<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1996
REGISTRATION NO. 33-10675
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 13 [X]
and
REGISTRATION STATEMENT UNDER THE [X]
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 16
(Check appropriate box or boxes)
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FIRST EAGLE FUND OF AMERICA, INC.
(Exact Name of Registrant as Specified in Charter)
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45 Broadway, New York, New York 10006
(Address of Principal Executive Offices)
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Registrant's Telephone Number, including Area Code: (212) 943-9200
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LEONARD M. LEIMAN, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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It is proposed that this filing will become effective (check appropriate
box):
[X] immediately upon filing pursuant to paragraph (b);
[ ] on (date) pursuant to paragraph (b);
[ ] 60 days after filing pursuant to paragraph (a)(i);
[ ] on (date) pursuant to paragraph (a)(i);
[ ] 75 days after filing pursuant to paragraph (a)(ii);
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has previously registered an indefinite number of shares of its
Common Stock, par value $.01 per share. The Registrant last filed a Rule
24f-2 Notice on December 18, 1995.
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<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
Cross Reference Sheet
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A No. Location
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<S> <C> <C>
PART A
Item 1. Cover Page................................ Cover page
Item 2. Summary of Fund Expenses;
Synopsis .................................. Highlights
Item 3. Condensed Financial Information............ Financial Highlights
Item 4. Description of Registrant.................. Cover Page; Investment Objective and Policies
and Risk Factors; Description of Common
Stock; Investment Restrictions
Item 5. Management of the Fund .................... Management of the Fund; Custodian and Transfer
and Dividend Disbursing Agent
Item 6. Capital Stock and Other Securities......... Dividends, Distributions and Taxes;
Description of Common Stock;
Reports to Stockholders
Item 7. Purchase of Securities Being Offered....... How to Purchase Shares; Stockholder
Investment Account; Net Asset Value
Item 8. Redemption or Repurchase................... How to Redeem Shares; Description of Common
Stock
Item 9. Pending Legal Proceedings.................. Not Applicable
PART B
Item 10. Cover Page................................. Cover Page
Item 11. Table of Contents ......................... Table of Contents
Item 12. General Information and History............ Organization and History of the Fund
Item 13. Investment Objective and Policies ......... Additional Investment Information;
Investment Restrictions
Item 14. Management of the Fund .................... Directors, Officers and Principal
Stockholders; Adviser; Distributor
Item 15. Control Persons and Principal Holders
of Securities........................... Directors, Officers and Principal
Stockholders
Item 16. Investment Advisory and Other
Services................................. Adviser; Distributor; Custodian,
Transfer and Dividend Disbursing Agent;
Independent Accountants
Item 17. Brokerage Allocation...................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities........ Not Applicable
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered................. Stockholder Investment Account
Item 20. Tax Status................................ Taxes
Item 21. Underwriters ............................. Distributor
Item 22. Calculations of Yield Quotations of
Money Market Funds....................... Not Applicable
Item 23. Financial Statements...................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
Dated February 28, 1996
FIRST EAGLE FUND OF AMERICA, INC.
First Eagle Fund of America, Inc. (the "Fund") is an open-end,
non-diversified management investment company, or mutual fund, whose
investment objective is to achieve capital appreciation. The Fund will seek
to achieve that objective by pursuing a flexible investment strategy
emphasizing investment in domestic and to a lesser extent foreign equity and
debt securities in varying proportions. Those securities will be selected by
the Fund's investment adviser, Arnhold and S. Bleichroeder Advisers, Inc.
(the "Adviser"), on the basis of their appearing to be undervalued in their
respective trading markets relative to the issuer's overall financial and
managerial strength as measured by certain quantitative and qualitative
indicators. The Adviser believes that the Fund's exposure to loss may be
limited by investing in securities which, in the Adviser's opinion, appear to
be undervalued by the market relative to their "intrinsic value" as
determined by the Adviser. The Fund also may invest in equity and debt
securities selected on other bases and engage in transactions involving
leverage, arbitrage, options on equity or debt securities and on stock
indices, and, solely for bona fide hedging purposes, futures and related
options. There is no assurance that the Fund's investment objective will be
attained.
The Fund's shares are sold on a no-load basis. This Prospectus sets forth
concisely the information about the Fund that a prospective investor should
know before investing. Additional information about the Fund has been filed
with the Securities and Exchange Commission in a Statement of Additional
Information, dated February 28, 1996, which information is incorporated
herein by reference and may be obtained without charge by writing to the
Fund's Distributor, Arnhold and S. Bleichroeder, Inc., 45 Broadway, New York,
New York 10006, or telephoning Arnhold and S. Bleichroeder, Inc. at (212)
943-9200 or (800) 451-3623.
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Investors are urged to read this Prospectus and retain it for future
reference.
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ARNHOLD AND S. BLEICHROEDER ADVISERS, INC.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
HIGHLIGHTS
Investment Objective The Fund is an open-end, non-diversified
management investment company, or mutual
fund, registered under the Investment
Company Act of 1940 (the "Investment Company
Act"). The Fund's investment objective is to
seek capital appreciation by pursuing a
flexible investment strategy emphasizing
investment in domestic and to a lesser
extent foreign equity and debt securities
believed by the Fund's investment adviser to
be undervalued in their respective trading
markets. The Fund's investment in foreign
securities ordinarily will not exceed 10% of
its total assets. There is no assurance that
the Fund's investment objective will be
attained. See "Investment Objective and
Policies."
Special Characteristics and
Risk Factors To augment its investment return and limit
its investment risk, the Fund may purchase
call and put options and sell covered call
and put options on equity and debt
securities and on stock indices. There are
no limitations on the percentage of the
Fund's assets that may be invested in
options of the foregoing types, provided
applicable coverage and collateral
requirements are met. The Fund may purchase
and sell financial and currency futures
contracts and related options solely for
bona fide hedging purposes. The Fund may
invest in securities on a when-issued basis,
lend its portfolio securities, enter into
repurchase as well as reverse repurchase
agreements, and engage in short sales of
securities and arbitrage transactions and
may invest in high yield ("junk") bonds. All
these investment techniques and instruments
may involve special risks. See "Investment
Objective and Policies" in the Prospectus
and "Additional Investment Information" in
the Statement of Additional Information.
The Fund may borrow for securities purchases
and for temporary or emergency purposes. The
ability to borrow for securities purchases
is called leveraging. Leveraging has certain
advantages and disadvantages which are more
fully disclosed in "Borrowing" in the
Statement of Additional Information.
As a non-diversified investment company, the
Fund's assets may be invested in a limited
number of issues. In that case, an
investment in the Fund may present greater
risks than an investment in a diversified
investment company. See "Investment
Objective and Policies" in the Prospectus
and "Additional Investment Information" in
the Statement of Additional Information.
Management Arnhold and S. Bleichroeder Advisers, Inc.
(the "Adviser"), a registered investment
adviser, serves as the Fund's investment
adviser and is compensated for its services
to the Fund at the annual rate of 1.25% per
annum of the Fund's average daily net asset
value. The management fee is payable
promptly after the close of each fiscal
quarter. The management fee paid by the Fund
may be higher than the fees paid by most
other funds. Pursuant to a separate services
agreement, Arnhold and S. Bleichroeder,
Inc., a registered broker-dealer, provides
administrative and fund accounting support
services and liaison services to
shareholders, including assistance with
2
<PAGE>
subscriptions, redemptions and other
shareholder questions, as well as other
services to shareholders and the Fund for which
it receives an annual fee of .25% of the Fund's
average daily net assets payable quarterly. See
"Management of the Fund -- Management Fee."
Arnhold and S. Bleichroeder, Inc. serves as the
Fund's distributor and assumes the expenses
related to distributing the Fund's shares.
Purchase of Shares Shares of the Fund's common stock may be
purchased through Arnhold and S.
Bleichroeder, Inc. at the net asset value
next determined after receipt of an order
with complete information and meeting all
the requirements discussed in this
Prospectus. There is no sales charge on
purchases of the Fund's shares. The current
minimum initial investment is $5,000, except
for employees of Arnhold and S.
Bleichroeder, Inc. who are subject to a
$1,000 minimum initial investment, and
retirement plans which are subject to a
$2,000 minimum initial investment. The
minimum initial investment amount in certain
states may be higher. Subsequent investments
are subject to a $1,000 minimum. Shares of
the Fund may be purchased by submitting a
completed Account Application and a check or
money order payable to First Eagle Fund of
America, Inc. to: First Eagle Funds, 45
Broadway, New York, New York 10006 and/or to
BISYS Fund Services, 100 First Avenue, Suite
300, Pittsburgh, Pennsylvania 15222. See
"How to Purchase Shares."
Liquidity Shares of the Fund may be redeemed at the
option of the stockholder at any time at the
net asset value next determined after
receipt of a redemption request. See "How to
Redeem Shares."
Dividends and Reinvestment The Fund plans to distribute annual
dividends of its net investment income and
distribute annually any net capital gains.
All dividends and distributions will be
reinvested in full and fractional shares of
the Fund at net asset value, unless the
stockholder elects to receive dividends and
distributions in cash. See "Stockholder
Investment Account" and "Dividends,
Distributions and Taxes."
3
<PAGE>
SUMMARY OF FUND EXPENSES
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees .......................................... 1.25%(2)
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Other Expenses:
Services fees ....................................... .25%
Other expenses(1) ................................... .25%
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Total Other Expenses ..................................... .50%
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Total Fund Operating Expenses ............................ 1.75%
=====
<TABLE>
<CAPTION>
Example 1 Year 3 Years 5 Years 10 Years
------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and a
redemption at the end of each time period .... $17.94 $55.56 $95.63 $207.60
-------- --------- --------- ----------
</TABLE>
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Management of the Fund -- Management Fee" below and
"Adviser" in the Statement of Additional Information. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES, WHICH MAY BE MORE OR LESS
THAN THOSE SHOWN.
- ------
(1) The percentages are based on the Fund's actual expenses (as a percentage
of average net assets) which were incurred by the Fund for the fiscal
year ended October 31, 1995.
(2) The Fund adopted a new fee structure effective November 1, 1995. For the
fiscal year ended October 31, 1995 the management fees were 1.6%, other
expenses were 0.25% and total operating expenses for the Fund were 1.85%.
4
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIODS INDICATED
The following financial highlights have been audited by independent
auditors and contain selected data for a share of common stock outstanding,
total return, ratios to average net assets and other supplemental data for
the periods indicated. This information should be read in conjunction with
the financial statements and the notes thereto and the independent auditors'
report thereon which appears in the Statement of Additional Information.
<TABLE>
<CAPTION>
April 10,
1987**
For the year ended through
October 31, October 31,
-------------------------------------------------------------------------------------------- -----------
1995 1994 1993 1992 1991 1990 1989 1988 1987
------------ ---------- ---------- --------- --------- --------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value per
share, beginning of
period ............... $15.45 $16.53 $13.36 $12.35 $10.35 $14.04 $11.65 $9.17 $10.00
Income from
investment
operations per
share .............
Net investment income
(loss) ............ (0.04) (0.12) (0.22) (0.15) 0.09 0.16 0.16 (0.03) 0.07
Net gains (losses) on
securities (both
realized and
unrealized) ....... 2.87 0.66 4.56 1.98 2.20 (2.34) 2.57 2.58 (0.90)
--------- ---------- ---------- --------- --------- --------- -------- ------- --------
Total from
investment
operations ... 2.83 0.54 4.34 1.83 2.29 (2.18) 2.73 2.55 (0.83)
--------- ---------- ---------- --------- --------- --------- -------- ------- --------
Less distributions
per share .........
Dividends (from net
investment income) -- -- -- (0.08) (0.29) (0.11) -- (0.07) --
Distributions (from
capital gains) .... (2.00) (1.62) (1.17) (0.74) -- (1.40) (0.34) -- --
--------- ---------- ---------- --------- --------- --------- -------- ------- --------
Total
distributions (2.00) (1.62) (1.17) (0.82) (0.29) (1.51) (0.34) (0.07) 0.00
--------- ---------- ---------- --------- --------- --------- -------- ------- --------
Net asset value per
share, end of period $16.28 $15.45 $16.53 $13.36 $12.35 $10.35 $14.04 $11.65 $9.17
========= ========= ========= ========= ========= ======== ======== ======= =======
Total return* .......... 21.6% 3.8% 35.2% 16.0% 22.7% (17.7)% 24.2% 28.0% (8.3)%++
Ratios/supplemental data
Net assets, end of
period ........ $134,350,180 $120,515,968 $107,344,171 $76,599,310 $74,279,164 $66,729,536 $83,619,552 $54,271,271 $27,194,056
Ratio of expenses to
average net assets .. 1.9% 1.9% 2.9% 3.0% 2.0% 1.1% 2.0% 3.3% 2.5%+
Ratio of net investment
income to average net
assets .............. (0.3)% (0.7%) (1.5)% (1.0)% 0.8% 1.3% 1.3% (0.2)% 1.2%+
Portfolio turnover rate 81% 125% 141% 145% 92% 72% 52% 55% 84%
</TABLE>
* Past performance is not predictive of future performance.
** Commencement of investment operations
+ Annualized
++ Total return not annualized
Further information regarding the Fund's performance is contained in the
annual report, a copy of which may be obtained without charge.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES AND RISK FACTORS
The investment objective of the Fund is to seek capital appreciation. The
Fund will seek to achieve its investment objective by pursuing a flexible
investment strategy emphasizing investment in domestic and to a lesser extent
foreign equity and debt securities believed by the Adviser to be undervalued
in their respective trading markets relative to their "intrinsic value" as
determined by the Adviser. The Adviser believes the Fund's exposure to loss
may be limited by investing part of or all its assets in undervalued
securities. The relative proportion of the Fund's assets invested in equity
and debt securities may vary depending on the Adviser's assessment of market
conditions. Accordingly, the Fund's portfolio may at times consist entirely
of equity securities, or entirely of debt securities, or any combination of
those securities and permissible amounts of the other instruments in which
the Fund may invest, as described below. There is no assurance that the
Fund's investment objective will be achieved and that objective may be
changed without the vote of a majority of the Fund's outstanding voting
securities.
A guiding principle in the Adviser's selection of investments for the
Fund's portfolio will be the consideration of common stocks as units of
ownership in a business. Debt securities will be considered if more
attractive than equity alternatives. The Adviser may purchase equity or debt
securities for the Fund's portfolio when their prices appear to be low
relative to the total value of the enterprise as it would be viewed by a
controlling owner. The Adviser's evaluation of prospective equity and debt
investments generally will involve an analysis of the issuer's overall
financial and managerial strength as indicated by factors such as cash flow,
assets, earnings, market share, growth potential, stability and managerial
personnel. Investments (including equity and debt securities) may, however,
be selected on other bases. In any event, the Adviser will consider both
large, well established and small, unseasoned issuers. Investment income is
of secondary importance in the selection of investments for the Fund's
portfolio but will be considered in relation to the total expected return
thereon.
The Fund intends its portfolio ordinarily to be invested in varying
combinations of equity securities (including common stocks, rated (in any
category) or unrated preferred stocks, convertible securities, exchange-
listed or over-the-counter market put and call options on equity and debt
securities and on stock indices, and warrants), and rated (in any category)
or unrated debt securities of any maturity. The Fund may acquire debt
securities when the Adviser believes that those securities present
significant appreciation possibilities (i.e., when the Adviser expects a
general decline in interest rates or an improvement in a specific rating),
pending investment of proceeds from sales of Fund shares, or under market
conditions warranting a temporary defensive posture. See "Debt Securities."
If the Fund assumes a temporary defensive posture, some of or all its assets
may be retained in cash or cash equivalents. The Fund also may under certain
circumstances invest in securities issued by other investment companies. See
"Investment Restrictions" in the Statement of Additional Information. If the
Fund invests in such securities, investors may be subject to duplicate
management, advisory or distribution fees.
The Fund may purchase call and put options and sell covered call and
covered put options on equity or debt securities and on stock indices, and,
solely for bona fide hedging purposes, assume positions in futures contracts
and related options traded on a commodities exchange or board of trade.
Additionally, the Fund may acquire securities on a when-issued basis, lend
its portfolio securities, leverage its assets for securities purchases, enter
into repurchase as well as reverse repurchase agreements, and engage in short
sales of securities and arbitrage transactions. It is expected that the
foregoing transactions will comprise a relatively small part of the Fund's
investment program when compared with its investment in equity and/or debt
securities. See "Options Transactions," "When-Issued and Delayed Delivery
Securities," "Lending of Securities," "Borrowing," "Repurchase Agreements,"
"Reverse Repurchase Agreements," "Futures Contracts" and "Arbitrage
Transactions" in the Statement of Additional Information.
6
<PAGE>
The Fund is a non-diversified investment company and as such the Fund's
assets may be invested in a limited number of issues. An investment in the
Fund may therefore entail greater risks than an investment in a diversified
investment company.
SPECIAL SITUATIONS
Many of the Fund's investments may be characterized as "special
situations." A special situation occurs when it appears that the market price
of a particular issue has the potential within an estimated time period to
appreciate significantly because of a development uniquely applicable to the
issuer, irrespective of general business conditions or market movements.
Special situations may arise from liquidations, reorganizations,
recapitalizations, or mergers, material litigation, technological
breakthroughs, new management or management policies, or other developments.
Special situations may, but do not necessarily, entail risks dissimilar to
those involved in other investment situations. Those risks are primarily
attributable to the possibility that the development anticipated in
connection with the special situation may occur later than expected or not at
all, and that, even if it does occur, the anticipated development may not
have the desired effect on the market price of the security involved in the
special situation.
Special situations may also arise in connection with securities issued by
newly-formed or unseasoned companies without significant operating histories.
It may be more difficult to predict accurately the effect that certain
developments will have on the market prices for securities of those
companies, and, accordingly, to predict accurately when or whether special
situations applicable to their securities may come to fruition. The Fund's
investment in newly-formed or unseasoned companies is not expected to exceed
10% of its total assets.
DEBT SECURITIES
The Fund may invest in domestic and foreign money market instruments,
including commercial paper, certificates of deposit, bankers' acceptances and
other short-term debt obligations of domestic and foreign banks, provided
those obligations are of "high quality" as determined by an unaffiliated
nationally recognized statistical rating service, or in the case of unrated
obligations, are of comparable quality as determined by the Fund's Board of
Directors. The Fund also may invest in corporate bonds of domestic and
foreign issuers and obligations issued or guaranteed by the United States
Government, its instrumentalities, or its agencies, or the government of any
other nation ("fixed-income securities"). Various factors affect the price of
fixed-income securities. The rating (if any) which is associated with a
particular issue may cause price fluctuations and indicates generally the
level of risk involved in various rated fixed-income securities. Another
factor which may cause price fluctuations is the response of fixed-income
securities to the general level of interest rates. The price of fixed-income
securities generally is inversely correlated with interest rate movements.
Additionally, the magnitude of the effect of interest rate movements on the
price of fixed-income securities is positively correlated with the length of
their maturities.
The Fund may invest in fixed-income securities rated below Baa by Moody's
Investors Service and BBB by Standard & Poor's Rating Group, including those
rated C by Standard and Poor's and D by Moody's (the lowest rating
categories), only if in the opinion of the Adviser the financial condition of
the issuer or the protection afforded to the particular securities is
stronger than would otherwise be indicated by its lower rating. Standard &
Poor's assignment of a C rating to an issue represents its judgment that the
issue has extremely poor prospects of ever attaining any real investment
standing. A rating of D by Moody's indicates that the issue is in default and
payment of interest and/or repayment of principal is in arrears. See
"Corporate Bond Ratings" in the Appendix to the Prospectus. Since some
issuers do not seek ratings for their fixed-income securities, non-
7
<PAGE>
rated fixed-income securities will also be considered for investment by the
Fund, but only when the Adviser believes that the financial condition of the
issuer of those securities and/or the protection afforded by the terms of the
securities themselves limit the risk to the Fund to a degree comparable to
that of rated fixed-income securities which are consistent with the Fund's
investment objective and policies. Fixed-income securities of the types
described above are commonly referred to as "high yield," "high risk" or
"junk" bonds and generally are not meant for short-term investing.
Medium to lower rated and unrated fixed-income securities are subject to
the risk of an issuer's inability to repay principal and interest payments on
the obligations. An economic downturn or a substantial period of rising
interest rates could severely affect the ability of certain highly leveraged
issuers to service their debt obligations or to repay their obligations upon
maturity. The risk of loss because of default by the issuers is significantly
greater for holders of these securities because such securities are generally
unsecured and often are subordinated to other creditors of the issuer. It is
also possible that the secondary market could contract, independent of any
specific adverse changes in the condition of a particular issuer. Prices
realized upon the sale of medium to lower rated or unrated securities, under
those circumstances, may be less than the prices used in calculating the
Fund's net asset value. Certain proposed and recently enacted federal laws
could also adversely affect the secondary market for these fixed-income
securities as well as the financial condition of issuers and the value of
outstanding fixed-income securities. In addition, overall credit quality of
the Fund's portfolio may decline if the Fund experiences unexpected net
redemptions and is forced to sell its higher rated securities. During the
fiscal year ended October 31, 1995, the Fund did not invest in debt
obligations rated less than BBB/Baa or unrated by nationally recognized
statistical rating organizations.
The yields and prices of medium to lower rated and non-rated fixed-income
securities may fluctuate more than those for high rated fixed-income
securities because investors perceive greater risks to be associated with
those securities. In the lower quality and non-rated segments of the
fixed-income securities market, changes in perceptions of the issuers'
creditworthiness may occur more frequently and in a more pronounced manner
relative to the high quality segments of that market. This may result in
greater yield and price volatility for lower rated and non-rated fixed-income
securities. See "Additional Investment Information" in the Statement of
Additional Information. For further information concerning debt securities in
which the Fund may invest, see "Investment in Foreign Securities" below.
INVESTMENT IN FOREIGN SECURITIES
The Fund may purchase foreign equity or debt securities provided that they
are listed on a domestic or foreign securities exchange, represented by
American depository receipts listed on a domestic securities exchange or
traded in the United States over-the-counter market. Additionally, the Fund
may hold foreign currency, but the Fund does not intend to speculate in
foreign currency and will hold foreign currency solely to facilitate
purchases of foreign securities.
Investment in foreign securities involves certain risks unlike those
associated with investment in domestic securities. Those risks are primarily
attributable to differences in custom, regulation and the political and
economic climate prevailing in foreign countries as well as to factors
generally affecting international commerce such as exchange controls and
8
<PAGE>
exchange-rate fluctuations. Foreign currency held by the Fund may be subject to
similar risks. For a further discussion of the risks attending investment in
foreign securities, see "Foreign Securities" in the Statement of Additional
Information. The Fund intends ordinarily to invest no more than 10% of its total
assets in foreign securities.
RESTRICTED SECURITIES
The Fund may invest up to 10% of its net assets in securities that are
subject to legal or contractual restrictions on resale ("Restricted
Securities") such as securities that cannot be sold unless registered under
the Securities Act of 1933 (the "Securities Act"). Generally the Fund cannot
sell Restricted Securities without the expense and time required to register
the securities under the Securities Act. The Fund ordinarily will acquire the
right to have Restricted Securities registered within a specified time
period, with the payment of expenses of such registration to be subject to
negotiation at the time such Restricted Securities are purchased. Certain
Restricted Securities may be sold to institutional investors without
registration pursuant to rules under the Securities Act. The institutional
trading market is relatively new and liquidity of the Fund's investments in
these Restricted Securities could be impaired if trading does not develop or
declines. Restricted Securities for which no adequate trading market exists
may be deemed illiquid securities. See "Illiquid Securities" in the Statement
of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate is, generally, the percentage computed by
dividing the lesser of portfolio purchases or sales (excluding all
securities, including options, whose maturities or expiration date at
acquisition were one year or less) by the monthly average value of the
portfolio. The Fund's annual portfolio turnover rates were 141%, 125% and
81%, respectively, in the fiscal years ended October 31, 1993, 1994 and 1995.
Application of the Fund's investment policies during a period of high
volatility in the prices of individual securities, as was the case in the
1993 and 1994 fiscal years, caused the Fund's portfolio turnover rate to be
higher than in prior years. High portfolio turnover may involve
correspondingly greater brokerage commissions and other transaction costs,
which will be borne directly by the Fund. See "Dividends, Distributions and
Taxes" below, and "Portfolio Transactions and Brokerage" below and in the
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which constitute
fundamental policies. Its fundamental policies cannot be changed without the
approval of the holder of a majority of the Fund's outstanding voting
securities as defined in the Investment Company Act. See "Investment
Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of
the Fund's Board of Directors.
ADVISER
Arnhold and S. Bleichroeder Advisers, Inc. is a wholly owned subsidiary of
Arnhold and S. Bleichroeder, Inc., which is a successor corporation to two
German banking houses -- Gebr. Arnhold, founded in Dresden in 1864, and
9
<PAGE>
S. Bleichroeder, founded in Berlin in 1803. Arnhold and S. Bleichroeder, Inc.
moved its operations to New York City in 1937 and since then has used its
experience and worldwide contacts to provide asset management, global securities
research and trading, and investment banking services to institutional clients
both in the United States and abroad.
The Adviser manages the Fund and is registered as an investment adviser
under the Investment Advisers Act of 1940. Incorporated in 1987 under the
laws of the State of Delaware, its corporate offices are located at 45
Broadway, New York, New York 10006.
The Investment Advisory Agreement between Arnhold and S. Bleichroeder,
Inc. and the Fund has been assigned, pursuant to an assignment agreement, to
Arnhold and S. Bleichroeder Advisers, Inc. effective February 28, 1996. The
assignment was approved by the Board of Directors of Arnhold and S.
Bleichroeder, Inc. on February 13, 1996 and by unanimous vote of the Board of
Directors of the Fund. The Investment Advisory Agreement provides that,
subject to the direction of the Fund's Board of Directors, the Adviser is
responsible for the management of the Fund's portfolio. Accordingly, the
Adviser will furnish advice and recommendations with respect to the Fund's
portfolio of investments.
The Adviser is responsible for the continuous supervision of the Fund's
portfolio. Harold J. Levy, a Portfolio Manager of the Adviser, has been a
portfolio manager of the Fund since its inception and David L. Cohen, also a
Portfolio Manager of the Adviser, has been a portfolio manager of the Fund
since 1989. Together, they are responsible for the day-to-day management of
the Fund's portfolio.
The Adviser is not dependent on any other party in providing the
investment advisory services required in the management of the Fund. The
Adviser may, however, consider analyses from various sources, including
broker-dealers and futures commission merchants with which the Adviser does
business.
MANAGEMENT AND SERVICES FEES
On February 14, 1995, the Board of Directors and on October 12, 1995, the
shareholders approved an amended and restated Investment Advisory Agreement
between Arnhold and S. Bleichroeder, Inc. and the Fund effective November 1,
1995. The amended and restated Investment Advisory Agreement is substantially
the same as the prior agreement except for the terms of the advisory fee
arrangement and the language used relating to the protection by Arnhold and
S. Bleichroeder, Inc. of its trade names.
For the advisory services provided by the Adviser, the fee arrangement
requires the Fund to pay an annual management fee of 1.25% of the Fund's
average daily net assets payable quarterly. The annual advisory fee is higher
than that paid by most other registered investment companies.
Arnhold and S. Bleichroeder, Inc. receives an annual services fee of .25%
of the Fund's average daily net assets payable quarterly, pursuant to a
separate services agreement which was approved by the Board of Directors, to
cover expenses incurred by Arnhold and S. Bleichroeder, Inc. for providing
administrative and fund accounting support services and shareholder liaison
services, including assistance with subscriptions, redemptions and other
shareholder questions. Arnhold and S. Bleichroeder, Inc. determined that the
volume and demand for shareholder liaison services required staffing in
addition to the personnel responsible for investment advisory services. Prior
to November 1, 1995, Arnhold and S. Bleichroeder, Inc. was not being paid for
such services. Since the Adviser is a wholly owned subsidiary of Arnhold and
S. Bleichroeder, Inc., Arnhold and S. Bleichroeder, Inc. ultimately receives
a combined annual fee of 1.5% of the Fund's average daily net assets from the
Investment Advisory Agreement and the Services Agreement.
The combined advisory and services fees under the current agreements are
less than the advisory fees paid by the Fund for the past three fiscal years
and since the Fund's inception. Since the inception of the Fund, through
October 31, 1995, the average fee paid by the Fund to the Adviser was 1.7% of
the average daily net asset value of the Fund. The management fees paid to
10
<PAGE>
ACCOUNT APPLICATION
LOGO
Please make check or money order payable to:
FIRST First Eagle Fund of America, Inc.
EAGLE FUND Mail the check with the application to:
OF AMERICA, INC. First Eagle Funds
45 Broadway
New York, NY 10006
Read the Prospectus prior to making an investment decision
<TABLE>
<CAPTION>
(1) REGISTRATION Please Print All Items Except Signatures.
Type of Account
(Check one only)
<S> <C> <C> <C> <C>
[ ] INDIVIDUAL ___________________ ______________ _________________________ ______________________
First Name Middle Initial Last Name Social Security Number
[ ] IRA INDIVIDUAL ___________________ ______________ _________________________ ______________________
First Name Middle Initial Last Name Social Security Number
To open IRA account, this application must be accompanied by The First Eagle Funds Individual Retirement Account Application.
