<PAGE>
As filed with the Securities and Exchange Commission on March 6, 1998
Registration Nos. 333-
811-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. ____ [_]
POST-EFFECTIVE AMENDMENT NO. ____ [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. ____ [_]
(Check appropriate box or boxes.)
______________________
THE NEVIS FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1119 St. Paul Street
Baltimore, MD 21202
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: (410) 385-2645
David R. Wilmerding, III
President
The Nevis Fund, Inc.
1119 St. Paul Street
Baltimore, MD 21202
(Name and Address of Agent for Service)
Copies to:
Alan C. Porter, Esq.
Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, DC 20036
Approximate Date of Proposed Offering: As soon as practicable after the
effective date of this Registration Statement.
DECLARATION PURSUANT TO RULE 24F-2
The Registrant hereby elects to register an indefinite number of shares of
Common Stock, par value $.01 per share, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), shall
determine.
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THE NEVIS FUND, INC.
CROSS REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
Form N-1A Item No. Section in the Prospectus
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<S> <C>
1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Fees and Expenses
3. Condensed Financial Information................................ Performance Information
4. General Description of Registrant.............................. Investment Objectives and
Policies; General Information
5. Management of the Fund......................................... Management
5A. Management's Discussion of Fund Performance.................... Not applicable
6. Capital Stock and Other Securities............................. Dividends and Taxes; General
Information
7. Purchase of Securities Being Offered........................... Purchase and Redemption of
Shares
8. Redemption or Repurchase....................................... Purchase and Redemption of
Shares
9. Pending Legal Proceedings...................................... Not applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
_______ __, 1998
PROSPECTUS
THE NEVIS FUND, INC.
The Nevis Fund, Inc. (the "Fund") is a no-load mutual fund whose investment
objective is to provide long-term capital appreciation. The Fund seeks to
achieve its investment objective by investing in securities of public companies
experiencing dramatic earnings growth.
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated _______ __, 1998, has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated herein by
reference. The Statement of Additional Information is available upon request
and without charge by calling the Fund at (000) 000-0000. The SEC also
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference, and other
information regarding the Fund.
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.
_______ __, 1998
<PAGE>
SUMMARY
THE FUND
The Nevis Fund, Inc. (the "Fund") is a no-load mutual fund. The investment
objective of the Fund is to provide long-term capital appreciation. The Fund
seeks to achieve its investment objective by investing in securities of public
companies experiencing dramatic earnings growth. See "Investment Objectives and
Policies."
RISKS TO CONSIDER
The Fund invests in equity securities which are subject to market risks
that may cause their prices to fluctuate. Equity securities held by the Fund
may not perform well during certain market cycles and may not respond to general
market movements to the same extent as other securities. Moreover, because the
Fund is a "non-diversified" investment company, its portfolio may be
concentrated in the securities of relatively fewer issuers and, as a result,
shareholders may experience greater fluctuations in the value of their shares.
Thus, the Fund may be more suitable for long-term investors who can bear the
risk of short-term fluctuations. The Fund may invest up to 20% of its total net
assets in foreign securities and, accordingly, an investment in the Fund will be
subject to the risks associated with foreign investments. See "Risks To
Consider."
INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
Nevis Capital Management, Inc. (the "Adviser") is the Fund's investment
adviser. SEI Fund Resources serves as the Fund's administrator, and SEI
Investments Distribution Co. (the "Distributor") is the distributor of the
Fund's shares. See "Management" and "General Information."
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase shares of the Fund through _______, the Fund's
transfer agent (the "Transfer Agent"), on any Business Day. Shares are sold at
their current net asset value without any sales charge. The minimum initial
investment in the Fund is $10,000. Subsequent investments must be at least
$1,000. Shareholders may redeem all or any portion of their shares at the net
asset value next determined after the Transfer Agent has received a redemption
request in proper form. See "Purchase and Redemption of Shares."
INVESTOR INQUIRIES
Investors with questions regarding the Fund should call (000) 000-0000.
Share purchase and redemption transactions should be made through the Transfer
Agent by calling (000) 000-0000.
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FEES AND EXPENSES
The following table provides a summary of expenses relating to purchases
and sales of Fund shares, and the annual operating expenses of the Fund as a
percentage of average net assets. The expense summary format below was developed
for use by all mutual funds to assist investors in making investment decisions.
Investors should consider this information together with the other important
information included elsewhere in this Prospectus.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after waiver) (1)
____%
Other Expenses (2)
____%
Total Fund Operating Expenses (after fee
waiver) (1) ____%
1. The Adviser has voluntarily agreed to waive a portion or all of its fee and
to reimburse expenses in order to limit Total Fund Operating Expenses to an
annual rate of not more than ____%. Absent any voluntary waivers or
expense reimbursements, Management Fees would be ____% and Total Fund
Operating Expenses would be ____%. For additional information regarding
Fund expense limitations, see "Investment Adviser" in the Statement of
Additional Information.
2. Other Expenses are based on estimates for the current fiscal year and
include all expenses, except non-recurring account fees, brokerage
commissions and other capital items, and investment advisory fees.
EXAMPLE
<TABLE>
<CAPTION>
One Year Three Years
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<S> <C> <C>
You 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:
$____ $____
</TABLE>
The expense table and example above are provided to assist investors in
understanding the expenses they will bear directly or indirectly as a
shareholder of the Fund. For more information with respect to the expenses of
the Fund, see "Management." THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
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PERFORMANCE INFORMATION
PERFORMANCE OF NEVIS CAPITAL MANAGEMENT, INC.
The chart below shows the historical performance of all accounts having
substantially the same investment objective as the Fund managed by Nevis Capital
Management, Inc., the Fund's investment adviser. The data, calculated on an
average annual total return basis, is provided to illustrate the Adviser's past
performance in managing accounts in accordance with the same strategy, research,
and analytical models utilized for the Fund. These accounts consist of separate
and distinct portfolios and their performance is not indicative of or a
substitute for the past or future performance of the Fund. As of the date of
this Prospectus, the Fund had not commenced investment operations and therefore
did not have a performance record of its own.
<TABLE>
<CAPTION>
Year Ended
December 31 Nevis Composite (1) S&P 500 (2) Russell 2000 (3)
----------- ------------------- ----------- ----------------
<S> <C> <C> <C>
1991* 10.2% 8.4% 5.4%
1992 13.0% 7.7% 16.6%
1993 32.3% 10.1% 17.0%
1994 15.8% 1.3% 3.1%
1995 57.4% 37.5% 26.3%
1996 35.0% 23.0% 14.8%
1997 10.1% 33.4% 20.5%
Cumulative Returns
(since 9/30/91) 346.3% 194.9% 144.6%
Compound Annual Returns 27.0% 18.9% 15.4%
(since 9/30/91)
</TABLE>
* Period October 1, 1991 through December 31, 1991.
1. The Adviser's composite performance data (the "Nevis Composite") was
developed from the aggregate performance of all accounts that are
managed on a basis substantially the same as the Adviser will employ in
managing the assets of the Fund. The Nevis Composite includes all
accounts for which the Adviser has full discretionary authority to
manage in accordance with its investment strategy. The composite
performance data has been calculated in accordance with recommended
standards of the Association for Investment Management and Research
("AIMR"), which differ from the SEC's method of performance
calculation. Investment advisory fees and other expenses have been
deducted. The fees and expenses deducted from the composite performance
data generally are lower than the expenses incurred by the Fund, and
the composite performance figures would have been lower if they had
been subject to the higher fees and expenses incurred by the Fund. In
addition, if the accounts within the Nevis Composite had been regulated
as investment companies under the federal securities and tax laws, the
composite performance might have been adversely affected by the
diversification requirements, tax restrictions and investment
limitations to which the Fund is subject.
2. The Standard & Poor's Composite Stock Price Index (the "S&P 500") is
composed of 500 selected common stocks, most of which are listed on the
New York Stock Exchange. The S&P 500 assigns relative weightings to the
common stocks included, and the value fluctuates with changes in the
market values of those common stocks.
3. The Russell 2000 Index is composed of the 2,000 smallest companies in
the Russell 3000 Index, representing 7% of the Russell 3000 total
market capitalization. The Russell 3000 Index is composed of 3,000
large U.S. companies ranked by market capitalization, representing
approximately 98% of the U.S. equity market.
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THE ADVISER'S PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE
FUND'S INVESTMENT OBJECTIVE AND POLICIES, AND MARKET CONDITIONS DURING THE
PERIODS FOR WHICH IT IS REPORTED. HISTORICAL PERFORMANCE INFORMATION SHOULD NOT
BE CONSIDERED AS REPRESENTATIVE OF THE FUTURE PERFORMANCE OF THE FUND.
PERFORMANCE OF THE FUND
The Fund may quote its yield and total return in advertisements and reports to
shareholders and prospective investors. The Fund's performance may also be
compared to that of other mutual funds with similar investment objectives and to
stock or other relevant indices, such as the S&P 500 and the Russell 2000, that
are referenced in the Statement of Additional Information. Standard total
return results reported by the Fund do not take into account recurring and non-
recurring charges for optional services which only certain shareholders elect
and which involve nominal fees.
The Fund's yield is calculated by dividing the net investment income earned by
the Fund over a specified 30-day period, by the average number of shares
entitled to receive dividends, and expressing the result as an annualized
percentage rate based on the net asset value per share at the end of the 30-day
period. The effective yield is calculated similarly but, when annualized, the
income earned by an investment in the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The Fund's average annual total return is computed by determining the average
annual compounded rate of return for a specific period which, when applied to a
hypothetical $1,000 investment in the Fund at the beginning of the period, would
produce the redeemable value of that investment at the end of the period,
assuming reinvestment of all dividends and distributions during the period.
Further information concerning the Fund's yield and total return is included
in the Statement of Additional Information.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to provide long-term capital
appreciation. The Fund seeks to achieve its investment objective by investing
in securities of public companies experiencing dramatic earnings growth. The
investment objective of the Fund is not a fundamental policy and may be changed
after notice to, but without the approval of, the Fund's shareholders. There
can be no assurance that the Fund will achieve its investment objective. The
Fund's share price and investment return will fluctuate, and a shareholder's
investment in the Fund when redeemed may be worth more or less than the original
cost. See "Risks To Consider."
INVESTMENT STRATEGY
The Fund's investment strategy is founded on the belief that over time the
performance of a company's stock will track the growth of its earnings. The
Adviser's goal is to produce equity rates of return for the Fund that are
consistently superior to the S&P 500 by investing in public companies
experiencing dramatic earnings growth When analyzing the earnings growth of a
company, the Adviser attempts to determine its "real" operating earnings power.
Accordingly, the Adviser is not interested in companies that report
unsustainable earnings growth attributable to investment income, extraordinary
gains or accounting legerdemain. Rather, the Adviser will select investments
for the Fund characterized by businesses that generate high returns on invested
capital and have strong, positive cash flows.
In addition to emphasizing earnings growth, the Fund's investment strategy
demands that the Adviser exhibit sensitivity to valuation when selecting stocks
for the Fund's portfolio. Typically, the Fund expects to pay a price/earnings
multiple no greater than 75% of a company's long-term sustainable growth rate.
The Adviser pays careful attention to a company's capital structure, preferring
companies with conservatively capitalized balance sheets that are self-
financing.
The Adviser's investment professionals function both as security analysts and
portfolio managers. In order for a company to be included in the Fund's
portfolio, the portfolio managers must have firsthand knowledge of its
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business derived from primary sources. In keeping with this belief, the
Adviser's investment professionals follow an internal discipline which states
that they will not purchase a stock for the Fund before meeting with senior
management of the company. When researching a target company, they compile
thorough quantitative data from 10Ks, 10Qs and proxy statements. The Adviser's
investment professionals then add perspective to the numbers by interviewing
company management, suppliers, customers, competitors and research analysts. In
some cases, the companies selected for investment by the Fund will not be
followed by large brokerage firms. This lack of research coverage often results
in the opportunity to purchase securities of outstanding companies at attractive
prices. The Adviser has amassed a solid track record over the last five years in
managing institutional accounts utilizing this investment strategy.
PORTFOLIO INVESTMENTS
Equity Securities. The Fund expects to invest primarily in equity securities
which include common stock as well as securities with characteristics of common
stock, such as preferred stock and securities convertible into common stock.
Rule 144A Securities. Subject to the Fund's limitations on investing in
illiquid securities, the Fund may purchase Rule 144A securities. Rule 144A
securities are restricted securities in that they have not been registered under
the Securities Act of 1933, but they may be traded between certain qualified
institutional investors, including investment companies. The presence or
absence of a secondary market in these securities may affect their value. The
Fund's Board of Directors has established guidelines and procedures for
determining the liquidity of Rule 144A securities.
Money Market Instruments. The Adviser may invest a portion of the Fund's
assets in money market instruments to provide flexibility in meeting redemptions
and paying expenses of the Fund, and in the timing of new investments for the
Fund's portfolio. Money market instruments include U.S. government securities,
obligations of U.S. commercial banks, commercial paper, and repurchase
agreements.
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to U.S. Treasury securities. In a repurchase agreement, the Fund buys a
security and simultaneously agrees to sell it back at a higher price. In all
cases, the Adviser must find the creditworthiness of the other party to the
transaction to be satisfactory. In addition, all repurchase agreements entered
into by the Fund will be fully collateralized and marked to market daily. In
the event of a default by, or bankruptcy proceedings with respect to, the other
party to the repurchase agreement, the Fund could experience delays in
recovering its cash and a loss to the extent that, in the meantime, the value of
the securities repurchased has decreased.
Hedging Strategies. The Adviser, to the extent permitted by the Fund's
investment policies and restrictions, may buy and sell options on securities,
currencies, futures contracts, and options on such contracts to manage exposure
to changing security prices and currency exchange rates. Some strategies using
these instruments tend to hedge the Fund's investments against price
fluctuations. Other strategies tend to increase market exposure. Hedging
instruments may be used in combination with each other to adjust the risk/return
characteristics of the overall strategy. These strategies may increase the
volatility of the Fund and may involve a small investment of cash relative to
the magnitude of the risk assumed. In addition, the Fund may experience a loss
if the counterparty in the transaction does not perform as promised.
Investment Limitations. The Fund's investment program is subject to a number
of investment restrictions that reflect both self-imposed standards and
regulatory limitations. Restriction 2 is a fundamental policy and may only be
changed with shareholder approval. Restrictions 1, 3 and 4 may be changed by
the Fund's Board of Directors. The Fund will not:
(1) Borrow money other than for temporary or emergency purposes in an
amount not exceeding 10% of the value of its total assets at the time of
such borrowing; provided that, while borrowings by the Fund equaling 5%
or more of its total assets are outstanding, the Fund will not purchase
securities for investment;
(2) Concentrate its investments in any one industry (excluding securities
of the U.S. government and its agencies and instrumentalities);
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<PAGE>
(3) Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements with maturities of greater than seven
days; or
(4) Invest more than 20% of its net assets in foreign securities.
The Statement of Additional Information contains additional information
regarding the Fund's investment policies, including a complete listing of the
investment restrictions applicable to the Fund.
PORTFOLIO TURNOVER
The Fund anticipates that its annual portfolio turnover rate will not
exceed 40%, but the Fund's turnover rate will not be a limiting factor when the
Adviser deems portfolio changes appropriate.
