As filed with the Securities and Exchange Commission on February 26, 1999
FORM N-1A
1933 Act File No. 033-02430
1940 Act File No. 811-04534
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. -----
Post-Effective Amendment No. 21
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23
ROCKWOOD FUND, INC.
(Exact Name of Registrant as Specified in Charter)
11 HANOVER SQUARE, NEW YORK, NEW
YORK, 10005 (Address of Principal
Executive Offices) (Zip Code)
(212) 785-0900
(Registrant's Telephone Number, including Area Code)
DEBORAH A. SULLIVAN, ESQ.
11 Hanover Square, New York, NY 10005
(Name and Address of Agent for Service)
Copies to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, NY 10038-4982
It is proposed that this filing will become effective
On March 1, 1999 pursuant to Rule 485(b)
If appropriate, check the following box: / / This post-effective amendment
designates a new effective date for a previously filed post-effective amendment.
Registrant has elected to maintain registration of an indefinite number of
shares of common stock, $.01 par value, under the Securities Act of 1933,
pursuant to Rule 24f-2 under the Investment Company Act of 1940. The
registrant's most recent Rule 24f-2 Notice was filed on January 21, 1999.
<PAGE>
ROCKWOOD FUND, INC.
TABLE OF CONTENTS
This registration statement consists of the following:
Cover Sheet
Table of Contents
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Addition Information
Part C - Other Information
Signature Page
Exhibits
2
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ROCKWOOD FUND, INC.
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
Item No.
of Form N-lA Caption in Prospectus
1 Front and Back Cover Pages
2 "Investment Objective and Strategy", "Main Risks",
"Past Performance"
3 "Fees and Expenses of the Fund"
4 "Investment Objective and Strategy", "Main Risks"
5 not applicable
6 "Management"
7 "Purchasing Shares", "Redeeming Shares", "Account and Transaction
Policies", "Distributions and Taxes"
8 "Fees and Expenses of the Fund"
9 "Financial Highlights"
Caption in Statement of Additional Information
10 Cover Page
11 "Description of the Fund"
12 "Investment Objective and Strategy", "Investment Restrictions"
13 "Management of the Fund"
14 "Management of the Fund"
15 "Management of the Fund", "Investment Manager"
16 "Allocation of Brokerage"
17 Not Applicable
18 "Determination of Net Asset Value", "Purchase of Shares"
19 "Distributions and Taxes"
20 "Distribution of Shares"
21 "Calculation of Performance Data"
22 "Financial Statements"
3
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Rockwood Fund, Inc.
Prospectus Dated March 1, 1999
Rockwood Fund, Inc. seeks long term capital appreciation. This objective will be
pursued through investment in common stocks. There is no assurance that the fund
will achieve its objective.
Newspaper Listing Shares of the fund are sold at the net
asset value per share as shown daily in the mutual fund
section of newspapers nationwide under the heading
"Rockwood."
This prospectus contains information you should know about the fund before you
invest. Please keep it for future reference.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus.
CONTENTS
INVESTMENT OBJECTIVE AND STRATEGY..............................................2
MAIN RISKS.....................................................................2
PAST PERFORMANCE...............................................................3
FEES AND EXPENSES OF THE FUND..................................................3
MANAGEMENT.....................................................................4
FINANCIAL HIGHLIGHTS...........................................................6
PURCHASING SHARES..............................................................7
REDEEMING SHARES...............................................................8
ACCOUNT AND TRANSACTION POLICIES...............................................9
DISTRIBUTIONS AND TAXES........................................................9
FOR MORE INFORMATION..........................................................11
1
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INVESTMENT OBJECTIVE AND STRATEGY
The fund seeks long term capital appreciation. The fund seeks to achieve this
objective by investing primarily in equity securities. Any income which the fund
earns is incidental to its objective of capital appreciation.
The fund will purchase primarily common stocks, which will be selected generally
for their potential for long term capital appreciation and not dividend yield.
Generally, the fund will invest in the stocks of companies expected to achieve
above-average growth, which may have small, medium and large capitalizations.
The fund may, from time to time, under adverse market conditions and in a few
other instances, take temporary defensive positions that are inconsistent with
the fund's principal investment strategies, such as investing some or all of its
assets in money market securities. When the fund takes such temporary defensive
positions, the fund may not achieve its investment objective.
The fund has adopted certain investment restrictions set forth in the Statement
of Additional Information that are fundamental and may not be changed without
shareholder approval. The fund's other investment policies, including its
investment objective, are not fundamental and may be changed by the Board of
Directors without shareholder approval.
MAIN RISKS
MARKET RISK. The risks associated with investing in the fund are those related
to fluctuations in the value of the fund's portfolio. A potential risk in
investing in stocks is that stock value will go up and down according to stock
market movements and you could lose money. However, you also have the potential
to make money. Also, investing in stocks involves a greater risk of loss of
income than bonds because stocks may not pay dividends.
SMALL CAPITALIZATION RISK. The fund may invest in companies that are small or
thinly capitalized, and may have a limited operating history. A potential risk
in investing in small-cap stocks is that small-cap stocks are likely more
vulnerable than larger companies to adverse business or economic developments.
During broad market downturns, fund value may fall further than that of funds
investing in larger companies. Full development of small-cap companies takes
time, and for this reason the fund should be considered a long term investment
and not a vehicle for seeking short term profit.
NON-DIVERSIFICATION RISK. The fund is non-diversified which means that more than
5% of the fund's assets may be invested in the securities of one issuer. As a
result, the fund may hold a smaller number of issuers than if it were
diversified. If this situation occurs, investing in the fund could be more risky
than investing in a fund that holds a broader range of securities because
changes in the financial condition of a single issuer could cause greater
fluctuation in the fund's total return.
LENDING. The fund may lend portfolio securities to borrowers for a fee.
Securities may only be lent if the fund receives collateral equal to the market
value of the assets lent. Some risk is involved if the borrowers suffer
financial problems and are unable to return the assets lent.
ILLIQUID SECURITIES. The fund may invest up to 15% of its assets in illiquid
securities. Some potential risks from investing in illiquid securities is that
illiquid securities can be more difficult to value than more widely traded
securities and the prices realized from the sales of illiquid securities may be
less than if such securities were more widely traded.
YEAR 2000. The fund could be adversely effected if computer systems used by
Rockwood Advisers and the fund's other service providers do not properly process
and calculate date-related information on and after January 1, 2000. Rockwood
Advisers is working to avoid these problems and to obtain assurances from other
service providers that they are taking similar steps. There could be a negative
impact on the fund.
2
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PAST PERFORMANCE
The bar chart provides some indiction of the risks of investing in the fund by
showing changes in the fund's performance from year to year. The table compares
the fund's average annual returns for the 1, 5 and 10 year periods with those of
the Russell 2000 Index, a small company index that is unmanaged and fully
invested in common stocks. Both the bar chart and the table assume reinvestment
of dividends and distributions. As with all mutual funds, past performance is
not necessarily an indication of future performance.
(Bar Chart)
Year-by-year total percent return as of 12/31 each year:
1989: 19.14
1990: (31.75)
1991: 6.39
1992: 28.00
1993: 14.30
1994: 1.58
1995: 32.84
1996: 18.67
1997: 3.54
1998: (13.82)
Best Quarter: 24.77%
1/96-3/96
Worst Quarter: (19.47%)
7/90-9/90
Average annual total return for the periods ended 12/31/98
1 Year 5 Years 10 Years
Rockwood Fund (13.82%) 7.40% 6.10%
Russell 2000 Index (2.57%) 11.87% 12.92%
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FEES AND EXPENSES OF THE FUND
As an investor, you pay certain fees and expenses in connection with the fund,
which are described in the following tables. Shareholder fees are paid out of
your account. Annual fund operating expenses are paid out of fund assets, so
their effect is included in the share price.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)........................... NONE
Maximum Deferred Sales Charge (Load).......................... NONE
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends..................................................... NONE
Redemption Fee within 30 days of purchase..................... 1.00%
Redemption Fee after 30 days of purchase...................... NONE
Exchange Fees................................................. NONE
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)( as % of average daily net assets)
Management fees.............................................. 1.00%
Distribution and Service (12b-1) fees........................ 0.25%
Other expenses............................................... 8.02%
Total Annual Fund Operating Expenses......................... 9.27%
With the waiver of management fees and reimbursement for other
expenses, Management Fees, Other Expenses and Annual Fund Operating
Expenses would have been 0%, 2.60% and 2.85%, respectively, of average
net assets. Expense reimbursement and fee waivers are expected to
continue but may be terminated at any time at the option of the
Investment Manager.
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
<S> <C> <C> <C> <C>
The example assumes that you invest $10,000 in the fund for
the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these
assumptions your costs would
be:......................................................... $ 907 $2,607 $4,165 $7,513
------------ ------------- ------------ ------------
</TABLE>
This example shows you what you could pay over time. It uses the same
hypothetical conditions other funds use in their prospectuses: $10,000 initial
investment, 5% total return each year and no changes in expenses.
4
<PAGE>
All shares are sold at the end of each time period. This example is for
comparison only. The fund's actual return and expenses will be different.
MANAGEMENT
Rockwood Advisers, Inc. is the investment manager of the fund, providing
day-to-day advice regarding portfolio transactions and is located at 11 Hanover
Square, New York, New York 10005. Bassett S. Winmill, Chief Investment Officer
of the investment manager, is the fund's portfolio manager. Mr. Winmill has
served as a portfolio manager of the fund since February 2, 1999. 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.
Generally, the fund pays the investment manager a management fee based on the
average daily net assets of the fund, at the annual rate of 1% on the first $200
million and declining thereafter as a percentage of average daily net assets.
