Investment Company Act File No. 811-4981
Securities Act File No. _________
As filed with the Securities and Exchange Commission on April 5, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and/or
[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 10
MORGAN GRENFELL SMALLCAP FUND, INC.
(Exact Name of Registrant as Specified in Charter)
885 Third Avenue
New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
212-230-2600
MARK G. ARTHUS
Secretary
Morgan Grenfell SMALLCap Fund, Inc.
885 Third Avenue, New York, New York 10022
(Name and Address of Agent for Service)
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With a Copy to:
ERNEST V. KLEIN, ESQ.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
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Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are to be offered on a
delayed or continuous basis in reliance on rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [X]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- ------------------------------------------------------------------------------
Amount Proposed Maximum Proposed Maximum Amount of
Title of Securities Being Offering Price Aggregate Registration
Being Registered Registered Per Share Offering Price Fee
- ------------------------------------------------------------------------------
Common Stock,
par value 275,000 $10.55 $2,901,250 $1,000.43(1)
$.01 per share shares
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<PAGE>
(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457(c) based on the average of the high and low prices
for the Company's Common Stock reported on the New York Stock Exchange
consolidated reporting system on April 1, 1996.
------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
MORGAN GRENFELL SMALLCAP FUND, INC.
FORM N-2
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Item Number, Form N-2 Caption in Prospectus
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Part A
1. Outside Front Cover...................... Outside Front Cover
2. Inside Front and Outside Back
Cover Page............................... Outside Front Cover Page
3. Fee Table and Synopsis................... Fund Expenses
4. Financial Highlights..................... Financial Highlights
5. Plan of Distribution..................... The Offer
6. Selling Shareholders..................... Not Applicable
7. Use of Proceeds.......................... The Offer; Use of Proceeds
8. General Description of the Registrant.... The Fund; Market and Net Asset
Value Information;
Investment Objectives and
Policies; Special Risk
Considerations
9. Management............................... Management
10. Capital Stock, Long-Term Debt and Other
Securities............................... Dividends and Distributions;
Dividend Reinvestment Plan;
Common Stock
11. Defaults and Arrears on Senior
Securities............................... Not Applicable
12. Legal Proceedings........................ Not Applicable
<PAGE>
Item Number, Form N-2 Caption in Prospectus
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13. Table of Contents of the Statement of
Additional Information................... Table of Contents of the
Statement of Additional
Information
Part B
14. Cover Page............................... Cover Page
15. Table of Contents........................ Table of Contents
16. General Information and History.......... The Fund (in Part A)
17. Investment Objectives and Policies....... Investment Objectives and
Policies; Investment
Restrictions
18. Management............................... Management
19. Control Persons and Principal Holders
of Securities............................ Management; Common Stock
(in Part A)
20. Investment Advisory and Other Services... Management of the Fund
(in Part A)
21. Brokerage Allocation and Other Practices. Portfolio Transactions
and Brokerage
22. Tax Status............................... Taxation
23. Financial Statements..................... Financial Statements
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<PAGE>
SUBJECT TO COMPLETION DATED APRIL 5, 1996
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY.
Morgan Grenfell SMALLCap Fund, Inc.
_________ Shares of Common Stock
Issuable upon Exercise of
Rights to Subscribe for Such Shares
Morgan Grenfell SMALLCap Fund, Inc. (the "Fund") is issuing to its
shareholders of record as of the close of business on __________, 1996
(the "Record Date") non-transferable rights ("Rights") entitling the
holders thereof to subscribe for up to an aggregate of _________ shares
(the "Shares") of the Fund's Common Stock, at the rate of one Share of
Common Stock for every three Rights held (the "Offer"). Shareholders of
record will receive one Right for each whole share of Common Stock held
on the Record Date. Shareholders who fully exercise their Rights will
be entitled to subscribe for additional Shares of Common Stock pursuant
to the Over-Subscription Privilege described herein. The Fund may
increase the number of Shares of Common Stock subject to subscription
by issuing up to _______ Shares of Common Stock pursuant to the
Over-Subscription Privilege, for an aggregate total of _________
Shares. Fractional Shares will not be issued upon the exercise of
Rights. The Rights are non-transferable and, therefore, may not be
purchased or sold. The Rights will not be admitted for trading on the
New York Stock Exchange (the "NYSE") or any other exchange. See "The
Offer". THE SUBSCRIPTION PRICE PER SHARE WILL BE ____% OF THE LOWER OF
(i) THE AVERAGE OF THE LAST REPORTED SALES PRICE OF A SHARE OF THE
FUND'S COMMON STOCK ON THE NYSE ON THE DATE OF THE EXPIRATION OF THE
OFFER (THE "PRICING DATE") AND THE FOUR PRECEDING BUSINESS DAYS OR (ii)
THE NET ASSET VALUE PER SHARE AS OF THE CLOSE OF BUSINESS ON THE
PRICING DATE.
The Fund announced the Offer after the close of trading on the
NYSE on _______________, 1996. Shares of Common Stock trade on the NYSE
under the symbol "MGC". Shares issued upon the exercise of Rights and
the Over-Subscription Privilege will be listed for trading on the NYSE.
The net asset values per share of the Fund's Common Stock at the close
of business on _______, 1996 (the last trading date on which the Fund
calculated its net asset value prior to the announcement) and on
_________, 1996 (the last trading date on which the Fund calculated its
net asset value prior to the date of this Prospectus) were $_____ and
$_____, respectively, and the last reported sales price of a Share of
the Fund's Common Stock on the NYSE on those dates were $_____ and
$_______, respectively.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
____________, 1996 UNLESS EXTENDED AS DESCRIBED HEREIN (THE "EXPIRATION
DATE").
The Fund is a diversified, closed-end management investment
company whose primary investment objective is long-term capital
appreciation principally by investment in equity and equity-related
securities of U.S. companies. The Fund seeks current income as a
secondary objective. The Fund seeks to achieve its primary objective by
investing principally in common stocks of small capitalization
companies. For this purpose, small capitalization companies are those
ranked (at the time of investment) according to market capitalization
in the bottom 20% of all issuers listed or quoted on a national
securities exchange or market. (e.g., as of the date of this
Prospectus, companies with market capitalizations of between $100
million and $1.6 billion). See "Investment Objectives and Policies". No
assurance can be given that the Fund's investment objectives will be
realized. While securities of small capitalization companies may offer
a greater capital appreciation potential than investments in large-cap
company securities, they may also present greater risks. See "Special
Risk Considerations".
<PAGE>
This Prospectus sets forth concisely the information about the
Fund that a prospective investor ought to know before investing.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information, dated _________, 1996
and subject to completion dated April 5, 1996 (the "SAI"), containing
additional information about the Fund, has been filed with the
Securities and Exchange Commission (the "Commission") and is
incorporated by reference in its entirety into this Prospectus. A copy
of the SAI, the table of contents of which appears on page __ of this
Prospectus, may be obtained without charge by calling the Fund at
- ----------.
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.
| Estimated | |
| Subscription | Estimated Sales | Estimated Proceeds
| Price(1) | Load(2) | to Fund(3)(4)
| | |
| | |
| | |
Per Share...| $__________ | $_________ | $__________
| | |
| | |
Total | | |
Maximum (5) | $__________ | $_________ | $__________
| | |
(Footnotes on the following page)
----------------------------------
PaineWebber Incorporated
----------------------------------
The date of this Prospectus is _________, 1996.
<PAGE>
(continued from the previous page)
Upon the completion of the Offer, shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the
Fund than they owned prior to the Offer. In addition, because the
Subscription Price per share will be less than the then current net
asset value per share as of the Pricing Date, the Offer will result in
an immediate dilution of the net asset value per share for all
shareholders. Such dilution is not currently determinable because it is
not known how many Shares will be subscribed for, what the net asset
value or market price of the Common Stock will be on the Pricing Date
or what the Subscription Price will be, although the amount of such
dilution could be substantial. See "Special Risk Considerations".
Except as described herein, shareholders will have no right to rescind
their subscriptions after receipt of their payment for Shares by the
Subscription Agent.
The Fund's Investment Manager is Morgan Grenfell Capital
Management, Inc., a U.S.-registered investment adviser. The Investment
Manager is an indirect wholly-owned subsidiary of Deutsche Morgan
Grenfell Group plc, which is in turn an indirect wholly-owned
subsidiary of Deutsche Bank AG, an international commercial and
investment banking group. See "Management of the Fund". The address of
the Fund is 885 Third Avenue, New York, New York 10022, and its
telephone number is (212) 230-2600.
(Footnotes from the previous page)
(1) Estimated on the basis of ___% of the Fund's last sales price on the NYSE
on , 1996.
(2) In connection with the Offer, PaineWebber Incorporated (the "Dealer
Manager") and other broker-dealers soliciting the exercise of Rights will
receive solicitation fees equal to ______ of the Subscription Price per
Share for each Share issued pursuant to the exercise of such Rights or the
Over-Subscription Privilege. The Fund has also agreed to pay the Dealer
Manager a fee for financial advisory services in connection with the Offer
equal to ______ of the aggregate Subscription Price for the Shares issued
pursuant to the exercise of such Rights or the Over-Subscription Privilege
and the Fund has agreed to indemnify the Dealer Manager against certain
liabilities under the Securities Act of 1933, as amended.
(3) Before deduction of offering expenses incurred by the Fund, estimated at
$_______, including up to an aggregate of $________ to be paid to the
Dealer Manager as partial reimbursement of its expenses pursuant to the
Offer.
(4) The funds received by check prior to the final due date of this Offer will
be deposited into a segregated interest-bearing account (which interest
will be paid to the Fund) pending proration and distribution of Shares.
(5) Assumes all Rights are exercised at the Estimated Subscription Price.
Pursuant to the Over-Subscription Privilege, the Fund may at the discretion
of the Board of Directors increase the number of Shares subject to
subscription by up to _______ of the Shares offered hereby. If the Fund
increases the number of Shares subject to subscription by _____%, the total
maximum Estimated Subscription Price (as hereinafter defined), Estimated
Sales Load and Estimated Proceeds to the Fund will be $__________,
$_________ and $__________, respectively.
<PAGE>
FUND EXPENSES
Shareholder Transaction Expenses
Sales Load (as a percentage of the Subscription Price
per Share)(1)......................................... ___%
Annual Expenses
(as a percentage of net assets attributable to Common Stock)(2)(3)
Management Fees.................................... 1.00%
Other Expenses..................................... 0.44%
Total Annual Expenses................................... 1.44%
(1) The Dealer Manager and the other broker-dealers soliciting the
exercise of Rights will receive soliciting fees payable by the
Fund equal to ____% of the Subscription Price per Share. The Fund
has also agreed to pay the Dealer Manager a fee for marketing and
financial advisory services in connection with the Offer equal to
_____% of the aggregate Subscription Price and to reimburse the
Dealer Manager for out-of-pocket expenses up to an aggregate of
$_______. These fees will be borne by the Fund and indirectly by
all of the Fund's shareholders, including those who do not
exercise their Rights.
(2) See "Management of the Fund -- Investment Manager; -- Management
Agreement" herein and "Expenses" and "Portfolio Transactions and
Brokerage" in the SAI for additional information.
(3) "Annual Expenses" have been estimated for the current fiscal year
and assume that (i) all of the Rights are exercised and (ii) the
Fund does not increase the number of shares subject to
subscription pursuant to the Over-Subscription Privilege. Annual
expenses for the fiscal year ended December 31, 1995 were 1.51% as
a percentage of average net assets.
The foregoing fee table is intended to assist Fund investors in
understanding the various costs and expenses that an investor in the
Fund will bear directly or indirectly.
Example
An investor would directly or indirectly pay the following expense
on a $1,000 investment in the Fund, assuming a 5% annual return
throughout the periods:
1 Year 3 Years 5 Years 10 Years
$ $ $ $
This Example assumes that all dividends and other distributions
are reinvested at net asset value and that the percentage amounts
listed under Total Annual Expenses remain the same in the years shown.
