As filed with the Securities and Exchange Commission on May 24, 1999
Securities Act File No. 333-74407
Investment Company Act File No. 811-9261
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
[x] Registration Statement under the Securities Act of 1933
[x] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No. ____ and/or
[x] Registration Statement under the Investment Company Act of 1940
[x] Amendment No. 1
LCM INTERNET GROWTH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
810 West Washington Boulevard
Chicago, Illinois 60607
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (312) 705-3028
Barry J. Glasgow
LCM Internet Growth Fund, Inc.
810 West Washington Boulevard
Chicago, Illinois 60607
(Name and Address of Agent for Service)
Copies to:
Scott A. Moehrke, Esq.
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202-3590
Approximate Date of Proposed Public Offering: As soon
as practicable after the effective date of this
Registration Statement.
If any securities being registered on this form will be
offered on a delayed or continuous basis in reliance on
Rule 415 under the Securities Act of 1933, as amended,
other than securities offered in connection with a
dividend reinvestment plan, check the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES
ACT OF 1933
<TABLE>
<CAPTION>
Title of Securities Amount Being Propsed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Aggregate Registration Fee(3)
Price per Share(1) Offering Price(1)
<S> <C> <C> <C> <C>
Common Stock,
$0.01 par value 1,725,000 shares(2) $10.00 $17,250,000 $4,795.50
Common Stock,
$0.01 par value 1,000,000 shares $9.65 $9,650,000 $2,682.70
</TABLE>
(1) Estimated solely for the purpose of calculating
the registration fee, pursuant to Rule 457(a) under the
Securities Act of 1933, as amended.
(2) Includes 225,000 shares to be issued in connection
with the exercise of the Underwriters' over-allotment option.
(3) Registration fee was paid in connection with
initial filing of Registration Statement on March 15, 1999.
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall
file a further amendment which specifically states that
this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to
said Section 8(a), may determine.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of
Prospectus: one to be used in connection with an
underwritten offering to investors desiring to purchase
less than 100,000 shares of Common Stock (the "Retail
Prospectus"), and the other to be use in connection
with a concurrent underwritten offering to investors
desiring to purchase 100,000 or more shares of Common
Stock (the "Institutional Prospectus"). The two
Prospectus are the same except for the Cover Page and
Pages 2, 3, 4, 5, 6, 20 and 21. These pages of the
Institutional Prospectus appear after the Retail
Prospectus and are each labeled as follows:
(Alternative Page For Institutional Prospectus).
<PAGE>
PROSPECTUS
dated ________, 1999
Subject to Completion, Dated May __, 1999
The information in this Prospectus is not complete
and may be changed. The Fund may not sell these
securities until the Registration Statement filed
with the Securities and Exchange Commission is
effective. This Prospectus is not an offer to
sell these securities and it is not soliciting an
offer to buy these securities in any state where
the offer or sale is not permitted.
1,500,000 SHARES
LCM INTERNET GROWTH FUND, INC.
COMMON STOCK ($.01 PAR VALUE)
The LCM Internet Growth Fund, Inc. (the "Fund"), which
is a newly organized, non-diversified, closed-end
management investment company, is offering an aggregate
of 1,500,000 shares of common stock, $.01 par value per
share (the "Common Stock"). The Fund's investment
objective is to seek capital appreciation by investing
in a portfolio consisting primarily of equity
securities issued by companies that the Fund's
investment adviser believes will benefit from growth of
the Internet. Current dividend income is not an
investment consideration. Under normal market
conditions, the Fund will invest at least 65% of its
total assets in the equity securities of companies that
derive (or expect to derive) a substantial portion of
their revenues from providing infrastructure, content
and e-commerce products and/or services designed for
Internet use. There can be no assurance that the
Fund's investment objective will be achieved. LCM
Capital Management, Inc. ("LCMCM") will serve as the
investment adviser to the Fund. The address of the Fund
is 810 West Washington Boulevard, Chicago, Illinois
60607, and the Fund's telephone number is (312) 705-3028.
These securities involve a high degree of risk. Prior
to this offering, there has been no public market for
the Fund's shares. Equity securities of closed-end
funds have frequently traded at discounts from their
net asset values and initial offering prices. This
risk may be greater for investors expecting to sell
shares of a closed-end fund soon after completion of an
initial public offering of such shares. For a
discussion of other risks that should be considered by
potential investors, see "Risk Factors and Special
Considerations."
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved
these securities or determined if this Prospectus is
truthful or complete. Any representation to the
contrary is a criminal offense.
Price to Public(1) Underwriting Discount(2) Proceeds to Fund(3)
Per Share $10.00 $0.55 $9.45
Total (4) $15,000,000.00 $825,000.00 $14,175,000.00
(1) The Common Stock is being offered to investors
desiring to purchase fewer than 100,000 shares at an
initial public offering price of $10.00 per share.
See "Underwriting."
(2) The Fund and LCMCM have agreed to indemnify the
Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as
amended ("Securities Act"). See "Underwriting."
(3) Before deducting a non-accountable expense
allowance payable to LaSalle St. Securities, Inc.,
the representative of the Underwriters (the
"Representative"), in an amount equal to 1% of the
total Price to Public ($150,000). Organizational
expenses of the Fund and offering expenses
associated with this offering (as well as the
Concurrent Offering, discussed below), estimated to
be $96,000, will be paid by the Representative from
its own assets. See "Underwriting."
(4) The Fund has granted to the Underwriters a
30-day over-allotment option to purchase up to
225,000 additional shares of Common Stock on the
same terms and conditions set forth above. If all
of such shares are purchased by the Underwriters,
the total Price to Public, Underwriting Discount and
Proceeds to Fund will be $17,250,000, $948,750 and
$16,301,250. See "Underwriting."
LaSalle St. Securities, Inc.
[name of other Underwriter]
[name of other Underwriter]
<PAGE>
The Common Stock is being offered, subject to prior
sale, when, as and if accepted by the Underwriters and
subject to approval of certain legal matters by counsel
for the Underwriters. It is expected that delivery of
the shares of Common Stock will be made on or before
the third business day following the effective date of
this Prospectus at the offices of LaSalle St.
Securities, Inc., Chicago, Illinois. Application will
be made to list the Common Stock on the American Stock
Exchange under the symbol "LCM."
Concurrent with this offering, the Fund is offering an
additional 1,000,000 shares of Common Stock to
investors purchasing 100,000 or more shares at an
initial public offering price of $9.65 per share,
subject to certain holding period requirements (the
"Concurrent Offering"). See "Underwriting."
You are advised to read this Prospectus, which sets
forth concisely the information about the Fund that you
should know before investing. It should be retained
for future reference. Additional information regarding
the Fund is included in the Statement of Additional
Information (the "SAI"), dated the date hereof, which
has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated herein by
reference. The table of contents of the SAI is located
on page 32 of this Prospectus. A copy of the SAI is
available without charge by writing the Fund at 810
West Washington Boulevard, Chicago, Illinois 60607, or
by calling (312) 705-3028.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
reference to the more detailed information included
elsewhere in this Prospectus.
The Fund The Fund is a newly organized, non-
diversified, closed-end management
investment company, which is
registered as such under the
Investment Company Act of 1940, as
amended (the "1940 Act"). The
investment objective of the Fund is to
seek capital appreciation by investing
in a portfolio consisting primarily of
equity securities issued by companies
that LCMCM believes will benefit from
growth of the Internet. Current
dividend income is not an investment
consideration. Under normal market
conditions, the Fund will invest at
least 65% of its total assets in the
equity securities of companies that
derive (or expect to derive) a
substantial portion of their revenues
from providing infrastructure, content
and e-commerce products and/or
services designed for Internet use.
See "The Fund."
Investment Objective and The Fund's investment objective is
Policies capital appreciation. Under normal
market conditions, the Fund will
invest at least 65% of its total
assets in the equity securities of
companies that participate in the
Internet. See "Investment Objective
and Policies," "Investment
Restrictions" and "Investment
Practices and Techniques."
The Offering The Fund is offering an aggregate of
1,500,000 shares of Common Stock to
investors desiring to purchase fewer
than 100,000 shares at an initial
public offering price of $10.00 per
share. The offering is being made on
behalf of the Fund through a group of
Underwriters, for which LaSalle St.
Securities, Inc. is acting as lead
Representative. The Underwriters have
been granted an option, exercisable
for 30 days from the date of this
Prospectus, to purchase up to an
additional 225,000 shares of Common
Stock to cover over-allotments. The
minimum permitted investment by an
investor in this offering is 200
shares. See "Underwriting."
Concurrent Offering Concurrent with this offering, the
Fund is offering an additional
1,000,000 shares of Common Stock to
investors desiring to purchase 100,000
or more shares at an initial public
offering price of $9.65 per share.
The minimum permitted investment by an
investor in the Concurrent Offering is
100,000 shares. Delivery of 96.5% of
the shares of Common Stock purchased
by an investor in the Concurrent
Offering will be made on or before the
third business day following the
effective date of this Prospectus.
The balance of such investor's shares
will be held in escrow pending
completion of the 90-day holding
period requirement described under
"Underwriting." Failure to satisfy
the holding period requirement will
have the effect of increasing the
purchase price to $10.00 per share.
The proceeds to the Fund in both
offerings will be $9.45 per share.
See "Underwriting."
<PAGE>
Use of Proceeds The net proceeds of this offering
(estimated to be $14,025,000 if the
Underwriters' over-allotment option is
not exercised), and the net proceeds
from the Concurrent Offering
(estimated to be $9,353,500), after
deducting the underwriting discount
and the non-accountable expense
allowance, will be invested by LCMCM
on behalf of the Fund in accordance
with the Fund's investment objective
and policies. Organizational and
offering expenses of the Fund will be
paid by the Representative from its
own assets. See "Use of Proceeds."
Listing Prior to this offering, there has been
no public market for the shares of
Common Stock of the Fund. Application
will be made to list the Common Stock
on the American Stock Exchange (the
"ASE") under the symbol "LCM." See
"Underwriting."
Stock Symbol "LCM."
Investment Adviser LCM Capital Management, Inc.
("LCMCM"), a newly organized,
registered investment adviser under
the Investment Advisers Act of 1940,
as amended (the "Advisers Act"), and
an affiliate of the Representative, is
the Fund's investment adviser. LCMCM
will manage the Fund's investment
portfolio in accordance with the
Fund's investment objective and
policies. Prior to the organization
of the Fund, LCMCM had not served as
an investment adviser to any other
investment company.
Prior to joining LCMCM in June 1998,
the portfolio manager of the Fund,
Barry J. Glasgow, spent seven years
with Gonski & Glasgow Investments, a
registered investment manager, in the
positions of managing partner and
portfolio manager. Prior to the
organization of the Fund, Mr. Glasgow
had not served as a portfolio manager
to any other investment company. See
"Management of the Fund" and "Risk
Factors and Special Considerations."
Management Fees The Fund will pay LCMCM for its
investment management services a
monthly fee at an annual rate of 1.0%
of the Fund's average daily net
assets. See "Management of the Fund."
Dividends and It is the Fund's present policy, which
Distributions may be changed by the Board of
Directors, to make regular annual cash
distributions to its shareholders of
substantially all of the Fund's net
investment income, and to distribute,
at least annually, any net realized
capital gains. See "Distributions;
Distribution Reinvestment Plan."
Distribution Under the Fund's Distribution
Reinvestment Plan Reinvestment Plan (the "Plan"),
shareholders will have all dividends
and distributions automatically
reinvested in additional whole and
fractional shares of Common Stock of
the Fund, unless they notify the Fund
of their desire to receive cash
distributions instead. Shareholders
whose shares are held in the name of a
broker or nominee should contact such
broker or nominee to confirm that they
may participate in the Plan. See
"Distributions; Distribution
Reinvestment Plan."
<PAGE>
Taxation The Fund intends to qualify and elect
to be treated as a regulated
investment company for U.S. federal
income tax purposes. As such, it will
generally not be subject to U.S.
federal income tax on income and gains
that are distributed to shareholders.
See "Federal Taxation of the Fund and
its Distributions" below and in the
SAI.
Custodian, Transfer Firstar Bank Milwaukee, N.A. ("Firstar
Agent, Dividend Paying Bank"), 615 East Michigan Street,
Agent, Registrar, Milwaukee, Wisconsin, 63202, will act
Administrator and Fund as custodian of the Fund's assets.
Accountant Firstar Mutual Fund Services, L.L.C.,
which is an affiliate of Firstar Bank
and which is located at the same
address, will act as the Fund's
transfer agent, dividend paying agent,
registrar, administrator and fund
accountant. See "Management of the
Fund."
Trading Discount As a newly organized entity, the Fund
has no operating history. Shares of
closed-end investment companies
frequently trade in the market at a
discount from net asset value. This
characteristic is a risk separate and
distinct from the risk that the Fund's
net asset value will decrease as a
result of the Fund's investment
activities, and may be greater if you
expect to sell your shares in a
relatively short period of time
following this offering. It should be
noted, however, that shares of some
closed-end funds have traded at
premiums to net asset value. The Fund
cannot predict whether its shares will
trade at, above or below net asset
value. The Fund is intended primarily
for long-term investors, and should
not be considered as a vehicle for
short-term trading purposes. See "The
Fund" and "Risk Factors and Special
Considerations."
Anti-Takeover Provisions The Fund's Articles of Incorporation
contain certain anti-takeover
provisions that may have the effect of
inhibiting the Fund's possible
conversion to open-end status and
limiting the ability of other persons
to acquire control of the Fund. In
certain circumstances, these
provisions might also inhibit the
ability of shareholders to sell their
shares at a premium over prevailing
market prices. The Fund's Board of
Directors has determined that these
provisions are in the best interests
of shareholders generally. See "Anti-
Takeover Provisions."
Risk Factors The shares of Common Stock offered
hereby involve a high degree of risk,
including the Fund's lack of prior
operating history, LCMCM's lack of
investment management experience, the
non-diversified status of the Fund
under the 1940 Act, the volatility and
concentration of the Fund's
investments, the illiquid nature of
some of the Fund's portfolio
securities and the risks relating to a
limited public market for the Fund's
Common Stock. You should carefully
consider your ability to assume the
foregoing risks before making an
investment in the Fund. Given these
investment risks, investment in the
Fund should not be considered a
complete investment program. See
"Risk Factors and Special
Considerations."
<PAGE>
FEES AND EXPENSES
The purpose of the following Fee Table and Example is
to assist you in understanding the fees and expenses
that you will bear directly (shareholder transaction
expenses) and indirectly (annual operating expenses) as
a shareholder of the Fund.
Fee Table:
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price) (1) 5.50%
Distribution Reinvestment Plan Fees None
Annual Operating Expenses (as a percentage of net assets)
Management Fees 1.00%
Other Expenses (2) [ ]%
Total Annual Operating Expenses [ ]%
Example: 1 year 3 years 5 years 10 years
You would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return: $___ $___ $___ $___
(1) Represents the 5.5% underwriting discount. See "Underwriting."
(2) Based upon estimated amounts of expenses for the
Fund's first fiscal year, assuming Fund assets of $_______.
The Example set forth above assumes payment by an
investor of the sales load, reinvestment of all
dividends and distributions at net asset value and an
expense ratio equal to the Total Annual Operating
Expense as set forth above. The assumption in the
example of a 5% annual rate of return is mandated by
the SEC regulations, and is applicable to all
investment companies. This Example should not be
considered a representation of future expenses or
annual rates of return. Actual expenses and annual
rates of return may be more or less than those assumed
for purposes of the above Example. In addition, while
the above Example assumes reinvestment of all dividends
and distributions at net asset value, participants in
the Fund's Distribution Reinvestment Plan may receive
shares purchased or issued at a price or value
different from net asset value. See "Distributions;
Distribution Reinvestment Plan."
USE OF PROCEEDS
The net proceeds of this offering (estimated to be
$14,025,000 assuming the Underwriters' over-allotment
option is not exercised), and the net proceeds of the
Concurrent Offering (estimated to be $9,353,500), after
deducting the underwriting discount and the non-
accountable expense allowance, will be invested in
accordance with the Fund's investment objective and
policies set forth under "Investment Objective and
Policies" within three months from the date of this
Prospectus. Pending such investment, the proceeds will
be invested in U.S. government securities and/or money
market securities as described under "Investment
Practices and Techniques" herein. The organizational
expenses of the Fund and the expenses associated with
the offering, which are estimated to be $96,000, will
be paid by the Representative from its own assets.
<PAGE>
THE FUND
The Fund was organized on August 24, 1998 as a
corporation under the laws of the State of Maryland.
The Fund is a non-diversified, closed-end management
investment company registered under the 1940 Act. The
Fund's address is 810 West Washington Boulevard,
Chicago, Illinois 60607, and its telephone number is
(312) 705-3028.
The Fund's investment objective is to seek capital
appreciation by investing in a portfolio consisting
primarily of equity securities issued by companies that
LCMCM believes will benefit from growth of the
Internet. Current dividend income is not an investment
consideration. Under normal market conditions, the
Fund will invest at least 65% of its total assets in
the equity securities of companies that derive (or
expect to derive) a substantial portion of their
revenues from providing infrastructure, content and e-
commerce products and/or services designed for Internet
use. There can be no assurance that the Fund's
investment objective will be achieved. Due to the risks
inherent in the securities in which the Fund plans to
invest, the Fund should not be considered a complete
investment program. See "Risk Factors and Special
Considerations."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is capital
appreciation, a goal it seeks to achieve by investing
primarily in the equity securities of companies that
participate in the Internet. Equity securities are
defined to include common stocks, securities
convertible into common stocks, such as convertible
preferred stocks, bonds, notes and debentures, and
American Depositary Receipts ("ADRs"). Current income
is not an investment consideration. No assurance can be
given that the Fund will realize its investment
objective.
The Fund's investment objective is a fundamental policy
that may not be changed without the approval of a
majority of the Fund's outstanding voting securities.
A "majority of the Fund's outstanding voting
securities" means the lesser of (i) 67% of the shares
of Common Stock represented at a meeting at which more
than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares of Common
Stock.
Under normal market conditions, at least 65% of the
Fund's total assets will be invested in the equity
securities of companies that derive (or expect to
derive) a substantial portion of their revenues from
providing infrastructure, content and e-commerce
products and/or services designed for Internet use.
Under favorable market conditions, the Fund would
expect to be substantially fully invested in such
securities. The Fund may hold a small portion of its
assets (generally not more than 10%) in U.S. government
securities, money market securities and cash to meet
ordinary daily cash needs. Under unusual
circumstances, as a defensive technique, the Fund may
retain a larger portion of cash and/or invest more
assets in U.S. government securities and/or money
market securities deemed by LCMCM to be consistent with
a temporary defensive posture. To the extent the Fund
engages in temporary investment strategies, the Fund
may not achieve its investment objective.
The Internet is a global collection of connected
computers that allows commercial and professional
organizations, educational institutions, government
agencies and consumers to communicate electronically,
access and share information and conduct business.
LCMCM believes that because of the dramatic growth of
Internet activity in recent years, favorable investment
opportunities are offered by companies that provide
products and/or services designed for Internet use.
In evaluating investment opportunities for the Fund,
LCMCM will focus primarily on companies with
significant research and development efforts. In this
regard, an important yardstick LCMCM employs in making
portfolio selections, in addition to evaluating trends
in corporate revenues, earnings and dividends, is the
amount of capital currently being expended on research
and development, and the purpose of the technology.
