THE ROCKWOOD GROWTH FUND, INC.
July 24, 1996
Fellow Shareholder:
Enclosed is the proxy statement and proxy card for a Special Meeting of
Shareholders of The Rockwood Growth Fund. Please take this opportunity to review
the proxy statement and sign and return the proxy card. Your vote is important
and must be counted, no matter how many or how few shares you own. The Board of
Directors recommends that you vote in favor of the proposals.
About the Proposals
The Board of Directors is asking shareholders to approve a new
investment management agreement pursuant to which Rockwood Advisers, Inc. would
become the investment manager to the Fund. Shareholders are also being asked to
approve a subadvisory agreement between Rockwood Advisers, Inc. and Aspen
Securities and Advisory, Inc. ("Aspen") pursuant to which Aspen would act as
subadviser by advising and consulting with Rockwood Advisers, Inc. on Fund
investments. The proposed subadvisory agreement with Aspen would enable me to
continue to serve as portfolio manager of the Fund. In other proposals,
shareholders are being asked to consider the election of directors, the adoption
of a Rule 12b-1 Plan of Distribution, and the ratification of the selection of
accountants.
The Board of Directors also is asking shareholders to approve proposals
to simplify and modernize the Fund's fundamental investment limitation
provisions. The Directors believe that adoption of these proposals will provide
the Fund with increased flexibility in managing its portfo lio and seeking its
investment objective. The Board of Directors also is asking shareholders to
approve an amendment to the Fund's By-laws. The amendment would eliminate the
list of fundamental limitations currently included in the By-laws.
Your Vote is Important - Please Return the Proxy Card Promptly
Your vote is extremely important and I urge you to complete and return
promptly the proxy card in the enclosed envelope. If you have any questions,
please call (208) 522-5593.
Sincerely,
Ross H. Farmer
President
PLEASE VOTE NOW BY SIGNING AND RETURNING THE
ENCLOSED PROXY CARD. Otherwise, your Fund may incur needless
expense to solicit sufficient votes for the meeting.
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THE ROCKWOOD GROWTH FUND, INC.
545 SHOUP AVENUE, NO. 303
IDAHO FALLS, ID 83402
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
to be Held on August 15, 1996
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of THE
ROCKWOOD GROWTH FUND, INC. (the "Fund") will be held at the offices of the Fund
at 545 Shoup Avenue, No. 303, Idaho Falls, ID 83402, on August 15, 1996 at 10:00
a.m., MST, for the following purposes:
1. The election of nine directors;
2. Ratification or rejection of the selection of Tait, Weller & Baker as
the Fund's independent accountants;
3. Approval or disapproval of a new Investment Management Agreement;
4. Approval or disapproval of a Subadvisory Agreement;
5. Approval or disapproval of a 12b-1 Plan of Distribution;
6. Approval or disapproval of the amendment, in part, and the amendment and
reclassification, in part, of the Fund's fundamental investment provision
regarding lending;
7. Approval or disapproval of the amendment of the Fund's fundamental investment
provision regarding borrowing;
8. Approval or disapproval of the amendment of the Fund's fundamental investment
provision regarding the issuance of senior securities;
9. Approval or disapproval of the amendment of the Fund's fundamental investment
provision regarding underwriting securities;
10. Approval or disapproval of the amendment of the Fund's fundamental
investment provision regarding industry concentration.
11. Approval or disapproval of the amendment of the Fund's fundamental
investment provision regarding real estate or real estate mortgage loans;
12. Approval or disapproval of the amendment and reclassification of the Fund's
fundamental investment provision regarding commodities;
13. Approval or disapproval of the amendment and reclassification of the Fund's
fundamental restriction regarding investments in exploration or development
programs, such as oil or gas programs;
14. Approval or disapproval of the amendment and reclassification of the Fund's
fundamental investment provision regarding options, margin purchases and short
sales;
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15. Approval or disapproval of the amendment and reclassification of the Fund's
fundamental investment provision regarding investments in other investment
companies;
16. Approval or disapproval of the amendment and reclassification of the Fund's
fundamental investment provision regarding the purchase of the securities of
unseasoned issuers and illiquid securities;
17. Approval or disapproval of the amendment and reclassification of the
Fund's fundamental investment provision regarding investments in
securities of a company if those officers or directors of the Fund, who
own 1/2 of 1% or more of the company's securities, own together more
than 5% of the company's securities;
18. Approval or disapproval of the amendment and reclassification of the Fund's
fundamental investment provision regarding the purchase of restricted
securities;
19. Approval or disapproval of the elimination of the Fund's fundamental
investment provisions regarding the Fund's investments in a single issuer and to
change the Fund's status from a diversified to a non- diversified fund;
20. Approval or disapproval of the elimination of the Fund's fundamental
investment provision regarding investment for the purpose of exercising control
or management of another issuer;
21. Approval or disapproval of an amendment to the Fund's By-laws; and
22. To transact such other business as may properly come before the meeting.
You are entitled to vote at the meeting and any adjournment thereof if
you owned Fund shares at the close of business on July 1, 1996. If you do not
expect to attend the meeting, please complete, date, sign and return the
enclosed proxy card in the enclosed postage paid envelope.
By order of the Board of Directors,
Secretary
July 24, 1996
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATIONS, WE ASK YOUR
COOPERATION IN MAILING IN YOUR PROXY CARD PROMPTLY IF YOU DO NOT EXPECT TO
ATTEND THE MEETING. NO POSTAGE IS NECESSARY.
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THE ROCKWOOD GROWTH FUND, INC.
545 SHOUP AVENUE, NO. 303
IDAHO FALLS, ID 83402
PROXY STATEMENT
Special Meeting of
Shareholders to be Held on
August 15, 1996.
This statement is furnished to the shareholders of The Rockwood Growth
Fund, Inc. (the "Fund") in connection with the Board of Directors' solicitation
of proxies to be used at the meeting of the shareholders of the Fund to be held
on August 15, 1996 or any adjournment or adjournments thereof. This proxy
statement will first be mailed to shareholders on or about July 24, 1996.
A majority of the shares entitled to vote on July 1, 1996, the record
date, represented in person or by proxy, shall constitute a quorum at the
meeting. In the event that a quorum is present at the meeting but sufficient
votes to approve any of the proposals are not received, the persons named as
proxies may propose one or more adjournments of the meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares represented at the meeting in person or by proxy.
If a quorum is present, the persons named as proxies will vote those proxies
which they are entitled to vote FOR any such proposal in favor of such an
adjournment, and will vote those proxies required to be voted AGAINST any such
proposal against such adjournment. A shareholder vote may be taken on one or
more of the proposals in this proxy statement prior to any such adjournment if
sufficient votes have been received and it is otherwise appropriate.
The individuals named as proxies on the enclosed proxy card will vote
in accordance with your direction as indicated thereon if your proxy card is
received properly executed. If you give no voting instructions, your shares will
be voted in favor of the nine nominees for directors named herein and in favor
of the remaining proposals described in this proxy statement. The proxy card may
be revoked by giving another proxy, by letter or telegram revoking your proxy
received by the Fund prior to the meeting or by appearing and voting at the
meeting.
Abstentions and broker non-votes will be counted as shares present for
purposes of determining whether a quorum is present but will not be voted for or
against any adjournment or proposal. Accordingly, abstentions and broker
non-votes effectively will be a vote against adjournment or against any proposal
where the required vote is a percentage of the shares present or outstanding.
Abstentions and broker non-votes will not be counted, however, as votes cast for
purposes of determining whether sufficient votes have been received to approve a
proposal. Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other person entitled to vote and for which the broker does not have
discretionary voting authority.
As of July 1, 1996, the record date, the Fund had 48,833.713 shares of
common stock outstanding. As of July 1, 1996, the following persons owned of
record and beneficially, in amounts stated after their names, 5% or more of the
Fund's outstanding shares:
Name and Address Number of Shares Percentage
Ronald W. Kiehn 4,033.001 8.26%
P.O. Box 4152
Jackson, WY 83001
Pfendler Family 3,411.585 6.99%
Revocable Living Trust
2507 Harsh Avenue, S.E.
Massillon, OH 44646
Bruce Pfendler 2,478.194 5.07%
419 Old Clairton Road
Clairton, PA 15025
Larry & Naola Crnkovick 2,443.549 5.00%
P.O. Box 51510
Idaho Falls, ID 83405
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On July 1, 1996, the officers and directors of the Fund owned, as a group,
8,370.149 shares of the Fund, representing 17.14% of the outstanding voting
securities of the Fund. To the knowledge of the Fund, no other shareholder then
owned, beneficially or of record, more than 5% of the outstanding shares.
Shareholders on the record date will be entitled to one vote for each share held
on that date.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE ANNUAL REPORT AND
THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT, TO SHAREHOLDERS
UPON WRITTEN REQUEST TO THE FUND OR BY CALLING (208) 522-5593.
REQUIRED VOTES
PROPOSAL 1. The favorable vote of a majority of the shares of the Fund
present at the meeting in person or by proxy, provided a quorum is present, is
required to elect directors.
PROPOSAL 2. The favorable vote of a majority of the shares of the Fund
present at the meeting in person or by proxy, provided a quorum is present, is
required to ratify the selection of Tait, Weller & Baker as independent
accountants for the Fund.
PROPOSAL 3. The favorable vote of a majority of the outstanding voting
securities of the Fund, as defined in the Investment Company Act of 1940 (the
"1940 Act"), is required to approve the new Investment Management Agreement. As
defined in the 1940 Act, a "majority of the outstanding voting securities" means
the lesser of (a) 67% of the Fund's shares present at a meeting of shareholders
if the owners of more than 50% of the shares of the Fund then outstanding are
present in person or by proxy or (b) more than 50% of the Fund's outstanding
shares.
PROPOSAL 4. The favorable vote of a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act, is required to approve the
proposed Subadvisory Agreement.
PROPOSAL 5. The favorable vote of a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act, is required to approve the
proposed Rule 12b-1 Plan of Distribution.
PROPOSALS 6 - 20. The favorable vote of a majority of the outstanding
voting securities of the Fund, as defined in the 1940 Act, is required to
approve the elimination, amendment or reclassification of the Fund's fundamental
investment limitation provisions.
PROPOSAL 21. The favorable vote of a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act, is required to approve the
amendment of the Fund's By-laws.
THE BOARD OF DIRECTORS OF THE FUND, HAVING APPROVED THESE PROPOSALS,
RECOMMENDS THAT YOU VOTE IN FAVOR OF THEM.
PROPOSAL 1: THE ELECTION OF NINE DIRECTORS.
The following persons have been nominated for election as directors of
the Fund and each has consented to his nomination and agreed to serve if
elected. None is presently a director of the Fund. Each nominee, however, serves
as a director of other investment companies for which affiliates of the proposed
new investment manager of the Fund serve as investment manager. If any of the
nominees should not be available for election, the persons named as proxies may
vote for other persons in their discretion. Management has no reason to believe
that any nominee will be unavailable for election. Unless otherwise noted, the
address of each nominee is 11 Hanover Square, New York, NY 10005.
BASSETT S. WINMILL* -- He is Chairman of the Board of four of the investment
companies advised by affiliates of Bull & Bear Group, Inc. ("Group") (the
"Complex"), the parent of Rockwood Advisers, Inc., the proposed investment
manager (the "Investment Manager"). See Proposal 3. He was born February 10,
1930. He is a member of the New York Society of Security Analysts, the
Association for Investment Management and Research and the International Society
of Financial Analysts. He is the father of Mark C. Winmill and Thomas B.
Winmill.
ROBERT D. ANDERSON* -- He is Vice Chairman and a Director of the investment
companies in the Complex and of the Investment Manager and its affiliates. He
was born December 7, 1929. He is a member of the Board of Governors of the
Mutual Fund Education Alliance, and of its predecessor, the No-Load Mutual Fund
Association. He has also been a member of the District #12, District Business
Conduct and Investment Companies Committees of the NASD.
RUSSELL E. BURKE III -- 9 East 74th Street, New York, NY 10021. He was born
August 23, 1946. He is President of Russell E. Burke III, Inc. Fine Art, New
York, New York. From 1988 to 1991, he was President of Altman Burke Fine Arts,
Inc. From 1983 to 1988, he was Senior Vice President of Kennedy Galleries. He is
also a Director of certain of the investment companies in the Complex.
BRUCE B. HUBER, CLU, ChFC, MSFS -- 3443 Highway 66, Neptune, NJ 07753. He is
Senior Consultant with The Berger Financial Group, LLC specializing in
financial, estate and insurance matters. From March 1995 to December 31,
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1995, he was President of Huber Hogan Knotts Consulting, Inc. From 1990 to March
1995, he was President of Huber- Hogan Associates. From 1988 to 1990, he was
Chairman of Bruce Huber Associates. He is also a Director of the investment
companies in the Complex. He was born February 7, 1930.
JAMES E. HUNT -- One Dag Hammarskjold Plaza, New York, NY 10017. He is a
principal of Kenny, Kindler, Hunt & Howe, Inc., executive recruiting
consultants. He was born December 14, 1930. From 1976 until 1983 he was Vice
President of Russell Reynolds Associates, Inc., also executive recruiting
consultants. He is also a Director of the investment companies in the Complex.