[ ] JOINT TENANT ___________________ ______________ _________________________ ______________________
First Name Middle Initial Last Name Social Security Number
(first individual only)
___________________ ______________ _________________________________________________
Joint Tenant's Middle Initial Last Name
First Name
[ ] GIFT/TRANSFER
TO MINOR ________________________________________ __________________________________________________
Custodian's Name (One Only) Minor's Name (One Only)
[ ] GUARDIANSHIP/ __________________________________________________________ ______________________________
CONSERVATORHIP Under Uniform Gift/Transfers To Minors Act Of (State) Minor's Social Security Number
______________________ ___________________________________________ ___________________________
Guardian/Conservator Ward/Incompetent or Minor's Name (one only) Ward/Incompetent or Minor's
Social Security Number
[ ] CORPORATION, __________________________________________________________ ______________________________
PARTNERSHIP, Exact Name Of Corporation, Partnership Or Organization Tax Identification Number
TRUST OR OTHER
ORGANIZATION _______________________________________________________________________________________________
Rustee Accounts Only: Name Of All Trustees Required By Trust Agreement To Sell/purchase Shares
_______________________ _________________________________________ _________________________
Date Of Trust Agreement Name Of Trust Tax Identification Number
[ ] OTHER ________________________________ [ ] CHECK HERE IF YOU ARE SUBJECT TO BACKUP WITHHOLDING
</TABLE>
<PAGE>
=============================================================================
(2) ADDRESS
- ---------------------- ---------------- ------------------- -------- --------
Street Address Apartment Number City State Zip Code
( ) ( )
- ------------------ ---------------------- Citizenship ----------------
Business Phone Home Phone [ ] U.S. [ ] Other Indicate Country
=============================================================================
(3) INITIAL INVESTMENT--Minimum $5,000 ($2,000 minimum for retirement plans.)
[ ] Enclosed is check payable to First Eagle Fund of America, Inc. for
$_________________________
[ ] Funds were wired on ____________________________ for $________________
(Date)
=============================================================================
(4) DIVIDENDS AND DISTRIBUTION PLANS--(Check one box only)
[ ] FULL REINVESTMENT--Reinvest all dividends and distributions at net asset
value.
[ ] CAPITAL GAINS REINVESTMENT--Reinvest distribution of realized securities
profits only, at net asset value; income dividends are to be paid in
cash.
[ ] Cash--Payment of all income dividends and distributions of realized
securities profits, if any, in cash.
=============================================================================
(5) SIGNATURE
I (We) am (are) of legal age in the state of my residence and wish to
purchase shares of the Fund as described in the current Prospectus (a copy of
which I (we) have received). By the execution of the Subscription Order Form,
the undersigned represents and warrants that the investor has full right,
power and authority to make this investment and the undersigned is (are) duly
authorized to sign this Subscription and to purchase or redeem shares of the
Fund on behalf of the Investor. I (We) hereby appoint BISYS Fund Services,
Inc. as agent to receive dividends and distributions for automatic
reinvestment in additional shares of the Fund if I made such election above.
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION (Check appropriate box, if
applicable).
Under penalties of perjury. I Certify:
[ ] That the number shown on this form is my correct taxpayer identification
number and that I am not subject to backup withholding because (a) I have
not been notified that I am subject to backup withholding as a result of
a failure to report all interest of dividends, or (b) the Internal
Revenue Service has notified me that I am no longer subject to backup
withholding.
[ ] That I have not provided a taxpayer identification number because I have
not been issued a number, but I have applied for one or will do so in the
near future. I understand that if I do not provide my number to the Fund
within 60 days, the Fund will be required to withhold 31% of all
dividends payments.
(A) -------------------------------------------------------------------------
Individual whose Taxpayer I.D. No. appears above
- -----------------------------------------------------------------------------
Date Joint Registrant, if any
(B) -------------------------------------------------------------------------
Corporate Officer/Partner/Trustee/etc.
- -----------------------------------------------------------------------------
Date Title
<PAGE>
Arnhold and S. Bleichroeder, Inc. for the fiscal years ended October 31, 1993,
1994 and 1995 were $2,303,890, $1,829,008 and $1,868,672, respectively. The
maximum fee of 2.5% under the prior fee structure was earned in the fiscal year
ended October 31, 1993 and the basic fee of 1.6% was earned in the fiscal years
ended October 31, 1994 and 1995. The current management fee is higher than the
prior minimum management fee of .7%, but less than the prior basic management
fee of 1.6% and the prior maximum fee of 2.5%.
DISTRIBUTOR
Arnhold and S. Bleichroeder, Inc., a registered broker-dealer, investment
adviser and a member of the New York Stock Exchange and the National
Association of Securities Dealers, Inc., serves as the distributor of the
Fund's common stock pursuant to a Distribution Agreement with the Fund.
Arnhold and S. Bleichroeder, Inc. is engaged in the investment advisory and
securities underwriting and brokerage businesses. The address of the
principal executive offices of Arnhold and S. Bleichroeder, Inc. is 45
Broadway, New York, New York 10006. The expenses related to distributing the
Fund's shares are assumed by Arnhold and S. Bleichroeder, Inc. Arnhold and S.
Bleichroeder, Inc. may make payments to dealers and other persons which
distribute shares of the Fund. Such payments may be calculated by reference
to the net asset value of shares sold by such persons or otherwise.
Additionally, Arnhold and S. Bleichroeder, Inc. provides the office space,
facilities, equipment and personnel necessary to perform the administrative
duties provided for under the Services Agreement and the Distribution
Agreement.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for the selection of brokers, dealers and
futures commission merchants to effect the Fund's portfolio transactions and
the negotiation of brokerage commissions, if any. The foregoing entities may
receive compensation in connection with the Fund's portfolio transactions in
securities options and futures. Orders may be directed to any broker, dealer
or futures commission merchant, including, to the extent and in the manner
permitted by applicable law, Arnhold and S. Bleichroeder, Inc.
The Adviser, in placing orders for securities, options and futures for the
Fund's portfolio, is required to give primary consideration to obtaining the
most favorable price and efficient execution. The Adviser, to the extent
consistent with the foregoing, will consider the research and investment
services provided by brokers, dealers or futures commission merchants who
effect or are parties to portfolio transactions of the Fund. Commission rates
are established pursuant to negotiations with the executing party based on
the quantity and quality of execution services provided in light of generally
prevailing rates. The Adviser is permitted to effect portfolio transactions
for the Fund only if the commissions, fees or other remuneration received by
Arnhold and S. Bleichroeder, Inc. are reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers or dealers in
connection with comparable transactions involving similar securities or
options being purchased or sold on an exchange during a comparable time
period. The Fund's Board of Directors, including a majority of the directors
who are not "interested" directors, has adopted procedures which are
reasonably designed to assure that any commissions, fees or other
remuneration received by Arnhold and S. Bleichroeder, Inc. for effecting
portfolio transactions on the Fund's behalf are consistent with the foregoing
standard.
Portfolio securities may not be purchased from any underwriting or selling
group of which Arnhold and S. Bleichroeder, Inc. during the existence of the
group, is a member, except in accordance with rules of the Securities and
Exchange Commission ("Commission"). The Fund's Board of Directors, including
a majority of the directors who are not "interested" persons of the Fund, has
adopted procedures which are reasonably designed to assure compliance with
11
<PAGE>
those rules. The limitations imposed by the foregoing procedures, in the opinion
of the Fund, will not significantly affect the Fund's ability to pursue its
present investment objective. However, in the future in other circumstances, the
Fund may be at a disadvantage because of those limitations in comparison to
other funds with similar objectives but not subject to such limitations.
NET ASSET VALUE
The net asset value per share is the net worth of the Fund (assets,
including securities at market value, minus liabilities) divided by the
number of shares outstanding. The Fund shall compute the net asset value of
its shares as of 15 minutes after the close of trading on the floor of the
New York Stock Exchange, which is currently 4:00 p.m., New York time, on each
day the New York Stock Exchange is open for business. The net asset value
will not be computed on days on which no orders to purchase, sell or redeem
Fund shares have been received or on days on which changes in the value of
the Fund's portfolio securities do not affect net asset value. The net asset
value per share will not be determined on such federal and non-federal
holidays as are observed by the New York Stock Exchange which currently
include: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Any security for which the primary market is on an exchange is valued at
the last sale price on such exchange on the day of valuation or, if there was
no sale on such day, the mean between the last bid and asked prices quoted on
such day. NASDAQ National Market System equity securities are valued at the
last sale price or, if there was no sale on such day, at the mean between the
most recently quoted bid and asked prices. Corporate bonds (other than
convertible debt securities) and U.S. Government securities that are actively
traded in the over-the-counter market, including listed securities for which
the primary market is believed to be over-the-counter, are valued on the
basis of valuations provided by a pricing service which uses information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Pricing based on market transactions in
comparable securities and various relationships between securities is known
as "matrix" pricing. Other securities are valued at the mean between the most
recently quoted bid and asked prices. Short-term debt instruments which
mature in less than 60 days are valued at amortized cost, unless the Board of
Directors determines that such valuation does not represent fair value.
Securities which are otherwise not readily marketable or securities for which
market quotations are not readily available are valued in good faith at fair
value in accordance with procedures adopted by the Fund's Board of Directors.
The Board of Directors may, from time to time, use a pricing service to value
the Fund's holdings of illiquid securities, if any. See "Illiquid Securities"
in the Statement of Additional Information.
HOW TO PURCHASE SHARES
Shares of the Fund may be purchased through Arnhold and S. Bleichroeder,
Inc. at the net asset value next determined after receipt of an order with
complete information and meeting all the requirements discussed in this
Prospectus. The current minimum initial investment, other than for employees
of Arnhold and S. Bleichroeder, Inc. and retirement plans, is $5,000. The
current minimum initial investment for employees of Arnhold and S.
Bleichroeder, Inc. is $1,000. For retirement plans, the minimum initial
investment is $2,000. The current minimum initial investment amount should be
considered temporary, and the Board of Directors may change the amount at any
time. The minimum subsequent investment is $1,000. No commission or sales
charge is imposed upon the purchase of shares. Transactions in Fund shares
made through dealers other than Arnhold and S. Bleichroeder, Inc. may be
subject to service charges imposed by the dealer; Arnhold and S.
Bleichroeder, Inc. does not now impose such charges.
Investors should provide the information required by an IRS Form W-9 to
avoid backup withholding taxes. See "Dividends, Distributions and Taxes."
Form W-9 information is included as part of each application. Shares
12
<PAGE>
of the Fund may be purchased by submitting a completed Account Application
and a check or money order payable to First Eagle Fund of America, Inc. to:
First Eagle Funds. 45 Broadway, New York, New York 10006 and/or to BISYS Fund
Services, Inc. 100 First Avenue, Suite 300, Pittsburgh, Pennsylvania 15222.
To purchase shares with a Federal funds wire for a new account: telefax a
completed signed application to the Fund at (212) 248-8861 or to BISYS Fund
Services, Inc. at (412) 471-3160 and contact First Eagle Fund of America,
Inc. at (800) 451-3623 to notify the appropriate personnel of the account
name, address and social security number, the amount of funds to be wired and
the approximate time of the wire; wire funds to The Bank of New York, New
York, New York, ABA: 021000018, FBO First Eagle Fund of America, Inc. Account
#8562900110; immediately send the original signed account application to
First Eagle Funds, 45 Broadway, New York, New York 10006. To purchase shares
with a Federal funds wire for an existing account: identify the First Eagle
Fund account number on the wire and direct funds as indicated above.
STOCKHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Fund, a Stockholder Investment
Account (the "Account") is established for each investor under which the
shares are held for the investor by the Transfer Agent. Whenever a
transaction takes place in the Account, the stockholder will be mailed a
statement showing the transaction and the status of the Account. No
certificates will be issued to a stockholder unless specifically requested in
writing from BISYS Fund Services, Inc. (the "Transfer Agent").
The following services and privileges are available to Fund stockholders:
Automatic Reinvestment of Dividends and/or Distributions. Further information
regarding the above services and privileges is set forth under "Stockholder
Investment Account" in the Statement of Additional Information.
HOW TO REDEEM SHARES
REDEMPTION
Shares of the Fund can be redeemed at any time for cash at net asset
value. If shares are held in non-certificate form, a written request for
redemption signed by the stockholder(s) exactly as the account is registered
is required. If certificates are held by the stockholder(s), the
certificates, signed in the name(s) shown on the face of the certificates,
must be returned to be redeemed. The certificates may be signed either on
their reverse side or on a separate stock power. If redemption is requested
by a corporation, partnership, trust or fiduciary, written evidence of
authority acceptable to the Fund's Transfer Agent must be submitted before
such request will be accepted. All correspondence and documents concerning
redemptions should be sent to the Fund and/or to BISYS Fund Services, Inc.
Whether certificates are held or shares are held on deposit, the
signature(s) on the redemption request and on the certificates, if any, or
stock power must be guaranteed by a commercial bank, trust company, credit
union, savings association or qualified broker or dealer.
The redemption price is the net asset value per share next determined
after the request for redemption is received in good order by the Transfer
Agent. See "Net Asset Value." The Fund may change the signature guarantee
requirements from time to time upon notice to stockholders, which may be
given by means of a new prospectus.
PAYMENT
Payment for shares presented for redemption will ordinarily be made by
check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in proper order. Such payment may be
13
<PAGE>
postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange (the "Exchange") is closed for other than customary weekends
and holidays, (b) when trading on the Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) during
any other period when the Commission, by order, so permits; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (b), (c) or (d) exist. Payment of redemption
proceeds for shares which were recently purchased may be delayed in order to
permit a determination to be made that the purchase check will be honored.
Such determination may be made upon the passage of a reasonable period of
time, normally not more than 15 days from the time of receipt of the check by
the Transfer Agent, or by telephone or written assurance to the Fund from the
bank upon which the purchase check was drawn, which must be arranged for by
the stockholder requesting redemption.
INVOLUNTARY REDEMPTION
In order to reduce expenses, the Fund may redeem all the shares of any
stockholder, including a stockholder which is an IRA, Keogh or other
tax-sheltered retirement plan, or who is an employee of Arnhold and S.
Bleichroeder, Inc., whose account has a net asset value of $1,000 or less.
The Fund will give stockholders whose shares are being so redeemed 60 days'
prior written notice in which to purchase sufficient additional shares to
avoid redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund expects to declare annual dividends of net investment income and
to declare annual distributions of capital gains, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), in all events in a manner consistent with the provisions of
the Investment Company Act of 1940. Dividends and distributions will be paid
in additional Fund shares based on the net asset value at the close of
business on the record date, or such other date as the Board of Directors may
determine, unless the stockholder elects in writing not less than five
business days prior to the record date to receive such distributions in cash.
The Fund will notify each stockholder annually as to both the dollar amount
and the taxable status of that year's dividends and distributions.
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. If so
qualified, the Fund will not be subject to federal income tax to the extent
its earnings are distributed in accordance with applicable provisions of the
Internal Revenue Code. In order to satisfy the requirements for
qualification, the Fund may have to restrict the extent to which it engages
in short-term trading, short sales and transactions in options and futures
contracts. See "Taxes" in the Statement of Additional Information.
All dividends from net investment income, together with distributions of
short-term capital gains, will be taxable as ordinary income to the
stockholder whether or not reinvested. Net capital gains of the Fund (i.e.,
the excess of net long-term capital gains over net short-term capital losses)
will be taxable to stockholders as long-term capital gains when they are
distributed as capital gains distributions to stockholders and designated as
such in a written notice to stockholders mailed within 60 days after the
close of the taxable year of the Fund, whether or not reinvested, and
regardless of the length of time a stockholder has owned his or her shares.
Currently, capital gains distributions to an individual shareholder are taxed
at a maximum rate of 28% and ordinary income is subject to a maximum rate of
39.6%.
Distributions of investment income will qualify for the 70% dividends
received deduction for corporate stockholders, to the extent that the Fund's
income is derived from qualified dividends received from domestic
14
<PAGE>
corporations. The dividends received deduction for corporate stockholders of
the Fund may be reduced if the shares of the Fund with respect to which
dividends are received are treated as debt-financed or deemed to have been
held for less than 46 days. Tax-exempt stockholders generally will not be
required to pay taxes on amounts distributed to them.
Any gain or loss realized upon a sale or redemption of Fund shares by a
stockholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year (six
months for shares acquired before 1988) and otherwise as short-term capital
gain or loss. Any such loss, however, will be treated as long-term capital
loss to the extent of any capital gain distributions received by the
stockholder with respect to such shares. Moreover, any loss realized on a
sale or exchange will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before and ending 30
days after the disposition, such as pursuant to a dividend reinvestment in
shares. In such a case the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
The Fund will be subject to a non-deductible 4% excise tax in any calendar
year in which it does not distribute to its stockholders the sum of 98% of
its ordinary income for such calendar year and 98% of its capital gain net
income determined on the basis of a year ending on October 31. Dividends and
distributions generally are taxable to stockholders in the year in which they
are received or accrued. Dividends declared to stockholders of record on a
date in October, November or December are deemed to have been received on
December 31 of such year of declaration even though they are not paid until
January of the following calendar year.
Under U.S. Treasury Regulations, the Fund is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and
redemption proceeds on the accounts of certain stockholders who fail to
furnish their tax identification numbers on IRS Form W-9 (or who fail to
furnish IRS Form W-8 in the case of certain foreign stockholders) with the
required certifications regarding the stockholder's status under the Internal
Revenue Code.
A stockholder who is a nonresident alien or foreign entity generally will
not be subject to federal income tax on capital distributions or on any
capital gain realized on a redemption of shares, provided that (i) such gains
are not effectively connected with the conduct by the stockholder of a trade
or business in the United States, (ii) in the case of an individual, the
stockholder is not physically present in the United States for 183 days or
more during the taxable year and (iii) the stockholder has furnished an IRS
Form W-8 with the required certifications regarding the stockholder's foreign
status under the Internal Revenue Code. Other distributions may be subject to
United States tax. In particular, other distributions which are not
effectively connected with a trade or business in the United States may be
subject to a 30% United States withholding tax under the existing provisions
of the Internal Revenue Code applicable to foreign individuals and entities
unless a reduced rate of withholding exemption is provided under an
applicable treaty. Non-U.S. stockholders are urged to consult their own tax
advisers concerning the applicability of United States tax. See "Taxes" in
the Statement of Additional Information.
The foregoing discussion is intended only as a brief discussion of the
federal income tax consequences of an investment in shares of the Fund.
Distributions may also be subject to state and local taxes. Stockholders are
urged to consult their own tax advisers regarding specific questions as to
federal, state or local taxes.
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on December 11, 1986. The Fund is
authorized to issue one billion shares of its common stock. Shares of the
Fund, when issued, are fully paid, nonassessable, fully transferable and
redeemable at the option of the holder. Shares are also redeemable at the
option of the Fund under certain circumstances as described above under
15
<PAGE>
"How to Redeem Shares." All Shares are equal as to earnings, assets and voting
privileges. There are no conversion, preemptive or other subscription rights. In
the event of liquidation each share of common stock of the Fund is entitled to
its portion of all the Fund's assets after all debt and expenses have been paid.
The shares of the Fund do not have cumulative voting rights for the election of
directors.
HOW THE FUND CALCULATES PERFORMANCE
From time to time, the Fund may advertise its performance in terms of
total return. The Fund may further compare its performance to various
published indices which are widely used as benchmarks. The Fund may also
compare its performance to rankings prepared by Lipper Analytical Services,
Inc., a widely recognized independent service which monitors and ranks the
performance of mutual funds, and to rankings prepared by other national
financial publications. The Fund's total return shows how much an investment
in the Fund would have increased (decreased) over a specified period of time
assuming the reinvestment of all distributions and dividends on the
reinvestment dates during the period and deducting all recurring fees. The
aggregate total return reflects actual performance over a stated period of
time. The Fund's average annual total return demonstrates the hypothetical
rate of return of a hypothetical investment if performance had been constant
over the stated period of time. Total return information may be useful in
reviewing the Fund's performance and for providing a basis for comparison
with other investment alternatives. Fund performance figures are based upon
historical results and are not intended to indicate future performance.
Further performance information is contained in the Fund's annual report to
stockholders, which may be obtained without charge. See "Reports to
Stockholders" below and "Performance Information" in the Statement of
Additional Information.
REPORTS TO STOCKHOLDERS
The Fund will send its stockholders annual, semi-annual and quarterly
reports, without charge. The Fund's annual reports will contain performance
information of the Fund as well as financial statements audited by
independent auditors.
The Transfer Agent will send each stockholder of record a statement
showing transactions in the Account, the total number of shares owned and any
dividends or distributions paid. These statements will normally be mailed
within five business days after a transaction occurs. The Transfer Agent will
also send each stockholder of record a quarterly statement of the
stockholder's account.
Stockholder inquiries should be addressed to First Eagle Funds, 45
Broadway, New York, New York 10006 or by telephone to (800) 451-3623 or to
BISYS Fund Services, Inc., 100 First Avenue, Suite 300, Pittsburgh,
Pennsylvania 15222 at (800) 824-3863.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
The Bank of New York, 48 Wall Street, New York, N.Y. 10286, serves as
Custodian for the Fund's assets. BISYS Fund Services, Inc., 100 First Avenue,
Suite 300, Pittsburgh, Pennsylvania 15222 will serve as Transfer and Dividend
Disbursing Agent. In those capacities, each of The Bank of New York and BISYS
Fund Services, Inc. maintain certain books and records pursuant to agreements
with the Fund.
16
<PAGE>
APPENDIX
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin, and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long term risks appear somewhat larger than
in Aaa securities.
Moody's applies numerical modifiers "1," "2" and "3" in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier "1" indicates that the security ranks in the higher end of its
generic rating category; the modifier "2" indicates a mid-range ranking; and
the modifier "3" indicates that the issue ranks in the lower end of its
generic rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and may have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS:
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in a small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation.
Cl -- The rating Cl is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in default, and payment of interest and/or
principal is in arrears.
A-2
<PAGE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those
contained in this Prospectus, in connection with the offer contained herein,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund, the Adviser or the
Distributor. This Prospectus does not constitute an offer by the Fund, by its
Investment Adviser or by its Distributor to sell or a solicitation of any
offer to buy, any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer in such jurisdiction.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Highlights .............................. 2
Summary of Fund Expenses ................ 4
Financial Highlights .................... 5
Investment Objective and Policies and
Risk Factors ........................... 6
Investment Restrictions ................. 9
Management of the Fund .................. 9
Adviser ................................. 9
Distributor ............................. 11
Portfolio Transactions and Brokerage .... 11
Net Asset Value ......................... 12
How to Purchase Shares .................. 12
Stockholder Investment Account .......... 13
How to Redeem Shares .................... 13
Dividends, Distributions and Taxes ...... 14
Description of Common Stock ............. 15
How the Fund Calculates Performance ..... 16
Reports to Stockholders ................. 16
Custodian and Transfer and Dividend
Disbursing Agent ....................... 16
Appendix ................................ A-1
</TABLE>
<PAGE>
LOGO
FIRST
EAGLE FUND
OF AMERICA, INC.
___________________
P R O S P E C T U S
___________________
February 28, 1996
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1996
First Eagle Fund of America, Inc. (the "Fund") is an open-end,
non-diversified management investment company, or mutual fund, whose investment
objective is to achieve capital appreciation. The Fund will seek to achieve that
objective by pursuing a flexible investment strategy emphasizing investment in
domestic and to a lesser extent foreign equity and debt securities in varying
proportions. Those securities will be selected by the Fund's investment adviser,
Arnhold and S. Bleichroeder Advisers, Inc. (the "Adviser"), on the basis of
their appearing to be undervalued in their respective trading markets relative
to the issuer's overall financial and managerial strength as measured by certain
quantitative indicators. The Adviser believes that the Fund's exposure to loss
may be limited by investing in securities which, in the Adviser's opinion,
appear to be undervalued by the market relative to their "intrinsic value" as
determined by the Adviser. The Fund also may invest in equity and debt
securities selected on other bases and engage in transactions involving
leverage, arbitrage, options on equity or debt securities and on stock indices,
and, solely for bona fide hedging purposes, futures and related options.
The Fund's address is 45 Broadway, New York, New York 10006, and its
telephone number is (212) 943-9200 or (800) 451-3623.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated February 28, 1996 a
copy of which may be obtained from Arnhold and S. Bleichroeder, Inc., the
Fund's Distributor, upon request by writing to 45 Broadway, New York, New
York 10006, or telephoning (212) 943- 9200 or (800) 451-3623.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-Reference
to Page in
Page Prospectus
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<S> <C> <C>
Additional Investment Information .................................. 2 2
Investment Restrictions ............................................ 14 9
Directors, Officers and Principal Stockholders ..................... 16 9
Adviser ............................................................ 18 9
Distributor ........................................................ 19 11
Portfolio Transactions and Brokerage ............................... 19 11
Stockholder Investment Account ..................................... 21 13
Taxes .............................................................. 21 14
Performance Information ............................................ 22 16
Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants ....................................................... 23 16
Organization and History of the Fund ............................... 23
Report of Independent Accountants .................................. F-8
</TABLE>
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
The Fund's investment objective is to achieve capital appreciation by
pursuing a flexible investment strategy emphasizing investment in domestic
and to a lesser extent foreign equity and debt securities believed by the
Adviser to be undervalued in their respective trading markets. The Adviser
believes the Fund's exposure to loss may be limited by investing part of or
all its assets in securities believed by the Adviser to be undervalued by the
market. The Fund is a non-diversified investment company and as such the
Fund's assets may be invested in a limited number of issues; thus, there may
be a greater risk in an investment in the Fund when compared with an
investment in a diversified investment company. See "Highlights -- Special
Characteristics and Risk Factors" and "Investment Objective and Policies" in
the Prospectus.
HIGH YIELD SECURITIES
The economy and interest rates affect high yield securities differently
from other securities. The prices of high yield bonds, sometimes called "junk
bonds," have been found to be less sensitive to interest rate changes than
higher- rated investments, but more sensitive to adverse economic changes or
individual corporate developments. During an economic downturn or substantial
period of rising interest rates, highly leveraged issuers will likely
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a bond
owned by the Fund defaults, the Fund may incur additional expenses in seeking
recovery. Additionally, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of high yield
bonds and the Fund's net asset value. Furthermore, to the extent the Fund
purchases high yield bonds structured as zero coupon or pay-in-kind
securities, their market prices are affected to a greater extent by interest
rate changes and thereby are more volatile than securities which pay interest
periodically and in cash.
High yield bonds present risks based on payment expectations. For example,
high yield bonds may contain redemption or call provisions. If an issuer
exercises those provisions in a declining interest rate market and the Fund
replaces the security with a lower yielding security, the Fund's income will
be reduced. Also, if interest rates increase, declines in the value of high
yield bonds held by the Fund will decrease its net asset value. If the Fund
experiences unexpected net redemptions, it may be forced to sell its high
yield bonds when independent investment judgment may indicate otherwise. In
that case, the asset base upon which the Fund's expenses can be spread will
be decreased, the Fund's expense ratio will be increased and its rate of
return decreased.
It is likely that there will be thin trading markets for high yield bonds.
It may, therefore, be difficult to value accurately the high yield bonds, if
any, in the Fund's portfolio and judgment will play a greater role in
valuation because there may be less reliable objective data available. The
Fund also may have difficulty selling the high yield bonds. Adverse publicity
and investor perceptions may decrease the values and liquidity of high yield
bonds, especially in a thinly traded market. If the Fund acquires illiquid or
restricted high yield bonds, those securities may involve special
registration requirements, liabilities, costs, and liquidity and valuation
difficulties.
Federal laws require the divestiture by federally insured savings and loan
associations of their investments in high yield bonds and limit the
deductibility of interest by certain corporate issuers of high yield bonds.
These laws could adversely affect the Fund's net asset value and investment
practices, the secondary market for high yield securities, the financial
condition of issuers of these securities and the value of outstanding high
yield securities.
If the Fund invests in zero coupon or pay-in-kind securities, it will be
subject to special tax considerations related to those securities. The Fund
will have to report the interest on those securities as income even though it
receives no cash interest until the security's maturity or payment date.
Shareholders will be taxed on that interest even if the Fund does not
distribute cash to them. In order to pay taxes on that interest, shareholders
may have to redeem some of their shares to pay tax or the Fund may have to
sell some of its assets to distribute cash to shareholders or borrow to
satisfy distribution requirements. Those actions would be likely to reduce
the Fund's assets and thereby increase its expense ratio and decrease its
rate of return.
Certain risks are associated with using credit ratings as a method for
evaluating high yield bonds. As credit agencies may fail to timely change the
credit ratings to reflect subsequent events, the Adviser continuously
monitors the issuers of high yield bonds in its portfolio to determine if the
issuers, in the Adviser's opinion, will have sufficient
2
<PAGE>
cash flow and profits to meet required principal and interest payments, and
to attempt to assure the bonds' liquidity so the Fund can meet redemption
requests. Achievement of the Fund's investment objective may be more
dependent on the Adviser's own credit analysis than in the case of higher
quality bonds. The Fund may retain a portfolio security whose rating has been
changed.
FOREIGN SECURITIES
The Fund may invest in foreign securities issued by companies of any
nation regardless of its level of development. The risks involved in
investing in foreign securities include political or economic instability in
the country of issue, the difficulty of predicting international trade
patterns, the possibility of imposition of exchange controls and the risk of
currency fluctuations. Foreign securities may be subject to greater
fluctuations in price than securities issued by United States corporations or
issued or guaranteed by the U.S. Government, its instrumentalities or
agencies. Additionally, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies.
