<PAGE>
STONEBRIDGE AGGRESSIVE GROWTH FUND, INC.
370 17th Street, Suite 3100
Denver, Colorado 80202
(800) 639-3935
PROSPECTUS
Stonebridge Aggressive Growth Fund, Inc. (the "Fund") is a no-load, diversified,
open-end investment company. Its principal objective is long-term growth of
capital. A secondary consideration is the production of short-term income. In
order to achieve its investment objectives, the Fund invests in securities of
companies which appear to have good prospects for increased earnings and
dividends and uses certain other investment techniques in an effort to enhance
income and reduce market risks.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE INVESTOR IS ADVISED TO READ THIS PROSPECTUS
AND TO RETAIN IT FOR FUTURE REFERENCE.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT INVESTORS SHOULD KNOW ABOUT
THE FUND PRIOR TO INVESTING AND SHOULD BE RETAINED FOR FUTURE REFERENCE. A
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1998 HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS HEREBY INCORPORATED BY REFERENCE.
A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST AND
WITHOUT CHARGE BY WRITING OR CALLING THE FUND.
This Prospectus is dated March 1, 1998
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PROSPECTUS
TABLE OF CONTENTS
Summary of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
What is the Fund? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Objectives and Investment Policies. . . . . . . . . . . . . . . . . . . . .5
Management of the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . .8
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Reports to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . .9
Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .9
How to Invest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
How to Redeem Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . .11
General Account Policies. . . . . . . . . . . . . . . . . . . . . . . . . .12
2
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SUMMARY OF EXPENSES
This table is designed to assist stockholders in understanding the various
fees and expenses associated with investing in the Fund. The Example shown
below should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
STOCKHOLDER TRANSACTION EXPENSES are charges you pay when buying,
exchanging, or selling shares of the Fund. ANNUAL FUND OPERATING EXPENSES, for
the year ended October 31, 1997, are paid out of the Fund' s assets and include
fees for portfolio management, maintenance of shareholder accounts, general fund
administration, shareholder servicing, accounting and other services. For more
complete descriptions of shareholder transaction expenses and the Fund's
operating expenses, see "General Account Policies" and "Management of the Fund"
in this prospectus and the financial statements and related notes included in
the statement of additional information.
If you own shares through certain service organizations, you may pay
account charges in connection with the maintenance of your account at the
service organization. These account charges are in addition to the expenses
shown below.
STOCKHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price. . . . . . . . . . . . . .none
Maximum Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as
applicable) . . . . . . . . . . . . . . . . . . . . . .none
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price) . . . . .none
Redemption Fees (as a percentage of amount
redeemed, if applicable). . . . . . . . . . . . . . . .none
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . .none
ANNUAL FUND OPERATING EXPENSES (FOR THE YEAR ENDED OCTOBER 31, 1997
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees. . . . . . . . . . . . . . . . . . . . . . .1.00%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . .none
Other Expenses (audit, legal, stockholder services,
transfer agent, custodian, and miscellaneous) . . . . .1.90%
Total Fund Operating Expenses. . . . . . . . . . . . . . . .2.90%
-----
-----
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
You would pay the following
fees and expenses on a $1,000
investment, assuming
(1) 5% annual return* and
(2) redemption at the end of
each time period $29 $91 $155 $326
* Use of this assumed annual return is mandated by the Securities and
Exchange Commission and is not intended to be an illustration of past or
future investment results.
3
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FINANCIAL HIGHLIGHTS
The per share data and ratios in the following table for the years ended
October 31, 1997, 1996, 1995, 1994, 1993 and 1992 have been audited by Hein +
Associates LLP, independent auditors, whose report thereon and on the financial
statements and the related notes, appears in the Annual Report for the Fund
dated October 31, 1997. The per share data and ratios for each of the five
years in the period ended October 31, 1991, were audited by other auditors,
whose report dated November 21, 1991 expressed an unqualified opinion on such
selected per share data and ratios. Further information about the performance
of the Fund is contained in the Fund's Annual Report which may be obtained from
the Fund without charge by contacting ALPS Mutual Funds Services, Inc. or
Stonebridge Aggressive Growth Fund, Inc. at (800) 639-3935.
<TABLE>
<CAPTION>
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
FOR THE YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $13.19 $13.97 $10.24 $12.07 $11.58 $13.22
INCOME FROM INVESTMENT
OPERATIONS:
NET INVESTMENT INCOME
(LOSS) (.20) (.17) (.26) (.29) (.21) (.27)
NET GAINS OR LOSSES ON
SECURITIES (BOTH REALIZED AND
UNREALIZED) 2.83 .90 4.51 .55 1.56 (.20)
TOTAL FROM INVESTMENT
OPERATIONS 2.63 .73 4.25 .26 1.35 (.47)
LESS DISTRIBUTIONS:
DIVIDENDS (FROM NET
INVESTMENT INCOME) -- -- -- -- -- --
DIVIDENDS (FROM CAPITAL
GAINS) (2.55) (1.51) (.52) (2.09) (.86) (1.17)
NET ASSET VALUE,
END OF YEAR $13.27 $13.19 $13.97 $10.24 $12.07 $11.58
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN 22.89% 5.70% 43.71% 1.86% 11.80% (4.67)%
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(IN 000S): $5,428 $4,539 $4,151 $2,992 $3,024 $3,032
RATIO OF OPERATING EXPENSES 2.90 2.29% 3.10% 3.51% 2.81% 3.03%
RATIO OF NET INVESTMENT INCOME
(LOSS TO AVERAGE NET ASSETS) (1.62) (1.26)% (2.10)% (2.86)% (1.82)% (2.24)%
PORTFOLIO TURNOVER RATE* 88% 108% 60% 43% 50% 67%
AVERAGE COMMISSION RATE
PAID** $.1044 $.1248
<CAPTION>
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $8.37 $12.27 $11.41 $10.73 $11.58
INCOME FROM INVESTMENT
OPERATIONS:
NET INVESTMENT INCOME
(LOSS) (.23) (.22) (.17) (.30) (.43)
NET GAINS OR LOSSES ON
SECURITIES (BOTH REALIZED AND
UNREALIZED) 5.30 (1.22) 1.66 .98 .10
TOTAL FROM INVESTMENT
OPERATIONS 5.07 (1.44) 1.49 .68 (.33)
LESS DISTRIBUTIONS:
DIVIDENDS (FROM NET
INVESTMENT INCOME) -- -- -- -- --
DIVIDENDS (FROM CAPITAL
GAINS) (.22) (2.46) (.63) -- (.52)
NET ASSET VALUE,
END OF YEAR $13.22 $8.37 $12.27 $11.41 $10.73
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 61.63% (15.30)% 13.54% 6.34% (3.16)%
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(IN 000S): $3,459 $2,247 $2,672 $2,686 $2,862
RATIO OF OPERATING EXPENSES 3.49% 3.99% 3.28% 3.31% 3.87%
RATIO OF NET INVESTMENT INCOME
(LOSS TO AVERAGE NET ASSETS) (2.08)% (2.29)% (1.32)% (2.50)% (3.16)%
PORTFOLIO TURNOVER RATE* 49% 69% 49% 11% 33%
AVERAGE COMMISSION RATE
PAID**
</TABLE>
* A portfolio turnover rate is the percentage computed by taking the lesser
of purchases or sales of portfolio securities (excluding short-term
investments) for a year and dividing it by the monthly average of the
market value of the portfolio securities during the year.
** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
4
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WHAT IS THE FUND?
Stonebridge Aggressive Growth Fund, Inc. (the "Fund") is an investment
company which was organized in the State of Delaware. Purchasers of the Fund's
shares invest in a company that itself invests in securities. The Fund is an
open-end investment company because, upon demand of an investor, the Fund has a
legal duty to redeem its shares held by the investor and to pay the investor the
net asset value of the shares. See "How to Invest" and "General Account
Policies." The Fund makes investments in various securities and is a type of
management company commonly known as a mutual fund.
The purpose of the Fund is to provide investors with an opportunity to
acquire an interest in a comprehensive common stock program under the
continuous supervision of impartial and experienced professional investment
management. Investment companies operate in accordance with their objectives
and policies. The Fund's investment objectives and policies are set forth below
under "Objectives and Investment Policies."
With respect to the purchase and sale of investments, the Fund receives
investment advice and other services from Stonebridge Capital Management,
Incorporated (the "Adviser"), which is paid a fee pursuant to its contract with
the Fund approved by the stockholders at the July 23, 1997 annual meeting. See
"Investment Adviser" for a discussion of the Adviser. The Fund pays costs
including custodian, management, and transfer agency fees, audit and legal fees,
brokerage fees and fees for certain administrative services.
The value of the Fund's shares, which are priced daily, fluctuates with the
value of the securities in which the Fund invests. When the Fund sells
portfolio securities it may realize a gain or a loss, depending on whether it
sells them for more or less than their cost. The Fund will earn dividend or
interest income to the extent that it receives dividends and interest from its
investments.
The Fund offers its shares to the public at net asset value on a continuous
basis.
OBJECTIVES AND INVESTMENT POLICIES
The principal objective of the Fund is long-term growth of capital. The
production of short-term income is a secondary consideration. In order to
achieve these objectives, management obtains careful and intensive studies of
trends of various industries and companies, including their earnings, as well as
the appreciation possibilities and relative investment values of their
securities.
The Adviser seeks to attain the objectives of the Fund primarily through
the ownership of securities of companies which appear to have good prospects for
superior earnings growth. In order to achieve its growth objective, the Fund
will often invest in small capitalization companies which the Adviser believes
may have higher growth rates than larger companies. There can be no assurance
that these objectives will be achieved since all investments are subject to risk
in varying degrees. Such investment policies can be changed by the Board of
Directors of the Fund.
It is a policy of the Fund, which may not be changed without approval of a
majority of the outstanding voting securities of the Fund, to diversify its
investments and not to concentrate its assets in any one industry.
Diversification and non-concentration tend to reduce, though they do not
eliminate, the market risk inherent in all securities. At the same time they
broaden investment opportunities.
The Fund is not restricted to investment in companies of any particular
size, and it will often invest in smaller growth companies as well as
established companies. The securities of smaller companies may be subject to
more volatile market movements and greater risk than the securities of more
established companies. The Adviser believes that proper diversification
will tend to ameliorate the higher volatility. The Fund does not usually invest
in stocks which are not listed on an exchange or on the NASDAQ National Market
System.