Voluntary reimbursements for the year ended October 31, 1998 and for the two
months ended December 31, 1998, were $77, 131 and $15,416, respectively.
Investor Service Center, Inc. is the distributor of the fund and services
shareholder accounts. The fund pays the distributor a distribution or 12b-1 fee
in an amount of one-quarter of one percent per annum of the fund's average daily
net assets as compensation for distribution and service activities.
5
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FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the past five years. In 1998,
the fiscal year end changed to December 31. Previously, the fiscal year end was
October 31. Certain information reflects financial results for a single fund
share. Total return shows how much your investment in the fund would have
increased (or decreased) during each period, assuming you had reinvested all
dividends and distributions. The figures for the periods ended 1996 through 1998
were audited by Tait, Weller & Baker, the fund's independent accountants, whose
report, along with the fund's financial statements, are included in the annual
report, which is available upon request.
Years Ended October 31,
<TABLE>
<CAPTION>
Two Months Ended
December 31,
.................... ......... .......... ........... ........... ...........
1998 1998 1997 1996 1995 1994
- --------------------------------------------- -------------------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA*
Net asset value at beginning of period $15.67 $24.92 $24.24 $18.73 $16.61 $16.32
............................................. .................... ......... .......... ........... ........... ...........
Income from investment operations:
Net investment income (loss) (.04) (.25) (.59) (.56) (.31) (.22)
Net Gains or Losses on Securities (both .98 (7.20) 6.17 6.07 2.43 .51
realized and unrealized)
Total from investment operations .94 (7.45) 5.58 5.51 2.12 .29
- --------------------------------------------- -------------------- --------- ---------- ----------- ----------- -----------
Less distributions:
Distributions (from capital gains) (2.04) (1.80) (4.90) .00 .00 .00
Total distributions (2.04) (1.80) (4.90) .00 .00 .00
............................................. .................... ......... .......... ........... ........... ...........
Net asset value, end of period $14.57 $15.67 $24.92 $24.24 $18.73 $16.61
TOTAL RETURN 6.48% (31.29%) 27.55% 29.42% 12.76% 1.78%
- --------------------------------------------- -------------------- --------- ---------- ----------- ----------- -----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $548 $613 $1,771 $1,200 $774 $714
Ratio of expenses to average net assets(a)(b) 2.85%** 2.09% 2.81% 2.55% 2.30% 2.00%
Ratio of net income to average net assets(c) (1.54%)** (1.38%) (2.65%) (2.23%) (1.77%) (1.38%)
Portfolio turnover rate 0% 207.02% 44.00% 42.48% 30.04% 18.26%
<FN>
* Per share net investment loss and net realized and unrealized gain
on investments have been computed including the average number of
shares outstanding. These computations had no effect on net asset
value per share.
** Annualized.
(a) Ratio prior to reimbursement by the manager was 18.84%**,9.27%,
10.47%, 4.44%, 3.00%, and 2.82%, for the two months ended December
31, 1998 and the years ended October 31, 1998, 1997, 1996, 1995, and
1994, respectively.
(b) Ratio after custodian fee credits was 1.97% for the year ended
October 31, 1998. There were no custodian fee credits for prior
years.
(c) Ratio prior to reimbursement by the manager was (17.53%)**, (8.56%),
(10.31%), (4.12%), (2.47%), and (2.20%) for the two months ended
December 31, 1998 and the years ended October 31, 1998, 1997, 1996,
1995, and 1994, respectively.
</FN>
</TABLE>
6
<PAGE>
PURCHASING SHARES
Your price for fund shares is the fund's next calculation, after the order is
placed, of net asset value (NAV) per share which is determined as of the close
of regular trading on the New York Stock Exchange (currently, 4 p.m. eastern
time) each day the exchange is open. The fund's investments are valued based on
market value, or where market quotations are not readily available, based on
fair value as determined in good faith by the fund's board.
OPENING YOUR ACCOUNT.
BY CHECK. Complete and sign the Account Application that accompanies this
prospectus and mail it, along with your check made payable to Rockwood Fund, to
Investor Service Center, Box 419789, Kansas City, MO 64141-6789 (see Minimum
Investments below).
BY WIRE. Telephone Investor Service Center toll-free at 1-888-ROCKWOOD, to give
the name(s) under which the account is to be registered, tax identification
number, the name of the bank sending the wire, and to be assigned a Rockwood
Fund account number. You may then purchase shares by requesting your bank to
transmit immediately available funds ("Federal funds") by wire to: United
Missouri Bank NA, ABA #10-10-00695; for Account 98-7052-724-3; Rockwood Fund.
Your account number and name(s) must be specified in the wire as they are to
appear on the account registration. You should then enter your account number on
your completed Account Application and promptly forward it to Investor Service
Center, Box 419789, Kansas City, MO 64141-6789. This service is not available on
days when the Federal Reserve wire system is closed (see Minimum Investments
below).
Minimum Investments
Initial Additional
Regular account $1,000 $100
Uniform Gifts/Transfers to Minors Act
custody accounts $1,000 $100
Traditional IRA $1,000 $100
Roth IRA $1,000 $100
SEP-IRA $1,000 $100
SIMPLE IRA $1,000 $100
Rollover IRA $1,000 $100
403(b) plan $1,000 $100
Education IRA $500 N/A
Automatic Investment Program $100 $100
- --------------------------------------- ------------ -----------------
CHECKS MUST BE PAYABLE TO ROCKWOOD FUND IN U.S. DOLLARS. Third party checks
cannot be accepted. You may be charged a fee for any check that does not clear.
IRAS AND RETIREMENT ACCOUNTS. For more information about the IRAs and retirement
accounts listed above, please call Investor Service Center toll-free at
1-888-ROCKWOOD.
AUTOMATIC INVESTMENT PROGRAM. With the Automatic Investment Program, you can
establish a convenient and affordable long term investment program through one
or more of the plans explained below. Each plan is designed to facilitate an
automatic monthly investment of $100 or more into your fund account.
7
<PAGE>
Bank Transfer Plan For making automatic investments
from a designated bank account.
................................................................................
Salary Investing Plan For making automatic investments
through a payroll deduction.
................................................................................
Government Direct Deposit Plan For making automatic investments
from your federal employment,
Social Security or other regular
federal government check.
The fund reserves the right to redeem any account if participation in the
program ends and the account's value is less than $1000.
For more information, or to request the necessary authorization form, please
call Investor Service Center toll-free at 1-888-ROCKWOOD. You may modify or
terminate the Bank Transfer Plan at any time by written notice received 10 days
prior to the scheduled investment date. To modify or terminate the Salary
Investing Plan or Government Direct Deposit Plan, you should contact your
employer or the appropriate U.S. Government agency, respectively.
ADDING TO YOUR ACCOUNT.
BY CHECK. Complete a Rockwood FastDeposit form and mail it, along with your
check, made payable to Rockwood Fund, to Investor Service Center, Box 419789,
Kansas City, MO 64141-6789 (see Minimum Investments above). If you do not use
that form, include a letter indicating the account number to which the
subsequent investment is to be credited, and the name of the registered owner.
BY ELECTRONIC FUNDS TRANSFER (EFT). Telephone Investor Service Center toll-free
at 1-888- ROCKWOOD. The bank you designate on your Account Application or
Authorization Form will be contacted to arrange for the EFT, which is done
through the Automated Clearing House system, to your fund account. Requests
received by 4 p.m., eastern time, will ordinarily be credited to your fund
account within two business days. Your designated bank must be an Automated
Clearing House member and any subsequent changes in bank account information
must be submitted in writing with a voided check (see Minimum Investments
above).
BY WIRE. Subsequent investments by wire may be made at any time without having
to call Investor Service Center by simply following the same wiring procedures
above (see Minimum Investments above).
REDEEMING SHARES
Generally, you may redeem by any of the methods explained below. Requests for
redemption should include the following information:
o name of the registered owner(s) of the account
o account number
o fund name
o amount you want to sell
o recipient's name and address or wire information
In some instances, a signature guarantee may be required.
BY MAIL. Write to Investor Service Center, Box 419789, Kansas City, MO
64141-6789, and request the specific amount to be redeemed. The request must be
signed by the registered owner(s).
BY TELEPHONE. Telephone Investor Service Center toll-free at 1-888-ROCKWOOD, to
expedite redemption of fund shares.
8
<PAGE>
BY EFT. Telephone Investor Service Center toll-free at 1-888-ROCKWOOD and
request the specific amount to be redeemed through EFT. You may redeem as little
as $250 worth of shares by requesting EFT service. EFT proceeds are ordinarily
available in your bank account within two business days.
BY WIRE. Telephone Investor Service Center toll-free at 1-888-ROCKWOOD and
request the specific amount to be redeemed by wire.
SYSTEMATIC WITHDRAWAL PLAN. If your shares have a value of at least $20,000 you
may elect automatic withdrawals from your fund account, subject to a minimum
withdrawal of $100. All dividends and distributions are reinvested in the fund.
ACCOUNT AND TRANSACTION POLICIES
ORDER EXECUTION. Orders to buy and sell shares are executed at the next NAV
calculated after the order has been accepted. Orders received on fund business
days by 4 p.m., eastern time, will be redeemed from your account that day.
Orders received after 4 p.m., eastern time, will be redeemed from your account
on the next fund business day.
REDEMPTION FEE. The fund is designed as a long term investment, and short term
trading is discouraged. Accordingly, if shares of the fund held for 30 days or
less are redeemed or exchanged, the fund will deduct a redemption fee equal to
one percent of the NAV of shares redeemed or exchanged.
REDEMPTION PAYMENT. Payment for shares redeemed will ordinarily be made within
seven days after receipt of the redemption request in proper form.