There is generally less government regulation of securities exchanges,
brokers and listed companies abroad than in the United States, and, with
respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investment in those countries. Finally, in the event of a default of
any foreign debt obligation, it may be more difficult for the Fund to obtain
or to enforce a judgment against the issuers of those securities. Foreign
currency denominated securities may be affected favorably or unfavorably by
changes in currency rates and in exchange control regulations, and costs may
be incurred in connection with conversions between currencies. Foreign
currency held by the Fund for foreign denominated securities purchases also
may be subject to similar risks. The Fund's foreign securities and currencies
will be held by its Custodian, an "eligible foreign custodian" or a
"qualified U.S. bank," as those terms are defined in the Investment Company
Act. The Custodian will hold the Fund's foreign securities pursuant to such
arrangements as are permitted by applicable foreign and domestic law.
OPTIONS TRANSACTIONS
INTRODUCTION
The Adviser believes that certain transactions in options on securities
and on stock indices may be useful in limiting the Fund's investment risk and
augmenting its investment return. The Adviser expects, however, the amount of
Fund assets to be involved in options transactions to be small relative to
the Fund's investment in equity and/or debt securities. Accordingly, it is
expected that only a relatively small portion of the Fund's investment return
will be attributable to transactions in options on securities and on stock
indices. The Fund may invest in options transactions involving options on
securities and on stock indices that are traded on a securities exchange or
in the over-the-counter market.
The following discussion sets forth the principal characteristics of, and
risks associated with, certain transactions involving options on securities
and on stock indices. Investors in the Fund should carefully read the
following discussion because the information set forth therein is important
to an understanding of certain of the techniques which the Fund may use in
seeking to limit its investment risk and enhance its investment return.
GENERAL CHARACTERISTICS OF AND LIMITATIONS APPLICABLE TO OPTIONS
A call option is a contract pursuant to which the purchaser, in return for
a premium paid, has the right to buy the equity or debt security underlying
the option at a specified exercise price at any time during the term of the
option. With respect to a call option on a stock index, the purchaser is
entitled to receive cash if the underlying stock index rises sufficiently
above its level at the time the option was purchased. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying equity or debt security against payment of
the exercise price. With respect to a call option on a stock index, the
writer has the obligation to deliver cash if the underlying index rises
sufficiently above its level when the option was purchased.
A put option is a similar contract. It gives the purchaser, in return for
a premium, the right to sell the underlying equity or debt security at a
specified exercise price during the term of the option. With respect to a put
option on a stock index, the purchaser is entitled to receive cash if the
underlying index falls sufficiently below its level at the time the option was
3
<PAGE>
purchased. The writer of the put, who receives the premium, has the obligation
to buy the underlying equity or debt security upon exercise at the exercise
price. With respect to a put option on a stock index, the writer has the
obligation to deliver cash if the underlying index falls sufficiently below its
level when the option was purchased. The price of an option will reflect, among
other things, the relationship of the exercise price to the market price of the
underlying financial instrument, the price volatility of the underlying
financial instrument, the remaining term of the option, supply and demand of
such options and interest rates.
Securities exchanges have established limitations on the maximum number of
options that an investor or group of investors acting in concert may write.
It is possible that the Fund and other clients of the Adviser may be
considered such a group. Position limits may restrict the Fund's ability to
purchase or sell options on particular securities and on stock indices.
Additionally, the extent to which the Fund may engage in call option
transactions may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Taxes" below.
COVERED OPTION WRITING
The Fund may write "covered" call and put options on equity or debt
securities and on stock indices in seeking to enhance investment return or to
hedge against declines in the prices of portfolio securities or increases in
the prices of securities which the Fund intends to purchase. A call option on
an equity or debt security written by the Fund is "covered" if the Fund owns
the security underlying the option or has an absolute and immediate right to
acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its Custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option on an equity or debt security written by the Fund is also covered if
the Fund holds, on a share-for-share basis, a call on the same security as
the call written where the exercise price of the call held is equal to or
less than the exercise price of the call written, or greater than the
exercise price of the call written if the difference is maintained by the
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with the Fund's Custodian. A call option which the Fund
writes on a stock index is covered if the Fund owns a portfolio of securities
which correlates with the stock index or segregates in an account with its
Custodian cash, or cash equivalents, equal to the total market value of the
call option. A call option written by the Fund on a futures contract is
covered if the Fund owns a long position in the underlying futures contract
or segregates in an account with its Custodian cash, or cash equivalents,
equal to the then current market value of the underlying futures contract.
A put option written by the Fund on an equity or debt security is
"covered" if the Fund maintains cash, Treasury bills or other high grade
short-term obligations with a value equal to the exercise price in a
segregated account with its Custodian, or holds on a share-for-share basis a
put on the same equity or debt security as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the
put written or lower than the exercise price of the put written if the
difference is maintained in a segregated account with the Fund's Custodian. A
put option written by the Fund on a stock index is covered if the Fund
maintains in a segregated account with its Custodian cash, or cash
equivalents, equal to the total market value of the put option. A put option
written on a futures contract is covered if the Fund owns a short position in
the underlying contract or segregates, in an account with its Custodian, cash
or cash equivalents equal to the then current market value of the underlying
futures contract.
One reason for writing options on a securities portfolio of equity and
debt securities or on stock indices is to attempt to realize, through the
receipt of premiums, a greater return than would be realized on the
securities alone. In the case of a securities call, the writer receives the
premium, but has given up the opportunity for profit from a price increase in
the underlying security above the exercise price during the option period. In
the case of a stock index call, the writer receives the premium, but is
obligated to deliver cash if the underlying index rises sufficiently during
the option period. Conversely, the put option writer has, in the form of the
premium, gained a profit as long as the price of the underlying security or
stock index remains above the exercise price, but has assumed an obligation
to purchase the underlying security at the exercise price from or deliver
cash to the buyer of the put option during the option period.
Another reason for writing options on a securities portfolio or on stock
indices is to hedge against a moderate decline in the value of securities
owned by the Fund in the case of a call option, or a moderate increase in the
value of securities the Fund intends to purchase, in the case of a put
option. If the security or stock index underlying a covered call option
written by the Fund declines, or fails to appreciate sufficiently to result
in the call being exercised, the Fund will realize income equal to the amount
4
<PAGE>
of the premium it received for the option. That income may wholly or partially
offset any decline in the value of the Fund's portfolio securities. If the value
of the security or stock index underlying a covered put option written by the
Fund increases and the covered put expires unexercised, the Fund may realize
income equal to the amount of the premium it received for the option. That
income may offset increases in the prices of securities which the Fund purchases
subsequent to its writing of the put option.
Options written by the Fund will normally have expiration dates not more
than nine months from the date written. The exercise price of call options
may be below ("in-the-money"), equal to ("at-the-money") or above ("out-of-
the-money") the current market values of the underlying securities at the
times options are written by the Fund.
If an increase occurs in the underlying security or stock index sufficient
to result in the exercise of a call written by the Fund, the Fund may be
required to deliver securities or cash and may thereby forego some of or all
the gain that otherwise may have been realized on the securities underlying
the call option. This "opportunity cost" may be partially or wholly offset by
the premium received for the covered call written by the Fund. The Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering that security
from its existing portfolio, in which case additional brokerage commissions
or other transaction costs will be incurred. Under those circumstances, the
market price of the security to be delivered in accordance with the exercise
notice may have increased above the exercise price of the call option. If a
decrease occurs in the security or stock index underlying a put option
written by the Fund and it is exercised, the Fund may incur a loss. The Fund
also may incur brokerage commissions in connection with its purchase of the
security underlying the put option.
So long as the obligation of an option writer continues, the writer may be
assigned an exercise notice requiring in the case of a call, delivery of, or,
in the case of a put, purchase of the underlying security against payment of
the exercise price. This obligation terminates upon expiration of the option,
or such earlier time as the writer effects a closing purchase transaction by
purchasing an option of the same series as was previously sold. However, a
writer may not effect a closing purchase transaction after notification of
the exercise of an option. Further, there is no assurance that the writer
will be able to effect a closing purchase transaction for particular options.
See "Closing Purchase and Sale Transactions." To secure its obligation to
deliver the underlying security in the case of a call option traded on an
exchange, or to pay for the underlying security in the case of a put option
traded on an exchange, a writer of a covered option is required to deposit in
escrow the underlying security or other assets in accordance with rules of
the Options Clearing Corporation (the "Clearing Corporation"), of the
national securities exchanges (the "Exchanges"), and of the National
Association of Securities Dealers.
PURCHASING PUT AND CALL OPTIONS ON EQUITY OR DEBT SECURITIES AND ON STOCK
INDICES
The Fund may purchase put options on equity or debt securities and on
stock indices. One purpose of the Fund's purchase of such options is to hedge
against declines in the value of its portfolio securities. When the Fund
purchases an equity or debt security because the Adviser believes the market
price of that security may rise, the Adviser may nonetheless wish to protect
the Fund's holdings of the security against a decline in market value by
purchasing a put option on that security or on a stock index. Such protection
is provided during the life of the put by entitling the Fund to sell the
underlying security at the exercise price of the put or to receive cash if
the underlying index falls below the exercise price. When the Adviser
anticipates a general market or market sector decline, or a decline in the
market prices of specific equity or debt securities, the Adviser may seek to
increase the Fund's investment return by purchasing a put on a stock index or
on those equity or debt securities. An increase in investment return may be
achieved by exercising the put when the market price of the underlying
security or, in the case of a put on a stock index, the underlying index has
sufficiently declined. However, if the value of a security underlying a put
option or the general market or a market sector does not decline sufficiently
when the Fund has purchased a put option on a specific security or stock
index, that option may result in a loss to the Fund. See "Risks of Options on
Indices" below.
The Fund also may purchase call options on equity or debt securities and
on stock indices. One purpose of the Fund's purchase of such options is to
hedge against an increase in the price of securities that the Fund intends
ultimately to buy. Hedge protection is provided during the life of the call
because the Fund, as the holder of the call, is able to buy the underlying
security at the exercise price, and, in the case of a call on a stock index,
is entitled to receive cash if the underlying index rises sufficiently.
However, if the value of a security underlying a call option or the general
market or a market sector does not rise sufficiently when the Fund has
purchased a call option on a specific security or stock index, that option
may result in a loss to the Fund. See "Risks of Options on Indices" below.
5
<PAGE>
CLOSING PURCHASE AND SALE TRANSACTIONS ON AN EXCHANGE
If the writer of an option contract wishes to terminate the obligation
under that contract, a "closing purchase transaction" may be effected. This
is accomplished by buying an option of the same series as the option
previously written. The effect of the purchase is that the writer's position
in an option will be cancelled by the options exchange on which the option is
traded. However, an option writer may not effect a closing purchase
transaction after receiving notification of the exercise of an option.
Likewise, an investor who is the holder of an option contract may liquidate
his or her position by effecting a "closing sales transaction." This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction can be effected.
An option position may be closed out only on an Exchange which provides a
secondary market for an option of the same series. Although the Fund
generally will purchase or write only those options for which there appears
to be an active secondary market, there is no assurance that a liquid
secondary market on an Exchange will exist for any particular option, or at
any particular time, and for some options no secondary market may exist. In
any such event it might not be possible to effect closing transactions in
particular options, with the result that the Fund would have to exercise its
options in order to realize any profit and would incur brokerage commissions
both upon the exercise of the options and upon the subsequent disposition or
acquisition of securities underlying the exercised call or put options,
respectively. If the Fund as a covered call option writer is unable to effect
a closing purchase transaction in a secondary market, it will not be able to
sell the underlying security until the option expires or it delivers the
underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an Exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an Exchange on opening
transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; (v)
the facilities of an Exchange or a clearing corporation may not be adequate
at all times to handle current trading volume; or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series
of options) in which event the secondary market on that Exchange (or in the
class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by a clearing corporation as a
result of trades on that Exchange would continue to be exercisable in
accordance with their terms. There is no assurance that higher than
anticipated trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an Exchange of special
procedures which may interfere with the timely execution of customer's
orders. However, The Options Clearing Corporation, based on forecasts
provided by the Exchanges, believes that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and the
Exchanges have advised that clearing corporation that they believe their
facilities will also be adequate to handle reasonably anticipated volume.
The Fund will realize a gain or loss on a closing transaction
corresponding to the difference between the price of that transaction and the
price of the original transaction. Because increases in the market price of a
call option will generally reflect increases in the market price of the
underlying financial instrument, any loss resulting from a closing purchase
or sale transaction is likely to be offset in whole or in part by
appreciation of the underlying financial instrument if it is owned by the
Fund.
OPTIONS ON STOCK INDICES
LIMITATIONS ON THE WRITING OF CALL OPTIONS ON STOCK INDICES
Except as described below, the Fund will write call options on indices
only if on such date it holds a portfolio of stocks at least equal to the
value of the index times the multiplier times the number of contracts. When
the Fund writes a call option on a broadly based stock market index, the Fund
will segregate or put into escrow with its Custodian any combination of cash,
cash equivalents or "qualified securities" with a market value at the time
the option is written of not less than 100% of the current index value times
the multiplier times the number of contracts. The Fund will write call
options on broadly based stock market indices only if at the time of writing
it holds a diversified portfolio of stocks.
6
<PAGE>
If the Fund has written an option on an industry or market segment index,
it will segregate or put into escrow with its Custodian, or pledge to a
broker as collateral for the option, at least ten "qualified securities," all
of which are stocks of issuers in such industry or market segment, with a
market value at the time the option is written of not less than 100% of the
current index value times the multiplier times the number of contracts. Such
stocks will include stocks which represent at least 50% of the weighting of
the industry or market segment index and will represent at least 50% of the
Fund's holdings in that industry or market segment. No individual security
will represent more than 25% of the amount so segregated, pledged or
escrowed. If at the close of business on any day the market value of such
qualified securities so segregated, escrowed or pledged falls below 100% of
the current index value times the multiplier times the number of contracts,
the Fund will so segregate, escrow or pledge an amount in cash, Treasury
bills or other high grade short-term obligations equal in value to the
difference. In addition, when the Fund writes a call option on an index whose
exercise price is below the level of the stock index ("in the money") at the
time the call is written, the Fund will segregate with its Custodian or
pledge to the broker as collateral cash, U.S. Government or other high grade
short-term debt obligations equal in value to the amount by which the call
option is in-the-money times the multipler times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may be applied to the
Fund's obligation to segregate additional amounts in the event that the
market value of the qualified securities falls below 100% of the current
index value times the multiplier times the number of contracts. A "qualified
security" is an equity security which is listed on a national securities
exchange or on NASDAQ against which the Fund has not written a stock call
option and which has not been hedged by the Fund by the sale of stock index
futures. However, if the Fund holds a call option on the same index as the
call option written where the exercise price of the call option held is equal
to or less than the exercise price of the call option written, or greater
than the exercise price of the call options written if the difference is
maintained by the Fund in cash, Treasury bills or other high grade short-
term obligations in a segregated account with its Custodian, it will not be
subject to the requirements described in this paragraph.
RISKS OF OPTIONS ON INDICES
In addition to the risks generally associated with options, the
distinctive characteristics of options on indices create certain risks that
are not present with stock options.
Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular stock, successful use by
the Fund of options on indices would be subject to the Adviser's ability
correctly to predict movements in the direction of the stock market generally
or of a particular industry. This requires different skills and techniques
than those used in predicting changes in the prices of individual stocks. The
Fund's ability to hedge effectively through the use of options on stock
indices also depends on the degree to which price movements in the underlying
index correlate with price movements in the hedged securities. The Fund
therefore bears the risk that prices of hedged securities will not move in
the same amount as the prices of options. It is also possible that there may
be a negative correlation between the index and the hedged securities, which
could result in a loss on both such securities and the option.
Index prices may be distorted if trading in certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, the Fund would not be able
to close out options which it had purchased or written and, if restrictions
on exercise were imposed, might be unable to exercise an option it held,
which could result in substantial losses to the Fund. However, it is the
Fund's policy to purchase or write options only on indices which include a
sufficient number of stocks so that the likelihood of a trading halt in the
index is minimized.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the "CBOE 100"). Since that time a number of additional
index option contracts have been introduced including options on industry
indices. Although the markets for certain index option contracts have
developed rapidly, the markets for other index options are still relatively
illiquid. The ability to establish and close out positions on index options
will be subject to the development and maintenance of a liquid secondary
market. It is not certain that this market will develop in all index option
contracts. The Fund will not purchase or sell any index option contract
unless and until, in the Adviser's opinion, the market for such options has
developed sufficiently so that risks in accordance with such transactions are
not greater than risks generally expected in connection with options on
stocks.
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SPECIAL RISKS OF WRITING CALLS ON INDICES
If the Fund is assigned an exercise notice on a call it has written, the
Fund would be required to liquidate portfolio securities in order to satisfy
the exercise, unless it has other liquid assets that are sufficient to
satisfy the exercise of the call. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate
an exercise, it may have to borrow from a bank pending settlement of the sale
of securities in its portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise,
and the time the Fund is able to sell securities in its portfolio. As with
stock options, the Fund will not learn that an index option has been
exercised until the day following the exercise date but, unlike a call on
stock where the Fund would be able to deliver the underlying securities in
settlement, the Fund may have to sell part of its securities portfolio in
order to make settlement in cash, and the price of such securities might
decline before they can be sold. For example, even if an index call which the
Fund has written is "covered" by an index call held by the Fund with the same
strike price, the Fund will bear the risk that the level of the index may
decline between the close of trading on the date the exercise notice is filed
with the clearing corporation and the close of trading on the date the Fund
exercises the call it holds or the time the Fund sells the call, which in
either case would occur no earlier than the day following the day the
exercise notice was filed.
FUTURES CONTRACTS
FINANCIAL AND CURRENCY FUTURES
An interest rate futures contract is an agreement to purchase or sell an
agreed amount of debt securities at a set price for delivery on a future
date. Interest rate futures contracts can be purchased and sold with respect
to government debt of nations of the U.S., Europe and Japan. Similarly, a
currency futures contract calls for the purchase or sale of a fixed amount of
a specific currency at a set price for delivery on a future date. Currency
futures contracts are traded with respect to the currencies of most of the
nations of Western Europe and Japan. Unlike interest rate and currency
futures contracts, a stock index futures contract does not contemplate the
purchase or delivery of the underlying financial instrument (interest rate
and stock index futures contracts are collectively herein referred to as
"financial futures contracts"). Instead, one party agrees to deliver to the
other an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the
last trading day of the contract. Stock index futures contracts can be
purchased or sold in the U.S., Europe and Japan.
In contrast to the purchase or sale of a security, nothing is paid or
received by the Fund upon purchase or sale of a financial or currency futures
contract. Instead, the Fund will be required initially to deposit with the
futures commission merchant an amount of cash or U.S. Treasury bills equal to
a percentage of the contract amount. Initial margin in futures transactions
differs from margin in securities transactions in that futures contract
initial margin does not involve the borrowing of funds by the customer to
finance the transactions. Rather, initial margin is in the nature of a good
faith deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have been met.
Subsequent payments, called variation margin, to and from the futures
commission merchant are made on a daily basis as the market price of the
futures contract fluctuates. This process is known as "marking to market." At
any time prior to expiration of the futures contract, the Fund may elect to
close a position by taking an offsetting position which will terminate the
Fund's position in the futures contract. Although interest rate futures and
currency futures contracts (other than those relating to Eurodollar time
deposits) generally provide for delivery and acceptance of the underlying
financial instrument, the Fund expects most financial or currency futures
contracts to be terminated by offsetting transactions.
OPTIONS ON FUTURES CONTRACTS
An option on a financial or currency futures contract gives the purchaser
the right, but not the obligation, to assume a position in a financial or
currency futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any
time during the option exercise period. The writer of the option is required
upon exercise to assume an offsetting futures position (a short position if
the option is a call and a long position if the option is a put). Options
currently can be purchased or sold with respect to interest rate futures
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contracts on U.S. Treasury Bonds, and with respect to stock index futures
contracts on the Standard & Poor's 500 Stock Index. Options also currently
can be purchased or sold with respect to currency futures contracts on the
British Pound, Deutschemark, Swiss Franc, Japanese Yen, U.S. Dollar,
Australian Dollar and the Canadian Dollar. An option on a currency or
financial futures contract can be purchased and sold on the same exchanges or
boards of trade as the underlying futures contract.
REGULATION OF FUTURES CONTRACTS AND RELATED OPTIONS
In purchasing and selling futures contracts and related options, the Fund
will comply with the rules and interpretations of the Commodity Futures
Trading Commission ("CFTC"), under which the Fund is exempted from regulation
as a "commodity pool operator." The Fund will acquire futures and related
options solely for "bona fide hedging" purposes within the meaning and intent
of the Commodity Exchange Act and regulations promulgated thereunder by the
CFTC.
The Fund will only sell futures contracts or purchase puts and write calls
thereon to offset expected declines in the value of specific portfolio
holdings, provided the aggregate contract amount of such futures and related
options does not exceed the total market value of those holdings, as adjusted
for the historic volatility of the instruments being hedged. The Fund will
only purchase futures contracts or write puts and purchase calls thereon,
provided it creates a segregated account with its Custodian consisting of
cash, U.S. Government Securities or other appropriate high-grade debt
obligations in an amount equal to the total market value of any such futures
contracts and related options, less the amount of premium and/or initial
margin for such contracts. Such segregated account will be marked-to-market
on a daily basis to reflect the current value of any such futures contracts
and related options, less the amount of premium and/or initial margin for
such contracts and related options.
HEDGING WITH FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may purchase an interest rate futures contract as a hedge against
an anticipated decline in interest rates and resulting increase in the market
price of debt securities the Fund intends to acquire. The Fund may sell an
interest rate futures contract as a hedge against an anticipated increase in
interest rates and resulting decline in the market price of debt securities
the Fund owns. The Fund may purchase a currency futures contract to hedge
against anticipated increases in the value of currency the Fund intends to
acquire for prospective securities purchases relative to the value of
currency the Fund is holding. The Fund may also sell a currency futures
contract in anticipation of a decrease in the value of currency the Fund is
holding or in anticipation of the sale of a portfolio security. The Fund may
purchase a stock index futures contract as a hedge against an anticipated
general market or market sector advance which may increase the market price
of equity securities the Fund intends to buy. The Fund may sell stock index
futures contracts in anticipation of or in a general market or market sector
decline that may adversely affect the market value of the Fund's portfolio of
equity securities.
The Fund may use options on financial and currency futures contracts in
connection with its hedging strategies in lieu of purchasing or selling
financial and currency futures contracts. To hedge against a possible
decrease in the value of equity or debt securities or currency held in its
portfolio, the Fund may purchase put options and write call options on stock
index, interest rate or currency futures contracts, respectively. Similarly,
in anticipation of an increase in the prices of equity or debt securities or
currency the Fund intends to purchase, the Fund may purchase call options or
write put options on stock index or interest rate or currency futures
contracts, respectively.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
There are several risks associated with the Fund's use of financial and
currency futures and related options as hedging devices. One risk arises
because of imperfect correlation in the movement of prices of financial and
currency futures contracts and related options and the securities or currency
subject to the hedge. In the case of stock index futures and related options,
the risks of imperfect correlation increases as the composition of the Fund's
portfolio of equity securities diverges from the securities included in the
applicable stock index. In the case of interest rate or currency futures
contracts and related options, the risk of imperfect correlation presents the
possibility that a correct forecast of interest or exchange rate trends by
the Adviser may still not result in a successful hedging transaction. If the
price of a financial or currency futures contract or related option moves
more than the price of the hedged financial instrument, the Fund may
experience either a loss or a gain on the contract which will not be
completely offset by movements in the price of the hedged instrument.
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To compensate for the imperfect correlation of movements in the price of
securities or currency being hedged and movements in the price of financial or
currency futures contracts and related options, the Fund may buy or sell
financial or currency futures contracts and related options in a greater dollar
amount than the dollar amount of the securities or currency being hedged if the
historical volatility of the prices of such securities or currency has been
greater than the historical volatility, respectively, of the index, debt
securities or currency underlying financial or currency futures contracts or
related options. Conversely, the Fund may buy or sell fewer financial or
currency futures contracts and related options if the historical volatility of
the price of hedged securities or currency is less than the volatility of the
index, debt securities or currency underlying futures contracts or related
options. It is also possible that, where the Fund has sold financial futures or
currency contracts or sold calls or purchased puts thereon to hedge its
portfolio against a decline in the equity or debt securities or currency, the
price may advance and the value of securities or currency held in the Fund's
portfolio may decline.
Where financial or currency futures contracts or related options are
purchased to hedge against possible increases in the price of equity or debt
securities or currency before the Fund is able to acquire such securities or
currency in an orderly fashion, it is possible that the prices of the
securities or currency may instead decline. If the Fund at that time decides
not to acquire the securities or currency because of concern as to further
market decline or for other reasons, the Fund will realize a loss on the
futures contract or related option that is not offset by a reduction in the
price of securities or currency purchased.
Successful use of financial futures contracts and related options by the
Fund is also subject to the Adviser's ability to predict correctly movements
in the direction of the market. Similarly, successful use of currency futures
and related options depends, in part, on the Adviser's ability to predict
changes in exchange rates. For example, if the Fund has hedged against the
possibility of a decline in the price of securities or the relative value of
currency held in its portfolio and the aggregate price of those securities or
the relative value of currencies increases instead, the Fund will lose part
or all the benefit of the increased value of the hedged securities or
currency because it will have offsetting losses on its futures or options
positions. Additionally, in such situations, if the Fund has insufficient
cash, it may have to sell securities or currency to meet daily variation
margin payments. Sales of securities or currency under those conditions may,
but will not necessarily, be at increased prices which reflect the rising
market. The Fund may have to sell securities or currency at a time when it
may be disadvantageous to do so.
A financial or currency futures position may be closed by the sale of an
identical contract where the Fund has previously purchased a futures contract
and by the purchase of an identical contract where the Fund has previously
sold a futures contract. Gain or loss to the Fund will correspond to the
difference in the price of the original transaction and that of the closing
transaction. Positions in financial and currency futures and related options
may be closed out only on an exchange or board of trade which provides a
secondary market for such futures. The Fund intends to purchase or sell
futures and related options on commodities exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular futures or related option contract at any particular time. In such
event, it may not be possible to close a futures position, and in the event
of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin. However, in the event futures
contracts or related options have been used to hedge securities or currency
held in the Fund's portfolio, such securities or currency will not be sold
until the futures contract or related option can be terminated. In those
circumstances, an increase in the price of the securities or currency, if
any, may partially or completely offset losses on the futures contract or
related option. However, as described above, there is no guarantee that the
price of the securities or currency will, in fact, correlate with the price
movements in futures contracts or related options and thereby offset losses
on futures contracts or related options. The Fund may also participate in
futures and related option transactions in the over-the-counter market, see
"Special Risks of Over-The-Counter Transactions" below.
The Fund intends, to the extent consistent with its bona fide hedging
strategies, to purchase and sell financial or currency futures contracts and
related options on the stock index, debt security or currency for which it
can obtain the best price, with consideration also given to liquidity.
Commodities exchanges and boards of trade have established limitations on the
maximum number of options that an investor or group of investors acting in
concert may write. It is possible that the Fund and other clients of the
Adviser may be considered such a group. Position limits may restrict the
Fund's ability to purchase or sell options on futures contracts.
Additionally, the extent to which the Fund may engage in call option
transactions may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Taxes" below.
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SPECIAL RISKS OF OVER-THE-COUNTER TRANSACTIONS
Transactions in options and futures contracts and related options traded
over-the-counter ("OTC transactions") differ from exchange-traded
transactions in several respects. OTC transactions are transacted directly
with dealers and not with a clearing corporation. Without the availability of
a clearing corporation, OTC transaction pricing is normally done by reference
to information from market makers, which information is carefuly monitored by
the Adviser and verified in appropriate cases.
As the OTC transactions are transacted directly with dealers, there is a
risk of nonperformance by the dealer as a result of the insolvency of such
dealer or otherwise, in which event the Fund may experience a loss. An OTC
transaction may only be terminated voluntarily by entering into a closing
transaction with the dealer with whom the Fund originally dealt. Any such
cancellation, if agreed to, may require the Fund to pay a premium to that
dealer. In those cases in which the Fund has entered into a covered
transaction and cannot voluntarily terminate the transaction, the Fund will
not be able to sell the underlying security until the investment instrument
expires or is exercised or different cover is substituted. In such cases, the
Fund may not be able to sell an underlying security even though it might
otherwise be advantageous to do so.
It is the Fund's intention to enter into OTC transactions only with
dealers which agree to, and which are expected to be capable of, entering
into closing transactions with the Fund, although there is no assurance that
a dealer will voluntarily agree to terminate the transaction. There is also
no assurance that the Fund will be able to liquidate an OTC transaction at
any time prior to expiration. OTC transactions for which there is no adequate
secondary market will be considered illiquid. See "Illiquid Securities"
below.
