N-1A Item No.
As filed with the Securities and Exchange Commission on
January 28, 1999.
File Nos. 333-33365,811-8323
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 3
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. _6_
X
SAMCO FUND, INC.
(Exact name of registrant as specified in charter)
600 FIFTH AVENUE, 26th FLOOR
NEW YORK, NEW YORK 10020
(Address of principal executive offices)
Registrant's telephone number: 800-762-4848
Christina Seix
Seix Investment Advisors Inc.
300 Tice Boulevard
Woodcliff Lake, NJ 07675-7633
(Name and address of agent for service)
With a copy to:
Jack Murphy, Esq.
Dechert Price & Rhoads
1775 Eye Street,
N.W., Washington, D.C. 20006-2401
is legal counsel for the Fund.
Approximate Date of Proposed Public Offering: As
soon as practicable after this Registration
Statement becomes effective.
It is proposed that this filing will become effective:
/ x / immediately upon filing pursuant to paragraph (b)
/ / On _____________, pursuant to paragraph (b)
/ / 60 days after filing, pursuant to paragraph (a)(1)
/ / On _____________, pursuant to paragraph (a) (1)
/ / 75 days after filing, pursuant to paragraph (a) (2)
/ / On _________, pursuant to paragraph (a) (2) of Rule 485.
Registrant has registered an indefinite number of
shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940.
The Registrant has filed its notice pursuant to Rule 24f-2 with the Commission
on January 28, 1999.
SAMCO FUND, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
Under the Securities Act of 1933
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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
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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 Investors
Capital Services, Inc., a branch office of AMT Capital Securities, L.L.C. (the
"Distributor"), 600 Fifth Avenue, New York, NY 10020 at (800) 762-4848, or
within the City of New York, (212) 332-5211. 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 February 1, 1999(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 SECURITIES, L.L.C.--DISTRIBUTOR
The date of this Prospectus is dated February 1, 1999
SAMCO FIXED INCOME PORTFOLIO
Table of Contents
Page
PROSPECTUS SUMMARY...................................................... 1
THE FUND'S EXPENSES..................................................... 2
INVESTMENT OBJECTIVE AND POLICIES.........................................3
DESCRIPTION OF INVESTMENTS................................................4
RISK FACTORS..............................................................7
INVESTMENT LIMITATIONS....................................................8
MANAGEMENT OF THE FUND....................................................10
PURCHASE OF SHARES........................................................10
REDEMPTION OF SHARES......................................................11
THE FUND'S PERFORMANCE....................................................11
ADDITIONAL INFORMATION....................................................12
SERVICE PROVIDERS.........................................................14
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, the Lehman Brothers
Aggregate Bond Index. 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 net
asset value next determined 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;
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; and non-diversified risk
which is the risk that the Fund is more susceptible to adverse economic,
political, or regulatory developments affecting a single issuer than would be
the case if it were more broadly diversified. 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 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:
1 Year 3 Years 5 Years 10 Years
$5 $14 $25 $57
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%.
FINANCIAL HIGHLIGHTS
The Fund commenced operations on December 30, 1997. The financial information
for the period from December 30, 1997 and ending on October 31, 1998 in the
following table has not been audited by the Fund's independent auditors.
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Period from
12/30/97*
For a share outstanding throughout the period to 10/31/98
- ------------------------------------------------------------------------------ (unaudited)
Per Share Data
Net asset value, beginning of period $10.00
------------
Increases From Investment Operations
Net investment income 0.21
Net realized and unrealized gain on investments 0.46
------------
Total from investment operations 0.67
------------
Less Distributions
From net investment income (0.41)
------------
Net asset value, end of period $10.26
============
Total Return (a) 6.87%
Ratios/Supplemental Data
Net assets, end of period (000's) $43,899
Ratio of expenses to average net assets (b) 0.45%
Ratio of expenses to average net assets before expense waivers
and reimbursement of other expenses (b) 1.03%
Ratio of net investment income to average net assets (b) 5.17%
Portfolio turnover 478%
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(a) Not Annualized
(b) Annualized
* Commencement of Investment Operations
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 and security
management. Yield Tilt: Although the
Fund is managed on a total return basis, a premium is placed on income.Income is
considered the most powerful contributor to fixed income returns. Non-Treasury
sectors generally play a dominant role in the Fund. Comprehensive
Sector Construction: Sector allocation is generally determined through a
research driven process, 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 and an underweighting of United States Treasury
securities, giving the Fund's portfolio a strategic income advantage over the
Lehman Brothers Aggregate Bond 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.
