<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
REGISTRATION NO. 33-10675
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 14 [x]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 17 [x]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
FIRST EAGLE FUND OF AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 698-3000
------------------------
WILLIAM H. BOHNETT, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
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 19, 1996.
________________________________________________________________________________
<PAGE>
<PAGE>
PROSPECTUS
Dated February 28, 1997
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, 1997, 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., 1345 Avenue of the Americas, New York, New York 10105
or telephoning Arnhold and S. Bleichroeder, Inc. at (212) 698-3000 or (800)
451-3623.
------------------------
Investors are urged to read this Prospectus and retain it for future reference.
------------------------
ARNOLD AND S. BLEICHROEDER ADVISERS, INC.
------------------------
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>
<PAGE>
HIGHLIGHTS
<TABLE>
<S> <C>
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 To augment its investment return and limit its investment risk, the Fund may purchase
and Risk Factors 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 subscriptions, redemptions and other shareholder questions, as well
as other services to shareholders and the Fund for which it receives an annual fee
of 0.25% 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.
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Also, existing shareholders may establish or direct new accounts in the Fund with a
minimum initial investment of $1,000. All subsequent investments are subject to a
$1,000 minimum other than retirement accounts, for which there is no minimum
subsequent investment amount, and with respect to the Automatic Investment Plan
there is a $100 minimum for subsequent investments. All current minimum initial and
subsequent investment amounts may be changed or waived at any time. 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, 1345
Avenue of the Americas, New York, New York 10105. 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.'
</TABLE>
3
<PAGE>
<PAGE>
SUMMARY OF FUND EXPENSES
<TABLE>
<S> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees........................................................................... 1.25%
----
Other Expenses:
Services fees........................................................................ .25%
Other expenses(1).................................................................... .26%
----
Total Other Expenses...................................................................... .51%
----
Total Fund Operating Expenses............................................................. 1.76%
----
----
</TABLE>
<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............. $18 $55 $95 $207
</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 and Services Fees' in this
Prospectus 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, 1996.
4
<PAGE>
<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>
FOR THE YEAR ENDED
OCTOBER 31,
---------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value per
share, beginning of
period.................. $16.28 $15.45 $16.53 $13.36 $12.35 $10.35 $14.04 $11.65
INCOME FROM INVESTMENT
OPERATIONS PER SHARE
Net investment income
(loss)................ (0.04) (0.04) (0.12) (0.22) (0.15) 0.09 0.16 0.16
Net gains (losses) on
securities (both
realized and
unrealized)........... 4.08 2.87 0.66 4.56 1.98 2.20 (2.34) 2.57
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.......... 4.04 2.83 0.54 4.34 1.83 2.29 (2.18) 2.73
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS PER
SHARE
Dividends (from net
investment income).... -- -- -- -- (0.08) (0.29) (0.11) --
Distributions (from
capital gains)........ (2.35) (2.00) (1.62) (1.17) (0.74) -- (1.40) (0.34)
------ ------ ------ ------ ------ ------ ------ ------
Total distributions... (2.35) (2.00) (1.62) (1.17) (0.82) (0.29) (1.51) (0.34)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value per
share, end of period.... $17.97 $16.28 $15.45 $16.53 $13.36 $12.35 $10.35 $14.04
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Total return*............ 27.1% 21.6% 3.8% 35.2% 16.0% 22.7% (17.7)% 24.2%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period.................. $163,402,847 $134,350,180 $120,515,968 $107,344,171 $76,599,310 $74,279,164 $66,729,536 $83,619,552
Ratio of expenses to
average net assets(1)... 1.8% 1.9% 1.9% 2.9% 3.0% 2.0% 1.1% 2.0%
Ratio of net investment
income (loss) to average
net assets.............. (0.2)% (0.3)% (0.7)% (1.5)% (1.0)% 0.8% 1.3% 1.3%
Portfolio turnover
rate.................... 93% 81% 125% 141% 145% 92% 72% 52%
Average commission rate
paid on portfolio
security purchases and
sales transactions(2)... $0.04 -- -- -- -- -- -- --
<CAPTION>
APRIL 10, 1987**
THROUGH
1988 OCTOBER 31, 1987
------ ----------------
<S> <C> <C>
Net asset value per
share, beginning of
period.................. $ 9.17 $10.00
INCOME FROM INVESTMENT
OPERATIONS PER SHARE
Net investment income
(loss)................ (0.03) 0.07
Net gains (losses) on
securities (both
realized and
unrealized)........... 2.58 (0.90)
------ -----
Total from investment
operations.......... 2.55 (0.83)
------ -----
LESS DISTRIBUTIONS PER
SHARE
Dividends (from net
investment income).... (0.07) --
Distributions (from
capital gains)........ -- --
------ -----
Total distributions... (0.07) 0.00
------ -----
Net asset value per
share, end of period.... $11.65 $ 9.17
------ -----
------ -----
Total return*............ 28.0% (8.3)%`D'`D'
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period.................. $54,271,271 27,1$94,056
Ratio of expenses to
average net assets(1)... 3.3% 2.5%`D'
Ratio of net investment
income (loss) to average
net assets.............. (0.2)% 1.2%`D'
Portfolio turnover
rate.................... 55% 84%
Average commission rate
paid on portfolio
security purchases and
sales transactions(2)... -- --
</TABLE>
* Past performance is not predictive of future performance.
** Commencement of investment operations
`D' Annualized
`D'`D' Total return not annualized
(1) During the year ended October 31, 1996, the Fund has earned credits from the
Custodian which reduce custodian fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets would be
1.8%.
(2) For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose the average commission rate per share for portfolio
security trades on which commissions are charged.
Further information regarding the Fund's performance is contained in the
annual report, a copy of which may be obtained without charge.
5
<PAGE>
<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>
<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
7
<PAGE>
<PAGE>
to the Prospectus. Since some issuers do not seek ratings for their fixed-income
securities, non-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, 1996, 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 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.