FREDERICK A. PARKER, JR. -- 219 East 69th Street, New York, NY 10021. He is
President and Chief Executive Officer of American Pure Water Corporation, a
manufacturer of water purifying equipment. He was born November 14, 1926. He is
also a Director of the investment companies in the Complex.
JOHN B. RUSSELL -- 334 Carolina Meadows Villa, Chapel Hill, NC 27514. He was
Executive Vice President and a Director of Dan River, Inc., a diversified
textile company, from 1969 until he retired in 1981. He was born February 9,
1923. He is a Director of Wheelock, Inc., a manufacturer of signal products, and
a consultant for the National Executive Service Corps in the health care
industry. He is also a Director of the investment companies in the Complex.
MARK C. WINMILL* -- He is Chief Financial Officer of the Investment Manager and
certain of its affiliates. He is also a Director of certain of the investment
companies in the Complex. He received his M.B.A. from the Fuqua School of
Business at Duke University in 1987. From 1983 to 1985 he was Assistant Vice
President and Director of Marketing of E.P. Wilbur & Co., Inc., a real estate
development and syndication firm and Vice President of E.P.W. Securities, its
broker/dealer subsidiary. He is the brother of Thomas B. Winmill. He was born
November 26, 1957.
THOMAS B. WINMILL* -- He is President of the Investment Manager and the
Distributor, and of their affiliates. He is also a Director of certain of the
investment companies in the Complex. He was associated with the law firm of
Harris, Mericle & Orr from 1984 to 1987. He is a member of the New York State
Bar and the SEC Rules Committee of the Investment Company Institute. He is a
brother of Mark C. Winmill. He was born June 25, 1959.
* If the Investment Management Agreement with the Investment Manager is
approved, Bassett S. Winmill, Robert D. Anderson, Mark C. Winmill and Thomas B.
Winmill will be "interested persons" of the Fund as defined by the 1940 Act,
because of their positions with the Investment Manager.
Currently, the Fund's Officer and Directors are:
NAME; AGE; ADDRESS
Ross H. Farmer*; 54;
129 Princeton Court
Rexburg, ID 83440
James C. Herndon; 55;
P.O. Box 717
Blackfoot, ID 83221
G. Holton Quinn; 58;
Route 1, Box 223Q
Salmon, ID 83467
Ronald W. Kiehn*; 70;
P.O. Box 4152
Jackson, WY 83001
Earl S. Owens; 71;
4395 E. Lincoln Rd.
Idaho Falls, ID 83401
PRESENT POSITION BUSINESS EXPERIENCE DURING PAST 5 YEARS
President of the Fund and Aspen Securities and Advisory,
WITH THE FUND Inc. He has served as President and a Director of the Fund
President since March 22, 1985.
Director District Judge, Seventh Judicial District. He has served as
a Director of the Fund since March 30, 1987.
Director
President of Q-B Corporation, a manufacturer of glulam
beams. He has served as a Director of the Fund since July
Director 26, 1985.
President and controlling shareholder, Rimrock, Inc., a
consulting and investment firm. He has served as a Director
Director of the Fund since July 26, 1985.
Director Retired high school teacher. He has served as a Director of
the Fund since June 5, 1996.
* Messrs. Farmer and Kiehn are interested persons of the Fund, as defined by the
1940 Act. Mr. Farmer is an officer and director of the Aspen Securities and
Advisory, Inc., the Fund's current investment adviser, and owns 79% of its
voting stock. Mr. Kiehn is a director of Aspen Securities and Advisory, Inc. and
owns 2% of its voting stock.
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A table listing the Fund share ownership of each current director is
attached as Exhibit F. On July 1, 1996, no nominee owned any shares of the Fund.
On July 1, 1996 the directors and officers of the Fund as a group owned
8,370.149 shares of the Fund, representing 17.14% of the outstanding shares of
the Fund.
The Board of Directors of the Fund does not have a standing audit
committee, nominating committee or compensation committee. Five meetings of the
Board of Directors were held during the last fiscal year. No Director attended
less than 75% of the board meetings held during the last full fiscal year.
None of the Fund's Directors received any compensation for service as a
director during the fiscal year ended October 31, 1995.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
PROPOSAL 2: RATIFICATION OR REJECTION OF THE SELECTION OF TAIT, WELLER
& BAKER AS THE FUND'S INDEPENDENT ACCOUNTANTS.
Tait, Weller & Baker has been selected by the Board of Directors to
replace Peterson, Siler & Stevenson as the Fund's independent accountants for
the Fund's current fiscal year. If shareholders ratify the selection of Tait,
Weller and Baker as the Fund's independent accountants, it is anticipated that
on August 19, 1996, Peterson, Siler & Stevenson will resign as the Fund's
independent accountants. The selection of Tait, Weller and Baker to replace
Peterson, Siler & Stevenson reflects the Board's view that using an independent
accounting firm that is already familiar with other funds managed by affiliates
of the proposed new investment manager would promote efficiencies and cost
savings for the Fund and shareholders of the Fund. Peterson, Siler & Stevenson
began serving as the Fund's independent accountants on March 11, 1996, and has
not issued a report on the Fund's financial statements. As of July 1, 1996,
Peterson, Siler & Stevenson had not disagreed during the period it has served as
the Fund's independent accountants on any matter of accounting principles or
practices, financial statement disclosure, auditing scope or procedure, which
disagreement, if not resolved to its satisfaction, would have caused it to make
reference to the subject matter of the disagreements in connection with its
reports on those financial statements.
Services in connection with the audit function include all services
rendered in order to permit the Fund's auditors to render a formal opinion on
the Fund's financial statements and assistance and consultations with respect to
filings with the Securities and Exchange Commission ("SEC") and preparation of
the Fund's tax returns. Tait, Weller & Baker has advised the Fund that it has no
direct or indirect financial interest in the Fund. The shareholders of the Fund
are entitled to vote for or against ratification of the selection of Tait,
Weller & Baker as the Fund's independent accountants. Representatives of Tait,
Weller & Baker are not expected to be present at the meeting but have been given
the opportunity to make a statement if they so desire, and will be available
should any matter arise requiring their presence.
Coopers & Lybrand L.L.P. ("Coopers & Lybrand") served as the Fund's
independent accountants prior to Peterson, Siler & Stevenson. The Board of
Directors selected Peterson, Siler & Stevenson to replace Coopers & Lybrand
effective March 11, 1996. The reports of Coopers & Lybrand for the Fund's two
most recent fiscal years prior to March 11, 1996 did not contain adverse
opinions, disclaimers, qualifications or modifications of opinion. Coopers &
Lybrand did not disagree during the two fiscal years and the subsequent interim
period, prior to March 11, 1996, on any matter of accounting principles or
practices, financial statement disclosure, auditing scope or procedure, which
disagreement, if not resolved to its satisfaction, would have caused it to make
reference to the subject matter of the disagreements in connection with its
reports on those financial statements.
The Fund is not aware of any "reportable events," as that term is used
in the federal securities laws, during its two most recent fiscal years or any
subsequent interim periods prior to July 1, 1996.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
PROPOSAL 3: APPROVAL OR DISAPPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT.
THE CURRENT INVESTMENT ADVISORY CONTRACT
Currently, Aspen Securities and Advisory, Inc. ("Aspen") serves as the
Fund's investment adviser pursuant to an Investment Advisory Contract with the
Fund. Under the Investment Advisory Contract, Aspen affords to the Fund the
advice and assistance of Aspen's organization in the choice of investments and
furnishes for the use of the Fund, office space and all necessary office
facilities, equipment, and personnel for servicing the investments of the Fund
and maintaining its organization. Aspen pays all promotional expenses, salaries,
and fees of all officers and of directors who are interested persons of the Fund
and for all clerical services relating to research, statistical and investment
work. All other expenses incurred in the operation of the Fund and the
continuous offering of its shares are borne by the Fund. Such expenses
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include taxes, fees and commissions, bookkeeping expenses, expenses of
redemption of shares, charges of custodians and transfer agents, and auditing
and legal expenses.
For the services provided by Aspen pursuant to the Investment Advisory
Contract, the Fund pays Aspen a quarterly management fee at an annual rate of
0.7% of average net assets up to $50 million, 0.6% of the next $350 million and
0.5% of the excess over $400 million. Aspen, however, is required to reimburse
the Fund quarterly if the aggregate annual expenses of every character exclusive
of interest, taxes, extraordinary expenses, brokerage commissions and other
transaction costs shall exceed three percent (3%) of the first $2 million, one
and one-half percent (1 1/2%) of the next $28 million, of average net assets and
one percent (1%) of average net assets of the Fund over $30 million. For the
fiscal year ended October 31, 1995, the Fund paid gross investment advisory fees
to Aspen of $5,112.18 and, net of reimbursement, of $9.
The investment advisory services of Aspen are furnished to the Fund
pursuant to an Investment Advisory Contract which became effective on November
14, 1985 and was last approved by shareholders on November 15, 1986. In
accordance with its terms, the Investment Advisory Contract was initially in
effect for a period of two years. The Investment Advisory Contract provides that
after its initial term it will continue from year to year if approved annually
by the Board of Directors of the Fund or by a majority of the outstanding voting
securities of the Fund. In addition, the terms of any continuance or
modification of the contract must have been approved by the vote of a majority
of those directors of the Fund who are not parties to such contract or
interested persons of any such part, cast in person at a meeting called for the
purpose of voting on such approval. The Investment Advisory Contract may be
terminated at any time, without penalty, upon sixty (60) days' written notice by
either party to the other, and will terminate automatically if assigned.
The Investment Advisory Contract provides that in the absence of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
obligations and duties under the Investment Advisory Contract on the part of
Aspen, Aspen shall not be subject to liability to the Fund or to any shareholder
of the Fund for any act or omission in the course of, or connected with,
rendering services under the Investment Advisory Contract or for any losses that
my be sustained in the purchase, holding or sale of any security.
THE PROPOSED NEW INVESTMENT MANAGEMENT AGREEMENT
Under the New Investment Management Agreement that is proposed to
replace the Current Investment Advisory Contract, the Investment Manager would
act as general manager of the Fund, being responsible for the various functions
assumed by it, including regularly furnishing advice with respect to portfolio
transactions. The Investment Manager would manage the investment and
reinvestment of the Fund's assets, subject to the control and oversight of the
Board of Directors. As described below in Proposal 4, if shareholders approve
the New Investment Management Agreement, the Investment Manager intends to enter
into a subadvisory agreement with Aspen for certain subadvisory services with
respect to the Fund. The form of the New Investment Management Agreement is
attached as Exhibit A.
For its services, the Fund would pay the Investment Manager a fee at
the annual rate of:
1.00% of the first $200 million of the Fund's average daily net assets .95% of
average daily net assets over $200 million up to $400 million .90% of average
daily net assets over $400 million up to $600 million .85% of average daily net
assets over $600 million up to $800 million .80% of average daily net assets
over $800 million up to $1 billion .75% of average daily net assets over $1
billion.
The aggregate amount of Aspen's net fee under the current fee structure
after reimbursement during the fiscal year ended October 31, 1995 was $9. The
amount that the Investment Manager would have received in advisory fees had the
proposed fee structure and expense guarantee been in effect during the fiscal
year ended October 31, 1995 is $1,460. The difference between this amount and
the amount that was actually received by Aspen under the current fee structure,
stated as a percentage of the amount that was actually received by Aspen is
16,122%. See Exhibit E for comparative expense information.
The New Investment Management Agreement further provides that the
Investment Manager shall waive all or part of its fee or reimburse the Fund
monthly if and to the extent the aggregate operating expenses of the Fund exceed
the most restrictive limit imposed by any state in which shares of the Fund are
qualified for sale or such lesser amount as may be agreed to by the Fund's Board
of Directors and the Investment Manager. Currently, the most restrictive state
imposed limit applicable to the Fund is 2.5% of the first $30 million of the
Fund's average daily net assets, 2.0% of the next $70 million of its average
daily net assets and 1.5% of its average daily net assets in excess of $100
million. Certain expenses, such as brokerage commissions, taxes, interest,
distribution fees, certain expenses attributable to investing outside the United
States and extraordinary items, are excluded from this limitation.
5
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Under the New Investment Management Agreement, if requested by the
Fund's Board of Directors, the Investment Manager may provide other services to
the Fund such as, without limitation, the functions of billing, accounting,
certain shareholder communication and services, administering state and Federal
registrations, filings and controls and other administrative services. Any
services so requested and performed will be for the account of the Fund and the
costs of the Investment Manager in rendering such services shall be reimbursed
by the Fund, subject to examination by those directors of the Fund who are not
interested persons of the Investment Manager or any affiliate thereof.
The New Investment Management Agreement provides that the Investment
Manager may, but shall not be obligated to, pay or provide for the payment of
expenses which are primarily intended to result in the sale of the Fund shares
or the servicing and maintenance of shareholder accounts. Such payments may be
for the Investment Manager's own account or may be made on behalf of the Fund
pursuant to a written agreement relating to a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act.
