14 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
seeking indemnification shall give the indemnifying party full and complete
authority, information and assistance to defend such claim or proceeding, and
the indemnifying party shall have, at its option, sole control of the defense of
such claim or proceeding and all negotiations for its compromise or settlement.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent, which consent shall not be
unreasonably withheld.
ARTICLE 15. Covenants of the Company and the Bank
15.01 The Company shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Directors of the
Company authorizing the appointment of the Bank and the execution and delivery
of this Agreement.
(b) A copy of the charter documents and
by-laws of the Company and all amendments thereto.
(c) Copies of each vote of the Directors designating
authorized persons to give instructions to the Bank, and a Certificate providing
specimen signatures for such authorized persons.
(d) Certificates as to any change in any officer
or Director of the Company.
(e) If applicable a specimen of the certificate of Shares in
each Fund of the Company in the form approved by the Directors, with a
Certificate as to such approval.
(f) Specimens of all new certificates for Shares, accompanied
by the Directors' resolutions approving such forms.
(g) All account application forms and other documents relating
to shareholder accounts or relating to any plan, program or service offered by
the Company.
(h) A list of all Shareholders of the Fund(s) with the name,
address and tax identification number of each Shareholder, and the number of
Shares of the Fund(s) held by each, certificate numbers and denominations ( if
any certificates have been issued), lists of any account against which stops
have been placed, together with the reasons for said stops, and the number of
Shares redeemed by the Fund(s).
(i) An opinion of counsel for the Company with respect to the
validity of the Shares and the status of such Shares under the Securities Act of
1933.
(j) Copies of the Fund(s) registration statement on Form N-1A
(if applicable) as amended and declared effective by the Securities and Exchange
Commission and all post-effective amendments thereto.
(k) Such other certificates, documents or opinions as the Bank
may deem necessary or appropriate for the Bank in the proper performance of its
duties hereunder.
15.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Company for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
15.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act and the Rules thereunder, the Bank
agrees that all such records prepared or maintained by the Bank relating to the
services to be performed by the Bank hereunder are the confidential property of
the Company and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered to the Company on and in
accordance with its request.
15.04 The Bank and the Company agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
15.05 In case of any requests or demands for the inspection of the
Shareholder records of the Company, the Bank will endeavor to notify the Company
and to secure instructions from an authorized officer of the Company as to such
request or demand. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel that it
may be subject to enforcement or other action by any court or regulatory body
for the failure to exhibit the Shareholder records to such person.
ARTICLE 16. Term of Agreement
16.01 Termination of Agreement. The term of this Agreement shall be
three years commencing upon the date first above written (the "Initial Term"),
unless earlier terminated as provided herein. After the expiration of the
Initial Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless notice of non-renewal
is delivered by the non-renewing party to the other party no later than sixty
days prior to the expiration of the Initial Term or any Renewal Term, as the
case may be.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) Either party may terminate this Agreement during any
Renewal Term upon sixty days written notice to the other party. Any termination
pursuant to this paragraph 16.01(b) shall be effective upon expiration of such
sixty days, provided, however, that the effective date of such termination may
be postponed to a date not more than ninety days after delivery of the written
notice: (i)at the request of the Bank, in order to prepare for the transfer by
the Bank of its duties hereunder; or (ii) at the request of the Fund, in order
to give the Fund an opportunity to make suitable arrangements for a successor
transfer agent.
16.02 Should the Company exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Company. Additionally, the Bank reserves the right to recover
from the Company any other reasonable expenses associated with such termination.
ARTICLE 17. Additional Funds
17.01 In the event that the Company establishes one or more series of
Shares in addition to the initial series with respect to which it desires to
have the Bank render services as transfer agent under the terms hereof, it shall
so notify the Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Fund hereunder.
ARTICLE 18. Assignment
18.01 Except as provided in Section 18.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
18.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
18.03 The Bank, may without further consent on the part of the Company,
subcontract for the performance of any of the services to be provided hereunder
to third parties, including any affiliate of the Bank, provided that the Bank
shall remain liable hereunder for any acts or omissions of any subcontractor as
if performed by the Bank.
ARTICLE 19. Amendment
19.01 This Agreement may be amended or modified only by a written
agreement executed by both parties.
ARTICLE 20. Governing Law
20.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without regard to its conflict of laws provisions.
ARTICLE 21. Merger of Agreement and Severability
21.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
21.02 In the event any provision of this Agreement shall be held
unenforceable or invalid for any reason, the remainder of the Agreement shall
remain in full force and effect.