WARRANTS
The Fund may invest in warrants (other than those that have been acquired
in units or attached to other securities) but does not currently intend to
invest more than 5% of the value of its net assets (at the time of
investment) in such warrants. A warrant is an option to purchase a specified
quantity of equity securities at a set price within a specific period of
time. Warrants are speculative in nature because they have no voting rights,
pay no dividends and have no rights with respect to the assets of the
corporation issuing them. They do not represent ownership of the securities,
but only the right to buy them. The prices of warrants do not necessarily
move parallel to the prices of the underlying securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Fund may
purchase securities on a when-issued or delayed delivery basis -- i.e.,
delivery and payment can take place a month or more after the date of the
transaction. The purchase price, or the interest rate payable on debt
securities, is fixed on the transaction date. The securities so purchased are
subject to market fluctuation, and no interest or dividend accrues to the
Fund until delivery and payment take place. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed delivery basis,
it will record the transaction and thereafter reflect the value of such
securities in determining its net asset value each day. The Fund will make
commitments for such when-issued transactions only with the intention of
actually acquiring the securities. The Fund's Custodian will maintain, in a
separate account of the Fund, cash, U.S. Government securities or other high
grade debt obligations having value equal to or greater than such
commitments. The Fund will limit when-issued and delayed delivery
transactions to those in which the date for delivery and payment falls within
120 days of the date of the commitment. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed delivery basis,
it will record the transaction and thereafter reflect the value of those
securities in the daily computation of its net asset value. The principal
risk involved in acquiring securities on a when-issued or delayed delivery
basis is that the securities subject to the when-issued or delayed delivery
commitment may not be issued or delivered. Under those circumstances, the
Fund may incur a loss, as any profit attributable to a when-issued or delayed
delivery transaction would have been reflected in the Fund's net asset value
prior to issuance or delivery of the subject securities. On delivery dates
for such transactions, the Fund may meet its obligations from maturities or
sales of the securities held in the separate account and/or from
then-available cash flow. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with
the disposition of other portfolio acquisitions, incur a gain or loss due to
market fluctuation.
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LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
outstanding loans do not exceed in the aggregate 33 1/3 % of the value of the
Fund's net assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral that
is equal to at least the market value, determined daily, of the loaned
securities. The Fund, however, may not enter into portfolio lending
arrangements with the Adviser or any of its affiliates absent appropriate
regulatory relief from applicable prohibitions contained in the Investment
Company Act and has no current intention of committing more than 5% of the
value of its net assets to portfolio loans. The advantage of portfolio
lending is that the Fund continues to receive payments in lieu of the
interest and dividends of the loaned securities, while at the same time
earning interest either directly from the borrower or on the collateral which
may be invested in short-term obligations.
However, loans of portfolio securities will only be made to firms
determined to be creditworthy pursuant to procedures approved by the Board of
Directors of the Fund. Further, a loan may be terminated by the borrower on
one business day's notice or by the Fund at any time. If the borrower fails
to maintain the requisite amount of collateral, the loan automatically
terminates, and the Fund may use the collateral to replace the securities
while holding the borrower liable for any excess of replacement cost over
collateral. On termination of the loan, the borrower is required to return
the securities to the Fund, and any gain or loss in the market price during
the loan would inure to the Fund.
Since voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loan, in whole
or in part as may be appropriate, to permit the exercise of such rights if
the matters involved would have a material effect on the Fund's investment in
the securities which are the subject of the loan. The Fund will pay
reasonable finders', administrative and custodial fees in connection with a
loan of its securities or may share the interest earned on collateral with
the borrower.
BORROWING
The Fund may from time to time increase its ownership of securities above
the amounts otherwise possible by borrowing from banks (other than those
affiliated with the Fund or any of its affiliates) and investing the borrowed
funds. The Fund also may borrow from those banks to facilitate the meeting of
redemption requests or for temporary or emergency purposes. The Fund may
pledge its assets to secure those borrowings. Any borrowings by the Fund will
be made only to the extent that the value of the Fund's assets, less its
liabilities other than borrowings, is equal to at least 300% of all of its
borrowings (including reverse repurchase agreements) computed at the time a
loan is made. If the value of the Fund's assets at any time should fail to
meet the 300% asset coverage described above, the Fund, within three days, is
required to reduce its aggregate borrowings (including reverse repurchase
agreements) to the extent necessary to meet such asset coverage and may have
to sell a portion of its investments at a time when independent investment
judgment would not indicate such action. Interest on money borrowed is an
expense of the Fund which it would not otherwise incur so that it may have
little or no net investment income during periods when its borrowings are
substantial.
Borrowing for investment increases both investment opportunity and
investment risk. Since substantially all the Fund's assets fluctuate in
value, whereas the obligation resulting from the borrowing is fixed, the net
asset value per share of the Fund will tend to increase more when portfolio
assets increase in value, and decrease more when portfolio assets decrease in
value, than would otherwise be the case. This factor is known as leverage.
REPURCHASE AGREEMENTS
The Fund may purchase securities and concurrently enter into "repurchase
agreements." A repurchase agreement typically involves a purchase by the Fund
of an investment contract from a selling financial institution such as a bank
or broker-dealer, which contract is fully secured by government obligations
or other debt securities. The agreement provides that the Fund will sell the
underlying securities back to the institution at a specified price and at a
fixed time in the future, usually not more than seven days from the date of
purchase. The collateral will be held by the Fund's Custodian, either
physically or in a book entry account. The difference between the purchase
price and the resale price represents the interest earned by the Fund, which
is unrelated to the coupon rate or maturity of the purchased security. Should
the value of the underlying security decline below the resale price or the
financial institution default in its obligation to repurchase the securities,
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the Fund might sustain a loss. In the event of the bankruptcy or insolvency of
the financial institution, the Fund may be delayed in realizing upon the
collateral underlying the repurchase agreement. Further, the law is unsettled
regarding the rights of the Fund if the financial institution which is a party
to the repurchase agreement petitions for bankruptcy or otherwise becomes
subject to the United States Bankruptcy Code. The Fund intends to invest no more
than 5% of its net assets in repurchase agreements of greater than seven days'
maturity.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement involves the sale of a debt security held
by the Fund coupled with an agreement by the Fund to repurchase the
instrument at a stated price, date and interest payment. The Fund will use
the proceeds of a reverse repurchase agreement to purchase other debt
securities or to enter into repurchase agreements maturing not later than the
expiration of the prior reverse repurchase agreement.
The Fund will enter into a reverse repurchase agreement only when the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. Under
the Investment Company Act, reverse repurchase agreements will be considered
to be borrowings by the Fund and, therefore, may be subject to the same risks
involved in any borrowing in which the Fund might be involved. See
"Borrowing" above. The Fund may not enter into a reverse repurchase agreement
if as a result its current obligations under such agreements would exceed one
third of the value of the Fund's net assets computed at the time the reverse
repurchase agreement is entered into. The Fund, however, has no current
intention of investing more than 5% of the value of its net assets in reverse
repurchase agreements.
The Fund may enter into reverse repurchase agreements with banks or
broker-dealers. Entry into such agreements with broker-dealers requires the
creation and maintenance of a segregated account with the Fund's Custodian
consisting of U.S. Government Securities or cash or cash equivalents.
SHORT SALES
The Fund may make short sales and short sales against-the-box but
currently intends to invest no more than 5% of the value of its net assets in
such transactions. A short sale is a transaction in which the Fund sells a
security it does not own in anticipation of a decline in market price. In
order to deliver the security to the buyer, the Fund must arrange through a
broker to borrow the security. That borrowing arrangement, which may subject
the Fund to payment of a premium, obligates the Fund to replace the borrowed
security at its market price. The Fund may incur a loss with respect to a
short sale transaction, if the market price of the security increases between
the date of the short sale and the date on which the Fund replaces the
borrowed security.
A short sale against-the-box is a short sale where, at the time of the
short sale, the Fund owns, or has the immediate and unconditional right, at
no extra cost, to obtain securities identical to those subject to the short
sale.
The Fund may make a short sale only if, at the time the short sale is made
and after giving effect thereto, the market values of all securities sold
short is one-third or less of the value of its net assets and the market
value of securities sold short which are not listed on a national securities
exchange does not exceed 10% of the Fund's net assets. The Fund's obligation
to replace the security borrowed in connection with a short sale will be
secured by collateral consisting of cash or U.S. Government Securities.
Additionally, the Fund will be required to deposit similar collateral in a
segregated account with its Custodian in an amount such that the value of
both collateral deposits is at all times equal to at least 100% of the
current market value of the securities sold short. The Fund ordinarily will
not receive interest on cash collateral although the Fund will be entitled to
receive interest on collateral represented by U.S. Government Securities.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss, and if the price declines during this period, the Fund
will realize a gain. Any realized gain will be decreased, and any incurred
loss increased, by the amount of the transaction costs and any premium,
dividend or interest which the Fund may have to pay in connection with the
short sale.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets (determined at the time of
investment) in securities for which market quotations are not readily
available, in repurchase agreements which have a maturity longer than seven
days, and in securities subject to restrictions on resale.
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ARBITRAGE TRANSACTIONS
The Fund also may engage in arbitrage transactions involving the
simultaneous purchase of securities on one exchange and sale of those
securities on another exchange to take advantage of pricing differences on
the exchanges. The Fund will incur a gain to the extent that the sales price
of the securities exceeds the purchase price, and a loss to the extent that
the purchase price of the securities exceeds the sales price. The risk of an
arbitrage transaction, therefore, is that the Fund may not be able to sell
securities subject to an arbitrage at prices equalling or exceeding the
purchase price of those securities. The Fund will attempt to limit that risk
by effecting arbitrage transactions only when the prices of the securities
are confirmed in advance of the trade.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental polices
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the
Fund's outstanding voting securities," when used in this Statement of
Additional Information, means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding
shares. Restrictions or limits not included in the following list, but
described elsewhere in this document and the Fund's Prospectus, are not
fundamental policies and may be changed at the discretion of the Board of
Directors.
The Fund may not:
1. With respect to 50% of the value of its total assets, invest more
than 25% of the value of its total assets in the securities of one issuer,
and with respect to the other 50% of the value of its total assets, invest
more than 5% of the value of its total assets in the securities of one
issuer or acquire more than 10% of the outstanding voting securities of a
single issuer. This restriction shall not apply to U.S. Government
securities.
2. Concentrate its assets in the securities of issuers engaged in
specific industries or industry groups.
3. Change its sub-classification under the Investment Company Act of
1940 from non-diversified to diversified.
4. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures contracts is not considered the purchase of a
security on margin.
5. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow money from a bank (and may pledge its assets to
secure such borrowings) directly or through reverse repurchase agreements
for securities purchases, or temporarily to facilitate meeting redemption
requests or for emergency purposes, and by engaging in reverse repurchase
agreements with broker-dealers. The Fund may not, however, borrow money in
an aggregate amount exceeding one-third of the Fund's net assets. The
purchase or sale of securities on a when-issued or delayed delivery basis
and collateral arrangements with respect to futures contracts are not
deemed to be a pledge of assets; and neither such arrangements nor the
purchase or sale of options on futures contracts are deemed to be the
issuance of a senior security.
6. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or director of the Fund or the Fund's investment adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers and directors who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.
7. Buy or sell real estate or interests in real estate, except that the
Fund may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly
traded securities of real estate investment trusts.
8. Buy or sell commodities or commodity contracts, except that the Fund
may purchase and sell commodity futures contracts to establish bona fide
hedge transactions.
9. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
14
<PAGE>
10. Make investments for the purpose of exercising control.
11. Invest in securities of other registered investment companies,
except by purchases in the open market involving only customary brokerage
commissions and as a result not more than 5% of its total assets
(determined at the time of investment) would be invested in such
securities, or except as part of a merger, consolidation or other
acquisition.
12. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
13. Make loans, except through (i) repurchase agreements (repurchase
agreements with a maturity of longer than 7 days together with illiquid
assets being limited to 10% of the Fund's net assets) and (ii) loans of
portfolio securities.
14. Purchase the securities of any issuer if such purchase at the time
thereof would cause more than ten percent of the voting securities of any
issuer to be held by the Fund.
15. Borrow, pledge, mortgage, or hypothecate its assets in an amount
exceeding one-third of its total assets.
16. Invest more than ten percent of its total assets in the securities
of issuers which together with any predecessors have a record of less than
three years continuous operation or securities of issuers which are
restricted as to disposition.
ADDITIONAL RESTRICTIONS:
The following restrictions are not considered to be fundamental policies
of the Fund. Nevertheless, the Fund will comply with them as long as they are
required by any state where the Fund's shares are offered for sale.
The Fund may not:
1. Invest in real estate limited partnership interests except that it
may invest in limited partnership interests of real estate master limited
partnerships whose interests are traded on the New York Stock Exchange.
2. Invest in oil, gas or other mineral leases.
15
<PAGE>
DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS
Pertinent information concerning the Fund's directors and officers is set
forth below. Some of the Fund's directors and officers are employees of
Arnhold and S. Bleichroeder, Inc. (the "Distributor" and "Underwriter"),
Arnhold and S. Bleichroeder Advisers, Inc. (the "Adviser") and affiliates of
Arnhold and S. Bleichroeder, Inc. At least a majority of the Fund's Board of
Directors will not be "interested persons" of the Fund as that term is
defined in the Investment Company Act.
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address(1) the Fund During Past 5 Years
------------------- --------------- ----------------------
<S> <C> <C>
*Henry H. Arnhold .................. Director and Chairman Co-Chairman of the Board since 1994, previously
of the Board Chairman of the Board, Arnhold and S. Bleichroeder,
Inc.; Director, Aquila International Fund Ltd.,
First Eagle International Fund, Inc.; Trustee,
The New School for Social Research.
Candace K. Beinecke ................. Director Partner, Hughes Hubbard & Reed; Director, Jacob's
Hughes Hubbard & Reed Pillow Dance Festival, Inc., and Historic
One Battery Park Plaza Preservation Projects Inc.; Director and
New York, New York 10004 Treasurer, Merce Cunningham Dance Foundation,
Inc.
Director, Continental Grain Company; President and
Paul Fribourg ..................... Director Chief Operating Officer, Continental Grain
Continental Grain Company Company since 1994; previously Executive Vice
277 Park Ave. President, Commodity Marketing Group and
New York, New York 10172 President, World Grain Group of Continental Grain
Company; Director, ContiFinancial Corporation
and First Eagle International Fund, Inc.
Senior Advisor, Strategic Investment Partners,
K. Georg Gabriel .................. Director Inc.; Director, First Eagle International Fund,
2401 Tracy Place, N.W. Inc.; Member, Investment Committee, Eugene and
Washington, D.C. 20008 Agnes Meyer Foundation.
Ralph E. Hansmann.................. Director Private Investor; Director, Schroder Capital
40 Wall Street Management Inc. and Verde Exploration, Ltd.;
Suite 4201 Trustee Emeritus, Institute for Advanced Study;
New York, New York 10005 Trustee and Treasurer, New York Public Library;
Life Trustee, Hamilton College.
*Michael M. Kellen ................ Director and Vice Director and Senior Vice President, Arnhold and S.
Chairman of the Board Bleichroeder, Inc.; Director and Vice Chairman
of the Board, First Eagle International Fund,
Inc.
*Stephen M. Kellen ................. Director Co-Chairman of the Board since 1994, previously
President, Arnhold and S. Bleich- roeder, Inc.;
Director, First Eagle International Fund, Inc.;
Trustee, The Carnegie Hall Society; Trustees
Council of The National Gallery of Art; Trustee,
WNET/ Thirteen.
Walter Oechsle .................... Director Managing General Partner and Chief Investment
Oechsle International Advisors Officer, Oechsle International Advisors; Former
One International Plaza President and Chief Investment Officer, Putnam
Boston, Massachusetts 02110 International Advisors.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address(1) the Fund During Past 5 Years
------------------- --------------- ----------------------
<S> <C> <C>
*Stanford S. Warshawsky............. Director Co-President since 1994, Director and Secretary,
previously Vice Chairman of the Board, Arnhold
and S. Bleichroeder, Inc.; Director and Chairman
of the Board, First Eagle International Fund,
Inc.; Director, German-American Chamber of
Commerce.
Keith S. Wellin ................... Director Private Investor, Former Vice Chairman, Dean Witter
345 Avenue of the Americas Reynolds, Inc.; Director and Chairman of the Board,
29th Floor Moorco International, Inc.; Trustee, Hamilton
New York, New York 10105 College.
John P. Arnhold .................. Co-President and Co-President since 1994 and Director, Arnhold and
Co-Chief S. Bleichroeder, Inc.; Director, Aquila
Executive Officer International Fund Limited and the Global Beverage
Fund Limited; President, First Eagle
International Fund, Inc.
Harold J. Levy.................... Co-President and Portfolio Manager, Arnhold and S. Bleichroeder
Co-Chief Executive Advisers, Inc.; Senior Vice President, Arnhold
Officer and S. Bleichroeder, Inc.; Director since 1993,
American Buildings Company.
David L. Cohen.................... Vice President Portfolio Manager, Arnhold and S. Bleichroeder
Advisers, Inc.; Senior Vice President from 1993
and previously Vice President, Arnhold and S.
Bleichroeder, Inc.
Martha B. Pierce ................. Secretary and Assistant Vice President since 1994, previously Fund
Assistant Treasurer Administrator, Arnhold and S. Bleichroeder, Inc.;
Secretary and Assistant Treasurer, First Eagle
International Fund, Inc.
Robert Miller ..................... Treasurer, Chief Senior Vice President, Arnhold and S. Bleichroeder,
Accounting Officer and Inc.; Treasurer and Chief Accounting Officer,
Chief Financial Officer First Eagle International Fund, Inc.
Tracy L. LaPointe.................. Assistant Vice President Vice President, Arnhold and S. Bleichroeder, Inc.;
Assistant Vice President, First Eagle
International Fund, Inc.
Charles J. Rodriguez ............. Assistant Vice President Senior Vice President, Arnhold and S. Bleichroeder,
Inc.; Assistant Vice President, First Eagle
International Fund, Inc.
Richard Peterfreund ............... Assistant Secretary Fund Administrator since 1992, previously Operation
Liaison, Arnhold and S. Bleichroeder, Inc.;
Assistant Secretary, First Eagle International
Fund, Inc.
</TABLE>
- ------
* "Interested" director, as defined in the Investment Company Act, by reason
of his affiliation with Arnhold and S. Bleichroeder, Inc.
(1) Unless otherwise stated the address is: Arnhold and S. Bleichroeder,
Inc., 45 Broadway, New York, New York 10006.
Henry H. Arnhold is the father of John P. Arnhold. Stephen M. Kellen is
the father of Michael M. Kellen. Henry H. Arnhold and Stephen M. Kellen
are first cousins by marriage.
The officers conduct and supervise the daily business operations of the
Fund, while the directors, in addition to the functions set forth under
"Distributor," review such actions and decide on general policy.
The Fund pays each of its directors who is not an interested person of the
Fund annual compensation of $5,000 plus $500 per meeting of the Board of
Directors and certain out-of-pocket expenses. Messrs. Fribourg and Gabriel also
17
<PAGE>
serve as directors for an affiliated investment company, First Eagle
International Fund, Inc. The following table sets out the compensation
received by each of the Directors from the Fund and an affiliated fund, First
Eagle International Fund, Inc. for the fiscal year ended October 31, 1995.
<TABLE>
<CAPTION>
Total Aggregate
Compensation from the
Aggregate Compensation Fund and First Eagle
Name from the Fund International Fund, Inc.
---- ---------------------- ------------------------
<S> <C> <C>
Henry H. Arnhold ..... 0 0
Paul Fribourg ........ $6,000 $11,500
K. Georg Gabriel ..... $6,500 $13,500
Ralph E. Hansmann .... $6,500 $ 6,500
Michael M. Kellen .... 0 0
Stephen M. Kellen .... 0 0
Walter Oechsle ....... $6,000 $ 6,000
Stanford S. Warshawsky 0 0
Keith S. Wellin ...... $6,500 $ 6,500
</TABLE>
The Fund does not pay any compensation to interested directors of the Fund.
As of February 1, 1996 the directors and officers of the Fund, as a group,
owned approximately 336,647 shares or 4.2% of the outstanding common stock of
the Fund.
As of February 1, 1996, Central National Gottesman Inc., Three
Manhattanville Road, Purchase, NY 10577, owned beneficially and of record
approximately 14.2% of the Fund's outstanding shares; New York Foundation
Inc., 350 Fifth Avenue, New York, NY 10118, and Fox & Co., P.O. Box 976, New
York, NY 10268, each owned beneficially and of record approximately 5.8% of
the Fund's outstanding shares; Arnhold and S. Bleichroeder, Inc. Profit
Sharing Plan, 45 Broadway, New York, NY 10006, owned beneficially and of
record approximately 5.5% of the Fund's outstanding shares; and The New York
Botanical Garden, 200th Street & Southern Boulevard, Bronx, NY 10458 owned
beneficially and of record approximately 5% of the Fund's outstanding shares.
Directors and employees of the Fund, Arnhold and S. Bleichroeder, Inc. and
Arnhold and S. Bleichroeder Advisers, Inc., are permitted to engage in
personal securities transactions subject to the restrictions and procedures
contained in the Fund's Code of Ethics, which was approved by the Boards of
Directors of the Fund and Arnhold and S. Bleichroeder, Inc.
ADVISER
Arnhold and S. Bleichroeder Advisers, Inc. provides investment advisory
services as the Fund's investment adviser. For its services, the Adviser
receives, pursuant to an Investment Advisory Agreement between the Fund and
the Adviser (the "Advisory Agreement"), an annual advisory fee of 1.25% of
the Fund's average daily net assets. This fee described in the Prospectus
under "Adviser -- Management Fee" is accrued daily and is payable quarterly.
For the fiscal years ended October 31, 1993, 1994 and 1995, Arnhold and S.
Bleichroeder, Inc. earned advisory fees of $2,303,890, $1,829,008 and
$1,868,672, respectively, pursuant to the prior advisory agreement.
The Advisory Agreement further provides that the Adviser will not be
liable for any error of judgment or for any loss suffered by the Fund in
connection with the matters to which the Advisory Agreement relates, except a
loss resulting from willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Advisory Agreement provides that it will
terminate automatically if assigned, and that it may be terminated without
penalty by either party upon not more than 60 days' nor less than 30 days'
written notice. The Advisory Agreement will continue in effect for a period
of more than two years from the date of execution only so long as such
continuance is specifically approved at least annually in conformity with the
Investment Company Act. The prior Advisory Agreement was last approved by the
Board of Directors of the Fund, including all of the directors who are not
interested persons as defined in the Investment Company Act, on February 14,
1995 and by the shareholders on October 12, 1995. Additionally, by unanimous
written consent on December 15, 1995, the directors approved the assignment
of the prior Advisory Agreement from Arnhold and S. Bleichroeder, Inc. to
Arnhold and S. Bleichroeder Advisers, Inc.
Arnhold and S. Bleichroeder, Inc. pays compensation of and furnishes
office space for officers and employees connected with investment and
economic research, trading and investment management of the Fund, as well as
the fees of all Directors of the Fund who are affiliated persons of the Adviser
18
<PAGE>
or any of its affiliates. Arnhold and S. Bleichroeder, Inc. receives a
services fee of .25% of the Fund's average daily net assets pursuant to a
services agreement approved by the Board of Directors. This fee covers
expenses incurred for shareholder communications and other services to the
Fund.
DISTRIBUTOR
Arnhold and S. Bleichroeder, Inc., a registered broker-dealer, investment
adviser and a member of the New York Stock Exchange and the National
Association of Securities Dealers ("NASD"), serves as the distributor of the
Fund's common stock. Arnhold and S. Bleichroeder, Inc. is engaged in the
investment advisory, securities brokerage and underwriting businesses. The
Fund's shares are continuously offered on an agency basis on behalf of the
Fund, at the net asset value next determined after receipt of payment by
Arnhold and S. Bleichroeder, Inc., pursuant to a Distribution Agreement with
the Fund (the "Distribution Agreement"). See "Net Asset Value" in the
Prospectus. Arnhold and S. Bleichroeder, Inc. assumes the expenses related to
distributing the Fund's shares. Pursuant to the Distribution Agreement, the
Fund has agreed to indemnify Arnhold and S. Bleichroeder, Inc. against
certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities,
futures and options on securities, on indices and on futures for the Fund,
the selection of brokers, dealers and futures commission merchants to effect
those transactions and the negotiation of brokerage commissions, if any.
Broker-dealers and futures commission merchants may receive brokerage
commissions on Fund portfolio transactions, including options and the
purchase and sale of underlying securities or futures positions upon the
exercise of options. Orders may be directed to any broker or futures
commission merchant including, to the extent and in the manner permitted by
applicable law, the Adviser.
Equity securities traded in the over-the-counter market and bonds,
including convertible bonds, are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriters, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments and U.S. Government agency securities may be
purchased directly from the issuer, in which case no commissions or discounts
are paid. The Fund will not deal with Arnhold and S. Bleichroeder, Inc. in
any transaction in which Arnhold and S. Bleichroeder, Inc. acts as principal.
Thus, it will not deal with Arnhold and S. Bleichroeder, Inc. acting as
market maker, and it will not execute a negotiated trade with Arnhold and S.
Bleichroeder, Inc. if execution involves Arnhold and S. Bleichroeder, Inc.
acting as principal with respect to any part of the Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
group of which Arnhold and S. Bleichroeder, Inc., during the existence of the
group, is a member, except in accordance with rules of the Securities and
Exchange Commission. This limitation, in the opinion of the Fund, will not
significantly affect the Fund's ability to pursue its present investment
objective. However, in the future in other circumstances, the Fund may be at
a disadvantage because of this limitation in comparison to other funds with
similar objectives but not subject to such limitations.
In placing orders for portfolio securities or futures of the Fund, the
Adviser is required to give primary consideration to obtaining the most
favorable price and efficient execution. Within the framework of this policy,
the Adviser will consider the research and investment services provided by
brokers, dealers or futures commission merchants who effect or are parties to
portfolio transactions of the Fund, the Adviser or the Adviser's other
clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and
industries. Such services are used by the Adviser in connection with all of
its investment activities, and some of such services obtained in connection
with the execution of transactions for the Fund may be used in managing other
investment accounts. Conversely, brokers, dealers or futures commission
merchants furnishing such services may be selected for the execution of
transactions of such other accounts, whose aggregate assets are far larger
than the Fund, and the services furnished by such brokers, dealers or futures
commission merchants may be used by the Adviser in providing investment
management for the Fund. Commission rates are established pursuant to
negotiations with the broker, dealer or futures commission merchant
19
<PAGE>
based on the quality and quantity of execution services provided by the
executing party in the light of generally prevailing rates. In addition, the
Adviser is authorized to pay higher commissions on brokerage transactions for
the Fund to brokers other than Arnhold and S. Bleichroeder, Inc. in order to
secure the research and investment services described above, subject to
review by the Fund's Board of Directors from time to time as to the extent
and continuation of this practice. The allocation of orders among brokers and
the commission rates paid are reviewed periodically by the Fund's Board of
Directors.
Subject to the above considerations, Arnhold and S. Bleichroeder, Inc. may
act as a securities broker for the Fund. In order for Arnhold and S.
Bleichroeder, Inc. to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by Arnhold and S.
Bleichroeder, Inc. 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 an Exchange during a comparable period of time. This standard would allow
Arnhold and S. Bleichroeder, Inc. to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Fund, including a majority of the directors who are not "interested"
directors, has adopted procedures which are reasonably designed to provide
that any commissions, fees or other remuneration paid to Arnhold and S.
Bleichroeder, Inc. are consistent with the foregoing standard. Brokerage
transactions with Arnhold and S. Bleichroeder, Inc. also are subject to such
fiduciary standards as may be imposed by applicable law.
From time to time the Fund may engage in agency cross transactions with
respect to securities that meet its investment objective and policies. An
agency cross transaction occurs when a broker sells securities from one
client's account to another client's account. Cross transactions are executed
with written permission from the Fund. This authorization permits cross
transactions only between the Fund on one side and clients for which Arnhold
and S. Bleichroeder, Inc. acts as broker, but does not act as investment
adviser, on the other side. The authorization can be terminated at any time
by written notice to Arnhold and S. Bleichroeder, Inc. The Fund will not
engage in cross transactions with investment advisory clients of the Adviser
or Arnhold and S. Bleichroeder, Inc.
Purchase or sale confirmations for cross transactions, in addition to
indicating the entire amount of transaction charges incurred by the Fund,
will indicate the entire amounts of transaction charges incurred by all
clients on the other side of the transaction. The Fund will be notified
annually of the total number of, and transaction charges, applicable to cross
transactions undertaken for the previous year and the total amount incurred
for all such trades with the Fund by the clients on the other side of the
transactions.
The Fund may from time to time sell or purchase securities to or from
companies or persons who are considered to be affiliated with the Fund solely
because they are investment advisory clients of Arnhold and S. Bleichroeder,
Inc. or the Adviser. No consideration other than cash payment against prompt
delivery at the then current market price of the securities will be paid to
any person involved in those transactions. Additionally, all such
transactions will be consistent with procedures adopted by the Board of
Directors of the Fund, including a majority of the directors who are not
interested persons thereof, to assure their conformance with the requirements
of the Investment Company Act.
In accordance with Section 11(a) under the Securities Exchange Act of
1934, Arnhold and S. Bleichroeder, Inc. may not retain compensation for
effecting transactions on a national securities exchange for the Fund unless
the Fund has expressly authorized the retention of such compensation in a
written agreement executed by the Fund and Arnhold and S. Bleichroeder, Inc.