RISKS TO CONSIDER
INVESTMENT IN EQUITY SECURITIES
Investments in equity securities are subject to market risks which may
cause their prices to fluctuate. Accordingly, the Fund may be more suitable for
long-term investors who can bear the risk of short-term fluctuations. Changes
in the value of portfolio securities will not necessarily affect income derived
from those securities but will affect the net asset value of the Fund's shares.
Equity securities held by the Fund may not perform well during certain market
cycles and may not respond to general market movements to the same extent as
other securities. Equity securities of companies with relatively small market
capitalizations frequently have experienced greater price volatility than equity
securities of larger companies, and they may be expected to do so in the future.
The reliance of smaller companies on limited product lines, markets, financial
resources, or other factors may make them more susceptible to setbacks and
downturns. As a result, their stock prices may be particularly volatile.
Moreover, if a special situation is involved, such as a new product or service,
or an acquisition or merger with favorable implications, there is the risk that
it will not develop as favorably as expected. For example, a new product or
service may not enjoy the anticipated market acceptance, or an acquisition or
merger may be blocked.
NON-DIVERSIFICATION
Investing in the Fund, which is a "non-diversified" company under the
Investment Company Act of 1940, may entail greater risk than investing in a
diversified mutual fund. The Fund's portfolio may be concentrated in the
securities of relatively fewer issuers and, as a result, shareholders may
experience greater fluctuations in the value of their shares. Any economic,
political, or regulatory development affecting the value of a security held in
the Fund's portfolio could have a greater impact on the net asset value of the
Fund than would be the case if the Fund's investments were diversified among a
greater number of issuers.
INVESTMENT IN FOREIGN SECURITIES
Investing in foreign securities involves considerations and possible risks
not typically associated with investing in domestic securities. The values of
foreign investments are affected by changes in currency rates or exchange
control regulations, application of foreign tax laws, including withholding
taxes, changes in governmental administration, or economic or monetary policy
(in the United States or abroad), or changed circumstances in dealings between
nations. Costs are incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions are generally higher
than in the United States, and foreign securities markets may be less liquid,
more volatile, and less subject to governmental supervision than in the United
States. Investments in foreign countries could be affected by other factors not
present in the United States, including expropriation, confiscatory taxation,
lack of uniform accounting and auditing standards, potential difficulties in
enforcing contractual obligations, and the possibility of extended settlement
periods.
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MANAGEMENT
The business and affairs of the Fund are managed under the supervision of
its Board of Directors. The Fund's Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to the
Fund, including the agreements with the Fund's investment adviser, distributor,
administrator, transfer agent and custodian. The management of the Fund's day-
to-day operations is delegated to its officers, investment adviser, and
administrator, subject always to the general supervision of the Board of
Directors.
INVESTMENT ADVISER
Nevis Capital Management, Inc. (the "Adviser") serves as investment adviser
of the Fund pursuant to an investment management agreement with the Fund. Under
the agreement, the Adviser manages the Fund's portfolio in accordance with its
investment objective, policies, and restrictions, makes investment decisions for
the Fund, places orders for the purchase and sale of securities and other
financial instruments on behalf of the Fund, and employs portfolio managers and
securities analysts who provide research services to the Fund. For providing
these services and facilities to the Fund, the Adviser is entitled to receive an
investment advisory fee from the Fund, computed daily and paid monthly, at the
annual rate of ___% of the Fund's average daily net assets.
The Adviser is a registered investment adviser which as of _______ __,
1998, had approximately $___ million in assets under management. The Adviser,
which was founded in 1991 by David R. Wilmerding, III and Jon C. Baker, provides
investment advice to high-net-worth individuals and institutional investors with
respect to investments in equity securities. Although the Adviser has not
previously served as investment adviser to a registered investment company, its
investment team has experience in managing client accounts in accordance with
the same strategy utilized for the Fund. The Adviser utilizes the same
research, analytical models, and professional staff in managing the Fund and its
other client accounts.
The Adviser is a Maryland corporation with its principal office located at
1119 St. Paul Street, Baltimore, Maryland 21202.
Officers and employees of the Adviser are permitted to engage in personal
securities transactions subject to restrictions and procedures set forth in the
code of ethics adopted by the Fund.
PORTFOLIO MANAGERS
David R. Wilmerding, III and Jon C. Baker, the Adviser's President and
Executive Vice-President, respectively, share primary responsibility for
managing the Fund's assets. Mr. Wilmerding has more than 14 years of investment
experience and has been a portfolio manager with the Adviser since July 1991.
Mr. Baker has more than 11 years of investment experience and has been a
portfolio manager with the Adviser since September 1991.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Directors of the Fund,
the Adviser is responsible for placing orders for securities transactions.
Transactions involving equity securities will normally be conducted through
broker-dealers who charge a commission for their services. The Fund has no
obligation to enter into securities transactions with any particular broker-
dealer, issuer, underwriter, or other entity. In placing orders for the Fund,
it is the policy of the Adviser to obtain the most favorable execution. Where
such execution may be obtained from more than one firm, securities transactions
may be directed at higher commission rates to firms that provide research,
statistical, and other information to the Adviser. If more than one account
managed by the Adviser is purchasing or selling the same security, the orders
may be aggregated in the interest of achieving the most favorable execution.
ADMINISTRATOR
SEI Fund Resources (the "Administrator"), One Freedom Valley Drive, Oaks,
Pennsylvania 19456, serves as the Fund's administrator pursuant to an
administration agreement with the Fund. The Administrator provides certain fund
accounting and administrative services to the Fund, including, among other
services, accounting relating to the Fund and its investment transactions, and
computation of the net asset value of the Fund. The
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<PAGE>
Administrator does not have any responsibility or authority for the management
of the assets of the Fund, the determination of its investment policies, or for
any matter pertaining to the distribution of its shares.
As compensation for the services and facilities provided by the
Administrator to the Fund, the Fund has agreed to pay a fee, computed daily and
paid monthly, at the annual rate of ___% of the first $100 million of the
average daily net assets of the Fund, ___% of the next $100 million of such
assets, and ___% of such assets in excess of $200 million (subject to a minimum
annual fee of $___) and to reimburse the Administrator for its out-of-pocket
expenses.
DISTRIBUTOR
Shares of the Fund are distributed through SEI Investments Distribution Co.
(the "Distributor"), One Freedom Valley Drive, Oaks, Pennsylvania 19456, the
principal underwriter and distributor of the Fund. The Distributor, a wholly-
owned subsidiary of SEI Investments Company, is a registered broker-dealer and
member firm of the National Association of Securities Dealers, Inc. No
compensation is paid to the Distributor for distribution services for the shares
of the Fund.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of the Fund directly through the
Transfer Agent at: The Nevis Fund, Inc., P.O. Box _____, ______, _____, ______,
by mail, wire transfer, or through Automated Clearing House ("ACH") transfer.
Shareholders may place purchase and redemption orders by telephone at (000) 000-
0000. When market conditions are extremely busy, it is possible that investors
may experience difficulties placing orders by telephone and may wish to place
orders by mail. Purchases and redemptions of shares of the Fund may be made on
any day on which the Federal Reserve Banks are open for business, except Good
Friday (a "Business Day"). Shares of the Fund are offered only to residents of
states in which such shares are eligible for purchase.
MINIMUM INVESTMENTS
The minimum initial investment in the Fund is $________. Subsequent
investments must be at least $______. The Fund reserves the right to accept
smaller purchases at its sole discretion.
If the value of a shareholder account falls below $10,000 because of
redemptions, the Fund will notify the shareholder, and if the account value
remains below $10,000 for a continuous 60-day period, the shares in such account
will be subject to redemption by the Fund. Shares will not be redeemed
involuntarily as a result of a decline in account value due solely to a decline
in the Fund's net asset value. The Fund reserves the right to modify or
terminate the involuntary redemption features of the shares at any time upon 60
days' notice to shareholders.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to Nevis Fund, Inc.) for $________ or more, together with a completed
Account Application to: The Nevis Fund, Inc., P.O. Box ____, _____, _____
_____. Subsequent investments may also be mailed directly to the Transfer
Agent. All purchases made by check should be in U.S. dollars and made payable
to The Nevis Fund, Inc. Third party checks, credit card checks, and cash will
not be accepted. When purchases are made by check, redemption proceeds will be
forwarded only upon collection of payment for the shares purchased, which may
take up to 15 days from the date of purchase.
PURCHASES BY WIRE TRANSFER
INITIAL PURCHASES. Before making an initial investment by wire, an
investor must first telephone (000) 000-0000 to be assigned an account number.
The investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, the
investor should promptly forward a completed Account Application to the Transfer
Agent at: The Nevis Fund, Inc., P.O. Box ___, _____, _____ _____.
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Shareholders having an account with a commercial bank that is a member of
the Federal Reserve System may purchase shares of the Fund by requesting their
bank to transmit funds by wire to: _________; ABA #_______ for Account Number
_______; Further Credit: The Nevis Fund, Inc. The shareholder's name and
account number must be specified in the wire.
SUBSEQUENT PURCHASES. Additional investments may be made at any time
through the wire procedures described above, which must include the
shareholder's name and account number The investor's bank may impose a fee for
investments by wire.
PURCHASE BY AUTOMATED CLEARING HOUSE ("ACH")
This service allows the purchase of additional shares through an electronic
transfer of money from a checking or savings account. When an additional
purchase is made by telephone, the Transfer Agent will automatically debit the
pre-designated bank account for the desired amount. Shareholders may call (000)
000-0000 to request an ACH transaction.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer
Agent if the Transfer Agent receives the order and payment before 4:00 p.m.,
Eastern Time. Payment may be made by check or readily available funds. The
purchase price of shares of the Fund is the daily net asset value per share next
determined after a purchase order is received. Purchases will be made in full
and fractional shares of the Fund calculated to three decimal places. The Fund
will not issue certificates representing shares of the Fund.
The Fund reserves the right to reject a purchase order when it is
determined that it is in the best interest of the Fund and/or its shareholders
to do so.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 4:00 p.m.,
Eastern Time, on any Business Day will be effective that day. The redemption
price is the net asset value per share next determined after a valid redemption
order, in proper form, is received. Payment for redeemed shares will be made as
promptly as possible and, in any event, within seven days after the redemption
order is received. Shareholders may not close their accounts by telephone.
To protect shareholders and the Fund against fraud, a signature guarantee
will be required if: (a) the redemption request is for an amount in excess of
$_____; (b) redemption proceeds are to be sent to a name and/or address that
differs from the registered name or address of record; or (c) a transfer of
registration is requested. Otherwise, written redemption requests by mail may
be accepted without a signature guarantee. A signature guarantee may be
obtained from domestic banks or trust companies, brokers, dealers, clearing
agencies, or savings associations who are participants in a Medallion Program
recognized by the Securities Transfer Association. Please note that a notary
public stamp or seal is not acceptable.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. A wire charge, currently $10, will be deducted from
the amount of a Federal Reserve wire redemption payment made at the request of a
shareholder, except that certain institutions may be exempt from this charge.
Shareholders cannot redeem shares of the Fund by Federal Reserve wire on federal
holidays restricting wire transfers. The Fund does not charge for ACH wire
transactions; however, such transactions will not be posted to a shareholder's
bank account until the second Business Day following the transaction.
Shareholders are granted telephone redemption privileges automatically.
Neither the Fund nor the Transfer Agent will be responsible for the authenticity
of the redemption instructions received by telephone if it reasonably believes
those instructions are genuine. The Transfer Agent will employ reasonable
procedures to confirm that telephone instructions are genuine, and may be liable
for losses resulting from unauthorized or fraudulent telephone transactions if
it does not employ those procedures.
-10-
<PAGE>
The right of redemption may be suspended or the date of payment of
redemption proceeds postponed during certain periods as set forth in the
Statement of Additional Information.
NET ASSET VALUE
The net asset value per share of the Fund is determined by dividing the
total market value of the Fund's investments and other assets, less any
liabilities, by the total outstanding shares of the Fund. Net asset value per
share is determined on each Business Day as of 4:00 p.m., Eastern Time. The
Fund will use a pricing service to provide market quotations. Portfolio
securities for which reliable market values are not available are valued at
their fair values determined in accordance with procedures established and
monitored by the Board of Directors of the Fund.
DIVIDENDS AND TAXES
DIVIDENDS
The Fund's policy is to distribute substantially all of its investment
company taxable income and net capital gain (net long-term capital gain in
excess of net short-term capital loss), if any, annually. The Fund's investment
company taxable income consists of all taxable income other than the excess, if
any, of net long-term capital gain over net short-term capital loss, reduced by
deductible expenses of the Fund.
Unless a shareholder elects payment by check, all dividends and capital
gain distributions, if any, will be reinvested in additional Fund shares at net
asset value as of the reinvestment date. Shareholders may elect to terminate
automatic reinvestment by giving written notice to the Transfer Agent (at the
address listed in this Prospectus) at least ____ days before the next date on
which dividends or distributions will be paid.
TAXES
The Fund intends to qualify for the special tax treatment afforded
regulated investment companies under the Internal Revenue Code so that it will
be relieved of federal income tax on its investment company taxable income and
net capital gain distributed to shareholders. In addition, the Fund expects to
make sufficient distributions prior to the end of each calendar year to avoid
liability for federal excise tax.
Dividends from the Fund's investment company taxable income are taxable to
shareholders as ordinary income (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits. Distributions of net
capital gain that are designated by the Fund as capital gain dividends are
taxable to shareholders as long-term capital gain, regardless of how long
shareholders have held their shares and regardless of whether the distributions
are received in cash or in additional shares. Only a portion of the dividends
paid by the Fund is expected to qualify for the dividends received deduction
available to corporate shareholders. The Fund provides shareholders annually
with information regarding the federal income tax status of its dividends and
distributions.
The net asset value of the Fund's shares will be reduced by the amount of
any dividend or distribution on the record date for the distribution. An
investor who purchases shares immediately prior to the record date will pay the
full net asset value for the shares and will receive a distribution which,
although in effect a return of capital to that shareholder, will be taxable as
described above.
The sale or redemption of Fund shares is a taxable event for the
shareholder.
Shareholders should consult their tax advisors regarding specific questions
as to federal, state, and local income taxes. The Statement of Additional
Information contains additional information regarding taxes.
-11-
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund is an open-end non-diversified management investment company
incorporated under the laws of the State of Maryland. Each share of the Fund
has one vote and is entitled to dividends and distributions when and if declared
by the Fund's Board of Directors. In the event of liquidation or dissolution of
the Fund, each share would be entitled to its pro rata portion of the Fund's
assets after all debts and expenses have been paid.
As of the date of this Prospectus, all shares of the Fund have been
classified as Common Stock. Under the charter of the Fund, the Board of
Directors is authorized to establish "series" of shares of capital stock, each
of which would evidence interests in a separate portfolio of securities, and
separate classes of shares of each series. Different classes of the Fund's
shares of any series may be offered to certain investors. The Board of
Directors of the Fund may add additional series or classes of shares in the
future. All classes of a particular series would share a common investment
objective and portfolio of investments; however, the net asset values per share
of the classes could differ to the extent there are different fees and expenses
applicable to the classes. Additional information concerning the capital stock
of the Fund may be obtained by calling (000) 000-0000.
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders of the Fund retain
the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a director
from office, and if such a request is made, the Fund will assist with the
shareholder communications in connection with the meeting.
SHAREHOLDER REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements will be audited by the Fund's independent accountants, _______.