21.03 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original; but such counterparts shall
together, constitute only one instrument.
ARTICLE 22. Notices
22. 01 Any notice or other instrument in writing authorized or required
by this Agreement to be given to either party hereto will be sufficiently given
if addressed to such party and mailed or delivered to it at its office at the
address set forth below:
For the Fund(s): AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, NY 10020
Attention: Mike Gozzillo
For the Bank: Investors Bank & Trust Company
P.O. Box 1537
Boston, Massachusetts 02205-1537
Attention: Stacy A. Lederman
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and the year first above written.
SAMCO Fund, Inc.
By:
- --------------------------
Name:
Title:
INVESTORS BANK &
TRUST COMPANY
By:
- --------------------------
Name:
Title:
SAMCO FUND, INC.
POWER OF ATTORNEY
The undersigned directors of SAMCO FUND, INC. (the "Fund"), hereby
constitute and appoint William E. Vastardis and Paul Brook, and each of them
severally, acting alone without the other, his or her true and lawful
attorney-in-fact with authority to execute in the name of each such person, and
to file with the Securities and Exchange Commission, together with any exhibits
thereto and other documents therewith, the Registration Statement of the Fund on
Form N-1A and any and all amendments (including without limitation pre-and
post-effective amendments) to such Registration Statements necessary or
advisable to enable such Registration Statements to comply with the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended, any
rules and regulations and requirements of the Securities and Exchange Commission
in respect thereof, which amendments may make such changes in such Registration
Statements as the aforesaid attorney-in-fact executing the same deems
appropriate.
Signatures Title
Date
_______________________ Director
October 9, 1997
John E. Manley, Sr.
_______________________ Director
October 9, 1997
John R. O'Brien
SHARE PURCHASE AGREEMENT
SAMCO FUND, INC.
Share Purchase Agreement, by and between SAMCO Fund, Inc., a
corporation organized under the laws of Maryland (the "Fund"), and Seix
Investment Advisors Inc. (the "Purchaser"), intending to be legally bound,
hereby agree as follows:
WHEREAS, the Fund is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund proposes to issue and sell shares of its common
stock, par value $0.001 per share (the "Common Stock"), to the public pursuant
to a Registration Statement on Form N-1A (the "Registration Statement") filed
with the Securities and Exchange Commission; and
WHEREAS, Section 14(a) of the 1940 Act required each registered
investment company to have a net worth of at least $100,000 before making a
public offering of its securities.
NOW THEREFORE, the Fund and Purchaser agree as follows:
1. In order to provide the Fund with its initial capital, the Fund
agrees to issue and sell to the Purchaser and the Purchaser agrees to purchase
10,000 shares of Common Stock of the Class A shares of the SAMCO Fixed Income
Portfolio, par value $0.001 per share, at a price of $10.00 per share (the
"Shares").
2. The Purchaser represents and warrants to the Fund that the Shares
are being acquired for investment and not with a view to distribution thereof
and that it has no present intention to redeem or dispose of any of the Shares.
3. The Purchaser's rights under the Share Purchase Agreement to
purchase the Shares are not assignable.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
15th day of October, 1997.
SAMCO FUND, INC.
By:
- ----------------------------
Paul A. Brook
Treasurer
By:
- ---------------------------------
Seix Investment
Advisors Inc.
By: Christina Seix,
Chairman,
CEO and Chief
Investment Officer
SAMCO FUND, INC.
SERVICES AND DISTRIBUTION PLAN
The following Services and Distribution Plan (the "Plan") has been
adopted in accordance with Rule 12b-1 (the "Rule") under the Investment Company
Act of 1940, as amended (the "1940 Act"), for the Class B shares of the SAMCO
Fixed Income Portfolio (the "Shares" or the "Portfolio"), a portfolio of SAMCO
Fund, Inc., a corporation organized under the laws of the State of Maryland
operating as an open-end management investment company (the "Fund"). The Plan
has been approved by a majority of the Fund's directors, including a majority of
the directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan (the "non-interested
directors"), cast in person at a meeting called for the purpose of voting on
such Plan. Such approval included a determination that in the exercise of
reasonable business judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the shareholders of the Shares.
The Plan has been approved by a vote of at least a majority of the Portfolio's
outstanding voting securities, as defined in the 1940 Act.
The provisions of the Plan are:
Section 1. Annual Fees.
(a) Service Fee. The Portfolio will pay to the distributor of its
shares, AMT Capital Services, Inc. ("AMT Capital Services"), a corporation
organized under the laws of the State of Maryland (the "distributor"), on behalf
of the Portfolio, a service fee under the Plan at the annual rate of 0.00% of
the average daily net assets of the Shares (the "Service Fee").
