<PAGE>
STONEBRIDGE GROWTH FUND, INC.
370 17th Street, Suite 3100
Denver, Colorado 80202
(800) 639-3935
PROSPECTUS
Stonebridge Growth Fund, Inc. (the "Fund") is a no-load, diversified, open-end
investment company. Its investment objectives are long-term growth of capital
and increased future income through investment primarily in common stocks. The
Fund uses certain other investment techniques in an effort to enhance income and
reduce market risks. Shares may be purchased directly from the Fund without a
sales charge or underwriting commission.
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 30, 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 30, 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...................................................10
Capital Stock............................................................12
Reports to Stockholders..................................................12
Distributions and Taxes..................................................12
How to Invest............................................................13
How to Redeem Fund Shares................................................15
General Account Policies.................................................17
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SUMMARY OF EXPENSES
This table and Example below is designed to assist stockholders in
understanding the various fees and expenses associated with investing in the
Fund. 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, which are based
on amounts incurred for the year ended November 30, 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
<TABLE>
<S> <C>
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
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees................................. 0.75%
12b-1 Fees...................................... none
Other Expenses (audit, legal, stockholder services,
transfer agent, custodian, and
miscellaneous)............................... 0.75%
Total Fund Operating Expenses................ 1.50%
</TABLE>
___________________
* A $10 per transaction fee may be imposed on redemption by wire transfer.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
total fees and expenses on
a $1,000 investment,
assuming
(1) 5% annual return* and
(2) redemption at the end
of each time period: $15 $48 $82 $180
</TABLE>
_____________
* 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. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES.
3
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FINANCIAL HIGHLIGHTS
The information in the following table for the years ended November 30, 1997,
1996, 1995, 1994, 1993 and 1992 has been audited by Hein + Associates LLP,
independent auditors, whose report thereon and on the financial statements and
the related notes is included in the Fund's Annual Report to Stockholders
incorporated by reference into the Statement of Additional Information. The per
share data and ratios for each of the five years in the period ended November
30, 1991, were audited by other auditors whose report dated December 20, 1991,
expressed an unqualified opinion on those selected per share data and ratios.
Further information about the performance of the Fund is contained in the Fund's
Annual Report to Stockholders for the year ended November 30, 1997 which may be
obtained from the Fund without charge by contacting ALPS Mutual Funds Services,
Inc. or Stonebridge Growth Fund, Inc. at (800) 639-3935.
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year......... $ 16.56 $ 14.36 $ 12.61 $ 12.62 $ 14.78 $ 14.84 $ 12.55 $ 14.18 $ 11.70 $ 11.04 $ 13.08
Income From Operations
Net Investment Income...... .02 .10 .17 .07 .06 .15 .20 .22 .20 .12 .09
Net Gains or Losses on
Securities (both realized
and unrealized)........... 2.90 2.83 2.34 .29 (.19) 1.10 2.64 (.16) 2.91 1.79 (.68)
Total From Investment
Operations................ 2.92 2.93 2.51 .36 (.13) 1.25 2.84 .06 3.11 1.91 (.59)
Less Distributions
Dividends (from net
investment income)........ (.28) (.17) (.07) (.07) (.15) (.21) (.22) (.21) (.13) (.10) (.13)
Distributions (from
capital gains)............ (1.51) (.56) (.69) (.30) (1.88) (1.10) (.33) (1.48) (.50) (1.15) (1.32)
Net Asset Value, End of
Year...................... $ 17.69 $ 16.56 $ 14.36 $ 12.61 $ 12.62 $ 14.78 $ 14.84 $ 12.55 $ 14.18 $ 11.70 $ 11.04
=================================================================================================
Total Return............... 19.79% 21.46% 23.50% 2.81% (1.22)% 8.29% 23.53% .46% 27.89% 18.37% (5.22%)
Ratios and Supplemental Data
Net Assets, End of Year
(in 000's)................ $42,380 $39,602 $34,775 $30,775 $32,448 $34,560 $33,710 $29,491 $31,167 $26,829 $24,294
Ratio of Expenses to
Average Net Assets........ 1.50% 1.47% 1.49% 1.64% 1.60% 1.50% 1.48% 1.70% 1.69% 1.70% 1.65%
Ratio of Net Income to
Average Net Assets........ .11% .67% 1.27% .53% .50% .99% 1.46% 1.69% 1.52% 1.04% .64%
Portfolio Turnover*........ 41% 45% 38% 36% 56% 45% 22% 64% 83% 32% 68%
Average Commission Rate
Paid**.................... $ .1221 $ .1359
</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.