OFFICERS AND DIRECTORS OF THE FUND
David R. Wilmerding, III* President and Director
Jon C. Baker* Senior Vice-President, Treasurer, Secretary
and Director
_____
* Messrs. Wilmerding and Baker are "interested persons" of the Fund within the
meaning of the Investment Company Act of 1940.
CUSTODIAN
_______, _______, _______, _______ _______, serves as custodian of the
Fund, and holds cash, securities, and other assets of the Fund as required by
the Investment Company Act of 1940.
TRANSFER AGENT
_______, _______, _______, _______, _______ _______ (the "Transfer Agent"),
serves as transfer agent and dividend paying agent for the Fund's shares.
INDEPENDENT PUBLIC ACCOUNTANTS
_______, _______, _______, has been selected as independent public
accountants for the Fund.
-12-
<PAGE>
LEGAL COUNSEL
Piper & Marbury L.L.P. serves as legal counsel to the Fund.
INVESTOR INQUIRIES
Inquiries regarding the Fund should be directed as follows: The Nevis
Fund, Inc., P.O. Box ____, _____, _____ _____. Shareholders may call the Fund
at (000) 000-0000. Share purchase and redemption transactions should be made
through the Transfer Agent by calling (000) 000-0000.
-13-
<PAGE>
================================================================================
No person is authorized to give any information or to make any representation
other than as contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Fund or the Distributor. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
by any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation.
Table of Contents
-----------------
Page
----
Summary
Fees and Expenses
Performance Information
Investment Objectives and Policies
Risks To Consider
Management
Purchase and Redemption of Shares
Dividends and Taxes
General Information
THE NEVIS FUND, INC.
Prospectus
_______, __ 1998
================================================================================
<PAGE>
THE NEVIS FUND, INC.
CROSS REFERENCE SHEET
Part B
<TABLE>
<CAPTION>
Section in Statement of
Form N-1A Item No. Additional Information
- ------------------ ----------------------
<S> <C>
10. Cover Page................................................................ Cover Page
11. Table of Contents......................................................... Cover Page
12. General Information and History........................................... General Information
13. Investment Objectives and Policies........................................ Investment Policies and
Practices; Investment
Restrictions; Portfolio
Transactions and Brokerage
14. Management of the Fund.................................................... Management
15. Control Persons and Principal Holders of Securities....................... Management
16. Investment Advisory and Other Services.................................... Management; Investment Adviser;
Administrator; General Information
17. Brokerage Allocation and Other Practices.................................. Portfolio Transactions and
Brokerage
18. Capital Stock and Other Securities........................................ Description of Capital Stock
19. Purchase, Redemption and Pricing of Securities Being Offered.............. Valuation of Portfolio
Securities; Redemption of Shares
20. Tax Status................................................................ Taxation
21. Underwriters.............................................................. Distributor
22. Calculation of Performance Data........................................... Performance Information
23. Financial Statements...................................................... Financial Statements
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information and the related prospectus
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under securities laws of any such State.
Subject to Completion
_______ __, 1998
THE NEVIS FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
_______ __, 1998
This Statement of Additional Information is not a prospectus but
provides additional information that should be read in conjunction with the
Prospectus dated _______ __, 1998 including any supplements thereto. To obtain
additional copies of the Prospectus, please call (000) 000-0000.
TABLE OF CONTENTS
-----------------
Page
----
General Information
Investment Policies and Practices
Investment Restrictions
Portfolio Transactions and Brokerage
Calculation of Net asset Value
Redemption of Shares
Taxation
Management
Investment Adviser
Administrator
Distributor
Performance Information
Description of Capital Stock
Experts
Financial Statements
<PAGE>
GENERAL INFORMATION
The Nevis Fund, Inc. (the "Fund") an open-end non-diversified
management investment company. Under the rules and regulations of the
Securities and Exchange Commission (the "SEC"), all mutual funds are required to
furnish prospective investors with certain information regarding the activities
of the fund being considered for investment. Important information concerning
the Fund is included in the Prospectus which may be obtained without charge from
the Fund. Some of the information required to be in this Statement of
Additional Information is also included in the Prospectus. To avoid unnecessary
repetition, references are made to related sections of the Prospectus.
As described in the Prospectus, the investment objective of the Fund
is to provide long-term capital appreciation. The Fund seeks to achieve its
investment objective by investing in securities of public companies experiencing
dramatic earnings growth.
The Fund was incorporated under the laws of the State of Maryland on
February 20, 1998. As of the date of this Statement of Additional Information,
the Fund had not yet commenced operations.
The name "Nevis" has been licensed to the Fund by the Adviser. The
Fund and the Adviser have entered into a license agreement which requires the
Fund to cease using the name "Nevis" upon the occurrence of certain events,
including termination of the Adviser as investment adviser of the Fund.
The Fund filed a registration statement with the SEC registering as an
open-end non-diversified management investment company under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and registering
an indefinite number of shares of the Fund under the Securities Act of 1933, as
amended (the "Securities Act"). The Prospectus and this Statement of Additional
Information, which constitute part of the registration statement, do not contain
all the information set forth in the registration statement, and the exhibits
and schedules to the registration statement filed with the SEC. Copies of the
registration statement, including those items omitted from this Prospectus, may
be examined and copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington DC 20549 and at the SEC's Regional Offices
at 7 World Trade Center, 13th Floor, New York, NY 10048 and at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. The SEC also
maintains a Web site (http://www.sec.gov) which contains the registration
statement and other information regarding the Fund.
INVESTMENT POLICIES AND PRACTICES
The Fund's investment objective is to provide long term capital
appreciation. The Fund seeks to achieve its investment objective by investing
in securities of public companies experiencing dramatic earnings growth. There
can be no assurance that either the Fund will achieve its investment objective.
The following information supplements, and should be read in conjunction with,
the discussion in the Prospectus of the investment objective and policies of the
Fund.
FOREIGN INVESTMENTS
The Fund may invest in foreign securities denominated in foreign
currencies. Foreign investments can involve significant risks in addition to
the risks inherent in U.S. investments. The value of securities denominated in
or indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable information regarding
an issuer's financial condition and
B-2
<PAGE>
operations. In addition, the costs of foreign investing, including withholding
taxes, brokerage commissions, and custodial costs, are generally higher than for
U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse diplomatic
developments. There is no assurance that a Portfolio's adviser will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The Fund may invest in foreign securities that impose restrictions on
transfer within the United States or to U.S. persons. Although securities
subject to transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to such
restrictions.
HEDGING STRATEGIES
FUTURES TRANSACTIONS. The Fund may use futures contracts and options on
such contracts for bona fide hedging purposes within the meaning of regulations
promulgated by the Commodity Futures Trading Commission ("CFTC"). The Fund may
also establish positions for other purposes provided that the aggregate initial
margin and premiums required to establish such positions will not exceed 5% of
the liquidation value of the Fund after taking into account unrealized profits
and unrealized losses on any such instruments.
FUTURES CONTRACTS. When the Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date. When
the Fund sells a futures contract, it agrees to sell the underlying instrument
at a specified future date. The price at which the purchase and sale will take
place is fixed when the Fund enters into the contract. Some currently available
futures contracts are based on specific securities, such as U.S. Treasury bonds
or notes, and some are based on indices of securities prices, such as the S&P
500. A futures contract can be held until its delivery date, or can be closed
out prior to its delivery date if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When the Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a futures
commission merchant
B-3
<PAGE>
("FCM"), when the contract is entered into. Initial margin deposits are
typically equal to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily basis. The
party that has a gain may be entitled to receive all or a portion of this
amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Fund's investment limitations. In the
event of the bankruptcy of a FCM that holds margin on behalf of the Fund, the
Fund may be entitled to return of margin owed to it only in proportion to the
amount received by the FCM's other customers, potentially resulting in losses to
the Fund.
PURCHASING PUT AND CALL OPTIONS RELATING TO SECURITIES OR FUTURES
CONTRACTS. By purchasing a put option, the Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed price (strike
price). In return for this right, the Fund pays the current market price for
the option (known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of securities
prices, and futures contracts. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option.
If the option is allowed to expire, the Fund will lose the entire premium it
paid. If the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. The Fund may also terminate a put option
position by closing it out in the secondary market at its current price, if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if the price
of the underlying security falls substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of purchasing the
option, a put-buyer can expect to suffer a loss (limited to the amount of the
premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call-buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to
suffer a loss if the price of the underlying instrument does not rise
sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. When writing an option on a futures contract the Fund will be
required to make margin payments to a FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for a put option the Fund
has written, however, the Fund must continue to be prepared to pay the strike
price while the option is outstanding, regardless of price changes, and must
continue to set aside assets to cover its position.
If the price of the underlying instrument rises, a put-writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If the price of the underlying instrument remains the
same over time, it is likely that the writer will also profit, because it should
be able to close out the option at a lower price. If the price of the
underlying instrument falls, the put-writer would expect to suffer a loss. This
loss should be less than the loss from purchasing the underlying instrument
directly, however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing a call option is generally a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call-writer mitigates the effects of a price decline. At the same
time, because a call-writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call-writer gives up some ability to participate in security price increases.
B-4
<PAGE>
COMBINED POSITIONS. The Fund may purchase and write options in combination
with each other, or in combination with futures contracts or forward contracts,
to adjust the risk and return characteristics of the overall position. For
example, the Fund may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower strike price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments exactly. The Fund may invest in options and futures
contracts based on securities with different issuers, maturities or other
characteristics than those of the securities in which it typically invests --
for example, by hedging intermediate-term securities with a futures contract on
an index of long-term bond prices, or by hedging stock holdings with a futures
contract on a broad-based stock index such as the S&P 500 -- which involves a
risk that the options or futures position will not track the performance of the
Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect the price of the underlying security the same way.
Imperfect correlation may also result from differing levels of demand in the
options and futures markets and the securities markets, from structural
differences in the trading of options, futures and securities, or from
imposition of daily price fluctuation limits or trading halts. The Fund may
purchase or sell options and futures contracts with a greater or lesser value
than the securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in the Fund's options or futures positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or may result
in losses that are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance that a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively-low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if
the price of an option or futures contract moves upward or downward more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for the Fund
to enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
potentially could require the Fund to continue to hold a position until delivery
or expiration regardless of changes in its value. As a result, the Fund's
access to other assets held to cover its options or futures positions could also
be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size and strike
price, the terms of over-the-counter ("OTC") options (options not traded on
exchanges) generally are established through negotiation with the other party to
the option. While this type of arrangement allows the Fund greater flexibility
to tailor an option to its needs, OTC options generally involve greater credit
risk than exchange-traded options, which are guaranteed by the clearing
organization of the exchanges upon which they are traded.
OPTIONS AND FUTURES CONTRACTS RELATING TO FOREIGN CURRENCIES. Currency
futures contracts are similar to forward currency exchange contracts, except
that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or
B-5
<PAGE>
delivery in U.S. dollars. The underlying instrument of a currency option may be
a foreign currency, which generally is purchased or delivered in exchange for
U.S. dollars, or may be a futures contract. The purchaser of a currency call
option obtains the right to purchase the underlying currency, and the purchaser
of a currency put option obtains the right to sell the underlying currency.
The uses and risks of currency options and futures contracts are similar to
options and futures contracts relating to securities or securities indices, as
discussed above. The Fund may purchase and sell currency futures and may
purchase and write currency options to increase or decrease its exposure to
different foreign currencies. The Fund may also purchase and write currency
options in conjunction with each other or with currency futures or forward
contracts. Currency futures and option values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of the
Fund's investments. A currency hedge, for example, should protect a yen-
denominated security from a decline in the yen, but will not protect the Fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match exactly the amount of currency options and futures
held by the Fund to the value of its investments over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply
with guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or option position is outstanding, unless they are replaced with other
appropriate liquid assets. As a result, there is a possibility that segregation
of a large percentage of the Fund's assets could impede portfolio management or
the Fund's ability to meet redemption requests or other current obligations.
ILLIQUID AND RESTRICTED SECURITIES
As discussed in the Prospectus, the Fund may invest up to 15% of the value
of its net assets, measured at the time of investment, in illiquid securities.
Both restricted securities (other than Rule 144A securities that are deemed to
be liquid as discussed below), which may not be resold to the public without
registration under the Securities Act, and securities that, due to their market
or the nature of the security, have no readily available market for their
disposition are considered to be not readily marketable or "illiquid".
Limitations on resale and marketability may have the effect of preventing the
Fund from disposing of a security at the time desired or at a reasonable price.
In addition, in order to resell a restricted security, the Fund might have to
bear the expense and incur the delays associated with registration. In
purchasing illiquid securities, the Fund does not intend to engage in
underwriting activities, except to the extent the Fund may be deemed to be a
statutory underwriter under the Securities Act in purchasing or selling such
securities. Illiquid securities will be purchased for investment purposes only
and not for the purpose of exercising control or management of other companies.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend on an efficient institutional market in
which such unregistered securities can readily be resold or on an issuer's
ability to honor a demand for repayment. Therefore, the fact that there are
contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of these investments.
Rule 144A under the Securities Act establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The Fund may invest in Rule 144A
securities which, as disclosed in the Prospectus, are restricted securities
which may or may not be readily marketable. Rule 144A securities are readily
marketable if institutional markets for the securities develop pursuant to Rule
144A and provide both readily ascertainable values for the securities and the
ability to liquidate the securities when liquidation is deemed necessary or
advisable. However, an insufficient number of qualified institutional buyers
interested in purchasing a Rule 144A security held by the Fund could affect
adversely the
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marketability of the security. In such an instance, the Fund might be unable to
dispose of the security promptly or at a reasonable price.
Securities eligible for resale pursuant to Rule 144A will not be subject to
the Fund's limitations on investing in securities that are not readily
marketable, provided that the Adviser determines that a liquid market exists for
such securities under guidelines adopted and monitored by the Fund's Board of
Directors. In making this determination, the Adviser will consider the
following factors, among others: (1) the unregistered nature of a Rule 144A
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
additional potential purchasers; (4) dealer undertakings to make a market in the
security; and (5) the nature of the security and the nature of market place
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfers).
INVESTMENT COMPANY SHARES
The Fund may invest up to 10% of its total assets in shares of other
investment companies that invest exclusively in those securities in which the
Fund may invest directly. These investment companies typically incur fees that
are separate from those fees incurred directly by the Fund. The Fund's purchase
of such investment company securities results in the layering of expenses, such
that shareholders would indirectly bear a proportionate share of the operating
expenses of such investment companies, including advisory fees, in addition to
paying Fund expenses. Under applicable regulations, the Fund is prohibited from
acquiring the securities of another investment company if, as a result of such
acquisition: (1) the Fund owns more than 3% of the total voting stock of the
other company; (2) securities issued by any one investment company represent
more than 5% of the Fund's total assets; or (3) securities (other than treasury
stock) issued by all investment companies represent more than 10% of the total
assets of the Fund.
MONEY MARKET INSTRUMENTS
From time to time the Fund may purchase high quality, short-term debt
securities, commonly known as money market instruments. These securities
include U.S. government securities, obligations of U.S. commercial banks and
commercial paper.
U.S. government securities include direct obligations of the U.S.
government, which consist of bills, notes and bonds issued by the U.S. Treasury,
and obligations issued by agencies of the U.S. government which, while not
direct obligations of the U.S. government, are either backed by the full faith
and credit of the United States or are guaranteed by the U.S. Treasury or
supported by the issuing agency's right to borrow from the U.S. Treasury.