8
<PAGE>
<PAGE>
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 125%, 81% and 93%, respectively, in the fiscal
years ended October 31, 1994, 1995 and 1996. 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 1994 fiscal year, 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 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.
9
<PAGE>
<PAGE>
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 1345 Avenue of
the Americas, New York, New York 10105.
The Investment Advisory Agreement between Arnhold and S. Bleichroeder, Inc.
and the Fund was 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. 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
For the advisory services provided by the Adviser, the fee arrangement, set
forth in the Fund's Investment Advisory Agreement, requires the Fund to pay to
the Adviser an annual management fee of 1.25% of the Fund's average daily net
assets payable quarterly. The annual advisory fee may be higher than that paid
by most other registered investment companies.
Arnhold and S. Bleichroeder, Inc. receives an annual services fee of 0.25%
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. The Fund and Arnhold and S. Bleichroeder, Inc. are also
parties to separate services agreements with other brokers and qualified
financial intermediaries for shareholder liaison services.
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 1345 Avenue of the Americas, New
York, New York 10105. 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.
10
<PAGE>
<PAGE>
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 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-
11
<PAGE>
<PAGE>
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 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. Also, existing shareholders may establish or direct
new accounts in the Fund with a minimum initial investment of $1,000. All
subsequent investments are subject to a $1,000 minimum, other than retirement
accounts for which there is no minimum subsequent investment amount, and with
respect to the Automatic Investment Plan there is a $100 minimum for subsequent
investments. The current minimum initial and subsequent investment amount may be
changed by the Board of Directors at any time. No commission or sales charge is
imposed upon the purchase of shares. Transactions in Fund shares made through
brokers and qualified financial intermediaries other than Arnhold and S.
Bleichroeder, Inc. may be subject to service charges imposed by the brokers and
financial intermediaries; 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 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.: First Eagle Funds, 1345
Avenue of the Americas, New York, New York 10105. To purchase shares with a
Federal funds wire for a new account: telefax a completed signed application to
First Eagle Fund of America, Inc. at (212) 299-4310 and telephone First Eagle
Fund of America, Inc. for wire instructions. When purchases are made by check,
redemptions will not be allowed until clearance of the purchase check, which may
take up to ten business days.
Subsequent investments in the Fund may be made by calling First Eagle Fund
of America, Inc. at (800) 451-3623 on each day the New York Stock Exchange is
open for business (a 'Business Day'). Shares will be purchased at the net asset
value per share next determined after receipt of an order by or on behalf of the
Fund with complete information and meeting all the requirements discussed in
this Prospectus. The Fund may, in its discretion, reject any purchase order for
shares. Payment for orders which are not received in good order, paid for in a
timely manner or are not accepted by the Fund, will be returned after prompt
notification to the sending stockholder.
AUTOMATIC INVESTMENT PLAN. With a minimum initial investment of $5,000,
regular investments of $100 or more per transaction may be made through
automatic periodic deduction from bank savings or checking accounts. New
shareholders electing to start this plan should complete Section 6 of the
account application.
12
<PAGE>
<PAGE>
Current shareholders may begin the plan at any time by
sending a signed letter with a signature guarantee and a deposit slip or a
voided check to the Fund.
Payment for shares may be made only in Federal funds or other funds
immediately available to the Fund and should be wired to The Bank of New York.
The Fund reserves the right to suspend the sale of shares to the public at any
time, in response to conditions in the securities markets or otherwise.
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 BISYS Fund Services, Inc. (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.
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.
Whether certificates 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.
TELEPHONE REDEMPTION ORDERS for the Fund may also be made by calling the
Fund on each Business Day. The trade will be executed at the net asset value per
share next determined after receipt by or on behalf of the Fund of instructions
with complete information and meeting all the requirements discussed in this
prospectus. Stockholders will be required to provide proper identification, and
verification of account information. For redemptions over $100,000, it may be
necessary for other pertinent information to be verified to confirm the identity
of the stockholder.
Redemptions are effected at the net asset value per share next determined
after receipt of the order by or on behalf of the Fund. Payment for redeemed
shares will normally be wired in Federal funds on the next business day to the
payment instructions specified. Payment instructions may be given to the Fund
either on the account
13
<PAGE>
<PAGE>
application, Telephone Purchase and Redemption Form or in a letter to the Fund
which is signature guaranteed for all redemptions of $5,000 or more. If you do
not provide payment instructions for the proceeds of a redemption, a check will
be sent to the address of record.
Redemption of shares purchased through the Automatic Investment Plan will
not be allowed until clearance of the payment, which may take seven business
days or longer. In the event a check used to pay for shares is not honored by a
bank, the purchase order will be cancelled and the shareholder will be liable
for any losses or expenses incurred by the Fund.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include, among other
things, requiring verification of stockholders' account information prior to
acting upon telephone instructions. The Fund reserves the right to refuse a
telephone redemption if it believes it advisable to do so. Assuming the Fund's
security procedures are followed, neither the Fund nor the Transfer Agent will
be responsible for the authenticity of redemption instructions received by
telephone and believed to be genuine and any loss therefrom will be borne by the
investor. Please note that all telephone calls will be recorded for your
protection.
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 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
14
<PAGE>
<PAGE>
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 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 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.
15
<PAGE>
<PAGE>
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 '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.
16
<PAGE>
<PAGE>
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, 1345 Avenue
of the Americas, New York, New York 10105 or by telephone to (800) 451-3623.
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, serves as Transfer and Dividend
Disbursing Agent for the Fund. In those capacities, both The Bank of New York
and BISYS Fund Services, Inc. maintain certain books and records pursuant to
agreements with the Fund.
17
<PAGE>
<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.
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-1
<PAGE>
<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.