It is the general policy of the Fund to remain fully invested in common
stocks. However, under certain circumstances, investments may be made in other
types of securities such as convertible bonds, preferred stocks, American
Depository Receipts, futures and options. There may also be times when, in
order to protect and preserve the assets of the Fund, the Adviser may hold
significant portions of the Fund's assets in cash, money market funds or
short-term U.S. Treasury securities, or make investments in those industries
which will best afford such protection. In no event will more than 25% of the
Fund's assets be invested in any one industry (other than the U.S. Government).
The Fund may not invest an amount which exceeds 5% of the value of its
total assets in the securities of any one issuer. This restriction does not
apply to holdings of Government securities.
The Fund does not trade actively for quick profits; however, changes are
made in the portfolio whenever such action appears advisable to the Adviser.
During periods of broad economic growth, emphasis is placed on seeking
investments in leading companies in those industries that are expected to lead
the expansion. During periods when the economy is sluggish, emphasis is placed
on seeking to invest in companies selected because of their individual prospects
for improved earnings. The Adviser has approached these decisions with
essentially the point of view of long-term investing but securities may
occasionally be sold for investment reasons
5
<PAGE>
even though they have been held for short periods. Therefore, there may be a
limited number of short term transactions. This flexibility gives the Adviser
freedom to adjust the portfolio to changing business conditions. Because of
this policy, it is anticipated that the annual portfolio turnover will normally
be in the range of 25%-100%. A 50% turnover rate would occur, for example, if
half of the value of the Fund's portfolio were replaced in a period of one year.
The rate of portfolio turnover in the Fund for the most recent fiscal year
ended October 31 and for prior fiscal years appears in the table of Financial
Highlights above. Brokerage cost to the Fund is normally commensurate with the
rate of portfolio activity. The investor should consider the tax consequences
of these policies as discussed in the section "Distributions and Taxes" below.
Maintaining the purchasing power of the capital of the Fund is an
important consideration of management in the determination of investment
policy, but there can be no assurance that investors in the Fund will be
protected from the effects of inflation. The principal risk factor generally
attendant to investment in an investment company with investment policies and
objectives similar to the Fund's is the market risk inherent in investment in
the underlying securities in which the Fund invests. An additional risk factor
peculiar to investment in the Fund arises from the fact that long-term growth
is sought by the Fund at the possible expense of short-term profits.
FOREIGN INVESTMENTS. The Fund may invest up to 20% of its assets, either
directly or indirectly through investments in American Depository Receipts
("ADRs") and closed-end investment companies and in securities issued by foreign
companies wherever organized. ADRs are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs may be listed on a national securities exchange or may trade in
the over-the-counter market. ADR prices are denominated in United States
dollars; the underlying security may be subject to foreign government taxes
which would reduce the yield on such securities. ADRs may be sponsored by the
foreign issuer or may be unsponsored (organized independently from the foreign
issuer). Available information regarding the foreign securities underlying
unsponsored ADRs may not be as current as for sponsored ADRs, and the prices of
unsponsored ADRs may be more volatile.
Securities of closed-end investment companies investing in foreign
securities may be acquired by the Fund within the limits prescribed by the
Investment Company Act of 1940. The Fund currently intends to limit such
investments so that, immediately after such investment: (a) not more than 5% of
the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (c) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund. The Fund will invest in closed-end
investment companies only in furtherance of its investment objective. Growth in
appreciation and dividends in foreign markets sometimes occurs at a faster rate
than in domestic markets. The ability of the Fund to invest in closed-end
investment companies that invest in foreign securities would provide,
indirectly, greater variety and added expertise with respect to investments in
foreign markets than if the Fund invested directly in such markets. Such
companies themselves, however, may have policies that are different from those
of the Fund and will bear management and other expenses of the same type as
those paid by the Fund that may be greater or lesser in amount than those paid
by the Fund. No adjustments will be made to the advisory fee with respect to
assets of the Fund invested in such investment companies.
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject
to the disclosure and reporting requirements of the United States securities
laws. Foreign issuers are generally not bound by uniform accounting, auditing
and financial reporting requirements comparable to those applicable to domestic
issuers. Investments in foreign securities also involve the risk of possible
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, political or financial instability or diplomatic and
other developments which could affect such investments. Further, economies of
particular countries or areas of the world may differ favorably or unfavorably
from the economy of the United States. The extent to which the Fund will be
invested in foreign companies will fluctuate from time to time within the 20%
limitation stated above depending on the Adviser's assessment of prevailing
market, economic and other conditions.
The Fund may enter into currency exchange contracts (agreements to exchange
dollars for foreign currencies at a future date) to manage exchange rate risk.
Currency exchange contracts allow the Adviser to hedge the Fund's foreign
investments against adverse exchange rate changes. Successful currency hedging
depends upon the Adviser's ability to predict foreign currency values. A
currency exchange contract will tend to offset both positive and negative
currency fluctuations but will not offset other changes in the value of the
Fund's foreign investments. The Fund does not and will not use currency
exchange contracts for speculative purposes.
HEDGING AND INCOME ENHANCEMENT STRATEGIES. In addition to its investments
in securities, the Fund may buy and sell stock and stock index options, stock
index and foreign currency futures contracts, and options on futures with
respect to all or a portion of its assets. Transactions in such options and
futures contracts may afford the Fund the opportunity to hedge against a decline
in the value of securities it owns, may provide a means for the Fund to generate
additional income on its investments or may provide opportunities for capital
appreciation. The Fund may also purchase and sell stock index futures contracts
and options to manage cash flow and to attempt to remain fully invested in the
stock market. Although the Fund has no specific fundamental limitations on its
ability to engage in options and futures contracts, it does not use options or
futures contracts for speculative purposes. The Fund may engage in additional
hedging techniques as new techniques become available.
6
<PAGE>
OPTIONS TRANSACTIONS. The Fund may write covered put and call options on
stocks and stock indexes to attempt to increase the return on its investments
through the receipt of premium income. The Fund also may write put options and
purchase call options on stocks and stock indexes to increase its exposure to
the stock market when the Fund has cash from new investments or holds a portion
of its assets in money market instruments or to protect against an increase in
prices of securities it intends to purchase. When the Fund wishes to sell
securities because of stockholder redemptions or to protect the value of a
security it owns against a decline in market value, it may write call options
and purchase put options.
A call option gives the purchaser, in return for payment of the option
premium (the option's current market price), the right to buy the option's
underlying security at a specified exercise price at any time during the term of
the option. The writer of a call option, who receives the premium, assumes the
obligation to deliver the underlying security against payment of the exercise
price at any time the option is exercised. A put option is a similar contract
that gives the purchaser of the option, in return for the premium paid, the
right to sell the underlying security at a specified exercise price at any time
during the term of the option. The writer of the put receives the premium and
assumes the obligation to buy the underlying security at the exercise price
whenever the option is exercised. The premium paid for purchasing an option
reflects, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates. The Fund intends to limit the
aggregate value of the securities underlying the calls or obligations underlying
the put options to no more than 25% of the net assets of the Fund taken at
market value, determined as of the date the options are written. All options,
whether written or purchased, will be listed on a national securities exchange
and issued by the Options Clearing Corporation.
A call option written by the Fund is "covered" if the Fund owns the call
option's underlying security or has an absolute and immediate right to acquire
that security without the payment of additional consideration (or upon payment
of additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities it owns. A call option written
by the Fund is also covered if the Fund owns, on a share-for-share basis, a call
option on the same security whose exercise price is equal to or less than the
call written, or greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or liquid securities in a
segregated account with its custodian. A put option written by the Fund is
"covered" if the Fund maintains cash or liquid securities with a value equal to
the put option's exercise price in a segregated account with its custodian, or
else owns, on a share-for-share basis, a put option on the same security whose
exercise price is equal to or greater than the put written. Securities held to
cover an option may not be sold so long as the Fund remains obligated under the
option, unless they are replaced by other appropriate securities.
A stock index assigns relative value to the common stocks included in the
index (for example, the Standard & Poor's 500 or the New York Stock Exchange
Composite Index), and the stock index fluctuates with changes in the market
value of such stocks. An option on an index gives the holder the right, in
return for the premium paid, to require the writer to pay cash equal to the
difference between the closing price of the index and the exercise price of the
option, times a specified multiplier. No actual delivery of the stocks
underlying the index is made.
FUTURES TRANSACTIONS AND OPTIONS ON FUTURES. The Fund may purchase and
sell stock index and foreign currency futures contracts (as well as purchase and
sell related options on such futures contracts) as a hedge against changes
resulting from market conditions and exchange rates in the values of the
domestic and foreign securities held in the Fund or which it intends to purchase
and where the transactions are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund.
A stock index futures contract is a bilateral agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made. A foreign currency futures contract creates an
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in United States dollars. The Fund may purchase and sell foreign
currency futures contracts as a hedge against changes in currency exchange rates
when the Fund is invested in the securities of foreign issuers.
The Fund may not purchase or sell futures contracts and related options
unless immediately after any such transaction, the aggregate initial margin that
is required to be posted by the Fund under the rules of the exchange on which
the futures contract ( or futures option) is traded, plus any premium paid by
the Fund on its open futures options positions, does not exceed 5% of the Fund's
total assets, after taking into account any unrealized profits and losses on the
Fund's open contracts and excluding the amount that a futures option is "in the
money" at the time of purchase. (An option to buy a futures contract is "in the
money" if the then current purchase price of the contract that is subject to the
option exceeds the exercise or strike price; an option to sell a futures
contract is "in the money" if the exercise or strike price exceeds the then
current purchase price of the contract that is the subject of the option.)
RISKS INHERENT IN TRANSACTIONS IN OPTIONS AND FUTURES CONTRACTS. In
selecting futures contracts and options for the Fund, the Adviser will assess
such factors as current and anticipated stock prices and interest rates, the
relative liquidity and price levels in the options and futures markets compared
to the securities markets, and the Fund's cash flow and cash management needs.
If the Adviser judges these factors incorrectly, or if price changes in the
Fund's futures or options positions are not well correlated with its other
investments, use of the futures contracts and options may leave the Fund in a
worse position than if it had not used these strategies. Other risks inherent in
the use of options, foreign currency and stock index futures contracts and
options on futures contracts include the fact that skills needed to use these
strategies are different from those needed to select portfolio securities, the
7
<PAGE>
imperfect correlation between movements in the price of the options and futures
contracts and movements in the price of the securities or currencies which are
the subject of the hedge, the possible absence of a liquid secondary market for
any particular instrument at any time and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The overall management of the business and affairs of the Fund is vested
with the Board of Directors. The Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to
the Fund, including the Fund's agreements with its investment adviser,
administrator, transfer agent, custodian and dividend disbursing agent. The
day-to-day operations of the Fund (apart from the Adviser's duties as
investment adviser) are delegated to the Administrator, subject always to the
objectives and policies of the Fund and the general supervision of the Fund's
Board of Directors.