Under the New Investment Management Agreement, the Fund would assume
and pay all the expenses required for the conduct of its business including, but
not limited to, (a) salaries of administrative and clerical personnel; (b)
brokerage commissions; (c) taxes and governmental fees; (d) costs of insurance
and fidelity bonds; (e) fees of the transfer agent, custodian, legal counsel and
auditors; (f) association fees; (g) costs of preparing, printing and mailing
proxy materials, reports and notices to shareholders; (h) costs of preparing,
printing and mailing the prospectus and statement of additional information and
supplements thereto; (i) payment of dividends and other distributions; (j) costs
of stock certificates; (k) costs of Board and shareholders meetings; (l) fees of
the independent directors; (m) necessary office space rental; (n) all fees and
expenses (including expenses of counsel) relating to the registration and
qualification of shares of the Fund under applicable federal and state
securities laws and maintaining such registrations and qualifications; and (o)
such non-recurring expenses as may arise, including, without limitation,
actions, suits or proceedings affecting the Fund and the legal obligation which
the Fund may have to indemnify its officers and directors with respect thereto.
The New Investment Management Agreement further provides that the
Investment Manager shall not be liable to the Fund or any shareholder of the
Fund for any error of judgment or mistake of law or for any loss suffered by the
Fund or the Fund's shareholders in connection with the matters to which the New
Investment Management Agreement relates. Nothing contained in the New Investment
Management Agreement, however, shall be construed to protect the Investment
Manager against any liability to the Fund or the Fund's shareholders by reason
of the Investment Manager's willful misfeasance, bad faith, or gross negligence
or by reason of its reckless disregard of its obligations and duties under the
New Investment Management Agreement.
If approved by shareholders of the Fund, the New Investment Management
Agreement shall continue in effect, unless sooner terminated as described below,
for two years from the date of shareholder approval. Thereafter, if not
terminated, the New Investment Management Agreement will continue automatically
for successive annual periods, provided such continuance is specifically
approved at least annually by (a) the Board of Directors of the Fund or by a
vote of a majority of the outstanding voting securities of the Fund as defined
in the 1940 Act and (b) a vote of a majority of the Directors of the Fund who
are not parties to the New Investment Management Agreement, or "interested
persons" of any such party as defined in the 1940 Act. The New Investment
Management Agreement may be terminated without penalty at any time either by a
vote of the Board of Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund, as defined in the 1940 Act, on 60
days' written notice to the Investment Manager, or by the Investment Manager on
60 days' written notice to the Fund, and shall immediately terminate in the
event of its assignment.
The Investment Manager, whose principal business address is 11 Hanover
Square, New York, New York 10005, is a wholly-owned subsidiary of Group. Group
is a publicly-owned company whose securities are listed on the Nasdaq Stock
Market and traded in the over-the-counter market. Bassett S. Winmill may be
deemed a controlling person of Group on the basis of his ownership of 100% of
Group's voting stock and, therefore, of the Investment Manager. The principal
executive officer of the Investment Manager is Thomas B. Winmill. The Directors
of the Investment Manager are Robert D. Anderson, Mark C. Winmill and Thomas B.
Winmill. Their respective principal occupations are as officers of Group and its
subsidiaries. The address of each Director is 11 Hanover Square, New York, New
York 10005.
EVALUATION BY THE BOARD
In considering adoption of the New Investment Management Agreement, the
Board of Directors of the Fund considered, among other things, the following
factors: (1) the nature, quality and scope of services to be provided by the
Investment Manager to the Fund; (2) the Investment Manager's capacity to provide
the advisory services to be performed including the financial condition of the
Investment Manager; (3) the fairness of all the contract terms; (4) the extent
to which economies of scale, if available, have been taken into account in
setting the fee schedule; (5) the existence of any "fall-out" benefits to the
Investment Manager; and (6) the comparison of the advisory fees to those of
similar funds.
In recommending the New Investment Management Agreement, the Board gave
great weight to the personnel of the Investment Manager and its financial
resources available to provide a desirable nature, quality and scope of service
as
6
<PAGE>
general manager of the Fund and the various functions assumed by it. The Board
considered important the ability of the Investment Manager to furnish or obtain
on behalf of the Fund all services necessary for the proper conduct of the
Fund's business and administration, while taking into account economies of
scale, fall out benefits, and, to a lesser extent, fees of similar funds in
setting the fee schedule. In reviewing the New Investment Management Agreement
described above, the Board considered that the proposed new Investment Manager
will provide additional advisory and administrative services than those which
could be provided by Aspen. The Board also considered the relatively larger
staff of the Investment Manager as compared to Aspen's staff. The Board took
into account the relatively greater capital and other resources available to the
Investment Manager. The Board considered the numerous years of experience in
fund management of the Investment Manager's personnel. The Board also considered
that employment of the Investment Manager would better enable Ross Farmer to
direct his attention towards managing the Fund's portfolio. The Board also
considered that the New Investment Management Agreement with the Investment
Manager would substantially increase management fees and decrease reimbursements
of Fund expenses with differing material terms and conditions as compared to the
Current Investment Advisory Contract. The Board also considered that the New
Investment Management Agreement and other arrangements proposed by the
Investment Manager would result in a substantially higher expense ratio for the
Fund, unless and until the total net assets of the Fund increased to in excess
of approximately $50 million. The Board was informed of, and considered, the
differences between the Agreements including the differences discussed above
regarding expense reimbursements and limitations on investment adviser
liability. The Board was informed that the New Investment Management Agreement
was substantially identical to that of the standard forms of contracts used with
respect to funds advised by subsidiaries of Group. On the basis of the
foregoing, the Board approved, and recommended that shareholders approve, the
New Investment Management Agreement.
In considering the New Investment Management Agreement, the Board also
was informed that the Investment Manager would direct portfolio transactions to
broker/dealers for execution on terms and at rates which it believes, in good
faith, to be reasonable in view of the overall nature and quality of services
provided by a particular broker/dealer, including brokerage and research
services, sales of Fund shares, and allocation of commissions as credits against
the Fund expenses. With respect to brokerage and research services,
consideration could be given in the selection of broker/dealers to brokerage or
research provided and payment could be made for a fee higher than that charged
by another broker/dealer which does not furnish brokerage or research services
or which furnishes brokerage or research services deemed to be of lesser value,
so long as the criteria of Section 28(e) of the Securities Exchange Act of 1934,
as amended, or other applicable laws are met. Accordingly, although the
Investment Manager could direct portfolio transactions without necessarily
obtaining the lowest price at which such broker/dealer, or another, may be
willing to do business, the Investment Manager would seek the best value to the
Fund on each trade that circumstances in the marketplace permit, including the
value inherent in ongoing relationships with quality brokers.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 3.
PROPOSAL 4: APPROVAL OR DISAPPROVAL OF A SUBADVISORY AGREEMENT.
Provided that shareholders approve the New Investment Management
Agreement described in Proposal 3, the Investment Manager proposes to enter into
a Subadvisory Agreement with Aspen under which Aspen would advise and consult
with the Investment Manager regarding investments with respect to the Fund.
Under such arrangements, the Investment Manager would retain responsibility for
making investment management decisions on behalf of the Fund. The Subadvisory
Agreement is subject to, and contingent upon, shareholder approval of the
Subadvisory Agreement and shareholder approval of the New Investment Management
Agreement described in Proposal 3. The form of the Subadvisory Agreement is
attached as Exhibit B.
Aspen has served directly as an investment adviser to the Fund since
inception in 1986. Approval of the Subadvisory Agreement would enable Mr. Farmer
to continue to serve as a portfolio manager of the Fund (with the Investment
Policy Committee of the Investment Manager) in the event the New Investment
Management Agreement is approved. Under the terms of the Subadvisory Agreement,
Aspen will advise and consult with the Investment Manager regarding the
selection, clearing and safekeeping of the Fund's portfolio investments and
assist in pricing and generally monitoring such investments.
In consideration of Aspen's services, the Investment Manager, and not
the Fund, will pay to Aspen a percentage of the Investment Manager's Net Fees.
"Net Fees" are defined as the actual amounts received by the Investment Manager
as compensation less reimbursements, if any, pursuant to the guarantee of the
New Investment Management Agreement and waivers of such compensation by the
Investment Manager. The amount of the percentage is determined by the grid and
accompanying definitions set forth as follows:
7
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SUBADVISER'S FEE AS A PERCENTAGE OF INVESTMENT MANAGER'S NET FEES
<TABLE>
RELATIVE PERFORMANCEA
TOTAL NET ASSETSB More than 50 basis points Within 50 basis points More than 50 basis
better than ATR of ATR points below ATR
<S> <C> <C> <C> <C>
Less than or equal to $15,000,000 30% 20% 10%
Greater than $15,000,000 and 40% 30% 20%
Less than or equal to $50,000,000
greater than $50,000,000 50% 40% 30%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
A. "Relative Performance" shall be determined from comparing the Fund's total
return with the average total return ("ATR") of funds with the investment
objective of "growth" as compiled by Morningstar, Inc., or, if unavailable,
other similar service acceptable to the parties and the Fund. The Relative
Performance shall be determined as of the last calendar day of each month
("Performance Determination Date") and shall measure the Relative Performance
for the most recent 3 year period ("Measurement Period"), except that (A) for
the first 12 months of this Subadvisory Agreement, Relative Performance shall be
based upon annualized returns, the first three Performance Determination Dates
shall be the next three calendar quarter ends after the effective date of this
Subadvisory Agreement, and the Measurement Periods shall be the most recent
three months and the fourth Performance Determination Date shall be the next
calendar quarter end and the Measurement Period shall be the most recent 1 year
period, and (B) for the 13th through the 24th month of this Subadvisory
Agreement, Relative Performance shall be determined as of the last calendar day
of each month and shall measure the Relative Performance for the most recent 1
year period.
B. "Total Net Assets" shall be the total net assets of the Fund as of the
Performance Determination Date.
In approving the subadvisory fee structure, the Board of Directors
recognized that the Fund's fee structure is not affected by the Subadvisory
Agreement since the Investment Manager, not the Fund, pays Aspen the subadvisory
fee. Under the fee structure, Aspen's compensation from the Investment Manager
will depend upon the Fund's total return performance, as determined by
Morningstar, Inc. or, if unavailable, other similar service acceptable to the
parties and the Fund, and asset size. At each asset level on the fee schedule,
Aspen will receive a higher fee from the Investment Manager if the Fund
outperforms the ATR by more than 50 basis points (which equals one half of one
percent), and a lower fee if the Fund underperforms the ATR by more than 50
basis points. The Investment Manager and the Board of Directors recognized that
less than a majority of the funds with the investment objective of "growth" as
compiled by Morningstar, Inc. would likely perform within 100 basis points of
the ATR (as of June 30, 1996 for the 12 months and three years approximately 6%
and 12%, respectively, of such funds performed within 100 basis points of the
ATR). The Investment Manager and the Board were concerned that the fee structure
provide a prudent incentive to Aspen to assist the Investment Manager in
selecting portfolio investments for the Fund consistent with its investment
objective, while not providing a band so wide as to encourage potentially
unnecessary risk taking. Thus, somewhat better than top half performance would
be required for Aspen to receive the higher fee and slightly worse performance
would cause it to receive a lower fee. The Investment Manager would retain a
larger fee in the latter case and a smaller amount in the former case.
The Subadvisory Agreement provides that it is not assignable and
automatically terminates in the event of its assignment, or in the event of the
termination of the New Investment Management Agreement. The Subadvisory
Agreement may also be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the Fund, by the Board of Directors of
the Fund or by a vote of the Fund's shareholders. The Subadvisory Agreement
further provides that Aspen shall not be liable to the Fund for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with any investment policy or the purchase, sale or retention of any security on
the recommendation of Aspen. Nothing contained in the Subadvisory Agreement,
however, shall be construed to protect Aspen against any liability to the Fund
by reason of Aspen's willful misfeasance, bad faith or gross negligence or by
reason of its reckless disregard of its obligations and duties under the
Subadvisory Agreement.
If the New Investment Management Agreement and Subadvisory Agreement
are each approved by the Fund shareholders, the Subadvisory Agreement shall
continue from year to year if approved annually by (a) the Board of Directors of
the Fund or by vote of a majority of the outstanding voting securities of the
Fund as defined in the 1940 Act and (b) by a vote of a majority of the Directors
of the Fund who are not parties to the Subadvisory Agreement or "interested
persons" of any such party as defined in the 1940 Act.
8
<PAGE>
In considering the proposed Subadvisory Agreement for approval, the
Board of Directors reviewed, among other things, the nature, quality and scope
of the services currently provided to the Fund by Aspen, the nature and scope of
the services to be provided to the Fund by the Investment Manager and Aspen, and
the ability of the Investment Manager and Aspen to provide such services. In
recommending the Subadvisory Agreement, the Board found it important that the
personnel of the Investment Manager and Aspen would seek to provide a desirable
nature, quality and scope of subadvisory services. The Board also took into
account, to a lesser extent, economies of scale, fall out benefits, and fees of
similar funds in setting the fee schedule. In particular, the Board considered
the fact that the Subadvisory Agreement would enable Mr. Farmer to remain a
portfolio manager of the Fund. In this regard, the Board considered the positive
performance experienced by the Fund during the period that Mr. Farmer has served
as portfolio manager. In considering this performance, the Board recognized that
under the proposed arrangements, the Investment Manager would retain overall
investment management responsibility for the Fund and that Aspen would provide
the Investment Manager with portfolio management advice.