WHAT IS THE FUND?
Stonebridge 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 shareholders at the August 1, 1997 annual meeting. See
"Management of the Fund - Investment Adviser" for a discussion of the Adviser.
The Fund pays costs including custodian, management, transfer agency fees,
audit and legal fees, brokerage fees and fees for certain administrative
services.
4
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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. Such shares have been qualified for sale in the majority of the United
States.
OBJECTIVES AND INVESTMENT POLICIES
The Fund principally seeks long term growth of capital and increased
future income through investment primarily in common stocks. Immediate income
return is a secondary consideration. In order to achieve its investment
objectives, the Fund invests primarily in the common stocks of those companies
that, based upon in-depth fundamental research, appear to have the potential to
achieve growth in sales, earnings per share, and ultimately in dividends at a
rate greater than that of the overall economy and the rate of inflation. The
Fund's Adviser believes that companies that are able to achieve above average
records of growth will eventually be rewarded by higher prices for their stocks.
These companies may be large or small and there are no restrictions on the
market capitalization of a company in which the Fund may invest. However,
investors should be aware that during periods of poor economic performance or
adverse market conditions, common stocks and hence the per share value of the
Fund may not reflect favorable earnings trends. In addition, the securities of
smaller companies may be subject to more volatile market movements and greater
risk than the securities of more well-established companies.
The Fund's Adviser selects securities by studying macro-economic and
industry trends to determine where the best opportunities for growth might be
found. Companies operating within these high growth areas of the economy are
carefully analyzed to determine their particular strengths and weaknesses, as
well as their global competitive position. Generally, a company that has the
ability to achieve superior growth will have the following characteristics: it
will be a leader in its industry; have a proprietary product or service; spend
heavily on research and development; have a strong balance sheet with little or
no debt; and have a superior return on equity. Fundamental valuation measures
are used to determine the best relative values given present market prices of
stocks being considered for the Fund.
The Fund's investment policy is based upon the conviction of management
that the long-term growth and prosperity of American business will continue.
Management seeks to attain the objectives of the Fund primarily through the
ownership of securities of companies which possess potential growth in the years
ahead or appear to have good prospects for increased earnings and dividends and
through the use of certain other investment techniques in an effort to enhance
income and reduce market risks. There can be no assurance that these objectives
will be achieved since all investments are subject to risk in varying degrees.
Such objectives are a fundamental policy which can be changed by the Board of
Directors of the Fund only with approval of the stockholders.
It is the 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.
While it is the general policy of the Fund to be fully invested in common
stocks, under certain circumstances investments may be made in other types of
securities such as convertible and non-convertible bonds, preferred stocks,
stock index and foreign currency futures, options on stocks and stock indexes,
American Depository Receipts and securities of investment companies and foreign
issuers. The policy of the Fund is that neither investments in bonds nor
investments in preferred stocks will exceed 5% of the Fund's total assets. For a
discussion of the Fund's investments in futures, options, American Depository
Receipts and securities of foreign issuers, see "Foreign Investments" and
"Hedging and Income Enhancement Strategies" below.
In addition, during adverse or transition periods in the stock market,
reserves may be held without percentage limitation in order to protect and
preserve the assets of the Fund. These temporary defensive reserves will be
invested in money market instruments, including U.S. Treasury bills, repurchase
agreements secured by U.S. Government securities, certificates of deposit, high
grade bankers' acceptances, and high grade commercial paper with a maximum
maturity of not more than one year.
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.
The Fund does not trade actively for a quick profit which is derived in a
short period of time between the purchase and sale of a security. However,
changes are made in the portfolio whenever such action appears advisable. 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. In recent years, companies that have provided unusual investment
opportunities notwithstanding a sluggish economy have often been found to be
among the leaders in the development of new technologies in their respective
industries. Management approaches these decisions with essentially the point of
view of long-term investing, but securities may occasionally be sold for
investment reasons even though they have been held for short periods. Therefore,
there may be a limited number of short-term transactions. This flexibility gives
management freedom to adjust the portfolio to changing business conditions.