The Example also reflects payment of the _____% Sales Load on the
entire $1,000 investment and other operating expenses of the Fund. The
above tables and the assumption in the Example of a 5% annual return
are required by the Securities and Exchange Commission (the
"Commission") regulations applicable to all investment companies; the
assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of the Fund's Shares.
For a more complete description of certain of the Fund's costs and
expenses, see "Management of the Fund -- Investment Management; --
Management Agreement" herein and "Expenses" and "Portfolio Transactions
and Brokerage" in the SAI.
This Example should not be considered a representation of future
expenses, and the Fund's actual expenses may be greater or less than
those shown.
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<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a
share of the Fund's Common Stock outstanding throughout each period
presented. This information is derived from the financial and
accounting records of the Fund. The financial highlights for the eight
fiscal years ended December 31, 1995 and for the period ended December
31, 1987 have been audited by KPMG Peat Marwick LLP, independent
accountants, whose reports thereon were unqualified. The report of
independent accountants has been included in the SAI. This information
should be read in conjunction with the financial statements and notes
thereto included in the SAI.
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value,
beginning of period $10.21 $11.85 $11.97 $12.30 $ 8.70
Net investment income (expense) (0.00) (0.07) (0.08) (0.09) (0.10)
Net gain/(loss) on securities
(realized and unrealized) 4.23 (0.34) 1.10 0.58 4.67
Total from investment
operations $4.23 $(0.41) $1.02 $ 0.49 $ 4.57
Less dividends and distributions:
Tax return of capital
distribution (2.13) (1.23) (1.14) (0.82) (0.97)
Total dividends and
distributions $(2.13) $(1.23) $(1.14) $(0.82) $(0.97)
Net asset value,
end of year $ 12.31 $ 10.21 $ 11.85 $ 11.97 $ 12.30
Market value per share,
end of year $ 12.625(1) $ 8.875 $10.875 $ 12.250 $ 12.875
Total Investment Return:
Based on market value
per share +42.3% -7.1% -1.9% +1.5% +58.0%
Based on net asset value
per share +41.4% -3.5% +8.5% +4.0% +52.5%
Ratios to Average Net Assets:
Expenses 1.51% 1.52% 1.39% 1.44% 1.79%
Net investment
income (expense) (0.03%) (0.59%) (0.74%) (0.83%) (0.85%)
Supplemental Data:
Net assets at end of year
(000 omitted) $74,402 $59,093 $67,321 $68,013 $64,461
Average net assets
during year
(000 omitted) $72,202 $66,064 $69,048 $64,644 $58,900
Portfolio turnover 110% 105% 89% 89% 70%
Total debt outstanding
at end of year (000 omitted) -0- -0- -0- -0- $ 1,060
Asset coverage per
$1000 of debt
(000 omitted) N/A N/A N/A N/A $ 60.8
</TABLE>
*Annualized.
(1) The Fund declared a $2.133 capital gain distribution payable to
shareholders of record on December 29, 1995. The dividend was paid on
January 26, 1996 and the Fund's shares traded with the dividend until the
ex-dividend date, January 29, 1996
-3-
<PAGE>
May 6, 1987
(commencement
Years Ended December 31 operations)
1990 1989 1988 through 12/31/87
Per Share Operating Performance:
Net asset value,
beginning of period $10.80 $ 8.87 $ 7.45 $ 9.27
Net investment
income (expense) (0.11) (0.11) (0.11) (0.16)
Net gain/(loss)
on securities
(realized and
unrealized) (1.34) 2.29 1.53 (1.66)
Total from investment
operations $(1.45) $ 2.18 $ 1.42 $(1.82)
Less dividends and
distributions:
Tax return of capital
distribution (0.65) (0.25) -- --
Total dividends and
distributions $(0.65) $(0.25) $ 0.00 $(0.00)
Net asset value,
end of year $ 8.70 $10.80 $ 8.87 $ 7.45
Market value per share,
end of year $ 8.750 $ 9.625 $ 7.375 $ 6.000
Total Investment Return:
Based on market value
per share -2.2% +34.2% +22.9% -40.0%
Based on net asset value
per share -13.4% +24.6% +19.1% -19.7%
Ratios to Average Net Assets:
Expenses 2.01% 2.13% 2.56% 4.32%*
Net investment
income (expense) (1.05%) (1.10%) (1.30%) (1.80%)*
Supplemental Data:
Net assets at end of year
(000 omitted) $45,581 $54,136 $44,462 $37,316
Average net assets
during year
(000 omitted) $51,121 $50,522 $43,422 $44,062
Portfolio turnover 75% 80% 83% 98%*
Total debt outstanding
at end of year
(000 omitted) $ 1,724 $ 2,324 $ 2,868 $ 3,360
Asset coverage per
$1000 of debt
(000 omitted) $26.4 $23.3 $15.5 $11.1
*Annualized.
-4-
<PAGE>
THE OFFER
Purpose of the Offer
The Board of Directors of the Fund has determined that it would be
in the best interests of the Fund and its shareholders to increase the
assets of the Fund available for investment. As a consequence of the
Offering, the Fund will be in a better position to more fully take
advantage of investment opportunities that may be available consistent
with the Fund's investment objectives. The Fund's Board of Directors
has voted unanimously to approve the terms of the Offer as set forth in
this Prospectus.
In reaching its decision, the Board of Directors considered, among
other things, advice by the Investment Manager that new funds would permit
the Fund to take advantage of available investment opportunities without
having to sell portfolio securities that the Investment Manager believes
should be held. Furthermore, the Offer provides existing shareholders with
the opportunity to purchase additional Shares at a discount to both the
market price and net asset value per share. The Board of Directors also
considered that a well-subscribed rights offering is expected to heighten
public awareness of the Fund in the marketplace which should increase the
liquidity of the Fund's shares on the New York Stock Exchange, where shares
of the Fund's Common Stock are listed and traded. The Board also believes
that a favorable overall investment climate currently exists for investment
in small capitalization companies. Finally, the Board of Directors also
took into account that increasing the size of the Fund through the Offer
may result in certain economies of scale which over time could in turn
marginally lower the Fund's expenses as a percentage of average net assets.
See "Management of the Fund" herein.
The Fund's Investment Manager will benefit from the Offer because
the Investment Manager's fee is based on the weekly average net assets
of the Fund. It is not possible to state precisely the amount of
additional compensation the Investment Manager will receive as a result
of the Offer because it is not known how many Shares will be subscribed
for and because the proceeds of the Offer will be invested in
additional portfolio securities, which will fluctuate in value. See
"Management of the Fund".
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares
and on terms which may or may not be similar to the Offer. Any such
future rights offerings will be made in accordance with the
requirements of the Investment Company Act of 1940, as amended (the
"1940 Act").
Terms of the Offer
The Fund is issuing to holders of its common stock (the "Common
Stock") of record as of the close of business on _________, 1996 (the
"Record Date"), non-transferable rights (the "Rights") to subscribe for
an aggregate of _________ Shares (_________ Shares if the Fund
increases the number of shares available by up to % in connection with
the Over-Subscription Privilege). Each shareholder is being issued one
Right for each whole share of Common Stock owned on the Record Date.
The Rights entitle the holders thereof to subscribe for one Share for
every three Rights held (1 for 3). Fractional shares will not be issued
upon the exercise of Rights. Shareholders who receive or have remaining
fewer than three Rights will not be able to purchase a Share upon the
exercise of such Rights and will not be entitled to receive any cash in
lieu thereof, although such shareholders may subscribe for Shares
pursuant to the Over-Subscription Privilege. Rights may be exercised at
any time during the Subscription Period, which commences on _________,
1996 and ends at 5:00 p.m. New York City time, on ____________, 1996,
unless extended by the Fund until 5:00 p.m., New York City time, on a
date not later than ____________, 1996 (such date, as it may be
extended, referred to herein as the "Expiration Date"). See "--
Expiration of the Offer". A shareholder's right to acquire during the
Subscription Period at the Subscription Price one additional Share for
every three Rights held is hereinafter referred to as the "Primary
Subscription". The Rights are evidenced by subscription certificates
("Subscription Certificates"), which will be mailed to shareholders of
record, except as discussed below under "Foreign Restrictions".
Any shareholder who fully exercises all Rights issued to such
shareholder in the Primary Subscription will be entitled to subscribe
for additional Shares at the Subscription Price pursuant to the terms
of the Over-Subscription Privilege, as described below. Shares
available, if any, pursuant to the Over-Subscription Privilege are
subject to allotment and may be subject to increase, as is more fully
discussed below under "Over-Subscription Privilege". For
-5-
<PAGE>
purposes of determining the maximum number of Shares a shareholder may
acquire pursuant to the Offer, shareholders whose Shares are held of
record by Cede & Co. Inc. ("Cede") or by any other depository or
nominee will be deemed to be the holders of the Rights that are issued
to Cede or such other depository or nominee on their behalf.
Over-Subscription Privilege
To the extent shareholders do not exercise all of the Rights
issued to them, any underlying Shares represented by such Rights will
be offered by means of the Over-Subscription Privilege to the
shareholders who have exercised all the Rights issued to them and who
wish to acquire more than the number of Shares to which they are
entitled. Only Shareholders who exercise all the Rights issued to them
may indicate, on the Subscription Certificate, which they submit with
respect to the exercise of the Rights issued to them, how many Shares
they desire to purchase pursuant to the Over-Subscription Privilege. If
sufficient Shares remain after completion of the Primary Subscription,
all over-subscription requests will be honored in full. If sufficient
Shares are not available to honor all over-subscription requests, the
Fund may, at the discretion of the Board of Directors, issue shares of
Common Stock up to an additional ____% of the Shares available pursuant
to the Offer (up to shares) in order to cover such over-subscription
requests. Regardless of whether the Fund issues additional Shares
pursuant to the Offer and to the extent Shares are not available to
honor all over-subscription requests, the available Shares will be
allocated among those who over-subscribe based on the number of Shares
owned by them in the Fund on the Record Date. The allocation process
may involve a series of allocations in order to assure that the total
number of Shares available for over-subscription is distributed on a
pro rata basis. The Fund will not offer to sell in connection with the
Offer any Shares that are not subscribed for pursuant to the Primary
Subscription or the Over-Subscription Privilege.
Subscription Price
The Subscription Price for the Shares to be issued pursuant to the
Offer will be ___% of the lower of (i) the average of the last reported
sales price of a share of the Fund's Common Stock on the NYSE on the
date of the expiration of the Offer (the "Pricing Date") and the four
preceding business days and (ii) the net asset value per share as of
the close of business on the Pricing Date. For example, if the average
of the last reported sales price on the NYSE on the Pricing Date and
the four preceding business days of a share of the Fund's Common Stock
is $11.00, and the net asset value per share on the Pricing Date is
$10.00, the Subscription Price will be $_____ (__% of $10.00). If,
however, the average of the last reported sales prices on the NYSE on
the Pricing Date and the four preceding business days is $11.00, and
the net asset value per share on the Pricing Date is $12.00, the
Subscription Price will be $_____ (__% of $11.00).
The Fund announced the Offer after the close of trading on the
NYSE on _______, 1996. The net asset value per share of Common Stock at
the close of business on _______, 1996 (the last trading date on which
the Fund calculated its net asset value per share prior to the
announcement) and on _________, 1996 (the last trading date on which
the Fund calculated its net asset value prior to the date of this
Prospectus) was $_____ and $_______, respectively, and the last
reported sales price of a share of the Fund's Common Stock on the NYSE
on those dates was $______ and $_______, respectively.
Non-Transferability of Rights
The Rights are non-transferable and, therefore, may not be
purchased or sold. The Rights will not be listed for trading on the
NYSE or any other exchange. However, the additional shares of Common
Stock to be issued upon the exercise of the Rights will be listed for
trading on the NYSE, subject to notice of official issuance.
Expiration of the Offer
The Offer will expire at 5:00 p.m., New York City time, on
____________, 1996, unless extended by the Fund until 5:00 p.m., New
York City time, to a date or dates not later than ____________, 1996.
The Rights will expire on the Expiration Date and thereafter may not be
exercised. Since the Expiration Date and the Pricing Date will be the
same date, shareholders who decide to acquire Shares in the Primary
Subscription or pursuant to the Over-Subscription Privilege will not
know when they make such decision the purchase price of such Shares.
Any
-6-
<PAGE>
extension of the Offer will be followed as promptly as practicable by
announcement thereof. Such announcement shall be issued no later than
9:00 a.m., New York City time, on the next business day following the
previously scheduled Expiration Date. Without limiting the manner in
which the Fund may choose to make such announcement, the Fund will not,
unless otherwise required by law, have any obligation to publish,
advertise or otherwise communicate any such announcement other than by
making a release to the Dow Jones News Service or such other means of
announcement as the Fund deems appropriate.
Method of Exercise of Rights
Rights are evidenced by subscription certificates ("Subscription
Certificates") which will be mailed to shareholders or, if a
shareholder's Shares are held by Cede or any other depository or
nominee on their behalf, to Cede or such depository or nominee. Rights
may be exercised by filling in completely and signing the Subscription
Certificate which accompanies this Prospectus and mailing it in the
envelope provided, or otherwise delivering the completed and signed
Subscription Certificate to the Subscription Agent, together with
payment in full for the Shares at the estimated Subscription Price (the
"Estimated Subscription Price") as described below under "Payment for
Shares". Rights may also be exercised by a shareholder contacting his
or her broker, banker or trust company, which can arrange, on his or
her behalf, to guarantee delivery of payment (using a "Notice of
Guaranteed Delivery") and of a properly completed and executed
Subscription Certificate. A fee may be charged for this service. Since
fractional Shares will not be issued, and shareholders who receive or
who have remaining, fewer than three Rights will not be entitled to
purchase a Share upon the exercise of such Rights but will be able to
request additional Shares pursuant to the terms of the Offer applicable
to the Over-Subscription Privilege. Completed Subscription Certificates
must be received by the Subscription Agent prior to 5:00 p.m., New York
City time, on the Expiration Date (unless the guaranteed delivery
procedures are complied with as described below under "Payment for
Shares") at the offices of the Subscription Agent at the address set
forth above.
Shareholders who Are Record Owners. Shareholders who are record
owners can choose between either option set forth under "Payment for
Shares" below. If time is of the essence, option (2), under "Payment
for Shares" below, will permit delivery of the Subscription Certificate
and payment after the Expiration Date.
Shareholders whose Shares Are Held By A Nominee. Shareholders
whose shares are held by a nominee, such as a broker or trustee, must
contact such nominee to exercise their Rights. In that case, the
nominee will complete the Subscription Certificate on behalf of the
investor and arrange for proper payment by one of the methods set forth
under "Payment for Shares" below.
Nominees. Nominees who hold shares for the account of others must
notify the beneficial owners of such shares as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions
with respect to the Rights. If the beneficial owner so instructs, the
nominee should complete the Subscription Certificate and submit it to
the Subscription Agent with the proper payment described under "Payment
for Shares" below.
Foreign Restrictions
Subscription Certificates will not be mailed to Record Date
shareholders whose record addresses are outside the United States (for
these purposes the United States includes its territories and
possessions and the District of Columbia). The Rights to which those
Subscription Certificates relate will be held by the Subscription Agent
for such foreign Record Date shareholders' accounts until instructions
are received to exercise the Rights. If no such instructions are
received by the Expiration Date, such rights will expire.
Subscription Agent
The Subscription Agent is , which will receive for its
administrative, processing, invoicing and other services as
subscription agent, a fee estimated to be approximately $ including
reimbursement for all out-of-pocket expenses related to the Offer.
Questions regarding the Subscription Certificates should be directed to
, [address], (800) ___-____ (toll free); shareholders
may also consult their brokers or nominees. Signed Subscription
Certificates must be sent, together with payment at the Estimated
Subscription Price for all Shares subscribed in the Primary
Subscription and Over-Subscription Privilege to by one of the methods
-7-
<PAGE>
described below, prior to 5:00 p.m., New York City time, on the
Expiration Date. Alternatively, if using a Notice of Guaranteed
Delivery, the Notice of Guaranteed Delivery (see "Method of Exercise of
Rights" below) may also be sent by facsimile to (___) ___-____, with
the originals to be sent promptly thereafter by one of the methods
described below. Facsimiles should be confirmed by telephone to (___)
___-____.
(1) BY FIRST CLASS MAIL OR EXPRESS MAIL:
[Name and mail address]
(2) BY HAND OR OVERNIGHT COURIER:
[Name and overnight address]
(3) BY FACSIMILE (TELECOPIER), with the original Subscription
Certificate to be sent by one of the methods described above:
(---) --------
Confirm by telephone (___) ___-____
Delivery to an address other than one of the addresses listed
above will not constitute valid delivery.
Information Agent
Any questions or requests for assistance may be directed to the
Information Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
[Name]
[address]
Toll Free: (800) _____-_____
or
Call Collect: (212) ____-____
Shareholders may also contact their brokers or nominees for
information with respect to the Offer.
The Information Agent will receive a fee estimated to be approximately
$ including reimbursement for all out-of-pocket expenses related
to the Offer.
Payment for Shares
Shareholders who acquire Shares in the Primary Subscription, and
pursuant to the Over-Subscription Privilege, may choose between the
following methods of payment:
(1) A shareholder can send the Subscription Certificate together
with payment for the Shares acquired in the Primary Subscription and
for additional Shares subscribed for pursuant to the Over-Subscription
Privilege to the
-8-
<PAGE>
Subscription Agent. Payment should be calculated on the basis of the
Estimated Subscription Price of $_____ per Share for all Shares
requested. To be accepted, such payment, together with the executed
Subscription Certificate, must be received by the Subscription Agent at
one of the Subscription Agent's offices at the addresses set forth
above prior to 5:00 p.m., New York City time, on the Expiration Date.
The Subscription Agent will deposit all checks and money orders
received by it prior to the final payment date into a segregated
interest-bearing account (which interest will be paid to the Fund)
pending proration and distribution of Shares. A PAYMENT PURSUANT TO
THIS METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK
DRAWN ON A BANK LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO MORGAN
GRENFELL SMALLCAP FUND, INC. AND MUST ACCOMPANY A COMPLETED
SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE
ACCEPTED. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR, SHAREHOLDERS ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER'S CHECK OR
MONEY ORDER.
(2) Alternatively, a subscription will be accepted by the
Subscription Agent if, prior to 5:00 p.m., New York City time, on the
Expiration Date, the Subscription Agent has received a Notice of
Guaranteed Delivery by facsimile (telecopy) or otherwise from a bank, a
trust company, or a NYSE member guaranteeing delivery of (i) payment of
the Estimated Subscription Price of $_____ per share for the Shares
subscribed for in the Primary Subscription and for any additional
Shares subscribed for pursuant to the Over-Subscription Privilege, and
(ii) a properly completed and executed Subscription Certificate. The
Subscription Agent will not honor a Notice of Guaranteed Delivery
unless a properly completed and executed Subscription Certificate
together with full payment is received by the Subscription Agent by the
close of business on the third business day after the Expiration Date
(____________, 1996, unless the Offer is extended).
Within eight business days following the Expiration Date
(____________, 1996), unless the Offer is extended (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each
subscribing shareholder (or, if the shareholder's Shares are held by
Cede or any other depository or nominee, to Cede or such depository or
nominee), showing (i) the number of Shares acquired pursuant to the
Primary Subscription, (ii) the number of Shares, if any, acquired
pursuant to the Over-Subscription Privilege, (iii) the per Share and
total purchase price of the Shares, and (iv) any additional amount
payable by such shareholder to the Fund or any excess to be refunded by
the Fund to such shareholder, in each case based on the Subscription
Price as determined on the Pricing Date. If any shareholder exercises
his right to acquire Shares pursuant to the Over-Subscription
Privilege, any such excess payment which would otherwise be refunded to
him will be applied by the Fund toward payment for Shares acquired
pursuant to exercise of the Over-Subscription Privilege. Any additional
payment required from a shareholder must be received by the
Subscription Agent within ten business days after the Confirmation Date
(__________, 1996, unless the Offer is extended). Any excess payment to
be refunded by the Fund to a shareholder will be mailed by the
Subscription Agent to such shareholder as promptly as possible. All
payments by a shareholder must be in United States dollars by money
order or check drawn on a bank located in the United States of America
and payable to MORGAN GRENFELL SMALLCAP FUND, INC.
The Subscription Agent will deposit all checks received by it
prior to the final date into a segregated interest-bearing account
(which interest will accrue to the benefit of the Fund) pending
distribution of the Shares.
Whichever of the two methods described above is used, issuance and
delivery of certificates for the Shares purchased are subject to
collection of checks and actual payment pursuant to any Notice of
Guaranteed Delivery.
Shareholders will have no right to rescind their subscription
after receipt of their payment for Shares by the Subscription Agent,
except as provided below under "Notice of Net Asset Value Decline".
If a Shareholder who acquires Shares pursuant to the Primary
Subscription or Over-Subscription Privilege does not make payment of
any additional amounts due, the Fund reserves the right to take any or
all of the following actions: (i) sell such subscribed and unpaid-for
Shares to other shareholders, (ii) apply any payment actually received
by it toward the purchase of the greatest whole number of Shares which
could be acquired by such holder upon exercise of the Primary
Subscription and/or Over-Subscription Privilege, and/or (iii) exercise
any and all other rights or remedies to which it may be entitled.
-9-
<PAGE>
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF
THE SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENT BE SENT BY REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE
ALLOWED TO ENSURE DELIVERY TO THE FUND AND CLEARANCE OF PAYMENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE
UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS
OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Fund,
whose determinations will be final and binding. The Fund in its sole
discretion may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or
reject the purported exercise of any Right. Subscriptions will not be
deemed to have been received or accepted until all irregularities have
been waived or cured within such time as the Fund determines in its
sole discretion. The Fund will not be under any duty to give
notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for
failure to give such notification.
Notice of Net Asset Value Decline
The Fund has, pursuant to the Commission's regulatory
requirements, undertaken to suspend the Offer until it amends this
prospectus if, subsequent to _________, 1996, the effective date of the
Fund's Registration Statement, the Fund's net asset value declines more
than 10% from its net asset value as of that date. Accordingly, the
Fund will notify shareholders of any such decline and thereby permit
them to cancel their exercise of Rights prior to the extended
expiration date as defined herein.
Delivery of Share Certificates
Stock certificates for all Shares acquired in the Primary
Subscription will be mailed promptly after the expiration of the Offer
and full payment for the Shares subscribed for has been received and
cleared. Certificates representing Shares acquired pursuant to the
Over-Subscription Privilege will be mailed as soon as practicable after
full payment has been received and cleared and all allocations have
been effected. Participants in the Fund's Dividend Reinvestment Plan
(the "Plan") will have any Shares acquired in the Primary Subscription
and pursuant to the Over-Subscription Privilege credited to their
shareholder dividend reinvestment accounts in the Plan. Participants in
the Plan wishing to exercise Rights for the Shares held in their
accounts in the Plan must exercise them in accordance with the
procedures set forth above. Shareholders whose Shares are held of
record by Cede or by any other depository or nominee on their behalf or
their broker-dealers' behalf will have any Shares acquired in the
Primary Subscription credited to the account of Cede or such other
depository or nominee. Shares acquired pursuant to the
Over-Subscription Privilege will be certificated and stock certificates
representing such Shares will be sent directly to Cede or such other
depository or nominee. Stock certificates will be issued for Shares
credited to Plan accounts.
Federal Income Tax Consequences
The U.S. Federal income tax consequences to holders of Common
Stock with respect to the Offer will be as follows:
The distribution of Rights will not result in taxable income to a
shareholder nor will the Rights holder recognize gain or loss as a
result of the exercise of the Rights. No gain or loss will be
recognized upon expiration of a Right.
If the fair market value of the Rights as of the date of their
distribution equals or exceeds 15% of the fair market value of the
Common Stock with respect to which they are distributed, a U.S.
Shareholder's basis in such Common Stock must be allocated between such
Common Stock and the Rights in proportion to their respective fair
market values on the date of distribution. If the fair market value of
the Rights as of the date of their distribution is less than 15% of the
fair market value of the Common Stock with respect to which they are
distributed, however, a
-10-
<PAGE>
U.S. Shareholder's basis in such Common Stock will remain unchanged and
the basis in such Rights will be zero, unless such U.S. Shareholder
affirmatively and irrevocably elects (in a statement attached to his or
its U.S. Federal income tax return for the year in which the Rights are
received) to allocate the basis in the Common Stock between such Common
Stock and the Rights in proportion to their respective fair market
values on the date of distribution.
If the Right is exercised by the holder of Common Stock, the basis
of the Common Stock received will equal the sum of the basis, if any,
allocated to the Right and the Subscription Price; and the holding
period of the Common Stock acquired upon such exercise will begin on
the date the Right is exercised.
The foregoing is only a general summary of the applicable U.S.
Federal income tax law and does not include any state, local or foreign
tax consequences of the Offer. Such applicable U.S. Federal income tax
law is subject to change by legislative or administrative action.
Shareholders should consult their tax advisers concerning the tax
consequences of the Offer. See "Taxation" herein and in the SAI.
Employee Plan Considerations
Shareholders that are employee benefit plans subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(including corporate savings and 401(k) plans), Keough or H.R. 10 plans
of self-employed individuals and Individual Retirement Accounts
("IRAs") (collectively, "Plans") should be aware that additional
contributions of cash to the Plan (other than rollover contributions or
trustee-to-trustee transfers from other Plans) in order to exercise
Rights would be treated as Plan contributions and, when taken together
with contributions previously made, may subject a Plan, among other
things, to excise taxes for excess or nondeductible contributions. In
the case of Plans qualified under Section 401(a) of the Code,
additional cash contributions could cause the maximum contribution
limitations of Section 415 of the Code or other qualification rules to
be violated.
ERISA contains fiduciary responsibility requirements, and ERISA
and the Code contain prohibited transaction rules, that may impact the
exercise of Rights. Due to the complexity of these rules and the
penalties for noncompliance, Plans should consult with their counsel
regarding the consequences of their exercise of Rights under ERISA and
the Code.
Dilution
Upon the completion of the Offer, shareholders who do not exercise
their Rights fully will own a smaller proportional interest in the Fund
than would be the case if the Offer had not been made. In addition,
because the Subscription Price of each Share will be less than the net
asset value per share of the Fund's Common Stock as of the Pricing
Date, the Offer will result in a dilution of the net asset value per
share for all shareholders, which will disproportionately affect
shareholders who do not exercise their Rights. Although it is not
possible to state precisely the amount of such decrease in net asset
value because it is not known at the date of this Prospectus how many
Shares will be subscribed for, or what the Subscription Price will be,
such dilution might be substantial. For example, assuming all of the
Shares are sold at the Estimated Subscription Price and after deducting
all expenses related to the issuance of the Shares, the Fund's current
net asset value per share would be reduced by approximately $____ or
____% (or, in the event that all of the Rights are exercised and the
Fund increases the number of Shares subject to subscription by
_________ pursuant to the Over-Subscription Privilege, by approximately
$____ or ____%). See "Special Risk Considerations -- Dilution and
Effect of Non-Participation in the Offer".
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<PAGE>
Important Dates to Remember
Event Date
Record Date...........................
Subscription Period...................
Expiration Date and Pricing Date......
Subscription Certificates and Payment for Shares Due+ .
Payment for Guarantees of Delivery Due.
Confirmation to Participants..........
Final Payment for Shares..............
* Unless the Offer is extended to a date not later than ____________, 1996.
+ A shareholder exercising Rights must deliver by the Expiration
Date, ____________, 1996, either (i) the Subscription Certificate
together with payment or (ii) a Notice of Guaranteed Delivery,
unless the Offer is extended.
THE FUND
Morgan Grenfell SMALLCap Fund, Inc., incorporated in Maryland on
January 16, 1987, is a diversified, closed-end management investment
company registered under the 1940 Act. The Fund seeks, as a primary
investment objective, long-term capital appreciation principally by
investing in equity and equity-related securities of U.S. companies.
The Fund also seeks current income as a secondary objective. See
"Investment Objectives and Policies". No assurance can be given that
the Fund's investment objectives will be realized.
The Fund's Investment Manager is Morgan Grenfell Capital
Management, Inc., an indirect U.S. subsidiary of London based Deutsche
Morgan Grenfell Group plc ("Deutsche Morgan Grenfell"). Duetsche Morgan
Grenfell is an indirect subsidiary of Deutsche Bank AG, and is
responsible for Deutsche Bank Group's institutional investment
management activities worldwide. The Investment Manager is registered
with the Commission under the Investment Advisers Act of 1940. Such
registration does not involve supervision or approval by the Commission
of investment advice rendered by the Investment Manager. See
"Management of the Fund".
The Fund completed an initial public offering of 5,000,000 shares
of its Common Stock in May 1987. The net proceeds to the Fund from such
offering were approximately $46,375,000. As of April , 1996, the net
assets of the Fund were $ and, since inception, the Fund had paid or
declared dividends and capital gains distributions aggregating $ . The
increase in the Fund's net assets since inception is attributable
primarily to appreciation in the value of its portfolio securities.
USE OF PROCEEDS
If all of the Rights are exercised in full and assuming a
Subscription Price of $_____ per share (___% of the net asset value per
share on _________, 1996), the net proceeds to the Fund would be
approximately $__________, after deducting expenses payable by the
Fund, including the fees and expenses of the Dealer Manager and other
offering expenses estimated to total $_______. If the Fund increases
the number of Shares subject to subscription by up to _______ Shares,
in order to satisfy over-subscription requests, the additional net
proceeds will be approximately $__________. However, there can be no
assurance that all Rights will be exercised in full, and the
Subscription Price will not be determined until the close of business
on the Expiration Date. The Fund anticipates that the net proceeds of
the Offer will be fully invested in investments conforming to the
Fund's investment objectives and policies within six months from the
Expiration Date. Pending such investment, the proceeds will be invested
in cash or cash equivalent short-term obligations including, but not
limited to, U.S. Government obligations, certificates of deposit,
commercial paper and short-term notes.
-12-
<PAGE>
MARKET AND NET ASSET VALUE INFORMATION
Shares of the Fund's Common Stock. $0.01 par value, are listed on
the NYSE under the symbol "MGC". The following table sets forth for the
Common Stock for the calendar quarters indicated: (i) the per share
high and low net asset values, (ii) the per share high and low market
prices on the NYSE and (iii) the volume of trading on the NYSE.
<TABLE>
<CAPTION>
Premium/
(Discount)
to Net Asset Volume of
Net Asset Value Market Prices(1) Value Trading(1)
Common Stock High Low High Low High Low (in shares)
<S> <C> <C> <C> <C> <C> <C> <C>
1994
First Quarter... $12.65 $11.49 $11.625 $9.875 (14.50)% (2.72)% 810,400
Second Quarter.. 11.83 10.50 10.375 9.375 (15.45) (8.33) 594,600
Third Quarter... 11.78 10.54 10.000 9.125 (18.03) (12.38) 681,100
Fourth Quarter.. 11.89 9.79 9.875 8.375 (18.43) (12.40) 824,600
1995
First Quarter... 11.19 10.03 9.250 8.625 (18.95) (10.28) 820,400
Second Quarter.. 12.33 10.96 10.625 9.125 (18.62) (12.47) 787,300
Third Quarter... 14.19 12.22 12.625 10.125 (18.70) (11.16) 1,050,000
Fourth Quarter.. 14.45 13.32 12.625 11.250 (17.44) (11.41) 669,500
1996
First Quarter... 14.42 11.88 13.00 10.125 (16.87) (4.97) 1,067,000
</TABLE>
(1) As reported by the NYSE.
Since the Fund's inception in May 1987, the Fund's Common Stock
has generally traded at a discount to net asset value. Officers of the
Fund cannot determine the reason for the Fund's Common Stock trading at
a premium or discount to net asset value, nor can they predict whether
the Fund's Common Stock will trade in the future at a premium or
discount to net asset value and if so, the level of such premium or
discount. Shares of closed end investment companies frequently trade at
a discount from net asset value.
On _________, 1996, the net asset value per share of Common Stock
was $_____ and the last reported sales price was $_____.
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund's primary investment objective is to seek long-term
capital appreciation by investing principally in equity and
equity-related securities of U.S. companies. The Fund seeks current
income as a secondary objective. There is no assurance that the Fund
will achieve its investment objectives. The Fund's primary investment
objective may not be changed without the approval of a majority of the
Fund's outstanding securities. As used in this Prospectus, the term
"majority of the Fund's outstanding voting securities" means the lesser
of either (i) 67% of the shares represented at a shareholders meeting
at which the holders of more than 50% of the outstanding shares are
present in person or by proxy, or (ii) more than 50% of the outstanding
shares. Except as indicated under "Investment Restrictions" in the SAI,
the Fund does not consider its other policies, including its secondary
investment objective of current income, to be fundamental, and such
policies may be changed by the Board of Directors without shareholder
approval.
Investment Policies
The Fund's investments will be made principally in publicly traded
securities of small capitalization companies in a wide variety of
industries. The Fund will primarily invest in securities of U.S.
issuers. Equity and equity-related securities include common stocks,
preferred stocks and securities convertible into or exchangeable for
such equity securities. For purposes of the Fund's investment policies,
small capitalization companies are those ranked (at the time of
investment) according to market capitalization in the bottom 20% of all
issuers listed or quoted on a national securities exchange or market
(e.g., as of the date of this Prospectus, companies with market
capitalizations of between $100 million and $1.6 billion). At December
31, 1995, the median market capitalization of companies held in the
Fund was $1.039 billion.
Investments in equity securities of small capitalized companies
generally involve both the opportunity for greater rewards and more
risk than an investment in common stocks of larger, better-known
companies. The Investment Manager believes that greater opportunities
for superior returns exist from investments in small capitalization
companies. These issuers are not as well-known to the general public,
may have less investor following, and, therefore, may provide
opportunities for investment gains due to the relative inefficiencies
in this sector of the marketplace.
The Fund seeks to invest in small capitalization companies the
earnings of which will grow faster than both inflation and the economy
in general and where such growth potential has not yet been fully
reflected in the market price. In seeking such investments, the
Investment Manager considers a variety of factors including quality of
management, a leading or dominant position in a major product line, a
sound financial position, and a relatively high rate of return on
invested capital so that future growth can be financed from internal
sources. The Fund may also invest in companies which offer the
possibility of accelerating earnings growth because of management
changes, new products or structural changes in the economy.
When, in the opinion of the Investment Manager, temporary
defensive positions are warranted by market or economic conditions, the
Fund may invest all or a portion of its assets in cash or cash
equivalent short-term obligations including, but not limited to, U.S.
Government obligations, certificates of deposit, commercial paper and
short-term notes.
The Fund may also engage in other investment practices, such as
borrowing, repurchase agreements, hedging instruments and lending of
its portfolio securities. See "Special Risk Considerations" herein and
"Investment Objectives and Policies" in the SAI.
-14-
<PAGE>
SPECIAL RISK CONSIDERATIONS
The following discusses certain matters that should be considered,
among others, in connection with the Offer.
Dilution and Effect of Non-Participation in the Offer
Because the Subscription Price will be less than the net asset
value per share of Common Stock, the net asset value, on a per share
basis, of the Common Stock outstanding prior to the Offer will be
reduced as a result of the Offer (and the Fund will incur expenses in
connection with the Offer), and the number of Shares outstanding after
the Offer will increase by a greater percentage than the increase in
the size of the Fund's assets. It is not possible to state precisely
the amount of such decrease in net asset value per share because it is
not known at this time what the Subscription Price will be, what the
net asset value per share will be on the Expiration Date or what
proportion of the Shares will be subscribed for; however, such decrease
could be substantial. For example, assuming (i) all Rights are
exercised, (ii) the Fund's net asset value on the Expiration Date is
$_____ per share (the net asset value per share on _________, 1996),
and (iii) the Subscription Price is $_____ per share (___% of the
market price per share on _________, 1996), then the Fund's net asset
value per share on such date would be reduced by approximately $____
per share or ___%. Record Date shareholders will experience a decrease
in the net asset value per share held by them, irrespective of whether
they exercise all or any portion of their Rights. Moreover, Record Date
shareholders who do not fully exercise their Rights will, at the
completion of the Offer, own a smaller proportional interest in the
Fund than they owned prior to the Offer.
Small Capitalization Companies
The Fund invests principally in smaller, lesser-known companies
which the Investment Manager believes offer greater growth potential
than larger, more mature, better-known companies. Investing in the
securities of these companies, however, also involves greater risk and
the possibility of greater portfolio price volatility. Among the
reasons for the greater price volatility of these small companies and
less seasoned stocks are the less certain growth prospectus of smaller
firms, the lower degree of liquidity in the markets for such stocks and
the greater sensitivity of small companies to changing economic
conditions in their geographic region. For example, securities of these
companies involve higher investment risk than that normally associated
with larger companies due to the greater business risks of small size
and limited product lines, markets, distribution channels and financial
and managerial resources.
Repurchase Agreements
The Fund may enter into repurchase agreements. In a repurchase
agreement, the Fund buys a security subject to the right and obligation
to sell it back to the other party at the same price plus accrued
interest. The Fund's custodian will hold the security as collateral for
the repurchase agreement. Collateral must be maintained at a value at
least equal to 102% of the repurchase price, but repurchase agreements
involve some credit risk to the Fund if the other party defaults on its
obligation and the Fund is delayed in or prevented from liquidating the
collateral. The Fund will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy
during the term of the agreement based on guidelines established and
periodically reviewed by the Fund's Board of Directors. Not more than
10% of the Fund's net assets will be invested in repurchase agreements
maturing in more than seven days.
Leverage and Borrowing
The Fund is authorized to borrow money in amounts of up to 15% of
the value of its total assets at the time of such borrowings.
Borrowings by the Fund create an opportunity for greater capital
appreciation with respect to the Fund's investment portfolio, but at
the same time such borrowing is speculative in that it will increase
the Fund's exposure to capital risk. In addition, borrowed funds are
subject to interest costs that may offset or exceed the return earned
on the borrowed funds. The Fund has not had any outstanding borrowing
since the year ended December 31, 1991.
-15-
<PAGE>
Hedging Strategies
The Fund has no current intention to enter into hedging
transactions and has not employed hedging instruments in the portfolio
management of the Fund since its inception. However, the Fund retains
the authority, without shareholder approval, to use options and futures
transactions to hedge against a decline in the value of securities
owned by it or an increase in the price of securities which it plans to
purchase or to increase total return. The use of options and futures is
a highly specialized activity which involves investment risks and
portfolio management skills that are different from those associated
with investments in equity securities. Use of these instruments to seek
to increase total return involves the risk of loss, which may be
substantial, if the Investment Manager is incorrect in its expectation
of change or securities price. The successful use of options and
futures for hedging purposes also depend upon the total ability of the
Investment Manager to anticipate future price fluctuations and the
degree of correlation between the hedging instrument and securities
price. If the Investment Manager is incorrect in its expectation of
securities prices or the correlation between these prices and the value
of the hedging instrument, the Fund's investment performance will be
less favorable than it would have been in the absence of the hedging
transaction. Entering into hedging transactions also involves
additional expenses for the Fund. See "Investment Objectives and
Policies" in the SAI for additional information concerning options and
futures strategies.
Lending of Portfolio Securities
Consistent with applicable regulatory requirements, the Fund, in
order to generate additional income in accordance with its secondary
investment objective, may lend its portfolio securities (principally to
broker-dealers, except the Investment Manger's affiliates, or
institutional investors) where such loans are callable at any time and
are continuously secured by collateral (cash or U.S. Government
Securities) at least equal to the current market value of the
securities loaned. The Investment Manager believes the risk of loss on
such transactions is slight because, if a borrower were to default for
any reason, the collateral should satisfy the obligation. The Fund
will, as a fundamental policy, limit such lending to not more than 30%
of the value of its total assets.
Portfolio Turnover
It is estimated that, under normal circumstances, the portfolio
turnover rate of the Fund will not exceed 150%. A high rate of
portfolio turnover (i.e., 100% or higher) will result in
correspondingly higher transaction costs to the Fund, increase the
likelihood of realizing net short-term capital gains (distributions
from which are taxable to shareholders as ordinary income) and, under
some circumstances, make it more difficult for the Fund to qualify as a
regulated investment company under the Code. See "Financial Highlights"
for the Fund's portfolio turnover since inception.
Unrealized Appreciation
As of December 31, 1995, there was approximately $19,672,000 or
approximately $3.26 per share of net unrealized appreciation in the
Fund's net assets of approximately $74,402,000; if realized and
distributed, or deemed distributed, such gains would, in general, be
taxable to shareholders, including holders at that time of Shares
acquired upon the exercise of Rights. See "Taxation".
Anti-takeover Provisions
The Fund has provisions in its Articles of Incorporation and
By-Laws that are intended to have the effect of limiting the ability of
other entities or persons to acquire control of the Fund, to cause it
to engage in certain transactions or to modify its structure. The Board
of Directors is divided into three classes. At the annual meeting of
shareholders each year, the term of one class will expire and directors
will be elected to serve in that class for terms of three years. This
provision could delay for up to two years the replacement of a majority
of the Board of Directors. These provisions could have the effect of
depriving shareholders of an opportunity to sell their shares at a
premium over prevailing market prices by discouraging a third party
from seeking to obtain control of the Fund in a tender offer or similar
transaction. See "Common Stock -- Special Voting Provisions".
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Discount to Net Asset Value
Since the Fund's commencement of investment operations in May
1987, the Fund's shares have generally traded in the market at a
discount from net asset value. Officers of the Fund cannot determine
the reason why the Fund's Common Stock has traded at a discount from
net asset value, nor can they predict whether the Fund's Common Stock
will in the future trade at a premium to or discount from net asset
value and if so, the level of such premium or discount. Shares of
closed-end investment companies frequently trade at a discount from net
asset value. The risk of the Common Stock trading at a discount is a
risk separate from a decline in the Fund's net asset value. See "Market
and Net Asset Value Information" herein and "Net Asset Value" in the
SAI.
MANAGEMENT OF THE FUND
Board of Directors
The management of the Fund, including general supervision of the
duties performed by the Investment Manager under the Investment
Management Agreement (as defined herein), is the responsibility of its
Board of Directors. For certain information regarding the Directors and
officers of the Fund, see "Management -- Directors and Officers" in the
SAI.
One of the Directors of the Fund resides outside the United
States, and substantially all the assets of this Director are located
outside the United States. It may not be possible, therefore, for
investors to effect service of process within the United States upon
this Director or to enforce against him, in United States courts or
foreign courts, judgments obtained in United States courts predicated
upon the civil liability provisions of the federal securities laws of
the United States or the laws of the State of Maryland. In addition, it
is not certain that a foreign court would enforce, in original actions
or in actions to enforce judgments obtained in the United States,
liabilities against this Director predicated solely upon the Federal
securities laws.
Investment Manager
Morgan Grenfell Capital Management, 885 Third Avenue, New York,
New York, acts as Investment Manager to the Fund. The Investment
Manager is registered as an investment adviser with the Commission and
provides a full range of investment advisory services to institutional
clients. All of the outstanding voting stock of the Investment Manager
is owned by Morgan Grenfell Asset Management, Ltd. ("MGAM"), which is a
wholly-owned subsidiary of Deutsche Morgan Grenfell Group plc. Deutsche
Morgan Grenfell Group plc is an indirect wholly-owned subsidiary of
Deutsche Bank AG, an international commercial and investment banking
group. As of December 31, 1995, MGCM managed approximately $8 billion
in assets.
Subject to the supervision of the Fund's Board of Directors, the
Investment Manager manages the Fund's investments in accordance with
the Fund's investment objectives, policies and restrictions and makes
investment decisions on behalf of the Fund, including the selection of,
and placing of orders with, brokers and dealers to execute portfolio
transactions on behalf of the Fund. The Fund pays the Investment
Manager a fee at the annual rate of 1.00% of the Fund's average weekly
net assets and payable at the end of each calendar month. For the
fiscal years ended December 31, 1995, 1994 and 1993, the fees under the
management agreement (the "Management Agreement") with the Fund
amounted to $743,088, $1,004,524 and $957,761, respectively. The fees
payable by the Fund are higher than those paid by most other U.S.
investment companies due to the greater efforts and extra research that
are required to manage investments in small capitalization companies
but are similar to other funds with similar investment objectives.
Morgan Grenfell Incorporated, Cyrus J. Lawrence Incorporated or
any other brokerage affiliate (the "Brokerage Affiliate") may act as a
broker for the Fund. In order for the Brokerage Affiliate to effect any
portfolio transactions for the Fund, the commissions, fees or other
remuneration received by the Brokerage Affiliate 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. The Fund will not deal with the Brokerage
Affiliate in any portfolio transaction in which the
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Brokerage Affiliate acts as principal. However, Brokerage Affiliates
may serve as the Fund's broker in transactions conducted on an exchange
or over-the-counter transactions conducted on an agency basis.
Portfolio Manager
The Fund is managed by Robert Kern, Executive Vice President of
the Investment Manager, and his team which includes three other
experienced portfolio managers, Audrey M.T. Jones, Gerald M. Frey and
David A. Baratta and a dedicated trader, Michael Murphy, to develop
execution strategies. Mr. Kern has been in the investment advisory
business since 1965 (with the Investment Manager since 1986) and has
managed investments in small capitalization companies since 1970. Ms.
Jones and Mr. Frey have been employed by the Investment Manager as
portfolio managers since 1986. Prior to joining the Investment Manager
in 1993, Mr. Baratta worked as a portfolio manager for AIG Global
Investors and Shearson Lehman Asset Management. Mr. Murphy is a senior
equity trader with the Investment Manager. Prior to joining the
Investment Manager in 1987, Mr. Murphy was a partner at Alex Brown,
where he specialized in small cap equity trading.
Management Agreement
The Management Agreement sets forth the services to be provided by
and the fees to be paid to each party, as described above. The
Investment Manager shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with
matters to which the Management Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard of its
duties and obligations under the Management Agreement.
The services of the Investment Manager to the Fund are not deemed
to be exclusive, and the Investment Manager or any affiliate thereof
may provide similar services to other investment companies and other
clients or engage in other activities.
The Fund pays all of its own expenses, other than those expressly
assumed by the Investment Manager or an affiliate. The expenses payable
by the Fund include, without limitation, organization and offering
expenses; fees and expenses incurred in connection with membership in
investment company organizations; custodian and transfer agent fees;
legal, auditing and accounting expenses; costs of preparing, printing
and distributing its proxy statements, shareholder reports and notices;
the costs and or fees incident to director and shareholder meetings;
Federal and state registration fees; stock exchange listing fees and
expenses; taxes or governmental fees; non-affiliated directors' fees;
interest on its borrowings; brokerage commissions; the cost of
preparing share certificates and the cost of issue, sale and repurchase
of its shares; payment for portfolio pricing services; and any
extraordinary expenses of a non-recurring nature. The Fund will also be
required to repay borrowings by it.
The Management Agreement remains in effect provided that such
continuance is specifically approved at least annually by the Board of
Directors or by vote of a majority of the Fund's outstanding voting
securities and, in either case, by a majority of the Directors who are
not parties to the Management Agreement or interested persons of any
such party. The Management Agreement terminates automatically if it is
assigned and may be terminated without penalty by vote of a majority of
the Fund's outstanding voting securities or by either party on not more
than 60 days' nor less than 30 days' written notice.
The Management Agreement provides that the Fund may use the name
"Morgan Grenfell" only so long as the Management Agreement or any
extension, renewal or amendment thereof remains in effect. If the
Management Agreement is no longer in effect, the Fund is obligated (to
the extent it lawfully can) to cease using such name or any other name
indicating that it is advised by or otherwise connected with the
Investment Manager. In addition, the Investment Manager may grant the
non-exclusive right to use the name "Morgan Grenfell" to any other
entity, including any other investment company of which the Investment
Manager or any of its affiliates is the investment manager.
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DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
History of Dividend Payments
The following table shows dividends per share paid by the Fund to
its shareholders since its inception:
Payable Date Source Amount
February 1, 1990.............. Capital Gains $0.250
December 31, 1990............. Capital Gains 0.6500
January 31, 1992.............. Capital Gains 0.9700
December 31, 1992............. Cash 0.8205
January 24, 1994.............. Capital Gains 1.137
January 20, 1995.............. Capital Gains 1.227
January 26, 1996.............. Capital Gains 2.133
The Fund distributes to shareholders, at least annually, all or
substantially all of its net investment income and net realized capital
gains. Pursuant to the Dividend Reinvestment Plan (the "Plan"), all
distributions to participants in the Plan will be automatically
reinvested by The Bank of New York (the "Bank"), as Plan Agent, in Fund
shares pursuant to the Plan. Shareholders will be deemed to participate
in the Plan unless (i) they elect to receive all distributions from net
investment income in cash, and/or (ii) they elect not to receive all
capital gain distributions in the form of a stock dividend and they
further make no election to receive such distributions in cash. Each
registered shareholder will receive from the Plan Agent an
authorization card to be signed and returned if the shareholder elects
to receive distributions from net investment income in cash or elects
not to receive capital gain distributions in the form of a stock
dividend. Shareholders who do not participate in the Plan will receive
all distributions in cash paid by check in U.S. dollars mailed directly
to the shareholder by the Bank, as dividend paying agent. In the case
of any distribution to participants in the Plan, the Board of Directors
may elect to pay such distribution in shares of the Fund's Common
Stock. During the fiscal year ended December 31, 1995, the Fund paid
distributions from long-term capital gains of $0.9953 per share and
dividends from net investment income of $1.1377 per share out of
ordinary income.
The Plan Agent serves as agent for the shareholders in
administering the Plan. If the directors of the Fund declare a
dividend, participants in the Plan will receive stock in the Fund
valued, as described below, depending upon the market price or net
asset value determined at the time of purchase (generally the payable
date of the dividend). Whenever market price is equal to or exceeds net
asset value at the time shares are valued for the purpose of
determining the number of shares equivalent to the cash dividend or
distribution, participants will be issued shares of the Fund at a price
equal to the greater of net asset value or 95% of the then current
market price of the Fund's shares. If net asset value determined as at
the time of purchase exceeds the market price of Fund shares at such
time, or if the Fund should declare a dividend or other distribution
payable only in cash (i.e., if the Board of Directors should preclude
reinvestment at net asset value), the Plan Agent will, as agent for the
participants, buy Fund shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. If, before the Plan Agent
has completed its purchases, the market price exceeds the net asset
value of a Fund share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Fund's shares,
resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund.
The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in the account,
including information needed by shareholders for personal and tax
records. Shares in the account of each Plan participant are held by the
Plan Agent in non-certificated form in the name of the participant, and
each shareholder's proxy will include those shares purchased pursuant
to the Plan.
In the case of shareholders, such as banks, brokers or nominees,
that hold shares for others who are the beneficial owners, the Plan
Agent administers the Plan on the basis of the number of shares
certified from time to time
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by the shareholder as representing the total amount registered in the
shareholder's name and held for the account of beneficial owners who
are to participate in the Plan.
There is no charge to participants for reinvesting dividends or
capital gains distributions. The Plan Agent's fees for the handling of
reinvestment of dividends and distributions will be paid by the Fund.
There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains
distributions payable either in shares or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or capital gains distributions.
The automatic reinvestment of dividends and distributions will not
relieve participants of any U.S. income tax that may be payable on such
dividends or distributions.
The Fund reserves the right to amend or to terminate the Plan.
There is no direct service charge to participants in the Plan; however,
the Fund reserves the right to amend the Plan to include a service
charge payable by the participants. All correspondence concerning the
Plan should be directed to the Plan Agent at The Bank of New York,
Dividend Reinvestment Department, P.O. 1958, Newark, New Jersey
07101-9774.
COMMON STOCK
The authorized capital stock of the Fund consists of 150,000,000
shares of Common Stock, US $0.01 par value, of which 6,042,435 were
outstanding as of December 31, 1995. The Shares when issued, will be
fully paid and nonassessable. All shares of Common Stock are equal as
to dividends, assets and voting privileges and have no conversion,
preemptive or exchange rights. In the event of liquidation, each share
of Common Stock is entitled to its proportion of the Fund's assets
after payment of debts and expenses. Shareholders are entitled to one
vote per share. All voting rights for directors are non-cumulative,
which means that the holders of more than 50% of the shares of common
stock can elect 100% of the directors if they choose to do so, and, in
such event, the holders of the remaining shares of common stock will
not be able to elect any directors. The Fund's outstanding Common Stock
is, and the Shares offered hereby will be, listed on the NYSE. The
symbol of the Fund's Common Stock on the NYSE is MGC.
The Fund has no present intention of offering additional shares
beyond this Offering, except that additional shares may be issued under
the Dividend Reinvestment Plan. See "Dividends and Distributions;
Dividend Reinvestment Plan". Other offerings of its Common Stock, if
made, will require approval of the Fund's Board of Directors. Any
additional offering will be subject to the requirements of the 1940 Act
that shares may not be sold at a price below the then current net asset
value (exclusive of underwriting discounts and commissions) except in
connection with an offering to existing shareholders or with the
consent of a majority of the Fund's outstanding shares.
Special Voting Provisions
The Fund has provisions in its Articles of Incorporation and
By-Laws that are intended to have the effect of limiting the ability of
other entities or persons to acquire control of the Fund, to cause it
to engage in certain transactions or to modify its structure. The Board
of Directors is divided into three classes. At the annual meeting of
shareholders each year, the term of one class will expire and directors
will be elected to serve in that class for terms of three years. This
provision could delay for up to two years the replacement of a majority
of the Board of Directors.
The affirmative vote of the holders of three-quarters of the
shares of the Fund is required to authorize any of the following
transactions:
(i) a merger or consolidation of the Fund with or into any other
corporation; (ii) the issuance of any securities of the Fund to any
person or entity for cash;
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(iii) the sale, lease or exchange of all or any substantial part of
the Fund's assets to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000); or
(iv) the sale, lease or exchange to the Fund in exchange for
securities of the Fund of any assets of any entity or person (except
assets having an aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly
through affiliates, the beneficial owner of 5% or more of the
outstanding shares of the Fund. However, such three-quarter vote will
not be required with respect to the foregoing transactions where the
Board of Directors in accordance with the Fund's charter approves the
transaction. Reference is made to the Articles of Incorporation and
By-Laws of the Fund, on file with the Commission, for the full text of
these provisions. See "Further Information."
The Fund's Charter also authorizes a class of capital stock
consisting of 20,000,000 shares of Series Preferred Stock, $.01 par
value, which would have such voting powers, designations, preferences,
and relative, participating, optional, conversion or other special
rights, and such qualifications, limitations or restrictions, as the
Board of Directors may designate for each series thereof issued by vote
of the Board of Directors from time to time. The authorization of
preferred stock will enhance the Fund's flexibility in connection with
possible future actions. The authorized but unissued shares of
Preferred Stock could be used to make more difficult a change in
control of the Fund. Under certain circumstances, such shares could be
used to create voting impediments or to deter persons seeking to effect
a takeover or otherwise gain control of the Fund. Such shares could be
sold in public or private transactions to purchasers who might side
with the Board of Directors in opposing a takeover bid which the Board
of Directors determines not to be in the best interests of the Fund and
its stockholders. In addition, the Board of Directors could authorize
holders of a series of Preferred Stock to vote, either separately as a
class or with the holders of common stock, on any merger, sale or
exchange of assets by the Fund or any other extraordinary corporate
transaction. On the other hand, the issuance of a series of Preferred
Stock could increase the likelihood of such an extraordinary
transaction if the holders of such shares deemed it to be desirable.
The issuance of a series of Preferred Stock may adversely affect the
ability of the holders of shares of common stock to control the Fund
and may have an adverse effect on the marketability of the Fund's
shares.
These provisions could have the effect of depriving shareholders
of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction. The Board
of Directors has determined that the foregoing voting requirements,
which are generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interests of
shareholders generally.
TAXATION
Federal Taxation of the Fund and its Distributions
The Fund has qualified and elected to be treated, and intends to
continue to qualify and be treated, as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"). The
Fund intends to distribute all or substantially all its investment
company taxable income (all taxable income and realized capital gains
other than the excess of net long-term capital gain over net short-term
capital loss, reduced by deductible expenses) and net capital gain (the
excess of net long-term capital gain over net short-term capital loss)
each year, thereby avoiding the imposition on the Fund of Federal
income and excise taxes on such distributed income and gain. Such
distributions from investment company taxable income and net capital
gain will be taxable as ordinary income and long-term capital gains,
respectively, to shareholders of the Fund who are subject to tax.
Shareholders that are not subject to tax on their income generally will
not be required to pay tax on amounts distributed to them.
Notwithstanding the above, the Fund may decide to retain all or part of
any net capital gain for reinvestment. After the end of each taxable
year, the Fund will notify shareholders of the Federal income tax
status of any distributions, or deemed distributions, made by the Fund
during such year. For a discussion of certain income tax consequences
to shareholders of the Fund, see "Taxation" in the SAI.
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<PAGE>
Federal Income Tax Consequences Relating to the Offer
The following discussion describes certain United States Federal
income tax consequences of the Offer generally applicable to citizens
or residents of the United States and U.S. trusts, estates,
corporations and any other person who would be subject to U.S. Federal
income tax upon the sale or exchange of Common Stock acquired upon the
exercise of Rights ("U.S. Shareholders"). This summary is intended to
be descriptive only and does not purport to be a complete analysis or
listing of all potential tax effects relevant to the ownership of
Rights or Common Stock. Additionally, this summary does not
specifically address the U.S. Federal income tax consequences that
might be relevant to holders of Rights or Common Stock entitled to
special treatment under the U.S. Federal income tax laws, such as
individual retirement accounts and other tax deferred accounts,
financial institutions, life insurance companies and tax-exempt
organizations, and does not discuss the effect of state, local and
other tax laws. Further, this summary is based on interpretations of
existing law as of the date of this Prospectus as contained in the
Code, applicable current and proposed Treasury Regulations, judicial
decisions and published administrative positions of the Internal
Revenue Service, all of which are subject to change either
prospectively or retroactively.
U.S. Shareholders who receive Rights pursuant to the Offer will not
recognize taxable income for U.S. Federal income tax purposes upon their receipt
of the Rights.
If the fair market value of the Rights as of the date of their
distribution equals or exceeds 15% of the fair market value of the
Common Stock with respect to which they are distributed, a U.S.
Shareholder's basis in such Common Stock must be allocated between such
Common Stock and the Rights in proportion to their respective fair
market values on the date of distribution. If the fair market value of
the Rights as of the date of their distribution is less than 15% of the
fair market value of the Common Stock with respect to which they are
distributed, however, a U.S. Shareholder's basis in such Common Stock
will remain unchanged and the basis in such Rights will be zero, unless
such U.S. Shareholder affirmatively and irrevocably elects (in a
statement attached to his or its U.S. Federal income tax return for the
year in which the Rights are received) to allocate the basis in the
Common Stock between such Common Stock and the Rights in proportion to
their respective fair market values on the date of distribution.
A U.S. Shareholder who exercises Rights will not recognize any
gain or loss for U.S. Federal income tax purposes upon the exercise.
The basis of the newly acquired Common Stock will then be equal to the
sum of the Subscription Price paid for the Common Stock and the basis,
if any, allocated to the Rights in the manner described in the
immediately preceding paragraph.
If Rights issued to a U.S. Shareholder expire without being sold
or exercised, no basis will be allocated to such Rights, and such
Shareholder will not recognize any gain or loss for U.S. Federal income
tax purposes upon such expiration.
Upon a U.S. Shareholder's sale or exchange of Common Stock
acquired upon the exercise of Rights, such Shareholder will recognize
gain or loss measured by the difference between the proceeds of the
sale or exchange and the basis of such Common Stock. If the U.S.
Shareholder holds Common Stock as a capital asset, any gain or loss
realized upon its sale or exchange will generally be treated as a
long-term or short-term capital gain or loss, depending on the length
of the U.S. Shareholder's holding period for such Common Stock.
However, any loss recognized upon the sale or exchange of shares of
Common Stock with a tax holding period of 6 months or less may be
treated as a long-term capital loss to the extent of any distribution
of net capital gain with respect to such shares, and losses on certain
sales or exchanges may be disallowed under wash sale rules. The holding
period for Common Stock acquired upon the exercise of Rights will begin
on the date of exercise of the Rights.
A U.S. Shareholder may be subject to backup withholding at the
rate of 31% with respect to gross proceeds from the sale or exchange of
Common Stock unless such U.S. Shareholder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates
and/or certifies this fact, or (b) provides a correct taxpayer
identification number, along with certain required certifications, and
otherwise complies with applicable requirements of the backup
withholding rules. U.S. Shareholders who choose to transfer their
Common Stock and who do not provide the appropriate withholding agent
with their correct taxpayer identification number in the manner
required may be subject to penalties imposed by the Internal Revenue
Service. Any amount withheld under these rules is not an additional
tax; it will be creditable against the U.S. Shareholder's U.S. Federal
income tax liability.
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This summary is not intended to be, nor should it be, construed as
legal or tax advice to any current holder of Common Stock. Further,
because the U.S. Federal income tax consequences of the Offer may vary
depending upon the particular circumstances of each shareholder of the
Fund and other facts, and because this summary is not exhaustive of all
possible U.S. Federal income tax considerations (such as situations
involving taxpayers who are dealers in securities or whose functional
currency is not the U.S. dollar), the Fund's shareholders are urged to
consult their own tax advisors to determine the U.S. Federal income tax
consequences to them of the Offer and their ownership of Rights and
Common Stock. In addition, such shareholders are urged to consult their
own tax advisors in determining the U.S. state and local tax
consequences to them of the Offer and such ownership. See "Taxation" in
the SAI.
DISTRIBUTION ARRANGEMENTS
PaineWebber Incorporated, 1285 Avenue of the Americas, New York,
New York, will act as the Dealer Manager for the Offer. Under the terms
and subject to the conditions contained in the Dealer Manager Agreement
dated the date hereof, the Dealer Manager will provide financial
advisory services and marketing assistance in connection with the Offer
and will solicit the exercise of Rights by Record Date shareholders.
The Offer is not contingent upon any number of Rights being exercised.
The Fund has agreed to pay the Dealer Manager a fee for financial
advisory services equal to % of the aggregate Subscription Price for
Shares issued pursuant to the exercise of such Rights or the
Over-Subscription Privilege and to pay broker-dealers, including the
Dealer Manager, fees for its solicitation efforts (the "Solicitation
Fees") of % of the Subscription Price for each Share issued pursuant to
the exercise of such Rights or the Over-Subscription Privilege
solicited by such broker-dealers. Solicitation Fees will be paid to the
broker-dealer designated on the applicable portion of the Subscription
Certificates or, in the absence of such designation, to the Dealer
Manager.
In addition, the Fund has agreed to reimburse the Dealer Manager
up to an aggregate of $ for their reasonable expenses incurred in
connection with the Offer. The Fund has agreed to indemnify the Dealer
Manager or contribute to losses arising out of certain liabilities
including liabilities under the Securities Act. The Dealer Manager
Agreement also provides that the Dealer Manager will not be subject to
any liability to the Fund in rendering the services contemplated by the
Agreement except for any act of bad faith, willful misconduct, or gross
negligence of the Dealer Manager or reckless disregard by the Dealer
Manager of its obligations and duties under the Agreement.
CUSTODIAN, DIVIDEND PAYING AGENT,
TRANSFER AGENT AND REGISTRAR
The Bank of New York, P.O. 11002, Church Street Station, New York,
New York 10277, will act as the Fund's custodian, dividend paying
agent, transfer agent and registrar.
EXPERTS
The financial statements at December 31, 1995, and the financial
highlights included in this Prospectus have been so included in
reliance on the report of KPMG Peat Marwick LLP, New York, New York,
independent accountants, given on the authority of said firm as experts
in auditing and accounting.
LEGAL MATTERS
The validity of the Shares will be passed on for the Fund by Piper
and Marbury, Baltimore, Maryland. Certain legal matters will be passed
on for the Fund by Hale and Dorr, Boston, Massachusetts and for the
Dealer Manager by Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois.
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FURTHER INFORMATION
Further information concerning these securities and the Fund may
be found in the Registration Statement, of which this Prospectus and
the SAI incorporated by reference herein constitute a part, on file
with the Commission. Financial statements of the Fund for fiscal years
ended December 31, 1994 and December 31, 1995 are included in the
Fund's annual reports to shareholders for such years, copies of which
are on file with and may be inspected at the Commission as indicated
below.
The Fund is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the 1940 Act, and in accordance therewith files reports and other
information with the Commission. Such reports and other information can
be inspected and copied at the public reference facilities maintained
by the Commission at 450 Fifth Street, Washington, D.C. 20549 and the
Commission's regional offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, Washington, D.C. 20549
at prescribed rates. Such reports and other information concerning the
Fund may also be inspected at the offices of the NYSE.
-24-
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Investment Objectives and Policies................... 2
Investment Restrictions.............................. 9
Management........................................... 11
Expenses............................................. 15
Portfolio Transactions and Brokerage................. 16
Net Asset Value...................................... 19
Taxation............................................. 19
Financial Statements................................. F-1
Report of Independent Accountants....................
-25-
<PAGE>
No person has been authorized to give any
information or to make any representations
in connection with this offering other than
those contained in this Prospectus and, if
given or made, such other information and
representations must not be relied upon as
having been authorized by the Fund, the
Investment Manager or the Dealer Manager.
Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any MORGAN GRENFELL SMALLCAP FUND, INC.
circumstances, create any implication that
there has been no change in the affairs
of the Fund since the date hereof or that
the information contained herein is correct
as of any time subsequent to its date.
However, if any material change occurs
while this Prospectus is required by law
to be delivered, this Prospectus will be
amended or supplemented accordingly. This ____________ Shares of
Prospectus does not constitute an offer to Common Stock Issuable upon
sell or a solicitation of an offer to by Exercise of Rights
any of the securities other than the to Subscribe
Shares offered by the prospectus, nor for such Shares of
does it constitute an offer to sell or an Common Stock
offer to buy the Shares by anyone in
any jurisdiction in which such offer
or solicitation is not authorized or in
which the person making such an offer or
solicitation is not qualified to do so
or to any person to whom it is
unlawful to make such offer or
solicitation.
----------------
TABLE OF CONTENTS --------------
PROSPECTUS
--------------
Page
Fund Expenses.............. 2
Financial Highlights....... 3
The Offer.................. 5
The Fund................... 12
Use of Proceeds............ 12
Market and Net Asset
Value Information........ 13
Investment Objectives
and Policies............. 14
Special Risk Considerations. 15 PAINEWEBBER INCORPORATED
Management of the Fund..... 17
Dividends and Distributions;
Dividend Reinvestment Plan. 19
Common Stock............... 20
Taxation................... 21
Distribution Arrangements.. 23
Custodian, Dividend Paying
Agent, Transfer Agent and
Registrar................ 23
Experts.................... 23
Legal Matters.............. 23 __________, 1996
Further Information........ 24
Table of Contents of
Statement of Additional
Information............... 25
<PAGE>
SUBJECT TO COMPLETION DATED APRIL 5, 1996
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR
TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY.
MORGAN GRENFELL SMALLCAP FUND, INC.
_____________________
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a
prospectus and should be read in conjunction with the Prospectus,
dated , 1996 subject to completion April 5, 1996 (the
"Prospectus"). This SAI does not include all information that a
prospective investor should consider before purchasing shares of
the Fund and investors should obtain and read the Prospectus prior
to purchasing shares. A copy of the Prospectus may be obtained
without charge by calling the Fund's Information Agent,
___________________________ at (800) - . This SAI
incorporates by reference the entire Prospectus. Defined terms
used herein shall have the same meaning as provided in the
Prospectus. The date of this SAI is , 1996.
_______________
TABLE OF CONTENTS
Page
Investment Objectives and Policies................. 2
Investment Restrictions............................ 9
Management......................................... 11
Expenses........................................... 13
Portfolio Transactions and Brokerage............... 14
Net Asset Value.................................... 17
Taxation........................................... 17
Financial Statements............................... F-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund's primary investment objective is to seek long-term
capital appreciation by investing principally in equity and
equity-related securities of U.S. companies. The Fund seeks
current income as a secondary objective. There is no assurance
that the Fund will achieve its investment objectives. See
"Investment Objectives and Policies" in the Prospectus.
The following describes certain hedging strategies in which
the Investment Manager may engage, on behalf of the Fund, each of
which may involve certain special risks.
Options
Written Options. The Fund may write (sell) covered put and
call options on equity and fixed income securities and enter into
related closing transactions. The Fund may receive fees (referred
to as "premiums") for granting the rights evidenced by the
options. However, in return for the premium for a written call
option, the Fund assumes certain risks. For example, in the case
of a written call option, the Fund forfeits the right to any
appreciation in the underlying security while the option is
outstanding. A put option gives to its purchaser the right to
compel the Fund to purchase an underlying security from the option
holder at the specified price at any time during the option
period. In contrast, a call option written by the Fund gives to
its purchaser the right to compel the Fund to sell an underlying
security to the option holder at a specified price at any time
during the option period. Upon the exercise of a put option
written by the Fund, the Fund may suffer a loss equal to the
difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time
of the option exercise, less the premium received for writing the
option. All options written by the Fund are covered. In the case
of a call option, this means that the Fund will own the securities
subject to the option or an offsetting call option as long as the
written option is outstanding, or will have the absolute and
immediate right to acquire other securities that are the same as
those subject to the written option. In the case of a put option,
this means that the Fund will deposit cash or high grade liquid
debt obligations in a segregated account with the custodian with a
value at least equal to the exercise price of the put option.
Purchased Options. The Fund may also purchase put and call
options on securities. A put option entitles the Fund to sell,
and a call option entitles the Fund to buy, a specified security
at a specified price during the term of the option. The advantage
to the purchaser of a call option is that it may hedge against an
increase in the price of portfolio securities it ultimately wishes
-2-
<PAGE>
to buy. The advantage to the purchaser of a put option is that it
may hedge against a decrease in the price of portfolio securities
it ultimately wishes to sell.
The Fund may enter into closing transactions in order to
offset an open option position prior to exercise or expiration by
selling an option it has purchased or by entering into an
offsetting option. If the Fund cannot effect closing
transactions, it may have to retain a security in its portfolio it
would otherwise sell, or deliver a security it would otherwise
retain.
The Fund may purchase and sell options traded on U.S.
exchanges and, to the extent permitted by law, options traded
over-the-counter ("OTC"). The Fund will treat purchased
over-the-counter options as illiquid. There can be no assurance
that a liquid secondary market will exist for any particular
option. Over-the-counter options also involve the risk that a
counterparty will fail to meet its obligation under the option.