LCMCM believes that dollars invested in research and
development today frequently have significant bearing
on future growth, or lack thereof.
LCMCM will draw upon a myriad of information sources in
evaluating the direction of the Internet and the
opportunities afforded thereby. Through these sources,
LCMCM has come to believe that the Internet as it
exists today will eventually develop into three
separate, yet connected, forms, each serving a
different function. Specifically, in addition to the
current version of the Internet which serves a variety
of commercial, communication
<PAGE>
and entertainment functions (i.e., Internet 1), LCMCM foresees the
development of two new "Internets": Internet-2 (for
government and university use), and Internet-3 (for
very secure commercial purposes, like bank
transactions). Given its investment objective and
policies, LCMCM believes that the Fund will be well
positioned to take advantage of any such growth, should
it occur.
In order to assist in the assessment of Internet-
related investment opportunities for the Fund, LCMCM
has divided those companies which participate in the
Internet into three major areas consisting of 13
sectors and 65 sub-sectors. These three major areas
include the following: infrastructure, content and e-
commerce. Infrastructure is the basic connections,
networks and computer and server hardware necessary to
convey information from point A to point B. Content
includes those sites, services, software and
applications necessary to facilitate user access to
information and/or services on the web. E-commerce is
the structure necessary to conduct business-to-
business, consumer-to- business and government-to-
business transactions. Those companies providing
infrastructure, content and e- commerce products
and/or services designed for Internet use comprise the
"information technology industry."
Although LCMCM has identified 13 sectors and 65 sub-
sectors for investment, because the Internet is so
dynamic, LCMCM intends to closely monitor the Internet
for emerging and obsolete sectors and sub-sectors. For
each identified sub-sector, LCMCM intends to evaluate
the companies, both public and private, that are vying
for leadership. Generally, such leaders will be added
to the Fund's holdings. However, like the sectors and
sub-sectors themselves, these leaders will not remain
static. The evaluation of changes among the leaders
will be a continual process.
LCMCM expects that approximately 85% of the Fund's
Internet-related equity investments will be divided
among the leaders of the identified sub-sectors. As
the leaders of the identified sub-sectors change, the
Fund's investments will be rebalanced so as to
replicate as nearly as possible the current status of
the indicated sub-sectors and the leaders thereof. Any
such rebalancing will increase the Fund's transactional
expenses and portfolio turnover. The weighting of the
investment in each sub-sector will be determined by a
proprietary quantitative program overlapping the
portfolio. The remaining 15% will be in assets
identified by LCMCM as special situations which will
generally be in companies that do not have the
historical basis necessary for the Fund's model or
involve emerging technology.
LCMCM will utilize a quantitative model to overlap the
Fund's portfolio holdings because LCMCM expects the
Internet to exhibit a life cycle effect which will
generate benefits for a shifting set of companies.
Certain sectors may become more visible, garner more
public attention and may, in fact, be more vital to one
phase of the Internet's development than other sectors
until the Internet enters a new phase. Periods of over-
visibility and sky-high valuations for one sub-sector
may prove temporary as another gains visibility and
momentum, only to be replaced by another sub-sector,
and so on.
The chart below illustrates the 13 sectors and 65 sub-
sectors LCMCM has currently identified:
Infrastructure Content E-Commerce
Communications Information Retail E-Commerce
Providers
- -Equipment -Family Oriented -Direct Sales
- -Digital Subscriber Line -Financial -Auctions
- -Cable -Health/Medical -Shopping
Bots/Guides
- -Wireless -Multimedia -Transaction/Billing
Entertainment Management Fulfillment
Network Security -General and Business-to-Business
Industrial News E-Commerce
- -Biometrics -Education -Vertical Business-to-
Business Networks
- -Virtual Private Networks Internet Software -Business-to-Business
("VPNs") Search Procurement Bots
- -Virus Detection -JAVA Enablers -Business-to-Business
Auctions
- -Security System -E-Commerce -EDI Fulfillment Networks
Management Enablers
- -Public Key Interchange -Database -Business-to- Business Out-
Sourcing Management
- -Intrusion Detection -Enterprise
Interface
- -Encryption -Web Interface
and Browsers
- -Firewalls -Site Building
<PAGE>
Infrastructure Content E-Commerce
Network Connections Portals and Hubs Government-to-Business
E-Commerce
- -Servers -Mass-Market Portals
-Governement-to-Business
- -Routers -Industry -Vertical Government-to-
Specific Portals Business Networks
- -Data Storage -Search Engine -Government Document
Technologies Distribution
- -Satellite -Communities -Government-to-Business
Contract Search Bots/Guides
- -Backbones -Transaction -Government-to-Business
Management Auctions
Internet Service Providers Advertising and -Outsourcing Management
("ISPs") Marketing
- -Portal -Web Ad Management
- -Private Networks -Market Research
- -Web Developers -Industry Consultants
- -E-Commerce Providers Enabling Technologies
- -Turnkey -Streaming Media
Media Technologies -Traffic Cache Management
- -Video Conference -Fax/Telephony
Sites/Tech
- -Streaming Video
- -Digital Video Discs
- -Set-Top TV Boxes
- -Multimedia Plug-ins
INVESTMENT RESTRICTIONS
The following restrictions, along with the Fund's
investment objective, are the Fund's only fundamental
policies - that is, policies that cannot be changed
without the approval of a majority of the Fund's
outstanding voting securities. See "Investment
Objective and Policies," above. All other policies and
investment restrictions referred to in this Prospectus
are not fundamental policies of the Fund and may be
changed by the Fund's Board of Directors without
shareholder approval. Except as otherwise noted, the
percentage restrictions set forth below, as well as
those contained elsewhere in this Prospectus, apply at
the time a transaction is effected, and a subsequent
change in a percentage resulting from market
fluctuations or any other cause other than action by
the Fund will not require the Fund to dispose of
portfolio securities or take other action to satisfy
the percentage restriction. As a matter of fundamental
policy:
(1) The Fund may not borrow money or issue senior
securities, except as permitted under the 1940 Act;
(2) The Fund may not purchase or sell commodities,
unless acquired as a result of ownership of securities
or other instruments (but this shall not prevent the
Fund from purchasing or selling options, futures
contracts or other derivative instruments, or from
investing in securities or other instruments backed by
commodities);
(3) The Fund may not make loans, except to the extent
the Fund may be deemed to be making loans by purchasing
debt securities or entering into repurchase agreements,
and the Fund may lend its portfolio securities in an
amount not in excess of 33 1/3% of its total assets
(taken at market value);
(4) The Fund may not act as an underwriter of another
issuer's securities, except to the extent that, in
connection with the purchase and sale of portfolio
securities, it may be deemed to be an underwriter
within the meaning of the Securities Act;
(5) The Fund may not purchase or sell real estate,
unless acquired as a result of ownership of securities
or other instruments (but this shall not prohibit the
Fund from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged
in real estate activities); and
(6) The Fund may not purchase the securities of any
issuer if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of
issuers whose principal business activities are in the
same industry, except that the Fund will invest, under
normal market conditions, more than 25% of its total
assets in the securities of issuers in the "information
technology industry" (as defined by the Fund).
<PAGE>
INVESTMENT PRACTICES AND TECHNIQUES
The following provides a more detailed discussion of
certain of the securities that the Fund may purchase
and certain of the investment practices and portfolio
management techniques that the Fund may utilize.
a) U.S. Government Securities
The U.S. government securities in which the Fund may
invest are securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities.
Certain of these securities, including U.S. Treasury
bills, notes and bonds, and Federal Housing
Administration debentures, are supported by the full
faith and credit of the United States. Other U.S.
government securities issued or guaranteed by federal
agencies or government-sponsored enterprises that are
not supported by the full faith and credit of the
United States include obligations supported by the
right of the issuer to borrow from the U.S. Treasury,
such as obligations of Federal Home Loan Banks, and
obligations supported only by the credit of the agency
or instrumentality, such as Student Loan Marketing
Association securities.
b) Money Market Securities
The money market securities in which the Fund may
invest include (i) commercial paper rated A-1 or higher
by Standard & Poor's ("S&P") or Prime-I or higher by
Moody's Investor Service ("Moody's"), or if such
commercial paper is not rated, issued by companies
which have an outstanding debt issue rated AA or higher
by S&P or Aa or higher by Moody's, (ii) repurchase
agreements entered into with respect to U.S. government
securities which are secured by collateral at least
equal to the repurchase price and (iii) certificates of
deposit, bankers' acceptances and other short-term
obligations issued by domestic branches of U.S. banks
and savings and loan associations.
c) Leverage and Borrowings
The Fund is authorized to borrow money in an amount up
to 33 1/3% of its total assets (measured by adding the
amount borrowed to the Fund's other assets). This
percentage restriction must be satisfied at all times.
The Fund's borrowings create an opportunity for greater
return to the Fund and, ultimately, the Fund's
shareholders, but at the same time increase exposure to
losses. In addition, interest payments and fees paid
by the Fund on any borrowings may offset or exceed the
return earned on borrowed funds. The Fund currently
intends to borrow money only for temporary,
extraordinary or emergency purposes. While the Fund
has no current intention of doing so, the Fund may also
borrow for the purpose of financing additional
investments, or purchasing the Fund's own Common Stock
in the open market in an attempt to increase the market
price of such stock when it is trading at a discount to
net asset value.
d) Derivative Transactions
The Fund may purchase and sell "call" and "put" options
on securities and securities indices which are listed
on a national securities exchange or in the over-the-
counter markets as a means of achieving additional
return or hedging the value of the Fund's portfolio.
The Fund will not write (i.e., sell) options in an
amount exceeding 10% of its total assets, or invest
(i.e., purchase) more than 10% of its total assets in
options.
A "call" option is a contract that gives the holder of
the option the right to buy from the writer (i.e., the
seller) of the option, in return for a premium paid,
the security underlying the option at a specified
exercise price at any time during the term of the
option. The writer of the call option has the
obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price
during the option period. A "put" option is a contract
that gives the holder of the option the right to sell
to the writer (i.e., the seller), in return for the
premium, the underlying security at a specified price
during the term of the option. The writer of the put
option, who receives the premium, has the obligation to
buy the underlying security upon exercise, at the
exercise price during the option period.
Options on securities indices work in much the same
manner as options on securities discussed above, except
that delivery of cash rather than the underlying
securities is made. Cash settled index options do not
relate to a particular
<PAGE>
number of shares. Rather, the
"size" of a cash-settled index option contract is
determined by the index "multiplier." A stock index
fluctuates with changes in the market values of the
stocks included in the index, although due to
differences in trading times and days or other factors,
a stock index option may not reflect actual market
values of the underlying securities in the index at
certain times.
If the Fund has written an option, it may terminate its
obligation by effecting a closing purchase transaction.
This is accomplished by purchasing an option of the
same series as the option previously written. There
can be no assurance that a closing purchase transaction
can be effected when the Fund so desires. An exchange-
traded option may be closed out only on an exchange
which provides a secondary market for an option of the
same series. Although the Fund will generally purchase
or write those options for which there appears to be a
secondary market, there can be no assurance that a
liquid secondary market will exist for any particular
option.
In addition to purchasing and selling options, the Fund
may invest in futures and options on futures. Please
see the SAI for more information.
e) American Depositary Receipts
The Fund's investment in equity securities may include
investments in ADRs. ADRs, which are typically issued
by a U.S. financial institution (a "depositary"),
evidence ownership interests in a security or pool of
securities issued by a foreign company which have been
deposited with a depositary. ADRs are denominated in
U.S. dollars and trade in the U.S. securities markets.
Investments in ADRs may entail the special risks of
international investment, including currency exchange
fluctuations, government regulations and the potential
for political and economic instability.
f) Illiquid Securities
The Fund may invest up to 15% of its net assets in
illiquid securities, which are securities that are not
readily marketable. When purchasing illiquid
securities, the Fund will endeavor to obtain the right
to registration at the expense of the issuer.
Generally, there will be a lapse of time between the
Fund's decision to sell any such security and the
registration of the security permitting sale.
Investing in such securities may have the effect of
decreasing the level of liquidity in the Fund's
investment portfolio during such period.
g) Closed-End Investment Companies
The Fund may also invest in shares of closed-end
investment companies that are trading at a discount to
net asset value, or at a premium to net asset value if
LCMCM believes that such investments will further the
Fund's investment objective. Closed-end funds in which
the Fund may invest need not have a policy of investing
in the Internet. There can be no assurance that the
market discount on shares of any closed-end fund
purchased by the Fund will ever decrease. In fact, it
is possible that the market discount may increase and
the Fund may suffer realized or unrealized capital
losses due to further decline in the market price of
the securities of such closed-end funds. Similarly,
there can be no assurance that the market price of any
shares of a closed-end fund purchased by the Fund at a
premium will not decrease subsequent to a purchase of
such shares by the Fund. Under the 1940 Act, the Fund
may invest only up to 10% of its total assets in shares
of other investment companies and only up to 5% of its
total assets in any one investment company, provided
the investment does not represent more than 3% of the
voting stock of the acquired investment company at the
time such shares are purchased. Any investment by the
Fund in a closed-end fund will result in increased
transaction costs, since the closed-end fund will have
its own fees and expenses (including its own management
fees) which will be passed along to its investors,
including the Fund.
h) Lending Portfolio Securities
The Fund may lend portfolio securities with a value not
exceeding 33 1/3% of the Fund's total assets to brokers
or dealers, banks or other institutional borrowers of
securities as a means of earning income. In return,
the Fund will receive collateral in cash or securities
issued or guaranteed by the U.S. government. Such
collateral will be maintained at all times in an amount
equal to at least 100% of the current market value of
the loaned securities. The purpose of such securities
lending is to permit the borrower to use such
securities for delivery to purchasers when
<PAGE>
the borrower has sold short. The Fund will continue to receive the
equivalent of the interest or dividends paid by the
issuer of the securities lent, and the Fund may also
receive interest on the investment of the collateral,
or a fee from the borrower as compensation for the
loan. The Fund may pay reasonable custodial and
administrative fees in connection with a loan. The
Fund will retain the right to call, upon notice, the
lent securities. While there may be delays in recovery
or even loss of right in collateral should the borrower
fail financially, LCMCM will review the
creditworthiness of the entities to which such loans
are made to evaluate those risks.
i) Repurchase Agreements
The Fund may acquire U.S. government securities and
simultaneously enter into so-called "repurchase
agreements" with the settler, which may be a member
bank of the Federal Reserve System or primary dealers
in U.S. government securities, whereby the settler
agrees to repurchase such securities at the Fund's cost
plus interest within a specified time (usually within
seven days). Repurchase agreements offer the Fund a
means of generating income from excess cash that the
Fund might otherwise hold. The Fund's repurchase
agreements will provide that the collateral underlying
the repurchase agreement will always be at least equal
to the repurchase price. Repurchase agreements are
deemed to be loans under the 1940 Act. In all cases,
LCMCM must be satisfied with the creditworthiness of
the other party to the agreement before entering into a
repurchase agreement on behalf of the Fund. In the
event of the bankruptcy (or other insolvency
proceeding) of the other party to a repurchase
agreement, the Fund might experience delays in securing
its cash. To the extent that, in the meantime, the
value of the securities the Fund purchases may have
declined, the Fund could experience a loss.
j) Reverse Repurchase Agreements
From time to time, the Fund may enter into reverse
repurchase agreements whereby the Fund sells a security
and simultaneously obtains the commitment of the
purchaser, which may be a commercial bank or a broker
or dealer, to sell the security back to the Fund at an
agreed upon price on an agreed upon date. The Fund
generally retains the right to interest and principal
payments on the security. Since the Fund receives cash
upon entering into a reverse repurchase agreement, it
may be considered a borrowing. When required by SEC
guidelines, the Fund will set aside permissible liquid
assets in a segregated account to secure its
obligations to repurchase the security.
k) When-Issued and Delayed-Delivery Securities
The Fund may purchase securities on a "when-issued" or
"delayed-delivery" basis whereby the Fund purchases a
security with delivery of the security and payment
deferred to a future date. Normally, the settlement
date occurs within 45 days of the purchase. During the
period between purchases and settlement, no payment is
made by the Fund to the issuer, and no interest is
accrued on debt securities nor is dividend income
earned on equity securities. Forward commitments
involve a risk of loss if the value of the security to
be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in the
value of the Fund's other assets. While when-issued or
delayed-delivery securities may be sold prior to the
settlement date, the Fund intends to purchase such
securities with the intent of actually acquiring them.
The Fund will maintain liquid securities equal in value
to such securities, which will either mature or, if
necessary, be sold on or before the settlement date to
pay for the when-issued or delayed-delivery securities.
There is no restriction on the percentage of the Fund's
assets that may be invested in when-issued or delayed-
delivery securities.
l) Concentration
Under normal market conditions, the Fund intends to
invest more than 25% of its total assets in the
securities of issuers in the information technology
industry. This practice involves an increased risk of
loss to the Fund should the market value of securities
in this industry decline.
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
The purchase of shares of Common Stock involves a
number of significant risks. As a result, there can be
no assurance that the Fund will achieve its investment
objective. In addition to the other information
contained in this Prospectus, you should consider the
following risk factors in evaluating an investment in
the Common Stock.
a) No Prior History; Discount from Net Asset Value
The Fund is a newly organized, closed-end management
investment company with no operating history. Prior to
this offering, there has been no public market for the
Fund's shares. Shares of closed-end management
investment companies frequently trade at a discount
from their net asset value. This risk may be greater
for investors expecting to sell their shares in a
relatively short period after completion of the public
offering. Accordingly, the Common Stock is designed
primarily for long-term investors and should not be
considered a vehicle for short-term trading purposes.
The net asset value of the Fund's shares will fluctuate
with price changes of its portfolio securities.
b) No Prior Investment Record at LCMCM
Although the portfolio manager of the Fund, Barry
J. Glasgow, has more than seven years of prior
investment management experience as a portfolio
manager for private accounts, he has no prior
investment record with LCMCM and he has no prior
experience managing an investment company.
Likewise, LCMCM is a newly organized investment
adviser which, prior to the organization of the
Fund, had not served as an investment adviser to
any other investment company.
c) Non-Diversified Status
The Fund is classified as a "non-diversified"
investment management company under the 1940 Act, which
means that the Fund may invest a greater portion of its
assets in a limited number of issuers than would be the
case were the Fund classified as a "diversified"
investment management company. Relative to a
"diversified" investment management company, changes in
the financial results and/or condition or market
valuation of a single issuer may cause greater
fluctuations in net asset value per share.
d) Volatility of Investments
The market prices of the securities in which the Fund
intends to invest are likely to be highly volatile and
could be subject to wide fluctuations which would
result in similar fluctuations in the net asset value
of the Fund's Common Stock. The reason for this
volatility is that the stock markets, and in particular
the Nasdaq National Market, have experienced extreme
price and volume fluctuations that have particularly
affected the market prices of equity securities of many
technology companies and that have often been unrelated
or disproportionate to the operating performance of
such companies. As a result, the trading prices of
many technology companies' stocks are at or near
historical highs and reflect price-to-earnings ratios
substantially above historical levels. There can be no
assurance that these trading prices and price-to-
earnings ratios will be sustained. In the event of a
decrease in such prices or ratios, the net asset value
of the Fund's Common Stock (and the value of your
investment) will likewise fall.
e) Concentration in the Information Technology Industry
Because the Fund's investments will be concentrated in
the information technology industry, the net asset
value of its shares of Common Stock will be especially
influenced by factors specific to that industry and may
fluctuate more widely than the value of shares in a
portfolio investing in a broader range of industries.