The Board of Directors also reviewed the fees to be paid to the
Investment Manager by the Fund and to Aspen by the Investment Manager in light
of advisory fees paid for investment advisory services by other funds with
comparable investment objectives. In particular, the Board considered the
performance-based fee structure of the Subadvisory Agreement. In this regard,
the Board considered the fact that, under the proposed fee structure, the
Investment Manager would pass on a lower portion of its fee to Aspen when the
Fund underperforms the ATR by more than 50 basis points than when the Fund
outperforms the ATR by more than 50 basis points. The Board of Directors
determined that the rate of the subadvisory fee to be paid by the Investment
Manager pursuant to the Subadvisory Agreement is fair and reasonable in light of
the nature and quality of the services to be provided.
ADDITIONAL INFORMATION ABOUT ASPEN
Aspen, whose principal business address is 545 Shoup Avenue, Suite 303,
Idaho Falls, ID 83402, is controlled by Ross Farmer, by virtue of his share
ownership of Aspen. The address of Mr. Farmer is 545 Shoup Avenue, Suite 303,
Idaho Falls, ID 83402. Mr. Ronald W. Kiehn is a director of Aspen and owns 2% of
its voting stock. His address is P.O.
Box 4152, Jackson, WY 83001.
The principal executive officer and directors of Aspen, their
respective offices and principal occupations are set forth below.
Ross H. Farmer -- Director and President. Mr. Farmer's principal occupation is
as an investment adviser.
Ronald W. Kiehn -- Director. Mr. Kiehn's principal occupation is as President
and controlling shareholder of Rimrock, Inc., a consulting and investment firm.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 4.
PROPOSAL 5: APPROVAL OR DISAPPROVAL OF A RULE 12B-1 PLAN OF DISTRIBUTION.
The Fund's Board of Directors has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act ("12b- 1 Plan"). The 12b-1 Plan is
subject to, and contingent upon, shareholder approval. The 12b-1 Plan, if
approved, will remain in effect for one year from the date of such approval, and
thereafter from year to year so long as it is approved by a majority of the
Fund's entire Board of Directors, including a majority of those Directors who
are not "interested persons" of the Fund as defined in the 1940 Act, and who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related to the Plan (the "Plan Directors"), unless sooner
terminated according to its terms. The form of the 12b-1 Plan is attached as
Exhibit C. The Fund currently is not subject to a 12b-1 Plan.
Under the 12b-1 Plan, the Fund would be authorized to pay Investor
Service Center, Inc. (the "Distributor"), the proposed new distributor of the
Fund's shares and an affiliate of the Investment Manager, as compensation for
the Distributor's distribution and service activities, a fee at the rate of
0.25% on an annualized basis of its average daily net assets. All or a portion
of such fee may be designated by the Board of Directors as a fee for service
activities or as a fee for distribution activities. Under the 12b-1 Plan, if the
Distributor's expenses were less than the amounts it received, the Distributor
will thereby realize a profit. See Exhibit E for comparative expense
information.
The 12b-1 Plan provides for fees for service and distribution
activities. Service activities are intended to cover personal services provided
to shareholders of the Fund and the maintenance of shareholder accounts. These
fees may be retained by the Distributor or passed through by the Distributor to
brokers, banks and others who provide services to the Fund shareholders.
Distribution activities are intended to cover all other activities intended to
result in the sale of the Fund shares.
In considering adoption of the 12b-1 Plan, the Board of Directors
considered, among other things, the following factors: (1) the need for
independent counsel and experts to assist the Directors in reaching their
determination; (2) the
9
<PAGE>
nature of the problems or circumstances which make implementation of the 12b-1
Plan necessary or appropriate; (3) the causes of such problems or circumstances;
(4) the way in which the 12b-1 Plan addresses these problems or circumstances
and how it can be expected to resolve or alleviate them, the nature of the
anticipated benefits, and the time it would take for those benefits to be
achieved; (5) the merits of possible alternative plans; (6) the
interrelationship between the 12b-1 Plan and the activities of any other person
who may finance distribution of the Fund shares, including whether any payments
by the Fund to such other person are made in such a manner as to constitute the
indirect financing of distribution by the Fund; and (7) the possible benefits of
the 12b-1 Plan to any other person relative to those expected to inure to the
Fund. The Board also considered that the 12b-1 Plan would increase Fund
expenses. The Board recognized, however, the importance of an effective sales
program in order for the Fund to achieve and maintain a sufficient size to
achieve efficiently its investment objective and to realize economies of scale.
Following their consideration, the Directors, including the Plan Directors,
concluded that the 12b-1 Plan is in the best interest of the Fund and is
reasonably likely to benefit the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 5.
PROPOSALS 6 THROUGH 20
APPROVAL OR DISAPPROVAL OF THE AMENDMENT, RECLASSIFICATION, OR
ELIMINATION OF CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT PROVISIONS.
The Investment Company Act of 1940 ("1940 Act") requires an investment
company such as the Fund to have certain specific investment limitations that
can be changed only by a shareholder vote. Investment companies may also elect
to designate other limitations as changeable only by a shareholder vote. Both
types of limitations are often referred to as "fundamental" provisions. Some
fundamental provisions have been adopted in the past by the Fund to reflect
certain regulatory, business, or industry conditions which are no longer in
effect or valid. Accordingly, the Board of Directors has reviewed the Fund's
fundamental provisions with the following goals: (i) to simplify and modernize
the Fund's provisions which are required to be fundamental; and (ii) to
reclassify as non-fundamental and to amend or eliminate, if appropriate,
provisions which are not required to be fundamental under state securities laws
or the 1940 Act. Non-fundamental provisions can be changed by the Board of
Directors without shareholder approval.
Proposals 6 through 20 seek shareholder approval of changes which are
intended to accomplish the foregoing goals. THE PROPOSED CHANGES TO THE
FUNDAMENTAL PROVISIONS ARE DISCUSSED IN DETAIL BELOW AND THE PROPOSED
FUNDAMENTAL AND NON-FUNDAMENTAL LIMITATIONS ARE STATED IN FULL IN EXHIBIT D. In
addition to these proposed changes, the Fund's Board of Directors has approved
amendments to the Fund's non-fundamental investment policies. Those amendments
are described in the supplement to the Fund's Prospectus that accompanies this
proxy statement. With respect to each limitation, if a percentage restriction is
adhered to at the time of an investment or transaction, a later increase or
decrease in percentage resulting from a change in the values of the Fund's
portfolio securities or the amount of its total assets will not be considered a
violation of the fundamental restriction.
By reducing to a minimum those provisions which can be changed only by
shareholder vote, the Fund would be able to avoid the costs and delay associated
with another shareholder meeting, and the Board of Directors believes that the
Investment Manager's ability to manage the Fund's portfolio in a changing
regulatory or investment environment will be enhanced.
AMENDMENT OF CERTAIN PROVISIONS
PROPOSAL 6: APPROVAL OR DISAPPROVAL OF THE PROPOSED AMENDMENT, IN PART,
AND THE AMENDMENT AND RECLASSIFICATION, IN PART, OF THE FUND'S
FUNDAMENTAL INVESTMENT PROVISION REGARDING LENDING.
The Fund currently has a fundamental restriction prohibiting the Fund
from making loans to others (except through the purchase of debt obligations in
accordance with its investment objectives and policies). The Board of Directors
proposes to amend the Fund's fundamental restriction to permit the Fund to
engage in securities or other asset loan transactions to the extent permitted by
the 1940 Act. Currently, the 1940 Act permits a fund to lend up to one-third of
its total assets. In connection with this change, the Fund's non-fundamental
investment policy would also be amended to permit the Fund to lend assets
representing up to one-third of its total assets.
The Fund has no current intention of engaging in lending transactions.
If the Fund engages in such transactions, it will enter into lending agreements
that require that the loans be continuously secured by cash, securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities, or any
combination of cash and such securities, as collateral equal at all times to at
least the market value of the assets lent. The Fund typically will receive the
dividends and interest, if any, paid on the assets lent, while simultaneously
earning interest on the collateral comprised of cash and fees to the extent of
non-cash collateral. The Fund, in turn, may pay lending fees to broker/dealers
to effect such transactions.
10
<PAGE>
There are risks to the Fund of delay in receiving additional collateral and
risks of delay in recovery of, and failure to recover, the assets lent should
the borrower fail financially or otherwise violate the terms of the lending
agreement. However, loans will be made only to borrowers deemed by the
Investment Manager to be of good standing and when, in the judgment of the
Investment Manager, the consideration which can be earned currently from such
lending transactions justifies the attendant risk. Any loan made by the Fund
will provide that it may be terminated by either party upon reasonable notice to
the other party.
PROPOSAL 7: APPROVAL OR DISAPPROVAL OF THE AMENDMENT OF THE FUND'S
FUNDAMENTAL INVESTMENT PROVISION REGARDING BORROWING.
The Board of Directors proposes to amend the Fund's fundamental
investment provision regarding borrowing to expand the Fund's borrowing
abilities.
Currently, the Fund may not borrow money, except that as a temporary
measure for extraordinary or emergency purposes the Fund may borrow from banks
up to 5% of the value of its total assets in order to meet redemption.
Occasionally, the Fund may need to borrow money in excess of this amount in
unusual circumstances, such as to satisfy substantial shareholder redemption or
exchange requests when available cash is insufficient. The Fund's current
fundamental limitation provision unduly restricts the Fund's ability to borrow
in these circumstances. Moreover, the Fund's current fundamental limitation
provision is more restrictive than the 1940 Act's requirements for borrowing by
open-end investment companies. The Board of Directors believes that the Fund
should have additional flexibility, should circumstances warrant, to consider
borrowing money. The proposed amendment to the fundamental limitation provision
thus would permit the Fund to borrow money to the extent permitted by the 1940
Act. The 1940 Act permits an open-end investment company to engage in bank
borrowings provided that immediately after any such borrowing there is an asset
coverage of at least 300% for all borrowings of such registered company. The
1940 Act further provides that if such asset coverage falls below 300%, such
registered company must, within three days thereafter (not including Sundays and
holidays), reduce the amount of its borrowings to an extent that the asset
coverage of such borrowings shall be at least 300%.
Although the proposed amendment to the fundamental limitation provision
would permit the Fund to use borrowing for leveraging or investment purposes,
the Fund has no current intention of doing so. Accordingly, if the proposed
amendment is approved by the shareholders, the Board of Directors also intends
to adopt a non-fundamental limitation provision that would provide that the Fund
may only borrow from a bank for temporary or emergency purposes or engage in
reverse repurchase agreements in an amount up to one-third of its assets and
that the Fund may not purchase securities for investment while any bank
borrowing equaling 5% or more of its total assets is outstanding. If the Board
were to change this non-fundamental limitation to enable the Fund to borrow for
leveraging or investment, it would do so only after notice to shareholders.
This proposal will permit the Fund to enter into reverse repurchase
agreements, which are a form of borrowing. Under a reverse repurchase agreement,
the Fund sells securities and agrees to repurchase them at a mutually agreed
date and price. At the time the Fund enters into a reverse repurchase agreement,
an approved custodian segregates cash or liquid, high grade debt securities
having a value not less than the repurchase price (including accrued interest).
The market value of securities sold under reverse repurchase agreements
typically is greater than the proceeds of the sale, and, accordingly, the market
value of the securities sold is likely to be greater than the value of the
securities in which the Fund invests those proceeds. Reverse repurchase
agreements involve the risk that the buyer of the securities sold by the Fund
might be unable to deliver them when the Fund seeks to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision.
PROPOSAL 8: APPROVAL OR DISAPPROVAL OF THE AMENDMENT OF THE FUND'S
FUNDAMENTAL INVESTMENT PROVISION REGARDING THE ISSUANCE OF
SENIOR SECURITIES.
The Board of Directors proposes to amend the Fund's fundamental
investment provision regarding the issuance of senior securities. Such amendment
would provide that the Fund may not issue senior securities, except to the
extent permitted by the 1940 Act. Accordingly, none of the following would be
prohibited Fund investments so long as they are made in accordance with the 1940
Act and applicable rules and regulations adopted by the Securities and Exchange
Commission: (i) evidences of indebtedness that the Fund is permitted to incur;
(ii) the issuance of additional series or classes of securities that the Board
of Directors may establish; (iii) the Fund's futures, options and forward
transactions; (iv) the establishment or use of a margin account with a broker
for the purpose of effecting securities transactions on margin; and (v) short
sales. For additional discussion of the Fund's present and proposed authority
with respect to futures, options and forward transactions, see Proposals 12 and
14 below.
11
<PAGE>
PROPOSAL 9. APPROVAL OR DISAPPROVAL OF THE AMENDMENT OF THE FUND'S
FUNDAMENTAL INVESTMENT PROVISION REGARDING UNDERWRITING
SECURITIES.
The Board of Directors proposes to amend the Fund's fundamental
investment provision regarding the underwriting of securities to conform its
wording to the restrictions of other mutual funds managed by affiliates of the
Investment Manager.
PROPOSAL 10. APPROVAL OR DISAPPROVAL OF THE AMENDMENT OF THE FUND'S
FUNDAMENTAL INVESTMENT PROVISION REGARDING INDUSTRY
CONCENTRATION.