The obligations of U.S. commercial banks include certificates of deposit
and bankers' acceptances. Certificates of deposit are negotiable interest-
bearing instruments with a specific maturity. Certificates of deposit are
issued by banks in exchange for the deposit of funds and normally can be traded
in the secondary market prior to maturity. Bankers' acceptances typically arise
from short-term credit arrangements designed to enable businesses to obtain
funds to finance commercial transactions. Generally, an acceptance is a time
draft drawn on a bank by an exporter or importer to obtain a stated amount of
funds to pay for specific merchandise. The draft is then "accepted" by a bank
that, in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the secondary market at
the going rate of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less.
Commercial paper consists of short-term (usually from one to 270 days)
unsecured promissory notes issued by corporations to finance their current
operations. A variable amount master demand note (which is a type of commercial
paper) represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a commercial
paper issuer and an institutional lender pursuant to which the lender may
determine to invest in varying amounts.
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REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with financial institutions,
such as banks and broker-dealers, deemed by the Adviser to be creditworthy under
criteria established by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a debt security and the seller agrees to repurchase the obligation at a
future time and set price, usually not more than seven days from the date of
purchase, thereby determining the yield during the purchaser's holding period.
The value of underlying securities will be at least equal at all times to the
total amount of the repurchase obligation, including the interest factor. The
Fund makes payment for such securities only upon physical delivery or evidence
of book-entry transfer to the account of its custodian bank or its agent. The
underlying securities, which in the case of the Fund must be issued by the U.S.
Treasury, may have maturity dates exceeding one year. The Fund does not bear
the risk of a decline in value of the underlying securities unless the seller
defaults under its repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and loss including (a) possible
decline in the value of the underlying security while the Fund seeks to enforce
its rights thereto, (b) possible subnormal levels of income and lack of access
to income during this period and (c) expenses of enforcing its rights.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement, the Fund sells a portfolio instrument to another party,
such as a bank or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase agreement
is outstanding, the Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its obligation under the agreement. The Fund will
enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by the Adviser. These transactions
may increase fluctuations in the market value of the Fund's assets and may be
viewed as a form of leverage.
SECURITIES LENDING
The Fund may lend securities to parties such as broker-dealers or
institutional investors. Securities lending allows the Fund to retain ownership
of the securities loaned and, at the same time, to earn additional income.
Since there may be delays in the recovery of loaned securities, or even a loss
of rights in collateral supplied should the borrower fail financially, loans
will be made only to parties whose creditworthiness has been reviewed and found
satisfactory by the Adviser.
It is the current view of the SEC that the Fund may engage in loan
transactions only under the following conditions: (1) the Fund must receive
100% of collateral in the form of cash or cash equivalents (e.g., U.S. Treasury
bills or notes) from the borrower; (2) the borrower must increase the collateral
whenever the market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the Fund must
be able to terminate the loan at any time; (4) the Fund must receive reasonable
interest on the loan or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest, or other distributions on the securities
loaned and to any increase in market value; (5) the Fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Fund must be able to
vote proxies on the securities loaned, either by terminating the loan or by
entering into an alternative arrangement with the borrower. Cash received
through loan transactions may be invested in any security in which the Fund is
authorized to invest. Investing this cash subjects that investment, as well as
the security loaned, to market forces (i.e., capital appreciation or
depreciation).
SHORT SALES
The Fund may enter into short sales with respect to securities it owns, or
with respect to stocks underlying its convertible bond holdings (short sales
"against the box"). For example, if the Adviser anticipates a decline in the
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price of the stock underlying a convertible security it holds, the Fund may sell
the stock short. If the stock price substantially declines, the proceeds of the
short sale could be expected to offset all or a portion of the effect of the
stock's decline on the value of the convertible security.
When the Fund enters into a short sale against the box, it will be required
to set aside securities equivalent in kind and amount to those sold short (or
securities convertible or exchangeable into such securities) and will be
required to continue to hold them while the short sale is outstanding. The Fund
will incur transaction costs, including interest expense, in connection with
opening, maintaining and closing short sales against the box.
THE FUND'S RIGHTS AS A SHAREHOLDER
The Fund does not intend to direct or administer the day-to-day operations
of any company whose shares it holds. However, the Fund may exercise its rights
as a shareholder and may communicate its views on important matters of policy to
management, the board of directors and shareholders of a company when the
Adviser determines that such matters could have a significant effect on the
value of the Fund's investment in the company. The activities that the Fund may
engage in, either individually or in conjunction with other shareholders, may
include, among others: supporting or opposing proposed changes in a company's
corporate structure or business activities; seeking changes in a company's board
of directors or management; seeking changes in a company's direction or
policies; seeking the sale or reorganization of the company or a portion of its
assets; or supporting or opposing third-party takeover efforts. This area of
corporate activity is increasingly prone to litigation and it is possible that
the Fund could be involved in lawsuits related to such activities. The Adviser
will monitor such activities with a view to mitigating, to the extent possible,
the risk of litigation against the Fund and the risk of actual liability if the
Fund is involved in litigation. There is no guarantee, however, that litigation
against the Fund will not be undertaken or liabilities incurred.
WARRANTS
Warrants are securities that give the Fund the right to purchase equity
securities from an issuer at a specific price (the "strike price") for a limited
period of time. The strike price of a warrant is typically much lower than the
current market price of the underlying securities, yet a warrant is subject to
greater price fluctuations. As a result, warrants may be more volatile
investments than the underlying securities and may offer greater potential for
capital appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. Also, the value of the warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date. These factors can make
warrants more speculative than other types of investments.
INVESTMENT RESTRICTIONS
The Fund's investment programs are subject to a number of restrictions that
reflect self-imposed standards as well as regulatory limitations. The
investment restrictions recited below are in addition to those described in the
Prospectus.
Investment restrictions which are designated as matters of fundamental
policy may only be changed with the approval of a "majority of the outstanding
voting securities" of the Fund. Under the Investment Company Act, the vote of a
majority of the outstanding voting securities of a company means the vote, at an
annual or a special meeting of the security holders of the company duly called,
(i) of 67% or more of the voting securities present at such meeting, if the
holders of more than 50% of the outstanding voting securities of such company
are present or represented by proxy; or (ii) of more than 50% of the outstanding
voting securities of such company, whichever is the less.
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The Fund may not as a matter of fundamental policy:
(1) Issue senior securities, except as permitted under the Investment
Company Act;
(2) Effect short sales of securities or sell any security which it does
not own unless by virtue of its ownership of other securities it has, at the
time of sale, a right to obtain securities, without payment of further
consideration, equivalent in kind and amount to the securities sold and,
provided that if such right is conditional, the sale is made upon the same
conditions; or purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
(3) Borrow money, except that the Fund may borrow money for temporary or
emergency purposes in an amount not exceeding 33 1/3% of the value of its total
assets (including the amount borrowed) less liabilities (other than borrowings);
(4) Act as an underwriter of securities within the meaning of the U.S.
federal securities laws, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of illiquid securities;
(5) Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, more than 25% of the Fund's total assets would be invested in
the securities of companies whose principal business activities are in the same
industry;
(6) Purchase or sell real estate, provided that the Fund may invest in
securities of companies in the real estate industry and may purchase securities
secured or otherwise supported by interests in real estate;
(7) Purchase or sell commodities or commodities contracts, provided that
the Fund may invest in financial futures and options on such futures; or
(8) Make loans, except that the Fund may lend portfolio securities in
accordance with its investment policies and may enter into, purchase or invest
in repurchase agreements, debt instruments or other securities, whether or not
the purchase is made upon the original issuance of the securities.
The Fund does not intend to invest in or to enter into financial futures
contracts or purchase options on such futures or to lend portfolio securities
during the current fiscal year.
The following investment restrictions are not fundamental policies and may
be changed by the Fund's Board of Directors without shareholder approval. The
Fund will not as a matter of operating policy:
(i) Borrow money, except that the Fund may borrow money for temporary or
emergency purposes in an amount not exceeding 10% of the value of its total
assets at the time of such borrowing, provided that, while borrowings by the
Fund equaling 5% or more of its total assets are outstanding, the Fund will not
purchase securities for investment;
(ii) Invest in shares of any other investment company registered under the
Investment Company Act, except as permitted by federal law;
(iii) Invest for the purpose of exercising control or management; or
(iv) Invest more than 20% of its total assets in foreign securities.
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To meet federal tax requirements for qualification as a "regulated
investment company," the Fund will limit its investments so that at the close of
each quarter of its taxable year: (a) with regard to at least 50% of total
assets, no more than 5% of total assets are invested in the securities of a
single issuer; and (b) no more than 25% of total assets are invested in the
securities of a single issuer. Limitations (a) and (b) do not apply to
"Government securities" as defined for federal tax purposes.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund, for the selection of brokers and dealers to execute securities
transactions and for negotiation of commission rates. Purchases and sales of
securities on a securities exchange will be effected through broker-dealers
which charge a commission for their services. The Adviser may direct purchase
and sale orders to any registered broker-dealer. In the over-the-counter
market, transactions are effected on a "net" basis with dealers acting as
principal for their own accounts without charging a stated commission, although
the price of the security usually includes a profit to the dealer based on the
spread between the bid and asked price for the security. The prices of
securities purchased from underwriters include a commission or concession paid
by the issuer to the underwriter. On occasion, certain money market instruments
may be purchased directly from an issuer without payment of a commission or
concession.
The Adviser's primary consideration in effecting securities transactions is
to obtain the most favorable execution of orders on an overall basis. As
described below, the Adviser may, in its discretion, effect agency transactions
with broker-dealers that furnish statistical, research or other information or
services that are deemed by the Adviser to be beneficial to the Fund's
investment program. Certain research services furnished by broker-dealers may
be useful to the Adviser with clients other than the Fund. Similarly, any
research services received by the Adviser through placement of portfolio
transactions of other clients may be of value to the Adviser in fulfilling its
obligations to the Fund. No specific value can be determined for research and
statistical services furnished without cost to the Adviser by a broker-dealer.
The Adviser is of the opinion that because the material must be analyzed and
reviewed by its staff, its receipt does not tend to reduce expenses, but may be
beneficial in supplementing the Adviser's research and analysis. Therefore, it
may tend to benefit the Fund by improving the Adviser's investment advice.
The Adviser's policy is to pay a broker-dealer commissions for particular
transactions that are higher than might be charged if a different broker-dealer
had been chosen when, in the Adviser's opinion, this policy furthers the overall
objective of obtaining the most favorable execution. The Adviser is also
authorized to pay broker-dealers higher commissions on brokerage transactions
for the Fund in order to secure research and investment services described
above.
The Adviser manages other investment accounts. It is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If
the purchase or sale of securities consistent with the investment policies of
the Fund or one or more of these accounts is considered at or about the same
time, transactions in such securities will be allocated among the accounts in a
manner deemed equitable by the Adviser.
The allocation of orders among broker-dealers and the commission rates paid
by the Fund will be reviewed periodically by the Board of Directors. The
foregoing policy under which the Fund may pay higher commissions to certain
broker-dealers in the case of agency transactions does not apply to transactions
effected on a principal basis.
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CALCULATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading hours on the New York Stock Exchange (the "NYSE"), which is
normally 4:00 p.m. (Eastern time), any day on which the Federal Reserve Banks
are open for business, except Good Friday (a "Business Day"). The Federal
Reserve Banks are open for business on all weekdays except for the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Portfolio securities traded on a national exchange on the valuation date
are valued at the last quoted sale price. Exchange traded securities for which
there have been no reported sales on the valuation date and securities traded
primarily in the over-the-counter market are valued at the last quoted bid
prices. Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith under
procedures established and monitored by the Fund's Board of Directors. These
procedures may include the use of an independent pricing service which
calculates prices based upon yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to value from dealers; and
general market conditions. Debt obligations with maturities of 60 days or less
are valued at amortized cost.
REDEMPTION OF SHARES
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the NYSE is restricted by
applicable rules and regulations of the SEC; (b) the NYSE is closed for other
than customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC so that
valuation of the net assets of the Fund is not reasonably practicable.
Under normal circumstances, the Fund will redeem shares by check as
described in the Prospectus. However, if the Board of Directors determines that
it would be in the best interests of the remaining shareholders to make payment
of the redemption price in whole or in part by a distribution in kind of
portfolio securities in lieu of cash, in conformity with applicable rules of the
SEC, the Fund will make such distributions in kind. If shares are redeemed in
kind, the redeeming shareholder will incur brokerage costs in later converting
the assets into cash. The method of valuing portfolio securities is described
under "Calculation of Net Asset Value" and such valuation will be made as of the
same time the redemption price is determined. The Fund has elected to be
governed by Rule 18f-1 under the Investment Company Act pursuant to which the
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund during any 90-day period for any one
shareholder.
The Board of Directors of the Fund may cause the redemption of a share
account with a balance of less than $10,000, provided (1) the value of the
account has been reduced for reasons other than market action below the minimum
initial investment in such shares at the time the account was established, (2)
the account has remained below the minimum level for 60 days, and (3) 60 days'
prior written notice of the proposed redemption has been sent to the
shareholder. Shares will be redeemed at the net asset value on the date fixed
for redemption by the Board of Directors. Prompt payment will be made by mail
to the last known address of the shareholder.
TAXATION
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders. No attempt is
made to present a detailed explanation of the federal, state or local tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
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The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes, or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
The Fund expects to qualify as a regulated investment company ("RIC") under
Subchapter M of the Code. In order to qualify as a RIC for any taxable year,
the Fund must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement"). In addition, at the close
of each quarter of the Fund's taxable year, (1) at least 50% of the value of its
assets must consist of cash and cash items, U.S. government securities,
securities of other RICs, and securities of other issuers (as to which the Fund
has not invested more than 5% of the value of its total assets in securities of
such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and (2) no more than 25% of the
value of its total assets may be invested in the securities of any one issuer
(other than U.S. government securities and securities of other RICs), or in two
or more issuers that the Fund controls and that are engaged in the same or
similar trades or businesses or related trades or businesses (the "Asset
Diversification Test"). Generally, the Fund will not lose its status as a RIC
if it fails to meet the Asset Diversification Test solely as a result of a
fluctuation in value of portfolio assets not attributable to a purchase.
Under Subchapter M of the Code, the Fund is exempt from federal income tax
on its taxable net investment income and net capital gains that it distributes
to shareholders, provided generally that it distributes at least 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gains over net long-term capital loss) for the year (the
"Distribution Requirement") and complies with the other requirements of the Code
described above. The Distribution Requirement for any year may be waived if a
RIC establishes to the satisfaction of the Internal Revenue Service that it is
unable to satisfy the Distribution Requirement by reason of distributions
previously made for the purpose of avoiding liability for federal excise tax
(discussed below).
If for any taxable year the Fund does not qualify as a RIC, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions generally
will be taxable as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. However, in the case of corporate
shareholders, such distributions generally will be eligible for the 70%
dividends received deduction for "qualifying dividends".
The Code imposes a nondeductible 4% excise tax on RICs that do not
distribute in each calendar year an amount equal to 98% of their ordinary income
for the calendar year plus 98% of their capital gains net income for the one-
year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a RIC will include in the amount distributed any amount taxed to the
RIC as investment company taxable income or capital gains for any taxable year
ending in such calendar year. The Fund intends to make sufficient distributions
of its ordinary income and capital gains net income prior to the end of each
calendar year to avoid liability for excise tax. However, the Fund may in
certain circumstances be required to liquidate portfolio investments in order to
make sufficient distributions to avoid excise tax liability.