INVESTMENT ADVISER
Stonebridge Capital Management, Incorporated, 1801 Century Park East, Suite
1800, Los Angeles, California 90067, is retained as the Adviser to the Fund
pursuant to a written Investment Advisory Agreement. The Investment Advisory
Agreement (the "Agreement") was approved by the Board of Directors on April 10,
1997 subject to stockholder approval. The Agreement was approved by the
stockholders of the Fund on July 23, 1997.
The Agreement requires the Adviser to supervise the investment of the
assets of the Fund, and place orders with securities broker/dealers for the
purchase or sale of securities on behalf of the Fund, subject to the policies
and controls of the Board of Directors of the Fund. In doing so, the Adviser is
to obtain and evaluate information, reports and studies, some or all of which
may be provided to the Adviser by the securities broker/dealers that execute
securities transactions for the Fund, for which their compensation may consist
solely of the brokerage commissions paid by the Fund.
As consideration for furnishing such services, the Agreement provides that
the Adviser will receive a monthly advisory fee from the Fund at the annual rate
of 1.00% of the Fund's average daily net assets. The Adviser has agreed that it
will limit the overall annual expenses of the Fund to 2.90% of average annual
net assets for the current fiscal year and all future fiscal years through
October 31, 2002: any unreimbursed Fund expenses borne by the Adviser in any
fiscal year pursuant to this limitation will be reimbursed to the Adviser at any
year in the future if, after the reimbursement, the expenses of the Fund for
such year are less than 2.90% of its average net assets.
During the fiscal years ended October 31, 1995, 1996 and 1997, the
Adviser received $17,491, $25,253 and $33,293 respectively, in fees for
investment and advisory services pursuant to the Agreement (or prior
investment advisory agreements in effect), representing .5%, .5% and .65%,
respectively, of the Fund's net assets in each year.
The Agreement provides that it shall remain in force and effect for two
years and thereafter from year to year so long as such continuance is approved
at least annually by the Board of Directors of the Fund or by a majority of the
outstanding voting securities of the Fund, but in either event it must be
approved by a majority of the directors who are not parties to the Investment
Advisory Agreement or interested persons of any such party. The Agreement also
provides that it may be terminated without penalty at any time by the Board of
Directors of the Fund or by vote of a majority of the Fund's outstanding voting
securities or by the Adviser upon sixty days written notice and that it shall
terminate automatically in the event of its assignment.
The Adviser is owned by six of its employees. Dr. John G. Ayer, President
of the Fund, has been primarily responsible for the day-to-day management of the
Fund's portfolio since 1982. Although the organizational arrangements of the
Adviser do not require that all investment decisions be made by committee, it is
the practice of the Adviser to make such decisions by committee.
ADMINISTRATOR
ALPS Mutual Funds Services, Inc., 370 17th Street, Suite 3100, Denver,
Colorado 80202, is the Administrator of the Fund. The Administration Agreement
was approved by the Board of Directors on April 10, 1997.
The Administration Agreement provides that ALPS will supervise and
manage the business of the Fund subject to the direction and control of the
officers and directors of the Fund. This responsibility requires that ALPS
provide certain services and facilities including, but not limited to, the
services of an administrator for the Fund and other personnel required by the
Fund, office space, furniture, equipment, supplies, files and records,
supervision of the maintenance of the books and records of the Fund, and the
supervising of the relationship between the Fund and the stockholders,
custodian, fund accounting agent, transfer agent and others, including the
preparation of registration statements and proxy material.
8
<PAGE>
The Administration Agreement provides that it will remain in force and
effect for an initial three-year term and will continue thereafter from year to
year provided that its continuance is specifically approved at least annually by
a majority of the directors of the Fund. The Administration Agreement may be
terminated for cause during its initial term and thereafter may be terminated
without penalty at any time by the Board of Directors of the Fund or by the
Administrator upon ninety days written notice.
As consideration for furnishing such administration services, the
Administration Agreement provides that the ALPS will receive a monthly
management fee equal to the annual rate of .10% of the average daily net assets
in the Fund up to $250,000,000 and .075% of the average daily net assets of the
Fund in excess of $250,000,000. At all times ALPS' fee will be no less than
$5,000 per month in the first year of the term of the Administration Agreement
and $6,250 per month in years two and three.
THE DISTRIBUTOR
ALPS Mutual Funds Services, Inc. 370 17th Street, Suite 3100, Denver,
Colorado 80202 serves as the Distributor and principal underwriter of the
Fund's shares without compensation and bears the expense of distribution of the
shares of the Fund.
THE CUSTODIAN
Fifth Third Bank, Fifth Third Center, Cincinnati, Ohio 45263, is retained
as Custodian for the Fund.
THE TRANSFER AGENT
The Fund's transfer agent and dividend disbursing agent is National
Financial Data Services, 1004 Baltimore, Kansas City, Missouri 64105.
CAPITAL STOCK
The Fund was organized as a corporation in the state of Delaware on October
1, 1956. The authorized capitalization of the Fund consists of an unlimited
number of shares of capital stock, all of one class, having a par value of $1.00
per share. All shares participate equally in dividends and distributions and in
net assets on liquidation. The shares are fully paid and non-assessable: they
have no preference, pre-emptive, conversion, or exchange rights. Fractional
share interests have proportionate dividend and redemption rights, but no voting
rights.
Each full share has one vote, except that each stockholder entitled to vote
at any election of directors has the right to cumulate his votes. Under the
cumulative voting method, each stockholder is entitled ot cast a total number of
votes equal to the number of directors to be elected multiplied by the number of
his shares. The total number of cumulative votes may be cast for one candidate
or distributed among any number of candidates.
At the Fund's annual shareholder meeting on March 28, 1996, its
shareholders approved an amendment to the Fund's Certificate of Incorporation
changing its name to "Stonebridge Aggressive Growth Fund." The Adviser has
entered into a license agreement with the Fund permitting the Fund to use the
phrase "Stonebridge" in its name for so long as the Adviser continues to act as
the Fund's investment adviser.
Shareholder inquiries concerning the Fund should be directed to shareholder
services by calling (800) 639-3935.
REPORTS TO STOCKHOLDERS
The Fund issues semi-annual and annual reports to its stockholders listing
securities held in its portfolio, complete financial statements, and other
information. The financial statements of the Fund are audited annually by
independent public accountants.
DISTRIBUTIONS AND TAXES
The Fund has qualified and intends to continue to qualify and elect to be
taxed as a "regulated investment company" under Subchapter M of the Internal
Revenue Code (the "Code"). In any fiscal year in which the Fund so qualifies
and distributes at least 90% of its taxable net investment income, the Fund will
be relieved of Federal income tax on the net investment income and net realized
capital gains distributed to stockholders. One of the requirements the Fund
must meet in order to qualify under Subchapter M as a regulated investment
company is that at least 90% of the Fund's gross income be derived from certain
sources, which include dividends, interest, payments with respect to securities,
loans and gains from the sale or other disposition of stock or securities. In
addition the Fund must meet certain asset diversification requirements.
The Fund's income from dividends and interest and any net realized
short-term capital gains are paid to shareholders as income dividends. The Fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. Net realized long-term gains are paid to shareholders as capital
gain dividends. A dividend will reduce the net asset value of a Fund share by
the amount of the dividend.
9
<PAGE>
Net investment income and net short-term capital gains distributed by the
Fund, if any, will be taxable to stockholders as ordinary income whether
received in cash or additional shares. Any net long-term capital gains realized
by the Fund, and distributed, will be taxable to stockholders as long-term
capital gains regardless of the length of time investors have held their shares.
A 4% non-deductible excise tax is imposed on a regulated investment company
which fails to distribute to its stockholders a specified amount of its taxable
ordinary income and capital gains during a calendar year.
The Fund may be required to withhold for Federal income taxes 31% of
distributions payable to stockholders who fail to provide the Fund with their
correct taxpayer identification numbers or make required representations, or
who have been notified by the Internal Revenue Service they are subject to
back-up withholding. Corporate stockholders, and other stockholders specified
by the Internal Revenue Code, are exempt from back-up withholding.
Dividends from net investment income are taxable to the shareholders as
ordinary income and are generally eligible, in the case of corporations, for the
70% deduction for corporate shareholders provided by the Internal Revenue Code.
Capital gains distributions do not qualify for such exclusion. For the fiscal
year ended October 31, 1997, there were no dividends paid from investment income
of the Fund so none were eligible for such exclusion. Stockholders who are
citizens or residents of the United States pay federal taxes at capital gains
rates on long-term capital gains which are distributed to them, whether or not
reinvested in the Fund, and regardless of the period of time that such shares
have been owned by the stockholders. Advice as to the tax status and amount of
each year's dividends and distributions will be mailed annually.
HOW TO INVEST
This section tells you how to purchase, exchange and redeem your shares. It
also explains various services and features offered in connection with your
account. Please call the Fund at 1-800-639-3935 to speak with an Investor
Services Representative if you have any questions or need information. ALPS
Mutual Funds Services, Inc. is the distributor for the Fund and Stonebridge
Growth Fund, Inc. (collectively, the "Stonebridge Funds") and has as its
principal office 370 17th Street, Suite 3100, Denver, CO 80202.
HOW TO OPEN AND ADD TO YOUR ACCOUNT
You may open an account and purchase shares of the Fund by completing an Account
Application and returning it to Stonebridge Funds with your check made payable
to the Fund. You may obtain an Account Application by calling 1-800-639-3935.
To Open An Account
- ------------------
By Mail Send a completed Account Application and a check
or money order payable in U.S. dollars and drawn
on a bank located in the U.S. to Stonebridge
Funds, P.O. Box 419247, Kansas City, MO
64141-9247.
In Person Bring your completed Account Application and a
check or money order payable to Stonebridge
Aggressive Growth Fund, 370 17th Street, Suite
3100, Denver, CO 80202.
Automatically (from your Complete the Automatic Investment Plan Section of
bank account) your new Account Application or Account Options
form to have money automatically withdrawn from
your bank account ($100 minimum per transaction),
and return it to Stonebridge Funds, P.O. Box
419247, Kansas City, MO 64141-9247.
By Wire Call 1-800-639-3935 to receive wiring instructions
To Add An Account
- -----------------
By Mail Send a check or money order payable in U.S.
dollars and drawn on a bank located in the U.S. to
Stonebridge Funds, P.O. Box 419247, Kansas City,
MO 64141-9247. Specify your account number and
the name of the Fund(s) in which you are
investing.