ACCOUNTS WITH BELOW-MINIMUM BALANCES. If your account balance falls below $500
as a result of selling shares and not because of market action, the fund
reserves the right, upon 45 days' notice, to close your account or request that
you buy more shares.
TELEPHONE PRIVILEGES. The fund accepts telephone orders from all shareholders
and guards against fraud by following reasonable precautions such as requiring
personal identification before carrying out shareholder requests. You could be
responsible for any loss caused by an order which later proves to be fraudulent.
ASSIGNMENT. Fund shares may be transferred to another owner. Instructions are
available from Investor Service Center by calling toll-free at 1-888-ROCKWOOD.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. The fund pays its shareholders dividends from its net investment
income, and distributes any net capital gains that it has realized. Each of
these distributions is paid out once a year. Your distributions will be
reinvested in the fund unless you instruct the fund otherwise by calling
Investor Service Center toll-free at 1-888-ROCKWOOD.
TAXES. Generally, you will be taxed when you sell shares, exchange shares and
receive distributions (whether reinvested or taken in cash). Typically, your tax
treatment will be as follows:
Transaction Tax treatment
- ----------- ---------------
Income dividends........................................ Ordinary income
Short-term capital gains distributions.................. Ordinary income
Long-term capital gains distributions................... Capital gains
Sales or exchanges of shares held for
more than one year................................. Capital gains or losses
Sales or exchanges of shares held for
one year or less................................... Gains are treated as
ordinary income; losses
are subject to special
rules
9
<PAGE>
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
Each January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because everyone's tax situation is unique, please consult your tax professional
about your investment.
10
<PAGE>
FOR MORE INFORMATION about Rockwood Fund, Inc.
For investors who want more information on the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS. Contains performance data, lists portfolio holdings
and contains a letter from the fund's manager discussing recent market
conditions, economic trends and fund strategies that significantly affected the
fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI). Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. A current SAI is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference (is legally considered part of this
prospectus).
To Obtain Information
By telephone
Call 1-888-ROCKWOOD
By mail write to:
Rockwood Fund, Inc.
11 Hanover Square
New York, NY 10005
By e-mail write to:
[email protected]
On the Internet Fund documents
can be viewed online or downloaded from:
SEC http://www.sec.gov
Rockwood http://www.mutualfunds.net
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009. The fund's Investment Company Act file number is SEC file number is
811-04534.
11
<PAGE>
Statement of Additional Information March 1, 1999
ROCKWOOD FUND, INC.
11 Hanover Square
New York, NY 10005
Toll-free: 1-888-ROCKWOOD
This Statement of Additional Information regarding Rockwood Fund,
Inc. ("Fund") is not a prospectus and should be read in conjunction with the
Fund's prospectus dated March 1, 1999. The prospectus is available to
prospective investors without charge upon request to Investor Service Center,
Inc., the Fund's distributor, by calling toll-free at 1-888- ROCKWOOD.
The most recent Annual Report and Semi-Annual Report to Shareholders
for the Fund are separate documents supplied with this Statement of Additional
Information, and the financial statements, accompanying notes and report of
independent auditors appearing in the Annual Report are incorporated by
reference into this Statement of Additional Information.
TABLE OF CONTENTS
DESCRIPTION OF THE FUND........................................................2
THE FUND'S INVESTMENT PROGRAM..................................................2
INVESTMENT RESTRICTIONS........................................................5
MANAGEMENT OF THE FUND.........................................................6
INVESTMENT MANAGER.............................................................8
CALCULATION OF PERFORMANCE DATA...............................................10
DISTRIBUTION OF SHARES........................................................13
DETERMINATION OF NET ASSET VALUE..............................................15
PURCHASE OF SHARES............................................................15
ALLOCATION OF BROKERAGE.......................................................16
DISTRIBUTIONS AND TAXES.......................................................18
REPORTS TO SHAREHOLDERS.......................................................19
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.............................19
AUDITORS......................................................................20
1
<PAGE>
DESCRIPTION OF THE FUND
The Fund is a Maryland corporation formed on December 11, 1996. Prior to
March 1, 1997, the Fund operated under the name "The Rockwood Growth Fund,
Inc.," an Idaho corporation organized on March 7, 1985.
Rockwood Advisers,Inc.("Investment Manager") serves as the Fund's
investment adviser and general manager. Investor Service Center, Inc.
("Distributor") is the distributor of the Fund's shares.
THE FUND'S INVESTMENT PROGRAM
The following information supplements the information concerning the
investment objective, policies and limitations of the Fund found in the
Prospectus. The Fund's investment objective of capital appreciation is
non-fundamental and may be changed by the Fund's Board of Directors without
shareholder approval. Fund shareholders will be notified at least thirty days in
advance of a change in the Fund's investment objective, and shareholders will
not be charged a redemption fee if they redeem after such notice and prior to
the change of investment objective.
U.S. Government Securities. The U.S. Government securities in which the
Fund may invest include direct obligations of the U.S. Government (such as
Treasury bills, notes and bonds) and obligations issued by U.S. Government
agencies and instrumentalities backed by the full faith and credit of the U.S.
Government, such as those issued by the Government National Mortgage
Association. In addition, the U.S. Government securities in which the Fund may
invest include securities supported primarily or solely by the creditworthiness
of the issuer, such as securities issued by the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation and the Tennessee Valley
Authority. In the case of obligations not backed by the full faith and credit of
the U.S. Government, the Fund must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment
and may not be able to assert a claim against the U.S. Government itself in the
event the agency or instrumentality does not meet its commitments. Accordingly,
these securities may involve more risk than securities backed by the U.S.
Government's full faith and credit.
Borrowing. The Fund may incur overdrafts at its custodian bank from time to
time in connection with redemptions and/or the purchase of portfolio securities.
In lieu of paying interest to the custodian bank, the Fund may maintain
equivalent cash balances prior or subsequent to incurring such overdrafts. If
cash balances exceed such overdrafts, the custodian bank may credit interest
thereon against fees.
Illiquid Assets. The Fund may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, more than 15% of
the Fund's net assets would be invested in illiquid assets, including repurchase
agreements not entitling the holder to payment of principal within seven days.
The term "illiquid assets" for this purpose includes securities 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 securities.
Illiquid restricted securities may be sold by the Fund only in privately
negotiated transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933, as amended
("1933 Act"). Where registration is required, the Fund may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are either themselves exempt from
registration or sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
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 ("QIBs"). Institutional restricted securities
markets may provide both readily ascertainable values for restricted securities
and the ability to liquidate an investment in order to satisfy share redemption
orders on a timely basis. Such markets might include automated systems for the
trading, clearance and settlement of unregistered securities, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
("NASD") An insufficient number of QIBs interested in purchasing certain
restricted securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities, and the Fund might be unable to
dispose of such securities promptly or at favorable prices.
2
<PAGE>
The Board of Directors of the Fund has delegated the function of making
day-to-day determinations of liquidity to Rockwood Advisers, Inc. ("Investment
Manager") pursuant to guidelines approved by the Board. The Investment Manager
takes into account a number of factors in reaching liquidity determinations,
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). The Investment Manager
monitors the liquidity of restricted securities in the Fund's portfolio and
reports periodically on liquidity determinations to the Board of Directors.
Lending. The Fund may lend up to one-third of its total assets to other
parties, although it has no current intention of doing so. If the Fund engages
in lending 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. To the extent of such activities, the custodian
will apply credits against its custodial charges. 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. Loans will be made only to
borrowers deemed by the Investment Manager to be creditworthy and when, in the
Investment Manager's judgment, 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.
Repurchase Agreements. Repurchase agreements are transactions in which the
Fund purchases securities from a bank or securities dealer and simultaneously
commits to resell the securities to the bank or dealer at an agreed-upon date
and price reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities. The Fund maintains custody of the
underlying securities prior to their repurchase; thus, the obligation of the
bank or dealer to pay the repurchase price on the date agreed to is, in effect,
secured by such securities. If the value of these securities is less than the
repurchase price, plus any agreed-upon additional amount, the other party to the
agreement must provide additional collateral so that at all times the collateral
is at least equal to the repurchase price, plus any agreed-upon additional
amount. The difference between the total amount to be received upon repurchase
of the securities and the price that was paid by the Fund upon their acquisition
is accrued as interest and included in the Fund's net investment income.
Repurchase agreements carry certain risks not associated with direct investments
in securities, including possible declines in the market value of the underlying
securities and delays and costs to the Fund if the other party to a repurchase
agreement becomes insolvent. The Fund intends to enter into repurchase
agreements only with banks and dealers in transactions believed by the
Investment Manager to present minimum credit risks in accordance with guidelines
established by the Fund's Board of Directors. The Investment Manager reviews and
monitors the creditworthiness of those institutions under the Board's general
supervision.
Convertible Securities. The Fund may invest up to 5% of its net assets in
convertible securities which are bonds, debentures, notes, preferred stocks or
other securities that may be converted into or exchanged for a specified amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest generally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have unique investment characteristics in
that they generally (I) have higher yields than common stocks, but lower yields
than comparable non-convertible securities, (ii) are less subject to fluctuation
in value than the underlying stock since they have fixed income characteristics
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,a
convertible security will sell at a premium over its conversion value determined
by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security.
3
<PAGE>
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock when, in the Investment
Manager's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund may hold or trade convertible securities. In selecting convertible
securities for the Fund, the Investment Manager evaluates the investment
characteristics of the convertible security as a fixed income instrument and the
investment potential of the underlying equity security for capital appreciation.
In evaluating these matters with respect to a particular convertible security,
the Investment Manager considers numerous factors, including the economic and
political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.
Investments in Closed-End Investment Companies. The Fund may invest up to
10% of its total assets in shares of closed-end investment companies. In
addition to the Fund's expenses, as a shareholder in another investment company
the Fund would bear its pro rata portion of the other investment company's
expenses.