The Fund has provided Arnhold and S. Bleichroeder, Inc. with such
authorization. Section 11(a) provides that Arnhold and S. Bleichroeder, Inc.
must furnish to the Fund at least annually a statement disclosing the
aggregate compensation received by the exchange member in effecting such
transactions.
For the fiscal years ended October 31, 1993, 1994 and 1995 the Fund paid
total brokerage commissions of $644,190, $767,184 and $300,859 respectively
of which $277,061, $219,324 and $81,744 respectively, were paid to Arnhold
and S. Bleichroeder, Inc. For the fiscal year ended October 31, 1995,
brokerage commissions paid by the Fund to Arnhold and S. Bleichroeder, Inc.
constituted 27% of the total brokerage commissions paid by the Fund. For the
fiscal year ended October 31, 1995, the Fund effected 25% of the aggregate
dollar amount of its portfolio transactions involving the payment of
commissions through Arnhold and S. Bleichroeder, Inc. Of the total brokerage
commissions paid during the fiscal year ended October 31, 1995, $174,434 (or
58%) were paid to firms which provided research, statistical or other
services. Arnhold and S. Bleichroeder, Inc. has not separately identified a
portion of such brokerage commissions as applicable to the provision of such
research, statistical or other services.
20
<PAGE>
STOCKHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Fund, a Stockholder Investment
Account is established for each investor under which a record of the shares
held is maintained by the Transfer Agent. If a stock certificate is desired,
it must be requested in writing for each transaction. Certificates are issued
only for full shares and may be redeposited in the Stockholder Investment
Account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a transaction takes place in the Stockholder Investment
Account, the stockholder will be mailed a statement showing the transaction
and the status of the Account. Additionally, the Transfer Agent will mail
each stockholder of record a quarterly statement of the stockholder's
account.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at the net
asset value per share at the close of business on the record date. An
investor may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received
on the record date, cash payment will be automatically reinvested. Any
stockholder who receives a cash payment representing a dividend or
distribution may reinvest such dividend or distribution by returning the
check or the proceeds to the Transfer Agent. Such investment will be made at
the net asset value per share next determined after receipt of the check or
proceeds by the Transfer Agent.
TAXES
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code
and intends to distribute all but a de minimis amount of its income and
capital gains to its stockholders within time periods prescribed by the
Internal Revenue Code. This relieves the Fund (but not its stockholders) from
paying federal income tax on income which is distributed to stockholders, and
permits net capital gains of the Fund (i.e., the excess of net long-term
capital gains over net short-term capital losses) to be treated as long-term
capital gains of the stockholders, regardless of how long shares in the Fund
are held.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income, without
offset for losses from the sale or other disposition of securities, consist
of certain types of qualifying income (the "90% test"); (b) the Fund derive
less than 30% of its gross income from gains (without offset for losses) from
the sale or other disposition of securities held for less than three months
(the "30% test"); and (c) the Fund diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, government securities and other
securities limited in respect of any one issuer to an amount not greater than
5% of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than government securities).
Qualifying income for purposes of the 90% test consists of income derived
from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of securities, gains on the sale or
exchange of foreign currencies and other income (including gains from
options, futures, or forward contracts) derived from the business of
investing in securities or currencies. For purposes of satisfying the 30%
test, offsetting positions in certian hedging transactions may be treated as
a single investment, with increases and decreases in the value of the
positions which are part of the hedge being netted together.
In order not to be subject to the regular federal corporate income tax,
the Fund must, in addition to qualifying as a regulated investment company,
distribute to its stockholders at least 90% of its net investment income
other than net capital gains earned in each year. In addition, a regulated
investment company will be subject to a non-deductible 4% excise tax in any
calendar year in which the company does not distribute to its stockholders
the sum of 98% of its ordinary income for such calendar year and 98% of its
capital gain net income determined on an October 31 year basis. In light of
this provision, the Fund intends to distribute all of its income and capital
gains (except a de minimis amount) to its stockholders during the calendar
year in which such income is earned and such gains are realized.
Dividends on stock owned by the Fund will be included in its gross income
no later than the date on which the stock becomes ex-dividend with respect to
the dividend. If the Fund acquires stock after it becomes ex-dividend and
acquires the right to receive the dividend, it must include the dividend in
its gross income on the date of acquisition.
21
<PAGE>
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year (six months for securities acquired after June 22, 1984
and before January 1, 1988). Other gains or losses on the sale of stock or
securities will be short-term capital gains or losses. Certain of the Fund's
transactions may be subject to wash sale and short sale provisions of the
Internal Revenue Code. In addition, debt securities acquired by the Fund may
be subject to original issue discount and market discount rules.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gain or loss. However, all or a portion of the gain or loss
from the disposition of non-U.S. dollar denominated securities (including debt
instruments, certain financial forward, futures and option contracts, and
certain preferred stock) may be treated as ordinary income or loss under Section
988 of the Internal Revenue Code. In addition, all or a portion of the gain
realized from the disposition of market discount bonds will be treated as
ordinary income under Section 1276 of the Internal Revenue Code. Generally, a
market discount bond is defined as any bond bought by the Fund after April 30,
1993, and after its original issuance, at a price below its face or accreted
value. Finally, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section 1258
of the Internal Revenue Code. "Conversion transactions" are defined to include
certain forward, futures, option and straddle transactions, transactions
marketed or sold to produce capital gains, or transactions described in Treasury
regulations to be issued in the future.
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts ("Section 1256 Contracts") held by a
regulated investment company. At the end of each year, Section 1256 Contracts
held by the Fund will be required to be "marked to market" for federal income
tax purposes; that is, they will be treated as having been sold at market value.
Sixty percent of any gain or loss recognized on these "deemed sales" and on
actual disposition will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term gain or loss.
Offsetting positions held by the Fund involving certain financial forward,
futures or options contracts (including certain foreign currency forward
contracts or options) may constitute "straddles." "Straddles" are defined to
include "offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Sections 1092 and 1258 of the Internal
Revenue Code, which, in certain circumstances, override or modifies the
provisions of Sections 1256 and 988. If the Fund were treated as entering into
"straddles" by reason of its engaging in certain forward contracts or options
transactions, such "straddles" would be characterized as "mixed straddles" if
the forward contracts or options transactions comprising a part of such
"straddles" were governed by Section 1256. The Fund may make one or more
elections with respect to "mixed straddles." Depending on which election is
made, if any, the results to the Fund may differ. If no election is made to the
extent the "straddle" rules apply to positions established by the Fund, losses
realized by the Fund will be deferred to the extent of unrealized gain in the
offsetting position. Moreover, as a result of the "straddle" rules, short-term
capital loss on "straddle" positions may be recharacterized as long-term capital
loss, and long-term capital gains may be treated as short-term capital gains.
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net value of the investor's shares
by the per share amount of the dividends or distributions. Furthermore, such
dividends or distributions, although in effect a return of capital, are subject
to federal income taxes.Therefore, prior to purchasing shares of the Fund, the
investor should carefully consider the impact of dividends or capital gains
distributions which are expected to be or have been announced.
PERFORMANCE INFORMATION
The Fund may advertise its performance in terms of average annual total
return for 1, 5, and 10 year periods, or for such lesser periods as the Fund has
been in existence. Average annual total return is computed by finding the
average annual compounded rates of return over the 1, 5, and 10 year periods
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n P(1+T) = ERV
Where: P = A hypothetical initial payment of $1,000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of hypothetical $1,000 payment made
at the beginning of the 1, 5, or 10 year periods at the end
of the 1, 5, or 10 year periods (or fractional portion
thereof)
22
<PAGE>
The calculation (i) assumes all dividends and distributions by the Fund
are reinvested at the price stated in the Prospectus on the reinvestment
dates during the period, (ii) includes all recurring fees that are charged to
all shareholder accounts, (iii) assumes complete redemption at the end of the
1, 5, or 10 year periods to determine the ending redeemable value and (iv)
does not take into account any federal or state income taxes that may be
payable upon redemption.
The Fund may also advertise aggregate total return, which represents the
cumulative change in the value of a hypothetical initial investment of $1,000
in the Fund assuming a constant rate of performance over a stated period of
time. Aggregate total return is computed according to the following formula:
ERV - P
-------
P
Where: P = A hypothetical initial payment of $1,000
ERV = Ending redeemable value of hypothetical $1,000 payment made
at the beginning of the 1, 5, or 10 year periods at the end
of the 1, 5, or 10 year periods (or fractional portion
thereof)
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
The Bank of New York serves as Custodian for the Fund's assets. BISYS Fund
Services, Inc. will serve as Transfer and Dividend Disbursing Agent. In those
capacities, each of The Bank of New York and BISYS Fund Services, Inc.
maintain certain financial and accounting books and records pursuant to
agreements with the Fund.
KPMG Peat Marwick LLP, New York, New York, serves as the Fund's
independent accountants and in that capacity examines the Fund's annual
financial statements.
ORGANIZATION AND HISTORY OF THE FUND
The Fund was incorporated in Maryland on December 11, 1986.
23
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
Schedule of Investments
October 31, 1995
<TABLE>
<CAPTION>
Shares Common Stock (95.86%) Value
<S> <C> <C>
Aerospace/Defense (16.19%)
44,500 Alliant Techsystems Inc.* $ 2,069,250
33,400 Allied Signal Inc. 1,419,500
41,300 Litton Industries Inc.* 1,636,512
45,400 Lockheed Martin Corp. 3,092,875
184,600 Loral Corp. 5,468,775
79,400 McDonnell Douglas Corp. 6,490,950
25,600 Sundstrand Corp. 1,568,000
--------------
21,745,862
Banking/Financial (23.25%)
41,700 Citicorp 2,705,288
45,700 Dean Witter Discover & Co. 2,273,575
113,300 Finova Group Inc. 5,126,825
20,300 First Empire State Corp. 3,994,025
48,300 First Interstate Bancorp 6,230,700
145,600 Glendale Federal Bank* 2,329,600
57,100 Mellon Bank Corp. 2,862,138
51,900 Midlantic Corp. 2,750,700
14,100 Wells Fargo & Co. 2,962,762
--------------
31,235,613
Industrial Products (7.63%)
30,000 Armstrong World Industries Inc. 1,781,250
56,800 Perkin-Elmer Corp. 1,995,100
8,000 Triacq Corp.*** 10,000
45,600 Union Carbide Corp. 1,727,100
61,100 Varity Corp.* 2,214,875
45,300 W. R. Grace & Co. 2,525,475
--------------
10,253,800
Medical (16.06%)
42,100 Baxter International Inc. 1,626,112
68,200 Becton Dickinson & Co. 4,433,000
34,500 BioWhittaker Inc.* 258,750
80,800 Caremark International Inc. 1,666,500
101,100 Humana Inc.* 2,135,738
66,600 Mallinckrodt Group Inc. 2,314,350
44,700 McKesson Corp. 2,134,425
14,000 Mid Atlantic Medical Services Inc.* 278,250
168,300 Pharmacia AB ADR 5,890,500
54,200 Physician Corp. of America* 833,325
--------------
21,570,950
Paper Products (12.77%)
74,600 Bowater Inc. 3,301,050
78,500 Champion International Corp. 4,199,750
85,000 Harnischfeger Industries Inc. 2,677,500
85,600 James River Corp. of Virginia 2,749,900
79,400 Scott Paper Co. 4,228,050
--------------
17,156,250
Technology (5.71%)
151,100 Amdahl Corp.* 1,397,675
19,900 International Business Machines Inc. 1,935,275
110,000 Perle Systems, Ltd.* 515,625
38,500 Varian Associates Inc. 1,977,938
111,200 Wang Laboratories Inc.* 1,848,700
--------------
7,675,213
F-1
<PAGE>
Shares Common Stock (95.86%) Value
Transportation (2.32%)
40,000 Illinois Central Corp. $ 1,530,000
71,517 Southern Pacific Rail Corp.* 1,591,253
--------------
3,121,253
Miscellaneous (11.93%)
7,800 AGCO Corp. 349,050
41,400 Dole Food Co. 1,557,675
172,600 Host Marriott Corp.* 2,135,925
51,300 Premark International Inc. 2,372,625
73,600 Reebok International Ltd. 2,502,400
151,719 Tejas Gas Corp.* 7,111,828
--------------
16,029,503
--------------
Total common stock (cost $96,069,865) 128,788,444
Preferred Stock (3.42%)
82,733 Aavid Thermal Technologies, Inc. Series A Convertible Preferred Stock*** 2,000,000
698 Assistive Technology Project Inc. Series A Preferred Stock*** 500,000
59,040 Shape Technology Inc. Series A Convertible Preferred Stock *** 1,000,000
10,900 Triacq Corp. Series A 10% Cumulative Preferred Stock*** 1,090,000
--------------
Total Preferred Stock (cost $3,590,000) 4,590,000
Units Other Investments (.82%)
16.16162 Euro Outlet Malls, L.P.*** (cost $1,100,000) 1,100,000
Principal Short Term Investments (1.93%)
$1,420,000 US Treasury Bill due 11/24/95 1,415,124
1,200,000 US Treasury Bill due 1/25/96 1,184,983
--------------
Total Short Term Investments (cost $2,600,107) 2,600,107
Total Investments (cost $103,359,972)** 137,078,551
--------------
Other liabilities in excess of other assets (2.03%) (2,728,371)
--------------
NET ASSETS (100.00%) $134,350,180
==============
</TABLE>
* Non-income producing security.
** Cost for federal income tax purposes is the same.
***Restricted security priced at fair value by the Board of Directors.
Represents ownership interest in a security which has not been registered
with the Securities and Exchange Commission under the Securities Act of
1933. Information concerning each restricted security holding on October
31, 1995 is shown below:
<TABLE>
<CAPTION>
Security Acquisition Date Cost
--------------------------------- ---------------- ------------
<S> <C> <C> <C>
Aavid Thermal Technologies Inc.
Ser. A Conv. Pfd. Stock 10/05/93 $1,000,000
Assistive Technology Project Inc.
Ser. A Pfd. Stock 10/3/95 $ 500,000
Euro Outlet Malls, L.P. 12/30/94 $1,100,000
Shape Technology Inc.
Ser. A Conv. Pfd. Stock 11/29/94 $1,000,000
Triacq Corp.
Common Stock 7/27/95 $ 10,000
Triacq Corp.
Ser. A. Cum Pfd. Stock 7/27/95 $1,090,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments, at value (cost $103,359,972) $137,078,551
Cash 502,732
Dividends and interest receivable 79,581
Receivable for investments sold 1,662,270
--------------
TOTAL ASSETS 139,323,134
--------------
LIABILITIES:
Payable for investments purchased 3,660,563
Management fee payable 1,281,635
Accrued operating expenses 30,756
--------------
TOTAL LIABILITIES 4,972,954
--------------
NET ASSETS $134,350,180
==============
Net Assets were comprised of:
Common stock (par $0.01) authorized: 1,000,000,000
shares, outstanding 8,252,291 shares (Note 5) $ 82,523
Paid-in-surplus 97,700,364
--------------
97,782,887
Net unrealized appreciation on investments 33,718,579
Accumulated net realized gain on investments 2,848,714
--------------
NET ASSETS, October 31, 1995 $134,350,180
==============
Net Asset Value per share:
($134,350,180 / 8,252,291 shares of common stock issued and
outstanding) $16.28
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
Statement of Operations
For the year ended October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 1,361,449
Interest income 459,336
-------------
TOTAL INCOME 1,820,785
-------------
EXPENSES:
Management fee (note 2) 1,868,672
Legal fees 58,593
Audit fees 52,750
Transfer agent fees 40,336
Accounting fees 42,000
Directors' fees 31,500
Registration expenses 22,823
Custodian fees 17,640
Printing expenses 15,348
Miscellaneous expenses 14,190
-------------
TOTAL EXPENSES 2,163,852
-------------
NET INVESTMENT LOSS (343,067)
-------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 2,960,207
Change in unrealized appreciation on investments 20,664,270
-------------
NET GAIN ON INVESTMENTS 23,624,477
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $23,281,410
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the year For the year
ended ended
October 31, October 31,
-------------- --------------
1995 1994
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment loss ($ 343,067) ($ 789,943)
Net realized gain on investments 2,960,207 16,406,811
Net change in unrealized appreciation on
investments 20,664,270 (11,473,826)
-------------- --------------
Net increase in net assets resulting from
operations 23,281,410 4,143,042
Dividends and distributions to shareholders:
Dividends from net investment income -- --
Distribution from prior year's net realized
gains (15,613,958) (10,524,162)
Transactions in fund shares-net 6,166,760 19,552,917
-------------- --------------
Total increase 13,834,212 13,171,797
Net Assets:
Beginning of year 120,515,968 107,344,171
-------------- --------------
End of year $134,350,180 $120,515,968
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
April 10,
For the year ended 1987** through
October 31, October 31,
---------------------------------------------------------------------------------------- -----------
1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $15.45 $16.53 $13.36 $12.35 $10.35 $14.04 $11.65 $9.17 $10.00
Income from investment
operations
Net investment income
(loss) ($0.04) (0.12) (0.22) (0.15) 0.09 0.16 0.16 (0.03) 0.07
Net gains (losses) on
securities (both
realized and
unrealized) $2.87 0.66 4.56 1.98 2.20 (2.34) 2.57 2.58 (0.90)
------- -------- ---------- --------- --------- --------- ---------- --------- ---------
Total from investment
operations $2.83 0.54 4.34 1.83 2.29 (2.18) 2.73 2.55 (0.83)
------- -------- ---------- --------- --------- --------- ---------- --------- ---------
Less distributions
Dividends (from net
investment income) -- -- -- (0.08) (0.29) (0.11) -- (0.07) --
Distributions (from
capital gains) (2.00) (1.62) (1.17) (0.74) -- (1.40) (0.34) -- --
------- -------- ---------- --------- --------- --------- ---------- --------- ---------
Total distributions ($2.00) (1.62) (1.17) (0.82) (0.29) (1.51) (0.34) (0.07) 0.00
------- -------- ---------- --------- --------- --------- ---------- --------- ---------
Net asset value, end of
year $16.28 $15.45 $16.53 $13.36 $12.35 $10.35 $14.04 $11.65 $9.17
------- -------- ---------- --------- --------- --------- ---------- --------- ---------
Total Return* 21.6% 3.8% 35.2% 16.0% 22.7% (17.7)% 24.2% 28.0% (8.3)%++
Ratios/supplemental
data Net assets,
end of year $134,350,180 $120,515,968 $107,344,171 $76,599,310 $74,279,164 $66,729,536 $83,619,552 $54,271,271 $27,194,056
Ratio of expenses
to average net assets 1.9% 1.9% 2.9% 3.0% 2.0% 1.1% 2.0% 3.3% 2.5%+
Ratio of net investment
income to average net
assets (0.3)% (0.7)% (1.5)% (1.0)% 0.8% 1.3% 1.3% (0.2)% 1.2%+
Portfolio turnover rate 81% 125% 141% 145% 92% 72% 52% 55% 84%
</TABLE>
* Past performance is not predictive of future performance.
** Commencement of investment operations
+ Annualized
++ Total return not annualized
F-5
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
Notes to Financial Statements
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES--First Eagle Fund of America,
Inc. (the "Fund") is registered under the Investment Company Act of 1940, as
amended (the "Act"), as a non-diversified, open-end management investment
company and was incorporated in Maryland on December 11, 1986. The Fund had
no operations until the sale to Arnhold and S. Bleichroeder, Inc. (the
"Adviser" or "ASB") of 10,000 shares of its common stock for $100,000 on
February 12, 1987. Investment operations commenced April 10, 1987.
The following is a summary of significant accounting policies:
A. Valuation of Investments--Any security for which the primary market is on
an exchange is valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the mean between the last bid
and asked prices quoted on such day. Equity securities listed on the NASDAQ
National Market System are valued at the last sale price or, if there was no
sale on such day, at the mean between the most recently quoted bid and asked
prices. Corporate bonds (other than convertible debt securities) and U.S.
Government Securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed
to be over-the-counter, are valued on the basis of valuations provided by a
pricing service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining value. Other
securities are valued at the mean between the most recently quoted bid and
asked prices. Short-term debt instruments which mature in less than 60 days
are valued at amortized cost, unless the Board of Directors determines that
such valuation does not represent fair value. Securities which are otherwise
not readily marketable or securities for which market quotations are not
readily available are valued in good faith at fair value in accordance with
procedures adopted by the Fund's Board of Directors. A Valuation Committee of
the Board of Directors has been established to determine the value of such
securities after consultation with the Fund's investment adviser.
B. Accounting for Investments--Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains or
losses on security transactions are determined based on the first-in, first-
out method. Discounts and premiums on purchases of investments are accreted
and amortized, respectively, as adjustments to interest income and cost of
securities. Dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis.
Short Sales: The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in
anticipation of a decline in market price. When the Fund makes a short sale,
the proceeds it receives are retained by the broker until the Fund replaces
the borrowed security. If the price of the security sold short increases
between the time of the short sale and the time the Fund replaces the
borrowed security, the Fund will incur a loss, and if the price declines
during this period, the Fund will realize a gain. Any gain will be decreased,
and any incurred loss increased by the amount of transaction costs and any
dividends or interest which the Fund may have to pay in connection with such
short sale are recorded as expenses.
C. Federal Income Tax Status--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Accordingly, no federal income tax provision is required.
D. Dividends and Distributions to Shareholders--Dividends from net investment
income, if any, and distribution of net realized gain from investment
transactions, if any, will be made annually. The Fund records dividends and
distributions to its shareholders on the record date.
NOTE 2. INVESTMENT ADVISORY AGREEMENT--The Fund has entered into an
Investment Advisory Agreement with ASB. The basic fee (1.6%) paid to the
Adviser under the Investment Advisory Agreement is computed daily and payable
as follows: The minimum fee (0.7%) will be paid in quarterly installments
promptly after the close of each fiscal quarter; and the balance, if any,
will be paid promptly after the close of the Fund's fiscal year. The basic
fee is subject to an incentive adjustment determined on an annual basis,
under which the advisory fee may be increased or decreased by 0.9% per annum
of average daily net assets of the Fund, depending on the performance of the
Fund as compared to the performance of the Standard & Poor's 500 Stock Index.
For the year ended October 31, 1995 the basic fee has been accrued.
F-6
<PAGE>
Pursuant to the Investment Advisory Agreement, the Adviser is responsible for
the continuous supervision of the Fund's portfolio. The Adviser also performs
certain administrative and management services for the Fund and provides
office facilities and personnel necessary to perform its duties under the
Investment Advisory Agreement.
On February 14, 1995, the Board of Directors and on October 12, 1995, the
shareholders approved an amended and restated Investment Advisory Agreement
between the Adviser and the Fund effective November 1, 1995. The amended and
restated Investment Advisory Agreement is substantially the same as the prior
agreement except for the terms of the advisory fee arrangement and the
language used relating to the protection by the Adviser of its trade names.
Under the new agreement for the advisory services provided by the Adviser,
the fee arrangement requires the Fund to pay an annual management fee of
1.25% of the Fund's average daily net assets payable quarterly. As of
November 1, 1995, in addition to the management fee, the Adviser will receive
an annual services fee of .25% of the Fund's average daily net assets payable
quarterly, pursuant to a separate services agreement which was approved by
the Board of Directors, to cover expenses incurred by the Adviser for
shareholder communications and other services provided in addition to the
advisory services. Prior to November 1, 1995, the Adviser was not being paid
for such services. The new Investment Advisory Agreement and Services
Agreement provide for a combined annual fee paid to the Adviser of 1.5% of
the Fund's average daily net assets.
NOTE 3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--Purchases and
sales of portfolio securities for the year ended October 31, 1995 excluding
short-term investments, were $95,689,729 and $97,796,673, respectively.
For the year ended October 31, 1995, the Fund paid brokerage commissions on
securities transactions of $300,859 of which $81,744 was paid to ASB.
NOTE 4. FEDERAL INCOME TAXES--The United States federal income tax basis of
the Fund's investments at October 31, 1995 was substantially the same as the
basis for financial reporting purposes and accordingly, the aggregate gross
unrealized appreciation on investments was $34,997,603 and the aggregate
gross unrealized depreciation was $1,279,024, resulting in net unrealized
appreciation for United States federal income tax purposes of $33,718,579.
NOTE 5. COMMON STOCK--Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
For the year For the year
ended October 31, 1995 ended October 31, 1994
------------------------------- ----------------------------
Shares Amount Shares Amount
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Beginning of period ............... 7,798,954 $ 91,844,790 6,495,804 $71,495,389
Shares sold ....................... 410,736 6,044,725 810,854 12,351,877
Shares redeemed ................... (1,009,357) (13,595,501) (166,668) (2,498,904)
Reinvested distributions .......... 1,051,958 13,717,536 658,964 9,699,944
------------- -------------- ----------- -------------
453,337 6,166,760 1,303,150 19,552,917
Adjustment representing other-than-
temporary book-tax differences ... -- (228,663) -- 796,484
------------- -------------- ----------- -------------
End of period ..................... 8,252,291 $ 97,782,887 7,798,954 $91,844,790
============= ============== =========== =============
</TABLE>
Of the 8,252,291 shares of common stock outstanding at October 31, 1995, ASB
owned 17,885 shares and the ASB Profit Sharing Plan owned 435,310 shares. The
directors and officers of the Fund, as a group, owned approximately 336,956
shares at October 31, 1995.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and
Board of Directors
First Eagle Fund of America, Inc.
We have audited the accompanying statement of assets and liabilities and the
schedule of investments of First Eagle Fund of America, Inc. as of October
31, 1995, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Investment securities held in custody are confirmed to us by the custodian.
As to securities purchased and sold but not received or delivered, we request
confirmation from brokers and where replies are not received, we carry out
other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
First Eagle Fund of America, Inc. as of October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and the financial highlights for
the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
November 16, 1995
F-8
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
OTHER INFORMATION
February 28, 1996
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. Financial Statements
<TABLE>
<CAPTION>
<S> <C>
1. -- Schedule of Investments dated October 31, 1995.
2. -- Statement of Assets and Liabilities dated October 31, 1995.
3. -- Statement of Operations for the year ended October 31, 1995.
4. -- Statement of Changes in Net Assets for years ended October 31,
1995 and 1994.
5. -- Financial highlights for the years ended October 31, 1995, 1994,
1993, 1992, 1991, 1990, 1989, 1988 and April 10, 1987 through
October 1987.
6. -- Notes to Financial Statements.
7. -- Independent Auditors' Report -- KPMG Peat Marwick LLP dated
November 16, 1995.
B. Exhibits
1.(a) -- Articles of Incorporation of the Registrant.*
(b) -- Amendment to Articles of Incorporation of the Registrant.*
2. -- Amended and Restated By-laws of the Registrant.*
4. -- Specimen certificate for shares of common stock of the
Registrant.
5.(a) -- Investment Advisory Agreement between the Registrant and Arnhold
and S. Bleichroeder, Inc.*
(b) -- Amendment to Investment Advisory Agreement between the Registrant
and Arnhold and S. Bleichroeder, Inc.*
(c) -- Amended and Restated Investment Advisory Agreement between the
Registrant and Arnhold and S. Bleichroeder, Inc.*
(d) -- Investment Advisory Agreement dated November 1, 1995.
(e) -- Assignment Agreement between the Registrant, Arnhold and S.
Bleichroeder, Inc. and Arnhold and S. Bleichroeder Advisers, Inc.
6. -- Distribution Agreement between the Registrant and Arnhold and S.
Bleichroeder, Inc. or Eagle Distributors, Inc.*
8.(a) -- Custody Agreement between the Registrant and The Bank
of New York.*
(b) -- Fund Accounting Agreement.*
(c) -- Special Custody Agreement between Registrant, The Bank
of New York and Arnhold and S. Bleichroeder, Inc.*
(d) -- Amendment to Custody Agreement for Terminal Link and
ACCESS between Registrant and The Bank of New York.
9. -- Transfer Agency Agreement.
10. -- Opinion of Reavis & McGrath (now Fulbright & Jaworski
L.L.P.).*
11. -- Consent of Independent Accountants.
13. -- Subscription Agreement.*
14. -- Services Agreement.
17. -- Financial Data Schedule.
</TABLE>
- ------
* Previously filed and incorporated by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No persons are controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
--------------- ------------------------
<S> <C>
Common Stock ..... 569 (as of February 1, 1996)
</TABLE>
II-1
<PAGE>
ITEM 27. INDEMNIFICATION
The Registrant shall indemnify directors, officers, employees and agents
of the Registrant against judgments, fines, penalties, settlements and
expenses to the fullest extent authorized, and in the manner permitted, by
applicable federal and state law.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Arnhold and S. Bleichroeder Advisers, Inc. (the "Adviser") is a wholly
owned subsidiary of Arnhold and S. Bleichroeder, Inc. which has a substantial
quantity of assets under management in the form of individual and fund
accounts. Arnhold and S. Bleichroeder, Inc. is a registered broker-dealer and
maintains a substantial involvement in the securities brokerage and
underwriting businesses. The business and other connections of the Adviser's
directors and officers during the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Position with Business and
Name the Adviser Other Connections
------ -------------- ------------------
<S> <C> <C>
Henry H. Arnhold ......... Director Co-Chairman of the Board of Arnhold and S.
Bleichroeder, Inc.; Director, Aquila
International Fund Ltd. and First Eagle
International Fund, Inc.; Trustee, The New
School for Social Research.
John P. Arnhold .......... President and Chief Executive Co-President and Director, Arnhold and S.