------------------------------------------
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..................................... 10
Portfolio Transactions and Brokerage............ 11
Net Asset Value................................. 11
How to Purchase Shares.......................... 12
Stockholder Investment Account.................. 13
How to Redeem Shares............................ 13
Dividends, Distributions and Taxes.............. 14
Description of Common Stock..................... 16
How the Fund Calculates Performance............. 16
Reports to Stockholders......................... 17
Custodian and Transfer and Dividend
Disbursing Agent.............................. 17
Appendix........................................ A-1
</TABLE>
[LOGO]
--------------------
PROSPECTUS
--------------------
FEBRUARY 28, 1997
<PAGE>
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1997
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 1345 Avenue of the Americas, New York, New York
10105, and its telephone number is (212) 698-3000.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated February 28, 1997 a copy
of which may be obtained from Arnhold and S. Bleichroeder, Inc., the Fund's
Distributor, upon request by writing to 1345 Avenue of the Americas, New York,
New York 10105, or telephoning (212) 698-3000 or (800) 451-3623.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ---------------
<S> <C> <C>
Additional Investment Information......................................................... 2
Investment Restrictions................................................................... 17 9
Directors, Officers and Principal Stockholders............................................ 19 9
Adviser................................................................................... 22 9
Distributor............................................................................... 22 10
Portfolio Transactions and Brokerage...................................................... 23 11
Stockholder Investment Account............................................................ 25 13
Taxes..................................................................................... 25 14
Performance Information................................................................... 27 16
Custodian, Transfer and Dividend Disbursing Agent and Independent Auditors................ 28 17
Organization and History of the Fund...................................................... 28
Independent Auditors' Report.............................................................. F-10
</TABLE>
<PAGE>
<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.
2
<PAGE>
<PAGE>
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 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
3
<PAGE>
<PAGE>
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 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
4
<PAGE>
<PAGE>
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 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
5
<PAGE>
<PAGE>
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.
6
<PAGE>
<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.
7
<PAGE>
<PAGE>
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.
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 multiplier 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
8
<PAGE>
<PAGE>
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.
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
9
<PAGE>
<PAGE>
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 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, such as 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
10
<PAGE>
<PAGE>
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. 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
11
<PAGE>
<PAGE>
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, but 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
12
<PAGE>
<PAGE>
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.
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 carefully 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
13
<PAGE>
<PAGE>
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.
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
14
<PAGE>
<PAGE>
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, 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
15
<PAGE>
<PAGE>
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, 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, U.S. Government Securities or liquid securities
which are listed on a national securities exchange or the NASDAQ National Market
System that are marked-to-market on a daily basis. 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.
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
16
<PAGE>
<PAGE>
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.
17
<PAGE>
<PAGE>
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.
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.
18
<PAGE>
<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, Arnhold and S.
Bleichroeder Advisers, Inc.; Director, Aquila
International Fund Ltd., First Eagle
International Fund, Inc.; Trustee, The New
School for Social Research; Director,
Conservation International.
Candace K. Beinecke ................ Director Partner, Hughes Hubbard & Reed; Director,
Hughes Hubbard & Reed Jacob's Pillow Dance Festival, Inc., and
One Battery Park Plaza Historic Preservation Projects Inc.; Director
New York, New York 10004 and Treasurer, Merce Cunningham Dance
Foundation, Inc.
K. Georg Gabriel ................... Director Senior Advisor, Strategic Investment Partners,
2401 Tracy Place, N.W. Inc.; Director, First Eagle International
Washington, D.C. 20008 Fund, Inc.; Member, Investment Committee,
Eugene and Agnes Meyer Foundation.
Ralph E. Hansmann .................. Director Private Investor; Honorary Director, Schroder
40 Wall Street Capital Management Inc. and Verde Exploration,
Suite 4201 Ltd.; Trustee Emeritus, Institute for Advanced
New York, New York 10005 Study; Trustee and Treasurer, New York Public
Library; Life Trustee, Hamilton College.
*Michael M. Kellen ................. Director and Vice Director and Senior Vice President, Arnhold and
Chairman of the Board S. 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. Bleichroeder, Inc.;
Director, Arnhold and S. Bleichroeder
Advisers, Inc.; Director, First Eagle
International Fund, Inc.; Trustee, The
Carnegie Hall Society; Trustees Council, The
National Gallery of Art; Trustee,
WNET/Thirteen.
Walter Oechsle ..................... Director Managing General Partner, Oechsle International
Oechsle International Advisors Advisors; Former President and Chief
One International Plaza Investment Officer, Putnam International
Boston, Massachusetts 02110 Advisors.
</TABLE>
19
<PAGE>
<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, Arnhold
and S. Bleichroeder Advisers, 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
1345 Avenue of the Americas Witter Reynolds, Inc.; Director and Chairman
29th Floor of the Board, Moorco International, Inc.;
New York, New York 10105 Trustee, Hamilton College.
John P. Arnhold .................... Co-President and President and Chief Executive Officer, Arnhold
Co-Chief Executive and S. Bleichroeder Advisers, Inc.; President,
Officer Worldvest Inc.; Co-President since 1994 and
Director, Arnhold and S. Bleichroeder, Inc.;
Director, Aquila 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.; Principal, Iridian Asset
Officer Management L.L.C.; Senior Vice President,
Arnhold and S. Bleichroeder, Inc. from 1991
through 1996; Director since 1993, American
Buildings Company.
David L. Cohen ..................... Vice President Portfolio Manager, Arnhold and S. Bleichroeder
Advisers, Inc.; Principal Iridian Asset
Management L.L.C.; Senior Vice President from
1993 through 1996 and previously Vice
President, Arnhold and S. Bleichroeder, Inc.
Martha B. Pierce ................... Vice President Assistant Vice President since 1994, previously
Fund Administrator, Arnhold and S.
Bleichroeder, Inc.; Vice President, First
Eagle International Fund, Inc.
Robert Miller ...................... Treasurer, Chief Senior Vice President, Arnhold and S.