The Board of Directors proposes to amend the Fund's fundamental
investment provision regarding industry concentration. Currently, the Fund may
not concentrate more than 25% of the value of its assets in any one industry.
The Board proposes to amend this provision to clarify that this limitation does
not apply to securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. In connection with the proposed amendment of this
provision, certain editorial changes will be made to conform it to the
restrictions of other funds managed by affiliates of the Investment Manager.
PROPOSAL 11. APPROVAL OR DISAPPROVAL OF THE AMENDMENT OF THE FUND'S
FUNDAMENTAL INVESTMENT PROVISION REGARDING REAL ESTATE OR REAL
ESTATE MORTGAGE LOANS.
The Board of Directors proposes to amend the current fundamental
investment provision which prohibits the Fund from investing in real estate or
real estate mortgage loans, except that the Fund may invest up to 5% in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate. Such amendment would eliminate any percentage
limitation on the Fund's investment 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. The current provision has been
adopted to address the "blue sky" requirements of certain states in connection
with the registration of shares of the Fund for sale, as well as certain
requirements of the 1940 Act. However, the Fund's current restriction is more
restrictive than what is required by the 1940 Act and the "blue sky" provisions.
Accordingly, the Board of Directors proposes amending the Fund's fundamental
investment provision to maximize the Fund's flexibility, consistent with the
1940 Act and the various states' "blue sky" requirements.
AMENDMENT AND RECLASSIFICATION OF CERTAIN PROVISIONS
PROPOSAL 12. APPROVAL OR DISAPPROVAL OF THE AMENDMENT AND
RECLASSIFICATION OF THE FUND'S FUNDAMENTAL INVESTMENT
PROVISION REGARDING COMMODITIES.
The Board of Directors proposes to amend in part and reclassify in part
as non-fundamental the Fund's fundamental investment provision regarding
commodities to provide the Fund with greater flexibility in connection with
options, futures and forward contract transactions. Currently, the Fund is
subject to fundamental investment restrictions that the Fund will not invest in
commodities or commodities futures contracts. The current provision would be
amended to expressly permit the Fund to enter into commodity and other futures
contracts and options thereon, options on commodities, including foreign
currencies, and forward contracts on commodities, including foreign currencies,
and buy and sell (write) options. See also Proposal 14. In conjunction with
shareholder approval of such amendment, the Board of Directors intends to adopt,
as non-fundamental investment provisions, the following provisions with respect
to futures contracts and options. 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 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. 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. The Fund may
purchase a put or call option on a security or 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. As with other non-fundamental provisions, these may be
changed by the Board of Directors without shareholder vote.
The Fund may purchase and write put and call options on securities
(both equity and debt), securities indices, and currencies. These options may be
exchange traded or over-the-counter ("OTC") options. Exchange-traded options in
the U.S. are issued by a clearing organization affiliated with the exchange on
which the option is listed, which, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between the
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Fund and its counterparty with no clearing organization guarantee. Thus, when
the Fund purchases an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery of the securities or other
instrument underlying the option. Failure by the dealer to do so would result in
the loss of any premium paid by the Fund as well as the loss of the expected
benefit of the transaction.
If shareholders approve Proposal 12, the Fund may use its options,
futures and forward contract strategies for hedging and yield or income
enhancement purposes. For example, the Fund could purchase call options on
securities that the Investment Manager intends to include in the Fund's
portfolio in order to fix the cost of a future purchase or to attempt to enhance
return by, for example, participating in an anticipated price increase of a
security. The Fund could purchase put options on securities to hedge against a
decline in the market value of securities held in the Fund's portfolio or to
attempt to enhance yield or income. The Fund could write (sell) put and call
options on securities to enhance yield or income or as a limited hedge. The Fund
could purchase and sell these instruments in order to attempt to hedge against
changes in securities prices, interest rate or foreign currency exchange rates
or to enhance yield or income.
Strategies with options, futures, and forward currency contracts may be
limited by market conditions, regulatory limits and tax considerations, and the
Fund might not employ any of the strategies described above. There can be no
assurance that any hedging or yield or income strategy used will be successful.
The loss from investing in certain of these instruments is potentially
unlimited. Options and futures may fail as hedging techniques in cases where
price movements of the instruments underlying the options and futures do not
follow the price movements of the instrument subject to the hedge. Gains and
losses on investments in options and futures depend on the Investment Manager's
ability to predict correctly the direction of stock prices, interest rates,
foreign currency exchange rates, and other economic factors. In addition, the
Fund will likely be unable to control losses by closing its position where a
liquid secondary market does not exist and there is no assurance that a liquid
secondary market for all of these instruments will always exist. It also may be
necessary to defer closing out hedged positions to avoid adverse tax
consequences.
Transactions using these instruments, other than purchased options,
expose the Fund to an obligation to another party. The Fund will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, currencies or other options, futures contracts or
forward contracts, or (2) cash, receivables and short-term debt securities, with
a value sufficient at all times to cover its potential obligations to the extent
not covered as provided in (1) above. The Fund would comply with SEC guidelines
regarding cover for these instruments and will, if the guidelines so require,
set aside cash, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount
as determined daily on a mark-to-market basis.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or segregate accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
PROPOSAL 13. APPROVAL OR DISAPPROVAL OF THE AMENDMENT AND
RECLASSIFICATION OF THE FUND'S FUNDAMENTAL RESTRICTION
REGARDING INVESTMENTS IN EXPLORATION OR DEVELOPMENT PROGRAMS,
SUCH AS OIL OR GAS PROGRAMS.
The Board of Directors proposes to amend and reclassify, as
non-fundamental, the Fund's fundamental investment provision regarding
investments in exploration or development programs, such as oil or gas programs.
The Fund is not required to have a fundamental restriction with respect to oil,
gas or mineral investments, but certain state securities rules require that the
Fund establish at least a non-fundamental restriction on this subject. In order
to maximize the Fund's flexibility in the event of future changes in state
securities rules or policies, the Board believes that the Fund's restrictions on
oil, gas and mineral investments should be made non-fundamental. The
non-fundamental restriction adopted by the Board will reflect Texas' general
prohibition against investment in oil, gas and other mineral leases.
PROPOSAL 14. APPROVAL OR DISAPPROVAL OF THE AMENDMENT AND
RECLASSIFICATION OF THE FUND'S FUNDAMENTAL INVESTMENT
PROVISION REGARDING OPTIONS, MARGIN PURCHASES, AND SHORT
SALES.
The Board of Directors proposes to amend and reclassify, as
non-fundamental, the Fund's fundamental investment provision which prohibits the
Fund from purchasing securities on margin, making short sales, or writing put or
call options. See also Proposal 12. Margin purchases involve the purchase of
securities with money borrowed from a broker. "Margin" is the cash or eligible
securities that the borrower places with the broker as collateral against the
borrowed money. In a short sale, the Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. A short
sale against the box is a short sale where, at the time of the sale, the Fund
owns or has an immediate and unconditional right to acquire securities identical
in kind and amount to the securities sold.
If the Fund's shareholders approve this Proposal, the Board of
Directors intends to adopt two non-fundamental policies that would: (a) prohibit
margin purchases generally, but would permit the purchase of securities on
margin to obtain such short-term credits as are necessary for the clearance of
transactions; and (b) prohibit short sales generally, but would permit the Fund
to engage in short sales under certain circumstances such as (i) buying and
selling options, futures
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contracts, options on futures contracts, and forward contracts, and (ii) short
sales against the box, where the Fund owns or, by virtue of its ownership of
other securities, has the unconditional right to obtain at no added cost
securities identical to those sold short.
The Fund does not intend to dispose of the securities underlying a
short sale while a short sale is outstanding. The Fund also does not intend to
engage in short sales against the box for investment purposes, but rather to
defer recognition of gain or loss for tax purposes, or to satisfy certain
requirements applicable to regulated investment companies under the Internal
Revenue Code. The Board of Directors currently expects that the Fund will engage
in short sales against the box as a hedge when the Investment Manager believes
that the price of a security may decline, or when the Fund wants to sell the
security it owns at the current price. The Investment Manager currently
anticipates that no more than 5% of the Fund's total assets would be involved in
short sales against the box.
The Board of Directors believes authority to sell short against the box
may enhance the Investment Manager's flexibility to time the disposition of
portfolio securities. The amendment to the Fund's investment provisions
regarding purchasing securities on margin does not reflect a change in the
Fund's operations but is intended merely to clarify the Fund's existing policy
with regard to this practice.
PROPOSAL 15. APPROVAL OR DISAPPROVAL OF THE AMENDMENT AND
RECLASSIFICATION OF THE FUND'S FUNDAMENTAL INVESTMENT
PROVISION REGARDING INVESTMENTS IN OTHER OPEN-END INVESTMENT
COMPANIES.
The Board of Directors proposes to amend and reclassify, as
non-fundamental, the Fund's fundamental investment provision which prohibits the
Fund's investments in other open-end investment companies, except as a part of a
plan of merger, acquisition or consolidation. That provision also allows for
investments in closed-end investment companies to a limited extent. The current
provision is not required to be fundamental. Furthermore, the Fund's current
restriction limits the Fund's investments in open-end investment companies to an
extent that is more restrictive than that required by the 1940 Act and the
applicable rules and policies adopted by the SEC. If the shareholders approve
this Proposal, the Board of Directors intends to adopt a non-fundamental
provision that would expand the Fund's ability to acquire securities of other
open-end and closed-end investment companies to a limited extent, consistent
with the 1940 Act. Accordingly, the non- fundamental restriction would prohibit
the Fund's acquisition of 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. Whenever the Fund purchases another investment company's securities, in
addition to the Fund's expenses (including the various fees), as a shareholder
in another investment company, the Fund would bear its pro rata portion of the
other investment company's expenses (including fees).
PROPOSAL 16. APPROVAL OR DISAPPROVAL AMENDMENT AND RECLASSIFICATION OF
THE FUND'S FUNDAMENTAL INVESTMENT PROVISION REGARDING
INVESTMENTS IN SECURITIES OF UNSEASONED ISSUERS AND ILLIQUID
SECURITIES.
The Board of Directors proposes to amend and reclassify, as
non-fundamental, the Fund's fundamental investment provision which limits the
Fund's investments in securities of companies, including any predecessors,
having a record of less than three years of continuous operation. This provision
has been adopted by the Fund to address the "blue sky" requirements of certain
states in connection with the registration of shares of the Fund for sale. Those
states do not require the provision to be fundamental. In order to maximize the
Fund's flexibility in the event of future changes in state securities rules or
policies, the Board believes that the Fund's restriction on investments in
securities of unseasoned issuers should be made non-fundamental. In connection
with the reclassification of this provision, certain editorial changes will be
made to conform it to the restrictions of other funds managed by affiliates of
the Investment Manager.
The Board of Directors also proposes to amend and reclassify, as
non-fundamental, the Fund's fundamental investment provision which limits the
Fund's investments in securities of issuers which are not readily marketable.
The Board of Directors intends to adopt a non-fundamental investment provision
regarding the purchase of illiquid assets. An open-end investment company may
not hold a significant amount of illiquid assets because such assets may present
problems of accurate valuation and because it is possible that the investment
company would have difficulty satisfying redemptions within seven days, as
required by law. Accordingly, if this Proposal is approved by shareholders, the
Board of Directors intends to adopt a non-fundamental limitation provision that
would limit the amount the Fund may invest in (a) illiquid assets (a term which
means assets that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
assets), including repurchase agreements not entitling the holder to payment of
principal within seven days, to 15% of the Fund's net assets and (b) securities
that are illiquid by virtue of restrictions on the sale of such securities to
the public without registration under the Securities Act of 1933 ("1933 Act") to
10% of the Fund's total assets. As a result of these amendments, the percentage
the Fund may invest in illiquid securities will increase. See also Proposal 18
regarding restricted securities.
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For purposes of the proposed non-fundamental limitation on investments
in illiquid assets, the Fund would be permitted to exclude securities that are
determined to be liquid. The Board of Directors has ultimate responsibility for
determining whether specific securities are liquid or illiquid. The Board
intends to delegate the function of making day-to-day determinations of
liquidity to the Investment Manager, pursuant to guidelines approved by the
Board. The Investment Manager takes into account a number of factors in reaching
liquidity decisions, including (1) the frequency of trades and quotes for the
security, (2) the number of dealers willing to purchase or sell the security and
the number of other potential purchasers, (3) dealer undertakings to make a
market in the security, and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer).
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Pursuant to Rule 144A, the institutional
restricted securities market may provide both readily ascertainable values for
restricted securities and the ability to liquidate an investment. Investing in
Rule 144A securities could have the effect of increasing the level of Fund
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities.
PROPOSAL 17. APPROVAL OR DISAPPROVAL OF THE AMENDMENT AND
RECLASSIFICATION OF THE FUND'S FUNDAMENTAL INVESTMENT
PROVISION REGARDING INVESTMENTS IN SECURITIES OF A COMPANY IF
THOSE OFFICERS OR DIRECTORS OF THE FUND, WHO OWN 1/2 OF 1% OR
MORE OF THE COMPANY'S SECURITIES, OWN TOGETHER MORE THAN 5% OF
THE COMPANY'S SECURITIES.