(b) Distribution Fee. In addition to the Service Fee, the Portfolio
will pay to the distributor, on behalf of the Shares, a distribution fee under
the Plan at the annual rate of 0.25% of the average daily net assets of the
Shares (the "Distribution Fee").
(c) Payment of Fees. The Service Fee and Distribution Fee will be
calculated daily and paid monthly by the Portfolio at the annual rates indicated
above. The distributor may make payments to assist in the distribution of the
Shares out of any portion of any fee paid to the distributor or any of its
affiliates by the Portfolio, its past profits or any other sources available to
it.
Section 2. Expenses Covered by the Plan.
(a) The Service Fee payable with respect to the
Shares is in return for certain administrative and shareholder services provided
by the distributor to the investors that purchase the Shares. Such
administrative and shareholder services may include processing purchase,
exchange and redemption requests from customers and placing orders with
Portfolio's transfer agent; processing dividend and distribution payments from
the Shares on behalf of customers; providing information periodically to
customers showing their positions in the Shares; responding to inquiries from
customers concerning their investment in the Shares; arranging for bank wires;
and providing such other similar services as may be reasonably requested.
The distributor may retain all or a portion of the payments made to it
pursuant to the Plan for the provision of services to holders of the Shares
pursuant to Dealer Agreements entered into by the distributor in its sole
discretion and may make payments to third parties to assist in providing the
services provided to the Shares. All expenses incurred by the Fund in connection
with the Dealer Agreements and the implementation of this Plan with respect to
the Shares shall be borne entirely by the holders of the Shares.
(b) The Distribution Fee with respect to the Shares may be used by the
distributor to cover advertising, marketing and distribution expenses intended
to result in the sale of the Shares, including, without limitation, compensation
for the distributor's initial expense of paying its investment representatives
or introducing brokers a commission upon the sale of the Shares and accruals for
interest on the amount of the foregoing expenses that exceed the Distribution
Fee. In addition, the Service Fee with respect to the Shares may be used by the
distributor primarily to pay its financial consultants or introducing brokers
for servicing shareholder accounts, including a continuing fee to each such
financial consultant or introducing broker, which fee shall begin to accrue
immediately after the sale of such shares.
(c) The amount of the Distribution Fee and Service Fee payable by the
Portfolio under Section 1 hereof is not related directly to expenses incurred by
the distributor and this Section 2 does not obligate the Portfolio to reimburse
the distributor for such expenses. The Distribution Fee and Service Fee set
forth in Section 1 will be paid by the Portfolio to the distributor unless and
until the Plan is terminated or not renewed with respect to the Portfolio or
Class thereof, and any distribution or service expenses incurred by the
distributor on behalf of the Shares in excess of payments of the Distribution
and Service Fees specified in Section 1 hereof which the distributor has accrued
through the termination date are the sole responsibility and liability of the
distributor and not an obligation of the Portfolio.
Section 3. Approval of Shareholders.
The Plan will not take effect with respect to the Shares, and no fee
will be payable in accordance with Section 1 of the Plan, until the Plan has
been approved by a vote of at least a majority of the outstanding voting
securities of the Shares.
Section 4. Approval of Directors.
Neither the Plan nor any related agreements will take effect with
respect to the Shares until approved by a majority of both (a) the full Board of
Directors of the Fund and (b) those Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the Plan or in any agreements related to it (the "Independent Directors"),
cast in person at a meeting called for the purpose of voting on the Plan and the
related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect from year to year with respect to the
Shares, so long as its continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors in the manner described in Section 4
above.
Section 6. Termination.
The Plan may be terminated with respect to the Shares at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities (as so defined) of the Portfolio or by a vote of the
Independent Directors, in any such event on sixty days' notice to the
distributor.
Section 7. Amendments.
The Plan may not be amended with respect to the Shares so as to
increase materially the amounts of the fees described in Section 1 above, unless
the amendment is approved by a vote of the holders of at least a majority of the
outstanding voting securities of the Shares. No material amendment to the Plan
may be made unless approved by the Fund's Board of Directors in the manner
described in Section 4 above.
Section 8. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the Fund's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of the
Fund.
Section 9. Written Reports.
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by the Portfolio
pursuant to the Plan or any related agreement will prepare and furnish to the
Fund's Board of Directors, and the Board will review, at least quarterly,
written reports complying with the requirements of the Rule which set out the
amounts expended under the Plan and the purposes for which those expenditures
were made.