In Person Bring your check or money order payable to
Stonebridge Aggressive Growth Fund, 370 17th
Street, Suite 3100, Denver, CO 80202.
Automatically (from your Complete at any time an Automatic Investment Plan
bank account) application to have $100 or more automatically
withdrawn from your bank account monthly. Call
1-800-639-3935 to receive an application.
By Wire Call 1-800-639-3935 to receive wiring
instructions.
10
<PAGE>
MINIMUM INVESTMENTS Amount
To open a new account $1,000
To open a new retirement or certain other accounts $1,000
To open a new account with an Automatic Investment Plan $0
To add to any type of an account $100
The minimum investment requirements do not apply to reinvested dividends,
purchases by Service Organizations acting on behalf of their customers,
officers, trustees, directors, employees and retirees of the Fund, Investment
Adviser, Administrators or any direct or indirect subsidiary or any spouse,
parent or child of any of these persons.
Please note: Third-party checks will not be accepted for the purchase of shares
of the Fund.
The Fund reserves the right to suspend the continuing offering of shares and to
reject any purchase order in its sole discretion.
HOW TO EXCHANGE FUND SHARES
You may exchange your Fund shares for shares of Stonebridge Growth Fund.
Exchanges must be for at least $1,000 in value per transaction. You should
first read the Prospectus for the Stonebridge Growth Fund. For further
information on the exchange privilege, please call an Investor Services
Representative at 1-800-639-3935.
Stonebridge Funds may modify or terminate the exchange privilege, but will not
materially modify or terminate it without giving shareholders 60 days' notice.
By Telephone Call 1-800-639-3935, and give the account name,
account number, name of Fund and amount of
exchange ($1,000 minimum).
By Mail Send a written request to: Stonebridge Funds, P.O.
Box 419247, Kansas City, MO 64141-9247. Submit
any share certificates being exchanged, endorsed
for transfer.
Your written request must:
- be signed by each account owner
- state the number or dollar amount of shares to
be exchanged
- include your account number or tax
identification number
HOW TO REDEEM FUND SHARES
You may redeem your Fund shares on any business day. If you have any questions
on how to redeem your shares, please call an Investor Services Representative at
1-800-639-3935. Your shares will be redeemed at the current-day closing price
if you call before the NYSE close (normally, 4:00 p.m. Eastern Time on a
business day.) Otherwise, you will receive the closing price on the next
business day. Redemption proceeds generally will be sent by check to the
shareholder(s) of record at the address of record within 7 days after receipt of
a valid redemption request.
If you have authorized the wire redemption service, your redemption proceeds
will be wired directly into your designated bank account, normally within 3
business days after receipt of a valid redemption request. A wire fee of $10
will be added to your redemption request. Payment may be postponed or the right
of redemption suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on such Exchange is
restricted, when an emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange Commission, by order,
so permits.
If you have selected the Systematic Withdrawal Plan, your redemption proceeds
will be electronically transferred to your designated bank account within 7 days
after withdrawal on approximately the 20th day of the month.
If the shares being redeemed were purchased by check, telephone or through the
Automatic Investment Program, the Fund may delay the mailing of your redemption
check for up to 15 days from the day of purchase to allow the purchase check to
clear.
Back-up withholding is deducted if your account has no tax identification
number. In this situation, the Fund must remit 31% of redemption proceeds and
dividend distributions to the IRS as an advance tax payment. Back-up
withholding should not apply if your provided your tax identification number on
your account application or on IRS Form W-9.
The Fund has filed an election pursuant to Rule 18f-1 under the Investment
Company Act of 1940 which provides that the Fund is obligated to redeem shares
solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is
less, for any one
11
<PAGE>
stockholder within a 90-day period. Any redemption beyond this amount may be
made in proceeds other than cash.
By Telephone Call 1-800-639-3935 and give the account name,
(Available only if you account number, name of Fund and amount of
check the appropriate redemption ($1,000 minimum).
box on the Account
Application).
Not available for If you do not have and would like to add the
retirement accounts or telephone redemption feature, send a written
shares held in certificate request to Stonebridge Funds, P.O. Box 419247,
form. Kansas City, MO 64141-9247. The request must be
signed (and signatures guaranteed) by each account
owner.
The Fund may impose a dollar limit on telephone
redemptions.
In Person During normal business hours, bring your written
request to:
Stonebridge Funds
370 17th Street
Suite 3100
Denver, CO 80202
By Mail Send a written request to Stonebridge Funds, P.O.
Box 419247, Kansas City, MO 64141-9247. Submit
any share certificates being redeemed, endorsed
for transfer.
Your written request must:
- be signed by each account owner; a signature
guarantee is required for any redemption over
$10,000 or any redemption being mailed to any
address or payee other than that which is on
record;
- state the number or dollar amount of shares to
be redeemed;
- include your account number and tax
identification number.
By Wire Call 1-800-639-3935 or write Stonebridge Funds,
P.O. Box 419247, Kansas City, MO 64141-9247. You
will need to provide account name and number, name
of Fund and amount of redemption ($1,000 minimum
per transaction if made by wire).
If you have already opened your account and would
like to have the wire redemption feature, send a
written request to Stonebridge Funds, P.O. Box
419247, Kansas City, MO 64141-9247. The request
must be signed (and signatures guaranteed) by each
account owner.
The Fund charges a fee of $10 for wire transfers
which is added to any redemption (your proceeds
are reduced by $10 in the event there is an
insufficient amount remaining). In addition, your
bank may charge a fee for receiving a wire.
By Systematic Withdrawal Request monthly or quarterly withdrawals of $50 or
more in multiples of $10. Participation requires
$10,000 in the Fund.
GENERAL ACCOUNT POLICIES
SYSTEMATIC CASH WITHDRAWAL PLAN
A stockholder owning $10,000 or more of Fund shares at net asset value may
establish a Systematic Cash Withdrawal Plan (a "Withdrawal Plan") upon
completion of an authorized form. Qualified participants may then receive
monthly or quarterly checks of $50 or more in multiples of $10 as they choose.
The redemption is made on the 20th day of the month and payment is made within
seven days thereafter. These payments are drawn from shares redeemed from the
stockholder's account to meet the payment amounts requested. To the extent that
these redemptions exceed dividends and capital gains distributions, participants
will eventually deplete their investments, particularly if the net asset value
of the Fund decreases. A systematic withdrawal participant may discontinue
receiving payments at any time, and resume them at any time thereafter. The
Fund also reserves the right to cancel any Withdrawal Plan.
Under this program, all dividends and capital gains distributions are
automatically reinvested, and share certificates are not issued. Amounts
paid to stockholders should not be considered income. No particular amount
of periodic or quarterly payments is recommended. An authorization form may
be obtained from the Fund upon request.
12
<PAGE>
SIGNATURE GUARANTEE
A signature guarantee assures that a signature is genuine. The signature
guarantee protects shareholders from unauthorized transfers. A signature
guarantee is not the same as a notarized signature. You can obtain a signature
guarantee from a bank or trust company, credit union, broker, dealer, securities
exchange or association, clearing agency or savings association.
The guarantee must be an ink stamp or medallion that states "Signature(s)
Guaranteed" and must be signed in the name of the guarantor by an authorized
person with that person's title and the date. The Fund may reject a signature
guarantee if the guarantor is not a member of or participant in a signature
guarantee program. Call your financial institution to see if they have the
ability to guarantee a signature.
To protect your accounts from fraud, the following transactions will require a
signature guarantee:
- - Transferring ownership of an account.
- - Redemption check is more than $10,000.
- - Redemption check is being mailed to an address other than the address of
record
- - Redemption check is being mailed to an address which has been changed within
the last 30 days of the redemption request without a signature guarantee.
The Fund reserves the right to require a signature guarantee under other
circumstances or to reject or delay a redemption on certain legal grounds.
REDEMPTION OF LOW BALANCE ACCOUNTS
If your account balance falls below $1,000 as a result of redemption a letter
will be sent advising you to either bring the value of the shares held in the
account up to the minimum or to establish an automatic investment that is the
equivalent of at least $100 per month. If the action is not taken within 90
days after notice, your account may be closed and the proceeds sent to you at
the address of record. We reserve the right to increase investment minimums.
INVOLUNTARY REDEMPTIONS
We reserve the right to close an account in the shareholder is deemed to engage
in activities which are illegal or otherwise believed to be detrimental to the
Fund.
TELEPHONE TRANSACTIONS
You may choose to initiate certain transactions by telephone subject to your
authorization. The Fund and its agents will not be responsible for any losses
resulting from unauthorized transactions when procedures designed to verify the
identity of the caller are followed. It may be difficult to reach the Fund by
telephone during periods of unusual market activity. If this happens, you may
redeem your shares by mail as described above.
ADDRESS CHANGES
To change the address on your account, call 1-800-639-3935 or send a written
request signed by all account owners. Include the name of the Fund, the account
number(s), the name(s) on the account and both the old address and new
addresses. Certain options may be suspended for 30 days following an address
change unless a signature guarantee is provided.
REGISTRATION CHANGES
To change the name on an account, the shares are generally transferred to a new
account. In some cases, legal documentation may be required.
PRICE OF FUND SHARES
All purchases, redemptions and exchanges will be processed at the net asset
value ("NAV") next calculated after your request and payment, if required, are
received by the transfer agent in proper form. A Fund's NAV is determined by
the Administrator as of the close of regular trading on the New York Stock
Exchange (the "NYSE"), normally 4:00 p.m. (Eastern time), on each day that the
NYSE is open.
In order to receive a day's price, your order must be received by the transfer
agent by the close of regular trading on the NYSE on that day. If not, your
request will be processed at the Fund's NAV at the close of regular trading on
the next day. To be in proper form, your order must include your account number
and must state the Fund shares you wish to purchase, redeem or exchange. In the
case of participants in certain employee benefit plans investing in certain
Funds, purchase orders will be processed at the NAV next determined after the
Service Organization acting their behalf receives the purchase order.
13
<PAGE>
The Fund's NAV is calculated by dividing the total value of its investments and
other assets, less liabilities, by the total number of shares outstanding. The
Fund's investments are valued at market value or, when market quotations are not
readily available, at fair value as determined in good faith by or under the
direction of the Board of Directors. Debt securities with maturities of 60 days
or less are valued at amortized cost, which generally equals market value.