Officer Bleichroeder, Inc.; Director, Aquila
International Fund Limited and The Global
Beverage Fund Limited; President, First Eagle
International Fund, Inc.
Gary L. Fuhrman .......... Director Director and Senior Vice President, Arnhold
and S. Bleichroeder, Inc., Director, National
R.V. Holdings, Inc. and Medical Resources,
Inc.
Stephen M. Kellen ........ Director Co-Chairman of the Board of Arnhold and S.
Bleichroeder, Inc.; Director, First Eagle
International Fund, Inc.; Trustee, The
Carnegie Hall Society; Trustees Council of
The National Gallery of Art; and Trustee
WNET/Thirteen.
Robert Miller ............ Vice President, Secretary and Senior Vice President; Treasurer, Chief
Treasurer Accounting Officer, of First Eagle
International Fund, Inc.
Stanford S. Warshawsky ... Director Co-President, Director and Secretary, Arnhold
and S. Bleichroeder, Inc,; Director and
Chairman of the Board, First Eagle
International Fund, Inc.; Director,
German-American Chamber of
Commerce.
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Arnhold and S. Bleichroeder, Inc. acts as an investment adviser to
First Eagle International Fund, Inc., First Eagle Fund, N.V., Aquila
International Fund Limited, Aetos Corp., DEF Associates, N.V. and The Global
Beverage Fund, Limited.
(b)
<TABLE>
<CAPTION>
Name and Principal Position and Offices Positions and Offices
Business Address* with Underwriter with Registrant
----------------- --------------------- ------------------------
<S> <C> <C>
Henry H. Arnhold ......... Co-Chairman of the Board Director and Chairman of the Board
John P. Arnhold .......... Co-President and Director Co-President
David L. Cohen ........... Senior Vice President Vice President
Michael M. Kellen ........ Director and Senior Vice President Director and Vice Chairman of the Board
Stephen M. Kellen ........ Co-Chairman of the Board Director
Tracy L. LaPointe ........ Vice President Assistant Vice President
Harold J. Levy ........... Senior Vice President Co-President
Robert Miller ............ Senior Vice President Treasurer and Chief Accounting Officer
Martha B. Pierce ......... Assistant Vice President Secretary and Assistant Treasurer
Charles J. Rodriguez ..... Senior Vice President Assistant Vice President
Co-President, Director and Director
Stanford S. Warshawsky ... Secretary
</TABLE>
- --------
* The Address of each person named is 45 Broadway, New York, New York 10006.
--------------
II-2
<PAGE>
(c) The Registrant has no principal underwriter which is not an affiliated
person of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The Registrant's accounts and records will be maintained at The Bank of
New York, 48 Wall Street, New York, New York 10286. Records of shareholders'
accounts will be maintained at BISYS Fund Services, Inc., 100 First Avenue,
Suite 300, Pittsburgh, Pennsylvania 15222.
ITEM 31. MANAGEMENT SERVICES
The Registrant is not a party to any management-related service contract
not discussed in the Prospectus or Statement of Additional Information of
this Amendment No. 16 to the Registration Statement.
ITEM 32. UNDERTAKING.
The Registrant hereby undertakes to provide each person to whom a copy of
the Prospectus is given with a copy of the Fund's annual report, which
contains the information required by item 5A of Form N-1A, upon request by
such person and free of charge.
The Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director, if requested to
do so by the holders of at least 10% of the Fund's outstanding shares, and
that it will assist in communication with other shareholders as required by
Section 16(c) of the Investment Company Act of 1940.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the
"Securities Act") and the Investment Company Act of 1940 (the "Investment
Company Act"), the Registrant has duly caused this Post-Effective Amendment
under the Securities Act and Amendment under the Investment Company Act to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 26th day of February, 1996.
FIRST EAGLE FUND OF AMERICA, INC.
BY: /S/ HAROLD J. LEVY
----------------------------
HAROLD J. LEVY
PRESIDENT
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
---------- -------- ----
<S> <C> <C>
/s/ HENRY H. ARNHOLD
---------------------------- Director February 26, 1996
(Henry H. Arnhold)
/s/ CANDACE K. BEINECKE
---------------------------- Director February 26, 1996
(Candace K. Beinecke)
/s/ PAUL FRIBOURG
---------------------------- Director February 26, 1996
(Paul Fribourg)
/s/ K. GEORG GABRIEL
---------------------------- Director February 26, 1996
(K. Georg Gabriel)
/s/ RALPH E. HANSMANN
---------------------------- Director February 26, 1996
(Ralph E. Hansmann)
/s/ MICHAEL M. KELLEN
---------------------------- Director February 26, 1996
(Michael M. Kellen)
/s/ STEPHEN M. KELLEN
---------------------------- Director February 26, 1996
(Stephen M. Kellen)
/s/ WALTER OECHSLE
---------------------------- Director February 26, 1996
(Walter Oechsle)
/s/ STANFORD S. WARSHAWSKY
---------------------------- Director February 26, 1996
(Stanford S. Warshawsky)
/s/ KEITH S. WELLIN
---------------------------- Director February 26, 1996
(Keith S. Wellin)
/s/ HAROLD J. LEVY President, Chief Executive February 26, 1996
---------------------------- Officer and Chief Financial
(Harold J. Levy) Officer
</TABLE>
II-4
<PAGE>
NUMBER SHARES
SEE REVERSE FOR
CERTAIN DEFINITIONS
ASB
FIRST EAGLE FUND OF AMERICA, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
COMMON STOCK CUSIP 319941 10 0
This is to Certify that
_______________________________________________________________________________
is the owner of
_______________________________________________________________________________
FULLY PAID NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
======================FIRST EAGLE FUND OF AMERICA, INC.========================
(hereinafter called the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all of the provisions
of the Articles of Incorporation of the Corporation to all which the holder by
acceptance hereof asserts. This Certificate is not valid until countersigned
by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
/s/ Martha B. Pierce /s/ Harold J. Levy
- -------------------------- [SEAL} -------------------------
SECRETARY PRESIDENT
COUNTERSIGNED:
BISYS FUND SERVICES, INC.
(PITTSBURGH, PA)
BY TRANSFER AGENT
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT --...Custodian....
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right of ....................................
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
A full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemptions of the stock of each class which the
Corporation is authorized to issue will be furnished to any shareholder on
request and without charge.
For Value Received,_______________hereby sell, assign and transfer, unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
|______________________________________|
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated____________________________________
_________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed:
______________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WTH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
INVESTMENT ADVISORY AGREEMENT
Agreement, as amended and restated as of November 1, 1995, between FIRST
EAGLE FUND OF AMERICA, INC., a Maryland corporation (the "Fund"), and ARNHOLD
and S. BLEICHROEDER, INC., a registered investment adviser organized under the
laws of the State of New York (the "Adviser").
WITNESSETH:
WHEREAS, the Fund is a non-diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to render such
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Adviser to act as investment adviser to the
Fund for the period and on the terms set forth in this Agreement. The Adviser
accepts such appointment and agrees to render the services herein described, for
the compensation herein provided.
2. Subject to the supervision of the Board of Directors of the Fund, the
Adviser shall manage the investment operations of the Fund and the composition
of the Fund's portfolio, including the purchase, retention and disposition
thereof, in accordance with the Fund's investment objectives, policies and
restrictions as stated in its Prospectus and Statement of Additional Information
and subject to the following understandings:
(a) The Adviser shall provide supervision of the Fund's investments
and determine from time to time what investments, securities or commodity
futures contracts and options thereon ("futures") will be purchased,
retained, sold or loaned by the Fund, and what portion of the assets will
be invested or held uninvested as cash.
(b) The Adviser shall use its best judgment in the performance of its
duties under this Agreement.
(c) The Adviser, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws, Prospectus and Statement of Additional Information
of the Fund and with the instructions and directions of the Board of
<PAGE>
Directors of the Fund and will conform to and comply with the requirements
of the 1940 Act and all other applicable federal and state laws and
regulations.
(d) The Adviser shall determine the securities and futures to be
purchased or sold by the Fund and will place orders pursuant to its
determinations with or through such persons, brokers, dealers or futures
commission merchants (including the Adviser) in conformity with the policy
with respect to brokerage as set forth in the Fund's Prospectus and
Statement of Additional Information or as the Board of Directors may direct
from time to time. In providing the Fund with investment supervision, it is
recognized that the Adviser will give primary consideration to securing
most favorable price and efficient execution. Consistent with this policy,
the Adviser may consider the financial responsibility, research and
investment information and other services provided by brokers, dealers or
futures commission merchants who may effect or be a party to any such
transaction or other transactions to which other clients of the Adviser may
be a party. It is understood that neither the Fund nor the Adviser has
adopted a formula for allocation of the Fund's investment business. It is
also understood that it is desirable for the Fund that the Adviser have
access to supplemental investment and market research and security and
economic analysis provided by brokers or futures commission merchants who
may execute brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers or futures commission
merchants on the basis of seeking the most favorable price and efficient
execution. Therefore, the Adviser is authorized to place orders for the
purchase and sale of securities or futures for the Fund with such brokers
or futures commission merchants, subject to review by the Fund's Board of
Directors from time to time with respect to the extent and continuation of
this practice. It is understood that the services provided by such brokers
or futures commission merchants may be useful to the Adviser in connection
with its services to other clients.
On occasions when the Adviser deems the purchase or sale of a security
or a futures contract to be in the best interest of the Fund as well as
other clients, the Adviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities or futures contract to be so sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities or futures
contract so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner it considers to be
the most equitable and consistent with its fiduciary obligations to the
Fund and to such other clients.
(e) The Adviser shall maintain all books and records with respect to
the Fund's portfolio transactions the Fund is required to keep under Rule
31a-1 under the 1940 Act.
(f) The Adviser shall provide the Fund's Custodian and the Fund on
each business day with information relating to all transactions concerning
the Fund's assets.
<PAGE>
(g) The investment management services provided by the Adviser
hereunder are not to be deemed exclusive, and the Adviser shall be free to
render similar services to others.
3. The Fund has delivered to the Adviser copies of each of the following
documents and will deliver to it all future amendments and supplements, if any:
(a) Articles of Incorporation of the Fund, filed with the State
Department of Assessments and Taxation of Maryland (such Articles of
Incorporation, as in effect on the date hereof and as amended from time to
time, are herein called the "Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Adviser and approving the form of this
Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the "Registration Statement"), as filed
with the Securities and Exchange Commission (the "Commission") relating to
the Fund and shares of the Fund's Common Stock and all amendments thereto:
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus and Statement of Additional Information of the Fund
(such Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time, being herein
called the "Prospectus").
4. The Adviser shall authorize and permit any of its directors, officers
and employees who may be elected as directors or officers of the Fund to serve
in the capacities in which they are elected. Services to be furnished by the
Adviser under this Agreement may be furnished through the medium of any of such
directors, officers or employees.
5. The Adviser shall keep the Fund's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Adviser agrees that all
records which it maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any of such records upon the Fund's request. The
Adviser further agrees to preserve for the periods prescribed by Rule 31a-2 of
the Commission under the 1940 Act any such records as are required to be
maintained by the Adviser pursuant to paragraph 2 hereof.
<PAGE>
6. For the services provided pursuant to this Agreement by the Investment
Adviser, the Fund will pay an annual management fee of 1.25% of the average
daily net asset value of the Fund payable quarterly. Net asset value shall be
computed on such days and at such time or times as described in the Fund's
then-current Prospectus and Statement of Additional Information. Upon any
termination of this Agreement before the end of any quarter, the fee for such
part of a quarter shall be pro-rated according to the proportion which such
period bears to the full quarterly period and shall be payable upon the date of
termination of this Agreement.
7. The Adviser shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
8. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund, or by the Adviser at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written notice to the
other party. This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).
9. Nothing in this Agreement shall limit or restrict the right of any of
the Adviser's directors, officers, or employees who may also be a director,
officer or employee of the Fund to engage in any other business or to devote
time and attention in part to the management or other aspects of any business,
whether of a similar or a dissimilar nature, nor limit or restrict the Adviser's
right to engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
10. Except as otherwise provided herein or authorized by the Board of
Directors of the Fund from time to time, the Adviser shall for all purposes
herein be deemed to be an independent contractor and shall have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
11. During the term of this Agreement, the Fund agrees to furnish the
Adviser at its principal office all prospectuses, proxy statements, reports to
stockholders, sale literature, or other material prepared for distribution to
stockholders of the Fund or the public, which refer to the Adviser in any way,
prior to use thereof and not to use such material if the Adviser reasonably
objects in writing within five business days (or such other time as may be
<PAGE>
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund will continue to furnish to the Adviser copies of any of the
above-mentioned materials which refer in any way to the Adviser. Sales
literature may be furnished to the Adviser hereunder by first class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Adviser such other information relating to
the business affairs of the Fund as the Adviser at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
12. This Agreement constitutes the entire Agreement between the parties
with respect to the subject matter hereof. This Agreement may be amended by
mutual consent, but the consent of the Fund must be approved in conformity with
the requirements of the 1940 Act.
13. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Adviser at 45 Broadway, New York, N.Y. 10006,
Attention: President; or (2) to the Fund at 45 Broadway, New York, N.Y. 10006,
Attention: President.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
15. The Fund may use the name "First Eagle Fund of America, Inc." or any
name including Arnhold and S. Bleichroeder or any variant thereof, such names
being tradenames of Arnhold and S. Bleichroeder, Inc., only for so long as this
Agreement or any extension, renewal or amendment hereof remain in effect,
including any similar agreement with any organization which shall have succeeded
to the Adviser's business as investment adviser, or the Distribution Agreement
between the Fund and Arnhold and S. Bleichroeder, Inc. (the "Distributor") or
any extension, renewal or amendment thereof, remains in effect, including any
similar agreement with any organization which shall have succeeded to the
Distributor's business as distributor. At such time as such Agreement shall no
longer be in effect, the Fund will (to the extent that it lawfully can) cease to
use such a name or any other name indicating that it is advised by, managed by
or otherwise connected with the Adviser, the Distributor or any organization
which shall have so succeeded to such businesses. In no event shall the Fund use
the name "First Eagle International Fund, Inc." or any name including "Arnhold
and S. Bleichroeder" or any variant thereof if the Adviser's or Distributor's
functions are transferred or assigned to a company of which Arnhold and S.
Bleichroeder, Inc. does not have control. In the event that such Agreement shall
no longer be in effect or the Adviser's or Distributor's functions are
transferred or assigned to a company of which Arnhold and S. Bleichroeder, Inc.
does not have control, the Fund shall use its best efforts to legally change its
name by filing the required documentation with appropriate state and federal
agencies.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
By: /s/ Harold J. Levy
---------------------------------------
Harold J. Levy, President
ARNHOLD and S. BLEICHROEDER, INC.
By: /s/ Henry H. Arnhold
---------------------------------------
Henry H. Arnhold, Co-Chairman
<PAGE>
ASSIGNMENT AGREEMENT
ASSIGNMENT AGREEMENT, dated as of February 28, 1996, by and among
FIRST EAGLE FUND OF AMERICA, INC., a Maryland corporation (the "Fund"), ARNHOLD
and S. BLEICHROEDER, INC., a registered investment adviser organized under the
laws of the State of New York (the "Adviser") and ARNHOLD and S. BLEICHROEDER
ADVISERS, INC., a registered investment adviser organized under the laws of the
State of Delaware (the "New Adviser").
W I T N E S S E T H:
WHEREAS, the Fund and the Adviser entered into an Investment Advisory
Agreement, as amended and restated as of November 1, 1995 (the "Investment
Advisory Agreement");
WHEREAS, the Adviser wishes to make an assignment of its interest in
the Investment Advisory Agreement to the New Adviser, which is a wholly owned
subsidiary of the Adviser, and transfer all of its right and title to and
interest in the Investment Advisory Agreement to the New Adviser, and the New
Adviser wishes to assume all of the Investment Adviser's right and title to and
interest in the Investment Advisory Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Assignment. The Adviser hereby assigns to the New Adviser all of
its right and title to and interest in the Investment Advisory Agreement.
2. Assumption. The New Adviser ("Assignee") hereby agrees to be
bound by all of the terms and conditions of the Investment Advisory Agreement,
and assumes all obligations thereby imposed on it.
3. Acknowledgement. The Assignee hereby acknowledges that the
Assignee has received and read a copy of the Investment Advisory Agreement.
4. Restatement and Amendment. The parties hereto agree that the
Investment Advisory Agreement may be restated and re-executed to reflect the
assignment made herein.
5. Counterparts. This Agreement may be executed in counterparts
and all counterparts together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
FIRST EAGLE FUND OF AMERICA, INC.
By: /s/ Martha B. Pierce
--------------------------------------
Name: Martha B. Pierce
Title: Secretary
.
ARNHOLD AND S. BLEICHROEDER, INC.
By: /s/ Henry H. Arnhold
--------------------------------------
Name: Henry H. Arnhold
Title: Co-Chairman
ARNHOLD AND S. BLEICHROEDER ADVISERS, INC.
By: /s/ John P. Arnhold
---------------------------------------
Name: John P. Arnhold
Title: President
<PAGE>
AMENDMENT
AMENDMENT made as of this 18th day of January, 1996 to that
certain custody agreement dated March 19, 1987 (the "Custody
Agreement") between The Bank of New York as custodian (the
"Custodian") and First Eagle Fund of America, Inc. ("the "Fund"), (a
corporation organized and existing under the laws of the State of
Maryland).
WHEREAS, the Custodian and Fund have previously entered into
a Custody Agreement;
WHEREAS, the Fund and the Custodian desire to amend the Custody
Agreement to provide for the electronic transmission of instructions
from the Fund to the Custodian; and
WHEREAS, the Board of (Directors)(Trustees) of the Fund has
approved the amendment of the Custody Agreement as hereinafter
set forth;
NOW, THEREFORE, in consideration for the mutual promises set
forth, the Fund and the Custodian agree to amend the Custody
Agreement as follows:
1. The definition of the term "Certificate" in Article I
is hereby amended to read in its entirety as follows:
"Certificate" shall mean any notice, instruction, or any
other instrument in writing, authorized or required by
this Agreement to be given to the Custodian which is
actually received by the Custodian and signed on behalf
of the Fund by any two officers, and the term Certificate
shall also include instructions by the Fund to the
Custodian communicated by a Terminal Link.
2. The definition of the term "Officer" in Article I is
hereby amended to read in its entirety as follows:
"Officer" shall be deemed to include the President, any
Vice President, the Secretary, the Treasurer, the
Controller, any Assistant Secretary, any Assistant
Treasurer, and any other person or persons, whether or
not any such other person is an officer or employee of
the Fund, duly authorized by the Board of (Directors)
(Trustees) of the Fund to execute any Certificate,
instruction, notice or other instrument on behalf of the
Fund and listed in the Certificate annexed
<PAGE>
hereto as Appendix B or such other Certificate as may be
received by the Custodian from time to time.
3. Article I is hereby further amended by the addition of
the following defined term:
"Terminal Link" shall mean an electronic data transmission
link between the Fund, an Intermediary (as hereinafter defined),
and the Custodian requiring in connection with each use of the
Terminal Link by or on behalf of the Fund use of an
authorization code provided by the Custodian and at least two
access codes established by the Fund. As used herein the term
"Intermediary" shall mean a third party that maintains a
transmission line to the Custodian and has been selected by the
Fund to receive electronic data transmissions from the Custodian
or the Fund and forward the same to the Fund or the Custodian,
respectively.
4. A new Article shall be added to read in its entirety as
follows:
TERMINAL LINK
1. The Terminal Link shall be utilized by the Fund only
for the purpose of the Fund providing Certificates to the
Custodian with respect to transactions involving Securities or
for the transfer of money to be applied to the payment of
dividends, distributions or redemptions of Fund Shares, and
shall be utilized by the Custodian only for the purpose of
providing notices to the Fund. Such use shall commence only
after the Fund shall have delivered to the Custodian a
Certificate substantially in the form of Appendix 1 and shall
have established access codes and safekeeping procedures to
safeguard and protect the confidentiality and availability of
such access codes and shall have reviewed the safekeeping
procedures established by the Intermediary to assure that
transmissions inputted by the Fund, and only such transmissions,
are forwarded by the Intermediary to the Custodian without any
alteration or omission. Each use of the Terminal Link by the
Fund shall constitute a representation and warranty that the
Terminal Link is being used only for the purposes permitted
hereby, that at least two Officers have each utilized an access
code, that such safekeeping procedures have been established by
the Fund, that the Intermediary has safekeeping procedures
reviewed by the Fund to assure that all transmissions inputted
by the Fund, and only such transmissions, are forwarded by the
Intermediary to the Custodian without any alteration or omission
by the Intermediary, and that such use does not contravene the
<PAGE>
Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
2. The Fund shall obtain and maintain at its own cost and
expense all equipment and services, including, but not limited to
communications services, necessary for it to utilize the Terminal
Link, and the Custodian shall not be responsible for the
reliability or availability of any such equipment or services.
3. The Fund acknowledges that any data bases made available
as part of, or through the Terminal Link and any proprietary
data, software, processes, information and documentation (other
than which are or become part of the public domain or are legally
required to be made available to the public) (collectively, the
"Information"), are the exclusive and confidential property of
the Custodian. The Fund shall, and shall cause others to which it
discloses the Information, including, without limitation the
Intermediary, to keep the Information confidential by using the
same care and discretion it uses with respect to its own
confidential property and trade secrets, and shall neither make
nor permit any disclosure without the express prior written
consent of the Custodian.
4. Upon termination of this Agreement for any reason, the
Fund shall return to the Custodian any and all copies of the
Information which are in the Fund's possession or under its
control, or which the Fund distributed to third parties,
including, without limitation, the Intermediary. The provisions
of this Article shall not affect the copyright status of any of
the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
5. The Custodian reserves the right to modify the Terminal
Link from time to time without notice to the Fund or the
Intermediary except that the Custodian shall give the Fund notice
not less than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund
agrees that neither the Fund nor the Intermediary shall modify or
attempt to modify the Terminal Link without the Custodian's prior
written consent. The Fund acknowledges that any software or
procedures provided the Fund or the Intermediary as part of the
Terminal Link are the property of the Custodian and, accordingly,
the Fund agrees that any modifications to the Terminal Link,
whether by the Fund, the Intermediary or the Custodian and
whether with or without the Custodian's consent, shall become the
property of the Custodian.
6. Neither the Custodian nor any manufacturers and suppliers
it utilizes or the Fund or the Intermediary utilizes in
connection with the Terminal Link makes any warranties or
<PAGE>
representations, express or implied, in fact or in law,
including but not limited to warranties of merchantability and
fitness for a particular purpose.
7. The Fund will cause its officers and employees to treat
the authorization codes and the access codes applicable to
Terminal Link with extreme care, and irrevocably authorizes the
Custodian to act in accordance with and rely on Certificates
received by it through the Terminal Link. The Fund acknowledges
that it is its responsibility to assure that only its officers
and authorized persons of the Intermediary use the Terminal Link
on its behalf, and that the custodian shall not be responsible
nor liable for use of the Terminal Link on the Fund's behalf by
persons other than such persons or Officers, or by only a single
Officer, nor for any alteration, omission, or failure to
promptly forward by the Intermediary.
8(a). Except as otherwise specifically provided in Section
8(b) of this Article, the Custodian shall have no liability for
any losses, damages, injuries, claims, costs or expenses arising
out of or in connection with any failure, malfunction or other
problem relating to the Terminal Link except for money damages
suffered as the direct result of the negligence of the Custodian
in an amount not exceeding for any incident $25,000, provided
however, that the Custodian shall have no liability under this
Section 8 if the Fund fails to comply with the provisions of
Section 10.
8(b). The Custodian's liability for its negligence in
executing or failing to act in accordance with a Certificate
received through Terminal Link shall be only with respect to a
transfer of funds which is not made in accordance with such
Certificate after such Certificate shall have been duly
acknowledged by the Custodian, and shall be contingent upon the
Fund complying with the provisions of Section 10 of this
Article, and shall be limited to (i) restoration of the
principal amount mistransferred, if and to the extent that the
Custodian would be required to make such restoration under
applicable law, and (ii) the lesser of (A) the Fund's actual
pecuniary loss incurred by reason of its loss of use of the
mistransferred funds or the funds which were not transferred, as
the case may be, or (B) compensation for the loss of use of the
mistransferred funds or the funds which were not transferred,
as the case may be, at a rate per annum equal to the average
federal funds rate as computed from the Federal Reserve Bank of
New York's daily determination of the effective rate for
federal funds, for the period during which the Fund has lost use
of such funds. In no event shall the Custodian have any
liability for failing to transfer funds in accordance with a
<PAGE>
Certificate received by the Custodian through Terminal Link
other than through the applicable transfer module for the
particular instructions contained in such Certificate.
9. Without limiting the generality of the foregoing, in no
event shall the Custodian or any manufacturer or supplier of its
computer equipment, software or services relating to the
Terminal Link be responsible for any special, indirect,
incidental or consequential damages which the Fund or the
Intermediary may incur or experience by reason of its use of the
Terminal Link, even if the custodian or any manufacturer or
supplier has been advised of the possibility of such damages,
nor with respect to the use of the Terminal Link shall the
Custodian or any such manufacturer or supplier be liable for
acts of God, or with respect to the following to the extent
beyond such person's reasonable control: machine or computer
breakdown or malfunction, interruption or malfunction of
communication facilities, labor difficulties or any other
similar or dissimilar cause.
10. The Fund shall notify the Custodian of any errors,
omissions or interruptions in, or delay or unavailability of,
the Terminal Link as promptly as practicable, and in any event
within 24 hours after the earliest of (i) discovery thereof,
(ii) the business day on which discovery should have occurred
through the exercise of reasonable care, and (iii) in the case
of any error, the date of actual receipt of the earliest notice
which reflects such error, it being agreed that discovery and
receipt of notice may only occur on a business day. The
Custodian shall promptly advise the Fund or the Intermediary
whenever the Custodian learns of any errors, omissions or
interruption in, or delay or unavailability of, the Terminal
Link.
11. The Custodian shall acknowledge to the Fund or to the
Intermediary, by use of the Terminal Link, receipt of each
Certificate the Custodian receives through the Terminal Link,
and in the absence of such acknowledgement the Custodian shall
not be liable for any failure to act in accordance with such
Certificate and the Fund may not claim that such Certificate was
received by the Custodian. Such acknowledgement, which may occur
after the Custodian has acted upon such Certificate, shall be
accomplished on the same day on which such Certificate is
received.
5. References in this Amendment to the Custody Agreement
are to the Custody Agreement as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers, thereunto
duly authorized and their respective seals to be hereto affixed
as of the day and year first above written.
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
---------------------------------
Title: STEPHEN E. GRUNSTON
Vice President
[SEAL}
ATTEST:
/s/ Michael A. Cecero
- -----------------------------------
FIRST EAGLE FUND OF AMERICA, INC.
By: /s/ Martha B. Pierce
---------------------------------
Title: Secretary
By: /s/ Robert Miller
---------------------------------
Title: Treasurer
[SEAL}
ATTEST:
/s/ Paul E. Csaby
- ----------------------------------
PAUL E. CSABY
Notary Public, State of New York
No. 49-4911126
Qualified in Richmond County
Commission Expires Nov. 2, 1997
<PAGE>
CASH MANAGEMENT AND RELATED SERVICES AGREEMENT dated as of
January 18, 1996 between each mutual fund and/or portfolio series of
each mutual fund listed on Schedule A hereto (each a "Fund",
collectively the "Funds"), and The Bank of New York (the "Bank").
WITNESSETH:
That in consideration of the mutual agreements and covenants
herein contained, the Bank and each Fund hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, unless the context otherwise
requires, the following words shall have the meanings set forth below:
1. "Account Available Balance" shall mean with respect to an
Account for any given day during a calendar month a positive or
negative dollar amount equal to (A) if such day is a Business Day, the
Account Available Balance as of the close of the last preceding
Business Day plus a positive or negative dollar amount equal to the
difference, if any, between the Chargeable Credits with respect to such
day and such Account and the Chargeable Debits with respect to such day
and such Account, and (B) if such day is not a Business Day, the
Account Available Balance as of close of the last preceding Business
Day, except that both (A) and (B) shall be reduced by the United States
Federal Reserve reserve requirements then applicable to the Bank with
respect to such Account. The Account Available Balance of an Account
shall be zero on the date immediately preceding the first date on which
an entry, consisting of either a Chargeable Credit or Chargeable Debit,
is first made to such Account hereunder.
2. "ACCESS" shall mean any on-line communication system
provided by the Bank hereunder whereby either the receiver of such
communication is able to verify by codes or otherwise with a reasonable
degree of certainty the identity of the sender of such communication,
or the sender is required to provide password or other identification
code.
3. "Authorized Person" shall mean either (A) any person duly
authorized by corporate resolutions of the board of directors or board
of trustees of a Fund, as appropriate, to give Oral and/or Written
Instructions on behalf of such Fund, such persons to be designated in a
certificate, substantially in the form of Exhibit A, which contains a
specimen signature of such person, or (B) any person sending or
transmitting any instruction or direction through ACCESS.
4. "Business Day" shall mean any day on which the Federal
Reserve Bank of New York is open for business, except for any such day
on which the Bank is required by law or regulation to be closed, or
elects to be closed.
5. "Calendar Month Earnings Credit" shall mean with respect to
an Account for any calendar month the dollar amount, whether positive
or negative, equal to the sum of the Gross Calendar Month Earnings
Credit with respect to such Account for such calendar month and the
Monthly Overdraft Charges with respect to such Account for such
calendar month.