Accounting Officer and Bleichroeder, Inc.; Vice President, Secretary,
Chief Financial Treasurer, Arnhold and S. Bleichroeder
Officer Advisers, Inc.; Treasurer and Chief Accounting
Officer, First Eagle International Fund, Inc.
</TABLE>
20
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS(1) THE FUND DURING PAST 5 YEARS
- ------------------------------------ ---------------------- ------------------------------------------------
<S> <C> <C>
Tracy L. LaPointe .................. Assistant Vice Vice President, Arnhold and S. Bleichroeder,
President Inc.; Assistant Vice President, First Eagle
International Fund, Inc.
Charles J. Rodriguez ............... Assistant Vice Senior Vice President, Arnhold and S.
President Bleichroeder, Inc.; Assistant Vice President,
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: 1345 Avenue of the Americas, New
York, New York 10105.
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. Mr. Gabriel also serves as a
director for an affiliated investment company, First Eagle International Fund,
Inc. The following table sets forth 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, 1996.
<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
Candace K. Beinecke........................................ $4,750 $ 4,750
Paul Fribourg (resigned 2/28/96)........................... $2,500 $ 4,250
K. Georg Gabriel........................................... $7,000 $14,000
Ralph E. Hansmann.......................................... $6,500 $ 6,500
Michael M. Kellen.......................................... 0 0
Stephen M. Kellen.......................................... 0 0
Walter Oechsle............................................. $7,000 $ 7,000
Stanford S. Warshawsky..................................... 0 0
Keith S. Wellin............................................ $6,000 $ 6,000
</TABLE>
The Fund does not pay any compensation to interested directors of the Fund
or any retirement or pension benefits to directors.
As of February 3, 1997 the directors and officers of the Fund, as a group,
owned approximately 383,414 shares or 3.9% of the outstanding common stock of
the Fund.
As of February 3, 1997, Central National Gottesman Inc., Three
Manhattanville Road, Purchase, NY 10577, owned beneficially and of record
approximately 14.5% of the Fund's outstanding shares and New York Foundation
Inc., 350 Fifth Avenue, New York, NY 10118, owned beneficially and of record
approximately 5.7% of the Fund's outstanding shares. Arnhold and S.
Bleichroeder, Inc. Profit Sharing Plan, 1345 Avenue of the
21
<PAGE>
<PAGE>
Americas, New York, NY 10105, owned beneficially and of record approximately
4.4% 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 and Services Fees' is accrued daily and is payable
quarterly. For the fiscal years ended October 31, 1994, 1995 and 1996, Arnhold
and S. Bleichroeder, Inc. or the Adviser earned advisory fees of $1,829,008,
$1,868,672 and $1,838,840 respectively.
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.
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. Additionally, by unanimous vote on February 13, 1996, the directors
approved the assignment of the Advisory Agreement from Arnhold and S.
Bleichroeder, Inc. to Arnhold and S. Bleichroeder Advisers, Inc., effective
February 28, 1996. The Advisory Agreement 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, within the meaning of the Investment Company Act, and
that it may be terminated without penalty by either party upon not more than 60
days' nor less than 30 days' written notice.
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 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
22
<PAGE>
<PAGE>
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
23
<PAGE>
<PAGE>
merchant 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
24
<PAGE>
<PAGE>
annually a statement disclosing the aggregate compensation received by the
exchange member in effecting such transactions.
For the fiscal years ended October 31, 1994, 1995 and 1996 the Fund paid
total brokerage commissions of $767,184, $300,859 and $438,434, respectively of
which $219,324, $81,744 and $77,996 respectively, were paid to Arnhold and S.
Bleichroeder, Inc. For the fiscal year ended October 31, 1996, brokerage
commissions paid by the Fund to Arnhold and S. Bleichroeder, Inc. constituted
18% of the total brokerage commissions paid by the Fund. For the fiscal year
ended October 31, 1996, the Fund effected 15% 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, 1996, $317,071 (72%) 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.
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
25
<PAGE>
<PAGE>
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.
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;
26
<PAGE>
<PAGE>
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:
P(1 +T)'pp'n = ERV
<TABLE>
<S> <C> <C>
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)
</TABLE>
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.
27
<PAGE>
<PAGE>
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
<TABLE>
<S> <C> <C>
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)
</TABLE>
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT AUDITORS
The Bank of New York serves as Custodian for the Fund's assets. BISYS Fund
Services, Inc. serves as Transfer and Dividend Disbursing Agent. In those
capacities, both 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, 345 Park Avenue, New York, New York 10154, serves as
the Fund's independent auditors and in that capacity examines and reports on the
Fund's annual financial statements and financial highlights.
ORGANIZATION AND HISTORY OF THE FUND
The Fund was incorporated in Maryland on December 11, 1986.