For example, many products and services are subject to
risks of rapid obsolescence caused by technological
advances.
In addition, competitive pressures may have a
significant effect on the financial condition of
companies in this industry. If information technology
continues to advance at an accelerated rate, and the
number of companies and product offerings continues to
expand, these companies could become increasingly
sensitive to short product cycles and aggressive
pricing.
<PAGE>
Finally, many of the activities of companies in the
information technology industry are highly capital-
intensive, and it is possible that companies which
invest substantial amounts of capital in new products
and services will be unable to recover their
investments or otherwise meet their obligations.
f) Smaller Companies
The Fund expects to invest a substantial portion of its
assets in securities issued by smaller companies (both
as to revenues and stock market capitalization). Such
companies may offer greater opportunities for capital
appreciation than larger companies, but also involve
certain special risks. Such companies may have limited
product lines, markets and/or financial resources, and
may be dependent on a limited management group.
While the markets in securities of such companies have
grown rapidly in recent years, such securities may
trade less frequently and in smaller volume than more
widely-held securities. The market prices of such
securities may fluctuate more sharply than those of
other securities, and the Fund may experience some
difficulty in establishing and/or closing out positions
in these securities at prevailing market prices.
There may be less publicly-available information about
the issuers of these securities or less market interest
in such securities than those of larger companies, and
it may take a longer time for the market prices of such
securities to reflect the full value of the issuer's
underlying earnings potential.
g) Investments in Equity Securities
Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity securities.
All equity securities are subject to price volatility,
potential bankruptcy of the issuer, general movements
in markets, overall economic conditions and perceptions
of potential growth. The equity securities of small-
capitalization companies are particularly susceptible
to these characteristics.
h) Illiquid Securities
The Fund may invest in securities for which no readily
available market exists, which are restricted as to
resale or otherwise are highly illiquid. The ability
of the Fund to dispose of such securities may be
greatly limited, and the Fund may have to continue to
hold such securities during periods when LCMCM would
otherwise have sold the
securities. This, in turn, could cause the Fund to
sell other investments and/or engage in borrowing
transactions if necessary to raise cash to meet its
obligations.
i) Anti-Takeover Provisions
The Fund's Articles of Incorporation contain certain
anti-takeover provisions that may have the effect of
inhibiting the Fund's possible conversion to open-end
status and limiting the ability of other persons to
acquire control of the Fund. In certain circumstances,
these provisions might also inhibit the ability of
shareholders to sell their shares of Common Stock at a
premium over prevailing market prices. The Fund's
Board of Directors has determined that these provisions
are in the best interests of shareholders generally.
YEAR 2000 ISSUE
Like other investment companies, financial and business
organizations and individuals around the world, the
Fund could be adversely affected if the computer
systems used by the Fund's service providers do not
properly process and calculate date-related information
and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Fund
has made compliance with the Year 200 Problem a high
priority. Accordingly, the Fund is taking steps it
believes are reasonably designed to address the Year
2000 Problem, focusing primarily on the computer
software systems of its major service providers. In
this regard, these service providers have represented
to the Fund that they do not currently anticipate that
the Year 2000 Problem will have a material impact on
their ability to continue to fulfill their duties as
service providers to the Fund. With respect to the
companies in which the Fund invests, the Fund cannot
make any assurances as to their Year 2000 compliance
efforts. In the event one or more of these companies
is not Year 2000 compliant, the Fund may be adversely
affected.
<PAGE>
MANAGEMENT OF THE FUND
Directors & Officers
The business and affairs of the Fund are managed under
the direction of the Fund's Board of Directors, and the
day-to-day operations of the Fund are conducted through
or under the direction of the Fund's officers. The SAI
contains information as to the identity and background
of the Fund's directors and officers.
Investment Adviser
The Board of Directors of the Fund has entered
into an Investment Advisory Agreement with LCM
Capital Management, Inc. ("LCMCM") under which
LCMCM manages the Fund's investments and business
affairs, subject to the supervision of the Board
of Directors. LCMCM was organized on June 4, 1998
as an Illinois Corporation, and on February 5,
1999, became a registered investment adviser under
the Advisers Act. LCMCM is controlled by LaSalle
St. Capital Markets, Inc. (an investment banking,
research and consulting firm), which, in turn, is
controlled equally by McDermott-LaSalle, Inc.
(which also controls the Representative and is
itself controlled by Jack McDermott, the Chairman
of the Board of LCMCM) and Michael R. Grady, Jr.
(who is an officer and director of the Fund).
LCMCM has no prior experience managing investment
companies. The address of LCMCM is 810 West
Washington Street, Chicago, Illinois 60607, and
its telephone number is (312) 705-3028.
The Fund's portfolio manager is Barry J. Glasgow, Chief
Investment Officer and Secretary of LCMCM. From March
1991 to June 1998, Mr. Glasgow served as the managing
partner and portfolio manager of Gonski & Glasgow
Investments, a registered investment adviser, with
responsibility for investment direction, portfolio
management, operations, computer software and
compliance (i.e., filings with state and federal
authorities). Mr. Glasgow has no prior experience
managing investment companies.
Investment Advisory Agreement
Pursuant to the Investment Advisory Agreement, dated as
of _________, 1999, LCMCM, under the supervision of the
Fund's Board of Directors: (i) provides a continuous
investment program for the Fund's portfolio, (ii)
provides investment research, and from this research,
makes and executes recommendations for the purchase and
sale of securities, (iii) provides all facilities and
personnel, including officers, required for the Fund's
administrative management and (iv) pays the salaries
and expenses of all officers and employees of the Fund,
and all directors of the Fund who are affiliated with
LCMCM or its affiliates.
As compensation for its services, and the related
expenses borne by LCMCM, the Fund pays LCMCM a fee,
computed daily and payable monthly, equal to, on an
annual basis, 1.0% of the Fund's average daily net
assets.
In addition to the fees payable to LCMCM, the Fund pays
all other expenses incurred in the operation of the
Fund including, but not limited to, direct charges
relating to the purchase and sale of portfolio
securities; interest charges; fees and expenses of
attorneys and auditors; taxes and governmental fees;
costs of stock certificates and any other expenses
(including clerical expenses) of issuance, sale or
repurchase of the Fund's Common Stock; expenses in
connection with the Fund's Distribution Reinvestment
Plan; membership fees in trade associations; expenses
of maintaining any stock exchange listings of the
Fund's Common Stock; expenses of printing and
distributing reports, prospectuses, notices and proxy
materials; expenses of corporate data processing and
related services; shareholder record keeping and
shareholder account services (including salaries of
shareholder relations personnel); expenses of printing
and filing reports and other documents filed with
governmental agencies; expenses of shareholders'
meetings; fees and disbursements of the Fund's
administrator, fund accountant, transfer agent and
custodian; expenses of disbursing dividends and
distributions; fees, expenses and out-of-pocket costs
of directors of the Fund who are not interested persons
of LCMCM; insurance premiums and litigation costs; and
indemnification. The Fund is not, however, responsible
for its organizational fees and expenses; rather, these
fees will be paid by the Representative from its own
assets.
<PAGE>
The Investment Advisory Agreement contains provisions
relating to the selection of securities brokers to
effect the portfolio transactions of the Fund. Under
these provisions, LCMCM may (i) direct Fund portfolio
brokerage to the Representative, although LCMCM has no
current intention to do so, and (ii) pay commissions to
brokers other than the Representative which are higher
than might be charged by another qualified broker to
obtain brokerage and/or research services considered by
LCMCM to be useful or desirable for its investment
management of the Fund.
The SAI contains more information about the Investment
Advisory Agreement, including a more complete
description of the brokerage practices of the Fund.
Custodian
The Fund's custodian is Firstar Bank Milwaukee, N.A.,
615 East Michigan Street, Milwaukee, Wisconsin 53202.
Transfer Agent, Dividend Paying Agent, Registrar and Fund Accountant
Firstar Mutual Fund Services, L.L.C. ("Firstar"), which
is an affiliate of Firstar Bank and which is located at
the same address, serves as the Fund's transfer agent,
dividend paying agent, registrar and fund accountant.
Administrator
Firstar also serves as the Fund's administrator
pursuant to a Fund Administration Servicing Agreement
dated __________,1999. In this capacity, Firstar
performs certain compliance and tax reporting functions
for the Fund. For these services, the Fund pays
Firstar a monthly fee computed at an annual rate as
follows: (i) for the first $200 million of net assets,
0.06% of the Fund's average daily net assets during the
previous month, (ii) for the next $500 million of net
assets, 0.05% of the Fund's average daily net assets
during the previous month and (iii) for net assets in
excess of $700 million, 0.03% of the Fund's average
daily net assets during the previous month, subject to
a minimum annual fee of $35,000. Firstar is also
entitled to reimbursement for certain out-of-pocket
expenses.
DESCRIPTION OF COMMON STOCK
The Fund, which was incorporated under the laws of the
State of Maryland on August 24, 1998, is authorized to
issue 500,000,000 shares of capital stock, par value
$0.01 per share, all of which shares are initially
classified as Common Stock. The Board of Directors is
authorized, however, to classify or reclassify any
unissued shares of capital stock by setting or changing
the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption.
The shares of Common Stock, when issued, will be fully
paid and non-assessable. All shares of Common Stock
are equal as to dividends, assets and voting privileges
and have no conversion, preemptive, subscription or
exchange rights. In the event of liquidation, each
share of Common Stock is entitled to its proportion of
the Fund's assets after payment of debts and expenses.
Shareholders are entitled to one vote per share. All
voting rights for directors are non-cumulative, which
means that holders of more than 50% of the shares of
Common Stock can elect 100% of the directors if they
choose to do so, and in such an event, the holders of
the remaining shares of Common Stock will not be able
to elect any directors.
The Fund has no present intention of offering
additional shares beyond this offering (and the
Concurrent Offering), except that additional shares may
be issued under the Distribution Reinvestment Plan.
See "Distributions; Distribution Reinvestment Plan."
Other offerings of Common Stock, if made, will require
approval of the Fund's Board of Directors. Any
additional offerings will be subject to the
requirements of the 1940 Act that shares may not be
sold at a price below the then current net asset value
(exclusive of underwriting discounts and commissions)
except in certain circumstances, including in
connection with an offering to existing shareholders or
with the consent of a majority of the Fund's
outstanding voting securities.
The Fund is not required to hold annual shareholders'
meetings and does not intend to hold such meetings.
However, under Maryland law and the By-Laws of the
Fund, the Fund will call a special meeting of its
shareholders upon the written request of shareholders
entitled to cast at least 25% of all the votes at such
meeting. Any request for such a special meeting must
state the purpose of the meeting and the matters
proposed to be acted on at it. The
<PAGE>
Secretary of the Fund will (i) inform the shareholders who made the
request of the reasonably estimated cost of preparing
and mailing a notice of the meeting, and (ii) on
payment of these costs to the Fund, notify each
shareholder entitled to notice of the meeting.
Notwithstanding the above, under Maryland law, unless
requested by shareholders entitled to cast a majority
of all the votes entitled to be cast at a meeting, a
special meeting need not be called to consider any
matter which is substantially the same as a matter
voted on at any special meeting of the shareholders
held during the preceding 12 months. Shareholders'
meetings must be held in order to approve any change in
a fundamental investment policy of the Fund. See
"Investment Restrictions."
DISTRIBUTIONS; DISTRIBUTION REINVESTMENT PLAN
The Fund's policy is to distribute to
shareholders, on an annual basis, substantially
all of its net investment income, and to
distribute, at least annually, any net realized
capital gains. If, for any calendar year, the
total distributions exceed net investment income
and net realized capital gains, the excess,
distributed from the Fund's assets, will generally
be treated as a tax-free return of capital (up to
the amount of the shareholder's tax basis in his
or her shares). The amount treated as a tax-free
return of capital will reduce a shareholder's
adjusted basis in his or her shares of Common
Stock, thereby increasing his or her potential
gain or reducing his or her potential loss on the
sale of such shares. Such excess, however, will
be treated first as ordinary income up to the
amount of the Fund's current and accumulated
earnings and profits, and then as return of
capital and capital gains as set forth above.
In the event the Fund distributes amounts in excess of
its net investment income and net realized capital
gains, such distributions will decrease the Fund's
total assets and, therefore, have the likely effect of
increasing the Fund's expense ratio. In addition, in
order to make such distributions, the Fund may have to
sell a portion of its investment portfolio at a time
when independent investment judgment might not dictate
such action.
Shareholders may elect to receive all
distributions in cash paid by check. Pursuant to
the Distribution Reinvestment Plan (the "Plan"),
shareholders not making such election will have
all such amounts automatically reinvested in whole
or fractional shares of Common Stock of the Fund,
as the case may be.
If the directors of the Fund declare a distribution
payable either in shares of Common Stock or in cash, as
shareholders may have elected, then non-participants in
the Plan will receive cash and participants in the Plan
will receive the equivalent in shares determined as
follows: whenever the market price per share of Common
Stock on the valuation date is equal to or exceeds the
net asset value per share on that date, the Fund will
issue new shares to participants at net asset value;
provided, however, if the net asset value is less than
95% of the market price on the valuation date, then
such shares will be issued at 95% of the market price.
The valuation date will be the distribution payment
date, or, if that date is not an ASE trading day, the
next preceding trading day. If the net asset value
exceeds the market price on the valuation date,
Firstar, in its capacity as dividend paying agent, will
purchase shares of Common Stock in the open market, on
the ASE or elsewhere, for the participants' accounts
on, or shortly after, the payment date. If, before
such open market purchases can be made, the market
price exceeds the net asset value of the shares, open
market purchases will cease and the Fund will issue the
remaining shares at a price equal to the higher of net
asset value or 95% of the then market price.
Firstar maintains all shareholder accounts in the Plan
and furnishes written confirmations of all transactions
in an account, including information needed by
shareholders for personal and tax records. Shares in
the account of each Plan participant will be held by
Firstar in non-certificated form in the name of the
participant.
There is no charge to participants for reinvesting
distributions. Firstar's fees for handling the
reinvestment of distributions will be paid by the Fund.
There will be no brokerage charges with respect to
shares issued directly by the Fund as a result of
distributions payable either in stock or in cash.
However, each participant will pay a pro-rata share of
brokerage commissions incurred with respect to the
Firstar's open market purchases in connection with the
reinvestment of distributions. Brokerage charges for
purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, as
Firstar will be purchasing shares for all participants
in blocks and prorating the lower commission thus
attainable. Firstar may use its affiliates and/or
affiliates of LCMCM, including the Representative, for
all trading activity relative to the Plan. Such
affiliates will receive a commission in connection with
such trading transactions.
<PAGE>
If a shareholder desires to discontinue his or her
participation in the Plan, the shareholder will
receive a certificate for the appropriate number
of full shares in the account, along with a check
in payment for any fractional shares.
The automatic reinvestment of distributions will
not relieve participants of any income tax that
may be payable on such distributions. See
"Federal Taxation of the Fund and its
Distributions."
Experience under the Plan may indicate that changes in
the Plan are desirable. Accordingly, the Fund reserves
the right to amend the Plan, provided participants are
given written notice at least 30 days prior to the
effective date thereof. The Fund may also terminate
the Plan as applied to any distribution paid subsequent
to written notice of the termination sent to
participants at least 30 days before the record date
for such distribution. For more information about the
Plan, please call the Fund at (312) 705-3028.
ANTI-TAKEOVER PROVISIONS
The Fund currently has provisions in its Articles of
Incorporation which could have the effect of limiting
(i) the ability of other entities or persons to acquire
control of the Fund, (ii) the Fund's freedom to engage
in certain transactions or (iii) the ability of the
Fund's directors or shareholders to amend the Articles
of Incorporation or effectuate changes in the Fund's
management. These provisions, which are described
below, may be regarded as "anti-takeover" provisions.
First, directors of the Fund may be removed from
office, with or without cause, only by the affirmative
vote of the holders of at least 66 2/3% of the shares
of the Fund entitled to be voted for the election of
directors. Second, the affirmative vote of the holders
of 66 2/3% of the outstanding shares of the Fund is
required to amend certain provisions of the Articles of
Incorporation. Third, the affirmative vote of the
holders of 66 2/3% of the outstanding shares of the
Fund is required to authorize the conversion of the
Fund from a closed-end to an open-end investment
company, or generally to authorize any of the following
transactions:
(i) a merger or consolidation or statutory
share exchange of the Fund with or into any other corporation;
(ii) a sale of all or substantially all of the
Fund's assets (other than in the regular course of the
Fund's investment activities); or
(iii) a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or
authorized by the affirmative vote of at least two-
thirds of the total number of directors fixed in
accordance with the By-Laws, in which case the
affirmative vote of a majority of the Fund's
outstanding shares is required.
The 66 2/3% voting requirements described above, which
are greater than the minimum requirements under
Maryland law or the 1940 Act, can only be changed by a
similar 66 2/3% vote. Reference is made to the Articles
of Incorporation of the Fund, on file with the SEC, for
the full text of these provisions.
The provisions of the Articles of Incorporation
described above could have the effect of depriving Fund
shareholders of opportunities to sell their shares at a
premium over prevailing market prices by discouraging a
third party from seeking to obtain control of the Fund
in a tender offer or similar transaction.
SHARE PURCHASES AND TENDERS
Although shares of closed-end investment companies
sometimes trade at premiums over net asset value, they
frequently trade at discounts. The Fund cannot predict
whether the Common Stock will trade above, at or below
net asset value. The Fund believes that if the Common
Stock trades at a discount to net asset value, the
share price will not adequately reflect the value of
the Fund to shareholders and that shareholders'
financial interests would be furthered if the market
price of the Common Stock more closely reflected net
asset value. For these reasons, the Board of Directors
currently intends to consider from time to time
repurchases of Common Stock on the open market when the
shares are trading at a discount from net asset value,
and the Fund may engage in borrowings to finance or
refinance such repurchase transactions. In addition,
the Board of Directors may consider, from time to time,
but not more frequently than once every two years,
making an offer to each shareholder of record to purchase
<PAGE>
at net asset value shares of Common Stock
owned by the shareholder. The Fund does not have a
fundamental policy with respect to the repurchase of
Common Stock and these repurchases are discretionary.
Before authorizing any repurchase of Common Stock or
tender offer to the Common Stock shareholders, the
Fund's Board of Directors would consider all relevant
factors, including the market price of the Common
Stock, its net asset value per share, the liquidity of
the Fund's securities positions, the effect an offer to
repurchase might have on the Fund or its shareholders
and relevant market considerations. Any offer would be
made in accordance with the requirements of the 1940
Act and the Securities Exchange Act of 1934, as amended
(the "Exchange Act.") Although the matter will be
subject to the review of the Board of Directors at the
time, a tender offer is not expected to be made if the
anticipated benefit to shareholders and the Fund would
not be commensurate with the anticipated cost to the
Fund, or if the number of shares expected to be
tendered would not be material.
When a tender offer is authorized to be made by the
Fund's Board of Directors, it will be an offer to
purchase at a price equal to the net asset value of all
(but not less than all) of the shares of Common Stock
owned by a shareholder (or attributed to the
shareholder for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the
"Code")). A shareholder who tenders all Common Stock
shares owned or considered owned by him or her, as
required, will realize a taxable gain or loss depending
upon such person's basis in such shares.