An investment policy of the Fund is that it will not invest in the
securities of any company which has as a primary line of business the
manufacture and sale of tobacco products. 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 $3.6 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
Investors 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.
YEAR 2000 PROBLEM
Many computer systems and applications in use today
process transactions using two-digit date fields for the
year of the transaction, rather than the full four digits.
If these systems are not modified or replaced, transactions
occurring after 1999 could be processed as year "1900",
which could result in processing inaccuracies and computer
system failures. This is commonly known as the Year 2000
problem. Should any of the computer systems employed by the
Fund's major service providers fail to process Year 2000,
that could have a significant negative impact on the Fund's
operations and the services that are provided to the Fund's
shareholders. In addition, to the extent that the
operations of issuers of securities held by the Fund are
impaired by the Year 2000 problem, or prices of securities
held by the Fund's decline as a result of real or perceived
problems relating to the Year 2000, the value of the Fund's
shares may be materially affected.
The Fund has been advised that the Investment
Adviser, the Distributor, the Administrator, the Custodian,
and the Transfer Agent (collectively "Service Providers")
began to address the Year 2000 issue several years ago in
connection with the replacement or upgrading of certain
computer systems and applications. During 1997, the Service
Providers began a formal Year 2000 initiative, which
established a structured and coordinated process to deal
with the Year 2000 issue. The Service Providers report that
they have completed their assessment of the Year 2000 issues
on its domestic and international computer systems and
applications. Currently, the Board of Directors of the Fund
expects that the full integration testing of these systems
and testing of interfaces with third-party suppliers will
continue through 1999. At this time the Board of Directors
of the Fund believes that the costs associated with
resolving this issue will not have a material adverse effect
on the operations of the Fund.
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 Investors Capital
Services, Inc., a branch office of 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 # 011-001-438
Acct: 303030303
Benf: SAMCO Fixed Income Portfolio
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 Class B 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 Class B 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 of each class of the Fund
is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including any accrued expenses that are specific to that class)
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
12 months. 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.
The Fund also issues another class of shares which may have different operating
and other expenses. Each class of share is entitled to participate in any
dividends and distributions declared by the Fund which are specific to that
class and in the net assets of the Fund on liquidation or dissolution after
satisfaction of outstanding liabilities. 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, 1775 Eye Street, N.W.
Washington, DC 20006-2401, 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.
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
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 Investors Capital Services, Inc., a branch office of AMT
Capital Securities, LLC. (the "Distributor").
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Fund, dated February 1, 1999
(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 Securities, LLC.
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 February 1, 1999
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.............................................
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
their 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: 48
*John G. Talty Director Seix Investment Advisors Inc., President 1993-Present
300 Tice Blvd.
Woodcliff Lake, NJ 07675
Age: 40
*Peter J. Bourke Director Seix Investment Advisors Inc., Managing Director 1993-Present
300 Tice Blvd. Assistant Secretary
Woodcliff Lake, NJ 07675
Age: 47
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 Investors Capital Services, Inc., (Formerly AMT Capital
Investors Capital Services, Inc. Services, Inc.), President, 1/92 - present; AMT Capital
600 Fifth Avenue, 26th Floor Advisers, Inc., Principal and Senior Vice President, 1/92 -
New York, NY 10020 5/98; Morgan Stanley & Co., Vice President, 11/88 - 1/92.
Age: 35
William E. Vastardis Treasurer, Secretary Investors Capital Services, Inc., (Formerly AMT Capital
Investors Capital Services, Inc. Services, Inc.), Managing Director 7/92 - present; Vanguard
600 Fifth Avenue, 26th Floor Group Inc., Vice President, 1/87 - 4/92.
New York, NY 10020
Age: 41
</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.