28
<PAGE>
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
SCHEDULE OF INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
Shares COMMON STOCK (92.07%) Value
<C> <S> <C>
Aerospace/Defense (15.42%)
56,300 Alliant Techsystems Inc.* $ 2,751,662
67,800 General Dynamics Corp. 4,652,775
52,300 Litton Industries Inc.* 2,346,963
52,800 Lockheed Martin Corp. 4,732,200
159,400 Loral Space & Communications Ltd. 2,530,475
106,600 McDonnell Douglas Corp. 5,809,700
59,000 Sundstrand Corp. 2,374,750
------------
25,198,525
Banking/Financial (27.55%)
110,340 Bank of Boston Corp. 7,061,760
51,300 Boatmen's Bancshares 3,116,475
43,472 Chase Manhattan Bank 3,727,724
42,600 Citicorp 4,217,400
36,000 CoreStates Financial Corp. 1,750,500
92,700 Finova Group Inc. 5,724,225
20,300 First Empire State Corp. 5,212,025
125,600 Glendale Federal Bank* 2,307,900
58,700 Mellon Bank Corp. 3,822,837
32,300 Student Loan Marketing Association 2,672,825
20,200 Wells Fargo & Co. 5,395,925
------------
45,009,596
Consumer Products (7.42%)
119,100 Premark International Inc. 2,486,213
90,500 Quaker Oats Company 3,212,750
102,700 Tandy Corp. 3,864,087
49,900 Tupperware Corporation 2,563,612
------------
12,126,662
Energy (5.66%)
227,578 Tejas Gas Corp.* 9,245,377
Industrial Products (12.43%)
91,900 Cooper Industries Inc. 3,698,975
44,100 E. I. Du Pont de Nemours & Co. 4,090,275
69,600 Federal-Mogul 1,557,300
73,200 General Signal Corp. 2,982,900
55,600 Hercules Inc. 2,647,950
8,000 Triacq Corp.`D' 10,000
64,900 Varian Associates 2,928,613
45,300 W. R. Grace & Co. 2,400,900
------------
20,316,913
</TABLE>
F-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Shares COMMON STOCK (CONTINUED) Value
<C> <S> <C>
Medical (15.06%)
138,040 Allegiance Corp. $ 2,588,250
88,700 Baxter International Inc. 3,692,137
133,500 FHP International Corp.* 4,555,688
111,300 Mallinckrodt Group Inc. 4,841,550
77,800 McKesson Corp. 3,870,550
9,400 Pacificare Health Systems Inc. Cl. 'B'* 660,350
67,700 Pharmacia & Upjohn Inc. 2,437,200
112,600 Value Health Inc.* 1,956,425
------------
24,602,150
Technology (4.09%)
455,031 Aavid Thermal Technologies Inc.* 4,038,400
113,300 Wang Laboratories Inc.* 2,648,388
------------
6,686,788
Transportation (4.44%)
80,400 Illinois Central Corp. 2,602,950
81,800 Ryder System Inc. 2,433,550
39,600 Union Pacific Corp. 2,222,550
------------
7,259,050
------------
Total Common Stock (cost $109,280,843) 150,445,061
PREFERRED STOCK (2.73%)
698 Assistive Technology Project Inc. Ser. A`D' 500,000
232,140 PAS Research Inc. Ser. B`D' 669,492
59,040 Shape Technology Inc. Series A Conv.`D' 1,000,000
1,200 Tidewater Holdings Inc. Ser. A Conv.`D' 1,200,000
10,900 Triacq Corp. Ser. A 10% Cum.`D' 1,090,000
------------
Total Preferred Stock (cost $4,459,492) 4,459,492
<CAPTION>
Units OTHER INVESTMENTS (.62%)
<C> <S> <C>
16.16162 Euro Outlet Malls, L.P.`D' (cost $1,100,000) 1,100,000
</TABLE>
F-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Contracts CALL OPTIONS (2.63%) Value
<S> <C> <C>
250 IBM Call @ 90 Exp. January 1997 $ 1,000,000
750 IBM Call @ 90 Exp. January 1998 3,300,000
------------
Total Call Options (cost $3,203,438) 4,300,000
------------
Total Investments (cost $118,043,733)** 160,304,553
------------
Other assets in excess of other liabilities (1.90%) 3,098,294
------------
NET ASSETS (100.00%) $163,402,847
------------
------------
</TABLE>
<TABLE>
<S> <C>
* Non-income producing security.
** Aggregate cost for federal income tax purposes is substantially the same.
`D' 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, 1996 is shown below:
</TABLE>
<TABLE>
<CAPTION>
Security Acquisition Date Cost
------------------------------------------------------- ---------------- ----------
<S> <C> <C>
10/3/95 $ 500,000
Assistive Technology Project Inc. Ser. A
12/30/94 $1,100,000
Euro Outlet Malls, L.P.
4/10/96 $ 669,492
PAS Research Inc. Ser. B
11/29/94 $1,000,000
Shape Technology Inc. Ser. A Conv.
7/9/96 $1,200,000
Tidewater Holdings Inc. Ser. A Conv.
7/27/95 $ 10,000
Triacq Corp.
7/27/95 $1,090,000
Triacq Corp. Ser. A. 10% Cum.
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (cost $118,043,773) $160,304,553
Cash 636,588
Dividends and interest receivable 175,277
Receivable for fund shares sold 64,861
Receivable for investments sold 2,967,981
------------
TOTAL ASSETS 164,149,260
------------
LIABILITIES:
Payable for fund shares redeemed 86,252
Management fee payable 490,476
Accrued operating expenses 169,685
------------
TOTAL LIABILITIES 746,413
------------
NET ASSETS $163,402,847
------------
------------
Net Assets were comprised of:
Common stock (par $0.01) authorized: 1,000,000,000 shares,
outstanding 9,094,649 shares (Note 6) $ 90,946
Paid-in-surplus 110,900,682
------------
110,991,628
Net unrealized appreciation on investments 42,260,780
Accumulated net realized gain on investments 10,150,439
------------
NET ASSETS, October 31, 1996 $163,402,847
------------
------------
Net Asset Value per share:
($163,402,847 [div] 9,094,649 shares of common stock issued and outstanding) $17.97
------
------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 2,191,915
Interest income 49,596
-----------
TOTAL INCOME 2,241,511
-----------
EXPENSES:
Management fee (note 2) 1,838,840
Services fee (note 2) 367,761
Custodian fees 93,095
Legal fees 66,384
Transfer agent fees 44,184
Accounting fees 42,000
Audit fees 39,750
Directors' fees 33,750
Registration expenses 26,976
Printing expenses 18,385
Miscellaneous expenses 16,012
-----------
TOTAL EXPENSES 2,587,137
Less: Custody earnings credits (note 3) (3,177)
-----------
NET EXPENSES 2,583,960
-----------
NET INVESTMENT LOSS (342,449)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 26,760,910
Change in unrealized appreciation on investments 8,542,201
-----------
NET GAIN ON INVESTMENTS 35,303,111
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $34,960,662
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<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,
---------------- ----------------
1996 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss $ (342,449) $ (343,067)
Net realized gain on investments 26,760,910 2,960,207
Net change in unrealized appreciation on investments 8,542,201 20,664,270
---------------- ----------------
Net increase in net assets resulting from operations 34,960,662 23,281,410
Dividends and distributions to shareholders:
Dividends from net investment income -- --