6. "Chargeable Credits" shall mean with respect to an Account
for any given day during a calendar month a positive amount of dollars
equal to the sum, if any, of (A) the aggregate dollar amount of Federal
Funds credited to such Account by the Bank in accordance with the then
applicable availability schedule of the Federal Reserve Bank of New
York, and (B) the aggregate dollar amount of Bank internal transfers of
Federal Funds to such Account.
7. "Chargeable Debits" shall mean with respect to an Account
for any given day during a calendar month a negative dollar amount
equal to the sum, if any, of (A) the aggregate dollar amount of Federal
Funds relating to such Account charged against the Bank by the Federal
Reserve Bank of New York on or as of such day, and (B) the aggregate
dollar amount of drafts drawn on such Account which are deposited in
the Bank by customers of the Bank on such day, or Bank internal
transfers from, or charges to, such Account.
8. "Daily Earnings" shall mean with respect to an Account for
any day during a calendar month a positive dollar amount equal to the
product of (A) the positive Account Available Balance, if any, of such
Account for such day, multiplied by (B) the Daily Earnings Rate for
such day. The Daily Earnings with respect to an Account for any day
during a calendar month on which the Account Available Balance of such
Account is negative shall be zero.
<PAGE>
9. "Daily Earnings Rate" shall mean for any day during a
calendar month one three hundred and sixty-fifth of the 91 day U.S.
Treasury Bill discount rate of the Monday auction first preceding such
day (whether or not such day is a Monday, and whether or not such
Monday auction was in the immediately prior month), as such Monday
auction 91 day U.S. Treasury Bill discount rate is reported in The Wall
Street Journal.
10. "Daily Overdraft Charges" shall mean with respect to an
Account for any day during any calendar month a negative dollar amount
equal to the product, if any, of (A) the negative Account Available
Balances, if any, with respect to such Account for such day during such
calendar month, multiplied by (B) the Overdraft Rate.
11. "Federal Funds" shall mean immediately available same day
funds.
12. "Gross Calendar Month Earnings Credit" shall mean with
respect to an Account for any calendar month a positive dollar amount
equal to the aggregate sum of the Dally Earnings of such Account for
such calendar month.
13. "Monthly Overdraft Charges" shall mean with respect to an
Account for any calendar month a negative dollar amount equal to the
aggregate sum of the Daily Overdraft Charges with respect to such
Account for such calendar month which have not been previously paid to
the Bank by the Fund to which such Account relates.
14. "Oral Instructions" shall mean verbal instructions actually
received by the Bank from an Authorized Person or from a person
reasonably believed by the Bank to be an Authorized Person.
15. "Overdraft Rate" shall mean with respect to an Account for
any calendar day during any calendar month a rate equal to one three
hundred and sixtieth of the sum of (A) one-half percent, and (B) the
greater of (i) the prime commercial lending rate of The Bank of New
York, as publicly announced to be in effect from time to time, in
effect on such calendar day, and (ii) 6%.
16. "Shareholder" shall mean any record holder of any Shares,
as identified to the Bank from time to time pursuant to this Agreement.
17. "Shares" shall mean all or any part of each class of the
shares of capital stock, beneficial interest, or limited partnership
interest of a Fund, as the case may be, which are authorized and/or
issued from time to time.
18. "Written Instructions" shall mean written instructions
actually received by the Bank from an Authorized Person or from a
person reasonably believed by the Bank to be an Authorized Person by
letter, memorandum, telegram, cable, telex, telecopy facsimie or
through ACCESS.
ARTICLE II
APPOINTMENTS OF BANK REPRESENTATIONS AND WARRANTIES
1. Appointment; Establishment of Accounts. Each Fund hereby
appoints the Bank as its agent for the term of this Agreement to
perform the cash management services set forth herein and in Schedules
I and II attached hereto and made a part hereof (as such Schedules may
be amended or supplemented from time to time by mutual agreement). The
Bank hereby accepts appointment as such agent for each appointing Fund
and agrees to establish and maintain one or more separate accounts with
respect to each Fund (each, an "Account"; collectively, the "Accounts")
in order to receive and disburse money for the purposes set forth in
this Agreement.
2. Representations and Warranties. Each Fund hereby represents
and warrants only as to itself, and not jointly, to the Bank, which
representations and warranties shall be deemed to be continuing and to
be reaffirmed upon delivery to the Bank of any Oral or Written
Instructions, that:
(a) It is duly organized and existing under the laws of the
jurisdiction of its organization, with full power to carry on its
business as now conducted, to enter into this Agreement and to perform
its obligations hereunder,
(b) This Agreement has been duly authorized, executed and
delivered by the Fund in accordance with all requisite corporate action
and constitutes a valid and legally binding obligation of the Fund
enforceable in accordance with its terms, except to the extent such
enforcement may be limited by general equity principles or bankruptcy
principles; and
<PAGE>
(c) It is conducting its business in compliance with all
applicable laws and regulations, both state and federal, and has
obtained all regulatory licenses, approvals and consents necessary to
carry on its business as now conducted; there is no statute,
regulation, rule, order or judgment binding on it and no provision of
its charter or by-laws, nor of any mortgage, indenture, credit
agreement or other contract binding on it or affecting its property
which would prohibit its execution or performance of this Agreement
3. Board Resolutions. Each Fund shall provide the Bank with a
certified copy of a resolution of the board of directors or board of
trustees of such Fund, as appropriate, appointing the Bank as its agent
to act hereunder and providing for the creation of such Fund's
Account(s) and the execution by such Fund of this Agreement, it being
understood that receipt of the same by the Bank shall be a condition
precedent to the Bank's establishing an Account for such Fund.
ARTICLE III
CASH MANAGEMENT SERVICES
1. Receipt of Money. The Bank shall receive money for credit to
an Account only:
(i) by personal presentment of drafts by a Fund, but not by
a Shareholder of such Fund, at the branch or branches
in Manhattan identified from time to time by the Bank
to such Fund, provided such presentment is in
accordance with the time frames specified by the Bank
to such Fund;
(ii) by mailing of drafts to a post office box designated by
the Bank for such purpose, provided such drafts are
accompanied by a properly completed investment stub;
(iii) by wire transfer to an account maintained at the
Federal Reserve Bank of New York as identified in
writing by the Bank to a Fund;
(iv) by transfer to an account identified in writing by the
Bank to a Fund through the New York Automated Clearing
House;
(v) by transfer from another Account maintained by such
Fund with the Bank under this Agreement;
(vi) by transfer from another account maintained by such
Fund with the Bank, including such Fund's custodian
account under its Custody Agreement with the Bank as
Custodian; and
(vii) by transfer from any other account maintained with the
Bank.
All money received by the Bank shall be credited upon receipt, but
subject to final payment and receipt by the Bank of immediately
available funds, and receipt by the Bank of such forms, documents and
information as are required by the Bank from time to time and received
in the appropriate time frames. The Bank shall be entitled to reverse
any credits previously made to a Fund's Account where money is not
finally collected or where a credit to such Fund's Account was in
error.
2. Disbursement of Money. The Bank shall disburse money
credited to an Account only:
(i) pursuant to Written Instructions of such Fund
transmitted through ACCESS (except as otherwise
provided in Article V, Section 7 hereof), to transfer
funds as directed by such Fund (including transfers
through the Federal Reserve Bank of New York transfer
wire and the New York Automated Clearing House);
(ii) in payment of drafts drawn by an Authorized Person or
Shareholder (as appropriate for the particular
Account), subject to the terms hereof; and
(iii) in payment of charges to such Account representing
amounts payable to the Bank, and chargeable against
such Account, as provided in this Agreement
The Bank shall be required to disburse money in accordance with the
foregoing only insofar as such money is immediately available and on
deposit with the Bank. All instructions directing the disbursement of
money credited to an Account under this Agreement (whether through
ACCESS or by Oral Instructions pursuant to Article V hereof) must
identify an account to which such money shall be transferred, and
include all other information reasonably required by the Bank from time
to time. It is understood and agreed that with respect to any such
instructions, when instructed to credit or pay a party by both name and
<PAGE>
a unique numeric or alpha-numeric identifier (e.g., ABA number or
account number), the Bank and any other financial institution
participating in the funds transfer may rely solely on the unique
identifier, even if it identifies a party different than the party
named. Such reliance on a unique identifier shall apply to
beneficiaries named in such instructions as well as any financial
institution which is designated in such instruction to act as an
intermediary in a funds transfer.
3. Redemption Drafts; Shareholder Information. (a) Each Fund
shall be entitled to supply its Shareholders with redemption drafts,
but only in a form and substance agreed to by the Bank. The Bank agrees
to give each Fund sixty (60) days prior notice of any changes to the
form or substance of redemption drafts required by the Bank, provided
that if such change is required by applicable rules or procedures of
the Federal Reserve or any clearinghouse through which such drafts may
be presented, the Bank may as promptly as practicable give such notice
which may be less than sixty (60) days.
(b) Each Fund will promptly furnish to the Bank (i) the name,
mailing address and telephone number of each Shareholder of such Fund,
and (ii) specimen signatures for all individuals authorized to draw
redemption drafts (whether on their own behalf or on behalf of third
parties). Each Fund will promptly advise the Bank of individuals no
longer authorized to draw redemption drafts, and those individuals
newly authorized. Such information shall be provided to the Bank in a
mutually agreed upon format.
4. Redemption Draft Returns. A Fund may give the Bank Oral or
Written Instructions from time to time to return unpaid redemption
drafts of the Fund to the presenting financial institution for any
reason, and the Bank shall use reasonable efforts to comply with such
Oral or Written Instructions provided that any such compliance would
not prejudice or impair any rights or privileges of the Bank under
prevailing draft return procedures and would not be contrary to
prevailing industry rules, procedures, customs or practices.
Notwithstanding the foregoing, or any other provision in this Agreement
or the Schedules hereto, the Bank (i) may return redemption drafts with
unauthorized or missing signatures to the presenting financial
institution in accordance with prevailing banking industry draft return
procedures, and (ii) shall have no obligation to request Oral or
Written Instructions from a Fund with respect to any redemption drafts.
ARTICLE IV
OVERDRAFTS OR INDEBTEDNESS
If the Bank in its sole discretion advances funds, or if there
shall arise for whatever reason an overdraft or other indebtedness in
connection with any Account, such advancement of funds or overdraft
with respect to such Account shall be deemed a loan made by the Bank to
the Fund to which the Account relates payable on demand, and bearing
interest from the date incurred at the Overdraft Rate, such Overdraft
Rate to be adjusted on the effective date of any change in the prime
commercial lending rate constituting a part thereof. Upon any advance
or overdraft in connection with an omnibus Account maintained for the
benefit of more than one Fund, the Bank shall be furnished promptly
with Written Instructions identifying each Fund to which such advance
or overdraft relates, and the amount allocable thereto. Each Fund
hereby agrees with respect to its Account(s) and any advancement of
funds or overdraft that the Bank shall have a continuing lien and
security interest in and to any property at any time held by it for the
benefit of the Fund either hereunder or under such Fund's Custody
Agreement with the Bank, or in which the Fund may have an interest
which is then in the Bank's possession or control or in possession or
control of any third party acting in the Bank's behalf, including in
its behalf as Custodian under the Fund's Custody Agreement with the
Bank. Each Fund authorizes the Bank, in its sole discretion, at any
time to charge any such overdraft or indebtedness together with
interest due thereon at the Overdraft Rate against any balance of
accounts standing to the Fund's credit on the books of the Bank,
including those books maintained by the Bank in its capacity as
Custodian for the Fund under its Custody Agreement with the Fund. In
addition, each Fund hereby covenants that on each Business Day on which
either it intends to enter a reverse repurchase agreement and/or
otherwise borrow from a third party, or which next succeeds a Business
Day on which at the close of business the Fund had outstanding a
reverse repurchase agreement or such a borrowing, it shall prior to
9:00 a.m. (New York City time) advise the Bank, in writing, of each
such borrowing, shall specify the portfolio or series to which the same
relates, and shall not incur any indebtedness not so specified other
than from the Bank.
ARTICLE V
ACCESS: CALL-BACK SECURITY PROCEDURE
1. Services Generally. Each Fund shall be permitted to utilize
ACCESS to obtain direct on-line access to its Accounts. ACCESS shall
permit each Fund at the times mutually agreed upon by the Bank and such
Fund to receive reports, make inquiries, instruct the Bank to disburse
money in accordance with Article III, and perform such other functions
as are more fully set forth in Schedule I hereto.
<PAGE>
2. Permitted Use; Proprietary Information. (a) Each Fund shall
use ACCESS and the services available thereby only for its own internal
and proper business purposes and shall not sell, lease or otherwise
provide, directly or indirectly, ACCESS or any of such services or any
portion thereof to any other person or entity. Each Fund shall obtain
and maintain at its own cost and expense all equipment and services,
including but not limited to communications services, necessary for it
to utilize ACCESS and receive the services thereby, and the Bank shall
not be responsible for the reliability or availability of any such
equipment or any services used in connection with ACCESS.
(b) Each Fund acknowledges that all data bases made available
as part of, or through ACCESS, and any proprietary data, processes,
information and documentation (other than any such which are or become
part of the public domain or are legally required to be made available
to the public) (collectively, the "Information"), are the exclusive and
confidential property of the Bank. Each Fund shall keep the Information
confidential by using the same care and discretion that each Fund uses
with respect to its own confidential property and trade secrets, and
shall neither make nor permit any disclosure without the express prior
written consent of the Bank.
(c) Upon termination of this Agreement for any reason, each
Fund shall return to the Bank any and all copies of the Information
which are in such Fund's possession or under its control, or
distributed to third parties. The provisions of this Article shall not
affect the copyright status of any of the Information which may be
copyrighted and shall apply to all Information whether or not
copyrighted.
3. Modifications. The Bank reserves the right to modify ACCESS
from time to time without notice to any Fund. Each Fund agrees not to
modify or attempt to modify ACCESS without the Bank's prior written
consent. Each Fund acknowledges that ACCESS is the property of the Bank
and, accordingly, each Fund agrees that any modifications to ACCESS,
whether by such Fund or the Bank and whether with or without the Bank's
consent, shall become the property of the Bank.
4. No Representations or Warranties. Neither the Bank nor any
manufacturers or suppliers it utilizes or any Fund utilizes in
obtaining ACCESS makes any warranties or representations, express or
implied, in fact or in law, including but not limited to warranties of
merchantability and fitness for a particular purpose.
5. Security; Reliance; Unauthorized Use. Each Fund will, and
will cause all persons utilizing ACCESS to, treat the user and
authorization codes, passwords and authentication keys applicable to
ACCESS with extreme care. The Bank is hereby irrevocably authorized to
act in accordance with and rely on Written Instructions received by it
through ACCESS. Each Fund acknowledges that it is its sole
responsibility to assure that only authorized persons use ACCESS and
that the Bank shall not be responsible nor liable for any unauthorized
use thereof.
6. Limitations of Liability. (a) Except as otherwise
specifically provided in Section 6(b) below, the Bank shall have no
liability for any losses, damages, injuries, claims, costs or expenses
of a Fund arising out of or in connection with any failure, malfunction
or other problem relating to any Fund's use of ACCESS, except for money
damages suffered as the direct result of the negligence of the Bank in
an amount not exceeding, in the aggregate for all such losses, damages,
injuries, claims, costs and expenses of a Fund arising during any
month, the total charges paid by such Fund to the Bank for ACCESS and
services hereunder which caused such loss, damage, injury, claim, cost
or expense during the 12 months preceding the month in question, or
such lesser number of months as a Fund has used ACCESS if such Fund has
not received 12 months use of ACCESS; provided however, that the Bank
shall have no liability under this Section 6(a) if a Fund fails to
comply with the provisions of Section 6(d).
(b) The Bank's liability for its negligence in executing or
failing to execute a Fund's Written Instructions received through
ACCESS shall be only with respect to a transfer, or failure to
transfer, funds not in accordance with such Written Instructions after
such instructions have been duly acknowledged by the Bank, and shall be
contingent upon the Fund complying with the provisions of Section 6(d)
below, and shall be limited to (i) restoration of the principal amount
mistransferred, if and to the extent that the Bank would be required to
make such restoration under applicable law, and (ii) the lesser of (A)
a Fund's actual pecuniary loss incurred by reason of its loss of use of
the mistransferred funds or the funds which were not transferred, as
the case may be, or (B) compensation for the loss of the use of the
mistransferred funds or the funds which were not transferred, as the
case may be, at a rate per annum equal to the average federal funds
rate as computed from the Federal Reserve Bank of New York's daily
determination of the effective rate for federal funds, for the period
during which a Fund has lost use of such funds. In no event shall the
Bank have any liability for failing to execute Written Instructions for
the transfer of funds which are received by it through ACCESS other
than through the applicable transfer module for the particular
instructions.
<PAGE>
(c) Without limiting the generality of the foregoing, it is
hereby agreed that in no event shall the Bank or any manufacturer or
supplier of its computer equipment, software or services be responsible
for any special, indirect, incidental or consequential damages which a
Fund may incur arising out of or in connection with ACCESS or the
services provided thereby, even if the Bank or such manufacturer or
supplier has been advised of the possibility of such damages and
regardless of the form of action.
(d) Each Fund shall notify the Bank of any errors, omissions or
interruptions in, or delay or unavailability of, ACCESS as promptly as
practicable, and in any event within one Business Day after the
earliest of (i) discovery thereof, (ii) the date discovery should have
occurred through the exercise of reasonable care, and (iii) in the case
of any error, the date of the earliest notice to such Fund which
reflects such error.
7. Funds Transfer Back-Up Procedure. (a) In the event ACCESS is
inoperable and a Fund is unable to utilize ACCESS for the transmission
of Written Instructions to the Bank to transfer funds, the Fund may
give Oral Instructions regarding funds transfers, it being expressly
understood and agreed that the Bank's acting pursuant to such Oral
Instructions shall be contingent upon the Bank's verification of the
authenticity thereof pursuant to the Call-Back Security Procedure set
forth on Schedule III hereto (the "Procedure"). In this regard, each
Fund shall deliver to the Bank a Funds Transfer Telephone Instruction
Authorization in the form of Schedule III-A hereto, identifying the
individuals authorized to deliver and/or confirm all such Oral
Instructions. Each Fund understands and agrees that the Procedure is
intended to determine whether Oral Instructions received pursuant to
this Section are authorized but is not intended to detect any errors
contained in such instructions. Each Fund hereby accepts the Procedure
and confirms its belief that the Procedure is commercially reasonable.
(b) The Bank shall have no liability whatsoever for any funds
transfer executed in accordance with Oral Instructions delivered and
confirmed pursuant to this Section 7 and Schedule III hereto. The
Bank's liability for its negligence in executing or failing to execute
any such Oral Instructions shall be determined by reference to Section
6(b) of this Article.
(c) The Bank reserves the right to suspend acceptance of Oral
Instructions pursuant to this Section 7 if conditions exist which the
Bank, in its sole discretion, believes have created an unacceptable
security risk.
ARTICLE VI
CONCERNING THE BANK
1. Standard of Care; Presentment of Claims. Except as otherwise
provided herein, the Bank shall not be liable for any costs, expenses,
damages, liabilities or claims (including attorney's fees) incurred by
a Fund, except those costs, expenses, damages, liabilities or claims
arising out of the Bank's own negligence, bad faith or willful
misconduct. Notwithstanding the foregoing or anything contained in the
Schedules hereto, the Bank shall not be liable for any loss or damage,
including attorney's fees, resulting from the Bank paying any
redemption draft containing a forged drawer signature, unless such loss
or damage arises out of the Bank's gross negligence, bad faith or
willful misconduct. All claims against the Bank hereunder shall be made
by the respective Fund as promptly as practicable, and in any event
within 6 months from the date of the action or inaction on which such
claim is based, and shall include documentation evidencing such claim
and loss.
2. No Liability. The Bank shall have no obligation hereunder
for costs, expenses, damages, liabilities or claims, including
attorney's fees, which are sustained or incurred by reason of any
action or inaction by the Federal Reserve wire transfer system or the
New York Automated Clearing House. Notwithstanding any other provision
elsewhere contained in this Agreement, in no event shall the Bank be
liable to any Fund or any third party for special, indirect or
consequential damages, or lost profits or loss of business, arising
under or in connection with this Agreement, even if previously informed
of the possibility of such damages and regardless of the form of
action.
3. Indemnification. Each Fund shall indemnify and exonerate,
save and hold harmless the Bank from and against any and all costs,
expenses, damages, liabilities or claims, including reasonable
attorney's fees and expenses, which the Bank may sustain or incur or
which may be asserted against the Bank by reason of or as a result of
any action taken or omitted by the Bank in connection with its
performance under this Agreement, except those costs, expenses,
damages, liabilities or claims arising out of the Bank's own
negligence, bad faith or willful misconduct. This indemnity shall be a
continuing obligation of each Fund notwithstanding the termination of
this Agreement, or any Account, with respect to a Fund.
<PAGE>
4. No Obligation to Inquire. Without limiting the generality of
the foregoing, the Bank shall in no event be under any obligation to
inquire into, and shall not be liable for:
(a) the due authority of any Authorized Person acting on behalf
of a Fund in connection with this Agreement;
(b) the genuineness of any drawer signature on any draft
deposited in any Account, or whether such signature is a forgery,
other than the signature of the drawer of any draft drawn on the Bank;
(c) the existence or genuineness of any endorsement or any
marking purporting to be an endorsement on any draft deposited in any
Account, or whether such endorsement or marking is a forgery, it being
expressly understood that all risks associated with the acceptance by
the Bank of any draft payable to a payee other than a Fund for deposit
in any Account pursuant to Oral or Written Instructions by the Fund
shall be borne by such Fund.
(d) any discrepancy between the pre-printed investment stub
(other than a substitute stub created by the Bank) and the payee either
named on a draft or written on the face thereof, provided the Bank has
acted in accordance with the investment stub;
(e) any discrepancy between the written amount for which any
draft is drawn and the Magnetic Incription Character Recognition
("MICR") code enscribed thereon by any bank other than the Bank on any
draft presented, provided the Bank has acted in accordance with the
MICR code;
(f) any disbursement directed by any Fund, regardless of the
purpose therefor;
(g) any determination of the Share balance of any Shareholder
whose name is signed on any redemption draft;
(h) any determination of length of time any Shares have been
owned by any Shareholder or the method of payment utilized to purchase
such Shares by such Shareholder;
(i) any claims, liens, attachments, stays or stop orders with
respect to any Shares, proceeds, or money, other than a stop payment
placed by a Fund on a draft drawn by such Fund on its Account;
(j) the propriety and/or legality of any transaction in any
Account;
(k) the lack of authority of any person signing as a drawer of
a draft, provided such person and his specimen signature is specified
in the certificate of authorized signatures last received by the Bank;
or
(l) whether any redemption draft equals or exceeds any minimum
amount.
5. Reliance Upon Instructions. The Bank shall be entitled to
rely upon any Written or Oral Instructions received by the Bank. Each
Fund agrees to forward to the Bank Written Instructions confirming Oral
Instructions in such manner so that such Written Instructions are
received by the Bank by the close of business of the same day that such
Oral Instructions are given to the Bank. Each Fund agrees that the fact
that such confirming Written Instructions are not timely received or
that contrary Written Instructions are received by the Bank shall in no
way affect the validity or enforceability of the transactions
previously authorized.
<PAGE>
6. Force Majeure. The Bank shall not be responsible or liable
for any failure or delay in the performance of its obligations under
this Agreement arising out of or caused, directly or indirectly, by
circumstances beyond its control, including acts of God; earthquakes;
fires; floods; wars; civil or military disturbances; sabotage;
epidemics; riots; interruptions, loss or malfunctions of utilities,
computers (hardware or software), transportation, or communications
service; mechanical breakdowns; interruption or loss of ACCESS (except
as otherwise provided in Section 7 of Article V); accidents; acts of
civil or military authority; governmental actions; labor disputes; or
inability to obtain labor, material, equipment or transportation.
7. No Implied Duties; Performance According To Applicable Law.
The Bank shall have no duties or responsibilities except such duties
and responsibilities as are specifically set forth in this Agreement
and Schedules I and II hereto, and no covenant or obligation shall be
implied in this Agreement against the Bank. The Bank's duties and
responsibilities hereunder shall be performed in accordance with
applicable laws, regulations and rules, including but not limited to
Federal Reserve Regulation CC and the Operating Rules of the New York
Automated Clearing House, and the Bank shall have no obligation to take
actions which in the reasonable opinion of the Bank are either
inconsistent with, or prejudice or impair the Bank's rights under, any
such laws, regulations and rules.
8. Requests for Instructions. At any time the Bank may apply to
an officer of a Fund for Oral or Written Instructions with respect to
any matter arising in connection with the Bank's duties and obligations
with respect to an Account of such Fund, and the Bank shall not be
liable for any action taken or permitted by it in good faith in
accordance with such Oral or Written Instructions. Such application for
Oral or Written Instructions may, at the option of the Bank, set forth
in writing any action proposed to be taken or omitted by the Bank with
respect to its duties or obligations under this Agreement and the date
on and/or after which such action shall be taken, and the Bank shall
not be liable for any action taken or omitted in accordance with a
proposal included in any such application on or after the date
specified therein (which shall be at least 5 days after the date of
such Fund's receipt of such application) unless, prior to taking or
omitting any such action, the Bank has received Oral or Written
Instructions in response to such application specifying the action to
be taken or omitted. The Bank may apply for and obtain the advice and
opinion of counsel to each Fund or of its own counsel, at the expense
of a Fund, and shall be fully protected with respect to anything done
or omitted by it in good faith in conformity with such advice or
opinion.
9. Delegation of Duties. The Bank may delegate any of its
duties and obligations hereunder to any delegee and may employ agents
or attorneys-in-fact; provided however, that no such delegation or
employment by the Bank shall discharge the Bank from its obligations
hereunder. The Bank shall have no liability or responsibility
whatsoever if any delegee, agent or attorney-in-fact shall have been
selected or approved by a Fund. Notwithstanding the foregoing, nothing
contained in this paragraph shall obligate the Bank to effect any
delegation or to employ any agent or attorney-in-fact.
10. Fees; Invoices. (a) For its services hereunder, each Fund
agrees to pay the Bank (i) its out-of-pocket expenses, (ii) the monthly
fees and compensation set forth on Schedules I and II attached hereto,
and (iii) any negative Calendar Month Earnings Credits, and such other
amounts as may be mutually agreed upon from time to time. The Bank
shall provide each Fund with a monthly activity analysis detailing
service volumes, and including average Account Available Balances and
average ledger balances, and all fees owing for such month.
(b) The Bank shall submit periodic invoices specifying the
amount of all out-of-pocket expenses, fees, compensation and negative
Calendar Month Earnings Credits then due hereunder. The Bank may, and
is hereby authorized by each Fund, to charge such amounts to the
appropriate Fund's Account(s), but only if such amounts remain unpaid
for fifteen (15) days after the end of the period to which such amounts
relate.
<PAGE>
11. Application of Calendar Month Earnings Credits. (a) Any
positive Calendar Month Earnings Credit for a calendar month shall be
applied only as follows and only in the specified order:
(i) First, applied against such compensation, fees, but not
out-of-pocket expenses, payable by such Fund to the
Bank under this Agreement for such month; and
(ii) Second, applied against such compensation, fees, and
negative Calendar Month Earnings Credits, but not
out-of-pocket expenses, payable by such Fund to the
Bank under this Agreement for any subsequent month in
the same calendar year.
(b) Except as provided above, in no event may any Calendar
Month Earnings Credit be applied to any month other than the month in
which it was earned. Calendar Month Earnings Credits may not be
transferred to, or utilized by, any other Fund, person or entity. The
portion, if any, of any Calendar Month Earnings Credit not used by a
Fund may be carried, but only forward; provided, however, that in no
event may any Calendar Month Earnings Credit, including those earned
during the fourth calendar quarter, be carried beyond the end of the
calendar year in which earned.
ARTICLE VII
TERMINATION
1. Prior Notice. This Agreement may be terminated by either the
Bank giving to any Fund, or any Fund giving to the Bank, a notice in
writing specifying the date of such termination, which date shall be
not less than 90 days after the date of the giving of such notice.
Notwithstanding the foregoing, the Bank reserves the right to terminate
this Agreement at any time upon 30 days prior written notice if any of
the conditions precedent set forth in Article II, paragraph 3 are
unfulfilled.
2. Obligations Upon Termination. Upon any termination, the
Bank's sole obligations, which shall arise only after, and not before,
each Fund which is the subject of such termination has paid to the Bank
all out-of-pocket expenses, fees, compensation, negative Calendar Month
Earnings Credits and other amounts owed by such Fund to the Bank, shall
be (i) to deliver to such Fund such records, if any, as may be owned by
such Fund, in the form and manner kept by the Bank on such date of
termination, and (ii) to pay any funds held hereunder for such Fund to
such Fund.
ARTICLE VIII
MISCELLANEOUS
1. Certificates of Authorized Persons. Each Fund agrees to
furnish to the Bank a new certificate of Authorized Persons in the
event that any present Authorized Person of such Fund ceases to be an
Authorized Person or in the event that any other Authorized Persons are
appointed and authorized. Until such new certificate is received, the
Bank shall be fully protected in acting under the provisions of this
Agreement upon Oral or Written Instructions or signatures of the
present Authorized Persons as set forth in the last delivered
certificate.