Year 2000 Risks. Like other investment companies, financial and business
organizations around the world, the Fund will be adversely affected if the
computer systems used by the Investment Manager and the Fund's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to the computer systems it uses and
to obtain satisfactory assurances that comparable steps are being taken by each
of the Fund's major service providers. The Fund does not expect to incur any
significant costs in order to address the Year 2000 Problem. However, at this
time there can be no assurances that these steps will be sufficient to avoid any
adverse impact on the Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions that
may not be changed without the approval of the lesser of (a) 67% or more of the
voting securities of the Fund present at a meeting if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy or (b) more than 50% of the outstanding voting securities of the Fund.
Any investment restriction which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowing by, the Fund. The Fund may not:
1. Borrow money, except to the extent permitted by the Investment
Company Act of 1940, as amended ("1940 Act");
2. Engage in the business of underwriting the securities of other
issuers, except to the extent that the Fund may be deemed to be an
underwriter under the Federal securities laws in connection with the
disposition of the Fund's authorized investments;
3. Purchase or sell real estate, provided that the Fund may invest in
securities (excluding limited partnership interests) secured by real
estate or interests therein or issued by companies which invest in
real estate or interests therein;
4. Purchase or sell physical commodities, although it may enter into (a)
commodity and other futures contracts and options thereon, (b)
options on commodities, including foreign currencies, (c) forward
contracts on commodities, including foreign currencies, and (d) other
financial contracts or derivative instruments;
5. Lend its assets, provided however, that the following are not
prohibited: (a) the making of time or demand deposits with banks, (b)
the purchase of debt securities such as bonds, debentures, commercial
paper, repurchase agreements and short term obligations in accordance
with the Fund's investment objectives and policies, and (c) engaging
in securities and other asset loan transactions to the extent
permitted by the 1940 Act;
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, except 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:
1. The Fund may not purchase or otherwise acquire any security or invest
in a repurchase agreement if, as a result, 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;
2. The Fund may not purchase the securities of any investment company (as
defined in the 1940 Act) 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;
3. 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;
4. 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;
5. To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a
Commodity Futures Trading Commission ("CFTC") regulated exchange, in
each case that is 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;
6. 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;
7. The Fund may not mortgage, pledge or hypothecate any assets in
excess of one-third of the Fund's total assets;
8. 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; and
9. 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 that immediately
after all borrowings pursuant to (a) and (b) there is asset coverage of
at least 300 per centum for all borrowings; provided that in the event
that such asset coverage shall at any time fall below 300 per centum
the Fund shall within three days thereafter (not including Sundays and
holidays) reduce the amount of its borrowings such that the asset
coverage of such borrowings shall be at least 300 per centum. The Fund
may not purchase securities for investment while any bank borrowing
equaling 5% or more of its total assets is outstanding.
MANAGEMENT OF THE FUND
The Fund's board is responsible for the management and supervision of the
Fund. The Board approves all significant agreements with those companies that
furnish services to the Fund. These companies are as follows: Rockwood Advisers,
Inc., Investment Adviser and General Manager; Investor Service Center, Inc.,
Distributor; DST Systems, Inc., Transfer and Dividend Disbursing Agent; and
Investors Fiduciary Trust Company, Custodian.
The officers and Directors of the Fund, their respective offices, date of
birth and principal occupations during the last five years are set forth below.
Unless otherwise noted, the address of each is 11 Hanover Square, New York, NY
10005. There are seven investment companies advised by subsidiaries of Bull &
Bear Group, Inc. ("Group") (collectively referred to as "Investment Company
Complex").
BRUCE B. HUBER, CLU, ChFC, MSFS -- Director. 3443 Highway 66, Neptune, NJ 07753.
He is a Financial Representative with New England Financial specializing in
financial, estate and insurance matters. From March 1995 to December31, 1995, he
was President of Huber Hogan Knotts Consulting, Inc. From 1990 to March 1995, he
was President of Huber-Hogan Associates. He was born February 7, 1930. He is
also a Director of five other investment companies in the Investment Company
Complex.
JAMES E. HUNT -- Director. One Dag Hammarskjold Plaza, New York, NY 10017. He is
a principal of Hunt & Howe, Inc. executive recruiting consultants. He was born
December 14, 1930. He is also a Director of five other investment companies in
the Investment Company Complex.
JOHN B. RUSSELL -- Director. 334 Carolina Meadows Villa, Chapel Hill, NC 27514.
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 was born February 9, 1923. He is also a Director of five other investment
companies in the Investment Company Complex.
MARK C. WINMILL* -- Director and Co-President. He is Director and Co-President
of the Investment Manager and its affiliates. He is also a Director of five
other investment companies in the Investment Company Complex. He received his
M.B.A. from the Fuqua School of Business at Duke University in 1987. He is the
brother of Thomas B. Winmill. He was born November 26, 1957.
5
<PAGE>
THOMAS B. WINMILL* -- Director, Co-President, Chief Executive Officer, and
General Counsel. He is Co-President of the Investment Manager and the
Distributor, and of their affiliates. He is also a Director of eight other
investment companies in the Investment Company Complex. 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.
The executive officers of the Fund, each of whom serves at the pleasure of
the Board of Directors, are as follows:
BASSETT S. WINMILL* -- Chairman of the Board and Cheif Investment Officer. He is
Chairman of the Board of three investment companies advised by an affiliated
investment manager and of the parent of the Investment Manager, Group and Chief
Investment Officer of the Investment Manager. He was born February 10, 1930. He
is a member of the New York Society of Security Analysts, the Association for
Investment Management and Reasearch and the International Society of Financial
Analysts. He is the father Mark C. Winmill and Thomas B. Winmill.
MARK C. WINMILL -- Co-President (see biographical information above).
THOMAS B. WINMILL -- Chairman, Chief Executive Officer, Co-President and General
Counsel (see biographical information above).
ROBERT D. ANDERSON -- Vice Chairman. He is Vice Chairman of the Investment
Manager and its affiliates. He was 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. He was born December 7,
1929.
STEVEN A. LANDIS -- Senior Vice President. He is Senior Vice President of the
Investment Manager and certain of its affiliates. From 1993 to 1995, he was
Associate Director -- Proprietary Trading at Barclays De Zoete Wedd Securities
Inc., and from 1992 to 1993 he was Director, Bond Arbitrage at WG Trading
Company. He was born March 1, 1955.
JOSEPH LEUNG, CPA -- Chief Accounting Officer, Chief Financial Officer and
Treasurer. He is Chief Accounting Officer, Chief Financial Officer and Treasurer
of the Investment Manager and its affiliates. From 1992 to 1995 he held various
positions with Coopers & Lybrand L.L.P., a public accounting firm. He is a
member of the American Institute of Certified Public Accountants. He was born
September 15, 1965.
DEBORAH ANN SULLIVAN, ESQ. -- Chief Compliance Officer, Secretary and Vice
President. She is Chief Compliance Officer, Secretary and Vice President of the
investment companies in the Investment Company Complex, and the Investment
Manager and its affiliates. From 1993 through 1994 she was the Blue Sky
Paralegal for SunAmerica Asset Management Corporation and from 1992 through 1993
she was Compliance Administrator and Blue Sky Administrator with Prudential
Securities, Inc. and Prudential Mutual Fund Management, Inc. She is member of
the New York State Bar. She was born June 13, 1969.
* Bassett S. Winmill, Mark C. Winmill and Thomas B. Winmill are "interested
persons" of the Fund as defined by the 1940 Act, because of their positions with
the Investment Manager.
<TABLE>
<CAPTION>
Compensation Table
Name of Person, Aggregate Pension or Retirement Estimated Annual Total Compensation From
Position Compensa- Benefits Accrued as Benefits Upon Registrant and Investment
tion From Registrant Part of Fund Retirement Company Complex Paid to
Expenses Directors
<S> <C> <C> <C> <C>
Bruce B. Huber, Director None None None $12,500 from 6 Investment
Companies
James E. Hunt, Director None None None $12,500 from 6 Investment
Companies
John B. Russell, Director None None None $12,500 from 6 Investment
Companies
</TABLE>
Information in the preceding table is based on fees paid during the
Fund's fiscal year ended October 31, 1998.
No officer, Director or employee of the Fund's Investment Manager receives
any compensation from the Fund for acting as an officer, Director or employee of
the Fund.
As of February 22, 1999, no person beneficially owned either directly or
through one or more controlled companies, more than 25% of the voting securities
of the Fund.
As of February 22, 1999 the officers and directors of the fund owned, as a
group, less than 1% of the outstanding voting securities of the fund.
6
<PAGE>
INVESTMENT MANAGER
The Investment Manager acts as general manager of the Fund, being
responsible for the various functions assumed by it, including the regular
furnishing of advice with respect to portfolio transactions. The Investment
Manager also furnishes or obtains on behalf of the Fund all services necessary
for the proper conduct of the Fund's business and administration. As
compensation for its services to the Fund, the Investment Manager is entitled to
a fee, payable monthly, based upon the Fund's average daily net assets. Under
the Fund's Investment Management Agreement, the Investment Manager receives 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 percentage fee is calculated on the daily value of the Fund's net assets at
the close of each business day.
Under the Investment Management Agreement, the Fund assumes and pays 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 Board and shareholders meetings; (k) fees of the independent directors; (l)
necessary office space rental; (m) 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 (n) 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.
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 will 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.