ACCOUNTS OPENED THROUGH A SERVICE ORGANIZATION
You may purchase or sell Fund shares through an account you have with
Stonebridge Capital Management, any qualified broker/dealer, any bank or any
other institution (your "Service Organization"). Your Service Organization may
charge transaction fees on the purchase and/or sale of Fund shares and may
require different minimum initial and subsequent investments than the Fund
requires. Service Organizations may also impose charges, restrictions,
transaction procedures or cut-off times different from those applicable to
shareholders who invest in the Fund directly.
A Service Organization may receive fees from the Fund or Stonebridge Capital
Management for providing services to the Fund or its shareholders. Such
services may include, but are not limited to, shareholder assistance and
communication, transaction processing and settlement, account set-up and
maintenance, tax reporting and accounting. In certain cases, a Service
Organization may elect to credit against the fees payable by its customers all
or a portion of the fees received from the Fund or Stonebridge Capital
Management with respect to their customers' assets invested in the Fund. The
Service Organization, rather than you, may be the shareholder of record of your
Fund shares. The Fund is not responsible for the failure of any Service
Organization to carry out its obligations to its customers.
MAILING INFORMATION
The Fund or your Service Organization will send you a statement of your account
quarterly and a confirmation after every transaction that affects your share
balance or your account registration with the exception of automatic investment
plan transaction and dividend reinvestment transactions. These transactions are
reflected on a statement which is sent to you on a quarterly basis.
A statement with tax information will be mailed to you by January 31 of each
year and filed with the Internal Revenue Service. Each year, we will send you
an annual and a semi-annual report. The annual report includes audited
financial statements and a list of portfolio securities as of the fiscal year
end. The semi-annual report includes unaudited financial statements for the
first six months of the fiscal year, as well as a list of portfolio securities
at the end of the period. You will also receive an updated prospectus at least
once each year. Please read these materials carefully, as they will help you
understand your investments in the the fund.
Duplicate mailings of Fund materials to shareholders who reside at the same
address may be eliminated.
CERTIFICATES
The Fund will issue share certificates upon written request only. Lost share
certificates may require a fee for reissue.
DISTRIBUTION SCHEDULE
Income Dividends Capital Gains
---------------- -------------
Declared and paid in December Declared and paid in December
When you open an account, you must specify on your Account Application whether
you want to receive your distributions in cash. Otherwise, all distributions
will be reinvested. You may change your distribution option at any time by
writing or calling 1-800-639-3935.
Prior to purchasing shares of the Fund, the impact of dividends or capital gains
distributions which have been declared but not paid should be carefully
considered. Any such dividends or capital gains distributions paid to an
investor shortly after the purchase of shares by the investor will have the
effect of reducing the per share net asset value of the shares by the amount of
the dividends or distributions. All or a portion of such dividends or
distribution, although in effect a return of capital, are subject to taxes,
which may be at ordinary income tax rates.
14
<PAGE>
STONEBRIDGE AGGRESSIVE GROWTH FUND, INC.
370 17th Street, Suite 3100
Denver, Colorado 80202
15
<PAGE>
STONEBRIDGE AGGRESSIVE GROWTH FUND, INC.
OFFICERS AND DIRECTORS
RICHARD C. BARRETT, Chairman, Board of Directors and Vice President
DR. JOHN G. AYER, President and Director
DEBRA L. NEWMAN, Vice President and Treasurer
CHARLES E. WOODHOUSE, Vice President and Director
CRAIG B. BURGER, Vice President
CHAD S. CHRISTENSEN, Vice President
JAMES V. HYATT, Secretary
SELVYN B. BLEIFER, M.D., Director
MARVIN FREEDMAN, Director
CHARLES F. HAAS, Director
WILLIAM H. TAYLOR, II, Director
EXECUTIVE OFFICES
370 17th Street, Suite 3100
Denver, Colorado 80202
Telephone - (800) 639-3935
DISTRIBUTOR
ALPS Mutual Funds Services, Inc.
370 17th Street, Suite 3100
Denver, Colorado 80202
TRANSFER AGENT
National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105-1807
INVESTMENT ADVISER
Stonebridge Capital Management, Incorporated
1801 Century Park East, Suite 1800
Los Angeles, California 90067
CUSTODIAN
Fifth Third Bank
Fifth Third Center
38 Fountain Square Plaza
Cincinnati, Ohio 45263
AUDITORS
Hein + Associates LLP
717 17th Street, Suite 1600, Denver, Colorado 80202
STONEBRIDGE AGGRESSIVE GROWTH FUND, INC.
370 17th Street, Suite 3100
Denver, Colorado 80202
PROSPECTUS
March 1, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
STONEBRIDGE AGGRESSIVE GROWTH FUND, INC.
370 17th Street, Suite 3100
Denver, Colorado 80202
(800) 639-3935
- --------------------------------------------------------------------------------
Stonebridge Aggressive Growth Fund, Inc. (the "Fund") is a no-load
diversified, open-end investment company, commonly known as a mutual fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective
investors certain information concerning the activities of the company being
considered for investment. This information is included in a Prospectus
dated March 1, 1998 (the "Prospectus"), which may be obtained without charge
by writing or calling the Fund. This Statement of Additional Information is
intended to furnish investors with additional information concerning the
Fund. Some of the information required to be in this Statement of Additional
Information is also included in the Fund's current Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC.
Copies of the registration statement, including items omitted from the
Prospectus and this Statement of Additional Information, may be obtained from
the SEC by paying the charges prescribed under its rules and regulations.
TABLE OF CONTENTS
PAGE
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . 2
Management of the Registrant . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Advisory and Other Services . . . . . . . . . . . . . . . . . . 6
Brokerage Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Redemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Pricing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH A PROSPECTUS, WHICH MAY BE OBTAINED BY WRITING STONEBRIDGE
AGGRESSIVE GROWTH FUND, INC., 370 17TH STREET, SUITE 3100, DENVER, COLORADO
80202, (800) 639-3935.
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1998
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Information concerning the Fund's fundamental investment objective is set
forth in the Prospectus under the heading "Objectives and Investment Policy."
The Fund's principal objective is long-term growth of capital. Production of
short-term income is a secondary consideration. In order to achieve its
investment objectives, the Fund invests in securities of companies which appear
to have good prospects for increased earnings and dividends and uses certain
other investment techniques in an effort to enhance income and reduce market
risks.
SHORT-TERM TREASURY SECURITIES. The Fund may invest in US Treasury bills,
which mature in one year or less, have fixed interest rates, and are guaranteed
by the full faith and credit of the US Government.
CONVERTIBLE BONDS. The Fund may invest in convertible bonds, which are
fixed income securities that may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible bonds are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
provides the investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the underlying common stock.
Like other debt securities, the value of a convertible bond tends to vary
inversely with the level of interest rates. However, to the extent that the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible bond will be increasingly influenced by its
conversion value (the security's worth, at market value, if converted into the
underlying common stock).
PREFERRED STOCKS. The Fund may invest in preferred stocks. Preferred
stock, unlike common stock, offers a stated dividend rate payable from a
corporation's earnings. Such preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a negative
feature when interest rates decline. Dividends on some preferred stock may be
"cumulative," requiring all or a portion or prior unpaid dividends to be paid
before dividends are paid on the issuer's common stock. Preferred stock also
generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
OPTIONS AND FUTURES TRANSACTIONS. The Fund intends to limit its
transactions in options to writing covered call options on stocks and stock
indexes, purchasing put options on stocks and on stock indexes, and closing out
such options in closing transactions. The Fund intends to limit its
transactions in futures contracts (contracts to purchase or sell an underlying
instrument at a future date), to purchasing and selling stock index and foreign
currency futures contracts, and to the purchase of related options.
Transactions in such options and futures contracts may afford the Fund the
opportunity to hedge against a decline in the value of securities it owns, may
provide a means for the Fund to generate additional income on its investments,
or may provide opportunities for capital appreciation.
In purchasing futures contracts and related options the Fund will comply
with rules and interpretations of the Commodity Futures Trading Commission
("CFTC"), under which the Fund is excluded from regulation as a "commodity pool
operator." CFTC regulations require, among other things, (1) that futures be
used solely for "bona fide hedging" purposes, as defined in CFTC regulations,
and (2) other positions for the establishment of which the aggregate initial
margin and option premiums (less the amount by which such options are "in the
money") do not exceed 5% of the Fund's net assets (after taking into account
unrealized gains and unrealized losses on any contract it has entered into).
The extent to which the Fund may engage in futures transactions may also be
limited by the Internal Revenue Code's requirements for qualification as a
regulated investment company.
The above limitations on the Fund's investments in futures contracts and
options, and the Fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit. The
Fund will not modify the above limitations to increase the permissible
futures and options activities without supplying additional information in a
current Prospectus or Statement of Additional Information that has been
distributed or made available to the Fund's shareholders.
OPTIONS ON SECURITIES. The Fund may write covered call options on
securities it owns to attempt to realize, through the receipt of premium income,
a greater return than would be realized on the securities alone. In return for
the premium, the Fund forfeits the right to any appreciation in the value of the
underlying security above the option's exercise price for the life of the option
(or until a closing transaction can be effected). The Fund also gives up some
control over when it may sell the underlying securities, and must be prepared to
deliver the underlying securities against payment of the option's exercise price
at any time during the life of the option. The Fund retains the full risk of a
decline in the price of the underlying security held to cover the call for as
long as its obligation as a writer continues, except to the extent that the
effect of such a decline may be offset in part by the premium received.
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<PAGE>
The principal purpose of writing a covered put option would be to realize
income in the form of the option premium, in return for which the Fund would
assume the risk of a decline in the price of the underlying security below the
option's exercise price less the premium received. The Fund's potential profit
from writing a put option would be limited to the premium received.
When the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing at
the current market price an option identical as to underlying instrument,
exercise price and expiration date to the option written by the Fund. The Fund
may not effect a closing purchase transaction, however, after it has been
notified that the option it has written has been exercised. When the Fund has
purchased an option it may liquidate its position by exercising the
option, or by entering into a closing sale transaction by selling an option
identical to the option it has purchased. There is no guarantee that closing
transactions can be effected.
The Fund will realize a profit from a closing transaction if the price at
which the option is closed out is less than the premium received for writing the
option or more than the premium paid for purchasing the option. Similarly, the
Fund will realize a loss from a closing transaction if the price at which the
option is closed out is more than the premium received or less than the premium
paid. Transaction costs for opening and closing option positions must be taken
into account in these calculations.
The Fund may purchase put options on securities it owns to attempt to
protect those securities against a decline in market value during the term of
the option. To the extent that the value of the securities declines, the Fund
may be able to realize a gain by closing out the put option (or, if the value of
the securities falls below the put option's exercise price, may exercise the
option and sell the securities at the exercise price), and thereby may partially
or completely offset the depreciation of the securities. If the price of the
securities does not fall during the life of the option, the Fund may lose all or
a portion of the premium it paid for the put option, and would lose the entire
premium if an option were allowed to expire unexercised. Such a loss could,
however, be offset entirely or in part if the value of the securities owned
should rise.