2. Notices. (a) Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Bank, shall
be sufficiently given if addressed to the Bank and received by it at
its offices at 90 Washington Street, 22nd Floor, New York, New York
10286, Attention: Division Manager - Mutual Funds, or at such other
place as the Bank may from time to time designate in writing.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to a Fund shall be sufficiently
given if addressed to a Fund and received by it at 45 Broadway, New
York, New York 10006, or at such other place as such Fund may from time
to time designate in writing.
<PAGE>
3. Cumulative Rights and No Waiver. Each and every right
granted to the Bank hereunder or under any other document delivered
hereunder or in connection herewith, or allowed it by law or equity,
shall be cumulative and may be exercised from time to time. No failure
on the part of the Bank to exercise, and no delay in exercising, any
right will operate as a waiver thereof, nor will any single or partial
exercise by the Bank of any right preclude any other or future exercise
thereof or the exercise of any other right.
4. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations shall not in any way be affected or
impaired thereby, and if any provision is inapplicable to any person or
circumstances, it shall nevertheless remain applicable to all other
persons and circumstances.
5. Amendments. This Agreement may not be amended or modified in
any manner except by a written agreement executed by the Bank and each
Fund to be bound thereby, and, except in the case of an amendment to
Schedules I and II hereto, authorized or approved by a resolution of
each Fund's board of directors or board of trustees, as appropriate.
6. Headings. The headings in this Agreement are inserted for
convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of
this Agreement or any provisions hereof.
7. Applicable Law; Consent to Jurisdiction Jury Trial Waiver.
This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles
thereof. Each party hereby consents to the jurisdiction of a state or
federal court situated in New York City, New York in connection with
any dispute arising hereunder and hereby waives its right to trial by
jury.
8. No Third Party Beneficiaries. The provisions of this
Agreement are intended to benefit only the Bank and each Fund and their
respective permitted successors and assigns, and no right shall be
granted to any other person by virtue of this Agreement.
9. Successors and Assigns. This Agreement shall extend to and
shall be binding upon the parties hereto, and their respective
successors and assigns; provided, however, that this Agreement shall
not be assignable by any Fund without the written consent of the Bank
and authorized or approved by a resolution of such Fund's board of
directors, or board of trustees, as appropriate.
10. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but
such counterparts shall, together, constitute only one instrument.
11. Several Obligations. The parties acknowledge that the
obligations of the Funds are several and not joint, that no Fund shall
be liable for any amount owing by another Fund and that the Funds have
executed one instrument for convenience only.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective corporate officers,
thereunto duly authorized, as of the day and year first above written.
By: Martha B. Pierce, Secretary
-----------------------------------
By: Robert Miller, Treasurer
-----------------------------------
on behalf of each Fund identified
on Schedule A attached hereto
THE BANK OF NEW YORK
By: S. Grunston
-----------------------------------
Title: STEPHEN E. GRUNSTON
Vice President
<PAGE>
SCHEDULE A
Name of Fund
First Eagle Fund of America, Inc.
<PAGE>
EXHIBIT A
I, Martha B. Pierce of First Eagle Fund of America, Inc. (the
"Fund"), a Maryland corporation do hereby certify that:
The following individuals have been duly authorized by the
Board of Directors of the Fund in conformity with the Fund's Articles
of Incorporation and By-Laws to give Oral Instructions and Written
Instructions on behalf of the Fund, for purposes of the Fund's Cash
Management and Related Services Agreement, and the signatures set forth
opposite their respective names are their true and correct signatures.
Name Signature
MARY GAMBLE MARY GAMBLE
----------------- -------------
LINDA ZERBE LINDA ZERBE
----------------- -------------
LISA BURKE LISA BURKE
----------------- -------------
SUE SHANNON SUE SHANNON
----------------- -------------
JUNE POPIO JUNE POPIO
----------------- -------------
ALEX INSLEY ALEX INSLEY
----------------- -------------
Martha B. Pierce
-----------------------------
[Title of Officer]
Martha B. Pierce, Secretary
<PAGE>
TRANSFER AGENCY AGREEMENT
AGREEMENT made this 5th day of February, 1996, between
FIRST EAGLE FUND OF AMERICA, INC. (the "Company"), a Maryland
corporation having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES,
INC. ("BISYS"), a Delaware corporation having its principal
place of business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Company desires that BISYS perform certain
services for the Company; and
WHEREAS, BISYS is willing to perform such services on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises
and covenants herein set forth, the parties agree as follows:
1. Services.
BISYS shall perform for the Company the transfer
agent services set forth in Schedule A hereto.
BISYS also agrees to perform for the Company
such special services incidental to the performance of the
services enumerated herein as agreed to by the parties from time
to time. BISYS shall perform such additional services as are
provided on an amendment to Schedule A hereof, in consideration
of such fees as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing
other parties qualified to perform transfer agency services
reasonably acceptable to the Company (individually, a
"Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement; provided, however, that
the Sub-transfer Agent shall be the agent of BISYS and not the
agent of the Company, and that BISYS shall be fully responsible
for the acts of such Sub-transfer Agent and shall not be
relieved of any of its responsibilities hereunder by the
appointment of such Sub-transfer Agent.
2. Fees.
The Company shall pay BISYS for the services to
be provided by BISYS under this Agreement in accordance with,
and in the manner set forth in, Schedule B hereto. BISYS may
increase the fees it charges pursuant to the fee schedule;
provided, however, that BISYS may not increase such fees until
the expiration of the Initial Term of this Agreement (as defined
below), unless the Company otherwise agrees to such change in
writing. Fees for any additional services to be provided by
BISYS pursuant to an amendment to Schedule A hereto shall be
subject to mutual agreement at the time such amendment to
Schedule A is proposed.
<PAGE>
3. Reimbursement of Expenses.
In addition to paying BISYS the fees described
in Section 2 hereof, the Company agrees to reimburse BISYS for
BISYS' out-of-pocket expenses in providing services hereunder,
including without limitation, the following:
(a) All freight and other delivery and
bonding charges incurred by BISYS
in delivering materials to and from
the Company and in delivering all
materials to shareholders;
(b) All direct telephone, telephone
transmission and telecopy or other
electronic transmission expenses
incurred by BISYS in communication
with the Company, the Company's
investment adviser or custodian,
dealers, shareholders or others as
required for BISYS to perform the
services to be provided hereunder;
(c) Costs of postage, couriers, stock
computer paper, statements, labels,
envelopes, checks, reports, letters,
tax forms, proxies, notices or other
form of printed material which shall
be required by BISYS for the
performance of the services to be
provided hereunder;
(d) The cost of microfilm or microfiche of
records or other materials; and
(e) Any expenses BISYS shall incur at the
written direction of an officer of
the Company thereunto duly authorized.
4. Effective Date.
This Agreement shall become effective as of the
date first written above (the "Effective Date").
5. Term.
This Agreement shall continue in effect, unless
earlier terminated by either party hereto as provided
hereunder, until February 4, 1997. Thereafter, it shall be
renewed automatically for successive one-year terms unless
written notice not to renew is given by the non-renewing party
to the other party at least 60 days prior to the expiration of
the then-current term; provided, however, that after such
termination, for so long as BISYS, with the written consent of
the Company, in fact continues to perform any one or more of
the services contemplated by this Agreement or any Schedule or
exhibit hereto, the provisions of this Agreement, including
without limitation the provisions dealing with indemnification,
shall continue in full force and effect. Fees and out-of-pocket
expenses incurred by BISYS but unpaid by the Company upon such
termination shall be immediately due and payable upon and
notwithstanding such termination. BISYS shall be entitled
2
<PAGE>
to collect from the Company, in addition to the fees and
disbursements provided by Sections 2 and 3 hereof, the amount
of all of BISYS' cash disbursements and a reasonable fee
(which fee shall be not less than one hundred and two percent
(102%) of the sum of the actual costs incurred by BISYS in
performing such service) for services in connection with
BISYS' activities in effecting such termination, including
without limitation, the delivery to the Company and/or its
distributor or investment adviser and/or other parties, of the
Company's property, records, instruments and documents, or any
copies thereof. Subsequent to such termination, BISYS, for a
reasonable fee, will provide the Company with reasonable
access to any Company documents or records remaining in its
possession.
6. Uncontrollable Events.
BISYS assumes no responsibility hereunder, and
shall not be liable for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable
control.
7. Legal Advice.
BISYS shall notify the Company at any time
BISYS believes that it is in need of the advice of counsel
(other than counsel in the regular employ of BISYS or any
affiliated companies) with regard to BISYS' responsibilities
and duties pursuant to this Agreement; and after so notifying
the Company, BISYS, at its discretion, shall be entitled to
seek, receive and act upon advice of legal counsel of its
choosing, such advice to be at the expense of the Company
unless relating to a matter involving BISYS' willful
misfeasance, bad faith, gross negligence or reckless disregard
with respect to BISYS' responsibilities and duties hereunder
and BISYS shall in no event be liable to the Company or any
shareholder or beneficial owner of the Company for any action
reasonably taken pursuant to such advice.
8. Instructions.
Whenever BISYS is requested or authorized to
take action hereunder pursuant to instructions from a
shareholder, or a properly authorized agent of a shareholder
("shareholder's agent"), concerning an account, BISYS shall be
entitled to rely upon any certificate, letter or other
instrument or communication, believed by BISYS to be genuine
and to have been properly made, signed or authorized by an
officer or other authorized agent of the Company or by the
shareholder or shareholder's agent, as the case may be, and
shall be entitled to receive as conclusive proof of any fact
or matter required to be ascertained by it hereunder a
certificate signed by an officer of the Company or any other
person authorized by the Company's Board of Directors or by
the shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder,
BISYS may rely conclusively upon the terms of the Prospectuses
and Statement of Additional Information of the Company to the
extent that such services are described therein unless BISYS
receives written instructions to the contrary in a timely
manner from the Company.
3
<PAGE>
9. Standard of Care; Reliance on Records and
Instructions; Indemnification.
BISYS shall use its best efforts to ensure the
accuracy of all services performed under this Agreement, but
shall not be liable to the Company for any action taken or
omitted by BISYS in the absence of bad faith, willful
misfeasance, gross negligence or from reckless disregard by it
of its obligations and duties. The Company agrees to indemnify
and hold harmless BISYS, its employees, agents, directors,
officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise,
and from and against any and all judgments, liabilities,
losses, damages, costs, charges, counsel fees and other
expenses of every nature and character arising out of or in
any way relating to BISYS' actions taken or nonactions with
respect to the performance of services under this Agreement or
based, if applicable, upon reasonable reliance on information,
records, instructions or requests given or made to BISYS by
the Company, the investment adviser and on any records
provided by any fund accountant or custodian thereof;
provided that this indemnification shall not apply to actions
or omissions of BISYS in cases of its own bad faith, willful
misfeasance, gross negligence or from reckless disregard by it
of its obligations and duties; and further provided that prior
to confessing any claim against it which may be the subject of
this indemnification, BISYS shall give the Company written
notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
10. Record Retention and Confidentiality.
BISYS shall keep and maintain on behalf of the
Company all books and records which the Company or BISYS is,
or may be, required to keep and maintain pursuant to any
applicable statutes, rules and regulations, including without
limitation Rules 31a-1 and 31a-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"), relating
to the maintenance of books and records in connection with the
services to be provided hereunder. BISYS further agrees that
all such books and records shall be the property of the
Company and to make such books and records available for
inspection by the Company or by the Securities and Exchange
Commission (the "Commission") at reasonable times and
otherwise to keep confidential all books and records and other
information relative to the Company and its shareholders,
except when requested to divulge such information by
duly-constituted authorities or court process, or requested by
a shareholder or shareholder's agent with respect to
information concerning an account as to which such shareholder
has either a legal or beneficial interest or when requested by
the Company, the shareholder, or shareholder's agent, or the
dealer of record as to such account.
11. Reports.
BISYS will furnish to the Company and to its
properly-authorized auditors, investment advisers, examiners,
distributors, dealers, underwriters, salesmen, insurance
companies and others designated by the Company in writing,
such reports at such times as are prescribed in Schedule C
attached hereto, or as subsequently agreed upon by the parties
pursuant to an amendment to Schedule C. The Company agrees to
examine each such report or copy promptly and will report or
cause to be reported any errors or discrepancies therein not
later than three business days from the receipt thereof. In
4
<PAGE>
the event that errors or discrepancies, except such errors and
discrepancies as may not reasonably be expected to be discovered
by the recipient within three days after conducting a diligent
examination, are not so reported within the aforesaid period of
time, a report will for all purposes be accepted by and be
binding upon the Company and any other recipient, and BISYS
shall have no liability for errors or discrepancies therein and
shall have no further responsibility with respect to such report
except to perform reasonable corrections of such errors and
discrepancies within a reasonable time after requested to do so
by the Company.
12. Rights of Ownership.
All computer programs and procedures developed
to perform services required to be provided by BISYS under this
Agreement are the property of BISYS. All records and other data
except such computer programs and procedures are the exclusive
property of the Company and all such other records and data will
be furnished to the Company in appropriate form as soon as
practicable after termination of this Agreement for any reason.
13. Return of Records.
BISYS may at its option at any time, and shall
promptly upon the Company's demand, turn over to the Company and
cease to retain BISYS' files, records and documents created and
maintained by BISYS pursuant to this Agreement which are no
longer needed by BISYS in the performance of its services or for
its legal protection. If not so turned over to the Company, such
documents and records will be retained by BISYS for six years
from the year of creation. At the end of such six-year period,
such records and documents will be turned over to the Company
unless the Company authorizes in writing the destruction of such
records and documents.
14. Bank Accounts.
The Company shall establish and maintain such
bank accounts with such bank or banks as are selected by the
Company, as are necessary in order that BISYS may perform the
services required to be performed hereunder. To the extent that
the performance of such services shall require BISYS directly to
disburse amounts for payment of dividends, redemption proceeds
or other purposes, the Company shall provide such bank or banks
with all instructions and authorizations necessary for BISYS to
effect such disbursements.
15. Representations of the Company.
The Company certifies to BISYS that: (a) as of
the close of business on the Effective Date, the Company has
authorized unlimited shares, and (b) by virtue of its
Certificate of Incorporation, shares which are redeemed by the
Company may be sold by the Company from its treasury, and (c)
this Agreement has been duly authorized by the Company and, when
executed and delivered by the Company, will constitute a legal,
valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratoritun and other laws of
5
<PAGE>
general application affecting the rights and remedies of
creditors and secured parties.
16. Representations of BISYS.
BISYS represents and warrants that: (a) BISYS
has been in, and shall continue to be in, substantial
compliance with all provisions of law, including Section 17A(c)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), required in connection with the performance of
its duties under this Agreement; and (b) the various procedures
and systems which BISYS has implemented with regard to
safekeeping from loss or damage attributable to fire, theft or
any other cause of the blank checks, records, and other data of
the Company and BISYS' records, data, equipment, facilities and
other property used in the performance of its obligations
hereunder are adequate and that it will make such changes
therein from time to time as are required for the secure
performance of its obligations hereunder.
17. Insurance.
BISYS shall notify the Company should its
insurance coverage with respect to professional liability or
errors and omissions coverage be canceled or reduced. Such
notification shall include the date of change and the reasons
therefor. BISYS shall notify the Company of any material claims
against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and
shall notify the Company from time to time as may be
appropriate of the total outstanding claims made by BISYS under
its insurance coverage.
18. Information to be furnished by the Company.
The Company has furnished to BISYS the
following:
(a) Copies of the Certificate of
Incorporation of the Company and of
any amendments thereto, certified by
the proper official of the state in
which such Certificate has been filed.
(b) Copies of the following documents:
1. The Company's By-Laws and any
amendments thereto;
2. Certified copies of resolutions of
the Board of Directors covering the
following matters:
A. Approval of this Agreement and
authorization of a specified
officer of the Company to
execute and deliver this
Agreement and authorization for
specified officers of the
Company to instruct BISYS
hereunder; and
6
<PAGE>
B. Authorization of BISYS to
act as Transfer Agent for
the Company.
(c) A list of all officers of the Company,
together with specimen signatures of
those officers, who are authorized to
instruct BISYS in all matters.
(d) Two copies of the following (if such
documents are employed by the
Company):
1. Prospectuses and Statement of
Additional Information;
2. Distribution Agreement; and
3. All other forms commonly used
by the Company or its Distributor
with regard to their relationships
and transactions with shareholders.
(e) A certificate as to shares of
beneficial interest of the Company
authorized, issued, and outstanding as
of the Effective Date of BISYS'
appointment as Transfer Agent (or as of
the date on which BISYS' services are
commenced, whichever is the later date)
and as to receipt of full consideration
by the Company for all shares
outstanding, such statement to be
certified by the Treasurer of the
Company.
19. Information Furnished by BISYS.
BISYS has furnished to the Company the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering
the following matters:
1. Approval of this Agreement, and authoriza-
tion of a specified officer of BISYS to
execute and deliver this Agreement;
2. Authorization of BISYS to act as Transfer
Agent for the Company.
(d) A copy of the most recent independent
accountants' report relating to
internal accounting control systems as
filed with the Commission pursuant to
Rule 17Ad-13 under the Exchange Act.
7
<PAGE>
20. Amendments to Documents.
The Company shall furnish BISYS written copies
of any amendments to, or changes in, any of the items referred
to in Section 18 hereof forthwith upon such amendments or
changes becoming effective. In addition, the Company agrees
that no amendments will be made to the Prospectuses or
Statement of Additional Information of the Company which might
have the effect of changing the procedures employed by BISYS in
providing the services agreed to hereunder or which amendment
might affect the duties of BISYS hereunder unless the Company
first obtains BISYS' approval of such amendments or changes.
21. Reliance on Amendments.
BISYS may rely on any amendments to or changes
in any of the documents and other items to be provided by the
Company pursuant to Sections 18 and 20 of this Agreement and
the Company hereby indemnifies and holds harmless BISYS from
and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character
which may result from actions or omissions on the part of BISYS
in reasonable reliance upon such amendments and/or changes.
Although BISYS is authorized to rely on the above-mentioned
amendments to and changes in the documents and other items to
be provided pursuant to Sections 18 and 20 hereof, BISYS shall
be under no duty to comply with or take any action as a result
of any of such amendments or changes unless the Company first
obtains BISYS' written consent to and approval of such
amendments or changes.
22. Compliance with Law.
Except for the obligations of BISYS set forth
in Section 10 hereof, the Company assumes full responsibility
for the preparation, contents, and distribution of each
prospectus of the Company as to compliance with all applicable
requirements of the Securities Act of 1933, as amended (the
"1933 Act"), the 1940 Act, and any other laws, rules and
regulations of governmental authorities having jurisdiction.
BISYS shall have no obligation to take cognizance of any laws
relating to the sale of the Company's shares. The Company
represents and warrants that no shares of the Company will be
offered to the public until the Company's registration
statement under the 1933 Act and the 1940 Act has been declared
or becomes effective.
23. Notices.
Any notice provided hereunder shall be
sufficiently given when sent by registered or certified mail to
the party required to be served with such notice at the
following address: 3435 Stelzer Road, Columbus, Ohio 43219, or
at such other address as such party may from time to time
specify in writing to the other party pursuant to this Section.
8
<PAGE>
24. Headings.
Paragraph headings in this Agreement are
included for convenience only and are not to be used to
construe or interpret this Agreement.
25. Assigmnent.
This Agreement and the rights and duties
hereunder shall not be assignable by either of the parties
hereto except by the specific written consent of the other
party. This Section 25 shall not limit or in any way affect
BISYS' right to appoint a Sub-transfer Agent pursuant to
Section 1 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed all as of the day and year first
above written.
FIRST EAGLE FUND OF AMERICA, INC.
By: /s/ Martha B. Pierce
---------------------------------
Martha B. Pierce, Secretary
By: /s/ Robert Miller
---------------------------------
Robert Miller, Treasurer
BISYS FUND SERVICES, INC.
By: /s/ Steve Mintos
---------------------------------
Steve Mintos, Executive
Vice President
<PAGE>
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
FIRST EAGLE FUND OF AMERICA, INC.
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend
option, taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10 under the
Securities Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new
shares, through dividend reimbursement.
2. Shareholder Information Services
a. Make information available to shareholder
servicing unit and other remote access units
regarding trade date, share price, current
holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to
current shareholders.
A-1
<PAGE>
3. Compliance Reporting.
a. Provide reports to the Securities and Exchange Commission,
the National Association of Securities Dealers and the States
in which the Company is registered.
b. Prepare and distribute appropriate Internal Revenue Service
forms for the Company and shareholder income and capital
gains.
c. Issue tax withholding reports to the Internal Revenue
Service.
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and
purchases made under a Letter of Intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchase of Company shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide
for payment of commissions on direct shareholder purchases
in the Company.
5. Shareholder Account Maintenance
a. Maintain all shareholder records for each account in the
Company.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
A-2
<PAGE>
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
FIRST EAGLE FUND OF AMERICA, INC.
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENT FEES
Annual Fee:
$20,000.00
Annual Per Account Fee:
Open Accounts $19.00
Closed Accounts $ 5.00
Multiple Classes of Shares:
Classes of shares which have different net asset values or pay
different daily dividends will be treated as separate classes,
and the fee schedule above, including the appropriate minimums,
will be charged for each separate class.
Additional Services:
Additional services such as IRA processing, development of
interface capabilities, servicing of 403(b) and 408(c)
accounts, management of cash sweeps between DDAs and mutual
fund accounts and coordination of the printing and distribution
of prospectuses, annual reports and semi-annual reports are
subject to additional fees which will be quoted upon request.
Programming costs or database management fees for special
reports or specialized processing will be quoted upon request.
Out-of-pocket Expenses:
BISYS shall be entitled to be reimbursed for all reasonable
out-of-pocket expenses including, but not limited to, the
expenses set forth in Section 3 of the Transfer Agency
Agreement to which this Schedule B is attached.
B-1
<PAGE>
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
FIRST EAGLE FUND OF AMERICA, INC.
AND
BISYS FUND SERVICES, INC.
REPORTS
1 . Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning
BISYS' shareholder system and internal accounting control
systems to be filed with the Securities and Exchange
Commission pursuant to Rule 17Ad-13 of the Securities
Exchange Act of 1934, as amended.
C-1
<PAGE>
8. Monthly Discretionary Account Summary
* This report will list all accounts identified as
discretionary and will show their balances.
9. Monthly Statistical Report
* This report will include statistical data such
as share range analysis, account type analysis,
social code analysis, resident code analysis and
such other items that may be agreed upon by the
parties.
10. Monthly Customer Analysis Report
* This report will include various types of account
information including account size, tax-related
information, retirement plan/fees analysis and
such other items that may be agreed upon by the
parties.
C-2
<PAGE>
INDEPENDENT ACCOUNTANTS' CONSENT
To the Shareholders and Board of Directors of
First Eagle Fund of America, Inc.:
We consent to the use of our report dated November 16, 1995 with respect to the
First Eagle Fund of America, Inc., incorporated herein by reference and to the
references to our Firm under the headings "Financial Highlights" in the N-1A
and "Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants" in the Statement of Additional Information.
KPMG PEAT MARWICK LLP
----------------------------
KPMG Peat Marwick LLP
New York, New York
February 26, 1996
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
SERVICES AGREEMENT
This Agreement is made as of November 1, 1995, between Arnhold and S.
Bleichroeder, Inc. ("A&SB"), a New York corporation, each registered investment
company ("Fund Company") that has executed Schedule I, on its own behalf and on
behalf of each of the series or classes of shares, if any, listed on Schedule I,
as amended from time to time (such series or classes being referred to as the
"Fund(s)") has executed this Agreement. In the event that there are no series or
classes of shares listed on Schedule I, the term "Fund(s)" shall mean "Fund
Company."
WHEREAS the Fund Company wishes to have A&SB perform certain shareholder
communication and other services for each Fund; and
WHEREAS A&SB is willing to perform such services on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth below, the parties agree as follows:
1. SERVICES
A. During the term of this Agreement, A&SB shall perform the services set
forth on Exhibit A hereto, as such exhibit may be amended from time to time by
the mutual consent of the parties (the "Services").
B. The parties acknowledge and agree that the Services under this Agreement
are not the services of an underwriter or a principal underwriter of any Fund
within the meaning of the Securities Act of 1933, as amended, or the Investment
Company Act of 1940, as amended.
2. FEES
For the Services, A&SB shall receive a fee (the "Fee") which shall be
calculated and paid in accordance with Exhibit B hereto. Should Exhibit A be
amended to revise the Services, the parties shall also amend Exhibit B, if
necessary, in order to reflect any changes in the Fee.
3. INDEMNIFICATION
A. A&SB shall indemnify and hold harmless the Fund Company and their
directors, officers, employees and agents (the "Indemnified Parties") from and
against any and all losses, claims, liabilities and expenses (including
reasonable attorney's fees) ("Losses") incurred by any of them arising out of
A&SB's willful misfeasance, bad faith or gross negligence in the performance of,
<PAGE>
or failure to perform, its obligations under this Agreement, except to the
extent such Losses result from the willful misconduct, negligence or breach of
this Agreement by an Indemnified Party.
B. No party shall be liable for any special, consequential or incidental
damages.
4. INFORMATION TO BE SUPPLIED
The Funds shall provide to A&SB:
(i) Certified resolutions of the Board of Directors of each Fund
authorizing the Fund to enter into this Agreement; and
(ii) A copy of the then-current prospectus and statement of additional
information of each Fund and any amendments to or changes in the Fund's
prospectus or statement of additional information as soon as practicable after
such amendments or changes become available.
5. NONEXCLUSIVITY
Each Party acknowledges that the other may enter into agreements similar to
this Agreement with other parties for the performance of services similar to
those to be provided under this Agreement, unless otherwise agreed to in writing
by the parties.
6. ASSIGNABILITY
This Agreement is not assignable by any party without the other parties'
prior written consent and any attempted assignment in contravention hereof shall
be null and void.
7. EXHIBITS AND SCHEDULES
All Exhibits and Schedules attached to this Agreement, as they may be
amended from time to time, are by this reference incorporated into and made a
part of this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of New York.
9. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed an original, but all of which together shall constitute one and
the same instrument.
<PAGE>
10. EFFECTIVENESS AND TERMINATION OF THE AGREEMENT
A. This Agreement will become effective as to a Fund as of the later of (i)
the date set forth on Schedule I opposite the name of the Fund or (ii) such
later date as A&SB may in its discretion designate.
B. This Agreement may be terminated as to a Fund by any party (i) upon
60 days' written notice to the other parties.
IN WITNESS WHEREOF, the parties have executed this Agreement by a duly
authorized representative of the parties hereto.
ARNHOLD AND S. BLEICHROEDER, INC.
/s/ Henry H. Arnhold
-----------------------------------
By: Henry H. Arnhold, Co-Chairman
FIRST EAGLE FUND OF AMERICA, INC.
/s/ Harold J. Levy
-----------------------------------
By: Harold J. Levy, President
<PAGE>
EXHIBIT A
SERVICES
Respond to customer inquiries regarding, among other things, share prices,
account balances, dividend amounts and dividend payment dates and perform any
other shareholder communication and liaison services.
Coordinate custodial and transfer agency services.
Monitor Fund compliance with state and federal requirements and the Fund's
investment restrictions.
<PAGE>
SCHEDULE I
Fund Company hereby agrees to become a party to this Agreement, on its own
behalf and on behalf of each fund listed on Schedule I hereto, as amended from
time to time.
Fund Date
- ---- ----
FIRST EAGLE FUND OF AMERICA, INC.
/s/ Harold J. Levy
---------------------------------------
By: Harold J. Levy, President
Accepted by Arnhold and S. Bleichroeder, Inc.
/s/ Henry H. Arnhold
- ---------------------------------------------
By: Henry H. Arnhold, Co-Chairman
<PAGE>
EXHIBIT B
CALCULATION OF FEE
The fee paid for the services provided shall be .25% per annum of the
average daily net asset value of the Fund, payable quarterly.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 103,359,972
<INVESTMENTS-AT-VALUE> 137,078,551
<RECEIVABLES> 1,741,851
<ASSETS-OTHER> 502,732
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,323,134
<PAYABLE-FOR-SECURITIES> 3,660,563
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,312,391
<TOTAL-LIABILITIES> 4,972,954
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,700,364
<SHARES-COMMON-STOCK> 8,252,291
<SHARES-COMMON-PRIOR> 7,798,954
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,848,714
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,718,579
<NET-ASSETS> 134,350,180
<DIVIDEND-INCOME> 1,361,449
<INTEREST-INCOME> 459,336
<OTHER-INCOME> 0
<EXPENSES-NET> 2,163,852
<NET-INVESTMENT-INCOME> (343,067)
<REALIZED-GAINS-CURRENT> 2,960,207
<APPREC-INCREASE-CURRENT> 20,664,270
<NET-CHANGE-FROM-OPS> 23,281,410
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 15,613,958
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 410,736
<NUMBER-OF-SHARES-REDEEMED> 1,009,357
<SHARES-REINVESTED> 1,051,958
<NET-CHANGE-IN-ASSETS> 13,834,212
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15,616,689
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,868,672
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,163,852
<AVERAGE-NET-ASSETS> 117,905,574
<PER-SHARE-NAV-BEGIN> 15.45
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 2.87
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (2.00)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.28
<EXPENSE-RATIO> 1.9
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