The Board of Directors proposes to amend and reclassify, as
non-fundamental, the Fund's fundamental investment provision which prohibits the
Fund from purchasing or retaining the securities of any issuer if any of the
officers or directors of the Fund or its Investment Adviser own beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer. This provision has been adopted by the Fund
to address the "blue sky" requirements of certain states in connection with the
registration of shares of the Fund for sale. Those states do not require the
provision to be fundamental. In order to maximize the Fund's flexibility in the
event of future changes in state securities rules or policies, the Board
believes that this restriction should be made non-fundamental. In connection
with the reclassification of this provision, the provision will be amended to
cover the Fund's sub-adviser as well as the Investment Manager. In addition,
certain editorial changes will be made to conform it to the restrictions of
other funds managed by affiliates of the Investment Manager.
PROPOSAL 18. APPROVAL OR DISAPPROVAL OF THE AMENDMENT AND
RECLASSIFICATION OF THE FUND'S FUNDAMENTAL INVESTMENT
PROVISION REGARDING THE PURCHASE OF RESTRICTED SECURITIES.
The Board of Directors proposes to amend and reclassify, as
non-fundamental, the Fund's fundamental investment provision which limits the
Fund's investments in securities restricted as to disposition under the federal
securities laws. Restricted securities are securities which may not be offered
or sold to the public without prior registration under the 1933 Act. The
provision has been adopted by the Fund to address the "blue sky" requirements of
certain states in connection with the registration of shares of the Fund for
sale. Those states do not require the provision to be fundamental. In order to
maximize the Fund's flexibility in the event of future changes in state
securities rules or policies, the Board believes that the Fund's investment
provision on restricted securities should be made non-fundamental. See also
Proposal 16.
ELIMINATION OF CERTAIN PROVISIONS
PROPOSAL 19. APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
FUNDAMENTAL INVESTMENT PROVISIONS REGARDING THE FUND'S
INVESTMENTS IN A SINGLE ISSUER AND TO CHANGE THE FUND'S STATUS
FROM A DIVERSIFIED TO A NON-DIVERSIFIED FUND.
The Board of Directors proposes to eliminate the Fund's fundamental
investment provisions which relate to the Fund's investments in a single issuer,
so that the Fund would be subject to less restrictive diversification
requirements, and which will result in the conversion of the Fund from a
diversified to non-diversified fund.
Currently, the Fund is prohibited from purchasing securities of an
issuer (other than obligations of, or guaranteed by, the United States
government, its agencies or instrumentalities) if, as a result, more than 5% of
the value of the Fund's assets would be invested in securities of that issuer or
purchasing more than 10% of any class of securities of any issuer. Upon
elimination of these fundamental provisions, the Fund would become a
non-diversified investment company and would not be limited by the 1940 Act by
the amount the Fund may invest in the securities of a single issuer. Upon
elimination of these provisions, however, the Fund 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 does not exceed 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.
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The elimination of this provision would provide the Investment Manager
with greater investment flexibility in managing the Fund's portfolio. However,
as a non-diversified investment company, to the extent that the Fund's portfolio
at times might include the securities of a smaller number of issuers than if it
were subject to the provision, the Fund will at such times be subject to greater
risk with respect to its portfolio securities than a fund 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 and the price of the Fund's shares.
PROPOSAL 20. APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
FUNDAMENTAL INVESTMENT PROVISION REGARDING INVESTMENT FOR THE
PURPOSE OF EXERCISING CONTROL OR MANAGEMENT OF ANOTHER ISSUER.
The Board of Directors proposes to eliminate the Fund's fundamental
investment provision, which prohibits the Fund from investing in companies for
the purpose of exercising control or management. By eliminating this
restriction, the Fund would make clear that it may exercise freely its rights as
a shareholder of the companies in which the Fund invests. The Fund does not
intend to become involved in directing or administering the day-to-day
operations of any com pany. The Investment Manager, however, believes that it
should be able to communicate freely the Fund's views as a shareholder on
important matters of policy to a company's management, its board of directors
and its shareholders, when the Investment Manager believes that such action or
policy may affect significantly the value of its investment. The activities in
which the Fund might engage, either individually or with others, include seeking
changes in a company's direction, seeking the sale of a company or a portion of
its assets, or participating in a takeover effort or in opposition to a takeover
effort. The Investment Manager believes that the Fund currently may engage in
such activities without necessarily violating this provision. Nevertheless, the
existence of the investment restriction might give rise to a claim that such
activities did in fact constitute investing for control or management. Although
the Fund could be drawn into lawsuits whether or not this provision is
eliminated, the Investment Manager believes that, on balance, elimination of
this provision would be beneficial to the Fund. Any activities conducted by the
Fund will continue to be limited to those instances where the Investment Manager
believes that potential litigation risk and expense is offset by the potential
for substantial enhance ment or preservation of the value of the Fund's
investments.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSALS 6 THROUGH 20.
PROPOSAL 21. APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO THE FUND'S BY-LAWS.
Currently, Article VII of the Fund's By-laws sets forth a list of
investment limitations that are substantially similar to the fundamental
investment provisions currently included in the Fund's Statement of Additional
Information. The current list of investment limitations included in Article VII
of the Fund's By-laws is stated in full in Exhibit G.
The limitations set forth in Article VII are more restrictive than
those contained in the Statement of Additional Information in two respects.
First, pursuant to Article VII, the Fund may not enter into repurchase
agreements if, as a result thereof, more than 10% of the Fund's total assets
valued at the time of the transaction would be subject to repurchase agreements
maturing in more than seven days. In addition, the Fund may not purchase
securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets.
The Fund is not required to include a list of investment and other
restrictions in its By-laws. In addition, because Article VII of the Fund's
By-laws can only be amended, altered or repealed by shareholder approval,
Article VII reduces the flexibility the Board has to respond to regulatory,
business or industry conditions. Accordingly, the Board proposes that the Fund's
By-laws be amended to eliminate Article VII. By eliminating Article VII of the
Fund's By-laws, the Fund will be subject to the more expansive investment
restrictions set forth in the Statement of Additional Information.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 21.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to submit proposals to be considered at the
Fund's 1997 annual meeting of shareholders should send such proposals to the
Fund at 545 Shoup Avenue, Suite 303, Idaho Falls, ID 83402, so as to be received
by the Fund no later than September 22, 1996. Timely submission of a proposal
does not necessarily mean that such proposal will be included. Inclusion of such
proposals is subject to limitations under the Federal securities laws.
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OTHER BUSINESS
Management knows of no business to be presented to the Meeting other
than the matters set forth in this proxy statement, but should any other matter
requiring a vote of shareholders arise, the proxies will vote thereon according
to their best judgment in the interest of the Fund. In addition to solicitations
through the mails, the Fund may, if necessary to obtain the requisite
representation of shareholders, solicit proxies by telephone, telefacsimile and
personal interview by employees or through securities dealers. The cost of
soliciting proxies, including the preparation and mailing of the proxy and proxy
statement and including reimbursement to dealers and others who forward proxy
material to their clients, will be borne by the Investment Manager.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED, PROMPT
EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A SELF-ADDRESSED,
POSTAGE- PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
By order of the Board of Directors,
Secretary
July 24, 1996
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EXHIBIT A
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this _____th day of ____________, 1996, by and between
THE ROCKWOOD GROWTH FUND, INC. an Idaho corporation (the "Fund") and ROCKWOOD
ADVISERS, INC., a Delaware corporation (the "Investment Manager").
WHEREAS the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
and offers for public sale shares of common stock; and
WHEREAS the Fund desires to retain the Investment Manager to furnish
certain investment advisory and portfolio management services to the Fund, and
the Investment Manager desires to furnish such services;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed between the parties hereto as
follows:
1. The Fund hereby employs the Investment Manager to manage the
investment and reinvestment of the assets of the Fund thereof, including the
regular furnishing of advice with respect to the Fund's portfolio transactions
subject at all times to the control and oversight of the Fund's Board of
Directors, for the period and on the terms set forth in this Agreement. The
Investment Manager hereby accepts such employment and agrees during such period
to render the services and to assume the obligations herein set forth, for the
compensation herein provided. The Investment Manager shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way, or otherwise be deemed an agent of the Fund.
2. The Fund assumes and shall pay all the expenses required for the
conduct of its business including, but not limited to, (a) salaries of
administrative and clerical personnel; (b) brokerage commissions; (c) taxes and
governmental fees; (d) costs of insurance and fidelity bonds; (e) fees of the
transfer agent, custodian, legal counsel and auditors; (f) association fees; (g)
costs of preparing, printing and mailing proxy materials, reports and notices to
shareholders; (h) costs of preparing, printing and mailing the prospectus and
statement of additional information and supplements thereto; (i) payment of
dividends and other distributions; (j) costs of stock certificates; (k) costs of
Board and shareholders meetings; (l) fees of the independent directors; (m)
necessary office space rental; (n) all fees and expenses (including expenses of
counsel) relating to the registration and qualification of shares of the Fund
under applicable federal and state securities laws and maintaining such
registrations and qualifications; and (o) such non-recurring expenses as may
arise, including, without limitation, actions, suits or proceedings affecting
the Fund and the legal obligation which the Fund may have to indemnify its
officers and directors with respect thereto.
3. The Investment Manager may, but shall not be obligated to, pay or
provide for the payment of expenses which are primarily intended to result in
the sale of the Fund's shares or the servicing and maintenance of shareholder
accounts, including, without limitation, payments for: advertising, direct mail
and promotional expenses; compensation to and expenses, including overhead and
telephone and other communication expenses, of the Investment Manager and its
affiliates, the Fund, and selected dealers and their affiliates who engage in or
support the distribution of shares or who service shareholder accounts;
fulfillment expenses including the costs of printing and distributing
prospectuses, statements of additional information, and reports for other than
existing shareholders; the costs of preparing, printing and distributing sales
literature and advertising materials; and, internal costs incurred by the
Investment Manager and its affiliates and allocated to efforts to distribute
shares of the Fund such as office rent and equipment, employee salaries,
employee bonuses and other overhead expenses. Such payments may be for the
Investment Manager's own account or may be made on behalf of the Fund pursuant
to a written agreement relating to a plan of distribution adopted pursuant to
Rule 12b-1 under the 1940 Act.
4. If requested by the Fund's Board of Directors, the Investment
Manager may provide other services to the Fund such as, without limitation, the
functions of billing, accounting, certain shareholder communications and
services, administering state and Federal registrations, filings and controls
and other administrative services. Any services so requested and performed will
be for the account of the Fund and the costs of the Investment Manager in
rendering such services shall be reimbursed by the Fund, subject to examination
by those directors of the Fund who are not interested persons of the Investment
Manager or any affiliate thereof.
5. The services of the Investment Manager are not to be deemed
exclusive, and the Investment Manager shall be free to render similar services
to others in addition to the Fund so long as its services hereunder are not
impaired thereby.
6. The Investment Manager shall create and maintain all necessary books
and records in accordance with all applicable laws, rules and regulations,
including but not limited to records required by Section 31(a) of the 1940 Act
and the rules thereunder, as the same may be amended from time to time,
pertaining to the investment management services
A-1
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performed by it hereunder and not otherwise created and maintained by another
party pursuant to a written contract with the Fund. Where applicable, such
records shall be maintained by the Investment Manager for the periods and in the
places required by Rule 31a-2 under the 1940 Act. The books and records
pertaining to the Fund which are in the possession of the Investment Manager
shall be the property of the Fund. The Fund, or the Fund's authorized
representatives, shall have access to such books and records at all times during
the Investment Manager's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by the
Investment Manager to the Fund or the Fund's authorized representatives.
7. As compensation for its services, with respect to the Fund the
Investment Manager will be paid by the Fund a fee payable monthly and computed
at the annual rate of 1% of the first $200 million of average daily net assets
of the Fund, .95% of such net assets over $200 million up to $400 million, .90%
of such net assets over $400 million up to $600 million, .85% of such net assets
over $600 million up to $800 million, .80% of such net assets over $800 million
up to $1 billion, and .75% of such net assets over $1 billion. The aggregate net
assets for each day shall be computed by subtracting the liabilities of the Fund
from the value of its assets, such amount to be computed as of the calculation
of the net asset value per share on each business day.
8. The Investment Manager shall direct portfolio transactions to
broker/dealers for execution on terms and at rates which it believes, in good
faith, to be reasonable in view of the overall nature and quality of services
provided by a particular broker/dealer, including brokerage and research
services and sales of Fund shares and shares of other investment companies or
series thereof for which the Investment Manager or an affiliate thereof serves
as investment adviser. The Investment Manager may also allocate portfolio
transactions to broker/dealers that remit a portion of their commissions as a
credit against Fund expenses. With respect to brokerage and research services,
the Investment Manager may consider in the selection of broker/dealers brokerage
or research provided and payment may be made of a fee higher than that charged
by another broker/dealer which does not furnish brokerage or research services
or which furnishes brokerage or research services deemed to be of lesser value,
so long as the criteria of Section 28(e) of the Securities Exchange Act of 1934,
as amended, or other applicable law are met. Although the Investment Manager may
direct portfolio transactions without necessarily obtaining the lowest price at
which such broker/dealer, or another, may be willing to do business, the
Investment Manager shall seek the best value for the Fund on each trade that
circumstances in the market place permit, including the value inherent in
on-going relationships with quality brokers. To the extent any such brokerage or
research services may be deemed to be additional compensation to the Investment
Manager from the Fund, it is authorized by this Agreement. The Investment
Manager may place Fund brokerage through an affiliate of the Investment Manager,
provided that: the Fund not deal with such affiliate in any transaction in which
such affiliate acts as principal; the commissions, fees or other remuneration
received by such affiliate be reasonable and fair compared to the commissions,
fees or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time; and such brokerage be
undertaken in compliance with applicable law. The Investment Manager's fees
under this Agreement shall not be reduced by reason of any commissions, fees or
other remuneration received by such affiliate from the Fund.