Distributions from net realized gains (19,111,177) (15,613,958)
Transactions in fund shares-net 13,203,182 6,166,760
---------------- ----------------
Total increase 29,052,667 13,834,212
NET ASSETS:
Beginning of year 134,350,180 120,515,968
---------------- ----------------
End of year $163,402,847 $134,350,180
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
For the year ended
October 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $16.28 $15.45 $16.53 $13.36 $12.35
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss) (0.04) (0.04) (0.12) (0.22) (0.15)
Net gains (losses) on
securities (both realized
and unrealized) 4.08 2.87 0.66 4.56 1.98
------ ------ ------ ------ ------
Total from investment
operations 4.04 2.83 0.54 4.34 1.83
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) -- -- -- -- (0.08)
Distributions (from capital
gains) (2.35) (2.00) (1.62) (1.17) (0.74)
------ ------ ------ ------ ------
Total distributions (2.35) (2.00) (1.62) (1.17) (0.82)
------ ------ ------ ------ ------
Net asset value, end of year $17.97 $16.28 $15.45 $16.53 $13.36
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return* 27.1% 21.6% 3.8% 35.2% 16.0%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $163,402,847 $134,350,180 $120,515,968 $107,344,171 $76,599,310
Ratio of expenses to average
net assets(1) 1.8% 1.9% 1.9% 2.9% 3.0%
Ratio of net investment income
(loss) to average net assets (0.2)% (0.3)% (0.7)% (1.5)% (1.0)%
Portfolio turnover rate 93% 81% 125% 141% 145%
Average commission rate paid
on portfolio security
purchases and sales
transactions(2) $ 0.04 -- -- -- --
<PAGE>
<CAPTION>
1991 1990 1989 1988
------- ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $ 10.35 $14.04 $11.65 $ 9.17
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss) 0.09 0.16 0.16 (0.03)
Net gains (losses) on
securities (both realized
and unrealized) 2.20 (2.34) 2.57 2.58
------- ------ ------ ------
Total from investment
operations 2.29 (2.18) 2.73 2.55
------- ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net
investment income) (0.29) (0.11) -- (0.07)
Distributions (from capital
gains) -- (1.40) (0.34) --
------- ------ ------ ------
Total distributions (0.29) (1.51) (0.34) (0.07)
------- ------ ------ ------
Net asset value, end of year $ 12.35 $10.35 $14.04 $11.65
------- ------ ------ ------
------- ------ ------ ------
Total return* 22.7% (17.7)% 24.2% 28.0%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $74,279,164 $66,729,536 $83,619,552 $54,271,271
Ratio of expenses to average
net assets(1) 2.0% 1.1% 2.0% 3.3%
Ratio of net investment income
(loss) to average net assets 0.8% 1.3% 1.3% (0.2)%
Portfolio turnover rate 92% 72% 52% 55%
Average commission rate paid
on portfolio security
purchases and sales
transactions(2) -- -- -- --
<CAPTION>
April 10, 1987**
through
October 31,
--------------
1987
-------
<S> <C>
Net asset value, beginning of
year $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss) 0.07
Net gains (losses) on
securities (both realized
and unrealized) (0.90)
-------
Total from investment
operations (0.83)
-------
LESS DISTRIBUTIONS
Dividends (from net
investment income) --
Distributions (from capital
gains) --
-------
Total distributions 0.00
-------
Net asset value, end of year $9.17
-------
-------
Total return* (8.3)%`D'`D'
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $27,194,056
Ratio of expenses to average
net assets(1) 2.5%`D'
Ratio of net investment income
(loss) to average net assets 1.2%`D'
Portfolio turnover rate 84%
Average commission rate paid
on portfolio security
purchases and sales
transactions(2) --
</TABLE>
* Past performance is not predictive of future performance.
** Commencement of investment operations
`D' Annualized
`D'`D' Total return not annualized
(1) During the year ended October 31, 1996, the Fund has earned credits from the
Custodian which reduce custodian fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets would be
1.8%.
(2) For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose the average commission rate per share for portfolio
security trades on which commissions are charged.
F-6
<PAGE>
<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. ('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.
OPTIONS: In order to produce incremental earnings or protect against changes in
the value of portfolio securities, the Fund may buy and sell put and call
options, write covered call options on portfolio securities and write cash-
secured put options.
The Fund generally purchases put options or writes covered call options to hedge
against adverse movements in the value of portfolio holdings. The Fund may also
use options for speculative purposes. The Fund will segregate assets to cover
its obligations under option contracts.
Options contracts are valued daily based upon the last sales price on the
principal exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on the sales of a written call option, the purchase cost of a
written put option, or the cost of the security for a purchased put or call
option is adjusted by the amount of premium received or paid.
The risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss
F-7
<PAGE>
<PAGE>
if the market price of the security decreases and the option is exercised. The
risk of buying an option is that the Fund pays a premium whether or not the
option is exercised. The Fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not exist.
The Fund may also write over-the-counter options where the completion of the
obligation is dependent upon the credit standing of the counterparty.
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.
E. ESTIMATES AND ASSUMPTIONS -- Estimates and assumptions are required to be
made regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in economic
environment, financial markets and any other parameters used in determining
these estimates could cause results to differ from these amounts.
NOTE 2. INVESTMENT ADVISORY AGREEMENT AND SERVICES AGREEMENT -- Arnhold and S.
Bleichroeder Advisers, Inc. (the 'Adviser'), a wholly owned subsidiary of ASB,
manages the Fund. The Investment Advisory Agreement between ASB and the Fund has
been assigned, pursuant to an assignment agreement, to the Adviser effective
February 28, 1996. The assignment was approved by the Board of Directors of ASB
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 manger 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.