If the Fund acquires stock in certain non-U.S. corporations ("passive
foreign investment companies" or "PFICs") that receive at least 75% of their
annual gross income from passive sources (such as interest, dividends, rents,
royalties or capital gains) or at least 50% of whose average assets produce or
are held for the production of such passive income, the Fund indirectly through
its interest in the PFIC could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if the Fund distributes its share
of the PFIC income as a taxable dividend to its shareholders.
B-13
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A certain election (treating the PFIC as a "qualified electing fund") filed with
the Fund's federal income tax return may, if available, ameliorate these adverse
tax consequences, but any such election would require the Fund to recognize
ordinary taxable income and net capital gain of the PFIC without the
corresponding receipt of cash which may need to be distributed by the Company to
satisfy the Distribution Requirement.
Pursuant to proposed regulations, open-end regulated investment companies
such as the Fund would be entitled to avoid the tax consequences described in
the preceding paragraph by electing to mark-to-market their stock in certain
PFICs. Marking to market in this context means recognizing as gain for each
taxable year the excess, as of the end of that year, of the fair market value of
each PFIC's stock over the owner's adjusted basis in that stock (including mark-
to-market gains of a prior year for which an election was in effect). Making
the election could result in the recognition of gain without the corresponding
receipt of cash which may need to be distributed by the Fund to satisfy the
Distribution Requirement.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long the shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction. It is expected that the Treasury
will issue regulations or other guidance to permit shareholders to take into
account their proportionate share of the Fund's capital gains distributions that
will be subject to a reduced tax rate under the Taxpayer Relief Act of 1997.
The Taxpayer Relief Act reduces the maximum tax on long-term capital gains from
28% to 20%; however, it also generally lengthens the holding period required to
obtain the lower rate from more than one year to more than 18 months. The lower
rates do not apply to collectibles and certain other assets. Additionally, the
maximum capital gain rate for assets that are held more than five years and that
are acquired after December 31, 2000 is 18%. Distributions of earnings and
profits of the Fund other than distributions of net long-term capital gains are
taxable to shareholders as ordinary income.
If capital gain distributions have been made with respect to shares of the
Fund that are sold at a loss after being held for six months or less, then the
loss is treated as a long-term capital loss to the extent of the capital gain
distributions. Any gain or loss recognized on a sale or redemption of shares of
the Fund by a shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of distributions payable to any shareholder who (i) has
provided the Fund either an incorrect tax identification number or no number at
all, (ii) is subject to backup withholding by the Internal Revenue Service for
failure to properly report payments of interest or dividends, or (iii) has
failed to certify to the Fund that such shareholder is not subject to backup
withholding.
Rules of state and local taxation of dividend and capital gains
distributions from RICs often differ from the rules for federal income taxation
described above. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting an
investment in the Fund and also as to the application of the rules set forth
above to a shareholder's particular circumstances.
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors of the Fund consists of _____ directors. The
directors and officers of the Fund, their ages and their principal occupations
during the last five years are set forth below. Each director who is an
"interested person" of the Fund (as defined in the Investment Company Act) is
indicated by an asterisk (*).
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<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATIONS(S)
NAME AND ADDRESS AGE WITH REGISTRANT DURING THE PAST FIVE YEARS
- ---------------- --- --------------- --------------------------
<S> <C> <C> <C>
David R. Wilmerding, III* 36 President and Director President of Nevis Capital
1119 St Paul Street Management, Inc.
Baltimore, MD 21202
Jon C. Baker* 34 Senior Vice President, Executive Vice President of Nevis
1119 St. Paul Street Treasurer, Secretary and Capital Management, Inc.
Baltimore, MD 21202 Director
</TABLE>
The Fund's Articles of Incorporation require the Fund to indemnify its
directors and officers to the full extent permitted by Maryland law. Nothing in
the charter or bylaws of the Fund protects any director or officer against any
liability to the Fund or its shareholders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The officers and directors of the Fund who are "interested persons" of the
Fund within the meaning of the Investment Company Act do not receive
compensation directly from the Fund for serving in the capacities described
above. However, those officers and directors who are affiliated with the
Adviser may receive remuneration indirectly from the Fund for services provided
in their respective capacities with the Adviser. Each of the non-interested
directors is expected to receive for his service on the Board of Directors a
_____ fee of $______, plus reimbursement for out-of-pocket expenses incurred in
connection with attendance at board meetings. The following table sets forth
the information concerning the compensation anticipated to be paid by the Fund
to directors in the current fiscal year. The Fund does not offer any pension or
retirement benefits to its directors.
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGGREGATE COMPENSATION FROM THE FUND (1)
---------------- ----------------------------------------
<S> <C>
David R. Wilmerding, III $0
Jon C. Baker $0
</TABLE>
(1) The Fund commenced operations in _______, 1998. The amounts indicated
are estimates of the compensation expected to be paid to directors of
the Fund during the Fund's first fiscal year ending _______ __, 1998.
As of the date of this Statement of Additional Information, the officers
and directors of the Fund, as a group, owned of record and beneficially less
than 1% of the outstanding shares of the Fund.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a code of ethics pursuant to
Rule 17j-1 under the Investment Company Act. The code of ethics applies to the
personal investing activities of all directors and officers of the Fund, as well
as to designated officers, directors, and employees of the Adviser and the
Distributor. As described below, the code of ethics imposes significant
restrictions on the Adviser's investment personnel, including
B-15
<PAGE>
the portfolio managers and employees who execute or help execute a portfolio
Adviser's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
The code of ethics requires that covered employees of the Adviser and all
Fund directors who are "interested persons" preclear personal securities
investments (with certain exceptions, such as non-volitional purchases or
purchases that are part of an automatic dividend reinvestment plan). The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities, and special preclearance of the
acquisition of securities in private placements. Furthermore, the code of
ethics provides for trading "blackout periods" that prohibit trading by
investment personnel and certain other employees within periods of trading by
the Fund in the same security. Officers, directors, and employees of the
Adviser and the Distributor may comply with codes instituted by those entities
so long as they contain similar requirements and restrictions.
INVESTMENT ADVISER
The Board of Directors of the Fund has approved an investment management
agreement between the Fund and the Adviser. Under the agreement, the Adviser
manages the Fund's investments subject to the supervision and direction of the
Board of Directors of the Fund. The Adviser is responsible for providing a
continuous investment program for the Fund, including the provision of
investment research and management with respect to all securities and
investments and cash equivalents purchased, sold, or held in the Fund, and the
selection of brokers-dealers through which securities transactions for the Fund
will be executed. In carrying out its responsibilities, the Adviser is required
to act in conformance with the Fund's charter, the Investment Company Act and
the Investment Advisers Act of 1940, as amended.
The investment management agreement will remain in effect for two years
from the date of its initial execution and from year to year thereafter, so long
as such continuance is specifically approved at least annually by the Board of
Directors of the Fund or by vote of a majority of the outstanding voting
securities of the Fund (as defined in the Investment Company Act) and by the
vote of a majority of the directors who are not parties to the agreement or
"interested persons" of any such party (as defined in the Investment Company
Act), cast in person at a meeting called for the purpose of voting on such
approval. The agreement may be terminated by either the Fund or the Adviser on
60 days' written notice. It will terminate automatically in the event of its
assignment (as defined by the Investment Company Act).
The Adviser bears all expenses in connection with the performance of
services under the investment management agreement with the Fund. The Fund
bears certain other expenses incurred in its operation, including: (i) the
charges and expenses of any registrar, share transfer or dividend disbursing
agent, and custodian or depository appointed for the safekeeping of the Fund's
cash, portfolio securities, and other property; (ii) the charges and expenses of
auditors; (iii) brokerage commissions for transactions in the portfolio
securities of the Fund; (iv) all taxes, including issuance and transfer taxes,
and fees payable by the Fund to federal, state, or other governmental agencies;
(v) the cost of share certificates representing shares of the Fund; (vi) fees
involved in registering and maintaining registrations of the Fund and of the
Fund's shares with the SEC and various states and other jurisdictions; (vii) all
expenses of shareholders' and directors' meetings and of preparing, printing and
mailing proxy statements, semi-annual and annual reports, and other
communications (including prospectuses) to existing shareholders; (viii)
compensation and travel expenses of directors who are not "interested persons"
within the meaning of the Investment Company Act; (ix) the expense of furnishing
or causing to be furnished to each shareholder a statement of account, including
the expense of mailing; (x) charges and expenses of legal counsel in connection
with matters relating to the Fund; (xi) interest payable on Fund borrowings; and
(xii) postage.
B-16
<PAGE>
ADMINISTRATOR
SEI Fund Resources (the "Administrator"), One Freedom Valley Drive, Oaks,
PA 19456, serves as the administrator for the Fund. SEI Financial Management
Corporation, a wholly-owned subsidiary of SEI Corp., is the owner of all
beneficial interest in the Administrator.
Pursuant to an administration agreement between the Administrator and the
Fund, the Administrator has agreed to provide certain fund accounting and
administrative services to the Fund, including among other services, accounting
relating to the Fund and its investment transactions; computing daily net asset
values; monitoring the investments and income of the Fund for compliance with
applicable tax laws; preparing for execution and filing federal and state tax
returns, and semi-annual and annual shareholder reports; preparing monthly
financial statements including a schedule of investments; assisting in the
preparation of registration statements and other filings related to the
registration of shares; coordinating contractual relationships and
communications between the Adviser and the Fund's custodian; preparing and
maintaining the Fund's books of account, records of securities transactions, and
all other books and records in accordance with applicable laws, rules and
regulations (including, but not limited to, those records required to be kept
pursuant to the Investment Company Act); and performing such other duties
related to the administration of the Fund as may be agreed upon in writing by
the parties to the respective agreements.
Compensation for the services and facilities provided by the Administrator
under its administration agreement with the Fund includes payment of the
Administrator's out-of-pocket expenses. The Administrator's reimbursable out-
of-pocket expenses include, but are not limited to, postage and mailing,
telephone, telex, Federal Express, independent pricing service charges, and
record retention/storage.
Because the Fund will commence operations in _______, 1998, the Fund has
not paid any fees to the Administrator as of the date of this Statement of
Additional Information.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), located at One
Freedom Valley Drive, Oaks, PA 19456, serves as the principal underwriter and
distributor for the Fund's shares pursuant to a distribution agreement with the
Fund. The distribution agreement was initially approved by the Board of
Directors of the Fund. The Distributor is a registered broker-dealer and a
member of the National Association of Securities Dealers, Inc. The Distributor
is an indirect wholly-owned subsidiary of SEI Investments Company.
The Distributor offers shares of the Fund continuously and has agreed to
use its best efforts to solicit purchase orders for shares. The Distributor is
not obligated to sell any specific amount of shares of the Fund. The
Distributor bears all expenses of providing services pursuant to its
distribution agreement with the Fund. The Fund bears the expenses of
registering its shares with the SEC and with applicable state regulatory
authorities.
The distribution agreement will remain in effect for two years from the
date of its initial execution and from year to year thereafter, so long as such
continuance is specifically approved at least annually by the Board of Directors
of the Fund or by vote of a majority of the outstanding voting securities of the
Fund (as defined in the Investment Company Act), and by the vote of a majority
of the directors who are not parties to the agreement or "interested persons" of
any such party (as defined in the Investment Company Act), cast in person at a
meeting called for the purpose of voting on such approval. The agreement may be
terminated by either the Fund or the Distributor on 60 days' written notice. It
will terminate automatically in the event of its assignment (as defined by the
Investment Company Act).
The Fund and the Distributor reserve the right to reject any purchase order
and to suspend the offering of shares of the Fund. The Fund reserves the right
to vary the minimums for initial and subsequent investments in the
B-17
<PAGE>
Fund's shares at any time. In addition, the Fund may waive the minimum
investment requirement for any investor. The factors to be considered in the
waiver or variation of such minimum investments include, but are not limited to,
the relationship of the investor to the Fund, the amount of the proposed
investment, and the type of investor.
PERFORMANCE INFORMATION
The Fund may compare its performance to other funds or to relevant indices,
such as the S&P 500 and the Russell 2000. The Standard & Poor's Composite Stock
Price Index (the "S&P 500") is composed of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. The S&P 500 assigns relative
weightings to the common stocks included in the Index, and the value fluctuates
with changes in the market values of those common stocks. The Russell 2000
Index is composed of the 2,000 smallest companies in the Russell 3000 Index,
representing 7% of the Russell 3000 total market capitalization. The Russell
3000 Index is composed of 3,000 large U.S. companies ranked by market
capitalization, representing approximately 98% of the U.S. equity market.
For purposes of quoting and comparing the performance of the Fund to that
of other mutual funds and to stock or other relevant indices or averages in
advertisements or in certain reports to shareholders, performance will generally
be stated both in terms of total return and in terms of yield. However, the
Fund may also from time to time state its performance solely in terms of total
return.
TOTAL RETURN CALCULATIONS
The total return quotations, under the rules of the SEC, must be calculated
according to the following formula:
P(1 + T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of the hypothetical $1,000
payment made at the beginning of the designated period
(or fractional portion thereof)
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one-, five-, and ten-year periods or a shorter period dating from the
effectiveness of the Fund's registration statement (or the later commencement of
operations of the Fund). In calculating the ending redeemable value for the
Fund's shares, all dividends and distributions by the Fund are assumed to have
been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. "T" in the formula above is calculated by
finding the average annual compounded rate of return over the period that would
equate an assumed initial payment of $1,000 to the ending redeemable value. Any
recurring account charges that might be imposed by the Fund in the future would
be included.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formulate set forth
above to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA/Weisenberger or Morningstar
Inc., the Fund calculates its aggregate and average annual total return for the
specified periods of time by assuming the investment of $10,000 in shares and
assuming the reinvestment of each dividend or other distribution at net asset
value on the reinvestment date.
Alternative total return information will be given no greater prominence in
such advertising than the information prescribed under SEC rules, and all
advertisements containing performance data will include a legend
B-18
<PAGE>
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
YIELD CALCULATIONS
The yield of Fund shares is computed by dividing the Fund's net investment
income per share during a base period of 30 days, or one month, by the maximum
offering price per share on the last day of such base period in accordance with
the following formula:
YIELD = 2[(a - b + 1)/6/ - 1 ]
-----
cd
Where: a = net investment income earned during the period
b = net expenses accrued for the period
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share
Net investment income will be determined in accordance with rules
established by the SEC.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue 100,000,000 shares of Common Stock, par
value $.01 per share. The Board of Directors may increase or decrease the number
of authorized shares without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of shares by the Board of Directors at any
time. In the event series of shares are established, each series would be
managed separately and shareholders of each series would have an undivided
interest in the net assets of that series. For tax purposes, the series will be
treated as separate entities. In the event additional classes of shares are
established, each class of shares issued generally will be identical to every
other class and expenses of the Fund or a series thereof (other than any fees or
expenses attributable a particular class) would be prorated among all classes
based upon relative net assets.
All shares of the Fund, regardless of class or series, have equal rights
with respect to voting, except that the holders of a particular class or series
of shares are not entitled to vote on any matter which does not affect any
interest of that class or series. All classes and series of Fund shares vote
together as a single class, except as otherwise required by applicable law.
Shareholders of the Fund do not have cumulative voting rights, and therefore the
holders of more than 50% of the outstanding shares voting together for election
of directors may elect all the members of the Board of Directors of the Fund.