5
<PAGE>
Because of this policy, it is anticipated that the annual portfolio turnover
will normally be in the range of 25% to 75%. A 50% turnover rate would occur,
for example, if one-half of the Fund's portfolio were replaced in a period of
one year. The rate of portfolio turnover for the most recent fiscal year ended
November 30, and for prior fiscal years appears in the table of Financial
Highlights above. Brokerage cost to the Fund is commensurate with the rate of
portfolio activity. The investor should consider the tax consequences of these
policies as discussed in the section "Distribution and Taxes" below.
COMMON STOCKS. Investments in common stocks have over the long term
provided returns superior to those achieved through investment in bonds or money
market instruments. However, in the short to intermediate term, returns can vary
substantially from year to year and it is probable that there will be periods
when the net asset value of the Fund will decline. Diversification and temporary
reserves can be expected to reduce the risks inherent in investing in common
stocks but will not eliminate such risk. Accordingly, investors should be
prepared and able to maintain their investment in the Fund during periods when
the market declines. In addition, while maintaining the purchasing power of the
capital of the Fund is an important consideration of the management in the
determination of the Fund's investment policy, there can be no assurance that
investors in the Fund will be protected from the effects of inflation. 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 total assets,
either directly or indirectly through investments in American Depository
Receipts ("ADRs") and closed-end investment companies, 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
Stated dollars; the underlying security may be denominated in a foreign
currency. The underlying security may be subject to foreign government taxes
which would reduce the yield in such securities. ADR's may be sponsored by a
foreign issuer or may be unsponsored (organized independently from the foreign
issuer).
Although the Fund is authorized to invest in any kind of investment
company, it intends to limit its investments to securities of closed-end
investment companies 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 that are similar to those paid by the Fund and which 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 will 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 effect 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.
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.
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.
6
<PAGE>
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
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.
7
<PAGE>
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,
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 August 1, 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 0.75% of the Fund's average daily net assets. The Adviser has agreed that it
will limit the overall annual expenses of the Fund to 1.50% of average annual
net assets for the current fiscal year and all future fiscal years through
November 30, 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 1.50% of its average net assets.
During the fiscal years ended November 30, 1995, 1996 and 1997, the
Adviser received from the Fund Manager $97,356, $101,700 and $173,492,
respectively, in fees for investment and advisory services pursuant to the
Investment Advisory Agreement (or prior investment advisory agreements in
effect), representing .3%, .3% and .41%, 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. Richard C. Barrett, Vice
President of the Fund and President of the Adviser, has been primarily
responsible for the day-to-day management of the Fund's portfolio since 1984.
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.
The Administration Agreement provides that it will remain in force and
effect for an initial term of three years and from year to year thereafter
provided that its continuance is specifically approved at least annually by a
majority of the directors of the Fund. After the initial term, the
Administration Agreement may be terminated without penalty at any time by the
Board of Directors of the Fund or by the
8
<PAGE>
Administrator upon at least ninety days written notice.
As consideration for furnishing such administration services, the
Administration Agreement provides that 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 and $6,250 per month in years two and three.
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.
CUSTODIAN
Fifth Third Bank, Fifth Third Center, Cincinnati, Ohio 45263, is retained
as Custodian for the Fund.
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
November 13, 1958. The authorized capitalization of the Fund consists of
indefinite 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 to 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.
Stockholder inquiries concerning the Fund should be directed to an
Investor Services Representative 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. 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.
9
<PAGE>
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 November 30, 1997, there was a $.28 dividend paid from investment
income of the Fund which was 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
Aggressive 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 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 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
after your account is opened), 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 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.
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
Please note: Third-party checks will not be accepted for the purchase of shares
of the Fund.
10
<PAGE>
The Fund reserves the right to expand the continuing offering of shares and to
reject any purchase orders in its sole discretion.
HOW TO EXCHANGE FUND SHARES
You may exchange your Fund shares for shares of Stonebridge Aggressive Growth.
Exchanges must be at least $1,000 in value per transaction. You should first
read the prospectus for the Stonebridge Aggressive 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 you 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 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 box redemption ($1,000 minimum).
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 request to Stonebridge Funds, P.O. Box 419247,
certificate 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.
11
<PAGE>
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 Request monthly or quarterly withdrawals of $50 or more in
Withdrawal 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.
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.
12
<PAGE>
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 if the shareholder is deemed to engage
in activities which are illegal or otherwise believed to be detrimental to the
Fund. In the case of activity believed detrimental to the Fund, we will provide
written notice to you or your representative prior to closing your account.
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. The Fund's procedures will involve
verification of a form of personal identification. 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
NYSEis 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.
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.
13
<PAGE>
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 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 GROWTH FUND, INC.
370 17th Street, Suite 3100
Denver, Colorado 80202
<PAGE>
STONEBRIDGE GROWTH FUND, INC. STONEBRIDGE GROWTH FUND, INC.
370 17th Street, Suite 3100
Denver, Colorado 80202
OFFICERS AND DIRECTORS
CRAIG B. BURGER, Vice President
DEBRA L. NEWMAN, President and Treasurer
RICHARD C. BARRETT, Chairman, Board of Directors, and 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
INVESTMENT ADVISER
Stonebridge Capital Management, Incorporated
1801 Century Park East
Los Angeles, California 90067
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
CUSTODIAN
Fifth Third Bank
Fifth Third Center
Cincinnati, Ohio 45263
AUDITORS
Hein + Associates LLP
717 17th Street, Suite 1600, Denver, Colorado 80202
PROSPECTUS
MARCH 30, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
STONEBRIDGE GROWTH FUND, INC.
370 17th Street, Suite 3100
Denver, Colorado 80202
(800) 639-3935
- --------------------------------------------------------------------------------
Stonebridge 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 30, 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, Policies and Restrictions................. 2
Management of the Registrant..................................... 5
Investment Advisory and Other Services........................... 7
Brokerage Transactions........................................... 7
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
GROWTH FUND, INC., 370 17TH STREET, SUITE 3100, DENVER, COLORADO 80202, (800)
639-3935.
MARCH 30, 1998
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Information concerning the Fund's fundamental investment objectives is set
forth in the Prospectus under the heading "Objectives and Investment Policies."
The Fund's principal objectives are long-term growth of capital and increased
future income through investments primarily in common stocks. Immediate income
return 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.
Bank Certificates of Deposit and Bankers' Acceptance. Certificates of
deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specified merchandise, which are
"accepted" by a bank, meaning in effect that the bank unconditionally agrees to
pay the face value of the instrument on maturity. Certificates of deposit and
bankers' acceptances acquired by the Fund will be dollar-denominated obligations
of domestic banks or financial institutions which at the time of purchase meet
certain credit standards.
Repurchase Agreements. Pursuant to a repurchase agreement, the Fund
purchases securities and the seller agrees to repurchase them from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually
overnight or a few days, although it may extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return for the period of time the Fund's money is invested in the security.
The Fund's repurchase agreements will be fully collateralized at all times in an
amount at least equal to the purchase price. The instruments held as collateral
are valued daily. If the seller defaults and the value of the collateral
securing the repurchase agreement declines, the Fund may incur a loss. If
bankruptcy proceedings are commenced with respect to the seller, realization
upon the collateral by the Fund may be delayed or limited. The Fund will only
enter into repurchase agreements with financial institutions and brokers and
dealers which meet certain creditworthiness and other criteria.
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 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
the 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, that futures be used
(1) 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 and the
Prospectus, are not fundamental policies and may be changed by the Board of
Directors without stockholder approval 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 stockholders.
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.
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
2
<PAGE>
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
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 Options on Such Futures. The
Fund may purchase and sell stock index and foreign currency futures contracts
(as sell as purchases and sell 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.
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 its 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.
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 value of 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, when the
Fund has purchased a futures contract and the price of the futures contract has
declined in response to a decrease in the value of 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 Fund's investment adviser may elect to close the position
by taking an opposite position, subject to the availability of a secondary
market for such positions, 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.
3
<PAGE>
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.
Risks Associated with Futures and Related Options. Because of the imperfect
correlation between movements in the price of a futures contract and movements
in the price of the securities or currency which are the subject of the hedge,
the price of the future may move more than or less than the price of the
securities or currency being hedged. If the price of the future moves less than
the price of the securities or currency which are the subject of the hedge, the
hedge will not be fully effective but, if the price of the securities or
currency being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities or currency being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities or currency, the
Fund will experience either a loss or gain of the future which will not be
completely offset by movements in the price of the securities or currency which
are the subject of the hedge. It is also possible that, where the Fund has sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of securities or currency held in the Fund may decline.
If this occurred, the Fund would lose money on the future and also experience a
decline in value of its portfolio.
Where futures are purchased to hedge against a possible increase in the price
of securities before the Fund is able to invest its cash or cash equivalents in
securities or options in an orderly fashion, it is possible that the market may
decline instead; if the Fund then concludes not to invest in securities or
options at that time because of concern as to possible further market decline or
for other reasons, the Fund will realize a loss on the futures contract that is
not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation, or
no correlation at all, between movements in the futures and the securities or
currency being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. First, rather
than meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or currency movements by the Fund's investment adviser may
still not result in a successful hedging transaction over a short time frame.
Moreover, if the Fund's advisor is incorrect in such forecasts or interest rates
or other applicable factors, the Fund would be in a worse position than if it
had not hedged at all. In addition, the Fund's purchase and sale of options on
indexes is subject to the risks described above with respect to options on
securities.
In the event of the bankruptcy of a broker though which a Fund engages in
transactions in futures contracts or options, the Fund could experience delays
and losses in liquidating open positions purchased or sold through the broker,
and incur a loss of all or part of its margin deposits with the broker.
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.
4
<PAGE>
Restrictions. The Certificate of Incorporation of the Fund places certain
restrictions upon its activities which may be amended only upon approval of a
majority of the outstanding voting shares of the Fund. The Fund may not:
(1) Purchase the securities of any issuer, except the United States
Government, if after such purchase more than 5% of the total assets of
the Fund would be invested in the securities of such issuer.
(2) Purchase more than 10% of the outstanding securities of any class of any
issuer including voting securities.
(3) 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 being sold short.
(4) Purchase 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
purchase or sales of options or futures contracts.
(5) Borrow any money except temporarily and for extraordinary or emergency
purposes and then only in an amount not to exceed 10% of the total
assets of the Fund taken at cost.
(6) Lend any money to any person (for this purpose the purchase of a portion
of an issue of publicly distributed debt securities for the investment
purposes is not considered a loan).
(7) Act as an underwriter of securities.
(8) Invest in the securities of other investment companies if immediately
after such investment the Fund will own (i) 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 (ii) 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.
(9) Engage in activity which involves promotion or business management by
the Fund.
(10) Invest in any security about which reliable information is not available
with respect to the history, management, assets, earnings, and income of
the issuer.
(11) Purchase any real estate, real estate mortgage loans, or any commodities
or commodity contracts, except that the Fund may buy and sell futures
contracts and options.
(12) Issue any senior securities.
The Fund will not make any investment for the purpose of exercising control
or management of any other corporation; nor will it invest in any security if
the investment would subject the Fund to unlimited liability.
The Board of Directors of the Fund has adopted a policy that the Fund will
not invest in oil, gas and other mineral leases and, in addition to the
restrictions on real estate investments contained in paragraph (11) above, the
Fund will not purchase any real estate limited partnership interest. In
addition, the Fund will not pledge, mortgage or hypothecate assets of the Fund
taken at market value to an extent greater than 15% of the gross assets of the
Fund taken at cost. The Fund will not invest in securities of companies which
have a record of less than three years continuous operations if such purchase at
the time thereof would cause more than 5% of the total assets of the Fund to be
invested in securities of such companies.
Although the Fund's Certificate of Incorporation does not prohibit purchases
of restricted securities, the Fund 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:
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 Aggressive Growth Fund, Inc.
5
<PAGE>
DR. SELVYN B. BLEIFER, M.D. (age 67) - Director
Physician, Cardiovascular Medical Group, 414 North Camden Drive, Beverly
Hills, California 90212; Director, Stonebridge Aggressive 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 Aggressive Growth Fund, Inc.
CHARLES F. HAAS (age 83) - Director
Retired motion picture and television director, 12626 Hortense Street,
Studio City, California, 91604; Director, Stonebridge Aggressive Growth Fund,
Inc.