Director's Compensation Table
Fiscal Year Ended October 31, 1998
<TABLE>
<S> <C> <C> <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 $2,500
John R. O'Brien $2,500 $0 $0 $2,500
</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.
Directors and officers of the Fund collectively owned less than 1% of the Fund's
outstanding shares as of October 31, 1998.
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.
For the period beginning December 30, 1997 and ending October 31,
1998, the amount of advisory fees (net of waivers and reimbursements) paid by
the Fund was $0.
ADMINISTRATOR
The administration agreement (the "Administration Agreement") between
the Fund and Investors 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.
For the period beginning December 30, 1997 and ending October 31,
1998, the amount of administration fees (net of waivers and reimbursements)
paid by the Fund was $41,667.
PRINCIPAL HOLDERS OF SECURITIES
As of November 24, 1998, the following shareholders were deemed to be a "control
person" of the Fund as such term is defined in the 1940 Act.
<TABLE>
<S> <C> <C> <C>
Name and Address of Nature of Beneficial Percent
Title of Class Beneficial Owner Ownership of Portfolio
Class A Shares of Common American College of Cardiology 911 Direct Ownership 39.9%
Stock, $.001 per Share Old Georgetown Road, Bethesda, MD
20814
Class A Shares of Common Regional Transportation Authority Direct Ownership 33.4%
Stock, $.001 per Share Pension Plan P O Box 1443, Chicago
IL 60690-1443
</TABLE>
As of November 24, 1998, the following persons held 5 percent or more
of the outstanding shares of the Class A shares of the SAMCO Fixed Income
Portfolio:
<TABLE>
<S> <C> <C> <C> <C>
Name and Address of Nature of Beneficial
Title of Class Beneficial Owner Ownership Percent of Portfolio
Class A Shares of Common American College of Cardiology 911 Direct Ownership 39.9%
Stock, $.001 per Share Old Georgetown Road, Bethesda, MD
20814
Class A Shares of Common Regional Transportation Authority Direct Ownership 33.4%
Stock, $.001 per Share Pension Plan P O Box 1443, Chicago
IL 60690-1443
Class A Shares of Common ENRON 12.2%
Stock, $.001 per Share Corporation PO
Box 92956, Chicago, IL 60675
Class A Shares of Common NOITU Individual Account Pension Direct Ownership 9.4%
Stock, $.001 per Share Plan 148-06 Hillside Ave. Jamaica,
NY11435
</TABLE>
The amount of shares of the Fund owned by all the officers, directors, and
members of the advisory board of the Fund as a group own is less than 1% of the
Fund's outstanding securities.
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
is 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 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.
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. The portfolio turnover rate for the period ended October
31, 1998 was 478%. 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. Further, high turnover rates, such as rates in
excess of 400%, generate higher short-term capital gains. For a more detailed
description of short-term capital gain treatment, pleae refer to the section
entitled "Tax Considerations."
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.
For the period beginning December 30, 1997 and ending October 31,
1998, the amount of brokerage commissions paid by the Fund was $0.
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 a class 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 series 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.
The total return as defined above for the Fund for the period ended October 31,
1998, and since the commencement of operations (December 30, 1997) to October
31, 1998 is as follows:
Since Inception: 6.87%(not annualized)
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 Investors
Capital Services, Inc., a branch office of AMT Capital Securities, L.L.C. (the
"Distributor"), 600 Fifth Avenue, New York, NY 10020 (800) 762-4848 4848, or
within the City of New York, (212) 332-5211. 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 February 1, 1999 (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 SECURITIES, L.L.C.--DISTRIBUTOR
The date of this Prospectus is February 1, 1999.
Table of Contents
SAMCO FIXED INCOME PORTFOLIO
Page
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 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, the Lehman Brothers
Aggregate Bond Index. 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;
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; and non-diversified risk
which is the risk hat the Fund is more susceptible to adverse economic,
political, or regulatory developments affecting a single issuer than would be
the case if it were more broadly diversified. 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). 0.70%
====
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:
1 Year 3 Years
$7 $22
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 and security management. Yield Tilt: Although the
Fund is managed on a total return basis, a premium is placed on income.