In such event, the remaining holders cannot elect any members of the Board of
Directors.
There are no preemptive, conversion, or exchange rights applicable to any
shares of the Fund. The outstanding shares are fully paid and non-assessable.
In the event of liquidation or dissolution of the Fund, each share is entitled
to its portion of the Fund's assets (or the assets allocated to a separate
series of shares if there is more than one series) after all debts and expenses
have been paid.
B-19
<PAGE>
EXPERTS
The Statement of Assets and Liabilities of the Fund at _______ __, 1998 has
been audited by ______, independent public accountants, as indicated in their
report with respect thereto and is included in reliance upon such report and
upon the authority of such firm as experts in accounting and auditing.
B-20
<PAGE>
THE NEVIS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
_______ __, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Cash........................................................................... $100,000
Deferred Organization Expenses.................................................
Total Assets.................................................................
LIABILITIES:
Organization Expenses Payable to the Adviser
NET ASSETS:..................................................................... $100,000
========
NET ASSETS CONSIST OF:
Common Stock, par value $.01 per share, 100,000,000 shares authorized.......... $ 100
Additional paid-in capital..................................................... 99,900
--------
Total........................................................................ $100,000
========
NET ASSETS VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($100,000 / 10,000 shares outstanding).......................................... $10.00
======
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
1. ORGANIZATION
The Nevis Fund, Inc. (the "Fund"), a Maryland corporation, is registered
under the Investment Company Act of 1940, as amended, as an open-end non-
diversified management investment company. The Fund has not commenced
operations except those relating to organizational matters and the sale of
shares in the amount of $100,000 to ________, the Fund's sponsor.
2. SIGNIFICANT ACCOUNTING POLICIES
Organization expenses will be amortized on a straight-line basis over a
period not to exceed five years from the commencement date of operations.
In the event _______ redeems all or part of its initial investment in
shares of the Fund, the proceeds will be reduced by the product of any
unamortized organization expenses and the proportion of the number of
shares redeemed to the initial shares invested.
The initial state registration costs have been deferred and will be charged
to expense over the period that a benefit is expected to be realized.
3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND
OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into (1) an investment management agreement with Nevis
Capital Management, Inc. (the "Adviser"), (2) an administration agreement
with SEI Fund Resources ("SFR") under which SFR provides administration,
accounting, and transfer agency services to the Fund, and (3) a
distribution agreement with SEI Investments Distribution Co. ("SDC") under
which SDC will distribute shares of the Fund and provide information to
shareholders.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of The Nevis Fund, Inc.:
We have audited the accompanying Statement of Assets and Liabilities of The
Nevis Fund, Inc. (the "Fund") as of _______ __, 1998. This financial statement
is the responsibility of the Fund's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of The Nevis Fund, Inc. as of
_______ __, 1998 in conformity with generally accepted accounting principles.
_______ __, 1998
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements:
Included in Parts A and B:
Statement of Assets and Liabilities of the Registrant at _______ __,
1998.
Notes to Statement of Assets and Liabilities.
Report of Independent Public Accountants.
Included in Part C:
Consent of Independent Public Accountants.
All other financial statements, schedules, and historical financial
information are omitted because the conditions requiring their filing do not
exist.
(b) Exhibits:
(1) Articles of Incorporation of the Registrant.
(2) By-Laws of the Registrant.
(3) Not applicable.
(4) Not applicable.
(5) Investment Management Agreement between the Registrant and
Nevis Capital Management, Inc.*
(6) Distribution Agreement between the Registrant and SEI
Investments Distribution Co.*
(7) Not applicable.
(8) Custodian Agreement between the Registrant and _______.*
(9) (a) Administration Agreement between the Registrant and SEI Fund
Resources.*
(b) Transfer Agency Services Agreement between the Registrant and
_______.*
(c) License Agreement between the Registrant and Nevis Capital
Management, Inc.*
(10) Opinion and Consent of Piper & Marbury L.L.P.*
(11) Consent of Independent Public Accountants.*
(12) Not applicable.
<PAGE>
(13) Initial Capital Agreement.*
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Not applicable.
(18) Not applicable.
________
* To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders*
-------------- ------------------------
Common Stock, par value $.01 per share
* As of _______ __, 1998.
ITEM 27. INDEMNIFICATION
Reference is made to Article Eighth, Section 5 of the Articles of
Incorporation and Article VII of the By-Laws of the Registrant filed as Exhibits
1 and 2, respectively.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of the directors and officers of the Registrant's investment
adviser and other required information is incorporated herein by reference to
the Form ADV and schedules thereto of Nevis Capital Management, Inc., as
amended, filed (File No. 801-39504) with the Securities and Exchange Commission
under the Investment Advisers Act of 1940.
C-2
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) SEI Investments Distribution Co. (formerly SEI Financial Services
Company) acts as distributor for the Registrant. SEI Investments Distribution
Co. also acts as distributor for: SEI Daily Income Trust, SEI Liquid Asset
Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional Managed Trust,
SEI International Trust, SEI Asset Allocation Trust, Stepstone Funds, The
Advisors' Inner Circle Fund, The Pillar Funds, CUFund, STI Classic Funds,
CoreFunds, Inc., First American Funds, Inc., First American Investment Funds,
Inc., The Arbor Fund, Boston 1784 Funds', Marquis Funds', Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., The Achievement Funds Trust, Bishop
Street Funds, Monitor Funds, FMB Funds, Inc., STI Classic Variable Trust, TIP
Funds, CrestFunds, Inc., First American Strategy Funds, Inc., HighMark Funds and
Expedition Funds.
SEI Investments Distribution Co. provides numerous financial services to
investment managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and consulting
services, and automated execution, clearing and settlement of securities
transactions.
(b) Directors, officers and partners of SEI Investments Distribution Co.
are as follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
- ----------------- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman and Chief Executive
Officer
Henry H. Greer Director, President and Chief Operating
Officer
Carmen V. Romeo Director, Executive Vice President,
President - Investment Advisory Group
Gilbert L. Beebower Executive Vice President
Richard B. Lieb Executive Vice President, President-
Investment Services Division
Dennis J. McGonigle Executive Vice President
Leo J. Dolan, Jr. Senior Vice President
Carl A. Guarino Senior Vice President
Larry Hutchison Senior Vice President
David G. Lee Senior Vice President
Jack May Senior Vice President
A. Keith McDowell Senior Vice President
Hartland J. McKeown Senior Vice President
Barbara J. Moore Senior Vice President
Kevin P. Robins Senior Vice President, General Counsel and
Secretary
Robert Wagner Senior Vice President
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C>
Patrick K. Walsh Senior Vice President
Robert Crudup Vice President and Managing Director
Barbara Dayne Vice President
Vic Galef Vice President and Managing Director
Kim Kirk Vice President and Managing Director
John Krzeminski Vice President and Managing Director
Carolyn McLaurin Vice President and Managing Director
Donald Pepin Vice President and Managing Director
Mark Samuels Vice President and Managing Director
Wayne M. Withrow Vice President and Managing Director
Robert Aller Vice President
Gordon W. Carpenter Vice President
Marc H. Cahn Vice President and Assistant Secretary
Todd Cipperman Vice President and Assistant Secretary
Jeff Drennen Vice President
Kathy Heilig Vice President and Treasurer
Michael Kantor Vice President
Samuel King Vice President
W. Kelso Morril Vice President
Joanne Nelson Vice President
Sandra K. Orlow Vice President and Assistant Secretary
Cynthia M. Parrish Vice President and Assistant Secretary
Kim Rainey Vice President
Steve Smith Vice President
Kathryn L. Stanton Vice President and Assistant Secretary
Daniel Spaventa Vice President
James Dougherty Director of Brokerage Services
</TABLE>
______________
* One Freedom Valley Drive, Oaks, PA 19456
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The Registrant maintains the records required by Section 31(a) of the
Investment Company Act of 1940, as amended, and Rules 31a-1, 31a-2 and 31a-3
thereunder at its principal office located at 1119 St Paul Street, Baltimore, MD
21202. Certain records may be maintained pursuant to Rule 31a-3 at the offices
of the Registrant's administrator, SEI Fund Resources, located at One Freedom
Valley Drive, Oaks, PA 19456. Certain records,
C-4
<PAGE>
including records relating to the Registrant's shareholders, may be maintained
pursuant to Rule 31a-3 at the offices of the Registrant's transfer agent,
_______, located at _______, _______, _______, _______ _______. Certain records
relating to the physical possession of the Registrant's securities may be
maintained at the offices of the Registrant's custodian, _______, located at
_______, _______, _______ _______.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment,
including financial statements which need not be audited, within four to six
months from the effective date of this Registration Statement.
(c) The Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of its latest annual report to shareholders upon
request and without charge if the Registrant includes the information called for
by Item 5A of Form N-1A in such annual report.
C-5
<PAGE>
SIGNATURES
B
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Baltimore, and State of Maryland, on the 5th day of
March, 1998.
THE NEVIS FUND, INC.
By: /s/ David R. Wilmerding, III
______________________________
David R. Wilmerding, III
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ David R. Wilmerding, III
__________________________ President (principal executive officer) March 5, 1998
David R. Wilmerding, III and Director
/s/ Jon C. Baker
__________________________ Treasurer (principal financial and March 5, 1998
Jon C. Baker accounting officer) and Director
<PAGE>
EXHIBIT (1)
THE NEVIS FUND, INC.
ARTICLES OF INCORPORATION
FIRST: The undersigned, William Taylor IV, whose address is 36 South
Charles Street, Baltimore, Maryland 21201, being at least eighteen years of age,
acting as incorporator, does hereby form a corporation under the General Laws of
the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
THE NEVIS FUND, INC.
THIRD: (a) The purposes for which the Corporation is formed and the
business and objects to be carried on and promoted by it are:
(1) to engage primarily in the business of investing, reinvesting or
trading in securities as an investment company classified under the
Investment Company Act of 1940, as amended (together with the rules and
regulations promulgated thereunder, the "Investment Company Act"), as an
open-end, management company; and
(2) to engage in any one or more businesses or transactions, or to
acquire all or any portion of any entity engaged in any one or more
businesses or transactions, which the Board of Directors may from time to
time authorize or approve, whether or not related to the business described
elsewhere in this Article or to any other business at the time or
theretofore engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be in no way
limited or restricted by reference to, or inference from, the terms of any other
clause of this or any other Article of the Charter of the Corporation, and each
shall be regarded as independent; and they are intended to be and shall be
construed as powers as well as purposes and objects of the Corporation and shall
be in addition to and not in limitation of the general powers of corporations
under the General Laws of the State of Maryland.
FOURTH: The present address of the principal office of the
Corporation in this State is 1119 St. Paul Street, Baltimore, Maryland 21202.
FIFTH: The name and address of the resident agent of the Corporation
in this State are David R. Wilmerding, III, 1119 St. Paul Street, Baltimore,
Maryland 21202.
SIXTH: (a) The total number of shares of stock which the Corporation
has authority to issue is 100,000,000 shares of capital stock (par value $.01
per share), amounting in aggregate par value to $1,000,000. All of such shares
are initially classified as "Common Stock." The Board of Directors may classify
and reclassify any unissued shares of capital stock
<PAGE>
by setting or changing in any one or more respects the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of such shares of stock.
(b) Unless otherwise prohibited by law, so long as the Corporation is
registered as an open-end company under the Investment Company Act, the Board of
Directors shall have the power and authority, without the approval of the
holders of any outstanding shares, to increase or decrease the number of shares
of capital stock, or the number of shares of capital stock of any class or
series, that the Corporation has authority to issue.
(c) The Corporation may issue and sell fractions of shares of capital
stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the Charter or By-Laws of the Corporation, they
shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.
(d) The Corporation shall not be obligated to issue certificates
representing shares of capital stock. At the time of issue or transfer of
shares without certificates, the Corporation shall provide the stockholder with
such information as may be required under the Maryland General Corporation Law
and the Maryland Uniform Commercial Code Investment Securities.
SEVENTH: The number of directors of the Corporation shall be two,
which number may be increased or decreased pursuant to the By-Laws of the
Corporation, but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland now or hereafter in force. The names of
the directors who will serve until the first annual meeting and until their
successors are elected and qualified are as follows:
David R. Wilmerding, III
Jon C. Baker
EIGHTH: (a) The following provisions are hereby adopted for the
purpose of defining, limiting and regulating the powers of the Corporation and
of the directors and stockholders:
(1) The Board of Directors is hereby empowered to authorize the
issuance from time to time of shares of its capital stock, whether now or
hereafter authorized, or securities convertible into shares of its capital
stock, whether now or hereafter authorized, for such consideration as may
be deemed advisable by the Board of Directors and without any action by the
stockholders.
(2) No holder of any capital stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any preemptive
right to subscribe for or purchase any capital stock or any other
securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or
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<PAGE>
prices and upon such other terms as the Board of Directors, in its sole
discretion, may fix; and any capital stock or other securities which the
Board of Directors may determine to offer for subscription may, as the
Board of Directors in its sole discretion shall determine, be offered to
the holders of any capital stock or other securities at the time
outstanding to the exclusion of the holders of any or all other capital
stock or other securities at the time outstanding.
(3) The Board of Directors of the Corporation shall, consistent with
applicable law (including, without limitation, the Investment Company Act),
have power in its sole discretion to determine from time to time in
accordance with sound accounting practice or other reasonable valuation
methods what constitutes annual or other net profits, earnings, surplus or
net assets in excess of capital, net asset value, or net asset value per
share; to determine that retained earnings or surplus shall remain in the
hands of the Corporation; to set apart out of any funds of the Corporation
such reserve or reserves in such amount or amounts and for such proper
purpose or purposes as it shall determine and to abolish any such reserve
or any part thereof; to distribute and pay distributions or dividends in
stock, cash or other securities or property, out of surplus or any other
funds or amounts legally available therefor, at such times and to the
stockholders of record on such dates as it may, from time to time,
determine; and to determine whether and to what extent and at what times
and places and under what conditions and regulations the books, accounts
and documents of the Corporation, or any of them, shall be open to the
inspection of stockholders, except as otherwise provided by statute or the
By-Laws of the Corporation, and, except as so provided, no stockholder
shall have any right to inspect any book, account or document of the
Corporation unless authorized to do so by resolution of the Board of
Directors.
(4) Notwithstanding any provision of law requiring the authorization
of any action by a greater proportion than a majority of the total number
of shares of capital stock, such action shall be valid and effective if
authorized by the affirmative vote of the holders of a majority of the
total number of shares of capital stock outstanding and entitled to vote
thereon, except as otherwise provided in the Charter of the Corporation.
(5) The Corporation shall indemnify (i) its directors and officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force (as limited by the Investment Company
Act), including the advance of expenses under the procedures and to the
full extent permitted by law, and (ii) other employees and agents to such
extent as shall be authorized by the Board of Directors or the
Corporation's By-Laws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take
such action as is necessary to carry out these indemnification provisions
and is expressly empowered to adopt, approve and amend from time to time
such bylaws, resolutions or contracts implementing such provisions or such
further indemnification arrangements as may be permitted by law. No
amendment of the Charter
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<PAGE>
of the Corporation or repeal of any of its provisions shall limit or
eliminate the right of indemnification provided hereunder with respect to
acts or omissions occurring prior to such amendment or repeal.