OPTIONS ON STOCK INDEXES. The Fund may write covered call options on stock
indexes to attempt to increase the return on its investments through the receipt
of premium income. The Fund will cover index calls by owning securities whose
price changes, in the opinion of the Fund's investment adviser, are expected to
be similar to those of the index. If the value of an index on which the Fund
has written a call option falls or remains the same, the Fund would realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund would realize a loss in its
call option position, which would reduce the benefit of any unrealized
appreciation of the Fund's stock investments.
The principal reason for writing a covered put option on a stock index
would be to realize income in return for assuming the risk of a decline in the
index. To the extent that the price changes of securities owned by the Fund
correlate with changes in the value of the index, writing covered put options on
indexes would increase the Fund's losses in the event of a market decline,
although such losses would be offset in part by the premium received for writing
the option. The Fund would cover put options on indexes by segregating assets
equal to the option's exercise price, in the same manner as put options on
securities.
The Fund may purchase put options on stock indexes to hedge its investments
against a decline in value. By purchasing a put option on a stock index, the
Fund will seek to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of the Fund's investments did not
decline as anticipated, or if the value of the option did not increase, the
Fund's loss would be limited to the premium paid for the option. The success of
this strategy will largely depend on the accuracy of the correlation between the
changes in value of the index and the changes in value of the Fund's security
holdings.
STOCK INDEX AND FOREIGN CURRENCY FUTURES AND RELATED OPTIONS. The Fund may
purchase and sell stock index and foreign currency futures contracts (as well as
purchase related options) as a hedge against changes resulting from market
conditions and exchange rates in the values of the domestic and foreign
securities held in the Fund or which it intends to purchase and where the
transactions are economically appropriate for the reduction of risks inherent in
the ongoing management of the Fund.
The Fund will sell stock index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Fund may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, the Fund
will purchase stock index futures contracts in anticipation of purchases of
securities. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the long futures positions, but a
long futures position may be terminated without a corresponding purchase of
securities.
In addition, the Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that the Fund expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
The Fund may also sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of the portfolio will decline prior to the
time of sale.
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<PAGE>
Foreign currency futures may be used to hedge against a decline of the US
dollar and to hedge against the currency risk of some foreign securities. We
do not expect this to happen often.
No price is paid or received by the Fund upon the purchase or sale of a
futures contract. Initially, the Fund will be required to deposit with the
broker or in a segregated account with the Fund's custodian an amount of cash
or cash equivalents, the value of which may vary but is generally equal to
10% or less of the value of the contract. This amount is known as initial
margin. The nature of initial margin in futures transactions is different
from that of margin in securities transactions in that futures contract
margin does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying
instruments fluctuates making the long and short positions in the futures
contract more or less valuable, a process known as marking-to-market. For
example, when the Fund has purchased a futures contract and the price of the
contract has risen in response to a rise in the underlying instruments, that
position will have increased in value and the Fund will be entitled to
receive from the broker a variation margin payment equal to that increase in
value. Conversely, where the Fund has purchased a futures contract and the
price of the futures contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable and the Fund
would be required to make a variation margin payment to the broker. At any
time prior to expiration of the futures contract, the Adviser may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
Futures options possess many of the same characteristics as options on
securities. A futures option gives the holder the right, in return for the
premium paid, to assume a long positions (call) or short position (put) in a
futures contract at a specified exercise price at any time during the period of
the option. Upon exercise of a call option, the holder acquires a long position
in the futures contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true.
Futures positions may be closed out only on an exchange or board of trade
which provides a market for such futures. Although the Fund intends to purchase
futures which appear to have an active market, there is no assurance that a
liquid market will exist for any particular contract or at any particular time.
Thus, it may not be possible to close a futures position in anticipation of
adverse price movements.
SHORT SALES AGAINST THE BOX. The Fund may from time to time make short
sales of securities if at the time of the short sale it owns or has the right to
acquire, at no additional cost, an equal amount of the securities sold short.
This investment technique is known as a "short sale against the box." While the
short position is maintained, the Fund will collateralize its obligation to
deliver the securities sold short in an amount equal to the proceeds of the
short sale plus an additional margin amount established by the Board of
Governors of the Federal Reserve (presently 10% of the market value of the
securities sold short). If the Fund engages in a short sale the collateral
account will be maintained by the Fund's custodian or a duly qualified
subcustodian. While the short sale is open the Fund will maintain in a
segregated custodial account an amount of securities equal in kind and amount to
the securities sold short or securities convertible into or exchangeable for
such equivalent securities at no additional cost. The Fund's Adviser currently
anticipates that no more than 25% of the Fund's total assets would be invested
in short sales against the box, but this limitation is a nonfundamental policy
which could be changed by the Board of Directors of the Fund.
The Fund may make a short sale against the box when it believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Fund (or a security convertible into or exchangeable for such
security), or when the Fund want to sell the security it wants at a current
attractive price, but also wishes to defer recognition of gain or loss for
federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Interal Revenue Code. In
such a case, any future losses in the Fund's long position should be reduced by
a gain in the short position. The extent to which such gains or losses are
reduced would depend upon the amount of the security sold short relative to the
amount the Fund owns. There will be certain additional transaction costs
associated with short sales against the box, but the Fund will endeavor to
offset these costs with income from the investment of the cash proceeds of short
sales.
INVESTMENT RESTRICTIONS
The following is a more detailed description of certain policies and
practices of the Fund which augments the summary of the Fund's investment
program which appears above and in the Prospectus under the heading "Objectives
and Investment Policy."
Certain investment limitations and restrictions cannot be changed without
the approval of the lesser of (i) 67% or more of the voting securities of the
Fund represented at a meeting if the holders of more than 50% of the outstanding
voting securities of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding voting securities of the Fund. These restrictions
are as follows:
(1) The Fund may not invest an amount which exceeds 5% of the value of the
Fund's total assets in the securities of any one issuer. This
restriction does not apply to holdings of Government securities.
(2) The Fund may not issue any senior securities.
4
<PAGE>
(3) The Fund may not purchase the securities of any issuer for the purpose
of exercising control of management and it may not acquire or own more
than 10% of any class of the securities of any company.
(4) The Fund may not make short sales of securities or maintain a short
position unless at the time of the short sale the Fund owns or has the
right to acquire at no additional cost an equal amount of the
securities sold short.
(5) The Fund may borrow money only for temporary emergency purposes and
then not in excess of 5% of its total assets.
(6) The Fund may not underwrite securities, buy or sell real estate or
commodities or commodity contracts, or make loans to individuals,
except that the Fund may invest in futures contracts and options as
described in "Futures, Stock Index and Options Transactions."
(7) The Fund will not invest in the securities of other investment
companies if immediately after such investment the Fund will own (a)
securities issued by an investment company having an aggregate value
in excess of 5% of the value of the total assets of the Fund, or (b)
securities issued by all investment companies having an aggregate
value in excess of 10% of the value of the total assets of the Fund,
except to the extent permitted by the Investment Company Act of 1940
and any applicable rules or exemptive orders issued thereunder.
(8) The Fund may not invest in any security if information is not
available with respect to the history, management, assets, owners and
income of the issuer of such security, and may not make any investment
which would subject the Fund to unlimited liability.
(9) The Fund may not purchase any securities on margin except for
short-term credits as are necessary for the clearance of transactions;
provided, however, the Fund may make initial and variation margin
payments in connection with purchases or sales of options or futures
contracts.
Although the Fund is not prohibited from purchases of restricted securities, the
Fund has never held such securities in its portfolio and does not presently
intend to purchase restricted securities.
MANAGEMENT OF THE REGISTRANT
OFFICERS AND DIRECTORS OF THE FUND
Overall operations of the Fund are conducted by its officers under the
control of the Board of Directors. The officers and directors of the Fund,
their addresses and their principal occupation during the past 5 years are:
JOHN G. AYER (age 74) - President
Executive Vice President and Director of Stonebridge Capital Management,
Inc.; Director, Taylor & Turner Assoc., Ltd., a venture capital organization,
1801 Century Park East, Suite 1800, Los Angeles, California 90067.
RICHARD C. BARRETT (age 55) - Vice President and Director*
President and Director, Stonebridge Capital Management, Incorporated, 1801
Century Park East, Los Angeles, California 90067; Vice President and Director,
Stonebridge Growth Fund, Inc.
SELVYN B. BLEIFER, M.D. (age 67) - Director
Physician, Cardiovascular Medical Group, 414 North Camden Drive, Beverly
Hills, California 90212; Director, Stonebridge Growth Fund, Inc.
MARVIN FREEDMAN (age 71) - Director
Partner, Freedman, Broder & Angen, Certified Public Accountants, 2501
Colorado Avenue, Suite 350, Santa Monica, California 90404; Director,
Stonebridge Growth Fund, Inc.
CHARLES F. HAAS (age 83) - Director
Retired motion picture and television director, 12626 Hortense Street,
Studio City, California, 91604; Director, Stonebridge Growth Fund, Inc.
WILLIAM H. TAYLOR (age 58) - Director
General Partner, Taylor & Company (venture capital organization), 18730
Canyon Road, Sonoma California 91604; Director, Stonebridge Growth Fund, Inc.
CHARLES E. WOODHOUSE (age 34) - Vice President and Director
Executive Vice President, Managing Director and Director of Research of
Stonebridge Capital Management, Inc.; Teaching and Research Assistant at
University of Southern California, 1801 Century Park East, Suite 1800, Los
Angeles, California, 90067.
5
<PAGE>
CRAIG B. BURGER (age 40) - Vice President
Senior Vice President and Director, Stonebridge Capital Management,
Incorporated, 1801 Century Park East, Los Angeles, California 90067; Vice
President, Stonebridge Growth Fund, Inc.
CHAD CHRISTENSEN (age 27) - Vice President
Fund Controller, ALPS Mutual Funds Services, Inc., 370 17th Street, Suite
3100, Denver, Colorado 80202; Vice President, Stonebridge Growth Fund, Inc. and
Assistant Treasurer, Westcore Trust.
JAMES V. HYATT (age 47) - Secretary
General Counsel, ALPS Mutual Funds Services, Inc., 370 17th Street, Suite
3100, Denver, Colorado 80202; Secretary, Stonebridge Growth Fund, Inc. and First
Funds Trust, and Assistant Secretary, Financial Investors Trust.