7
<PAGE>
The Fund's Investment Management Agreement continues from year to year only
if a majority of the Fund's directors (including a majority of disinterested
directors) or a majority of the holders of the Fund's outstanding voting
securities approve. The Investment Management Agreement may be terminated
without penalty at any time by vote of the Fund's directors or by vote of the
holders of a majority of the Fund's outstanding voting securities on 60 days'
written notice to the Investment Manager, or by the Investment Manager on 60
days' written notice to the Fund, and terminates automatically in the event of
its assignment. The Investment Management Agreement provides that the Investment
Manager will 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 Investment
Management Agreement relates. Nothing contained in the Investment Management
Agreement, however, is to be construed to protect the Investment Manager against
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 the Investment Management Agreement.
The Investment Management Agreement provides that the Investment Manager
will waive all or part of its fee or reimburse the Fund monthly if and to the
extent the Fund's aggregate operating expenses exceed the most restrictive limit
imposed by any state in which the Fund's shares 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 Fund is not subject to any such state-imposed
limitations. 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. Voluntary
reimbursements for the year ended October 31, 1998, and the two months ended
December 31, are $77,131 and $15,416, respectively. The Fund reimbursed the
Investment Manager $465 and $56 for providing certain administrative and
accounting services at cost for the year ended October 31, 1998 and the two
months ended December 31, 1998, respectively.
The Investment Manager, a registered investment adviser, is a wholly-owned
subsidiary of Group. The other principal subsidiaries of Group include Investor
Service Center, Inc., a registered broker-dealer, Bull & Bear Advisers, Inc. and
Midas Management Corporation, registered investment advisers, and Bull & Bear
Securities, Inc., a registered broker-dealer providing discount brokerage
services.
Group is a publicly-owned company whose securities are listed on the Nasdaq
National Market System ("NMS") and traded in the over-the-counter market.
Bassett S. Winmill, Chairman of the Board of Group, 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 investment companies in the
Investment Company Complex, each of which is managed by an affiliate of the
Investment Manager, had net assets in excess of $250,000,000 as of February 12,
1999.
CALCULATION OF PERFORMANCE DATA
Advertisements and other sales literature for the Fund may refer to the
Fund's "average annual total return" and "cumulative total return." All such
quotations are based upon historical earnings and are not intended to indicate
future performance. The investment return on and principal value of an
investment in the Fund will fluctuate, so that the investor's shares when
redeemed may be worth more or less than their original cost.
Average Annual Total Return
Average annual total return is computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of
a hypothetical $1,000 payment made at the beginning
of such period.
8
<PAGE>
This calculation assumes all dividends and other distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
Rule 12b-1 fees, charged to all shareholder accounts.
Average Annual Total Returns For Periods Ended December 31, 1998
One Year (13.82%)
Five Years 7.40%
Ten Years 6.10%
CUMULATIVE TOTAL RETURN
Cumulative total return is calculated by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR=( ERV-P )100
P
CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of such period
P = initial payment of $1,000
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and other distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and includes all recurring fees, such as investment advisory and
management fees, charged to all shareholder accounts.
The cumulative return for the Fund for the one year, five year and ten year
periods ending December 31, 1998 is (13.82%), 42.88%, and 80.85%, respectively.
SOURCE MATERIAL From time to time, in marketing pieces and other Fund
literature, the Fund's performance may be compared to the performance of broad
groups of comparable mutual funds or unmanaged indexes of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for Fund performance information may
include, but are not limited to, the following:
Bank Rate Monitor, a weekly publication which reports yields on various bank
money market accounts and certificates of deposit.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance and other data.
Bloomberg, a computerized market data source and portfolio analysis system.
Bond Buyer Municipal Bond Index (20 year), an index of municipal bonds provided
by a national periodical reporting on municipal securities.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
manage ment results, income and dividend records, and price ranges.
Consumer's Digest, a bimonthly magazine that periodically features the
performance of a variety of investments, including mutual funds.
Financial Times, Europe's business newspaper, which from time to time reports
the performance of specific investment companies in the mutual fund industry.
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Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Goldman Sachs Convertible Bond Index -- currently includes 67 bonds and 33
preferred shares. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds.
Growth Fund Guide, a newsletter providing a mutual fund rating service published
for over 25 years.
IBC's Money Fund Report, a weekly publication of money market fund total net
assets, yield, and portfolio composition.
Individual Investor, a newspaper that periodically reviews mutual fund
performance and other data.
Investment Advisor, a monthly publication reviewing performance of mutual funds.
Investor's Business Daily, a nationally distributed newspaper which regularly
covers financial news.
Kiplinger's Personal Finance Magazine, a monthly publication periodically
reviewing mutual fund performance.
Lehman Brothers, Inc. "The Bond Market Report" reports on various Lehman
Brothers bond indices.
Lehman Government/Corporate Bond Index -- is a widely used index composed of
government, corporate, and mortgage backed securities.
Lehman Long Term Treasury Bond -- is composed of all bonds covered by the Lehman
Treasury Bond Index with maturities of 10 years or greater.
Lipper Analytical Services, Inc., a publication periodically reviewing mutual
funds industry-wide by means of various methods of analysis.
Merrill Lynch Pierce Fenner & Smith Taxable Bond Indices reports on a variety of
bond indices.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley Capital International EAFE Index, is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
Morningstar, Mutual Fund Values, publications of Morningstar, Inc., periodically
reviewing mutual funds industry-wide by means of various methods of analysis and
textual commentary.
Mutual Fund Forecaster, a newsletter providing a mutual fund rating service.
Nasdaq Industrial Index -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter that reports on mutual fund
performance, rates funds, and discusses investment strategies for mutual fund
investors.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
special section reporting on mutual fund perfor mance, yields, indexes, and
portfolio holdings.
Russell 3000 Index -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
Nasdaq over-the-counter market, accounting for over 90% of the market value of
publicly traded stocks in the U.S.
Russell 2000 Small Company Stock Index -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
Salomon Smith Barney GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.
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Salomon Smith Barney High-Grade Corporate Bond Index -- consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-weighted,
total return index, including approximately 800 issues with maturities of 12
years or greater.
Salomon Smith Barney Broad Investment-Grade Bond Index -- is a market-weighted
index that contains approximately 4,700 individually priced investment-grade
corporate bonds rated BBB or better, U.S. Treasury/agency issues and mortgage
pass-through securities.
Salomon Smith Barney Market Performance tracks the Salomon Brothers bond index.
Standard & Poor's 500 Composite Stock Price Index -- is an index of 500
companies representing the U.S. stock market.
Standard & Poor's 100 Composite Stock Price Index -- is an index of 100
companies representing the U.S. stock market.
Standard & Poor's Preferred Index -- is an index of preferred securities.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
USA Today, a national newspaper that periodically reports mutual fund
performance data.
U.S. News and World Report, a national weekly that periodically reports mutual
fund performance data.
The Wall Street Journal, a nationally distributed newspaper which regularly
covers financial news.
The Wall Street Transcript, a periodical reporting on financial markets and
securities.
Wilshire 5000 Equity Indexes -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
Indices prepared by the research departments of such financial
organizations as Salomon Smith Barney Holdings Inc., Merrill Lynch, Pierce,
Fenner & Smith, Inc., Bear Stearns & Co., Inc., and Ibbotson Associates may be
used, as well as information provided by the Federal Reserve Board.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement, the Distributor acts as principal
distributor of the Fund's shares. Under the Distribution Agreement, the
Distributor shall use its best efforts, consistent with its other businesses, to
sell shares of the Fund. Fund shares are sold continuously. Pursuant to a Plan
of Distribution ("Plan") adopted pursuant to Rule 12b-1 under the 1940 Act, the
Fund pays the Distributor monthly a fee in the amount of one-quarter of one
percent per annum of the Fund's average daily net assets as compensation for its
distribution and service activities.
In performing distribution and service activities pursuant to the Plan, 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 shareholder 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 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.
Among other things, the Plan provides that (1) the Distributor will submit
to the Fund's Board of Directors at least quarterly, and the Directors will
review, reports regarding all amounts expended under the Plan and the purposes
for which such expenditures were made, (2) the Plan will continue in effect only
so long as it is approved at least annually, and any material amendment or
agreement related thereto is approved, by the Fund's Board of Directors,
including those Directors who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related to the Plan ("Plan Directors"), acting in person at a
meeting called for that purpose, unless terminated by vote of a majority of the
Plan Directors, or by vote of a majority of the outstanding voting securities of
the Fund, (3) payments by the Fund under the Plan may not be materially
increased without the affirmative vote of the holders of a majority of the
outstanding voting securities of the Fund and (4) while the Plan remains in
effect, the selection and nomination of Directors who are not "interested
persons" of the Fund will be committed to the discretion of the Directors who
are not interested persons of the Fund.
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With the approval of the vote of a majority of the entire Board of
Directors and of the Plan Directors of the Fund, the Distributor has entered
into a related agreement with Hanover Direct Advertising Company, Inc. ("Hanover
Direct"), a wholly-owned subsidiary of Group, in an attempt to obtain cost
savings on the marketing of the Fund's shares. Hanover Direct will provide
services to the Distributor on behalf of the Fund at standard industry rates,
which includes commissions. The amount of Hanover Direct's commissions over its
cost of providing Fund marketing will be credited to the Fund's distribution
expenses and represent a saving on marketing, to the benefit of the Fund. To the
extent Hanover Direct's costs exceed such commissions, Hanover Direct will
absorb any of such costs.
It is the opinion of the Board of Directors that the Plan is necessary to
maintain a flow of subscriptions to offset redemptions. Redemptions of mutual
fund shares are inevitable. If redemptions are not offset by subscriptions, a
fund shrinks in size and its ability to maintain quality shareholder services
declines. Eventually, redemptions could cause a fund to become uneconomic.