The policy of the Fund's Board of Directors with
respect to tender offers and repurchases, which may be
changed by the Board of Directors, is that the Fund
will not accept tenders or effect repurchases if (i)
those transactions, if consummated, would (a) result in
the exclusion of the Common Stock from the ASE, or (b)
impair the Fund's status as a regulated investment
company under the Code; (ii) the Fund would not be able
to liquidate securities to repurchase Common Stock in
an orderly manner that is consistent with the Fund's
investment objective and policies; or (iii) there is,
in the Board's judgment, any material (a) legal action
or proceeding instituted or threatened challenging the
transactions or otherwise materially affecting the
Fund, (b) suspension of or limitation on prices for
trading securities generally on the ASE or any exchange
on which securities held by the Fund are traded, (c)
declaration of a banking moratorium by federal or state
authorities or any suspension of payment by banks in
the United States, (d) limitation affecting the Fund or
issuers of securities held by the Fund imposed by
federal, state or local authorities on the extension of
credit by lending institutions, (e) commencement of
war, armed hostilities or other international or
national calamity directly or indirectly involving the
United States or (f) other event or condition that
would have a material adverse effect on the Fund or its
shareholders if shares of Common Stock were
repurchased. The Board of Directors may modify these
conditions in light of experience.
FEDERAL TAXATION OF THE FUND AND ITS DISTRIBUTIONS
The Fund intends to qualify and be treated as a
regulated investment company under the Code. The
Fund currently intends to distribute substantially
all of its net investment income annually, and to
distribute, at least annually, any net realized
capital gains, thereby avoiding the imposition on
the Fund of federal income and excise taxes on
such distributed income and gain. Such
distributions from net investment income will be
taxable as ordinary income to shareholders of the
Fund who are subject to tax, and the Fund's
capital gain distributions will be taxable as
capital gain to such shareholders.
Notwithstanding the above, the Fund may decide to
retain all or part of any net capital gains for
reinvestment.
After the end of each taxable year, the Fund will
notify shareholders of the federal income tax
status of any distributions, or deemed
distributions, made by the Fund during such year.
For a more detailed discussion of these matters,
see "Taxation of the Fund and its Distributions"
in the SAI.
NET ASSET VALUE
The net asset value of the Fund's shares of Common
Stock will be determined as of the close of regular
trading on the American Stock Exchange ("ASE") on each
day the ASE is open for trading by dividing the Fund's
total assets, less the Fund's total liabilities, by the
total number of shares outstanding. Net asset value
will be published weekly in a financial newspaper of
general circulation. Such data for closed-end funds is
usually published in the Monday editions of The Wall
Street Journal and Barron's. The Fund assumes no
responsibility for the accuracy of such data and does
not represent that The Wall Street Journal and/or
Barron's will continue to publish such data.
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions contained
in the Underwriting Agreement dated as of ____________,
1999, each Underwriter named below, for whom LaSalle
St. Securities, Inc. is acting as Representative, has
severally agreed to purchase, and the Fund has agreed
to sell to each such Underwriter, the number of shares
of Common Stock set forth opposite the name of each
such Underwriter:
Number of
Underwriter Shares
LaSalle St. Securities, Inc.
________
Total 1,500,000
The Underwriting Agreement provides that the
obligations of the Underwriters to pay for and accept
delivery of the shares of Common Stock offered hereby
are subject to the approval of certain legal matters by
counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all
shares of Common Stock offered hereby if any are taken.
The Underwriters propose to offer part of the shares of
Common Stock directly to the public at the public
offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at
a price which represents a concession not in excess of
$_______ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of
$_______ per share to certain other dealers. After the
initial offering of the shares of Common Stock to the
public, the public offering price and such concessions
may be changed by the Underwriters. The underwriting
discount of $0.55 per share is equal to 5.5% of the
initial offering price. You must pay for shares of
Common Stock purchased in this offering on or before
the third business day following the effective date of
this Prospectus. Each investor must purchase a minimum
of 200 shares of Common Stock in this offering.
The Fund has granted to the Underwriters an option,
exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional 225,000
shares of Common Stock to cover over-allotments, if
any, at the initial public offering price less the
underwriting discount.
The Representative will receive from the Fund a non-
accountable expense allowance in an amount equal to 1%
of the gross offering amount, or $150,000. The
Representative has, however, agreed to pay the
organizational and offering expenses of the Fund, which
are estimated to be $96,000 and which include all
filing fees, legal costs and other expenses in
connection with qualifying the shares of Common Stock
offered hereby (and in the Concurrent Offering) for
sale under the laws of such states as the
Representative may designate.
The Fund anticipates that the Underwriters or their
affiliates may, from time to time and subject to the
regulations set forth in the 1940 Act, act as brokers
or dealers in connection with the execution of the
Fund's securities transactions after the Underwriters
cease to act as underwriters of the Fund's Common
Stock.
The Fund and LCMCM have agreed to indemnify the
Underwriters against certain liabilities, including
liabilities under the Securities Act. However, such
indemnification is subject to the provisions of Section
17(i) of the 1940 Act which provides, in part, that no
agreement shall contain a provision which protects or
purports to protect an underwriter of an investment
company against any liability to such company or its
shareholders to which it would otherwise be subject due
to misfeasance, bad faith or gross negligence in the
performance of its duties, or reckless disregard of its
obligations and duties under such agreement.
In connection with this offering, the Underwriters may
purchase and sell the Common Stock in accordance with
Regulation M under the Exchange Act. These
transactions may include over-allotment and stabilizing
transactions. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the
Common Stock. The Underwriters may also impose a
penalty bid, whereby selling
<PAGE>
commissions otherwise
accruing to an Underwriter or selling group member in
respect of securities sold in the offering for their
account may be reclaimed if such securities are
repurchased by the Underwriters in stabilizing
transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common
Stock, which may be higher than the price that might
otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any
time. These transactions may be effected on the ASE,
in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market
for the Common Stock. Application will be made to list
the Common Stock on the ASE under the symbol "LCM."
The Representative is an affiliate of LCMCM, the Fund's
investment adviser. The Representative's principal
business address is 810 West Washington Boulevard.,
Chicago, Illinois 60607.
Concurrent with this offering, the Fund is offering an
additional 1,000,000 shares of Common Stock to
investors desiring to purchase 100,000 or more shares
at an initial public offering price of $9.65 per share.
The Representative will act as lead representative of a
group of underwriters in connection with the Concurrent
Offering. The minimum permitted investment by an
investor in the Concurrent Offering is 100,000 shares
of Common Stock. The proceeds to the Fund in both the
Concurrent Offering and the offering made hereby will
be $9.45 per share.
Delivery of 96.5% of the shares of Common Stock
purchased by an investor in the Concurrent Offering
will be made on or before the third business day
following the effective date of this Prospectus (the
"Delivered Shares"). The balance of such investor's
shares will be held in escrow and delivered to the
investor if the investor has held all of its Delivered
Shares for 90 days following the effective date of this
Prospectus or such shorter period as deemed appropriate
by the Representative (the "Escrowed Shares"). If an
investor fails to satisfy the holding period
requirement, as determined by the Representative, all
of the investor's Escrowed Shares will be forfeited by
the investor. The Escrowed Shares will instead be
delivered to the Representative, which will in turn
offer such shares for sale to other investors. This
forfeiture by an investor in the Concurrent Offering
will have the effect of increasing the purchase price
per share for the investor to $10.00.
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered
hereby will be passed on for the Fund by Godfrey &
Kahn, S.C., Milwaukee, Wisconsin. Godfrey & Kahn, S.C.
serves as counsel to the Fund. In addition, certain
legal matters will be passed upon for the Underwriters
by Sachnoff & Weaver Ltd., Chicago, Illinois.
EXPERTS
The Statement of Assets and Liabilities of the Fund as
of ____________, 1999 has been included herein and in
this Registration Statement in reliance on the report
of Ernst & Young, LLP, Chicago, Illinois, independent
accountants, appearing elsewhere herein and given on
the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Fund has filed with the SEC a Registration
Statement on Form N-2 under the Securities Act and
the 1940 Act with respect to the shares of Common
Stock offered by this Prospectus (as well as with
respect to the shares of Common Stock offered in
the Concurrent Offering). This Prospectus, which
is a part of the Registration Statement, does not
contain all the information set forth in the
Registration Statement or the exhibits thereto.
For further information regarding the Fund and the
Common Stock, reference is made to the
Registration Statement, including the exhibits
thereto, which may be obtained from the SEC as
specified below. In addition, as of the effective
date of this Prospectus, the Fund will be subject
to the informational requirements of the Exchange
Act and the 1940 Act, and, in accordance
therewith, will file reports, proxy statements and
other information with the SEC.
The reports, proxy statements and other
information filed by the Fund with the SEC can be
inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549,
and at its Regional Offices located at 7 World
Trade Center, Room 1300, New York, New York 10048
and Northwest Atrium Center, 500 West Madison
Street, Room 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from
the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC maintains a web site at
http://www.sec.gov containing reports, proxy
statements and other information regarding
registrants, including the Fund, that file
electronically with the SEC. Application will be
made to list the Fund's Common Stock on the ASE.
Once listed, reports, proxy statements and other
information concerning the Fund, and filed with
the SEC by the Fund, can be inspected at the
offices of the American Stock Exchange, 86 Trinity
Place, New York, New York 10006-1881.
REPORTS TO SHAREHOLDERS
The Fund will furnish to its shareholders annual
reports containing audited financial statements,
periodic unaudited reports containing financial
statements and such other periodic reports as it
may determine to furnish or as may be required by law.
STATEMENT OF ASSETS AND LIABILITIES OF THE FUND
[insert audited balance sheet and notes]
<PAGE>
THE FOLLOWING IS THE TABLE OF CONTENTS CONTAINED IN THE STATEMENT OF
ADDITIONAL INFORMATION FILED AS PART OF THE FUND'S
REGISTRATION STATEMENT
TABLE OF CONTENTS
OF THE
STATEMENT OF ADDITIONAL INFORMATION
PAGE
Investment Objective and Policies SAI-3
Investment Practices and Techniques SAI-4
Management SAI-12
Principal Shareholders SAI-14
Investment Advisory and Other Services SAI-14
Portfolio Transactions and Brokerage Allocation SAI-15
Taxation of the Fund and its Distributions SAI-16
Financial Statements SAI-18
<PAGE>
TABLE OF CONTENTS OF THE PROSPECTUS
Page
PROSPECTUS SUMMARY 3
FEES AND EXPENSES 6
USE OF PROCEEDS 6
THE FUND 7
INVESTMENT OBJECTIVE AND POLICIES 7
INVESTMENT RESTRICTIONS 9
INVESTMENT PRACTICES AND TECHNIQUES 10
RISK FACTORS AND SPECIAL CONSIDERATIONS 13
YEAR 2000 ISSUE 14
MANAGEMENT OF THE FUND 15
DESCRIPTION OF COMMON STOCK 16
DISTRIBUTIONS; DISTRIBUTION REINVESTMENT PLAN 17
ANTI-TAKEOVER PROVISIONS 18
SHARE PURCHASES AND TENDERS 18
FEDERAL TAXATION OF THE FUND AND ITS DISTRIBUTIONS 19
NET ASSET VALUE 19
UNDERWRITING 20
LEGAL MATTERS 22
EXPERTS 22
ADDITIONAL INFORMATION 22
REPORTS TO SHAREHOLDERS 22
STATEMENT OF ASSETS AND LIABILITIES OF THE FUND 22
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION 23
Until _______________, 1999, all dealers that effect
transactions in these securities, whether or not
participating in this offering, may be required to
deliver a Prospectus. This is in addition to the
dealers' obligation to deliver a Prospectus when acting
as underwriters and with respect to their unsold
allotments or subscriptions.
You should rely only on the information contained in
this Prospectus. The Fund has not authorized anyone to
provide you with different information. The Fund is
not making an offer of these securities in any state
where the offer is not permitted. You should not
assume that the information contained in this
Prospectus is accurate as of any date other than the
date on the front of this Prospectus.
<PAGE>
PROSPECTUS
dated ____________, 1999
Subject to Completion, Dated May __, 1999
The information in this Prospectus is not complete
and may be changed. The Fund may not sell these
securities until the Registration Statement filed
with the Securities and Exchange Commission is
effective. This Prospectus is not an offer to
sell these securities and it is not soliciting an
offer to buy these securities in any state where
the offer or sale is not permitted.
1,000,000 SHARES
LCM INTERNET GROWTH FUND, INC.
COMMON STOCK ($.01 PAR VALUE)
The LCM Internet Growth Fund, Inc. (the "Fund"), which
is a newly organized, non-diversified, closed-end
management investment company, is offering an
aggregate of 1,000,000 shares of common stock, $.01
par value per share (the "Common Stock"). The Fund's
investment objective is to seek capital appreciation
by investing in a portfolio consisting primarily of
equity securities issued by companies that the Fund's
investment adviser believes will benefit from growth
of the Internet. Current dividend income is not an
investment consideration. Under normal market
conditions, the Fund will invest at least 65% of its
total assets in the equity securities of companies
that derive (or expect to derive) a substantial
portion of their revenues from providing
infrastructure, content and e-commerce products and/or
services designed for Internet use. There can be no
assurance that the Fund's investment objective will be
achieved. LCM Capital Management, Inc. ("LCMCM") will
serve as the investment adviser to the Fund. The
address of the Fund is 810 West Washington Boulevard,
Chicago, Illinois 60607, and the Fund's telephone
number is (312) 705-3028.
These securities involve a high degree of risk. Prior to
this offering, there has been no public market for the
Fund's shares. Equity securities of closed-end funds have
frequently traded at discounts from their net asset values
and initial offering prices. This risk may be greater for
investors expecting to sell shares of a closed-end fund
soon after completion of an initial public offering of such
shares. For a discussion of other risks that should be
considered by potential investors, see "Risk Factors and
Special Considerations."
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved
these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary
is a criminal offense.
Price to Underwriting Proceeds to
Public (1) Discount(2) Fund (3)
Per Share $9.65 $0.20 $9.45
Total $9,650,000.00 $200,000.00 $9,450,000.00
(1) The Common Stock is being offered to investors
desiring to purchase 100,000 shares or more at an initial
public offering price of $9.65 per share (shares
purchased are subject to certain holding period
requirements). See "Underwriting."
(2) The Fund and LCMCM have agreed to indemnify the
Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended
("Securities Act"). See "Underwriting."
(3) Before deducting a non-accountable expense allowance
payable to LaSalle St. Securities, Inc., the
representative of the Underwriters (the
"Representative"), in an amount equal to 1% of the total
Price to Public ($96,500). Organizational expenses of
the Fund and offering expenses associated with this
offering (as well as the Concurrent Offering, discussed
below), estimated to be $96,000, will be paid by the
Representative from its own assets. See "Underwriting."
LaSalle St. Securities, Inc.
[name of other Underwriter]
[name of other Underwriter]
<PAGE>
The Common Stock is being offered, subject to prior
sale, when, as and if accepted by the Underwriters and
subject to approval of certain legal matters by counsel
for the Underwriters. It is expected that delivery of
the shares of Common Stock will be made on or before the
third business day following the effective date of this
Prospectus at the offices of LaSalle St. Securities,
Inc., Chicago, Illinois. Application will be made to
list the Common Stock on the American Stock Exchange
under the symbol "LCM."
Concurrent with this offering, the Fund is offering an
additional 1,500,000 shares of Common Stock to investors
purchasing fewer than 100,000 shares at an initial
public offering price of $10.00 per share (the
"Concurrent Offering"). See "Underwriting."
You are advised to read this Prospectus, which sets
forth concisely the information about the Fund that
you should know before investing. It should be
retained for future reference. Additional
information regarding the Fund is included in the
Statement of Additional Information (the "SAI"),
dated the date hereof, which has been filed with
the Securities and Exchange Commission (the "SEC")
and is incorporated herein by reference. The table
of contents of the SAI is located on page 23 of
this Prospectus. A copy of the SAI is available
without charge by writing the Fund at 810 West
Washington Boulevard, Chicago, Illinois 60607, or
by calling (312) 705-3028.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
reference to the more detailed information included
elsewhere in this Prospectus.
The Fund The Fund is a newly organized, non-
diversified, closed-end management
investment company, which is
registered as such under the
Investment Company Act of 1940, as
amended (the "1940 Act"). The
investment objective of the Fund is to
seek capital appreciation by investing
in a portfolio consisting primarily of
equity securities issued by companies
that LCMCM believes will benefit from
growth of the Internet. Current
dividend income is not an investment
consideration. Under normal market
conditions, the Fund will invest at
least 65% of its total assets in the
equity securities of companies that
derive (or expect to derive) a
substantial portion of their revenues
from providing infrastructure, content
and e-commerce products and/or
services designed for Internet use.
See "The Fund."
Investment Objective and The Fund's investment objective is
Policies capital appreciation. Under normal
market conditions, the Fund will
invest at least 65% of its total
assets in the equity securities of
companies that participate in the
Internet. See "Investment Objective
and Policies," "Investment
Restrictions" and "Investment
Practices and Techniques."
The Offering The Fund is offering an aggregate of
1,000,000 shares of Common Stock to
investors desiring to purchase 100,000
or more shares at an initial public
offering price of $9.65 per share.
The offering is being made on behalf
of the Fund through a group of
Underwriters, for which LaSalle St.
Securities, Inc. is acting as lead
Representative. The minimum permitted
investment by an investor in this
offering is 100,000 shares. Delivery
of 96.5% of the shares of Common Stock
purchased by an investor hereby will
be made on the third business day
following the effective date of this
Prospectus. The balance of such
investor's shares will be held in
escrow pending completion of the 90-
day holding period requirement
described under "Underwriting."
Failure to satisfy the holding period
requirement will have the effect of
increasing the purchase price to
$10.00 per share. See
"Underwriting."
Concurrent Offering Concurrent with this offering, the
Fund is offering an additional
1,500,000 shares of Common Stock to
investors desiring to purchase fewer
than 100,000 shares at an initial
public offering price of $10.00 per
share. The minimum permitted
investment by an investor in the
Concurrent Offering is 200 shares.
The underwriters of the Concurrent
Offering, for which the Representative
is acting as lead representative, have
been granted an option to purchase up
to 225,000 additional shares of Common
Stock to cover over-allotments. The
proceeds to the Fund in both offerings
will be $9.45 per share. See
"Underwriting."
<PAGE>
Use of Proceeds The net proceeds of this offering
(estimated to be $9,353,500), and the
net proceeds from the Concurrent
Offering (estimated to be $14,025,000
if the underwriters' over-allotment
option is not exercised), after
deducting the underwriting discount
and the non-accountable expense
allowance, will be invested by LCMCM
on behalf of the Fund in accordance
with the Fund's investment objective
and policies. Organizational and
offering expenses of the Fund will be
paid by the Representative from its
own assets. See "Use of Proceeds."
Listing Prior to this offering, there has been
no public market for the shares of
Common Stock of the Fund. Application
will be made to list the Common Stock
on the American Stock Exchange (the
"ASE") under the symbol "LCM." See
"Underwriting."
Stock Symbol "LCM."
Investment Adviser LCM Capital Management, Inc.