(6) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted (as limited by the Investment
Company Act), no director or officer of the Corporation shall be personally
liable to the Corporation or its stockholders for money damages. No
amendment of the Charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the limitation of liability provided to
directors and officers hereunder with respect to any act or omission
occurring prior to such amendment or repeal.
(7) The Corporation reserves the right from time to time to make any
amendments of its Charter which may now or hereafter be authorized by law,
including any amendments changing the terms or contract rights, as
expressly set forth in its Charter, of any of its outstanding capital
stock.
(8) For any stockholder proposal to be presented in connection with
an annual meeting of stockholders of the Corporation, including any
proposal relating to the nomination of a director to be elected to the
Board of Directors of the Corporation, the stockholders must have given
timely notice thereof in writing to the Secretary of the Corporation in the
manner and containing the information required by the By-Laws of the
Corporation. Stockholder proposals to be presented in connection with a
special meeting of stockholders will be presented by the Corporation only
to the extent required by Section 2-502 of the Maryland General Corporation
Law and the By-Laws of the Corporation.
(b) The enumeration and definition of particular powers of the Board
of Directors included in the foregoing shall in no way be limited or restricted
by reference to or inference from the terms of any other clause of this or any
other Article of the Charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.
NINTH: The duration of the Corporation shall be perpetual.
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<PAGE>
IN WITNESS WHEREOF, I have signed these Articles of Incorporation,
acknowledging the same to be my act, on this 20th day of February, 1998.
Witness:
Elizabeth Monetti William Taylor IV
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William Taylor IV
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<PAGE>
EXHIBIT (2)
THE NEVIS FUND, INC
BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation is not required to hold an
--------------
annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940, as amended (the "Investment Company Act"). If the Corporation is required
by the Investment Company Act to hold a meeting of stockholders to elect
directors, such meeting shall be held at a date and time set by the Board of
Directors in accordance with the Investment Company Act and no later than 120
days after the occurrence of the event requiring the meeting. Any stockholders'
meeting held in accordance with the preceding sentence shall for all purposes
constitute the annual meeting of stockholders for the fiscal year of the
Corporation in which the meeting is held. Except as the Charter or statute
provides otherwise, any business may be considered at an annual meeting without
the purpose of the meeting having been specified in the notice. Failure to hold
an annual meeting does not invalidate the Corporation's existence or affect any
otherwise valid corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between annual
---------------
meetings, a special meeting of stockholders may be called by the Chairman or the
President or by a majority of the Board of Directors by vote at a meeting or in
writing (addressed to the Secretary of the Corporation) with or without a
meeting. Special meetings of the stockholders shall be called by the Secretary
at the request of stockholders only on the written request of stockholders
entitled to cast at least 25 percent of all the votes entitled to be cast at the
meeting. A request for a special meeting shall state the purpose of the meeting
and the matters proposed to be acted on at it. The Secretary shall inform the
stockholders who make the request of the reasonably estimated costs of preparing
and mailing a notice of the meeting and, on payment of these costs to the
Corporation, notify each stockholder entitled to notice of the meeting. Unless
requested by stockholders entitled to cast a majority of all the votes entitled
to be cast at the meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any special
meeting of stockholders held in the preceding 12 months.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be held
-----------------
at such place in the United States as is set from time to time by the Board of
Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than ten nor
------------------------------------
more than 90 days before each stockholders' meeting, the Secretary shall give
written notice of the meeting
<PAGE>
to each stockholder entitled to vote at the meeting and each other stockholder
entitled to notice of the meeting. The notice shall state the time and place of
the meeting and, if the meeting is a special meeting or notice of the purpose is
required by statute, the purpose of the meeting. Notice is given to a
stockholder when it is personally delivered to him, left at his residence or
usual place of business, or mailed to him at his address as it appears on the
records of the Corporation. Notwithstanding the foregoing provisions, each
person who is entitled to notice waives notice if he before or after the meeting
signs a waiver of the notice which is filed with the records of stockholders'
meetings, or is present at the meeting in person or by proxy.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides
--------------
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes cast
at a meeting at which a quorum is present is sufficient to elect a director.
SECTION 1.06. Adjournments. Whether or not a quorum is present, a meeting
------------
of stockholders convened on the date for which it was called may be adjourned
from time to time without further notice by a majority vote of the stockholders
present in person or by proxy to a date not more than 120 days after the
original record date. Any business which might have been transacted at the
meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum shall be present.
SECTION 1.07. General Right to Vote; Proxies. Unless the Charter provides
------------------------------
for a greater or lesser number of votes per share or limits or denies voting
rights, each outstanding share of stock is entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. In all elections for
directors, each share of stock may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted, and cumulative voting in the election of directors is not permitted. A
stockholder may vote the stock the stockholder owns of record either in person
or by proxy. A stockholder may sign a writing authorizing another person to act
as proxy. Signing may be accomplished by the stockholder or the stockholder's
authorized agent signing the writing or causing the stockholder's signature to
be affixed to the writing by any reasonable means, including facsimile
signature. A stockholder may authorize another person to act as proxy by
transmitting, or authorizing the transmission of, a telegram, cablegram,
datagram or other means of electronic transmission to the person authorized to
act as proxy or to a proxy solicitation firm, proxy support service
organization, or other person authorized by the person who will act as proxy to
receive the transmission. Unless a proxy provides otherwise, it is not valid
more than 11 months after its date. A proxy is revocable by a stockholder at
any time without condition or qualification unless the proxy states that it is
irrevocable and the proxy is coupled with an interest. A proxy may be made
irrevocable for so long as it is coupled with an interest. The interest with
which a proxy may be coupled includes an interest in the stock to be voted under
the proxy or another general interest in the Corporation or its assets or
liabilities.
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<PAGE>
SECTION 1.08. List of Stockholders. At each meeting of stockholders, a
--------------------
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number of shares held by each and certified by the transfer
agent or by the Secretary, shall be furnished by the Secretary.
SECTION 1.09. Conduct of Business. Nominations of persons for election to
-------------------
the Board of Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving notice provided for in Section 1.11, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in Section 1.11. The chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in this
Section and Section 1.11 and, if any proposed nomination or business is not in
compliance with this Section and Section 1.11, to declare that such defective
nomination or proposal be disregarded.
SECTION 1.10. Conduct of Voting. At all meetings of stockholders, unless
-----------------
the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies, the acceptance or rejection of votes and procedures for the
conduct of business not otherwise specified by these By-Laws, the Charter or
law, shall be decided or determined, by the chairman of the meeting. If demanded
by stockholders, present in person or by proxy, entitled to cast 10 percent in
number of votes entitled to be cast, or if ordered by the chairman, the vote
upon any election or question shall be taken by ballot and, upon like demand or
order, the voting shall be conducted by two inspectors, in which event the
proxies and ballots shall be received, and all questions touching the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided, by such inspectors. Unless so demanded or
ordered, no vote need be by ballot and voting need not be conducted by
inspectors. The stockholders at any meeting may choose an inspector or
inspectors to act at such meeting, and in default of such election the chairman
of the meeting may appoint an inspector or inspectors. No candidate for
election as a director at a meeting shall serve as an inspector thereat.
SECTION 1.11. Stockholder Proposals. For any stockholder proposal to be
---------------------
presented in connection with an annual meeting of stockholders of the
Corporation (other than proposals made under Rule 14a-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), including any proposal
relating to the nomination of a director to be elected to the Board of Directors
of the Corporation, the stockholders must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not later than 10 days following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise
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<PAGE>
required, in each case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the number of shares
of stock of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
---------------------
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws. The Board may delegate the duty of management of the
assets and the administration of the day-to-day operations of the Corporation to
one or more entities or individuals pursuant to a written contract or contracts
which have obtained the approvals, including the approval of renewals thereof,
required by the Investment Company Act.
SECTION 2.02. Number of Directors. The Corporation shall have at least
-------------------
three directors; provided that, if there is no stock outstanding, the number of
directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are fewer than three stockholders, the number
of directors may be less than three but not less than the number of
stockholders. The Corporation Shall have the number of directors provided in the
Charter until changed as herein provided. A majority of the entire Board of
Directors may alter the number of directors set by the Charter to not exceeding
25 nor less than the minimum number then permitted herein, but the action may
not affect the tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. At each annual meeting,
--------------------------------
the stockholders shall elect directors to hold office until the next annual
meeting and until their successors are elected and qualify.
SECTION 2.04. Removal of Director. Unless statute or the Charter provides
-------------------
otherwise, the stockholders may remove any director, with or without cause, by
the affirmative vote of a majority of all the votes entitled to be cast for the
election of directors.
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<PAGE>
SECTION 2.05. Vacancy on Board. The stockholders may elect a successor to
----------------
fill a vacancy on the Board of Directors which results from the removal of a
director. A director elected by the stockholders to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director. A a majority of the remaining directors, whether or not
sufficient to constitute a quorum, may fill a vacancy on the Board of Directors
which results from any cause except an increase in the number of directors;
provided, however, that no vacancy shall be so filled unless immediately
thereafter at least two-thirds of the directors then holding office shall have
been elected to such office by the stockholders; and, provided further, that if
at any time (other than prior to the first annual meeting of stockholders) less
than a majority of the directors holding office at that time were elected by the
stockholders, a meeting of the stockholders shall be held promptly and in any
event within 60 days for the purpose of electing directors to fill any existing
vacancy in the Board of Directors, unless the Securities and Exchange Commission
(the "Commission") shall by order extend such period under the authority granted
by Section 16(a) of the Investment Company Act. A majority of the entire Board
of Directors may fill a vacancy which results from an increase in the number of
directors. A Director elected by the Board of Directors to fill a vacancy
serves until the next annual meeting of stockholders and until his successor is
elected and qualifies.
SECTION 2.06. Regular Meetings. After each meeting of stockholders at
----------------
which directors shall have been elected, the Board of Directors shall meet as
soon as practicable for the purpose of organization and the transaction of other
business. In the event that no other time and place are specified by resolution
of the Board, the President or the Chairman, with notice in accordance with
Section 2.08, the Board of Directors shall meet immediately following the close
of, and at the place of, such stockholders' meeting. Any other regular meeting
of the Board of Directors shall be held on such date and at any place as may be
designated from time to time by the Board of Directors.
SECTION 2.07. Special Meetings. Special meetings of the Board of
----------------
Directors may be called at any time by the Chairman or the President or by a
majority of the Board of Directors by vote at a meeting, or in writing with or
without a meeting. A special meeting of the Board of Directors shall be held on
such date and at any place as may be designated from time to time by the Board
of Directors. In the absence of designation such meeting shall be held at such
place as may be designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06, the
-----------------
Secretary shall give notice to each director of each regular and special meeting
of the Board of Directors. The notice shall state the time and place of the
meeting. Notice is given to a director when it is delivered personally to him,
left at his residence or usual place of business, or sent by telegraph,
facsimile transmission or telephone, at least 24 hours before the time of the
meeting or, in the alternative, by mail to his address as it shall appear on the
records of the Corporation, at least 72 hours before the time of the meeting.
Unless these By-Laws or a resolution of the Board of Directors provides
otherwise, the notice need not state the business to be transacted at or the
purposes of any regular or special meeting of the Board of Directors. No notice
of any meeting of the Board of Directors need be given to any director who
attends except where a director
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<PAGE>
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened, or to any
director who, in a writing executed and filed with the records of the meeting
either before or after the holding thereof, waives such notice. Any meeting of
the Board of Directors, regular or special, may adjourn from time to time to
reconvene at the same or some other place, and no notice need be given of any
such adjourned meeting other than by announcement.
SECTION 2.09. Action by Directors. A majority of the entire Board of
-------------------
Directors shall constitute a quorum for the transaction of business. In the
absence of a quorum, the directors present by majority vote and without notice
other than by announcement may adjourn the meeting from time to time until a
quorum shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified. Unless statute or the Charter or By-Laws
requires a greater proportion, the action of a majority of the directors present
at a meeting at which a quorum is present is action of the Board of Directors.
Any action required or permitted to be taken at a meeting of the Board of
Directors may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the Board and filed with the
minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of the Board of
-------------------------------
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of Directors a
------------
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. Directors who are affiliates of any entity
serving as investment adviser or administrator of the Corporation need not be
paid for attendance at meetings of the board or committees thereof for which
fees are paid to other directors. A director who serves the Corporation in any
other capacity also may receive compensation for such other services, pursuant
to a resolution of the directors.
SECTION 2.12. Resignation. Any director may resign at any time by sending
-----------
a written notice of such resignation to the home office of the Corporation
addressed to the Chairman or the President. Unless otherwise specified therein
such resignation shall take effect upon receipt thereof by the Chairman or the
President.
SECTION 2.13. Presumption of Assent. A director of the Corporation who is
---------------------
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the Corporation immediately
after the
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<PAGE>
adjournment of the meeting. Such right to dissent shall not apply to
a director who votes in favor of such action.
ARTICLE III
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint from among
----------
its members an Executive Committee, an Audit Committee, and other committees
composed of one or more directors and delegate to these committees any of the
powers of the Board of Directors, except the power to authorize dividends on
stock, elect directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend these By-Laws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock providing for or establishing a method
or procedure for determining the maximum number of shares to be issued, a
committee of the Board, in accordance with that general authorization or any
stock option or other plan or program adopted by the Board of Directors, may
authorize the terms on which any stock may be issued, including all terms and
conditions required or permitted to be established or authorized by the Board of
Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
-------------------
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any
meeting thereof by conference telephone in accordance with the provisions of
Section 2.10.
SECTION 3.03. Emergency. In the event of a state of disaster of
---------
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and these By-Laws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the Corporation
in accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed from
time to time for that
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<PAGE>
purpose, and any provisions of these By-Laws (other than this Section)
and any resolutions which are contrary to the provisions of this Section or to
the provisions of any such implementary resolutions shall be suspended until it
shall be determined by any interim Executive Committee acting under this Section
that it shall be to the advantage of the Corporation to resume the conduct and
management of its affairs and business under all the other provisions of these
By-Laws.
ARTICLE IV
OFFICERS
SECTION 4.01. Executive and Other Officers. The Corporation shall have a
----------------------------
President, a Secretary and a Treasurer. The Corporation may also have a
Chairman. The Board of Directors shall designate who shall serve as chief
executive officer, who shall have general supervision of the business and
affairs of the Corporation, and may designate a chief operating officer, who
shall have supervision of the operations of the Corporation. In the absence of
any designation by the Board of Directors, the Chairman, if one is elected,
shall serve as chief executive officer, and the President shall serve as chief
operating officer. In the absence of the Chairman, or if a Chairman is not
elected, the President shall be the chief executive officer. The same person
may hold both offices. The Corporation may also have one or more Vice-
Presidents, assistant officers and subordinate officers as may be established by
the Board of Directors. A person may hold more than one office in the
Corporation except that no person may serve concurrently as both President and
Vice-President of the Corporation. The Chairman shall be a director, and the
other officers may be directors.
SECTION 4.02. Chairman. The Chairman shall preside at all meetings of the
--------
Board of Directors and of the stockholders at which he shall be present. Unless
otherwise specified by the Board of Directors, he shall be the chief executive
officer of the Corporation. In general, he shall perform such duties as are
customarily performed by the chief executive officer of a corporation, and may
perform any duties of the President and shall perform such other duties and have
such other powers as are from time to time assigned to him by the Board of
Directors.