DEBRA L. NEWMAN (age 41) - Treasurer
Vice President, Chief Financial Officer, Secretary and Director,
Stonebridge Capital Management, Incorporated, 1801 Century Park East, Los
Angeles, California 90067; Vice President and Treasurer, Stonebridge Growth
Fund, Inc.
*"Interested person" of the Fund as defined by the Investment Company Act
of 1940, as amended.
As of December 15, 1997, the directors and officers of the Fund, as a
group, owned beneficially 1,511.84 shares of stock of the Fund, which
constituted less than 1% of the Fund's outstanding shares. No one officer or
director or nominee for director owns more than 1% of the Fund's outstanding
shares.
None of the officers of the Fund received any compensation from the Fund
for his or her services during the fiscal year ended October 31, 1997. Each
director who is not an "interested person" of the Fund is entitled to receive
from the Fund $150 for each meeting of the Board of Directors. The following
table sets forth more detailed compensation information for the directors of the
Fund during the fiscal year ended October 31, 1997:
TOTAL COMPENSATION
AGGREGATE PENSION OR FROM FUND AND
COMPENSATION RETIREMENT FUND COMPLEX, PAID
DIRECTOR FROM FUND BENEFITS TO DIRECTORS*
- --------------------------------------------------------------------------------
SELVYN B. BLEIFER, MD $300 $ 0 $2,650
MARVIN FREEDMAN $300 $ 0 $2,650
CHARLES F. HAAS $300 $ 0 $2,650
WILLIAM H. TAYLOR, II $150 $ 0 $ 150
*Stonebridge Growth Fund, Inc. and the Fund comprise a "Fund Complex" as such
term is defined in Item 22(a)(1)(v) of Rule 14a-1 of the Securities Exchange Act
of 1934, because they have the same investment adviser.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER. The Fund's investment adviser is Stonebridge Capital
Management, Incorporated, 1801 Century Park East, Los Angeles, California 90067
(the "Adviser"), which provides investment advisery services pursuant to an
investment advisery agreement (the "Agreement") approved by the stockholders on
August 1, 1997. The Adviser is engaged in the business of providing investment
advice to [individual and institutional clients], and managed assets aggregating
$509 million as of October 31, 1997. It currently has 13 employees. John G.
Ayer owns 9.8%, Richard C. Barrett owns 39.2%, Debra L. Newman owns 15.6%, and
Karen H. Parris, Timothy G. Walt and Charles E. Woodhouse each owns 11.8% of the
outstanding stock of the Adviser.
Personnel of the Adviser may invest in securities for their own accounts
pursuant to a Code of Ethics that sets forth all employees' fiduciary
responsibilities regarding the Fund, establishes procedures for personal
investing, and restricts certain transactions. In addition, restrictions on the
timing of personal investing in relation to trades by the Fund and on short-term
trading have been adopted.
The Agreement provides that the Adviser will not be liable for any error of
judgment or loss suffered by the Fund, except for liability resulting from
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under the Agreement. The Fund has agreed to indemnify the Adviser against
liabilities, costs and expenses that the Adviser may incure in connection with
any action, suit, investigation or other proceeding arising out of or otherwise
based on any action actually or allegedly taken or omitted to be taken by the
Adviser in connection with the performance of its duties or obligations under
the Agreement. The Adviser is not entitled to indemnification with respect to
any liability to the Fund or its shareholders by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties, or of its
reckless disregard of its duties and obligations under the Agreement.
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<PAGE>
ADMINISTRATOR. The Fund's Administrator is ALPS Mutual Funds Services,
Inc., 370 17th Street, Suite 3100, Denver, Colorado 80202. Pursuant to its
Administration Agreement with the Fund, the Administrator is not liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Agreement relates, except for losses
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under the Agreement.
DISTRIBUTOR. The Fund's Distributor is ALPS Mutual Funds Services, Inc.,
370 17th Street, Suite 3100, Denver, Colorado 80202. Pursuant to its General
Distribution Agreement with the Fund, the Distributor has agreed to use all
reasonable efforts, consistent with its other business, to secure purchasers for
shares of the Fund, but is not obligated to sell any specified number of shares.
The General Distribution Agreement contains provisions with respect to renewal
and termination similar to those in the Investment Advisery Agreement. Pursuant
to the General Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933 and other applicable laws.
CUSTODIAN. The Fund's Custodian is Fifth Third Bank, Fifth Third Center,
Cincinnati, Ohio 45263. It receives and deposits all cash and receives and
collects income from the Fund's investments. These institutions also receive
and deliver securities bought or sold by the Fund. The Custodian has no part in
the management or investment decisions of the Fund. The Custodian is entitled
to receive compensation based on the market value of all assets in the
aggregate, plus certain transaction based charges.
TRANSFER AGENT. The Fund's transfer agent and dividend disbursing agent
is National Financial Data Services, 1004 Baltimore, Kansas City, Missouri
64105. As transfer agent, National Financial Data Services maintains the Fund's
records for the stockholders who purchase shares. It accepts, confirms and
processes payments for purchase and redemptions, and disburses and reinvests
dividends and capital gains distributions, if any, made by the Fund to these
stockholders.
INDEPENDENT ACCOUNTANTS. Hein + Associates LLP, Denver Colorado (the
"Auditors") serve as independent accountants to the Fund. The Auditors conduct
the audit of the Fund's annual financial statements and prepare the Fund's tax
returns. The Auditors have no part in the management or investment decisions of
the Fund. The annual fee is estimated to be $9,500 per year.
BROKERAGE TRANSACTIONS
Decisions to buy and sell securities for the Fund, assignment of its
portfolio business and negotiation of its commission rates are made by the
Adviser. It is the Fund's policy that the Adviser shall seek to obtain both
quality research and "bet execution" of purchase and sales transactions, and
that the Adviser shall seek to negotiate the brokerage commissions to provide
fair, competitive compensation for the broker's services, giving consideration
to the statistical and research services provided as well as the brokerage
execution services. Research services furnished by brokers through whom the
Fund effects security transactions may be used by the Adviser in servicing all
of its accounts and not all such services may be used by the Adviser in
connection with the Fund. Subject to periodic review by the Board of Directors,
the Adviser is authorized to pay higher commissions to brokerage firms that
provide it with investment and research information if the Adviser determines
such commissions are reasonable in relation to the overall services provided.
None of the broker/dealer firms with which the Fund conducts business is engaged
in sales of shares of the Fund and none is affiliated with either the Fund or
the Adviser.
Statistical and research material furnished to the Adviser may be useful to
the Adviser in providing services to clients other than the Fund. Similarly,
such material furnished to the Adviser by brokers through which other clients of
the Adviser trade may be useful in providing services to the Fund. The Board of
Directors of the Fund reviews from time to time the extent and continuation of
this practice.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the kind made
by the Fund may also be made by other such accounts. When a purchase or sale of
the same security is made at substantially the same time on behalf of the Fund
and one or more other accounts managed by the Adviser, available investments are
allocated in the discretion of the Adviser by such means as, in its judgment,
result in fair treatment. The Adviser aggregates orders for purchases and sales
of securities of the same issuer on the same day among the Fund and its other
managed accounts, and the price paid to or received by the Fund and those
accounts is the average obtained in those orders. In some cases, such
aggregation and allocation procedures may affect adversely the price paid or
received by the Fund or the size of the position purchased or sold by the Fund.
When the Fund purchases or sells a security which is not listed on a
national securities exchange but which is traded in the over-the-counter market,
the transaction generally takes place directly with a principal market maker,
except in those circumstances where, in the opinion of the Fund, better prices
and executions will be achieved through the use of other broker-dealers. The
Adviser does not receive any benefit directly or indirectly arising from these
transactions.
The following provides information regarding the Fund's brokerage
transactions during the fiscal years ended October 31, 1997, 1996, and 1995.
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<PAGE>
ANNUAL TOTAL
PORTFOLIO TURNOVER BROKERAGE
RATE COMMISSIONS PAID
------------------ ----------------
1997 88% $ 11,746
1996 108% $ 12,402
1995 60% $ 8,995
The Fund's anticipated annual portfolio turnover will normally be in the
range of 25% to 100%. Portfolio turnover is a function of market shifts and
relative valuation of individual securities and market sectors. The Fund's
Adviser attempts to keep the fund invested in those securities that have the
potential to meet the Fund's growth objective and that represent the best
relative value.
The Fund did not acquire securities of any brokers or dealers, or the
parents thereof, during the year ended October 31, 1997.
REDEMPTIONS
The Fund will redeem shares solely in cash up to the lesser of $250,000 or
1% of its net assets during any 90-day period for any one shareholder. Each
Fund reserves the right to pay any redemption price exceeding this amount in
whole or in part by a distribution in kind of securities held by the Fund in
lieu of cash. It is highly unlikely that shares would ever be redeemed in kind.
If shares are redeemed in kind, however, the redeeming shareholder would incur
transaction costs upon the disposition of the securities received in the
distribution.
PRICING
The Fund's public offering price per share, which is the net asset value
per share, is determined once daily as of the close of the New York Stock
Exchange ("NYSE") on each day it is open for trading. This price is
applicable to all orders to buy or sell Fund shares received prior to the
close of trading on the NYSE each day the NYSE is open. Orders received
after such time are held until the next day on which the public offering
price is determined.
Securities listed or traded on a registered securities exchange are
valued at the last sale price on the day of the computation or, if there is
not a sale on that day, the last reported bid price. Where market quotations
of over-the-counter stocks or other securities are readily available, the
mean between the bid and asked price is used; however, for dates on which the
last sale price is available from NASDAQ, or other source of equivalent
reliability, the last sale price for such date is used. Short-term debt
securities with maturities of less than 60 days are valued at amortized cost,
which generally equals market value.
Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of
business day in New York. In addition, foreign securities trading may not
take place on all business days in New York, and may occur in various foreign
markets on days which are not business days in New York and on which net
asset value is not calculated. The calculation of net asset value may not
take place contemporaneously with the determination of the prices of
portfolio securities used in such calculation. Events affecting the values
of portfolio securities that occur between the time their prices are
determined and the close of the New York Stock Exchange will not be reflected
in the calculation of net asset value unless the Board of Directors deems
that the particular event would materially affect net asset value, in which
case an adjustment will be made. Assets or liabilities initially expressed
in terms of foreign currencies are translated prior to the next determination
of the net asset value into U.S. dollars at the spot exchange rates at 1:00
p.m. Eastern Time or at such other rates as the Adviser may determine to be
appropriate in computing net asset value.
The value of any other securities for which no market quotations are
available and other assets will be determined at fair value in good faith by or
pursuant to the policies adopted by the Board of Directors.