("LCMCM"), a newly organized,
registered investment adviser under
the Investment Advisers Act of 1940,
as amended (the "Advisers Act"), and
an affiliate of the Representative, is
the Fund's investment adviser. LCMCM
will manage the Fund's investment
portfolio in accordance with the
Fund's investment objective and
policies. Prior to the organization
of the Fund, LCMCM had not served as
an investment adviser to any other
investment company.
Prior to joining LCMCM in June 1998,
the portfolio manager of the Fund,
Barry J. Glasgow, spent seven years
with Gonski & Glasgow Investments, a
registered investment adviser, in the
positions of managing partner and
portfolio manager. Prior to the
organization of the Fund, Mr. Glasgow
had not served as a portfolio manager
to any other investment company. See
"Management of the Fund" and "Risk
Factors and Special Considerations."
Management Fees The Fund will pay LCMCM for its
investment management services a
monthly fee at an annual rate of 1.0%
of the Fund's average daily net asset.
See "Management of the Fund."
Dividends and It is the Fund's present policy,
Distributions which may be changed by the Board
of Directors, to make regular
annual cash distributions to its
shareholders of substantially all
of the Fund's net investment
income, and to distribute, at
least annually, any net realized
capital gains. See
"Distributions; Distribution
Reinvestment Plan."
Distribution Under the Fund's Distribution
Reinvestment Plan Reinvestment Plan (the "Plan"),
shareholders will have all dividends
and distributions automatically
reinvested in additional whole and
fractional shares of Common Stock of
the Fund, unless they notify the Fund
of their desire to receive cash
distributions instead. Shareholders
whose shares are held in the name of a
broker or nominee should contact such
broker or nominee to confirm that they
may participate in the Plan. See
"Distributions; Distribution
Reinvestment Plan."
<PAGE>
Taxation The Fund intends to qualify and elect
to be treated as a regulated
investment company for U.S. federal
income tax purposes. As such, it will
generally not be subject to U.S.
federal income tax on income and gains
that are distributed to shareholders.
See "Federal Taxation of the Fund and
its Distributions" below and in the
SAI.
Custodian, Transfer Firstar Bank Milwaukee, N.A. ("Firstar
Agent, Dividend Paying Bank"), 615 East Michigan Street,
Agent, Registrar, Milwaukee, Wisconsin, 63202, will act
Administrator and Fund as custodian of the Fund's assets.
Accountant Firstar Mutual Services, L.L.C., which
is an affiliate of Firstar Bank and
which is located at the same address,
will act as the Fund's transfer agent,
dividend paying agent, registrar,
administrator and fund accountant.
See "Management of the Fund."
Trading Discount As a newly organized entity, the Fund
has no operating history. Shares of
closed-end investment companies
frequently trade in the market at a
discount from net asset value. This
characteristic is a risk separate and
distinct from the risk that the Fund's
net asset value will decrease as a
result of the Fund's investment
activities, and may be greater if you
expect to sell your shares in a
relatively short period of time
following this offering. It should be
noted, however, that shares of some
closed-end funds have traded at
premiums to net asset value. The Fund
cannot predict whether its shares will
trade at, above or below net asset
value. The Fund is intended primarily
for long-term investors, and should
not be considered as a vehicle for
short-term trading purposes. See "The
Fund" and "Risk Factors and Special
Considerations."
Anti-Takeover Provisions The Fund's Articles of Incorporation
contain certain anti-takeover
provisions that may have the effect of
inhibiting the Fund's possible
conversion to open-end status and
limiting the ability of other persons
to acquire control of the Fund. In
certain circumstances, these
provisions might also inhibit the
ability of shareholders to sell their
shares at a premium over prevailing
market prices. The Fund's Board of
Directors has determined that these
provisions are in the best interests
of shareholders generally. See "Anti-
takeover Provisions."
Risk Factors The shares of Common Stock offered
hereby involve a high degree of risk,
including the Fund's lack of prior
operating history, LCMCM's lack of
investment management experience, the
non-diversified status of the Fund
under the 1940 Act, the volatility and
concentration of the Fund's
investments, the illiquid nature of
some of the Fund's portfolio
securities and the risks relating to a
limited public market for the Fund's
Common Stock. You should carefully
consider your ability to assume the
foregoing risks before making an
investment in the Fund. Given these
investment risks, investment in the
Fund should not be considered a
complete investment program. See
"Risk Factors and Special
Considerations."
<PAGE>
FEES AND EXPENSES
The purpose of the following Fee Table and Example is
to assist you in understanding the fees and expenses
that you will bear directly (shareholder transaction
expenses) and indirectly (annual operating expenses) as
a shareholder of the Fund.
Fee Table:
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price) (1) 2.07%
Distribution Reinvestment Plan Fees None
Annual Operating Expenses (as a percentage of net assets)
Management Fees 1.00%
Other Expenses (2) [ ]%
Total Annual Operating Expenses [ ]%
Example: 1 year 3 years 5 years 10 years
You would pay the
following expenses on a
$1,000 investment, assuming
a 5% annual return: $___ $___ $___ $___
(1) Represents the 2.07% underwriting discount. See
"Underwriting."
(2) Based upon estimated amounts of expenses for the
Fund's first fiscal year, assuming Fund assets of
$________.
The Example set forth above assumes payment by an
investor of the sales load, reinvestment of all
dividends and distributions at net asset value and an
expense ratio equal to the Total Annual Operating
Expense as set forth above. The assumption in the
example of a 5% annual rate of return is mandated by
SEC regulations, and is applicable to all investment
companies. This Example should not be considered a
representation of future expenses or annual rates of
return. Actual expenses and annual rates of return may
be more or less than those assumed for purposes of the
above Example. In addition, while the above Example
assumes reinvestment of all dividends and distributions
at net asset value, participants in the Fund's
Distribution Reinvestment Plan may receive shares
purchased or issued at a price or value different from
net asset value. See "Distributions; Distribution
Reinvestment Plan."
USE OF PROCEEDS
The net proceeds of this offering (estimated to be
$9,353,500), and the net proceeds of the Concurrent
Offering (estimated to be $14,025,000 assuming the
underwriters' over-allotment option is not exercised),
after deducting the underwriting discount and the non-
accountable expense allowance, will be invested in
accordance with the Fund's investment objective and
policies set forth under "Investment Objective and
Policies" within three months from the date of this
Prospectus. Pending such investment, the proceeds will
be invested in U.S. government securities and/or money
market securities as described under "Investment
Practices and Techniques" herein. The organizational
expenses of the Fund and the expenses associated with
the offering, which are estimated to be $96,000, will
be paid by the Representative from its own assets.
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions contained
in the Underwriting Agreement dated as of ____________,
1999, each Underwriter named below, for which LaSalle
St. Securities, Inc. is acting as Representative, has
severally agreed to purchase, and the Fund has agreed
to sell to each such Underwriter, the number of shares
of Common Stock set forth opposite the name of each
such Underwriter:
Number of
Underwriter Shares
LaSalle St. Securities, Inc.
________
Total 1,000,000
The Underwriting Agreement provides that the obligation
of the Underwriters to pay for and accept delivery of
the shares of Common Stock offered hereby is subject to
the approval of certain legal matters by counsel and to
certain other conditions. The Underwriters are
obligated to take and pay for all shares of Common
Stock offered hereby if any are taken.
The Underwriters propose to offer part of the shares of
Common Stock directly to the public at the public
offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at
a price which represents a concession not in excess of
$______ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of
$_______ per share to certain other dealers. After the
initial offering of the shares of Common Stock to the
public, the public offering price and such concessions
may be changed by the Underwriters. The underwriting
discount of $0.20 per share is equal to 2.07% of the
initial offering price. You must pay for shares of
Common Stock purchased in this offering on or before
the third business day following the effecting date of
this Prospectus. Each investor must purchase a minimum
of 100,000 shares of Common Stock in this offering.
Delivery of 96.5% of the shares of Common Stock
purchased by an investor hereunder will be made on or
before the third business day following the effective
date of this Prospectus (the "Delivered Shares"). The
balance of such investor's shares will be held in
escrow by Firstar Bank and delivered to the investor if
the investor has held all of its Delivered Shares for
90 days following the effective date of this Prospectus
or such shorter period as deemed appropriate by the
Representative (the "Escrowed Shares"). If an investor
fails to satisfy the holding period requirement, as
determined by the Representative, all of the investor's
Escrowed Shares will be forfeited by the investor. The
Escrowed Shares will instead be delivered to the
Representative, which will in turn offer such shares
for sale to other investors. This forfeiture by an
investor will have the effect of increasing the
purchase price per share for the investor to $10.00.
The Representative will receive from the Fund a
non-accountable expense allowance in an amount
equal to 1% of the gross offering amount, or
$96,500. The Representative has, however, agreed
to pay the organizational and offering expenses of
the Fund, which are estimated to be $96,000 and
which include all filing fees, legal costs and
other expenses in connection with qualifying the
shares of Common Stock offered hereby (and in the
Concurrent Offering) for sale under the laws of
such states as the Representative may designate.
The Fund anticipates that the Underwriters or their
affiliates may, from time to time and subject to the
regulations set forth in the 1940 Act, act as brokers
or dealers in connection with the execution of the
Fund's securities transactions after the Underwriters
have ceased to act as underwriters of the Fund's Common
Stock.
The Fund and LCMCM have agreed to indemnify the
Underwriters against certain liabilities, including
liabilities under the Securities Act. However, such
indemnification is subject to the provisions of Section
17(i) of the 1940 Act which provides, in part, that no
agreement shall contain a provision which protects or
purports to protect an underwriter of an investment
company against any liability to such company or its
shareholders to which it would
<PAGE>
otherwise be subject due
to misfeasance, bad faith or gross negligence in the
performance of its duties, or reckless disregard of its
obligations and duties under such agreement.
In connection with this offering, the Underwriters may
purchase and sell the Common Stock in accordance with
Regulation M under the Exchange Act. These
transactions may include over-allotment and stabilizing
transactions. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the
Common Stock. The Underwriters may also impose a
penalty bid, whereby selling commissions otherwise
accruing to an Underwriter or selling group member in
respect of securities sold in the offering for their
account may be reclaimed if such securities are
repurchased by the Underwriters in stabilizing
transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common
Stock, which may be higher than the price that might
otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any
time. These transactions may be effected on the ASE,
in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market
for the Common Stock. Application will be made to list
the Common Stock on the ASE under the symbol "LCM."
The Representative is an affiliate of LCMCM, the Fund's
investment adviser. The Representative's principal
business address is 810 West Washington Boulevard.,
Chicago, Illinois 60607.
Concurrent with this offering, the Representative is
acting as lead representative of a group of
underwriters in connection with the Concurrent Offering
pursuant to which the Fund is offering an additional
1,500,000 shares of Common Stock to investors desiring
to purchase fewer than 100,000 shares at an initial
public offering price of $10.00 per share. The minimum
permitted investment by an investor in the Concurrent
Offering is 200 shares of Common Stock. The
underwriters of the Concurrent Offering have been
granted an option, exercisable for 30 days from the
date of this Prospectus, to purchase up to an
additional 225,000 shares of Common Stock to cover over-
allotments, if any, at the initial public offering
price of $10.00 per share less the underwriting
discount. The proceeds to the Fund in both the
Concurrent Offering and the offering made hereby will
be $9.45 per share.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Subject to Completion, Dated May __, 1999
LCM INTERNET GROWTH FUND, INC.
The information in this Statement of Additional
Information is not complete and may be changed.
The Fund may not sell these securities until the
Registration Statement filed with the Securities
and Exchange Commission is effective. This Statement
of Additional Information is not a Prospectus.
Moreover, this Statement of Additional Information does
not constitute and offer to sell these securities and
it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
This Statement of Additional Information ("SAI") is
not a prospectus, but should be read in conjunction
with the Prospectus of the LCM Internet Growth Fund,
Inc. (the "Fund"), dated the date hereof. Before
purchasing shares of the Fund, you should obtain and
read the Fund's Prospectus. The Prospectus, which
may be revised from time to time, is available
without charge by writing to the Fund at 810 West
Washington Boulevard, Chicago, Illinois 60607, or by
calling (312) 705-3028.
This Statement of Additional information is dated _________________, 1999.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND POLICIES 3
INVESTMENT PRACTICES AND TECHNIQUES 4
MANAGEMENT 12
PRINCIPAL SHAREHOLDERS 14
INVESTMENT ADVISORY AND OTHER SERVICES 14
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION 15
TAXATION OF THE FUND AND ITS DISTRIBUTIONS 16
FINANCIAL STATEMENTS 18
You should rely only on the information contained in
this SAI and in the Prospectus. The Fund has not
authorized anyone to provide you with different
information. The Fund is not making an offer of these
securities in any state where the offer is not
permitted. You should not assume that the information
contained in this SAI or in the Prospectus is accurate
as of any date other than the date hereof.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
a) Investment Objective
The Fund's investment objective is to seek capital
appreciation by investing in a portfolio consisting
primarily of equity securities issued by companies that
the Fund's investment adviser, LCM Capital Management,
Inc. ("LCMCM"), believes will benefit from growth of
the Internet. Current dividend income is not an
investment consideration. Under normal market
conditions, the Fund will invest at least 65% of its
total assets in the equity securities of companies that
derive (or expect to derive) a substantial portion of
their revenues from providing infrastructure, content
and e-commerce products and/or services designed for
Internet use. For more information, please see
"Investment Objective and Policies" in the Prospectus.
b) Fundamental Investment Policies
The Fund's fundamental investment policies (or
restrictions) are set forth in the Prospectus under the
caption "Investment Restrictions." The Fund's
fundamental investment policies (which include the
Fund's investment objective) may not be changed without
the approval of a majority of the Fund's outstanding
voting securities. Please refer to the Prospectus for
more information.
c) Non-Fundamental Investment Policies
The Fund's non-fundamental investment policies (or
restrictions), which may be changed by the Fund's Board
of Directors without shareholder approval, are set
forth below. Many of these policies are discussed in
the Prospectus under the caption "Investment Practices
and Techniques."
As a matter of non-fundamental policy:
(1)The Fund may not sell securities short, unless the
Fund owns or has the right to obtain securities
equivalent in kind and amount to the securities
sold short, or unless it covers such short sale as
required by the current rules and positions of the
Securities and Exchange Commission (the "SEC") or
its staff, and provided that transactions in
options, futures contracts or other derivative
instruments are not deemed to constitute selling
securities short;
(2)The Fund may not purchase securities on margin,
except that the Fund may obtain such short-term
credits as are necessary for the clearance of
transactions, and provided that margin deposits in
connection with futures contracts or other
derivative instruments shall not constitute
purchasing securities on margin;
(3)The Fund may not invest in illiquid securities if,
as a result of such investment, more than 15% of
its net assets would be invested in illiquid
securities;
(4)The Fund may not purchase securities of other
investment companies, except in compliance with the
Investment Company Act of 1940, as amended (the
"1940 Act");
(5)The Fund may not engage in futures or options on
futures transactions which are impermissible
pursuant to Rule 4.5 under the Commodity Exchange
Act (the "CEA") and, in accordance with Rule 4.5,
will use futures or options on futures transactions
solely for bona fide hedging transactions (within
the meaning of the CEA); provided, however, that
the Fund may, in addition to bona fide hedging
transactions, use futures and options on futures
transactions if the aggregate initial margin and
premiums required to establish such positions, less
the amount by which any such options are "in the
money" (within the meaning of the CEA), do not
exceed 5% of the Fund's net assets;
(6)The Fund may not invest in, purchase or sell
options, except that the Fund may invest up to 10%
of its total assets in options, and may sell
options in an amount not to exceed 10% of its total
assets; and
(7)The Fund may not borrow money in an amount in
excess of 33 1/3% of its total assts (measured by
adding the amount borrowed to the Fund's other
assets).
<PAGE>
With the exception of non-fundamental policy number 7
above, the percentage restrictions set forth above
apply at the time a transaction is effected, and a
subsequent change in a percentage resulting from market
fluctuations or any other cause other than action by
the Fund will not require the Fund to dispose of
portfolio securities or take other action to satisfy
the percentage restriction.
INVESTMENT PRACTICES AND TECHNIQUES
The following information supplements the discussion of
the Fund's investment practices and portfolio
management techniques described in the Prospectus under
the caption "Investment Practices and Techniques."
a) Short-Term Fixed Income Securities
The Fund may hold a small portion of its assets
(generally not more than 10%) in U.S. government
securities, money market securities and cash to meet
ordinary cash needs. Under unusual circumstances, as a
defensive technique, the Fund may retain a larger
portion of cash and/or invest more assets in U.S.
government securities and/or money market securities
deemed by LCMCM to be consistent with a temporary
defensive posture.
(1)U.S. Government Securities. The U.S. government
securities in which the Fund may invest are
securities issued or guaranteed by the U.S.
government (i.e., the U.S. Treasury) or its
agencies or instrumentalities. U.S. government
agency/instrumentality securities include
securities issued by (i) the Federal Housing
Administration, Farmers Home Administration, Export-
Import Bank of the United States, Small Business
Administration and GinnieMae, whose securities are
supported by the full faith and credit of the
United States; (ii) the Federal Home Loan Banks,
Federal Intermediate Credit Banks and the Tennessee
Valley Authority, whose securities are supported by
the right of the agency to borrow from the U.S.
Treasury; (iii) the FannieMae, whose securities are
supported by the discretionary authority of the
U.S. government to purchase certain obligations of
the agency or instrumentality; and (iv) the Student
Loan Marketing Association, the Interamerican
Development Bank and the International Bank for
Reconstruction and Development, whose securities
are supported only by the credit of such agencies.
While the U.S. government provides financial
support to such U.S. government-sponsored agencies
or instrumentalities, no assurance can be given
that it always will do so since it is not so
obligated by law. The U.S. government, its
agencies and instrumentalities do not guarantee the
market value of their securities, and consequently,
the value of such securities may fluctuate.
(2)Money Market Securities. The money market
securities in which the Fund may invest include (i)
commercial paper rated A-1 or higher by Standard &
Poor's ("S&P") or Prime-1 or higher by Moody's
Investors Service ("Moody's"), or if such
commercial paper is not rated, issued by companies
which have an outstanding debt issue rated AA or
higher by S&P or Aa or higher by Moody's; (ii)
repurchase agreements entered into only with
respect to U.S. government securities. In such a
transaction, at the time the Fund purchases the
security, it simultaneously agrees to resell and
redeliver the security to the seller, who also
simultaneously agrees to buy back the security at a
fixed price and time. This assures a predetermined
yield for the Fund during its holding period since
the resale price is always greater than the
purchase price and reflects an agreed-upon market
rate. Such transactions afford an opportunity for
the Fund to invest temporarily available cash.