SECTION 4.03. President. Unless otherwise provided by resolution of the
---------
Board of Directors, the President, in the absence of the Chairman, shall preside
at all meetings of the Board of Directors and of the stockholders at which he
shall be present. Unless otherwise specified by the Board of Directors, the
President shall be the chief operating officer of the Corporation and perform
the duties customarily performed by chief operating officers. He may execute,
in the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation. In general, he shall perform such other duties
customarily performed by a president of a corporation and shall perform such
other duties and have such other powers as are from time to time assigned to him
by the Board of Directors or the chief executive officer of the Corporation.
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SECTION 4.04. Vice-Presidents. The Vice-President or Vice-Presidents,
---------------
at the request of the chief executive officer or the President, or in the
President's absence or during his inability to act, shall perform the duties and
exercise the functions of the President, and when so acting shall have the
powers of the President. If there be more than one Vice-President, the Board of
Directors may determine which one or more of the Vice-Presidents shall perform
any of such duties or exercise any of such functions, or if such determination
is not made by the Board of Directors, the chief executive officer or the
President may make such determination; otherwise any of the Vice-Presidents may
perform any of such duties or exercise any of such functions. Each Vice-
President shall perform such other duties and have such other powers, and have
such additional descriptive designations in their titles (if any), as are from
time to time assigned to them by the Board of Directors, the chief executive
officer, or the President.
SECTION 4.05. Secretary. The Secretary shall keep the minutes of the
---------
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he shall see that all notices are duly given
in accordance with the provisions of these By-Laws or as required by law; he
shall be custodian of the records of the Corporation; he may witness any
document on behalf of the Corporation, the execution of which is duly
authorized, see that the corporate seal is affixed where such document is
required or desired to be under its seal, and, when so affixed, may attest the
same. In general, he shall perform such other duties customarily performed by a
secretary of a corporation, and shall perform such other duties and have such
other powers as are from time to time assigned to him by the Board of Directors,
the chief executive officer, or the President.
SECTION 4.06. Treasurer. The Treasurer shall have charge of and be
---------
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation.
In general, he shall perform such other duties customarily performed by a
treasurer of a corporation, and shall perform such other duties and have such
other powers as are from time to time assigned to him by the Board of Directors,
the chief executive officer, or the President.
SECTION 4.07. Assistant and Subordinate Officers. The assistant and
----------------------------------
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.08. Election, Tenure and Removal of Officers. The Board of
----------------------------------------
Directors shall elect the officers of the Corporation. The Board of Directors
may from time to time authorize any committee or officer to appoint assistant
and subordinate officers. Election or appointment of an officer, employee or
agent shall not of itself create contract rights. All officers shall be
appointed to hold their offices, respectively, during the pleasure of the Board.
The Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by
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the Board) may remove an officer at any time. The removal of an officer does not
prejudice any of his contract rights. The Board of Directors (or, as to any
assistant or subordinate officer, any committee or officer authorized by the
Board) may fill a vacancy which occurs in any office for the unexpired portion
of the term.
SECTION 4.09. Compensation. The Board of Directors shall have power to fix
------------
the salaries and other compensation and remuneration, of whatever kind, of all
officers of the Corporation. No officer shall be prevented from receiving such
salary by reason of the fact that he is also a director of the Corporation. The
Board of Directors may authorize any committee or officer, upon whom the power
of appointing assistant and subordinate officers may have been conferred, to fix
the salaries, compensation and remuneration of such assistant and subordinate
officers.
ARTICLE V
STOCK
SECTION 5.01. Certificates for Stock. The Board of Directors may determine
----------------------
to issue certificated or uncertificated shares of capital stock and other
securities of the Corporation. For certificated stock, each stockholder is
entitled to certificates which represent and certify the shares of stock he
holds in the Corporation. Each stock certificate shall include on its face the
name of the Corporation, the name of the stockholder or other person to whom it
is issued, and the class of stock and number of shares it represents. It shall
also include on its face or back (a) a statement of any restrictions on
transferability and (b) a statement which provides in substance that the
Corporation will furnish to any stockholder on request and without charge a full
statement of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
Corporation is authorized to issue, of the differences in the relative rights
and preferences between the shares of each series of a preferred or special
class in series which the Corporation is authorized to issue, to the extent they
have been set, and of the authority of the Board of Directors to set the
relative rights and preferences of subsequent series of a preferred or special
class of stock and any restrictions on transferability. Such request may be
made to the Secretary or to its transfer agent. Upon the issuance of
uncertificated shares of capital stock, the Corporation shall send the
stockholder a written statement of the same information required above on the
certificate and by the Maryland Uniform Commercial Code - Investment Securities.
It shall be in such form, not inconsistent with law or with the Charter, as
shall be approved by the Board of Directors or any officer or officers
designated for such purpose by resolution of the Board of Directors. Each stock
certificate shall be signed by the Chairman, the President, or a Vice-President,
and countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an
Assistant Treasurer. Each certificate may be sealed with the actual corporate
seal or a facsimile of it or in any other form and the signatures may be either
manual or facsimile signatures. A certificate is valid and may be issued
whether or not an officer who signed it is still an officer when it is issued.
A certificate may not be issued until the stock represented by it is
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fully paid, except in the case of stock purchased under a plan, agreement, or
transaction as provided by law and with such statement on future payments as
required by law.
SECTION 5.02. Transfers. The Board of Directors shall have power and
---------
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of stock; and may appoint transfer agents
and registrars thereof. The duties of transfer agent and registrar may be
combined.
SECTION 5.03. Record Dates or Closing of Transfer Books. The Board of
-----------------------------------------
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be prior to the close of business on the day
the record date is fixed nor, subject to Section 1.06, more than 90 days before
the date on which the action requiring the determination will be taken; the
transfer books may not be closed for a period longer than 20 days; and, in the
case of a meeting of stockholders, the record date or the closing of the
transfer books shall be at least ten days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock ledger
------------
which contains the name and address of each stockholder and the number of shares
of stock which the stockholder holds. The stock ledger may be in written form
or in any other form which can be converted within a reasonable time into
written form for visual inspection. The original or a duplicate of the stock
ledger shall be kept at the offices of a transfer agent, or, if none, at the
principal office in the State of Maryland or the principal executive offices of
the Corporation.
SECTION 5.05. Lost Stock Certificates. The Board of Directors of the
-----------------------
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may require the owner of the certificate to give bond, with sufficient
surety, to indemnify the Corporation against any loss or claim arising as a
result of the issuance of a new certificate. In their discretion, the Board of
Directors or such officer or officers may refuse to issue such new certificate
save upon the order of some court having jurisdiction in the premises.
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ARTICLE VI
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for the
-------------------
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall, unless otherwise provided by resolution of the Board
of Directors, be signed by any two of the Chairman, the President, a Vice-
President, an Assistant Vice-President, and the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs. The President or chief account
---------------------------
officer shall prepare annually a full and correct statement of the affairs of
the Corporation, to include a balance sheet and a financial statement of
operations for the preceding fiscal year. The statement of affairs shall be
placed on file at the Corporation's principal office within 120 days after the
end of the fiscal year.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall be the
-----------
12-calendar-month period ending December 31 in each year, unless otherwise
provided by the Board of Directors.
SECTION 6.04. Dividends. If declared by the Board of Directors at any
---------
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
ARTICLE VII
INDEMNIFICATION
SECTION 7.02. Procedure. Any indemnification by the Corporation for a
---------
specific action, suit or proceeding shall (unless ordered by a court) be made by
the Corporation only upon (a) a final decision on the merits by a court or other
body before whom the action, suit or proceeding was brought that a person
permitted by the Charter to seek indemnification (the "Covered Person") was not
liable by reason of Disabling Conduct (hereafter defined), (b) dismissal of the
proceeding against the Covered Person for insufficiency of evidence of any
Disabling Conduct, or (c) a reasonable determination, based upon a review of the
facts, by a majority of a quorum of the directors who are neither "interested
persons" of the Corporation as defined in the Investment Company Act nor parties
to the proceeding ("Disinterested, Non-Party Directors"), or an independent
legal counsel in a written opinion, that the Covered Person was not liable by
reason of Disabling Conduct. Disabling Conduct includes (a) liability in
connection with any proceeding in which it is determined that (i) the act or
omission of the Covered Person was material to the matter giving rise to the
proceeding, and was committed in bad faith or was the result of active and
deliberate dishonesty, or (ii) the Covered Person actually received an
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improper personal benefit in money, property or services, or (iii) in the case
of any criminal proceeding, the Covered Person had reasonable cause to believe
that the act or omission was unlawful, and (b) liability to the Corporation or
its stockholders to which the Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. The termination of any
proceeding by judgment, order or settlement shall not create a presumption that
the Covered Person did not meet the required standard of conduct; the
termination of any proceeding by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, shall create
a rebuttable presumption that the Covered Person did not meet the required
standard of conduct. Any determination pursuant to this Section 7.01 shall not
prevent recovery from any Covered Person of any amount paid to him in accordance
with this By-Law as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to be liable by reason of
Disabling Conduct.
SECTION 7.02. Enforcement of Indemnification Right. Any indemnification,
------------------------------------
or payment of expenses in advance of the final disposition of any action, suit
or proceeding, shall be made promptly, and in any event within 60 days, upon the
written request of the Covered Person. The right to indemnification and advances
hereunder shall be enforceable by the Covered Person in any court of competent
jurisdiction, if (i) the Corporation denies such request, in whole or in part,
or (ii) no disposition thereof is made within 60 days. The Covered Person's
costs and expenses incurred in connection with successfully establishing his
right to indemnification, in whole or in part, in any such action shall also be
reimbursed by the Corporation. It shall be a defense to any action for advance
for expenses that (a) a determination has been made that the facts then known to
those making the determination would preclude indemnification or (b) the
Corporation has not received both (i) an undertaking as required by law to repay
such advances in the event it shall ultimately be determined that the standard
of conduct has not been met and (ii) a written affirmation by the Covered Person
of such Covered Person's good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met.
SECTION 7.03. Advance Payment of Expenses. Reasonable expenses (including
---------------------------
attorney's fees) incurred by a Covered Person may be paid or reimbursed by the
Corporation in advance of the final disposition of an action, suit or proceeding
upon receipt by the Corporation of (a) a written affirmation by the Covered
Person of his good faith belief that the standard of conduct necessary for
indemnification under this By-Law has been met and (b) a written undertaking by
or on behalf of the Covered Person to repay the amount if it is ultimately
determined that such standard of conduct has not been met, so long as either (i)
the Covered Person has provided a security for his undertaking, (ii) the
Corporation is insured against losses arising by reason of any lawful advances,
or (iii) a majority of a quorum of the Disinterested, Non-Party Directors or an
independent legal counsel in a written opinion has determined, based on a review
of readily available facts (as opposed to a full trial-type inquiry), that there
is reason to believe that the Covered Person ultimately will be found entitled
to indemnification.
SECTION 7.04. Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any Covered Person against any liability asserted against
him and incurred by him in
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any such capacity, or arising out of his status as such; provided, however, that
the Corporation shall not purchase insurance to indemnify any Covered Person
against liability for Disabling Conduct.
SECTION 7.05. Exclusivity, Etc. The indemnification and advance of expenses
----------------
provided by the Charter and this By-Law shall not be deemed exclusive of any
other rights to which a Covered Person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any agreement,
vote of stockholders or disinterested directors, or other provision that is
consistent with law, both as to action in an official capacity and as to action
in another capacity while holding office or while employed by or acting as agent
for the Corporation, shall continue in respect of all events occurring while the
Covered Person was a director or officer after such Covered Person has ceased to
be a director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such Covered Person. The Corporation shall not
be liable for any payment under this By-Law in connection with a claim made by a
director or officer to the extent such director or officer has otherwise
actually received payment under an insurance policy, agreement, vote or
otherwise, of the amounts otherwise indemnifiable hereunder. All rights to
indemnification and advance of expenses under the Charter and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this By-
Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any Covered Person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of a Covered
Person or the obligations of the Corporation arising hereunder with respect to
events occurring, or claims made, while this By-Law or any provision hereof is
in force.
SECTION 7.06. Severability; Definitions. The invalidity or
-------------------------
unenforceability of any provision of this Article VII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this By-
Law" in this Article VII means this Article VII in its entirety.
ARTICLE VIII
SUNDRY PROVISIONS
SECTION 8.01. Books and Records. The Corporation shall keep correct and
-----------------
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors.
The books and records of the Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in
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the form of a reproduction. The original or a certified copy of these By-Laws
shall be kept at the principal office of the Corporation.
SECTION 8.02. Corporate Seal. The Board of Directors shall provide a
--------------
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule or regulation relating to a corporate seal to place the word
"(seal)" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
SECTION 8.03. Bonds. The Board of Directors may require any officer, agent
-----
or employee of the Corporation to give a bond to the Corporation, conditioned
upon the faithful discharge of his duties, with one or more sureties and in such
amount as may be satisfactory to the Board of Directors.
SECTION 8.04. Voting Stock in Other Corporations. Stock of other
----------------------------------
corporations or associations, registered in the name of the Corporation, may be
voted by the Chairman, the President, a Vice-President, the Treasurer or a proxy
appointed by any of them. The Board of Directors, however, may by resolution
appoint some other person to vote such shares, in which case such person shall
be entitled to vote such shares upon the production of a certified copy of such
resolution.
SECTION 8.05. Mail. Any notice or other document which is required by
----
these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 8.06. Contracts and Agreements. To the extent permitted by
------------------------
applicable law, and except as otherwise prescribed by the Charter or these By-
Laws, the Board of Directors may authorize any officer, employee or agent of the
Corporation to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation. Such authority may be general or
confined to specific instances. A person who holds more than one office in the
Corporation may not act in more than one capacity to execute, acknowledge or
verify an instrument required by law to be executed, acknowledged or verified by
more than one officer.
SECTION 8.07. Reliance. Each director, officer, employee and agent of the
--------
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
SECTION 8.08. Certain Rights of Directors, Officers, Employees and Agents.
-----------------------------------------------------------
The directors shall have no responsibility to devote their full time to the
affairs of the Corporation.
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Any director or officer, employee or agent of the Corporation, in his personal
capacity or in a capacity as an affiliate, employee or agent of any other
person, or otherwise, may have business interests and engage in business
activities similar to or in addition to those of or relating to the Corporation.
SECTION 8.09. Employment of Custodian. The Corporation shall place and
-----------------------
maintain its securities and similar investments in the custody of one or more
custodians meeting the requirements of the Investment Company Act, or may serve
as its own custodian in accordance with such rules and regulations or orders as
the Securities and Exchange Commission may from time to time prescribe for the
protection of investors. Securities held by a custodian may be registered in
the name of the Corporation or any such custodian, or the nominee of either of
them. Subject to such rules, regulations and orders as the Commission may adopt
as necessary or appropriate for the protection of investors, the Corporation or
any custodian, with the consent of the Corporation, may deposit all or any part
of the securities owned by the Corporation in a system for the central handling
of securities, pursuant to which system all securities of a particular class or
series of any issuer deposited within the system are treated as fungible and may
be transferred or pledged by bookkeeping entry without physical delivery of such
securities.
SECTION 8.10. Amendments. Subject to the special provisions of Section
----------
2.02, (a) any and all provisions of these By-Laws may be altered or repealed and
new bylaws may be adopted at any annual meeting of the stockholders, or at any
special meeting called for that purpose, and (b) the Board of Directors shall
have the power, at any regular or special meeting thereof, to make and adopt new
bylaws, or to amend, alter or repeal any of these By-Laws of the Corporation.
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