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 may be higher than that
paid by most other registered investment companies.
ASB receives an annual services fee of 0.25% 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 ASB for
providing administrative and fund accounting support services and shareholder
liaison services, including assistance with subscriptions, redemptions and other
shareholder questions. ASB determined that the volume and demand for shareholder
liaison services required staffing in addition to the personnel required for
investment advisory services. Prior to November 1, 1995, ASB was not being paid
for such services.
F-8
<PAGE>
<PAGE>
NOTE 3. CUSTODIAN FEES -- The Fund has entered into an expense offset agreement
with its custodian wherein it receives credit toward the reduction of custodian
fees whenever there are uninvested cash balances. As of October 31, 1996 the
Fund's custodian fees and related offset were $93,095 and $3,177, respectively.
NOTE 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales of portfolio securities for the year ended
October 31, 1996, excluding short-term investments, were $136,835,095 and
$146,311,520, respectively.
Transactions in options written during the year ended October 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Number of Contracts Premiums
------------------- ----------
<S> <C> <C>
Options outstanding at October 31, 1995............................... 0 $ 0
Options written....................................................... 9,000 2,835,405
Options exercised..................................................... 0 0
Options expired/closed................................................ 9,000 2,835,405
------ ----------
Options outstanding at October 31, 1996............................... 0 $ 0
------ ----------
------ ----------
</TABLE>
For the year ended October 31, 1996, the Fund paid brokerage commissions on
portfolio securities transactions of $438,434 of which $77,996 was paid to ASB.
NOTE 5. FEDERAL INCOME TAXES -- The United States federal income tax basis of
the Fund's investments at October 31, 1996 was substantially the same as the
basis for financial reporting purposes and accordingly, the aggregate gross
unrealized appreciation on investments was $44,397,804 and the aggregate gross
unrealized depreciation was $2,137,024, resulting in net unrealized appreciation
for United States federal income tax purposes of $42,260,780.
NOTE 6. COMMON STOCK -- Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
For the year For the year
ended October 31, 1996 ended October 31, 1995
-------------------------- --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Beginning of period................................... 8,252,291 $ 97,782,887 7,798,954 $ 91,844,790
Shares sold........................................... 1,051,596 18,615,595 410,736 6,044,725
Shares redeemed....................................... (1,210,439) (21,223,575) (1,009,357) (13,595,501)
Reinvested distributions.............................. 1,001,201 15,811,162 1,051,958 13,717,536
---------- ------------ ---------- ------------
842,358 13,203,182 453,337 6,166,760
Adjustment representing other-than-temporary book-tax
differences......................................... -- 5,559 -- (228,663)
---------- ------------ ---------- ------------
End of period......................................... 9,094,649 $110,991,628 8,252,291 $ 97,782,887
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
Of the 9,094,649 shares of common stock outstanding at October 31, 1996, ASB
owned 20,596 shares and the ASB Profit Sharing Plan owned 510,292 shares. The
directors and officers of the Fund, as a group, owned approximately 359,248
shares at October 31, 1996.
F-9
<PAGE>
<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, 1996, 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 the 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, 1996, 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 22, 1996
F-10
<PAGE>
<PAGE>
FIRST EAGLE FUND OF AMERICA, INC.
OTHER INFORMATION
FEBRUARY 28, 1997
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. Financial Statements
<TABLE>
<S> <C>
1. -- Schedule of Investments dated October 31, 1996.
2. -- Statement of Assets and Liabilities dated October 31, 1996.
3. -- Statement of Operations for the year ended October 31, 1996.
4. -- Statement of Changes in Net Assets for years ended October 31, 1996 and 1995.
5. -- Financial highlights for the years ended October 31, 1996, 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 22, 1996.
</TABLE>
B. Exhibits
<TABLE>
<S> <C>
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. (a) -- Transfer Agency Agreement.*
9. (b) -- Services Agreement.*
10. -- Opinion of Fulbright & Jaworski L.L.P.
11. -- Consent of Independent Auditors.
13. -- Subscription 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................................................ 980 (as of February 3, 1997)
</TABLE>
II-1
<PAGE>
<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, Arnhold and S.
Bleichroeder, Inc.; Director, Aquila
International Fund Ltd. and First Eagle
International Fund, Inc.; Trustee, The New
School for Social Research; Director,
Conservation International.
John P. Arnhold............... President and Chief Executive President, Worldvest, Inc.; Co-President and
Officer Director, Arnhold and S. 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, Arnhold and S.
Bleichroeder, Inc.; Director, First Eagle
International Fund, Inc.; Trustee, The
Carnegie Hall Society; Trustees Council, The
National Gallery of Art; and Trustee
WNET/Thirteen.
Robert Miller................. Vice President, Secretary and Senior Vice President, Arnhold and S.
Treasurer Bleichroeder, Inc.; Treasurer, Chief Accounting
Officer, 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 Fund, N.V., Aquila International Fund Limited, Aetos Corp., DEF
Associates, N.V., Eagle Select Fund Limited and The Global Beverage Fund,
Limited.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES POSITIONS AND OFFICES
(b) BUSINESS ADDRESS* WITH UNDERWRITER WITH REGISTRANT
------------------------------ ------------------------------ --------------------------------------------
<S> <C> <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
Michael M. Kellen............. Director and Senior Vice Director and Vice Chairman of the Board
President
Stephen M. Kellen............. Co-Chairman of the Board Director
Tracy L. LaPointe............. Vice President Assistant Vice President
Robert Miller................. Senior Vice President Treasurer and Chief Accounting Officer
Martha B. Pierce.............. Assistant Vice President Vice President
Charles J. Rodriguez.......... Senior Vice President Assistant Vice President
Stanford S. Warshawsky Co-President, Director and Director
Secretary
</TABLE>
* The Address of each person named is 1345 Avenue of the Americas, New York,
New York 10105.