Repurchase agreements may be considered loans to
the seller, collateralized by the underlying
securities. The risk to the Fund is limited to the
ability of the seller to pay the agreed-upon sum on
the repurchase date; in the event of default, the
repurchase agreement provides that the Fund is
entitled to sell the underlying collateral. If the
value of the collateral declines after the
agreement is entered into, however, and if the
seller defaults under a repurchase agreement when
the value of the underlying collateral is less than
the repurchase price, the Fund could incur a loss
of both principal and interest. LCMCM monitors the
value of the collateral at the time the transaction
is entered into and at all times during the term of
the repurchase agreement. LCMCM does so in an
effort to determine that the value of the
collateral always equals or exceeds the agreed-upon
repurchase price to be paid to the Fund. If the
seller were to be subject to a federal bankruptcy
proceeding, the ability of the Fund to liquidate
the collateral could be delayed or impaired because
of certain provisions of the bankruptcy laws; (iii)
certificates of deposit issued against funds
deposited in a domestic branch of a U.S. bank or
savings and loan association that are insured by
the Federal Deposit Insurance Corporation ("FDIC")
and have assets in excess of $500 million. Such
certificates are for a definite period of time,
earn a specified rate of return and are normally
negotiable. If such certificates of deposit are
non-negotiable, they will be considered illiquid
securities and be subject to the Fund's 15%
restriction
<PAGE>
on investments in illiquid securities.
Pursuant to a certificate of deposit, the issuer
agrees to pay the amount deposited plus interest to
the bearer of the certificate on the date specified
thereon. Under current FDIC regulations, the
maximum insurance payable as to any one certificate
of deposit is $100,000; therefore, certificates of
deposit purchased by the Fund will not generally be
fully insured; (iv) bankers' acceptances, which are
short-term credit instruments used to finance
commercial transactions. Generally, an acceptance
is a time draft drawn on a bank by an exporter or
an 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 asset or it may be sold in the secondary
market at the going rate of interest for a specific
maturity; and (v) bank time deposits, which are
monies kept on deposit with U.S. banks or savings
and loan associations for a stated period of time
at a fixed rate of interest. There may be
penalties for the early withdrawal of such time
deposits, in which case the yields of these
investments will be reduced.
b) Illiquid Securities
The Fund may invest up to 15% of its net assets in
illiquid securities (i.e., securities that are not
readily marketable). For purposes of this restriction,
illiquid securities include, but are not limited to,
restricted securities (securities the disposition of
which is restricted under the federal securities laws),
repurchase agreements with maturities in excess of
seven days and other securities that are not readily
marketable. The Board of Directors of the Fund, or its
delegate, has the ultimate authority to determine, to
the extent permissible under the federal securities
laws, which securities are liquid or illiquid for
purposes of this 15% limitation. Certain securities
exempt from registration or issued in transactions
exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), such as
securities that may be resold to institutional
investors under Rule 144A under the Securities Act, may
be considered liquid under guidelines adopted by the
Board of Directors. However, investing in securities
which may be resold pursuant to Rule 144A under the
Securities Act could have the effect of increasing the
level of the Fund's illiquidity to the extent that
institutional investors become, for a time,
uninterested in purchasing such securities.
The Board of Directors has delegated to LCMCM the day-
to-day determination of the liquidity of any security,
although it has retained oversight and ultimate
responsibility for such determinations. Although no
definitive liquidity criteria are used, the Board of
Directors has directed LCMCM to look to such factors
as (i) the nature of the market for the security
(including the institutional private resale market),
(ii) the terms of certain securities or other
instruments allowing for the disposition to a third
party or the issuer thereof (e.g., certain repurchase
obligations and demand instruments), (iii) the
availability of market quotations (e.g., for securities
quoted in the PORTAL system) and (iv) other permissible
relevant factors.
Restricted securities may be sold only in privately
negotiated transactions or in a public offering with
respect to which a registration statement is in effect
under the Securities Act. Where registration is
required, the Fund may be obligated to pay all or part
of the registration expenses and a considerable period
may elapse between the time of the decision to sell and
the time the Fund may be permitted to sell a security
under an effective registration statement. If, during
such a period, adverse market conditions were to
develop, the Fund might obtain a less favorable price
than that which prevailed when it decided to sell.
Restricted securities will be priced at fair value as
determined in good faith by the Board of Directors.
If, through the appreciation of restricted securities
or the depreciation of unrestricted securities, the
Fund should be in a position where more than 15% of the
value of its net assets are invested in illiquid
securities, including restricted securities which are
not readily marketable (except for Rule 144A securities
deemed to be liquid by LCMCM), the Fund will take such
steps as is deemed advisable, if any, to protect
liquidity.
c) Non-Diversification
While the Fund is "non-diversified," which means that
it is permitted to invest its assets in a more limited
number of companies than other mutual funds, the Fund
intends to diversify its assets to qualify for tax
treatment as a regulated investment company under the
Internal Revenue Code of 1986, as amended ("Code"). To
qualify (i) not more than 25% of the total value of the
Fund's assets may be invested in securities of any one
issuer or of any two or more issuers controlled by the
Fund, which, pursuant to the regulations under the
Code, may be deemed to be engaged in the same, similar
or related trades or businesses, and (ii) with respect
to 50% of the total value of the Fund's assets (a) not
more than 5% of its total assets may be invested in the
securities of any one issuer and (b) the Fund may not
own more than
<PAGE>
10% of the outstanding voting securities
of any one issuer. These percentage limitations do not
apply to investments in U.S. government securities or
the securities of other regulated investment companies.
Accordingly, as a "non-diversified" fund, the Fund may
invest up to 50% of its assets in the securities of as
few as two companies, up to 25% each, so long as the
Fund does not control the two companies and the two
companies are engaged in different businesses. The
Fund may also invest up to 50% of its assets in the
securities of as few as ten companies, up to 5% each,
provided that the Fund does not own in excess of 10% of
any company's outstanding voting stock. Non-
diversification involves an increased risk of loss to
the Fund when the market value of a security declines.
d) Concentration
The Fund has adopted a fundamental investment policy
which prohibits the Fund from investing more than 25%
of its total assets in securities of issuers whose
principal business activities are in the same industry,
except that the Fund will invest, under normal market
conditions, more than 25% of its total assets in the
securities of issuers in the information technology
industry. For this purpose, "information technology
industry" is comprised of those companies providing
infrastructure, content and e-commerce products and/or
services designed for Internet use. This industry,
which is very dynamic and therefore frequently
changing, currently consists of 13 sectors and 65 sub-
sectors as identified by LCMCM. See "Investment
Objective and Policies" in the Prospectus for more
information. Because a relatively high percentage of
the Fund's assets will be invested in the information
technology industry, the Fund's portfolio securities
will be especially influenced by factors specific to
that industry and may be more susceptible to
fluctuation in value than portfolio securities of a
less concentrated investment company.
e) Derivative Transactions
In General. The Fund may invest in derivative
instruments for any lawful purpose consistent with its
investment objective such as hedging or managing risk,
but not for speculation. Derivative instruments are
commonly defined to include securities or contracts
whose value depend on (or "derive" from) the value of
one or more other assets, such as securities or
commodities. These "other assets" are commonly
referred to as "underlying assets."
Options and forward contracts are considered to be the
basic "building blocks" of derivatives. An option is a
contract in which the "holder" (the buyer) pays a
certain amount (the "premium") to the "writer" (the
seller) to obtain the right, but not the obligation, to
buy from the writer (in a "call") or sell to the writer
(in a "put") a specific asset at an agreed upon price
(the "strike price" or "exercise price") at or before a
certain time (the "expiration date"). The holder pays
the premium at inception and has no further financial
obligation. The holder of an option-based derivative
generally will benefit from favorable movements in the
price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the
value of the underlying asset. The writer of an option-
based derivative generally will receive fees or
premiums but generally is exposed to losses due to
changes in the value of the underlying asset.
A forward is a sales contract between a buyer (holding
the "long" position) and a seller (holding the "short"
position) for an asset with delivery deferred until a
future date. The buyer agrees to pay a fixed price at
the agreed future date and the seller agrees to deliver
the asset. The seller hopes that the market price on
the delivery date is less than the agreed upon price,
while the buyer hopes for the contrary. The change in
value of a forward-based derivative generally is
roughly proportional to the change in value of the
underlying asset.
Hedging. The Fund may use derivative instruments to
protect against possible adverse changes in the market
value of securities held in, or are anticipated to be
held in, the Fund's portfolio. Derivatives may also be
used by the Fund to "lock-in" its realized but
unrecognized gains in the value of its portfolio
securities. Hedging strategies, if successful, can
reduce the risk of loss by wholly or partially
offsetting the negative effect of unfavorable price
movements in the investments being hedged. However,
hedging strategies can also reduce the opportunity for
gain by offsetting the positive effect of favorable
price movements in the hedged investments.
Managing Risk. The Fund may also use derivative
instruments to manage the risks of the Fund's
portfolio. Risk management strategies include, but are
not limited to, facilitating the sale of portfolio
securities, establishing a position in the derivatives
markets as a substitute for buying or selling certain
securities or creating or altering exposure to
<PAGE>
certain asset classes. The use of derivative instruments may
provide a less expensive, more expedient or more
specifically focused way for the Fund to invest than
"traditional" securities (i.e., stocks or bonds) would.
Exchange or OTC Derivatives. Derivative instruments
may be exchange-traded or traded in over-the-counter
("OTC") transactions between private parties. Exchange-
traded derivatives are standardized options and futures
contracts traded in an auction on the floor of a
regulated exchange. Exchange contracts are generally
liquid. The exchange clearinghouse is the counterparty
of every contract. Thus, each holder of an exchange
contract bears the credit risk of the clearinghouse
(and has the benefit of its financial strength) rather
than that of a particular counterparty. OTC
transactions are subject to additional risks, such as
the credit risk of the counterparty to the instrument,
and are less liquid than exchange-traded derivatives
since they often can only be closed out with the other
party to the transaction. For purposes of the Fund's
15% limitation on investments in illiquid securities,
OTC transactions will be considered illiquid.
Risks and Special Considerations. The use of
derivative instruments involves risks and special
considerations as described below. Risks pertaining to
particular derivative instruments are described in the
sections that follow.
(1)Market Risk. The primary risk of derivatives is
the same as the risk of the underlying assets;
namely, that the value of the underlying asset may
go up or down. Adverse movements in the value of
an underlying asset can expose the Fund to losses.
Derivative instruments may include elements of
leverage and, accordingly, the fluctuation of the
value of the derivative instrument in relation to
the underlying asset may be magnified. The
successful use of derivative instruments depends
upon a variety of factors, particularly LCMCM's
ability to predict movements of the securities,
currencies and commodities markets, which requires
different skills than predicting changes in the
prices of individual securities. There can be no
assurance that any particular strategy adopted will
succeed. A decision to engage in a derivative
transaction will reflect LCMCM's judgment that the
derivative transaction will provide value to the
Fund and its shareholders and is consistent with
the Fund's objectives, investment limitations and
operating policies. In making such a judgment,
LCMCM will analyze the benefits and risks of the
derivative transaction and weigh them in the
context of the Fund's entire portfolio and
investment objective.
(2)Credit Risk. The Fund will be subject to the risk
that a loss may be sustained by the Fund as a
result of the failure of a counterparty to comply
with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative
instruments is generally less than for privately-
negotiated or OTC derivative instruments, since
generally a clearing agency, which is the issuer or
counterparty to each exchange-traded instrument,
provides a guarantee of performance. For privately-
negotiated instruments, there is no similar
clearing agency guarantee. In all transactions,
the Fund will bear the risk that the counterparty
will default, and this could result in a loss of
the expected benefit of the derivative transaction
and possibly other losses to the Fund. The Fund
will enter into transactions in derivative
instruments only with counterparties that LCMCM
reasonably believes are capable of performing under
the contract.
(3)Correlation Risk. When a derivative transaction is
used to completely hedge another position, changes
in the market value of the combined position (the
derivative instrument plus the position being
hedged) result from an imperfect correlation
between the price movements of the two instruments.
With a perfect hedge, the value of the combined
position remains unchanged for any change in the
price of the underlying asset being hedged. With
an imperfect hedge, the value of the derivative
instrument and its hedge are not perfectly
correlated. Correlation risk is the risk that
there might be imperfect correlation, or even no
correlation, between price movements of an
instrument and price movements of investments being
hedged. For example, if the value of a derivative
instrument used in a short hedge (such as writing a
call option, buying a put option or selling a
futures contract) increased by less than the
decline in value of the hedged investments, the
hedge would not be perfectly correlated. Such a
lack of correlation might occur due to factors
unrelated to the value of the investments being
hedged, such as speculative or other pressures on
the markets in which these instruments are traded.
The effectiveness of hedges using instruments on
indices will depend, in part, on the degree of
correlation between price movements in the index
and price movements in the investments being
hedged.
(4)Liquidity Risk. Derivatives are also subject to
liquidity risk. Liquidity risk is the risk that a
derivative instrument cannot be sold, closed out or
replaced quickly at or very close to its
fundamental value. Generally,
<PAGE>
exchange contracts
are very liquid because the exchange clearinghouse
is the counterparty of every contract. OTC
transactions are less liquid than exchange-traded
derivatives since they often can only be closed out
with the other party to the transaction. The Fund
might be required by applicable regulatory
requirements to maintain assets as "cover,"
maintain segregated accounts and/or make margin
payments when it takes positions in derivative
instruments involving obligations to third parties
(i.e., instruments other than purchased options).
If the Fund is unable to close out its positions in
such instruments, it might be required to continue
to maintain such assets or accounts or make such
payments until the position expires, matures or is
closed out. The requirements might impair the
Fund's ability to sell a portfolio security or make
an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. The
Fund's ability to sell or close out a position in
an instrument prior to expiration or maturity
depends on the existence of a liquid secondary
market or, in the absence of such a market, the
ability and willingness of the counterparty to
enter into a transaction closing out the position.
Therefore, there is no assurance that any
derivatives position can be sold or closed out at a
time and price that is favorable to the Fund.
(5)Legal Risk. Legal risk is the risk of loss caused
by the legal unenforceability of a party's
obligations under the derivative. While a party
seeking price certainty agrees to surrender the
potential upside in exchange for downside
protection, the party taking the risk is looking
for a positive payoff. Despite this voluntary
assumption of risk, a counterparty that has lost
money in a derivative transaction may try to avoid
payment by exploiting various legal uncertainties
about certain derivative products.
(6)Systemic or "Interconnection" Risk.
Interconnection risk is the risk that a disruption
in the financial markets will cause difficulties
for all market participants. In other words, a
disruption in one market will spill over into other
markets, perhaps creating a chain reaction. Much
of the OTC derivatives market takes place among the
OTC dealers themselves, thus creating a large
interconnected web of financial obligations. This
interconnectedness raises the possibility that a
default by one large dealer could create losses for
other dealers and destabilize the entire market for
OTC derivative instruments.
General Limitations. The use of derivative instruments
is subject to applicable regulations of the SEC, the
several options and futures exchanges upon which they
may be traded and the Commodity Futures Trading
Commission ("CFTC").
The Fund has filed a notice of eligibility for
exclusion from the definition of the term "commodity
pool operator" with the CFTC and the National Futures
Association, which regulate trading in the futures
markets. In accordance with Rule 4.5 of the
regulations under the CEA, the notice of eligibility
for the Fund includes representations that the Fund
will use futures contracts and related options solely
for bona fide hedging purposes within the meaning of
CFTC regulations, provided that the Fund may hold other
positions in futures contracts and related options that
do not qualify as a bona fide hedging position if the
aggregate initial margin deposits and premiums required
to establish these positions, less the amount by which
any such futures contracts and related options
positions are "in the money," do not exceed 5% of the
Fund's net assets.
The SEC has identified certain trading practices
involving derivative instruments that involve the
potential for leveraging a fund's assets in a manner
that raises issues under the 1940 Act. In order to
limit the potential for the leveraging of a fund's
assets, as defined under the 1940 Act, the SEC has
stated that a fund may use coverage or the segregation
of a fund's assets. The Fund will set aside cash or
other permissible liquid assets in a segregated
custodial account if required to do so by SEC and CFTC
regulations. Assets used as cover or held in a
segregated account cannot be sold while the derivative
position is open, unless they are replaced with similar
assets. As a result, the commitment of a large portion
of the Fund's assets to segregated accounts could
impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
In some cases, the Fund may be required to allocate or
limit a percentage of its assets to a particular asset
class. In such cases, the Fund may use a derivative
instrument to increase or decrease exposure to an asset
class. When the Fund uses derivatives in this way, it
is required by applicable SEC guidelines to set aside
liquid assets in a segregated account to secure its
obligations under the derivative instruments. Under
these circumstances, LCMCM may, where reasonable,
measure compliance with the applicable percentage by
reference to the nature of the economic exposure
created through the use of the derivative instrument
and not by reference to the nature of the exposure
arising from the assets
<PAGE>
set aside in the segregated
account (unless another interpretation is specified by
applicable regulatory requirements, in which case such
other interpretation will be complied with). For
example, if U.S. government securities are set aside to
secure the Fund's obligations under an equity position
involving a derivative instrument, the combined
position (i.e., the derivative instrument and the U.S.
government securities) will be treated as an equity
position (if allowed under applicable regulatory
requirements), not as a U.S. government securities
position.
Options. The Fund may use options for any lawful
purpose consistent with its investment objective such
as hedging or managing risk, but not for speculation.
The Fund may purchase (buy) or write (sell) put and
call options on assets, such as securities and
securities indices ("underlying assets") and enter into
closing transactions with respect to such options to
terminate an existing position. Options used by the
Fund may include European, American and Bermuda style
options. If an option is exercisable only at maturity,
it is a "European" option; if it is also exercisable
prior to maturity, it is an "American" option. If it
is exercisable only at certain times, it is a "Bermuda"
option.
The Fund may purchase (buy) and write (sell) put and
call options and enter into closing transactions with
respect to such options to terminate an existing
position. The purchase of call options serves as a
long hedge, and the purchase of put options serves as a
short hedge. Writing put or call options can enable
the Fund to enhance income by reason of the premiums
paid by the purchaser of such options. Writing call
options serves as a limited short hedge because
declines in the value of the hedged investment would be
offset to the extent of the premium received for
writing the option. However, if the security
appreciates to a price higher than the exercise price
of the call option, it can be expected that the option
will be exercised and the Fund will be obligated to
sell the security at less than its market value or will
be obligated to purchase the security at a price
greater than that at which the security must be sold
under the option. Writing put options serves as a
limited long hedge because increases in the value of
the hedged investment would be offset to the extent of
the premium received for writing the option. However,
if the security depreciates to a price lower than the
exercise price of the put option, it can be expected
that the put option will be exercised and the Fund will
be obligated to purchase the security at more than its
market value.
The value of an option position will reflect, among
other things, the historical price volatility of the
underlying investment, the current market value of the
underlying investment, the time remaining until
expiration, the relationship of the exercise price to
the market price of the underlying investment and
general market conditions.
The Fund may effectively terminate its right or
obligation under an option by entering into a closing
transaction. For example, the Fund may terminate its
obligation under a call or put option that it had
written by purchasing an identical call or put option;
this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put
or call option it had purchased by writing an identical
put or call option; this is known as a closing sale
transaction. Closing transactions permit the Fund to
realize the profit or limit the loss on an option
position prior to its exercise or expiration.
The Fund may purchase or write both exchange-traded and
OTC options. Exchange-traded options are issued by a
clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between the Fund
and the other party to the transaction ("counterparty")
(usually a securities dealer or a bank) with no
clearing organization guarantee. Thus, when the Fund
purchases or writes an OTC option, it relies on the
counterparty to make or take delivery of the underlying
investment upon exercise of the option. Failure by the
counterparty to do so would result in the loss of any
premium paid by the Fund as well as the loss of any
expected benefit of the transaction.