Income is considered the most powerful
contributor to fixed income returns. Non-Treasury sectors generally play a
dominant role in the Fund. Comprehensive Sector Construction: Sector
allocation is generally determined through a research driven process,
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 and an underweighting of United States Treasury securities,
giving the Fund's portfolio a strategic income advantage over the Lehman
Brothers Aggregate Bond 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.
An investment policy of the Fund is that it will not invest in the
securities of any company which has as a primary line of business the
manufacture and sale of tobacco products. 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 $3.6 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
Investors 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 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. Because these fees are
paid out of the Fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
YEAR 2000 PROBLEM
Many computer systems and applications in use today
process transactions using two-digit date fields for the
year of the transaction, rather than the full four digits.
If these systems are not modified or replaced, transactions
occurring after 1999 could be processed as year "1900",
which could result in processing inaccuracies and computer
system failures. This is commonly known as the Year 2000
problem. Should any of the computer systems employed by the
Fund's major service providers fail to process Year 2000,
that could have a significant negative impact on the Fund's
operations and the services that are provided to the Fund's
shareholders. In addition, to the extent that the
operations of issuers of securities held by the Fund are
impaired by the Year 2000 problem, or prices of securities
held by the Fund's decline as a result of real or perceived
problems relating to the Year 2000, the value of the Fund's
shares may be materially affected.
The Fund has been advised that the Investment
Adviser, the Distributor, the Administrator, the Custodian,
and the Transfer Agent (collectively "Service Providers")
began to address the Year 2000 issue several years ago in
connection with the replacement or upgrading of certain
computer systems and applications. During 1997, the Service
Providers began a formal Year 2000 initiative, which
established a structured and coordinated process to deal
with the Year 2000 issue. The Service Providers report that
they have completed their assessment of the Year 2000 issues
on its domestic and international computer systems and
applications. Currently, the Board of Directors of the Fund
expects that the full integration testing of these systems
and testing of interfaces with third-party suppliers will
continue through 1999. At this time the Board of Directors
of the Fund believes that the costs associated with
resolving this issue will not have a material adverse effect
on the operations of the Fund.
PURCHASE OF SHARES
There is no sales charge imposed by the Fund. The minimum initial
investment in the Fund is $1,000; 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 Investors Capital
Services, Inc., a branch offices of 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 # 011-001-438
Acct: 303030303
Benf: SAMCO Fixed Income Portfolio
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 Class B 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 Class B 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 of each class of the Fund
is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including any accrued expenses that are specific to that class)
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
12 months. 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. The
Fund also issues another class of shares which may have different operating and
other expenses. Each class of share is entitled to participate in any
dividends and distributions declared by the Fund which are specific to that
class and in the net assets of the Fund on liquidation or dissolution after
satisfaction of outstanding liabikoties. 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, 1775 Eye Street, N.W., Washington, DC
20006-2401, 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.
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 Investors Capital Services, Inc., a branch office of AMT
Capital Securities, L.L.C. (the "Distributor").
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Fund, dated February 1, 1999
(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 Securities L.L.C.
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
February 1, 1999.
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
their 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: 48
*John G. Talty Director Seix Investment Advisors Inc., President 1993-Present
300 Tice Blvd.
Woodcliff Lake, NJ 07675
Age: 40
*Peter J. Bourke Director Seix Investment Advisors Inc., Managing Director 1993-Present
300 Tice Blvd. Assistant Secretary
Woodcliff Lake, NJ 07675
Age: 47
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 Investors Capital Services, Inc., (formerly AMT Capital
Investors Capital Services, Inc. Services, Inc.), President, 1/92 - present; AMT Capital
600 Fifth Avenue, 26th Floor Advisers, Inc., Principal and Senior Vice President, 1/92 -
New York, NY 10020 5/98; Morgan Stanley & Co., Vice President, 11/88 - 1/92.
Age: 35
William E. Vastardis Treasurer, Secretary Investors Capital Services, Inc., (formerly AMT Capital
Investors Capital Services, Inc. Services, Inc.), Managing Director 7/92 - present; Vanguard
600 Fifth Avenue, 26th Floor Group Inc., Vice President, 1/87 - 4/92.
New York, NY 10020
Age: 41
</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.