Section 10. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 9 above, for a period of not
less than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Fund under the 1940 Act
by the Securities and Exchange Commission.
Section 12. Filing of Articles of Incorporation.
The Fund represents that a copy of its Articles of Incorporation, as
amended from time to time (the "Articles of Incorporation"), is on file with the
Secretary of the State of Maryland.
Section 13. Limitation of Liability.
The obligations of the Fund under this Plan will not be binding upon
any of the Directors of the Fund, shareholders of the Shares, nominees,
officers, employees or agents, whether past, present or future, of the Fund,
individually, but are binding only upon the assets and property of the Shares,
as provided in the Articles of Incorporation. The execution and delivery of this
Plan have been authorized by the Directors of the Fund, and signed by an
authorized officer of the Fund, acting as such, and neither the authorization by
the Directors nor the execution and delivery by the officer will be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but will bind only the property of the Shares as provided in
the Articles of Incorporation. No other portfolios or classes of shares of the
Fund will be liable for any claims against the Shares.
Section 14. Effective Dates.
The Plan will become effective with respect to the Shares upon the date
the Shares first commence its investment operations.
Section 15. Governing Law.
This Plan shall be governed by, and construed and interpreted in
accordance with, the law of the State of New York.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the undersigned, as evidenced by their execution thereof.
Dated: October 9, 1997
SAMCO FUND, INC.
By:
- ------------------------------
Name:
Title:
AMT CAPITAL SERVICES, INC.
By:
-------------------------
Name:
Title:
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
FOR
SAMCO FUND, INC.
WHEREAS, Samco Fund, Inc. (the "Fund") engages in business
as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund desires to adopt a Multiple Class Plan pursuant to
Rule 18f-3 under the Act (the "Plan") with respect to the Fund; and
WHEREAS, the Fund employs Seix Investment Advisors Inc. (the
"Adviser") as its investment manager and adviser and AMT Capital
Services, Inc. as distributor of the securities of which it is the
issuer.
NOW, THEREFORE, the Fund hereby adopts the Plan, in accordance with
Rule 18f-3 under the Act on the following terms and conditions:
1. Features of the Classes. The Fund's SAMCO Fixed Income Portfolio
(the "Portfolio") issues its shares of common stock in two classes: "Class A
Shares," and "Class B Shares." Shares of each class of the Portfolio shall
represent an equal pro rata interest in the Portfolio and, generally, shall have
identical voting, dividend, distribution, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications, and terms and
conditions, except that: (a) each class shall have a different designation; (b)
each class of shares shall bear any Class Expenses, as defined in Section 5
below; and (c) each class shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its distribution arrangements
and each class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class. In addition, Class A shares of the Portfolio shall have the
features described in Sections 3 and 4 below, and Class B shares of the
Portfolio shall have the features described in Sections 2, 3 and 4 below.
2. Distribution Plan. The Portfolio has adopted a Services and
Distribution Plan (the "Plan") with respect to the Class B shares of the
Portfolio pursuant to Rule 12b-1 promulgated under the Securities Exchange Act
of 1934. The Plan authorizes the Portfolio to pay (i) a service fee to the
Distributor for service activities at an annual rate of 0.00% of the average net
asset value of the Class B shares, and (ii) a distribution fee to the
Distributor for distribution services at an annual rate of 0.25% of the average
net asset value of the Class B shares and further authorizes the Distributor to
make service payments and distribution assistance payments to brokers, financial
institutions and other financial intermediaries ("payee(s)") in respect of Class
B shareholder accounts for which a payee has performed service activities and/or
rendered distribution services. The Class A shares do not participate in the
Plan.
As used herein, the term "service activities" shall mean activities in
connection with the provision of personal, continuing services to investors in
the Portfolio, including, but not limited to, answering customer inquiries
regarding account matters, assisting in designating and changing various account
options, aggregating and processing purchase and redemption orders and
transmitting and receiving funds for shareholder orders, transmitting on behalf
of the Fund proxy statements, prospectuses and shareholder reports to
shareholders and tabulating proxies, processing dividend payments and providing
subaccounting services for Portfolio shares held beneficially, and providing
such other services as the Fund or a shareholder may request; provided, however,
that if the National Association of Securities Dealers Inc. ("NASD") adopts a
definition of "service fee" for purposes of Section 2830 of the Rules of Conduct
of the NASD that differs from the definition of "service activities" hereunder,
or if the NASD adopts a related definition intended to define the same concept,
the definition of "service activities" in this Paragraph shall be automatically
amended, without further action of the Board of Directors, to conform to such
NASD definition. Overhead and other expenses of Distributor related to its
"service activities," including telephone and other communications expenses, may
be included in the information regarding amounts expended for such activities.