The Fund's ability to establish and close out positions
in exchange-listed options depends on the existence of
a liquid market. The Fund intends to purchase or write
only those exchange-traded options for which there
appears to be a liquid secondary market. However,
there can be no assurance that such a market will exist
at any particular time. Closing transactions can be
made for OTC options only by negotiating directly with
the counterparty, or by a transaction in the secondary
market if any such market exists. Although the Fund
will enter into OTC options only with counterparties
that are expected to be capable of entering into
closing transactions with the Funds, there is no
assurance that the Fund will in fact be able to close
out an OTC option at a favorable price prior to
expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an
OTC option position at any time prior to its
expiration. If the Fund were unable to effect a
closing transaction for an option it had purchased, it
would have to exercise the option to realize any
profit.
<PAGE>
The Fund may engage in options transactions on
securities indices in much the same manner as the
options on securities discussed above, except the index
options may serve as a hedge against overall
fluctuations in the securities market in general.
The writing and purchasing of options is a highly
specialized activity that involves investment
techniques and risks different from those associated
with ordinary portfolio securities transactions.
Imperfect correlation between the options and
securities markets may detract from the effectiveness
of attempted hedging. The Fund will not invest more
than 10% of its total assets in options, nor will it
sell options in an amount exceeding 10% of its total
assets.
Futures Contracts. The Fund may use futures contracts
for any lawful purpose consistent with its investment
objective such as hedging and managing risk, but not
for speculation. The Fund may enter into futures
contracts, including interest rate and index futures.
The Fund may also purchase put and call options, and
write covered put and call options, on futures in which
it is allowed to invest. The purchase of futures or
call options thereon can serve as a long hedge, and the
sale of futures or the purchase of put options thereon
can serve as a short hedge. Writing covered call
options on futures contracts can serve as a limited
short hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a
strategy similar to that used for writing covered
options in securities. The Fund's hedging may include
purchases of futures as an offset against the effect of
expected increases in securities prices and sales of
futures as an offset against the effect of expected
declines in securities prices.
To the extent required by regulatory authorities, the
Fund may enter into futures contracts that are traded
on national futures exchanges and are standardized as
to maturity date and underlying financial instrument.
Futures exchanges and trading are regulated under the
CEA by the CFTC. Although techniques other than sales
and purchases of futures contracts could be used to
reduce a Fund's exposure to market or interest rate
fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost
through using futures contracts.
An interest rate futures contract provides for the
future sale by one party and purchase by another party
of a specified amount of a specific financial
instrument (e.g., debt security) for a specified price
at a designated date, time and place. An index futures
contract is an agreement pursuant to which the parties
agree to take or make delivery of an amount of cash
equal to the difference between the value of the index
at the close of the last trading day of the contract
and the price at which the index futures contract was
originally written. Transaction costs are incurred
when a futures contract is bought or sold and margin
deposits must be maintained. A futures contract may be
satisfied by delivery or purchase, as the case may be,
of the instrument or by payment of the change in the
cash value of the index. More commonly, futures
contracts are closed out prior to delivery by entering
into an offsetting transaction in a matching futures
contract. Although the value of an index might be a
function of the value of certain specified securities,
no physical delivery of those securities is made. If
the offsetting purchase price is less than the original
sale price, the Fund realizes a gain; if it is more,
the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original
purchase price, the Fund realizes a gain; if it is
less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can
be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a
particular futures contract at a particular time. If
the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to
maintain the margin deposits on the futures contract.
No price is paid by the Fund upon entering into a
futures contract. Instead, at the inception of a
futures contract, the Fund is required to deposit in a
segregated account with its custodian, in the name of
the futures broker through whom the transaction was
effected, "initial margin," consisting of cash or other
liquid assets, in an amount generally equal to 10% or
less of the contract value. Margin must also be
deposited when writing a call or put option on a
futures contract, in accordance with applicable
exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does
not represent a borrowing, but rather is in the nature
of a performance bond or good-faith deposit that is
returned to the Fund at the termination of the
transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as
periods of high volatility, the Fund may be required by
an exchange to increase the level of its initial margin
payment, and initial margin requirements might be
increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and
from the futures broker daily as the value of the
futures position varies, a process known as "marking to
market." Variation margin does not involve borrowing,
but rather represents a daily settlement of the Fund's
obligations to or from a futures broker. When the Fund
purchases an option
<PAGE>
on a future, the premium paid plus
transaction costs is all that is at risk. In contrast,
when the Fund purchases or sells a futures contract or
writes a call or put option thereon, it is subject to
daily variation margin calls that could be substantial
in the event of adverse price movements. If the Fund
has insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a
time when such sales are disadvantageous. Purchasers
and sellers of futures positions and options on futures
can enter into offsetting closing transactions by
selling or purchasing, respectively, an instrument
identical to the instrument held or written. Positions
in futures and options on futures may be closed only on
an exchange or board of trade that provides a secondary
market. The Fund intends to enter into futures
transactions only on exchanges or boards of trade where
there appears to be a liquid secondary market.
However, there can be no assurance that such a market
will exist for a particular contract at a particular
time.
Under certain circumstances, futures exchanges may
establish daily limits on the amount that the price of
a future or option on a futures contract can vary from
the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price
beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily
limit for several consecutive days with little or no
trading, thereby preventing liquidation of unfavorable
positions.
If the Fund were unable to liquidate a futures or
option on a futures contract position due to the
absence of a liquid secondary market or the imposition
of price limits, it could incur substantial losses.
The Fund would continue to be subject to market risk
with respect to the position. In addition, except in
the case of purchased options, the Fund would continue
to be required to make daily variation margin payments
and might be required to maintain the position being
hedged by the future or option or to maintain certain
liquid securities in a segregated account.
Certain characteristics of the futures market might
increase the risk that movements in the prices of
futures contracts or options on futures contracts might
not correlate perfectly with movements in the prices of
the investments being hedged. For example, all
participants in the futures and options on futures
contracts markets are subject to daily variation margin
calls and might be compelled to liquidate futures or
options on futures contracts positions whose prices are
moving unfavorably to avoid being subject to further
calls. These liquidations could increase the price
volatility of the instruments and distort the normal
price relationship between the futures or options and
the investments being hedged. Also, because initial
margin deposit requirements in the futures markets are
less onerous than margin requirements in the securities
markets, there might be increased participation by
speculators in the future markets. This participation
also might cause temporary price distortions. In
addition, activities of large traders in both the
futures and securities markets involving arbitrage,
"program trading," and other investment strategies
might result in temporary price distortions. The Fund
will limit its futures transactions to those permitted
under Rule 4.5 of the CEA.
f) Foreign Securities
The Fund may invest up to 5% of its net assets directly
in foreign securities. Investments in securities of
foreign issuers involve risks which are in addition to
the usual risks inherent in domestic investments. In
many countries, there is less publicly available
information about issuers than is available in the
reports and ratings published about companies in the
U.S. Additionally, foreign companies are not subject
to uniform accounting, auditing and financial reporting
standards. Other risks inherent in foreign investment
include expropriation; confiscatory taxation;
withholding taxes on dividends and interest; less
extensive regulation of foreign brokers, securities
markets and issuers; costs incurred in conversions
between currencies; the illiquidity and volatility of
foreign securities markets; the possibility of delays
in settlement in foreign securities markets;
limitations on the use or transfer of assets (including
suspension of the ability to transfer currency from a
given country); the difficulty of enforcing obligations
in other countries; diplomatic developments; and
political or social instability. Foreign economies may
differ favorably or unfavorably from the U.S. economy
in various respects, and many foreign securities are
less liquid and their prices are more volatile than
comparable U.S. securities. From time to time, foreign
securities may be difficult to liquidate rapidly
without adverse price effects. Certain costs
attributable to foreign investing, such as custody
charges and brokerage costs, are higher than those
attributable to domestic investing.
<PAGE>
MANAGEMENT
The directors and officers of the Fund, together with
information as to their principal business occupations
during the last five years, and other information, are
shown below. Each director who is deemed an
"interested person" of the Fund, as defined in the 1940
Act, is indicated by an asterisk. The directors and
officers listed below have served as such since
inception of the Fund in August 1998, except as
otherwise noted.
*Michael R. Grady, Jr., President, Treasurer and
Director of the Fund (DOB 8/19/62; Age 36).
Mr. Grady co-founded the Fund's investment adviser,
LCMCM, with Mr. Barry Glasgow in June 1998 and has
served as its President and a Director since then.
Since January 1997, Mr. Grady has also served as
President of LaSalle St. Capital Markets, Inc., an
investment banking, research and consulting firm which
is an affiliate of LCMCM, and since December 1996, Mr.
Grady has served as a registered representative of
LaSalle St. Securities, Inc., a registered broker-
dealer, an affiliate of LCMCM and the Fund's principal
underwriter (the "Underwriter"). Prior to joining the
LaSalle group of companies, both of which are located
in Chicago, Illinois, Mr. Grady spent 18 months with
Madison Securities, Inc., a registered broker-dealer in
Chicago, Illinois (from June 1995 until December 1996),
and 14 months with Lexington Securities, Inc., a
registered broker-dealer in Chicago, Illinois (from
April 1994 until June 1995). At both companies, Mr.
Grady served as a registered representative and an
Executive Vice President. From August 1990 until April
1994, Mr. Grady served as a registered representative
of A.G. Edwards & Sons, Inc., a registered broker-
dealer in Bartlett, Illinois. Since October 1994, Mr.
Grady has served as the President of Madison Investment
Partners L.P., a private investment partnership that
Mr. Grady helped to form. Mr. Grady received his B.S.
in Finance from Northern Illinois University in 1985.
*Barry J. Glasgow, Vice President, Secretary and
Director of the Fund (DOB 4/14/43; Age 56).
Mr. Glasgow co-founded the Fund's investment adviser,
LCMCM, with Mr. Grady in June 1998 and has served as
its Chief Investment Officer, Secretary, Portfolio
Manager and a Director since then. From May 1991 until
June 1998, Mr. Glasgow served as the Managing Partner
and Portfolio Manager of Gonski & Glasgow Investments,
a registered investment adviser in Elgin, Illinois.
From January 1991 until May 1996, Mr. Glasgow served as
a registered representative of Rocky Mountain
Securities, Inc., a registered broker-dealer, in its
Elgin, Illinois branch office. From May 1996 until May
1998, Mr. Glasgow served as a registered representative
of Berry-Shino Securities, Inc., a registered broker-
dealer, in its Elgin, Illinois branch office. From May
1998 until the date hereof, Mr. Glasgow has served as a
registered representative of the Underwriter, and from
November 1998 until the date hereof, Mr. Glasgow has
served as a Research Analyst of LaSalle St. Capital
Markets, Inc.
David A. Schwering, Ph.D., Director of the Fund (DOB
1/8/50; Age 49).
Dr. Schwering has served as the President and a
Director of American Communication & Computation, Inc.,
a corporation engaged in the communications
infrastructure business, since January 1980, and as a
Director of International Digital Maintenance, Ltd., a
digital equipment repair firm, since May 1972. Both
companies are located in Silver Springs, Maryland. Dr.
Schwering holds several patents in the fields of
electronic and security devices. As a pioneer in
modern computing, Dr. Schwering developed several early
computer technologies. In the 1970s, he developed the
downlink and computation algorithms for NASA's ABS
satellites, the domestic money transfer system for
Bankers Trust in New York, the off-track betting system
for the State of New York and an encrypted
telecommunications system for the U.S. government. Dr.
Schwering received his B.S. in Physics from the
Massachusetts Institute of Technology (M.I.T.), his
M.S.C.S. from the University of Maryland and a
Doctorate in Economics from Harvard University. Dr.
Schwering is listed in "Who's Who" in the computer
industry.
Michael Radnor, Ph.D., Director of the Fund (DOB
2/1/33; Age 66).
Dr. Radnor has served as a Professor at the J.L.
Kellogg Graduate School of Management at Northwestern
University in Evanston, Illinois since 1964. In 1983,
Dr. Radnor launched the International Business
Development program through which his staff at
Northwestern assisted numerous U.S. and foreign
companies to strengthen their international operations,
technology and trade strategies and programs.
Privatized as IBD, Inc. in late 1994, the program works
with firms in several countries worldwide. Dr. Radnor
is the President of IBD, Inc. In 1989, Dr. Radnor,
with support from
<PAGE>
the State of Illinois, established
the Small Business Development Center/Incubator
("SBDC"). SBDC provides counseling, training, referral
services and direct assistance to small businesses in
the midwest.
George D. Kraft, Ph.D., Director of the Fund (DOB
9/10/37; Age 61).
Dr. Kraft has served as a Professor at the I.I.T.
Stuart School of Business in Chicago, Illinois since
1994. Previously, he was an Associate Professor of
Electrical and Computer Engineering in the Armour
College of Engineering at I.I.T. In 1993, Dr. Kraft
helped form the Telecommuting Advisory Council of
Illinois, and in 1991, he was a member of a statewide
telecommunications committee that developed a strategic
plan for wiring Illinois with a broadband multimedia
network. He has consulted extensively for the U.S.
government through work for the Defense Information
Systems Agency, the Department of Housing and Urban
Development and the General Services Administration.
Each of these agencies has used him as a national
expert on telecommunication capabilities and products.
Dr. Kraft has also been involved with the National
Institute of Standards and Technology, as manager of
the Integrated Services Digital Network ("ISDN")
Standardization Effort and the Alternate Chairman of
the Executive Steering Committee of the North American
ISDN User's Forum. Dr. Kraft has served as a Director
of the Fund since March 1999.
Lawrence E. Harb, Director of the Fund (DOB 7/28/53;
Age 45).
Mr. Harb has served as the Managing Director of Sales
and Marketing for J.S. Wurzler Underwriting Managers,
LLC ("Wurzler"), an underwriter of internet and e-
commerce insurance for certain syndicates of Lloyds of
London which is located in Okemos, Michigan, since
January 1999. Prior to joining Wurzler, he was
affiliated with Aon Corp. for approximately three
years. Aon Corp., which is located in Chicago,
Illinois, is a holding company that owns mutual fund,
investment advisory and brokerage businesses. While at
Aon Corp., Mr. Harb served as Chairman of Financial
Solutions Insurance Services, an insurance brokerage
firm; President of Aon Securities Corp., a registered
broker-dealer; and Senior Vice President/Director of
Marketing of Aon Advisors, a registered investment
adviser. Before his involvement with Aon Corp., Mr.
Harb was President and founder of LaSalle Consultants,
Ltd., a financial consulting firm located in Melrose
Park, Illinois, and President of LCL Investments, Inc.,
a registered broker-dealer located in Melrose Park,
Illinois. Mr. Harb has over 23 years experience in
the financial services industry, co-authored a book on
banking and has taught at the I.I.T. Stuart School of
Business in Chicago, Illinois. Mr. Harb received his
B.S. in Management from Northern Illinois University in
1975 and his Masters of Management degree from
Northwestern University's Kellogg School of Management
in 1993. Mr. Harb has served as a Director of the Fund
since March 1999.
The address of Messrs. Grady and Glasgow is 810 West
Washington Boulevard, Chicago, Illinois 60607; the
address of Dr. Schwering is 223 University Boulevard
East, Silver Spring, Maryland 20901; the address of Dr.
Radnor is Northwestern University, 2001 Sheridan Road,
Evanston, Illinois 60208; the address of Dr. Kraft is
I.I.T. Stuart School of Business, Room 424, 565 West
Adams Street, Chicago, Illinois 60631; and the address
of Mr. Harb is 3520 Okemos Road, Suite 120, Okemos,
Michigan 48864-5943.
In exchange for an equity interest in the Fund,
Madison Investment Partners L.P. provided the initial
seed capital required to register the Fund with the
SEC. Accordingly, as of the date hereof, Madison
Investment Partners L.P. owns 100% of the Fund's
outstanding shares of common stock. Madison Investment
Partners L.P. is indirectly controlled by LaSalle St.
Capital Markets, Inc. which, in turn, is controlled
equally by McDermott-LaSalle, Inc. (which also controls
the Underwriter and is itself controlled by Jack
McDermott, the Chairman of the Board of LCMCM) and Mr.
Michael R. Grady, Jr. (who is an officer and director
of the Fund).
Directors and officers of the Fund who are also
officers, directors or employees of LCMCM do not
receive any remuneration from the Fund for serving as
directors or officers. Accordingly, neither Mr. Grady
nor Mr. Glasgow receive any remuneration from the Fund
for their services as directors and officers. However,
the remaining directors receive the following fees for
their services as directors of the Fund:(1)
<PAGE>
Name Cash Other Total
Compensation(2) Compensation
David A. $8,000 $0 $8,000
Schwering
Michael Radnor $8,000 $0 $8,000
George D. Kraft $8,000 $0 $8,000
Lawrence E. $8,000 $0 $8,000
Harb
Total $32,000 $0 $32,000
__________
(1)The amounts indicated are estimates of amounts to
be paid by the Fund during its first fiscal year.
(2)Each director who is not deemed an "interested
person" of the Fund, as defined in the 1940 Act,
will receive $2,000 for each Board of Directors
meeting attended by such person, plus reimbursement
of reasonable expenses incurred in connection
therewith. The Board anticipates holding four
meetings during fiscal 1999. Thus, each
disinterested director is entitled to up to $8,000
during such time period from the Fund, plus
reasonable expenses.
PRINCIPAL SHAREHOLDERS
As of the date hereof, the following persons own of
record or are known by the Fund to own beneficially 5%
or more of the outstanding shares of common stock of
the Fund:
Name and Address No. Shares Percentage
Madison Investment Partners L.P.* [________] 100%
4722 Main Street
Lisle, Illinois 60532
__________
*Madison Investment Partners L.P. is indirectly
controlled by LaSalle St. Capital Markets, Inc.
which, in turn, is controlled equally by McDermott-
LaSalle, Inc. and Mr. Michael R. Grady, Jr.
Based on the foregoing, as of the date hereof, Madison
Investment Partners L.P. owned a controlling interest
in the Fund. Shareholders with a controlling interest
could effect the outcome of proxy voting or the
direction of management of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
LCM Capital Management, Inc. ("LCMCM") is the
investment adviser to the Fund. LCMCM is controlled by
LaSalle St. Capital Markets, Inc. which, in turn, is
controlled equally by McDermott-LaSalle, Inc. and Mr.
Michael Grady, Jr. Messrs. Grady and Glasgow serve as
officers and directors of LCMCM and the Fund. See
"Management" for more information.
The investment advisory agreement between the Fund and
LCMCM dated as of ___________________ ____, 1999 (the
"Advisory Agreement") has an initial term of two years
and thereafter is required to be approved annually by
the Board of Directors of the Fund or by vote of a
majority of the Fund's outstanding voting securities
(as defined in the 1940 Act). Each annual renewal must
also be approved by the vote of a majority of the
Fund's directors who are not parties to the Advisory
Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting
on such approval. The Advisory Agreement was approved
by the full Board of Directors of the Fund on
__________________ ____, 1999 and by the initial
shareholder of the Fund on ________________ ____, 1999.
The Advisory Agreement is terminable without penalty on
60 days' written notice by the Board of Directors, by
vote of a majority of the Fund's outstanding voting
securities or by LCMCM, and will terminate
automatically in the event of its assignment.
<PAGE>
Under the terms of the Advisory Agreement, LCMCM
manages the Fund's investments and business affairs,
subject to the supervision of the Board of Directors.