Furthermore, an extended period of significant net redemptions may be
detrimental to orderly management of the portfolio. The offsetting of
redemptions through sales efforts benefits shareholders by maintaining the
viability of a fund. In periods where net sales are achieved, additional
benefits may accrue relative to portfolio management and increased shareholder
servicing capability. Increased assets enable the Fund to further diversify its
portfolio, which spreads and reduces investment risk while increasing
opportunity. In addition, increased assets enable the establishment and
maintenance of a better shareholder servicing staff which can respond more
effectively and promptly to shareholder inquiries and needs. While net increases
in total assets are desirable, the primary goal of the Plan is to prevent a
decline in assets serious enough to cause disruption of portfolio management and
to impair the Fund's ability to maintain a high level of quality shareholder
services.
The Plan increases the overall expense ratio of the Fund; however, a
substantial increase in Fund assets would be expected to reduce the portion of
the expense ratio comprised of management fees (reflecting a larger portion of
the assets falling within fee scale-down levels), as well as of fixed costs.
Nevertheless, the net effect of the Plan is to increase overall expenses. To the
extent the Plan maintains a flow of subscriptions to the Fund, there results an
immediate and direct benefit to the Investment Manager by maintaining or
increasing its fee revenue base, diminishing the obligation, if any, of the
Investment Manager to make an expense reimbursement to the Fund, and eliminating
or reducing any contribution made by the Investment Manager to marketing
expenses. Other than as described herein, no Director or interested person of
the Fund has any direct or indirect financial interest in the operation of the
Plan or any related agreement.
Of the amounts compensated to the Distributor during the Fund's fiscal year
ended October 31, 1998, and the two month period ended December 31, 1998,
approximately $7 and $0, respectively, represented expenses incurred for
advertising; $1,297 and $47, respectively, for printing and mailing prospectuses
and other information to other than current shareholders, $937 and $130,
respectively, for salaries of marketing and sales personnel, $92 and $69,
respectively, for payments to third parties who sold shares of the Fund and
provided certain services in connection therewith, and $358 and $0,
respectively, for overhead and miscellaneous expenses.
The Glass-Steagall Act prohibits certain banks from engaging in the
business of underwriting, selling, or distributing securities such as shares of
a mutual fund. Although the scope of this prohibition under the Glass-Steagall
Act has not been fully defined, in the Distributor's opinion it should not
prohibit banks from being paid for administrative and accounting services under
the Plan. If, because of changes in law or regulation, or because of new
interpretations of existing law, a bank or the Fund were prevented from
continuing these arrangements, it is expected that other arrangements for these
services will be made. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
regular trading for equity securities on the New York Stock Exchange ("NYSE")
(currently 4:00 p.m., eastern time) each business day of the Fund. The following
are not Fund business days: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Securities owned by the Fund are valued by various methods depending on the
market or exchange on which they trade. Securities listed or traded on a
national securities exchange or the NMS are valued at the last quoted sales
price on the day the valuations are made. Such listed securities that are not
traded on a particular day and securities traded in the over-the-counter market
that are not on the NMS are valued at the mean between the current bid and asked
prices. Securities for which quotations from the national securities exchange or
the NMS are not readily available or reliable and other assets may be valued
based on over-the-counter quotations or at fair value as determined in good
faith by or under the direction of the Board of Directors. Short term securities
are valued either at amortized cost or at original cost plus accrued interest,
both of which approximate current value.
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Price quotations generally are furnished by pricing services, which may
also use a matrix system to determine valuations. This system considers such
factors as security prices, yields, maturities, call features, ratings, and
developments relating to specific securities in arriving at valuations.
PURCHASE OF SHARES
The Fund will only issue shares upon payment of the purchase price by check
drawn to the Fund's order in U.S. dollars on a U.S. bank, or by Federal Reserve
wire transfer. Third party checks, credit cards, and cash will not be accepted.
The Fund reserves the right to reject any order, to cancel any order due to
nonpayment, to accept initial orders by telephone or telegram, and to waive the
limit on subsequent orders by telephone, with respect to any person or class of
persons. Orders to purchase shares are not binding on the Fund until they are
confirmed by the Fund's transfer agent. If an order is canceled because of
non-payment or because the purchaser's check does not clear, the purchaser will
be responsible for any loss the Fund incurs. If the purchaser is already a
shareholder, the Fund can redeem shares from the purchaser's account to
reimburse the Fund for any loss. In addition, the purchaser may be prohibited or
restricted from placing future purchase orders in the Fund or any of the other
Funds in the Investment Company Complex. In order to permit the Fund's
shareholder base to expand, to avoid certain shareholder hardships, to correct
transactional errors, and to address similar exceptional situations, the Fund
may waive or lower the investment minimums with respect to any person or class
of persons.
ALLOCATION OF BROKERAGE
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. Transactions are directed to brokers and dealers qualified to
execute orders or provide research, statistical or other services, and who may
sell shares of the Fund or other affiliated investment companies. The Investment
Manager may also allocate portfolio transactions to broker/dealers that remit a
portion of their commissions as a credit against the Custodian's charges. No
formula exists and no arrangement is made with or promised to any broker/dealer
which commits either a stated volume or percentage of brokerage business based
on research, statistical or other services furnished to the Investment Manager
or upon sale of Fund shares. Fund transactions in debt and over-the-counter
securities generally are with dealers acting as principals at net prices with
little or no brokerage costs. In certain circumstances, however, the Fund may
engage a broker as agent for a commission to effect transactions for such
securities. Purchases of securities from underwriters include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
include a spread between the bid and asked price. While the Investment Manager
generally seeks competitive spreads or commissions, the Fund will not
necessarily be paying the lowest spread or commission available.
The Investment Manager directs 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 bro ker/dealer, including brokerage and research services, sales of
shares, of the Funds or other Funds advised by the Investment Manager or its
affiliates. With respect to brokerage and research services, consideration may
be given in the selection of broker/dealers to brokerage or research provided
and payment may 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 ("1934 Act"), or other applicable law are met. Section 28(e) of the 1934
Act specifies that a person with investment discretion shall not be "deemed to
have acted unlawfully or to have breached a fiduciary duty" solely because such
person has caused the account to pay a higher commission than the lowest
available under certain circumstances. To obtain the benefit of Section 28(e),
the person so exercising investment discretion must make a good faith
determination that the commissions paid are "reasonable in relation to the value
of the brokerage and research services provided ... viewed in terms of either
that particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion." Thus, 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 seeks the best value to the Fund
on each trade that circumstances in the market place permit, including the value
inherent in ongoing relationships with quality brokers.
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for brokerage or research services might exceed
commissions that would be payable for execution alone, nor generally can the
value of such services to the Fund be measured, except to the extent such
services have a readily ascertainable market value. There is no certainty that
services so purchased, or the sale of Fund shares, if any, will be beneficial to
the Fund.
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Such services being largely intangible, no dollar amount can be attributed to
benefits realized by the Fund or to collateral benefits, if any, conferred on
affiliated entities. These services may include "brokerage and research
services" as defined in Section 28(e)(3) of the 1934 Act, which presently
include (1) furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities and the availability of
securities or purchasers or sellers of securities, (2) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, and (3) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement, and custody). Pursuant to arrangements with certain
broker/dealers, such broker/dealers provide and pay for various computer
hardware, software and services, market pricing information, investment
subscriptions and memberships, and other third party and internal research of
assistance to the Investment Manager in the performance of its investment
decision-making responsibilities for transactions effected by such
broker/dealers for the Fund. Commission "soft dollars" may be used only for
"brokerage and research services" provided directly or indirectly by the
broker/dealer and under no circumstances will cash payments be made by such
broker/dealers to the Investment Manager. To the extent that commission "soft
dollars" do not result in the provision of any "brokerage and research services"
by a broker/dealer to whom such commissions are paid, the commissions,
nevertheless, are the property of such broker/dealer. To the extent any such
services are utilized by the Investment Manager for other than the performance
of its investment decision-making responsibilities, the Investment Manager makes
an appropriate allocation of the cost of such services according to their use.
Bull & Bear Securities, Inc. ("BBSI"), a wholly owned subsidiary of Group
and the Investment Manager's affiliate, provides discount brokerage services to
the public as an introducing broker clearing through unaffiliated firms on a
fully disclosed basis. The Investment Manager is authorized to place Fund
brokerage through BBSI at its posted discount rates and indirectly through a
BBSI clearing firm. The Fund will not deal with BBSI in any transaction in which
BBSI acts as principal. The clearing firm will execute trades in accordance with
the fully disclosed clearing agreement between BBSI and the clearing firm. BBSI
will be financially responsible to the clearing firm for all trades of the Fund
until complete payment has been received by the Fund or the clearing firm. BBSI
will provide order entry services or order entry facilities to the Investment
Manager, arrange for execution and clearing of portfolio transactions through
executing and clearing brokers, monitor trades and settlements and perform
limited back-office functions including the maintenance of all records required
of it by the NASD.
In order for BBSI to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by BBSI must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. The Fund's Board of Directors has adopted procedures in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
BBSI are reasonable and fair. Although BBSI's posted discount rates may be lower
than those charged by full cost brokers, such rates may be higher than some
other discount brokers and certain brokers may be willing to do business at a
lower commission rate on certain trades. The Board has determined that portfolio
transactions may be executed through BBSI if, in the judgment of the Investment
Manager, the use of BBSI is likely to result in price and execution at least as
favorable as those of other qualified broker/dealers and if, in particular
transactions, BBSI charges the Fund a rate consistent with that charged to
comparable unaffiliated customers in similar transactions. Brokerage
transactions with BBSI are also subject to such fiduciary standards as may be
imposed by applicable law. The Investment Manager's fees under its agreement
with the Fund are not reduced by reason of any brokerage commissions paid to
BBSI.