Dividends receivable are treated as assets from the date on which stocks go
ex-dividend.
The net asset value per share is determined by dividing the total market
value of all the Fund's portfolio securities and other assets, less all
liabilities, by the total number of Fund shares outstanding.
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INDIVIDUAL RETIREMENT ACCOUNT
The Fund has available a plan (the "IRA") for use by individuals with
compensation for services rendered (including earned income from
self-employment) who wish to use shares of the Fund as a funding medium for
individual retirement saving.
TRADITIONAL IRA
For a "traditional" IRA, except for rollover contributions, an individual
who has attained, or will attain, age 70 1/2 before the end of the taxable year
may only contribute to an IRA for his or her nonworking spouse under 70 1/2.
Distributions of an individual's IRA assets (and earnings thereon) before
the individuals attained age 59 1/2 will (with certain exceptions) result in
an additional 10% tax on the amount included in the individual's gross income.
Earnings on amounts contributed to the IRA are not taxed until distributed.
ROTH IRA
For a "Roth IRA", an individual may contribute to an IRA for his or her
nonworking spouse.
Distributions of an individuals IRA assets (and earnings thereon) after
the age of 59 1/2 and with certain other conditions met will not be included
in the individual's gross income.
The foregoing brief descriptions are not complete or definitive
explanations of the various types of Individual Retirement Accounts. Any
person who wishes to establish a retirement plan account may do so by
contacting ALPS directly. The complete Plan documents and applications will
be provided to existing or prospective shareholders upon request, without
obligation. The Fund recommends that investors consult with their attorneys
or tax advisors to determine.
TAXATION
The Fund intends to qualify annually and has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, the Fund
must, among other things, (a) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income (including gains from options, futures
and forward contracts) derived with respect to its business of investing in
such stock, securities or currencies ("Qualifying Income Test"); (b) for
taxable years beginning on or before August 5, 1997, derive in each taxable
year less than 30% of its gross income from the sale or other disposition of
certain assets held less than three months, namely (1) stocks or securities,
(2) options, futures, or forward contracts (other than those on foreign
currencies), and (3) foreign currencies (or options, futures, and forward
contracts on foreign currencies) not directly related to its business of
investing in stocks or securities; (c) diversify its holdings so that, at the
end of each quarter of the taxable year, (i) at least 50% of the market value
of a Fund's assets is represented by cash, U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies) (the "Diversification
Test"); and (d) distribute at least 90% of its investment company taxable
income (which includes dividends, interest and net short-term capital gains
in excess of any net long-term capital losses) each taxable year.
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers from the prior eight years)
designated by the Fund as capital gain dividends, if any, that it distributes to
shareholders. The Fund intends to distribute to its shareholders substantially
all of its investment company taxable income monthly and any net capital gains
annually. Investment company taxable income or net capital gains not
distributed by the Fund on a timely basis in accordance with a calendar year
distribution requirement may be subject to a nondeductible 4% excise tax. The
avoid the tax, the Fund must distribute during each calendar year an amount at
least equal to the sum of (1) 98% of its ordinary income (with adjustments) for
the calendar year and foreign currency gains or losses for the twelve month
period ending on October 31 of the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (and adjusted for certain ordinary
losses) for the twelve month period ending on October 31 of the calendar year,
and (3) all ordinary income and capital gains for previous years that were not
distributed during such years. A distribution will be treated as paid on
December 31 of the calendar year, if it is declared by the Fund in October,
November, or December of that year to shareholders of record on a date in such a
month and actually paid by the Fund during January of the following year. Such
distributions will be taxable to shareholders (other than those not subject to
federal income tax) in the calendar year in which the distributions are
received. To avoid application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company taxable
income will be taxable to a U.S. shareholder as ordinary income. Distributions
received by tax-exempt shareholders will not be subject to federal income tax to
the extent permitted under the applicable tax exemption.
Dividends paid by the Fund are not expected to qualify for the deduction
for dividends received by corporations. Distributions of net capital gains, if
any, are taxable as long-term capital gains, regardless of how long the
shareholder has held the Fund's shares and are not eligible for the dividends
received deduction. The tax treatment of dividends and distributions will be
the same whether a shareholder reinvests them in additional shares or elects to
receive them in cash.
SALES OF SHARES. Upon disposition of shares of the Fund (whether by
redemption, sale or exchange), a shareholder will realize a gain or loss. Such
gain or loss will be a capital gain or loss if the shares are capital assets in
the shareholder's hands, and will be long-term or short-term generally depending
upon the shareholder's holding period for the shares. Any loss realized on a
disposition will be disallowed by "wash sale" rules to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after the disposition. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by
a shareholder on a disposition of shares held by the shareholder for six months
or less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with respect
to such shares.
BACKUP WITHHOLDING. The Fund may be required to withhold for U.S. federal
income taxes 31% of all taxable distributions payable to shareholders who fail
to provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal tax liability.
FOREIGN INVESTMENTS. Income received by the Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. In addition, the Adviser intends to manage the Fund with
the intention of minimizing foreign taxation in cases where it is deemed prudent
to do so. If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible to elect to "pass-through" to the Fund's shareholders the
amount of foreign income
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<PAGE>
and similar taxes paid by the Fund. If this election is made, a shareholder
generally subject to tax will be required to in clude in gross income (in
addition to taxable dividends actually received) his pro rata share of the
foreign income taxes paid by the Fund, and may be entitled either to deduct
(as an itemized deduction) his or her pro rata share of foreign taxes in
computing his taxable income or to use it (subject to limitations) as a
foreign tax credit against his or her U.S. federal income tax liability. No
deduction for foreign taxes may be claimed by a shareholder who does not
itemize deductions. Each shareholder will be notified in writing within 60
days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year. Absent the Fund making
the election to "pass through" the foreign source income and foreign taxes,
none of the distributions may be treated as foreign source income for
purposes of the foreign tax credit calculation.
Investment income received from sources within foreign countries may be
subject to foreign income taxes. The U.S. has entered into tax treaties with
many foreign countries which entitle certain investors to a reduced rate of tax
or to certain exemptions from tax. The Fund will operate so as to qualify for
such reduced tax ratesor tax exemptions whenever practicable. The Fund may
qualify for and make an election permitted under section 853 of the Code so that
shareholders will be able to claim a credit or deduction on their Federal income
tax returns for, and will be required to treat as part of the amouts distributed
to them, their pro rata portion of the income taxes paid by the Funds to foreign
countries (which taxes relate primarily to investment income). The shareholders
of the Fund may claim a credit by reason of the Fund's election subject to
certain limitations imposed by Section 904 of the Code. However, no deduction
for foreign taxes may be claimed under the Code by individual shareholders who
do not elect to itemize deductions on their Federal income tax returns, although
such a shareholder may claim a credit for foreign taxes and in any event will be
treated as having taxable income in the amount of the shareholder's pro rata
share of foreign taxes paid by the Fund. Although the Fund intends to meet the
requirements of the Code to "pass through" such taxes, there can be no assurance
that the Fund will be able to do so.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the pass-through election
is made, the source of the Fund's income will flow through to shareholders of
the Fund. With respect to such election, gains from the sale of securities will
be treated as derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income, and to certain
other types of income. Shareholders may be unable to claim a credit for the
full amount of their proportionate share of the foreign taxes paid by the Fund.
The foreign tax credit is modified for purposes of the Federal alternative
minimum tax and can be used to offset only 90% of the alternative minimum tax
imposed on corporations and individuals and foreign taxes generally are not
deductible in computing alternative minimum taxable income.
OTHER TAXES. Distributions also may be subject to additional state,
local and foreign taxes, depending on each shareholder's particular
situation. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund.
YEAR 2000
The services provided by the Fund's investment adviser, administrator,
principal underwriter, transfer agent and other service providers depend on
the proper functioning of their computer systems. Certain of these systems
will require updating or replacement prior to the year 2000 to avoid errors
when storing dates and making date-related calculations. The Fund understands
that these firms (and their important vendors and business partners) are
taking steps reasonably designed to prepare their computer systems for the
21st century. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Fund.
PERFORMANCE INFORMATION
The Fund may from time to time advertise total returns, compare Fund
performance to various indices, and publish rankings of the Fund prepared by
various ranking services. Any performance information should be considered in
light of the Fund's investment objectives and policies, characteristics and
quality of its portfolio, and the market conditions during the given time
period, and should not be considered to be representative of what may be
achieved in the future.
The total return for the Fund is computed by assuming a hypothetical
initial payment of $1,000. It is assumed that all investments are made at net
asset value (as opposed to market price) and that all of the dividends and
distributions by the Fund over the relevant time periods are invested at net
asset value. It is then assumed that, at the end of each period, the entire
amount is redeemed without regard to any redemption fees or costs. The average
annual total return is then determined by calculating the annual rate required
for the initial payment to grow to the amount which would have been received
upon redemption. Total return does not take into account any federal or state
income taxes.
Total return is computed according to the following formula:
n
P(1 + T) = ERV
Where P= a hypothetical initial payment of $1,000.
T= average annual total return.
n= number of years.
ERV= ending redeemable value at the end of the period (or fractional
portion thereof) of a hypothetical $1,000 payment made at the
beginning of the period.
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TOTAL RETURNS FOR THE FUND HAVE BEEN AS FOLLOWS:
-----------------------------------------------
1997 22.89%
1996 5.70%
1995 43.71%
1994 1.86%
1993 11.80%
1992 (4.67)%
1991 61.63%
1990 (15.30)%
1989 13.54%
1988 6.34%
1987 (3.16)%
Performance information for the Fund may be compared to various unmanaged
indices, such as S&P500, Russell 2000, Russell 3000 and indices prepared by
Lipper Analytical Services. Unmanaged indices (i.e., other than Lipper)
generally do not reflect deductions for administrative and management costs and
expenses.
Performance rankings are prepared by a number of mutual fund ranking
entities that are independent of the Fund and its affiliates. These entities
categorize and rank funds by various criteria, including fund type, performance
over a given period of years, total return, variations in sales charges and
risk/reward considerations.
FINANCIAL STATEMENTS
The financial statements in the 1997 Annual Report are incorporated in this
Statement of Additional Information by reference. The financial statements in
the Annual Report have been audited by the Fund's independent accountants, Hein
+ Associates LLP, whose report thereon appears in the Annual Report, and have
been incorporated herein in reliance upon such report given upon their authority
as experts in accounting and auditing. Additional copies of the Annual Report
may be obtained at no charge by writing or telephoning the Fund at the address
or number on the front page of this Statement of Additional Information.
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