As used herein, the term "distribution services" shall include services
rendered by Distributor as distributor of the Class B shares in connection with
any activities or expense primarily intended to result in the sale of Class B
shares, including, but not limited to, compensation to registered
representatives or other employees of Distributor or to other broker-dealers
that have entered into an Authorized Dealer Agreement with Distributor,
compensation to and expenses of employees of Distributor who engage in or
support distribution of the Portfolios' shares; telephone expenses; interest
expenses; printing of prospectuses and reports for other than existing
shareholders; preparation, printing and distribution of sales literature and
advertising materials; and profit and overhead on the foregoing.
3. Allocation of Income and Expenses. (a) The gross income of the
Portfolio shall, generally, be allocated to each class on the basis of net
assets. To the extent practicable, certain expenses (other than Class Expenses
as defined below which shall be allocated more specifically) shall be subtracted
from the gross income on the basis of the net assets of each class of the
Portfolio. These expenses include:
(1) Expenses incurred by the Fund (for example, fees of
Directors, auditors and legal counsel) not attributable to a particular
portfolio of the Fund ("Fund Level Expenses"); and
(2) Expenses incurred by the Portfolio not attributable to any
particular class of the Portfolio's shares (for example, advisory fees,
custodial fees, or other expenses relating to the management of the
Portfolio's assets) ("Portfolio Expenses").
(b) Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (i) payments made pursuant to a distribution plan and/or a
service plan; (ii) transfer agent fees attributable to a specific class; (iii)
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders of
a specific class; (iv) Blue Sky registration fees incurred by a class; (v) SEC
registration fees incurred by a class; (vi) the expense of administrative
personnel and services to support the shareholders of a specific class; (vii)
litigation or other legal expenses relating solely to one class; and (viii)
directors' fees incurred as a result of issues relating to one class. Expenses
in category (i) above must be allocated to the class for which such expenses are
incurred. All other "Class Expenses" listed in categories (ii)-(viii) above may
be allocated to a class but only if the President and Chief Financial Officer
have determined, subject to Board approval or ratification, which of such
categories of expenses will be treated as Class Expenses consistent with
applicable legal principles under the Act and the Internal Revenue Code of 1986,
as amended.
Therefore, expenses of the Portfolio shall be apportioned to each class
of shares depending on the nature of the expense item. Fund Level Expenses and
Portfolio Expenses will be allocated among the classes of shares based on their
relative net asset values. Approved Class Expenses shall be allocated to the
particular class to which they are attributable. In addition, certain expenses
may be allocated differently if their method of imposition changes. Thus, if a
Class Expense can no longer be attributed to a class, it shall be charged to the
Portfolio for allocation among classes, as determined by the Board of Directors.
Any additional Class Expenses not specifically identified above which are
subsequently identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the Board of Directors of the
Company in light of the requirements of the Act and the Internal Revenue Code of
1986, as amended.
5. Exchange Privileges. There shall be no exchange
privileges associated with either of the classes of shares of the
Portfolio.
6. Conversion Features. There shall be no conversion
features associated with either of the classes of shares of the
Portfolio.
7. Quarterly and Annual Reports. The Directors shall receive quarterly
and annual statements concerning all allocated Class Expenses and distribution
and servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1, as
it may be amended from time to time. In the statements, only expenditures
properly attributable to the sale or servicing of a particular class of shares
will be used to justify any distribution or servicing fee or other expenses
charged to that class. Expenditures not related to the sale or servicing of a
particular class shall not be presented to the Directors to justify any fee
attributable to that class. The statements, including the allocations upon which
they are based, shall be subject to the review and approval of the independent
Directors in the exercise of their fiduciary duties.
8. Waiver or Reimbursement of Expenses. Expenses may be waived or
reimbursed by any adviser to the Portfolio or any other provider of services to
the Portfolio without the prior approval of the Portfolio's Board of Directors.
9. Effectiveness of Plan. The Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Directors of the Portfolio
and (b) those Directors of the Portfolio who are not "interested persons" of the
Portfolio (as defined in the Act) and who have no direct or indirect financial
interest in the operation of this Plan, cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan.
10. Material Modifications. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in Paragraph 9 hereof.
IN WITNESS WHEREOF, the Fund has adopted this Multiple Class Plan as of
the ____ day of ________, 1997, to be effective _____________, 1997.
SAMCO FUND,
INC.
By:____________________
Name:
Title:
