SUPPLEMENT DATED JUNE 20, 1996 TO THE PROSPECTUS OF
THE ROCKWOOD GROWTH FUND, INC.
Aspen Securities and Advisory, Inc. ("Aspen") currently serves as
investment adviser to The Rockwood Growth Fund, Inc. (the "Fund") pursuant to an
Advisory Agreement. Aspen's President, Mr. Ross H. Farmer, has been the Fund's
portfolio manager since 1986. On June 6, 1996, the Fund and Aspen and entered
into an Agreement and Plan of Succession (the "Succession Agreement") with
Rockwood Advisers, Inc. ("RAI"). In connection with the Succession Agreement,
the Fund's Board of Directors approved a new Management Agreement with RAI and a
new Subadvisory Agreement between RAI and Aspen. The new Management Agreement
and Subadvisory Agreement will take effect only if approved by a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act). Until
the new agreements are approved, Aspen will continue to be the Fund's investment
adviser. Upon approval of the new agreements by shareholders, Aspen will resign
as the Fund's investment adviser and RAI will provide the Fund investment
management services and Aspen will provide subadvisory services. Accordingly,
Mr. Farmer would remain the Fund's portfolio manager, together with the
Investment Policy Committee of RAI. Although compensation payable to RAI under
the new Management Agreement would be more than it is to Aspen under the
existing Advisory Agreement, RAI, not the Fund, would pay Aspen the subadvisory
fee under the proposed Subadvisory Agreement. Also in connection with the
Succession Agreement, the Fund's Board of Directors approved a new plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Pursuant to
the Plan, the Fund pays an affiliate of RAI, Investor Service Center, Inc. (the
"Distributor") a distribution fee in an amount of 0.25% per annum of the Fund's
average daily net assets for distribution and service activities. The Plan will
take effect only if approved by a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act). RAI and its affiliates currently
provide investment management and related services to mutual funds with over
$400 million in total assets.
Aspen has advised the Fund that the Succession Agreement, if consummated,
(the "Succession") is expected to ultimately enhance the quality of the
investment management and other services provided to the Fund. The Succession is
contingent upon a number of conditions, including the Fund's shareholders
approving the new Management Agreement, the Plan, the Subadvisory Agreement, and
electing a new board of directors. The Succession is expected to occur in August
1996, provided the necessary approvals are obtained.
Aspen also acts as the Fund's accounting services agent and as its
transfer, dividend disbursing and administrative services agent. Aspen will
terminate these arrangements in connection with the Succession, such termination
to be effective as of the consummation of the Succession. To replace such
arrangements, the Fund's Board of Directors has approve a shareholder
administrative services agreement with Investor Service Center, Inc., transfer
agency and agency agreements with DST Systems, Inc. and a custodial agreement
and a service agency agreement with Investors Bank & Trust Company. The new
agreements will be effective upon successful completion of the Succession.
At a meeting scheduled to be held August 16, 1996, the Fund's shareholders
are being asked to approve changes to the Fund's fundamental investment
restrictions. Accordingly, effective August 19, 1996, the following information
will supersede the information appearing under the heading "Investment
Objectives and Policies," on pages 4-6 of the Prospectus:
The Fund's investment objective is to seek long-term capital appreciation.
The Fund seeks to achieve this objective by investing primarily in equity
securities that, in the opinion of the Investment Manager, are available at
prices less than their intrinsic value. Intrinsic value is a term reflecting an
analyst's subjective view of a company's worth. It may be based on such things
as book value, "hidden assets" (assets carried on the books of a corporation
below market value), the discounted present value of a natural resource (oil,
gas, timber, silver, etc.) or an earnings history/projection. The Investment
Manager believes that investing in such undervalued securities provides a
greater potential for overall investment return. Any income which the Fund earns
is incidental to its objective of capital appreciation. The risks associated
with an investment in the Fund are those related to fluctuations in the market
value of the Fund's portfolio. Also, at any time, the value of the Fund's shares
may be more or less than the investor's cost. The Fund is not intended for
investors who have as their primary objective conservation of capital.
The Fund will purchase common stocks, securities convertible into common
stocks and preferred stocks that are traded on domestic stock exchanges or in
the over-the-counter market. Common stocks, securities convertible into common
stocks, and preferred stocks are purchased primarily for their potential for
long-term capital appreciation and not dividend yield or interest payments. The
Fund may also invest up to 5% of its net assets in shares of closed end
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investment companies. In addition to the Fund's expenses, as a shareholder in
another investment company, the Fund would bear its pro rata portion of the
other investment company's expenses.
The Fund retains the flexibility to respond promptly to changes in market
and economic conditions and the Investment Manager may employ a temporary
defensive investment strategy if it determines such a strategy to be warranted.
Under a defensive strategy, the Fund may hold cash and/or invest any portion or
all of its assets in high quality money market instruments of U.S. or foreign
government or corporate issuers. To the extent the Fund adopts a temporary
defensive posture, it will not be invested so as to directly achieve its
investment objectives. In addition, pending investment of proceeds from new
sales of Fund shares or in order to meet ordinary daily cash needs, the Fund may
hold cash and may invest in foreign or domestic high quality money market
instruments. Money market instruments in which the Fund may invest include U.S.
or foreign government securities, high grade commercial paper, bank certificates
of deposit, bankers' acceptances, and repurchase agreements relating to any of
the foregoing.
Small Capitalization Companies. The Fund may invest in companies that are small
or thinly capitalized, and may have a limited operating history. As a result,
investment in these securities involves greater risks and may be considered
speculative. For example, such companies may have more limited product lines,
markets or financial resources than companies with larger capitalizations, and
may be more dependent on a small management group. In addition, the securities
of such companies may trade less frequently and in smaller volume, and may be
subject to more abrupt or erratic price movements, than securities of large
companies. The Fund's positions in securities of such companies may be
substantial in relation to the market of such securities. Accordingly, it may be
difficult for the Fund to dispose of securities of these companies at prevailing
market prices. Full development of these companies takes time, and for this
reason the Fund should be considered a long term investment and not a vehicle
for seeking short term profit. The securities of small or thinly capitalized
companies may also be more sensitive to market changes than the securities of
large companies. Such companies may not be well known to the investing public
and may not have institutional ownership. Such companies may also be more
vulnerable than larger companies to adverse business or economic developments.
Repurchase Agreements. Repurchase agreements are transactions in which the Fund
purchases securities from a bank or securities dealer and simultaneously commits
to resell the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased securities. The Fund maintains custody of the underlying
securities prior to their repurchase; thus, the obligation of the bank or dealer
to pay the repurchase price on the date agreed to is, in effect, secured by such
securities. If the value of these securities is less than the repurchase price,
plus any agreed-upon additional amount, the other party to the agreement must
provide additional collateral so that at all times the collateral is at least
equal to the repurchase price, plus any agreed-upon additional amount. The
difference between the total amount to be received upon repurchase of the
securities and the price that was paid by the Fund upon their acquisition is
accrued as interest and included in the Fund's net investment income. Repurchase
agreements carry certain risks not associated with direct investments in
securities, including possible declines in the market value of the underlying
securities and delays and costs to the Fund if the other party to a repurchase
agreement becomes insolvent. The Fund intends to enter into repurchase
agreements only with banks and dealers in transactions believed by the
Investment Manager to present minimum credit risks in accordance with guidelines
established by the Fund's board of directors. The Investment Manager reviews and
monitors the creditworthiness of those institutions under the board's general
supervision.
Other Information. The Fund is "non-diversified," as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), but intends to continue to
qualify as a regulated investment company for Federal income tax purposes. This
means, in general, that more than 5% of the Fund's total assets may be invested
in the securities of one issuer (including a foreign government), but only if at
the close of each quarter of the Fund's taxable year, the aggregate amount of
such holdings is less than 50% of the value of its total assets and no more than
25% of the value of its total assets is invested in the securities of a single
issuer. To the extent that the Fund's portfolio at times may include the
securities of a smaller number of issuers than if it were "diversified," as
defined in the 1940 Act, the Fund will at such times be subject to greater risk
with respect to its portfolio securities than an investment company that invests
in a broader range of securities, in that changes in the financial condition or
market assessment of a single issuer may cause greater fluctuation in the Fund's
total return. The Fund may invest (i) up to 15% of its net assets in illiquid
securities, including repurchase agreements with a maturity of more than seven
days, and (ii) up to 10% of its total assets in restricted securities. Illiquid
securities may be more difficult to value than more widely traded securities and
the prices realized from the sales of illiquid securities may be less than if
such securities were more widely traded. The Fund may borrow money from banks
for temporary or emergency purposes (not for leveraging or investment) and
engage in reverse repurchase agreements, but not in excess of an amount equal to
one third of the Fund's total net assets. The Fund may
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not purchase securities for investment while any bank borrowing equaling more
than 5% of its total assets is outstanding.
In addition to the Fund's investment objective, the Fund has adopted
certain investment restrictions set forth in the Statement of Additional
Information that are fundamental and may not be changed without shareholder
approval. The Fund's other investment policies are not fundamental and may be
changed by the Board of Directors without shareholder approval.
If these changes are approved by the Fund's shareholders, the section of
the Fund's Statement of Additional Information entitled "Investment Objectives
and Policies on page 18 would be replaced with the following:
The Fund has adopted the following fundamental investment restrictions
that may not be changed without the approval of the lesser of (a) 67% or more of
the voting securities of the Fund present at a meeting if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy or (b) more than 50% of the outstanding voting securities
of the Fund. Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
of securities or assets of, or borrowing by, the Fund. The Fund may not:
1. Borrow money, except to the extent permitted by the Investment Company Act of
1940, as amended ("1940 Act");
2. Engage in the business of underwriting the securities of other issuers,
except to the extent that the Fund may be deemed to be an underwriter
under the Federal securities laws in connection with the disposition of
the Fund's authorized investments;
3. Purchase or sell real estate, provided that the Fund may invest in
securities (excluding limited partnership interests) secured by real
estate or interests therein or issued by companies which invest in real
estate or interests therein;
4. Purchase or sell physical commodities, although it may enter into (a)
commodity and other futures contracts and options thereon, (b) options on
commodities, including foreign currencies, (c) forward contracts on
commodities, including foreign currencies, and (d) other financial
contracts or derivative instruments;
5. Lend its assets, provided however, that the following are not prohibited:
(a) the making of time or demand deposits with banks, (b) the purchase of
debt securities such as bonds, debentures, commercial paper, repurchase
agreements and short term obligations in accordance with the Fund's
investment objectives and policies, and (c) engaging in securities and
other asset loan transactions to the extent permitted by the 1940 Act; or
6. Issue senior securities as defined in the 1940 Act. The following will not
be deemed to be senior securities prohibited by this provision: (a)
evidences of indebtedness that the Fund is permitted to incur, (b) the
issuance of additional series or classes of securities that the Board of
Directors may establish, (c) the Fund's futures, options, and forward
transactions, and (d) to the extent consistent with the 1940 Act and
applicable rules and policies adopted by the Securities and Exchange
Commission, (i) the establishment or use of a margin account with a broker
for the purpose of effecting securities transactions on margin and (ii)
short sales.
The Fund's Board of Directors has established the following
non-fundamental investment limitations that may be changed by the Board without
shareholder approval:
(i) The Fund's investments in warrants, valued at the lower of cost or market,
may not exceed 5% of the value of its net assets, which amount may include
warrants which are not listed on the New York or American Stock Exchange
provided that such warrants, valued at the lower of cost or market, do not
exceed 2% of the Fund's net assets, and further provided that this
restriction does not apply to warrants attached to, or sold as a unit
with, other securities;
(ii) The Fund may not invest in interests in oil, gas or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs or such
leases;
(iii) The Fund may not invest more than 5% of its net assets in securities of
companies having a record of less than three years continuous operations
(including operations of predecessors);
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(iv) The Fund may not purchase or otherwise acquire any security or invest in a
repurchase agreement if, as a result, (a) more than 15% of the Fund's net
assets (taken at current value) would be invested in illiquid assets,
including repurchase agreements not entitling the holder to payment of
principal within seven days, or (b) more than 10% of the Fund's total
assets would be invested in securities that are illiquid by virtue of
restrictions on the sale of such securities to the public without
registration under the 1933 Act;
(v) The Fund may not make short sales of securities or maintain a short
position, except (a) the Fund may buy and sell options, futures contracts,
options on futures contracts, and forward contracts, and (b) the Fund may
sell "short against the box" where the Fund contemporaneously owns or has
the right to obtain at no added cost securities identical to those sold
short;
(vi) The Fund may not purchase securities on margin, except that the Fund may
obtain such short term credits as are necessary for the clearance of
transactions, and provided that margin payments and other deposits made in
connection with transactions in options, futures contracts, forward
contracts and other derivative instruments shall not be deemed to
constitute purchasing securities on margin;
(vii) The Fund may not purchase or retain securities of any issuer if those
officers or Directors of the Fund, its Investment Manager or its
subadviser who each own beneficially more than 1/2 of 1% of the securities
of an issuer own beneficially together more than 5% of the securities of
that issuer;
(viii)The Fund may not purchase the securities of any investment company except
(a) by purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase, provided that immediately
after such purchase no more than: 10% of the Fund's total assets are
invested in securities issued by investment companies, 5% of the Fund's
total assets are invested in securities issued by any one investment
company, or 3% of the voting securities of any one such investment company
are owned by the Fund, and (b) when such purchase is part of a plan of
merger, consolidation, reorganization or acquisition of assets;
(ix) The Fund may not borrow money, except (a) from a bank for temporary or
emergency purposes (not for leveraging or investment) or (b) by engaging
in reverse repurchase agreements, provided however, that borrowings
pursuant to (a) and (b) do not exceed an amount equal to one third of the
total value of the Fund's assets taken at market value, less liabilities
other than borrowings. The Fund may not purchase securities for investment
while any bank borrowing equaling 5% or more of its total assets is
outstanding. If at any time the Fund's borrowings come to exceed the
limitation set forth in (1) above, such borrowing will be promptly (within
three days, not including Sundays and holidays) reduced to the extent
necessary to comply with this limitation;
(x) The aggregate value of securities underlying put options on securities
written by the Fund, determined as of the date the put options are
written, will not exceed 25% of the Fund's net assets, and the aggregate
value of securities underlying call options on securities written by the
Fund, determined as of the date the call options are written, will not
exceed 25% of the Fund's net assets;
(xi) The Fund may purchase a put or call option on a security or a security
index, including any straddles or spreads, only if the value of its
premium, when aggregated with the premiums on all other such instruments
held by the Fund, does not exceed 5% of the Fund's total assets;
(xii) To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a
CFTC-regulated exchange, in each case that are not for bona fide hedging
purposes (as defined by the Commodity Futures Trading Commission
("CFTC")), the aggregate initial margin and premiums required to establish
these positions (excluding the amount by which options are "in-the-money")
may not exceed 5% of the liquidation value of the Fund's portfolio, after
taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into; and
(xiii)The Fund may not mortgage, pledge or hypothecate any assets in excess of
one-third of the Fund's total assets.
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