WILLIAM H. TAYLOR, II (age 58) - Director
General Partner, Taylor & Company (venture capital organization), 18730
Canyon Road, Sonoma California 91604; Director, Stonebridge Aggressive Growth
Fund, Inc.
DEBRA L. NEWMAN (age 41) - President and Treasurer
Executive 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 Aggressive
Growth Fund, Inc.
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 Aggressive Growth Fund, Inc.
CHAD CHRISTENSEN (age 28) - Vice President
Fund Controller, ALPS Mutual Funds Services, Inc., 370 17/th/ Street, Suite
3100, Denver, Colorado 80202; Vice President, Stonebridge Aggressive Growth
Fund, Inc. and Assistant Treasurer, Westcore Trust.
JAMES V. HYATT (age 47) - Secretary
General Counsel, ALPS Mutual Funds Services, Inc., 370 17/th/ Street, Suite
3100, Denver, Colorado 80202; Secretary, Stonebridge Aggressive Growth Fund,
Inc. and First Funds Trust, and Assistant Secretary, Financial Investors Trust.
As of December 15, 1997, officers and directors of the Fund, as a group,
owned of record and beneficially less than 1% of the outstanding shares of the
Fund.
None of the officers of the Fund received any compensation from the Fund for
his or her services during the fiscal year ended November 30, 1997. Each
director who is not an "interested person" of the Fund is entitled to receive
from the Fund $1,350 for each meeting of the Board of Directors. The following
table sets forth more detailed compensation information for the directors of the
Fund who are not affiliated with the Adviser during the fiscal year ended
November 30, 1997:
__________________________
*"Interested person" of the Fund as defined by the Investment Company Act of
1940, as amended.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Compensation
Aggregate Pension or Estimated Annual From Fund and
Compensation Retirement Benefits Upon Fund Complex/(1)/
Director From Fund Benefits Retirement Paid to Directors
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marvin Freedman $2,350 $0 $0 $2,700
Selvyn B. Bliefer, M.D. 2,350 0 0 2,700
Charles F. Haas 2,350 0 0 2,700
William H. Taylor II /2/ 0 0 0 150
</TABLE>
/1/ Stonebridge Aggressive Growth Fund, Inc. and the Fund comprise a "Fund
Complex" as such term is defined in Item 22(a)(1)(v) of Rule 14a-101 of
the Securities Exchange Act of 1934, because they have the same
investment adviser.
/2/ Elected to the Board of Directors of the Fund in 1997.
6
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR. The Fund's investment adviser is Stonebridge
Capital Management, Incorporated, 1801 Century Park East, Los Angeles,
California 90067 (the "Adviser"), which provides investment advisory services
pursuant to an investment advisory 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 $523 million as of November 30, 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 Advisor 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.
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 Advisory 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. The fee paid to the transfer agent is based on a minimum fee, the
number of open accounts and certain transaction based charges.
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 $16,500 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.
7
<PAGE>
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 November 30, 1997, 1996, and
1995.
<TABLE>
<CAPTION>
ANNUAL TOTAL
PORTFOLIO TURNOVER BROKERAGE
RATE COMMISSIONS PAID
------------------ ----------------
<S> <C> <C>
1997 41% $ 85,997
1996 45% $ 63,806
1995 38% $ 67,890
</TABLE>
The Fund's anticipated annual portfolio turnover will normally be in
the range of 25% to 75%. 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 has not acquired securities of any brokers or dealers, or the
parent thereof, during the year ended November 30, 1997.
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 it 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.
8
<PAGE>
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.
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 age 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.
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 or 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.
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<PAGE>
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 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 amounts
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.
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Total return is computed according to the following formula:
P(1 + T)/n/ = ERV
Where P= a hypothetical initial payment of $1,000.
T= average annual total return.
n= number of years.
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.
TOTAL RETURNS FOR THE FUND HAS BEEN AS FOLLOWS:
-----------------------------------------------
1997 19.79%
1996 21.46%
1995 23.50%
1994 2.81%
1993 (1.22)%
1992 8.29%
1991 23.53%
1990 .46%
1989 27.89%
1988 18.37%
1987 (5.22)%
Performance information for the Fund may be compared to various unmanaged
indices, such as S&P 500 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 and Semi-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. The
financial statements in the Semi-Annual Report have been prepared by the Fund
and are not audited. Additional copies of the Annual Report and Semi-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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