Brokerage commissions paid in fiscal years ended October 31, 1996, 1997 and
1998 and the two month period ended December 31, 1998 were $9,411, $2,059,
$7,439 and $20, respectively. $5,554 and $0 of such commissions paid during the
fiscal year ended October 31, 1998 and the two month period ended December 31,
1998 (representing approximately $4,264,012 and $0 in portfolio transactions),
respectively, was allocated to broker/dealers that provided research services.
$0 and $0 of such commissions paid during the fiscal year ended October 31, 1998
and the two month period ended December 31, 1998 was allocated to broker/dealers
for selling shares of the Funds and other Funds advised by the Investment
Manager or its affiliates. During the Fund's fiscal year ended October 31, 1996,
the Fund paid $122 in brokerage commissions to BBSI which represented
approximately 1.30% of total brokerage commissions paid by the Fund and 1.13% of
the aggregate dollar amount of transactions involving the payment of
commissions. During the Fund's fiscal years ended October 31, 1997 the Fund paid
$859 in brokerage commissions to BBSI which represented approximately 41.74% of
total brokerage commissions paid by the Fund and 28.56% of the aggregate dollar
amount of transactions involving the payment of commissions. During the Fund's
fiscal year ended October 31, 1998 and the two month period ended December 31,
1998, the Fund paid $1,885 and $20 in brokerage commissions to BBSI which
represented approximately 25.34% and 100% of total brokerage commissions paid by
the Fund and 22.03% and 100% of the aggregate dollar amount of transactions
involving the payment of commissions, respectively.
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Investment decisions for the Fund and for the other Funds managed by the
Investment Manager or its affiliates are made independently based on each Fund's
investment objectives and policies. The same investment decision, however, may
occasionally be made for two or more Funds. In such a case, the Investment
Manager may combine orders for two or more Funds for a particular security (a
"bunched trade") if it appears that a combined order would reduce brokerage
commissions and/or result in a more favorable transaction price. All accounts
participating in a bunched trade shall receive the same execution price with all
transaction costs (e.g. commissions) shared on a pro rata basis. In the event
that there are insufficient securities to satisfy all orders, the partial amount
executed shall be allocated among participating accounts pro rata on the basis
of order size. In the event of a partial fill and the portfolio manager does not
deem the pro rata allocation of a specified number of shares to a particular
account to be sufficient, the portfolio manager may waive in writing such
allocation. In such event, the account's pro rata allocation shall be
reallocated to the other accounts that participated in the bunched trade.
Following trade execution, portfolio managers may determine in certain instances
that it would be fair and equitable to allocate securities purchased or sold in
such trade in a manner other than that which would follow from a mechanical
application of the procedures outlined above. Such instances may include (i)
partial fills and special accounts (In the event that there are insufficient
securities to satisfy all orders, it may be fair and equitable to give
designated accounts with special investment objectives and policies some degree
of priority over other types of accounts.); (ii) unsuitable or inappropriate
investment (It may be appropriate to deviate from the allocation determined by
application of these procedures if it is determined before the final allocation
that the security in question would be unsuitable or inappropriate for one or
more of the accounts originally designated). While in some cases this practice
could have a detrimental effect upon the price or quantity available of the
security with respect to the Fund, the Investment Manager believes that the
larger volume of combined orders can generally result in better execution and
prices. The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund or other affiliated
investment companies do business with may, from time to time, own more than 5%
of the publicly traded Class A non-voting Common Stock of Group, the parent of
the Investment Manager, and may provide clearing services to BBSI.
The Fund is not obligated to deal with any particular broker, dealer or
group thereof. Certain broker/dealers that the Fund does business with may, from
time to time, own more than 5% of the publicly traded Class A non-voting Common
Stock of Group, the parent of the Investment Manager, and may provide clearing
services to BBSI.
The Fund's portfolio turnover rate may vary from year to year and will not
be a limiting factor when the Investment Manager deems portfolio changes
appropriate. The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of securities in the
portfolio during the year. For the two month period ended December 31, 1998 and
the fiscal years ended October 31, 1998, 1997 and 1996, the Fund's portfolio
turnover rate was 0%, 207.02%, 44.00% and 42.48%, respectively. A higher
portfolio turnover rate involves correspondingly greater transaction costs and
increases the potential for short-term capital gains and taxes.
From time to time, certain brokers may be paid a fee for record keeping,
shareholder communications and other services provided by them to investors
purchasing shares of the Fund through the "no transaction fee" programs offered
by such brokers. This fee is based on the value of the investments in the Fund
made by such brokers on behalf of investors participating in their "no
transaction fee" programs. The Fund's Directors have further authorized the
Investment Manager to place a portion of the Fund's brokerage transactions with
any such brokers, if the Investment Manager reasonably believes that, in
effecting the Fund's transactions in portfolio securities, such broker or
brokers are able to provide the best execution of orders at the most favorable
prices. Commissions earned by such brokers from executing portfolio transactions
on behalf of the Fund may be credited by them against the fee they charge the
Fund, on a basis which has resulted from negotiations between the Investment
Manager and such brokers.
DISTRIBUTIONS AND TAXES
If the U.S. Postal Service cannot deliver a shareholder's check, or if a
shareholder's check remains uncashed for six months, the Fund reserves the right
to credit the shareholder's account with additional Fund shares at the then
current net asset value in lieu of the cash payment and to thereafter issue such
shareholder's distributions in additional Fund shares.
The Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). To qualify for that treatment, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short term
capital gain and net gains from certain foreign currency transactions
("Distribution Requirement")) and must meet several additional requirements.
Among these requirements are the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures, or forward contracts) derived with respect to its business of investing
in securities or those currencies ("Income Requirement"); (2) the Fund's
investments must satisfy certain diversification requirements. In any year
during which the applicable provisions of the Code are satisfied, the Fund will
not be liable for Federal income tax on net income and gains that are
distributed to its shareholders. If for any taxable year the Fund does not
qualify for treatment as a RIC, all of its taxable income would be taxed at
corporate rates.
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A portion of the dividends from the Fund's investment company taxable
income (whether paid in cash or in additional Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
A loss on the sale of Fund shares that were held for six months or less
will be treated as a long term (rather than a short term) capital loss to the
extent the shareholder received any capital gain distributions attributable to
those shares.
Dividends and other distributions may also be subject to state and local
taxes.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year an amount
equal to the sum of (1) 98% of its ordinary income, (2) 98% of its capital gain
net income (determined on an October 31 fiscal year basis), plus (3) generally,
all income and gain not distributed or subject to corporate tax in the prior
calendar year. The Fund intends to avoid imposition of this excise tax by making
adequate distributions.
The foregoing discussion of Federal tax consequences is based on the tax
law in effect on the date of this Statement of Additional Information, which is
subject to change by legislative, judicial, or administrative action. The Fund
may be subject to state or local tax in jurisdictions in which it may be deemed
to be doing business.
REPORTS TO SHAREHOLDERS
The Fund issues, at least semi-annually, reports to its shareholders
including a list of investments held and statements of assets and liabilities,
income and expense, and changes in net assets of the Fund. The Fund's fiscal
year ends on December 31.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, MO 64105
("Custodian") has been retained by the Fund to act as custodian of the Fund's
investments and may appoint one or more subcustodians. The Custodian also
performs certain accounting services for the Fund. As part of its agreement with
the Fund, the Custodian may apply credits or charges for its services to the
Fund for, respectively, positive or deficit cash balances maintained by the Fund
with the Custodian. DST Systems, Inc., Box 419789, Kansas City, Missouri
64141-6789, is the Fund's Transfer and Dividend Disbursing Agent. The
Distributor provides certain shareholder administration services to the Fund and
is reimbursed by the Fund the actual costs incurred with respect thereto. Among
other such services, the Distributor currently receives and responds to
shareholder inquiries concerning their accounts and processes shareholder
telephone requests such as telephone transfers, purchases and redemptions,
changes of address and similar matters.
AUDITORS
Tait, Weller & Baker, 8 Penn Center Plaza, Suite 800, Philadelphia, PA
19103-2108, are the independent accountants for the Fund. Financial statements
of the Fund are audited annually.
16
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. Exhibits
(a) Articles of Incorporation: Filed with the Securities and
Exchange Commission on February 26, 1997, accession number
0000767531-97-000005.
(b) By-Laws as now in effect: Filed with the Securities and
Exchange Commission on December 30, 1997, accession number
0000052234-97-000013.
(c) Articles of Incorporation: Filed with the Securities and
Exchange Commission on February 26, 1997, accession number
0000767531-97-000005. By-Laws as now in effect: Filed with
the Securities and Exchange Commission on December 30,
1997, accession number 0000052234-97-000013.
(d) Investment Management Agreement, filed with the Securities
and Exchange Commission on February 26, 1997, accession
number 0000767531-97-000005.
(e) (1) Distribution Agreement, filed with the
Securities and Exchange Commission on February
26, 1997, accession number 0000767531-97-000005.
(2) Related Agreement to Plan of Distribution between
Investor Service Center, Inc. and Hanover Direct
Advertising Company, Inc., filed with the
Securities and Exchange Commission on February
26, 1997, accession number 0000767531-97-000005.
(f) not applicable.
(g) (1) Form of Custody and Investment Accounting
Agreement, filed with the Securities and Exchange
Commission on February 3, 1998, accession number
0000767531-98-000005.
(2) Form of Retirement Plan Custodial Services
Agreement, filed with the Securities and Exchange
Commission on February 3, 1998, accession number
0000767531-98-000005.
(h) (a) Form of Transfer Agency Agreement, filed with
the Securities and Exchange Commission on August
16, 1996.
(b) Form of Agency Agreement, filed with the
Securities and Exchange Commission on August 16,
1996.