At its expense, LCMCM provides office space and all
necessary office facilities, equipment and personnel
for managing the investments of the Fund. As
compensation for its services, the Fund pays LCMCM a
fee, computed daily and payable monthly, equal to, on
an annual basis, 1.0% of the Fund's average daily net
assets. The organizational and offering expenses of
the Fund were paid by the Underwriter from its own
assets.
Custodian, Transfer Agent, Dividend Paying Agent,
Registrar, Fund Accountant and Administrator
As custodian of the Fund's assets, Firstar Bank
Milwaukee, N.A. ("Firstar Bank"), 615 East Michigan
Street, Milwaukee, Wisconsin 53202, has custody of all
securities and cash of the Fund, delivers and receives
payment for portfolio securities sold, receives and
pays for portfolio securities purchased, collects
income from investments, if any, and performs other
duties, all as directed by the officers of the Fund.
Firstar Mutual Fund Services, L.L.C., which is an
affiliate of Firstar Bank and which is located at the
same address, acts as transfer agent, dividend paying
agent, registrar, fund accountant and administrator
for the Fund.
Independent Accountants
Ernst & Young LLP, 233 South Wacker Drive, Chicago,
Illinois 60606, independent accountants for the Fund,
audit and report on the Fund's financial statements.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Under the Advisory Agreement, LCMCM is responsible for
decisions to buy and sell securities for the Fund and
for the placement of the Fund's securities business,
the negotiation of the commissions to be paid on such
transactions and the allocation of portfolio brokerage
and principal business. Purchases may be made from
brokers, dealers and, on occasion, issuers. The
purchase price of securities purchased from a broker or
dealer may include commissions and dealer spreads.
The Fund may also pay mark-ups on principal
transactions.
In executing transactions on behalf of the Fund, LCMCM
has no obligation to deal with any particular broker or
dealer. Rather, LCMCM seeks to obtain the best
execution at the best security price available with
respect to each transaction. The best price to the
Fund means the best net price without regard to the mix
between purchase or sale price and commission, if any.
While LCMCM seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest
available commission. As noted in the Prospectus under
the captions "Management of the Fund - Investment
Advisory Agreement" and "Underwriting," pursuant to
guidelines adopted by the Fund's Board of Directors and
in accordance with the rules of the SEC, the
Underwriter, which is an affiliate of LCMCM, as well as
certain broker-dealers involved in the Fund's initial
public offering, may serve as brokers to the Fund;
however, in order for the Underwriter or such broker-
dealers to effect portfolio transactions for the Fund
on an exchange, the commissions, fees or other
remuneration received by such persons must be
reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in
connection with comparable transactions involving
similar securities being purchased or sold on any
exchange during a comparable period of time. This
standard allows the Underwriter and such broker-dealers
to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction.
Section 28(e) of the Securities Exchange Act of 1934,
as amended ("Section 28(e)"), permits an investment
adviser, under certain circumstances, to cause an
account to pay a broker or dealer who supplies
brokerage and research services a commission for
effecting a transaction in excess of the amount of
commission another broker or dealer would have charged
for effecting the transaction. Brokerage and research
services include (i) furnishing advice as to the value
of securities, the advisability of investing,
purchasing or selling securities and the availability
of securities or purchasers or sellers of securities;
(ii) furnishing analyses and reports concerning
issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of
accounts; and (iii) effecting securities transactions
and performing functions incidental thereto (such as
clearance, settlement and custody).
In selecting brokers or dealers, LCMCM considers
investment and market information and other research,
such as economic, securities and performance
measurement research provided by such brokers or
dealers and the quality and
<PAGE>
reliability of brokerage
services, including execution capability, performance
and financial responsibility. Accordingly, the
commissions charged by any such broker or dealer may be
greater than the amount another firm might charge if
LCMCM determines in good faith that the amount of such
commissions is reasonable in relation to the value of
the research information and brokerage services
provided by such broker or dealer to the Fund. LCMCM
believes that the research information received in this
manner provides the Fund with benefits by supplementing
the research otherwise available to the Fund. Such
higher commissions will not, however, be paid by the
Fund unless (i) LCMCM determines in good faith that the
amount is reasonable in relation to the services in
terms of the particular transaction or in terms of
LCMCM's overall responsibilities with respect to the
accounts, including the Fund, as to which it exercises
investment discretion; (ii) such payment is made in
compliance with the provisions of Section 28(e) and
other applicable state and federal laws; and (iii) in
the opinion of LCMCM, the total commissions paid by the
Fund will be reasonable in relation to the benefits to
the Fund over the long term. In addition, such higher
commissions will not be paid by the Fund with respect
to portfolio transactions in which the Underwriter is
serving as broker to the Fund. The investment advisory
fees paid by the Fund under the Advisory Agreement are
not reduced as a result of LCMCM's receipt of research
services.
Although LCMCM is a newly organized investment adviser
and does not currently have any advisory accounts in
addition to the Fund, LCMCM may take on other advisory
accounts in the future. In the event that LCMCM serves
as investment adviser to clients, in addition to the
Fund, in the future, LCMCM would also place portfolio
transactions for such other advisory accounts. Under
these circumstances, research services furnished by
firms through which the Fund effects its securities
transactions could be used by LCMCM in servicing all of
its accounts; that is, not all of such services may be
used by LCMCM in connection with the Fund. LCMCM
believes it would not be possible to measure separately
the benefits from research services to each of the
accounts (including the Fund) managed by it. Because
the volume and nature of the trading activities of the
accounts would not likely be uniform, the amount of
commissions in excess of those charged by another
broker or dealer paid by each account for brokerage and
research services would vary. However, LCMCM believes
such costs to the Fund would not be disproportionate to
the benefits received by the Fund on a continuing
basis. LCMCM would seek to allocate portfolio
transactions equitably whenever concurrent decisions
were made to purchase or sell securities by the Fund
and another advisory account. In some cases, this
procedure could have an adverse effect on the price or
the amount of securities available to the Fund. There
can be no assurance that a particular purchase or sale
opportunity would be allocated to the Fund. In making
such allocations between the Fund and other advisory
accounts, certain factors considered by LCMCM would be
the respective investment objectives, the relative size
of portfolio holdings of the same or comparable
securities, the availability of cash for investment and
the size of investment commitments generally held.
A change in the investments held by the Fund is known
as "portfolio turnover." For instance, a portfolio
turnover rate of 100% would result if all the
securities in a portfolio (excluding securities whose
maturities at acquisition were one year or less) at the
beginning of an annual period had been replaced by the
end of the period. Portfolio turnover generally
involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in
other securities. Such sales may result in realization
of taxable capital gains. The portfolio turnover rate
may vary from year to year, as well as within a year.
Under normal market conditions, the portfolio turnover
rate for the Fund is expected to be approximately
______% to ______% and generally will not exceed
______%.
TAXATION OF THE FUND AND ITS DISTRIBUTIONS
As indicated under "Federal Taxation of the Fund and
its Distributions" in the Prospectus, the Fund intends
to qualify annually and be treated as a "regulated
investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and, if
so qualified, will not be liable for federal income
taxes to the extent earnings are distributed on a
timely basis. This qualification does not require
government supervision of the Fund's management
practices or policies. However, in order to so
qualify, the Fund must, among other things: (i) derive
at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to
securities loans, gains from the sale or other
disposition of stock or other income derived with
respect to its business of investing in such stock
(including, but not limited to, gains from options,
futures or forward contracts), and (ii) diversify its
holdings such that, at the end of each quarter of each
taxable year, (a) at least 50% of the market value of
the Fund's assets is represented by cash, cash items,
U.S. government securities, securities of other
regulated investment companies and other securities
<PAGE>
which, with respect to any one issuer, do not represent
more than 5% of the value of the Fund's assets nor more
than 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the market value
of the Fund's assets is invested in the securities of
any one issuer (other than U.S. government securities
or the securities of other regulated investment
companies).
If the Fund qualifies as a regulated investment
company, the Fund will not be subject to federal income
tax on the portion of its investment company taxable
income (i.e., its investment company taxable income as
defined in the Code without regard to the deduction for
dividends paid) and its net capital gain (i.e., the
excess of its net realized long-term capital gain over
its net realized short-term capital loss) which it
distributes to the Fund's shareholders in each taxable
year, provided that it distributes to its shareholders
at least 90% of its net investment income for such
taxable year. If the Fund should fail to qualify as a
regulated investment company in any year, the Fund
would be subject to tax in such year on all of its
taxable income, whether or not the Fund made any
distributions. In addition, amounts not distributed by
a regulated investment company on a timely basis in
accordance with a calendar year distribution
requirement are subject to a 4% excise tax. To avoid
this tax, the Fund must distribute during each calendar
year an amount equal to, at a minimum, the sum of (i)
98% of its net investment income for the calendar year,
(ii) 98% of its capital gain income for the one year
period ending on October 31 of such year (unless, as in
the case of the Fund, an election is made by a fund
with a November or December year-end to use the fund's
fiscal year) and (iii) all ordinary income and capital
gain net income for previous years that were not
previously distributed.
Dividends paid by the Fund from its net investment
income are taxable as ordinary income to shareholders
of the Fund who are subject to tax. Distributions made
from net capital gains and properly designated by the
Fund as such are taxable to shareholders as long-term
capital gains, regardless of the length of time the
shareholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or
less, however, is treated as long-term capital loss to
the extent of any capital gain dividends received by
the shareholder. Distributions in excess of the Fund's
earnings and profits are treated first as a non-taxable
reduction in the adjusted tax basis of a shareholder's
Fund shares (up to the amount of the shareholder's tax
basis in his or her shares) and, thereafter, constitute
capital gain to such shareholder (provided that Fund
shares are held as a capital asset).
Capital gain dividends may be taxed at a lower rate
than dividends from ordinary income for certain non-
corporate taxpayers. For securities held longer than
one year, the maximum long-term capital gains rate is
20%.
Dividends and distributions by the Fund are generally
taxable to shareholders at the time the dividend or
distribution is made (even if paid or reinvested in
additional Fund shares). However, any dividend
declared by the Fund in October, November or December
of any calendar year, which is payable to Fund
shareholders of record on a specified date in such a
month and which is not paid on or before December 31 of
such year will be treated as being paid by the Fund and
received by Fund shareholders as of December 31 of such
year, provided that the dividend is paid during January
of the following year. After the end of each taxable
year, the Fund will notify shareholders of the federal
income tax status of any dividends and distributions,
or deemed distributions, made by the Fund during such
year.
Gain or loss, if any, recognized on the sale or other
disposition of Fund shares, including repurchases by
the Fund, will be taxed as a capital gain or loss if
the shares are capital assets in the shareholder's
hands and will be taxed as long-term or short-term gain
or loss, as the case may be. A loss realized on a sale
or exchange of Fund shares will be disallowed if other
Fund shares are acquired within a 61-day period
beginning 30 days before and ending 30 days after the
date that the shares are disposed of. The basis of the
shares acquired will be adjusted to reflect the
disallowed loss.
This section is not intended to be a full discussion of
federal income tax laws and the effect of such laws on
Fund shareholders. There may be other federal, state
or local tax considerations applicable to a particular
shareholder. Shareholders are urged to consult their
own tax advisers.
<PAGE>
FINANCIAL STATEMENTS
The following audited financial statements of the Fund
are contained herein:
(a) Report of Independent Accountants.*
(b) Statement of Assets and Liabilities.*
(c) Notes to Statement of Assets and Liabilities.*
*To be filed by amendment.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Included in Parts A and B.
(2) Exhibits
See "Exhibit Index."
ITEM 25. MARKETING ARRANGEMENTS
See Exhibits h.1 and h.2 to this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses
expected to be incurred in connection with the offering
described in this Registration Statement (all of which
expenses, except the expense allowance of LaSalle St.
Securities, Inc. (the "Representative"), will be paid
by the Representative):
SEC registration fees $ 7,478.20
American Stock Exchange listing fee *
Printing and engraving expenses; postage *
Audit fees and expenses *
Legal fees and expenses *
NASD fees *
Representative's expense allowance 246,500.00
Miscellaneous *
Total $ *
____________________
* To be completed by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Prior to the initial public offering of the
Registrant's Common Stock, Madison Investment Partners
L.P. controlled the Registrant. Madison Investment
Partners L.P. is indirectly controlled by LaSalle St.
Capital Markets, Inc. which, in turn, is controlled
equally by McDermott-LaSalle, Inc. and Mr. Michael R.
Grady, Jr. LaSalle St. Capital Markets, Inc. (and
therefore McDermott-LaSalle, Inc. and Mr. Grady) also
controls LCMCM, the Registrant's investment adviser.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders as of _______, 1999
Common Stock $0.01 par value 1
<PAGE>
ITEM 29. INDEMNIFICATION
Under the Registrant's Articles of Incorporation and By-
Laws, the directors and officers of the Registrant will
be indemnified to the fullest extent permitted by the
Maryland General Corporate Law, subject to the
applicable provisions of the Investment Company Act of
1940, as amended, including advancing of expenses
incurred in connection therewith. In addition, the
Registrant is required to indemnify other employees and
agents of the Registrant to such extent as shall be
authorized by the Board of Directors and permitted by
law. Such indemnification shall be in addition to any
other right or claim to which any director, officer,
employee or agent may otherwise be entitled. The
Registrant may purchase and maintain insurance on
behalf of any person who is or was a director, officer,
employee or agent of the Registrant against any
liability asserted against and incurred by such person
in any such capacity or arising out of such person's
position, whether or not the Registrant would have the
power to indemnify against such liability.
The Registrant and LCMCM, its investment adviser, have
also agreed to indemnify the Representative and other
underwriters involved with the Registrant's initial
public offering against certain liabilities, including
liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
Insofar as indemnification for liabilities under the
Securities Act may be permitted to the directors,
officers, employees and agents of the Registrant, and
the Representative and other underwriters, 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 Securities
Act and is therefore unenforceable. In the event that
a claim for indemnification against such liabilities
under the Securities Act (other than the payment by the
Registrant of expenses incurred by a director, officer,
employee or agent of the Registrant, or by the
Representative or any other underwriter, in connection
with the successful defense of any action, suit or
proceeding) is asserted by such directors, officers,
employees, agents or Representative or any other
underwriter in connection with the shares 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 of whether such
indemnification by it is against public policy as
expressed in the Securities Act and will be governed by
the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Besides serving as investment adviser to the
Registrant, LCMCM is not currently and has not during
the past two fiscal years engaged in any other
business, profession, vocation or employment of a
substantial nature.
Set forth below is a list of each executive officer and
director of LCMCM indicating each business, profession,
vocation or employment of a substantial nature in which
each such person has been engaged during the past two
fiscal years for his or her own account or in the
capacity of director, officer, employee, partner or
trustee:
Position with Other Substantial Business,
Name LCMCM Profession, Vocation or Employment
Michael R. Grady, Jr. President and President, LaSalle St. Capital
Director Markets, Inc.; Registered
Representative, LaSalle St.
Securities, Inc.;
President, Madison Investment
Partners L.P.
Barry J. Glasgow Chief Investment Research Analyst, LaSalle St.
Officer, Secretary, Capital Markets, Inc.;
Portfolio Manager Registered Representative,
and Director LaSalle St. Securities, Inc.;
From May 1991 until June 1998,
Managing Partner and Portfolio
Manager of Gonski & Glasgow
Investments.
Daniel Schlesser Director Senior Vice President and CFO,
LaSalle St. Securities, Inc.
Jack McDermott Chairman of the Board President, LaSalle St.
Securities, Inc.; President,
McDermott-LaSalle, Inc.
<PAGE>
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents of the
Registrant required to be maintained by Section 31(a)
of the Investment Company Act of 1940, as amended, and
the rules promulgated thereunder, are in the possession
of LCMCM, the Registrant's investment adviser, at the
Registrant's corporate offices, except records held and
maintained by (i) Firstar Bank Milwaukee, N.A., 615
East Michigan Street, Milwaukee, Wisconsin 53202,
relating to its function as custodian and (ii) Firstar
Mutual Fund Services, L.L.C., 615 East Michigan Street,
Milwaukee, Wisconsin 53202, relating to its function as
transfer agent, administrator and fund accountant.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(1) Registrant undertakes to suspend the
offering of shares of Common Stock covered hereby until
the Prospectus contained herein is amended, if (i)
subsequent to the effective date of this Registration
Statement, its net asset value per share of Common
Stock declines more than 10% from its net asset value
per share of Common Stock as of the effective date of
the Registration Statement or (ii) its net asset value
per share of Common Stock increases to an amount
greater than its net proceeds as stated in the
Prospectus contained herein.
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5)(a) For the purpose of determining any
liability under the Securities Act, the information
omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A
and contained in a form of prospectus filed under Rule
497(h) under the Securities Act shall be deemed to be a
part of this Registration Statement as of the time it
was declared effective; and
(b) For the purpose of determining any
liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to
the securities offered therein, and the offering of the
securities at that time shall be deemed to be the
initial bona fide offering thereof.
(6) Registrant undertakes to send by first
class mail, within two business days of receipt of a
written or oral request, a copy of the Statement of
Additional Information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933, as amended, and the Investment Company Act of
1940, as amended, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of
Chicago, State of Illinois on the 21st day of May,
1999.
LCM INTERNET GROWTH FUND, INC.
(Registrant)
By: /s/ Michael R. Grady, Jr.
-----------------------------
Michael R. Grady, Jr.
President and Treasurer
Pursuant to the requirements of the Securities Act
of 1933, as amended, this Pre-Effective Amendment No. 1
to the Registration Statement has been signed below by
the following persons in the capacities and on the
dates indicated.
Name Title Date
/s/ Michael R. Grady, Jr. President, Treasurer and Director May 21, 1999
- ------------------------
Michael R. Grady, Jr.
* Vice President, Secretary May 21, 1999
- ---------------- and Director
Barry J. Glasgow
* Director May 21, 1999
- ---------------
Michael Radnor
* Director May 21, 1999
- ------------------
David A. Schwering
* Director May 21, 1999
- -----------------
George D. Kraft
* Director May 21, 1999
- ----------------
Lawrence E. Harb
*By: /s/ Michael R. Grady, Jr.
----------------------------
Michael R. Grady, Jr. (as attorney-in-fact pursuant
to authority granted by power of attorney included
on this signature page in initial filing of this
Registration Statement)
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(a) Articles of Incorporation(1)
(b) By-Laws(1)
(c) Not Applicable
(d) Specimen Stock Certificate*
(e) Form of Distribution Reinvestment Plan*
(f) Not Applicable
(g) Form of Investment Advisory Contract*
(h.1) Form of Underwriting Agreement*
(h.2) Form of Selected Broker/Dealer Agreement*
(i) Not Applicable
(j) Form of Custodian Agreement*
(k.1) Form of Transfer Agency Agreement*
(k.2) Form of Administration Agreement*
(k.3) Form of Fund Accounting Agreement*
(l) Opinion and Consent of Godfrey & Kahn, S.C.*
(m) Not Applicable
(n) Consent of Ernst & Young, L.L.P.*
(o) Not Applicable
(p) Subscription Agreement for Initial Capital*
(q) Not Applicable
(r) Financial Data Schedule*
_______________
* To be filed by amendment.
(1) Incorporated by reference to Registrant's initial
filing of the Registration Statement on Form N-2
filed with the SEC on March 15, 1999 (Registration
Nos. 333-74407; 811-9261).