(c) The Registrant has no principal underwriter which is not an affiliated
person of the Registrant.
II-2
<PAGE>
<PAGE>
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. 17 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>
<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, 1997.
FIRST EAGLE FUND OF AMERICA, INC.
By: /s/ JOHN P. ARNHOLD
------------------------
JOHN P. ARNHOLD
CO-PRESIDENT
By: /s/ HAROLD J. LEVY
------------------------
HAROLD J. LEVY
CO-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, 1997
- ------------------------------------------
(HENRY H. ARNHOLD)
/s/ CANDACE K. BEINECKE Director February 26, 1997
- ------------------------------------------
(CANDACE K. BEINECKE)
/s/ K. GEORG GABRIEL Director February 26, 1997
- ------------------------------------------
(K. GEORG GABRIEL)
/s/ RALPH E. HANSMANN Director February 26, 1997
- ------------------------------------------
(RALPH E. HANSMANN)
/s/ MICHAEL M. KELLEN Director February 26, 1997
- ------------------------------------------
(MICHAEL M. KELLEN)
/s/ STEPHEN M. KELLEN Director February 26, 1997
- ------------------------------------------
(STEPHEN M. KELLEN)
/s/ WALTER OECHSLE Director February 26, 1997
- ------------------------------------------
(WALTER OECHSLE)
/s/ STANFORD S. WARSHAWSKY Director February 26, 1997
- ------------------------------------------
(STANFORD S. WARSHAWSKY)
/s/ KEITH S. WELLIN Director February 26, 1997
- ------------------------------------------
(KEITH S. WELLIN)
/s/ JOHN P. ARNHOLD Co-President, Co-Chief Executive Officer February 26, 1997
- ------------------------------------------
(JOHN P. ARNHOLD)
/s/ HAROLD J. LEVY Co-President, Co-Chief Executive Officer February 26, 1997
- ------------------------------------------
(HAROLD J. LEVY)
</TABLE>
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
NUMBER PAGE
- -------- ----
<S> <C> <C>
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 S.
Bleichroeder, Inc.*...........................................................................
(d) -- Amendment to Custody Agreement for Terminal Link and ACCESS between Registrant and The Bank of
New York*.....................................................................................
9.(a) -- Transfer Agency Agreement*....................................................................
9.(b) -- Services Agreement*...........................................................................
10. -- Opinion of Fulbright & Jaworski L.L.P.........................................................
11. -- Consent of Independent Auditors...............................................................
13. -- Subscription Agreement*.......................................................................
17. -- Financial Data Schedule.......................................................................
</TABLE>
- ------------
* Previously filed and incorporated by reference.
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as............................. 'D'
The double dagger symbol shall be expressed as...................... 'D''D'
Characters normally expressed as superscript shall be preceded by... 'pp'
The division sign shall be expressed as............................. [div]
<PAGE>
<PAGE>
[LETTERHEAD OF FULBRIGHT AND JAWORSKI L.L.P.]
February 27, 1997
First Eagle Fund of America, Inc.
1345 Avenue of the Americas
New York, NY 10105
Re: Registration Statement on From N-1A
Securities Act File No. 33-10675
Investment Company Act File No. 811-04935
-----------------------------------------
Gentlemen:
This will refer to the Registration Statement under the Securities Act of
1933 (File No. 33-10675) and Investment Company Act of 1940 (File No.
811-04935), filed by First Eagle Fund of America, Inc. (the 'Fund'), a Maryland
corporation, with the Securities and Exchange Commission and the further
amendments thereto (the 'Registration Statement'), covering the registration
under the Securities Act of 1933 of an indefinite number of shares of beneficial
interest of the Fund (the 'Shares').
As counsel to the Fund, we have examined such documents and reviewed such
questions of law as we deem appropriate. On the basis of such examination and
review, it is our opinion that the Shares have been duly authorized and, when
issued, sold and paid for in the manner contemplated by the Registration
Statement, will be legally issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and the reference to this firm under the heading 'Counsel' in the
Statement of Additional Information filed as part of the Registration Statement.
This consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Securities Act of 1933.
Very truly yours,
/s/ Fulbright and Jaworski L.L.P.
<PAGE>
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
The Shareholders and Board of Directors
First Eagle Fund of America, Inc.:
We consent to the use of our report dated November 22, 1996 with respect to
First Eagle Fund of America, Inc. included in this Registration Statement
on Form N-1A 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 Auditors" in the Statement of Additional Information.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
New York, New York
February 28, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 118,043,773
<INVESTMENTS-AT-VALUE> 160,304,553
<RECEIVABLES> 3,844,707
<ASSETS-OTHER> 636,588
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 164,149,260
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 746,413
<TOTAL-LIABILITIES> 746,413
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110,900,682
<SHARES-COMMON-STOCK> 9,094,649
<SHARES-COMMON-PRIOR> 8,525,291
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,260,780
<NET-ASSETS> 163,402,847
<DIVIDEND-INCOME> 2,191,915
<INTEREST-INCOME> 49,596
<OTHER-INCOME> 0
<EXPENSES-NET> 2,583,960
<NET-INVESTMENT-INCOME> (342,449)
<REALIZED-GAINS-CURRENT> 26,760,910
<APPREC-INCREASE-CURRENT> 8,542,201
<NET-CHANGE-FROM-OPS> 34,960,662
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 19,111,177
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,051,596
<NUMBER-OF-SHARES-REDEEMED> 1,210,439
<SHARES-REINVESTED> 1,001,201
<NET-CHANGE-IN-ASSETS> 29,052,667
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,838,840
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,583,960
<AVERAGE-NET-ASSETS> 147,183,822
<PER-SHARE-NAV-BEGIN> 16.28
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 4.08
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (2.35)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.97
<EXPENSE-RATIO> 1.8
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