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 and Fund Complex
Fund Expenses Upon Paid to Directors
Retirement
John E. Manley, Sr. $2,500 $0 $0 $2,500
John R. O'Brien $2,500 $0 $0 $2,500
</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 Investors 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.
CONTROL PERSONS and PRINCIPAL HOLDERS OF SECURITIES
As of October 31, 1998, there were no persons holding 5 percent or more of the
outstanding shares of Class B of SAMCO Fixed Income Portfolio.
DISTRIBUTION OF FUND SHARES
Distribution Agreement. Class B 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, Class B Shares
of 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 Class B Shares of the Fund by increasing assets
under management and
reducing expense ratios and the cost to the Class B Shares of the Fund if such
services were provided
directly by the Class B Shares of 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 Class B Shares of the Fund and an
increase in the expense ratio for the Class B Shares of 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 Class B Shares of 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
Class B 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
Class B 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 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.
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. Further, high turnover rates, such as rates in excess of 400%, generate
higher short-term capital gains. For a more detailed description of short-term
capital gain treatment, please refer to the section entitled "Tax
Considerations."
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 a class 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 series 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.
PART C. OTHER INFORMATION
Item 24. 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, 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, 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 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 on
August 4, 1997) and incorporated herein by reference.
6(a) -- Form of Distribution
Agreement between Registrant and AMT Capital Securities,
L.L.C. (previously filed as Exhibit 6(a) to Registrant's
Registration Statement on Form N-1A, File No. 333-33365 on
July 21, 1998) and incorporated herein by reference.
7 -- None.
8 -- Custodian Agreement
between Registrant and Investors Bank & Trust Company
(previously filed as Exhibit 8 to the Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement
on Form N-1A, File No. 333-33365, filed on October 20,
1997) and incorporated herein by reference.
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 (previously filed as Exhibit 9(b) to the
Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form N-1A, File No. 333-33365,
filed on October 20, 1997) and incorporated herein by
reference.
9(c) -- Form of Administration
Agreement between Registrant and Investors Capital Services,
Inc. (previously filed as Exhibit 9(c) to Registrant's
Registration Statement on Form N-1A, File No. 333-33365 on
July 21, 1998) and incorporated herein by reference.
10 -- Opinion and Consent of
Dechert Price & Rhoads (previously filed as Exhibit 10 to
the Pre-Effective Amendment No. 3 to the Registrant's
Registration Statement on Form N-1A, File No. 333-33365,
filed on October 29, 1997) and incorporated herein by
reference.
11(a) -- Consent of Auditors
(filed herewith).
11(b) -- Powers of Attorney
(previously filed as Exhibit 11(b) to the Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement
on Form N-1A, File No. 333-33365, filed on October 20,
1997) and incorporated herein by reference.
12 -- None.
13(a) -- Share Purchase Agreement
between Registrant and Seix Investment Advisors Inc.
(previously filed as Exhibit 13(a) to the Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement
on Form N-1A, File No. 333-33365, filed on October 20,
1997) and incorporated herein by reference.
14 -- None.
15 -- Services and Distribution
Plan between the Registrant and AMT Capital Securities, LLC.
(previously filed as Exhibit 15 to the Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement
on Form N-1A, File No. 333-33365, filed on October 20,
1997) and incorporated herein by reference.
16 -- Performance
Information Schedule (filed herewith)
17 -- Financial Data Schedule
(filed herewith)
18 -- Multiple Class Plan
(previously filed as Exhibit 18 to the Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement
on Form N-1A, File No. 333-33365, filed on October 20,
1997) and incorporated herein by reference.
Item 24
Persons Controlled by or under Common Control with Registrant
As of December 31, 1998, the following shareholder was deemed to be a
"control person" of the Fund as such term is defined in the 1940 Act.
<TABLE>
<S> <C> <C> <C>
Name and Address of Nature of Beneficial Percent
Title of Class Beneficial Owner Ownership of Portfolio
Class A Shares of Common American College of Cardiology 911 Direct Ownership 38.3%
Stock, $.001 per Share Old Georgetown Road, Bethesda, MD
20814
Class A Shares of Common Regional Transportation Authority Direct Ownership 32.0%
Stock, $.001 per Share Pension Plan P O Box 1443, Chicago
IL 60690-1443
</TABLE>
Item 25
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.