9. The Investment Manager shall waive all or part of its fee or
reimburse the Fund monthly if and to the extent the aggregate operating expenses
of the Fund exceed the most restrictive limit imposed by any state in which
shares of the Fund are qualified for sale or such lesser amount as may be agreed
to by the Fund's Board of Directors and the Investment Manager. In calculating
the limit of operating expenses, all expenses excludable under state regulation
or otherwise shall be excluded. If this Agreement is in effect for less than all
of a fiscal year, any such limit will be applied proportionately.
10. Subject to and in accordance with the Articles of Incorporation and
By-laws of the Fund and of the Investment Manager, it is understood that
directors, officers, agents and shareholders of the Fund are or may be
interested in the Fund as directors, officers, shareholders or otherwise, that
the Investment Manager is or may be interested in the Fund as a shareholder or
otherwise and that the effect and nature of any such interests shall be governed
by law and by the provisions, if any, of said Articles of Incorporation or
By-laws.
11. This Agreement shall become effective upon the date hereinabove
written and, unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually (a) by the Board of Directors of the Fund or by the holders of
a majority of the outstanding voting securities of the Fund as defined in the
1940 Act and (b) by a vote of a majority of the Directors of the Fund who are
not parties to this Agreement, or interested persons of any such party. This
Agreement may be terminated without penalty at any time either by vote of the
Board of Directors of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Fund on 60 days' written notice to the
Investment Manager, or by the Investment Manager on 60 days' written notice to
the Fund. This Agreement shall immediately terminate in the event of its
assignment.
A-2
<PAGE>
12. The Investment Manager shall not be liable to the Fund or any
shareholder of the Fund for any error of judgment or mistake of law or for any
loss suffered by the Fund or the Fund's shareholders in connection with the
matters to which this Agreement relates, but nothing herein contained shall be
construed to protect the Investment Manager against any liability to the Fund or
the Fund's shareholders by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of its reckless
disregard of obligations and duties under this Agreement.
13. As used in this Agreement, the terms "interested person,"
"assignment," and "majority of the outstanding voting securities" shall have the
meanings provided therefor in the 1940 Act, and the rules and regulations
thereunder.
14. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held or
made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
15. This Agreement shall be construed in accordance with and governed
by the laws of the State of New York, provided, however, that nothing herein
shall be construed in a manner inconsistent with the 1940 Act or any rule or
regulation promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
THE ROCKWOOD GROWTH FUND, INC.
By:____________________________
ROCKWOOD ADVISERS, INC.
By:____________________________
A-3
<PAGE>
EXHIBIT B
SUBADVISORY AGREEMENT
AGREEMENT made this _____th day of __________, 1996, by and between
ROCKWOOD ADVISERS, INC., a Delaware corporation (the "Investment Manager") and
ASPEN SECURITIES AND ADVISORY, INC., an Idaho corporation (the "Subadviser").
WHEREAS the Investment Manager intends to enter into an investment
management agreement (the "Management Agreement") with The Rockwood Growth Fund,
Inc. (the "Fund") pursuant to which the Investment Manager will furnish the Fund
with investment management and other services; and
WHEREAS the Management Agreement provides that the Investment Manager
may, at its own expense, contract for research and other services as it deems
necessary or desirable to fulfill such obligations; and
WHEREAS, the Subadviser is registered under the Investment Advisers Act of 1940;
and
WHEREAS, the Investment Manager desires to retain the Subadviser to
provide subadvisory and research services in connection with the Fund and the
Subadviser is willing to provide such services;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed between the parties hereto as
follows:
1. The Investment Manager will manage the investment and reinvestment of the
assets of Fund including the regular furnishing of advice with respect to the
Fund's portfolio transactions subject at all times to the control and oversight
of the Board of Directors of the Fund, for the period and on the terms set forth
in its Management Agreement with the Fund. The Investment Manager retains
responsibility for selecting brokers, monitoring trade executions, communicating
instructions to the Fund's custodian and other Fund agents, and all other
functions pertaining to the management of the Fund.
2. The Subadviser will make itself available to advise and consult with the
Investment Manager regarding the selection, clearing, and safekeeping of the
Fund's portfolio investments and assist in pricing and generally monitoring such
investments. The Subadviser agrees to permit the use of its name and the names
of its personnel and other information about the Subadviser in the marketing and
other literature in connection with the Fund.
3. In consideration of the Subadviser's services, the Investment Manager, and
not the Fund, shall pay to the Subadviser a percentage of the Investment
Manager's Net Fees. "Net Fees" are hereby defined as the actual amounts received
by the Investment Manager as compensation pursuant to paragraph 7 of the
Management Agreement less reimbursements, if any, pursuant to the guaranty set
forth in paragraph 9 of the Management Agreement and waivers of such
compensation by the Investment Manager. The amount of the percentage and the
timing of the payment shall be determined by the schedule and accompanying
definitions set forth in Appendix A hereto.
4. The Subadviser will pay all expenses incurred by it in connection with this
Subadvisory Agreement.
5. The services of the Subadviser hereunder are not to be deemed exclusive, and
the Subadviser shall be free to render similar services to others in addition to
the Investment Manager and the Fund so long as its services hereunder are not
impaired thereby. The Subadviser shall not render, however, similar services to
any investment company either directly or indirectly as an adviser, subadviser,
portfolio manager, consultant, or otherwise, other than to the Fund and other
investment companies for which the Investment Manager or its affiliates provide
investment management services. In the event of termination of this Subadvisory
Agreement, the Subadviser agrees that until the later of (A) two years from the
date of this Subadvisory Agreement or (B) one year from the date of such
termination, the Subadviser shall not, and shall use its best efforts to assure
that its directors, officers, employees, agents, and similar personnel shall
not, render similar services to any investment company either directly or
indirectly as an adviser, subadviser, portfolio manager, consultant, or
otherwise, and this agreement shall survive the termination of this Subadvisory
Agreement.
6. This Subadvisory Agreement shall become effective upon approval by the
directors and shareholders of the Fund as required by the Investment Company Act
of 1940 (the "1940 Act"). Thereafter, if not terminated, this Subadvisory
Agreement shall continue from year to year if approved annually by (a) the Board
of Directors of the Fund or by vote of a majority of the outstanding voting
securities of the Fund as defined in the 1940 Act and (b) by a vote of a
majority of the Directors of the Fund who are not parties to the Subadvisory
Agreement, or interested persons of any such party. This Subadvisory Agreement
may be terminated without penalty at any time either by vote of the Board of
Directors of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the Fund on 60 days' written notice to the Investment
Manager and the Subadviser, or by the Investment Manager or the Subadviser on 60
days' written notice to the Fund. In the event of termination upon notice as
herein described, the Investment Manager and the Subadviser agree that,
B-1
<PAGE>
subject to the provisions of the 1940 Act, no party hereto will be entitled to
or seek indemnification or compensation from the other party for expenses
incurred in connection with marketing efforts performed during the term of this
Agreement. This Subadvisory Agreement shall immediately terminate in the event
of its assignment or upon the termination of the Management Agreement.
7. The Subadviser shall not be liable to the Fund or any shareholder of the Fund
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Subadvisory Agreement relates, but
nothing herein contained shall be construed to protect the Subadviser against
any liability to the Fund by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of its reckless
disregard of obligations and duties under this Subadvisory Agreement.
8. Subject to and in accordance with the Articles of Incorporation and Bylaws of
the Fund, the Investment Manager, and the Subadviser, it is understood that
directors, officers, agents and shareholders of the Fund, the Investment
Manager, or Subadviser are or may be interested in the Fund, the Investment
Manager, or the Subadviser as directors, officers, shareholders or otherwise,
that the Investment Manager or the Subadviser is or may be interested in the
Fund or the Investment Manager or the Subadviser as a shareholder or otherwise
and that the effect and nature of any such interests shall be governed by law
and by the provisions, if any, of said Articles of Incorporation or Bylaws.
9. All notices hereunder shall be in writing and shall be delivered in person or
sent by facsimile transmission that is confirmed by regular, registered, or
certified mail to the following address for the respective parties:
Rockwood Advisers, Inc.
11 Hanover Square
New York, NY 10005
Fax: (212) 785-0400
Aspen Securities and Advisory, Inc.
545 Shoup Avenue, Suite 303
Idaho Falls, ID 83402
Fax: (208) 528-0017
Notice shall be deemed given, five days after depositing in a post office,
postage prepaid and if sent by facsimile transmission five days after
confirmation has been mailed.
10. As used in this Subadvisory Agreement, the terms "interested person,"
"assignment," and "vote of a majority of the outstanding voting securities"
shall have the meaning provided therefor in the 1940 Act, as from time to time
amended.
IN WITNESS WHEREOF, the parties hereto have executed this Subadvisory
Agreement on the day and year first above written.
ROCKWOOD ADVISERS, INC.
By:
ASPEN SECURITIES AND ADVISORY, INC.
By:
B-2
<PAGE>
APPENDIX A
THE ROCKWOOD GROWTH FUND, INC.
SUBADVISORY FEE
The Investment Manager shall pay to the Subadviser within 30 days of
each Performance Determination Date, as defined in paragraph A below, a
percentage of the Net Fees, as defined in paragraph 3 of this Subadvisory
Agreement, earned since the later of the effective date of this Subadvisory
Agreement or the prior Performance Determination Date, as defined in paragraph A
below. The amount of the percentage shall be determined by reference to the grid
set forth below.
SUBADVISER'S FEE AS A PERCENTAGE OF INVESTMENT MANAGER'S NET FEES
RELATIVE PERFORMANCEA
<TABLE>
TOTAL NET ASSETSB More than 50 basis points Within 50 basis points More than 50 basis
better than ATR of ATR points below ATR
<S> <C> <C> <C> <C>
Less than or equal to $15,000,000 30% 20% 10%
Greater than $15,000,000 and 40% 30% 20%
Less than or equal to $50,000,000
Greater $50,000,000 50% 40% 30%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A. "Relative Performance" shall be determined from comparing the Fund's total
return with the average total return ("ATR") of funds with the investment
objective of "growth" as compiled by Morningstar, Inc., or, if unavailable,
other similar service acceptable to the parties and the Fund. The Relative
Performance shall be determined as of the last calendar day of each month
("Performance Determination Date") and shall measure the Relative Performance
for the most recent 3 year period ("Measurement Period"), except that (A) for
the first 12 months of this Subadvisory Agreement, Relative Performance shall be
based upon annualized returns, the first three Performance Determination Dates
shall be the next three calendar quarter ends after the effective date of this
Subadvisory Agreement, and the Measurement Periods shall be the most recent
three months and the fourth Performance Determination Date shall be the next
calendar quarter end and the Measurement Period shall be the most recent 1 year
period, and (B) for the 13th through the 24th month of this Subadvisory
Agreement, Relative Performance shall be determined as of the last calendar day
of each month and shall measure the Relative Performance for the most recent 1
year period.
B. "Total Net Assets" shall be the total net assets of the Fund as of the
Performance Determination Date.
B-3
<PAGE>
EXHIBIT C
PLAN OF DISTRIBUTION
WHEREAS THE ROCKWOOD GROWTH FUND, INC. (the "Fund") is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company, and offers for public sale shares of common
stock; and
WHEREAS the Fund has entered into a Distribution Agreement ("Agreement")
with Investor Service Center, Inc. (the "Distributor") pursuant to which the
Distributor has agreed to serve as the principal distributor for the Fund;
NOW, THEREFORE, the Fund hereby adopts this plan of distribution
("Plan") with respect to the Fund in accordance with Rule 12b-1 under the 1940
Act.
1. As Distributor for the Fund, the Distributor may spend such amounts
as it deems appropriate on any activities or expenses primarily intended to
result in the sale of the Fund's shares or the servicing and maintenance of
share holder accounts, including, but not limited to: advertising, direct mail,
and promotional expenses; compensation to the Distributor and its employees;
compensation to and expenses, including overhead and telephone and other
communication expenses, of the Distributor, the Investment Manager, the Fund,
and selected broker/dealers and their affiliates who engage in or support the
distribution of shares or who service shareholder accounts; fulfillment
expenses, including the costs of printing and distributing prospectuses,
statements of additional information, and reports for other than existing
shareholders; the costs of preparing, printing and distributing sales literature
and advertising materials; and internal costs incurred by the Distributor and
allocated by the Distributor to its efforts to distribute shares of the Fund or
service shareholder accounts such as office rent and equipment, employee
salaries, employee bonuses and other overhead expenses.