(c) Shareholder Administration Agreement, filed with
the Securities and Exchange Commission on
February 26, 1997, accession number
0000767531-97-000005.
(d) Forms of credit facilities agreements, filed with
the Securities and Exchange Commission on
February 3, 1998, accession number
0000767531-98-000005.
(e) Forms of Securities Lending Authorization
Agreement, filed with the Securities and Exchange
Commission on February 3, 1998, accession number
0000767531-98-000005.
(f) Form of Segregated Account Procedural and
Safekeeping Agreement, filed with the Securities
and Exchange Commission on February 3, 1998,
accession number 0000767531-98-000005.
(i) Opinion and Consent of Counsel as to Legality of
Securities: A copy of the opinion and consent of the Fund's
Counsel is contained in the Fund's registration statement
dated April 30, 1986 and incorporated herein by reference.
(j) (a) Accountant's Consent: Filed herewith.
(b) Opinion of Counsel with respect to eligibility
for effectiveness under paragraph (b)of Rule 485.
Filed herewith.
(n) Financial Data Schedule for the Fiscal Year End October 31,
1998, and for the two months ended December 31, 1998.
ITEM 24. Persons Controlled by or Under Common Control With
Registrant
Not Applicable.
ITEM 25. Indemnification
Registrant's Investment Management Agreement between the Registrant and
Rockwood Advisers, Inc. ("Investment Manager") provides that the Investment
Manager shall not be liable to the Registrant or any shareholder of the
Registrant for any error of judgment or mistake of law or for any loss suffered
by the Registrant in connection with the matters to which the Investment
Management Agreement relates. However, the Investment Manager is not protected
against any liability to the Registrant by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under the Investment Management
Agreement.
1
<PAGE>
Section 9 of the Distribution Agreement between the Registrant and Investor
Service Center, Inc. ("Service Center") provides that the Registrant will
indemnify Service Center and its officers, directors and controlling persons
against all liabilities arising from any alleged untrue statement of material
fact in the Registration Statement or from any alleged omission to state in the
Registration Statement a material fact required to be stated in it or necessary
to make the statements in it, in light of the circumstances under which they
were made, not misleading, except insofar as liability arises from untrue
statements or omissions made in reliance upon and in conformity with information
furnished by Service Center to the Registrant for use in the Registration
Statement; and provided that this indemnity agreement shall not protect any such
persons against liabilities arising by reason of their bad faith, gross
negligence or willful misfeasance; and shall not inure to the benefit of any
such persons unless a court of competent jurisdiction or controlling precedent
determines that such result is not against public policy as expressed in the
Securities Act of 1933. Section 9 of the Distribution Agreement also provides
that Service Center agrees to indemnify, defend and hold the Registrant, its
officers and Directors free and harmless of any claims arising out of any
alleged untrue statement or any alleged omission of material fact contained in
information furnished by Service Center for use in the Registration Statement or
arising out of any agreement between Service Center and any retail dealer, or
arising out of supplementary literature or advertising used by Service Center in
connection with the Distribution Agreement.
The Registrant undertakes to carry out all indemnification provisions of
its Articles of Incorporation and By-Laws and the above-described contract in
accordance with Investment Company Act Release No. 11330 (September 4, 1980) and
successor releases.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be provided to directors, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant with the successful defense of any action, suit or
proceeding or payment pursuant to any insurance policy) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
Information on the business of the Registrant's investment adviser is
described in the section of the Statement of Additional Information entitled
"Investment Manager" filed as part of this Registration Statement.
The directors and officers of the Investment Manager are also directors an
officers of other Funds managed by Bull & Bear Advisers, Inc. and Midas
Management Corporation, both of which are wholly-owned subsidiaries of Bull &
Bear Group, Inc. ("Funds"). In addition, such officers are officers and
directors of Bull & Bear Group, Inc. and its other subsidiaries; Service Center,
the distributor of the Registrant and the Funds and a registered broker/dealer,
and Bull & Bear Securities, Inc., a discount brokerage firm. Bull & Bear Group,
Inc.'s predecessor was organized in 1976. In 1978, it acquired control of and
subsequently merged with Investors Counsel, Inc., a registered investment
adviser organized in 1959. The principal business of both companies since their
founding has been to serve as investment manager to registered investment
companies. Bull & Bear Advisers, Inc. serves as investment manager of Bull &
Bear Dollar Reserves, a series of shares issued by Bull & Bear Funds II, Inc.;
Bull & Bear U.S. Government Securities Fund, Inc., Global Income Fund, Inc.;
Tuxis Corporation; Bull & Bear Gold Investors Ltd.; Bull & Bear U.S. and
Overseas Fund, a series of Bull & Bear Funds I, Inc.; and Bull & Bear Special
Equities Fund, Inc. Midas Management Corporation serves as investment manager of
Midas Fund, Inc.
Item 27. Principal Underwriters
a) In addition to the Registrant, Service Center serves as principal
underwriter of Bull & Bear Funds II, Inc., Bull & Bear Special Equities Fund,
Inc., Bull & Bear Funds I, Inc., Bull & Bear Gold Investors Ltd., and Midas
Fund, Inc.
b) Service Center serves as the Registrant's principal underwriter. The
directors and officers of Service Center, their principal business addresses,
their positions and offices with Service Center and their positions and offices
with the Registrant (if any) are set forth below.
2
<PAGE>
Name and Principal Position and Offices Position and Offices
Business Address with Service Center with Registrant
- ------------------------ --------------------------- ------------------------
Robert D. Anderson Vice Chairman N/A
11 Hanover Square and Director
New York, NY 10005
Steven A. Landis Senior Vice President Senior Vice President
11 Hanover Square
New York, NY 10005
Mark C. Winmill Chairman, Director Co-President, Director
11 Hanover Square
New York, NY 10005
Thomas B. Winmill President, Director, Co-President, Director,
11 Hanover Square General Counsel Chief Executive Officer
New York, NY 10005
Deborah A. Sullivan Vice President, Vice President,
11 Hanover Square Secretary, Secretary,
New York, NY 10005 Compliance Officer Compliance Officer
Irene K. Kawczynski Vice President None
11 Hanover Square
New York, NY 10005
Joseph Leung Treasurer, Treasurer,
11 Hanover Square Chief Accounting Officer, Chief Accounting Officer,
New York, NY 10005 Chief Financial Officer Chief Financial Officer
Item 28. Location of Accounts and Records
The minute books of the Registrant and copies of its filings with the
Commission are located at 11 Hanover Square, New York, NY 10005 (the offices of
Registrant and its Investment Manager). All other records required by Section
31(a) of the Investment Company Act of 1940 are located at Investors Fiduciary
Trust Company, 801 Pennsylvania, Kansas City, MO 64105 (the offices of
Registrant's custodian) and DST Systems, Inc., 1055 Broadway, Kansas City, MO
64105-1594 (the offices of the Registrant's Transfer and Dividend Disbursing
Agent). Copies of certain of the records located at Investors Fiduciary Trust
Company and DST Systems, Inc. are kept at 11 Hanover Square, New York, NY 10005
(the offices of Registrant and the Investment Manager).
Item 29. Management Services
There are no management related service contracts not discussed in
Part A or Part B of this Registration Statement.
Item 30. Undertakings
None.
3
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City, County and State of New York on this 26th day of
February, 1999.
ROCKWOOD FUND, INC.
/s/Thomas B. Winmill
Thomas B. Winmill, Co-President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/Mark C. Winmill Director, Co-President February 26, 1999
Mark C. Winmill
/s/Thomas B. Winmill Director, Co-President and February 26, 1999
Thomas B. Winmill Chief Executive Officer
/s/Joseph Leung Treasurer, February 26, 1999
Joseph Leung Principal Accounting Officer,
Principal Financial Officer
/s/Bruce B. Huber Director February 26, 1999
Bruce B. Huber
/s/James E. Hunt Director February 26, 1999
James E. Hunt
/s/John B. Russell Director February 26, 1999
John B. Russell
<PAGE>
EXHIBIT INDEX
PAGE
EXHIBIT NUMBER
(23)(j) (a) Accountants' consent.
(b) Opinion of counsel with respect to eligibility for
effectiveness under paragraph (b) of Rule 485.
(23)(n) Financial Data Schedule for the Fiscal Year End October 31,
1998, and for the two months ended December 31, 1998.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Post-Effective Amendment to the
Registration Statement on Form N-1A of Rockwood Fund, Inc. and to the use of our
report dated January 15, 1999 on the financial statements and financial
highlights. Such financial statements and financial highlights appear in the
December 31, 1998 Annual Report to Shareholders which is incorporated by
reference in the Registration Statement.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 25, 1999
February 25, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are counsel to Rockwood Fund, Inc. (the
"Fund"), and in so acting have reviewed Post-Effective Amendment
No. 21 (the "Post-Effective Amendment") to the Fund's Registration
Statement on Form N-1A, Registration File No. 33-02430.
Representatives of the Fund have advised us that the Fund will
file the Post-Effective Amendment pursuant to paragraph (b) of
Rule 485 ("Rule 485") promulgated under the Securities Act of
1933. In connection therewith, the Fund has requested that we
provide this letter.
In our examination of the Post-Effective Amendment, we have
assumed the conformity to the originals of all documents submitted
to us as copies.
Based upon the foregoing, we hereby advise you that the prospectus
included as part of the Post-Effective Amendment does not include
disclosure which we believe would render it ineligible to become
effective pursuant to paragraph (b) of Rule 485.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Rockwood Fund, Inc. semi-annual Report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
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<NAME> Rockwood Fund, Inc.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Rockwood Fund, Inc. Annual Report and is qualified in its entirety by reference
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</LEGEND>
<CIK> 0000767531
<NAME> Rockwood Fund, Inc.
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