Item 26
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 26 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).
Item 27
Principal Underwriter.
In addition to the Registrant, AMT Capital Securities, LLC
currently acts as distributor to FFTW Fund, Inc., Harding
Loevner Fund, Inc., Holland Series Fund, Inc. and TIFF
Investment Program, Inc. AMT Capital Securities, L.L.C. 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 Securities, L.L.C.
Name and Principal
Business Address Positions & Offices Positions & Offices
with Underwriter with Distributor with Registrant
Alan M. Trager Director, Chairman and None
600 Fifth Avenue Treasurer
26th Floor
New York, NY 10020
Arthur Goetchius President
600 Fifth Avenue
26th Floor
New York, NY 10020
Carla E. Dearing Vice President Assistant Treasurer
600 Fifth Avenue
26th Floor
New York, NY 10020
Not applicable.
Item 28
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
Investors Capital Services, Inc.
600 Fifth Avenue
New York, New York 10020
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02117-9130
Item 29
Management Services.
Not applicable.
Item 30
Undertakings.
Not applicable
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.
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 29th day of
January,1999.
......... SAMCO FUND, INC.
......... By: /s/ Christina Seix____
......... Christina Seix
......... Chairman of the Board
.........
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 29th day of January, 1999.
Signature Title
/s/ Christina Seix___ ......... Director
Christina Seix
/s/ John G. Talty Director, 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
/s/ William E. Vastardis Treasurer
William E. Vastardis (Principal Financial
and Accounting Officer)
/s/ William E. Vastardis *Attorney-in-Fact
William E. Vastardis 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
11(a) Consent of Auditors
16 -- Performance Information Schedule
17 -- Financial Data Schedule
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the
captions "Financial Highlights", "Service
Providers--Independent Auditors" and "Financial
Statements" and to the use of our report dated
December 3, 1998, which is incorporated by reference
in this Registration Statement (Form N-1A No.
333-33365) of SAMCO Fund, Inc.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
January 25, 1999
Performance Information Schedule
Total Return
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 1 Year
SAMCO Fund, Inc.
SAMCO Fixed Income Portfolio - Class A
12/30/97 10.00 1,000.00 100
12/31/97 0.0000 0.00000.000 10.02 1,002.00 100
1/31/98 0.0400 0.00000.395 10.12 1,016.00 100.3953
2/28/98 0.0350 0.00000.349 10.06 1,013.49 100.7445
3/31/98 0.0450 0.00000.451 10.06 1,018.02 101.1952
4/30/98 0.0450 0.00000.453 10.06 1,022.58 101.6479
5/31/98 0.0400 0.00000.402 10.12 1,032.74 102.0496
6/30/98 0.0400 0.00000.402 10.16 1,040.91 102.4514
7/31/98 0.0500 0.00000.506 10.13 1,042.96 102.9571
8/31/98 0.0390 0.00000.393 10.22 1,056.24 103.35
9/30/98 0.0420 0.00000.419 10.35 1,074.01 103.7694
10/31/98 0.0390 0.00000.394 10.26 1,068.72 104.1638
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001043245
<NAME> SAMCO FUND, INC.
<SERIES>
<NUMBER> 1
<NAME> SAMCO FIXED INCOME FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> DEC-30-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 55458
<INVESTMENTS-AT-VALUE> 55547
<RECEIVABLES> 9914
<ASSETS-OTHER> 79
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65540
<PAYABLE-FOR-SECURITIES> 21587
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54
<TOTAL-LIABILITIES> 21641
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43300
<SHARES-COMMON-STOCK> 4281
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 37
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 473
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 89
<NET-ASSETS> 43899
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 995
<OTHER-INCOME> 0
<EXPENSES-NET> 80
<NET-INVESTMENT-INCOME> 915
<REALIZED-GAINS-CURRENT> 473
<APPREC-INCREASE-CURRENT> 89
<NET-CHANGE-FROM-OPS> 1477
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 877
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4193
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 78
<NET-CHANGE-IN-ASSETS> 43799
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 182
<AVERAGE-NET-ASSETS> 21200
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 0.46
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