2. A. The Fund is authorized to pay to the Distributor, as compensation
for the Distributor's distribution and service activities as defined in
paragraph 13 hereof with respect to its shareholders, a fee at the rate of 0.25%
on an annualized basis of its average daily net assets. All or a portion of such
fee may be designated by the Fund's board of directors ("Board") as a fee for
service activities or as a fee for distribution activities. Such fee shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
B. The Fund may pay fees to the Distributor at a lesser rate than the fees
specified in paragraph 2A of this Plan as mutually agreed to by the Board and
the Distributor.
3. This Plan shall not take effect until it has been approved by:
A. the vote of at least a majority of the outstanding voting securities
of the Fund; and
B. the vote cast in person at a meeting called for the purpose
of voting on this Plan of a majority of both (i) those directors of the Fund who
are not interested persons of the Fund and have no direct or indirect financial
interest in the operation of this Plan or any agreement related to it (the "Plan
Directors"), and (ii) all of the directors then in office.
4. This Plan shall continue in effect for one year from its execution
or adoption and thereafter for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 3B.
5. The Distributor shall provide to the Board and the Board shall
review, at least quarterly, a written report of the amounts expended under this
Plan and the purposes for which such expenditures were made. A reasonable
allocation of overhead and other expenses of the Distributor related to its
distribution activities and service activities, including telephone and other
communication expenses, may be included in the information regarding amounts
expended for such activities.
6. This Plan may not be amended to increase materially the amount of
fees provided for in paragraphs 2A and 2B hereof unless such amendment is
approved by a vote of a majority of the outstanding voting securities of the
Fund, and no material amendment to this Plan shall be made unless approved by
the Board and the Plan Directors in the manner provided for approval of this
Plan in paragraph 3B.
7. The amount of the fees payable by the Fund to the Distributor under
paragraphs 2A and 2B hereof is not related directly to expenses incurred by the
Distributor on behalf of the Fund in serving as distributor, and paragraph 2
hereof does not obligate the Fund to reimburse the Distributor for such
expenses. The fees set forth in paragraphs 2A and 2B hereof will be paid by the
Fund to the Distributor unless and until this Plan is terminated or not renewed.
If this Plan is terminated or not renewed, any expenses incurred by the
Distributor on behalf of the Fund in excess of payments of the fees specified in
paragraphs 2A and 2B hereof which the Distributor has received or accrued
through the termination date are the sole responsibility and liability of the
Distributor, and are not obligations of the Fund.
C-1
<PAGE>
8. Any other agreements related to this Plan shall not take effect
until approved in the manner provided for approval of this Plan in paragraph 3B.
9. The Distributor shall use its best efforts in rendering services to
the Fund hereunder, but in the absence of willful misfeasance, bad faith or
gross negligence in the performance of its duties or reckless disregard of its
obligations and duties hereunder, the Distributor shall not be liable to the
Fund, the Fund or to any shareholder of the Fund for any act or failure to act
by the Distributor or any affiliated person of the Distributor or for any loss
sustained by the Fund, the Fund or the Fund's shareholders.
10. This Plan may be terminated at any time by vote of a majority of the
Plan Directors, or by vote of a majority of the outstanding voting securities of
the Fund.
11. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Fund shall be committed to the
discretion of the directors who are not interested persons.
12. The Fund shall preserve copies of this Plan and any other
agreements related to this Plan and all reports made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of this Plan, or
the date of any such agreement or of any such report, as the case may be, the
first two years in an easily accessible place.
13. For purposes of this Plan, "distribution activities" shall mean any
activities in connection with the Distributor's performance of its services
under this Plan or the Agreement that are not deemed "service activities."
"Service activities" shall mean activities covered by the definition of "service
fee" contained in amendments to Section 26(b) of the National Association of
Securities Dealers, Inc.'s Rules of Fair Practice.
14. As used in this Plan, the terms: "majority of the outstanding voting
securities" and "interested person" shall have the same meaning as those terms
have in the 1940 Act.
IN WITNESS WHEREOF, the Fund has executed this Plan on the day and year
set forth below in the City and State of New York.
DATE: ___________ 1996
ATTEST: THE ROCKWOOD GROWTH FUND, INC.
_____________________________ By:______________________
C-2
<PAGE>
EXHIBIT D
PROPOSED FUNDAMENTAL AND NON-FUNDAMENTAL LIMITATIONS
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;
6. Issue senior securities, except to the extent permitted by the 1940 Act; or
7. Purchase a security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers in a
single industry, provided that this limitation does not apply to
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
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);
(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%
D-1
<PAGE>
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.
D-2
<PAGE>
EXHIBIT E
COMPARATIVE EXPENSE INFORMATION
The following information is intended to show the various expenses that
an investor in the Fund would bear directly or indirectly if the proposed new
investment management agreement and Rule 12b-1 Plan of Distribution are approved
in comparison to those borne under the existing fee structure.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Current Fee(2) Proposed Fee(3)
Structure Structure
Management Fees(1) 0.00% 0.20%
(after reimbursement)
Rule 12b-1 Fees 0.00% 0.25%
Other Expenses 2.30% 2.30%
----- -----
Total Operating Expenses(1) 2.30% 2.75%
===== =====
(after reimbursement)
- -----------------------------------------------------------------
(1) Without reimbursements, Management Fees and Total Operating Expenses
would have been 0.70% and 3.00%, respectively, under the current fee
structure, and 1.00% and 3.55%, respectively, if the proposed fee
structure would have been in effect for the fiscal year ended October
31, 1995.
(2) Expenses for the fiscal year ended October 31, 1995.
(3) Expenses for the fiscal year ended October 31, 1995, adjusted to
reflect proposed new investment management agreement with differing
expense guaranty and Rule 12b-1 Plan of Distribution.
EXAMPLE. The following illustrates the expenses on a $1,000 investment in the
Fund under the existing and proposed fee structures assuming (1) a 5% annual
return, (2) reinvestment of all dividends and distributions, and (3) full
redemption at the end of each period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Current Fee Structure $24 $74 $127 $272
Proposed Fee Structure $28 $85 $145 $308
The purpose of the table and example is to assist investors in understanding the
various costs and expenses an investor in shares of the Fund would bear directly
or indirectly if the proposed new investment management agreement and Plan of
Distribution are approved in comparison to those borne under the current fee
structure. The example should not be considered a representation of past or
future expenses or return. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
E-1
<PAGE>
EXHIBIT F
FUND OWNERSHIP OF CURRENT DIRECTORS
Number of Outstanding Shares Percentage of Outstanding
Current Directors Held as of July 1, 19961/ Shares Held as of July 1, 19962/
- -
- --------------------------------------------------------------------------------
Ross H. Farmer 1,079.940 2.21%
James C. Herndon 0 0.00%
Ronald W. Kiehn 4,033.001 8.26%
Earl S. Owens 348.068 0.71%
G. Holton Quinn 2,278.344 4.67%
- --------
1/ Unless otherwise stated, sole voting and investment power.
2/ Unless otherwise stated, sole voting and investment power.
F-1
<PAGE>
EXHIBIT G
CURRENT INVESTMENT LIMITATIONS INCLUDED
IN ARTICLE VII OF THE FUND'S BY-LAWS
The Fund may not:
1. Purchase securities of any issuer (Other than obligations of, or
guaranteed by, the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of the value of the
Fund's assets would be invested in securities of that issuer.
2. Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
3. Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years
continuous operation, and equity securities of issuers which are not
readily marketable.
4. Enter into repurchase agreements, if, as a result thereof, more than
10% of the Fund's total assets valued at the time of the transaction
would be subject to repurchase agreements maturing in more than seven
days.
5. Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and policies).
6. Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only in an amount up to one-tenth of the
value of its total assets, in order to meet redemption requests without
immediately selling any money market instruments (any such borrowings
under this section will not be collateralized). If, for any reason, the
current value of the Fund's total assets falls below an amount equal to
ten times the amount of its indebtedness from money borrowed, the Fund
will, within three business days, reduce its indebtedness to the extent
necessary.
The Fund will not borrow for leverage purposes.
7. Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions.
8. Concentrate more than 25% of the value of its assets in any one
industry; provided, however, that the Fund reserves freedom of action
invest up to 100% of its assets in certificates of deposit or bankers'
acceptances when management considers it to be in the best interests of
the Fund in attaining its investment objective.
9. Purchase or retain the securities of any issuer if any of the officers
or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own
more than 5% of the securities of such issuer.
10. Invest more than 5% of the Fund's total assets in securities restricted as
to disposition under the federal securities laws.
11. Invest for the purpose of exercising control or management of another
issuer.
12. Invest in commodities or commodity futures contracts or in real estate,
although it may invest in securities which are secured by real estate
and securities of issuers which invest or deal in real estate.
13. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of
issuers which invest in or sponsor such programs.
14. Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
15. Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter, under federal securities laws, in
connection with the disposition of portfolio securities.
16. Issue senior securities as defined in the Investment Company Act of 1940.
G-1
<PAGE>
PROXY
THE ROCKWOOD GROWTH FUND, INC.
The undersigned hereby appoints Ross H. Farmer and Ronald W. Kiehn and
each of them, with full power of substitution, to vote as designated below all
shares of common stock of THE ROCKWOOD GROWTH FUND, INC. (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders to be
held on August 15, 1996 and any adjournment thereof, revoking all proxies
heretofore given, upon the proposals described in the proxy statement:
1. Election of directors;
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK CENTER SPACE BELOW AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN
THE LIST BELOW. YOUR SHARES SHALL BE VOTED FOR THE REMAINING
NOMINEE(S).
|_| For |_| For All Except |_| Withhold
Bassett S. Winmill, Robert D. Anderson, Russell E. Burke III, Bruce B. Huber,
James E. Hunt, Frederick A. Parker, Jr., John B. Russell, Mark C. Winmill,
Thomas B. Winmill.
2.Ratification of the selection of Tait, Weller & Baker as the Fund's
independent accountants;
|_| For |_| Abstain |_| Against
3.To approve a new Investment Management Agreement;
|_| For |_| Abstain |_| Against
4.To approve a new Subadvisory Agreement;
|_| For |_| Abstain |_| Against
5.To approve a new 12b-1 Plan of Distribution;
|_| For |_| Abstain |_| Against
6.To amend, in part, and amend and reclassify, in part, the Fund's fundamental
investment provision regarding lending;
|_| For |_| Abstain |_| Against
7.To amend the Fund's fundamental investment provision regarding borrowing;
|_| For |_| Abstain |_| Against
8.To amend the Fund's fundamental investment provision regarding the issuance of
senior securities;
|_| For |_| Abstain |_| Against
9.To amend the Fund's fundamental investment provision regarding underwriting
securities;
|_| For |_| Abstain |_| Against
10.To amend the Fund's fundamental investment provision regarding industry
concentration;
|_| For |_| Abstain |_| Against
11.To amend the Fund's fundamental investment provision regarding real estate or
real estate mortgage loans;
|_| For |_| Abstain |_| Against
12.To amend and reclassify the Fund's fundamental investment provision regarding
commodities;
|_| For |_| Abstain |_| Against
13.To amend and reclassify the Fund's fundamental restriction regarding
investments in exploration or development programs, such as oil or gas programs;
|_| For |_| Abstain |_| Against
14.To amend and reclassify the Fund's fundamental investment provision regarding
options, margin purchases and short sales;
|_| For |_| Abstain |_| Against
15.To amend and reclassify the Fund's fundamental investment provision regarding
investments in other investment companies;
|_| For |_| Abstain |_| Against
16.To amend and reclassify the Fund's fundamental investment provision regarding
the purchase of the securities of unseasoned issuers and illiquid securities;
|_| For |_| Abstain |_| Against
<PAGE>
17. To amend and reclassify the Fund's fundamental investment provision
regarding investments in securities of a company if those officers or
directors of the Fund, who own 1/2 of 1% or more of the company's
securities, own together more than 5% of the company's securities;
|_| For |_| Abstain |_| Against
18.To amend and reclassify the Fund's fundamental investment provision regarding
the purchase of restricted securities;
|_| For |_| Abstain |_| Against
19.To eliminate the Fund's fundamental investment provision regarding the Fund's
investments in a single issuer and to change the Fund's status from a
diversified to a non-diversified fund;
|_| For |_| Abstain |_| Against
20.To eliminate the Fund's fundamental investment provision regarding investment
for the purpose of exercising control or management of another issuer;
|_| For |_| Abstain |_| Against
21.To approve the amendment of the Fund's By-laws;
|_| For |_| Abstain |_| Against
22.In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED.
IF NO DIRECTION IS MADE, IT WILL BE VOTED FOR PROPOSALS 1 THROUGH 21. THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Dated: , 1996
[Shareholder's Address Label]
(L.S.)
Signature
(L.S.)
Signature (if jointly held)
Please sign exactly as your name appears hereon. If shares are
registered in more than one name, all should sign but if one signs, it binds the
others. When signing as attorney, executor, administrator, agent, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by an authorized officer. If a partnership, please sign in
partnership name by authorized person.
TO AVOID EXPENSES OF ADJOURNING THE MEETING,
PLEASE RETURN THIS PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