Stock Index Options
The Fund may purchase and write exchange-listed put and call
options on stock indices to hedge against risks of market-wide
price movements. A stock index measures the movement of a certain
group of stocks by assigning relative values to the common stocks
included in the index. Examples of well-known stock indices are
the Standard & Poor's Index of 500 Common Stocks and the Wilshire
5000 Index. Options on stock indices are similar to options on
securities. However, because options on stock indices do not
involve the delivery of an underlying security, the option
represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price exceeds
(in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the exercise date.
When the Fund writes an option on a stock index, it will
cover the option by depositing cash or high grade liquid debt
obligations or a combination of both in an amount equal to the
market value of the option, in a segregated account, which will be
marked to market daily, with the Fund's custodian, and will
maintain the account while the option is open. Alternatively, and
only in the case of a written call option on a stock index, the
Fund may cover the written option by owning an offsetting call
option.
There are several risks associated with transactions in
options on securities or securities indices. For example, there
are significant differences between the securities markets and the
corresponding options markets that could result in imperfect
-3-
<PAGE>
correlations, causing a given option transaction not to achieve
its objectives. In addition, a liquid secondary market for
particular options, whether traded OTC or on a U.S. securities
exchange may be absent for reasons which include the following:
there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; the facilities of an exchange or the Options Clearing
Corporation ("OCC") may not at all times be adequate to handle
current trading volume; or 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 that class or series of options) would cease to
exist, although outstanding options that had been issued by the
OCC as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Futures Contracts and Options on Futures Contracts
When deemed advisable by the Investment Manager, the Fund may
enter into futures contracts and purchase and write options on
futures contracts to hedge against changes in interest rates or
securities prices or for certain non-hedging purposes. The Fund
may purchase and sell financial futures contracts, including stock
index futures, and purchase and write related options. The Fund
may engage in futures and related options transactions for hedging
and non-hedging purposes as defined in regulations of the
Commodity Futures Trading Commission. The Fund will not enter
into futures contracts or options thereon for non-hedging
purposes, if immediately thereafter, the aggregate initial margin
and premiums required to establish non-hedging positions in
futures contracts and options on futures will exceed 5% of the net
asset value of the Fund's portfolio, after taking into account
unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of
purchase. Transactions in futures contracts and options on
futures involve brokerage costs, require margin deposits and, in
the case of contracts and options obligating the Fund to purchase
securities, require the Fund to segregate cash or high grade
liquid debt obligations with a value equal to the amount of the
Fund's obligations.
Futures Contracts. A futures contract may generally be
described as an agreement between two parties to buy and sell a
particular financial instrument for an agreed price during a
designated month (or to deliver the final cash settlement price,
-4-
<PAGE>
in the case of a contract relating to an index or otherwise not
calling for physical delivery at the end of trading in the
contract). Futures contracts obligate the long or short holder to
take or make delivery of a specified quantity of a commodity or
financial instrument, such as a security or the cash value of a
securities index, during a specified future period at a specified
price.
When interest rates are rising or securities prices are
falling, the Fund can seek to offset a decline in the value of its
current portfolio securities through the sale of futures
contracts. When interest rates are falling or securities prices
are rising, the Fund, through the purchase of futures contracts,
can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases.
Positions taken in the futures markets are not normally held
to maturity but are instead liquidated through offsetting
transactions which may result in a profit or a loss. While
futures contracts on securities will usually be liquidated in this
manner, the Fund may instead make, or take, delivery of the
underlying securities whenever it appears economically
advantageous to do so. A clearing corporation associated with the
exchange on which futures on securities are traded guarantees
that, if still open, the sale or purchase will be performed on the
settlement date.
Hedging Strategies. Hedging, by use of futures contracts,
seeks to establish with more certainty the effective price and
rate of return on portfolio securities and securities that the
Fund proposes to acquire. The Fund may, for example, take a
"short" position in the futures market by selling futures
contracts in order to hedge against an anticipated rise in
interest rates or a decline in market prices that would adversely
affect the value of the Fund's portfolio securities. Such futures
contracts may include contracts for the future delivery of
securities held by the Fund or securities with characteristics
similar to those of the Fund's portfolio securities. If, in the
opinion of the Investment Manager, there is a sufficient degree of
correlation between price trends for the Fund's portfolio
securities and futures contracts based on other financial
instruments, securities indices or other indices, the Fund may
also enter into such futures contracts as part of its hedging
strategy. Although under some circumstances prices of securities
in the Fund's portfolio may be more or less volatile than prices
of such futures contracts, the Investment Manager will attempt to
estimate the extent of this volatility difference based on
historical patterns and compensate for any such differential by
having the Fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against
-5-
<PAGE>
price changes affecting the Fund's securities portfolio. When
hedging of this character is successful, any depreciation in the
value of portfolio securities will be substantially offset by
appreciation in the value of the futures position. On the other
hand, any unanticipated appreciation in the value of the Fund's
portfolio securities would be substantially offset by a decline in
the value of the futures position
On other occasions, the Fund may take a "long" position by
purchasing futures contracts. This would be done, for example,
when the Fund anticipates the subsequent purchase of particular
securities when it has the necessary cash, but expects the prices
then available in the applicable market to be less favorable than
prices that are currently available.
Options on Futures Contracts. The acquisition of put and
call options on futures contracts will give the Fund the right
(but not the obligation) for a specified price to sell or to
purchase, respectively, the underlying futures contract at any
time during the option period. As the purchaser of an option on a
futures contract, the Fund obtains the benefit of the futures
position if prices move in a favorable direction but limits its
risk of loss in the event of an unfavorable price movement to the
loss of the premium and transaction costs.
The writing of a call option on a futures contract generates
a premium which may partially offset a decline in the value of the
Fund's assets. By writing a call option, the Fund becomes
obligated, in exchange for the premium, to sell a futures contract
(if the option is exercised), which may have a value higher than
the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to
purchase. However, the Fund becomes obligated to purchase a
futures contract (if the option is exercised) which may have a
value lower than the exercise price. Thus, the loss incurred by
the Fund in writing options on futures is potentially unlimited
and may exceed the amount of the premium received. The Fund will
incur transaction costs in connection with the writing of options
on futures.
The holder or writer of an option on a futures contract may
terminate its position by selling or purchasing an offsetting
option on the same series. There is no guarantee that such
closing transactions can be effected. The Fund's ability to
establish and close out positions on such options will be subject
to the development and maintenance of a liquid market.
The Fund may use options on futures contracts solely for bona
fide hedging or other non-hedging purposes as described below.
-6-
<PAGE>
Other Considerations. The Fund will engage in futures and
related options transactions only for bona fide hedging or non-
hedging purposes as permitted by Commodities Futures Trading
Commission ("CFTC") regulations which permit principals of an
investment company registered under the 1940 Act to engage in such
transactions without registering as commodity pool operators. The
Fund will determine that the price fluctuations in the futures
contracts and options on futures used by it for hedging purposes
are substantially related to price fluctuations in securities or
instruments held by the Fund or securities or instruments which it
expects to purchase. Except as stated below, the Fund's futures
transactions will be entered into for traditional hedging purposes
- -- i.e., futures contracts will be sold to protect against a
decline in the price of securities that the Fund owns or futures
contracts will be purchased to protect the Fund against an
increase in the price of securities that the Fund intends to
purchase. As evidence of this hedging intent, the Fund expects
that, on 75% or more of the occasions on which it takes a long
futures or option position (involving the purchase of futures
contracts), the Fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities in
the cash market at the time when the futures or option position is
closed out. However, in particular cases, when it is economically
advantageous for the Fund to do so, a long futures position may be
terminated or an option may expire without the corresponding
purchase of securities or other assets.
As an alternative to compliance with the bona fide hedging
definition, a CFTC regulation now permits the Fund to elect to
comply with a different test under which the aggregate initial
margin and premiums required to establish non-hedging positions in
futures contracts and options on futures will not exceed 5% of the
net asset value of the Fund's portfolio, after taking into account
unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of
purchase.
Limitations and Risks Associated With Transactions In Options,
Futures Contracts and Options on Futures Contracts
The Fund's options and futures transactions involve
(1) liquidity risk that contractual positions cannot be easily
closed out in the event of market changes or generally in the
absence of a liquid secondary market, (2) correlation risk that
changes in the value of hedging positions may not match the
securities market fluctuations intended to be hedged, and
(3) market risk that an incorrect prediction of securities prices
by the Investment Manager may cause the Fund to perform worse than
if such positions had not been taken. The ability to terminate
over-the-counter options is more limited than with exchange traded
-7-
<PAGE>
options and may involve the risk that the counterparty to the
option will not fulfill its obligations. In accordance with a
position taken by the Commission, the Fund will limit its
investments in illiquid securities to 10% of the Fund's net
assets. The Fund will treat over-the-counter options and the
assets used to cover such options as illiquid securities subject
to this limitation, except that, with respect to options written
with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula
price, the amount of the illiquid securities may be calculated
with reference to the formula price.
Options and futures transactions are highly specialized
activities which involve investment techniques and risks that are
different from those associated with ordinary portfolio
transactions. Gains and losses on investments in options and
futures depend on the Investment Manager's ability to predict the
direction of stock prices and other economic factors. The loss
that may be incurred by the Fund in entering into futures
contracts and written options thereon is potentially unlimited.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain facilities of an options clearing entity or other entity
performing the regulatory and liquidity functions of an options
clearing entity inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the
timely execution of customers' orders. Most futures exchanges
limit the amount of fluctuation permitted in a futures contract's
prices during a single trading day. Once the limit has been
reached no further trades may be made that day at a price beyond
the limit. The price limit will not limit potential losses, and
may in fact prevent the prompt liquidation of futures positions,
ultimately resulting in further losses.
Except as set forth above under "Futures Contracts and
Options on Futures Contracts", there is no limit on the percentage
of the Fund's assets that may be at risk with respect to futures
contracts and related options. The Fund may not invest more than
25% of its total assets in purchased protective put options nor
more than 5% of its total assets in purchased options other than
protective put options. The Fund's transactions in options,
futures contracts and options on futures contracts may be limited
by the requirements for qualification of the Fund as a regulated
investment company for tax purposes. See "TAXATION," below.
Options, futures contracts and options on futures contracts are
derivative instruments.
-8-
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental policies which
cannot be changed without the approval of the holders of a
majority of its shares (as defined under "Investment Objectives
and Policies" in the Prospectus). The Fund may not:
(1) Borrow money on a secured or unsecured basis for any
purpose of the Fund in an aggregate amount exceeding 15% of the
value of the Fund's total assets at the time of any such borrowing
(exclusive of all obligations on amounts held as collateral for
securities loaned to other persons to the extent that such
obligations are secured by assets of at least equivalent value).
(2) Pledge, mortgage or hypothecate its assets, except to
secure indebtedness permitted by paragraph (1) above. The deposit
in escrow of securities in connection with the writing of put and
call options, collateralized loans of securities and collateral
arrangements with respect to margin for futures contracts are not
deemed to be pledges or hypothecations for this purpose.
(3) Act as an underwriter of securities of other issuers,
except to the extent that, in connection with the disposition of
portfolio securities, the Fund may be deemed to be an underwriter
for purposes of the Securities Act of 1933.
(4) Purchase or sell real estate or any interest therein,
except that the Fund may invest in securities issued or guaranteed
by corporate or governmental entities secured by real estate or
interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies that
invest in real estate or interests therein.
(5) Make loans to other persons except for loans of
portfolio securities (up to 30% of total assets) as described
under "Investment Objectives and Policies -- Lending of Portfolio
Securities" in the Prospectus and except through the use of
repurchase agreements, the purchase of commercial paper or the
purchase of all or a portion of an issue of debt securities in
accordance with its investment objectives, policies and
restrictions, and provided that not more than 10% of the Fund's
assets will be invested in repurchase agreements maturing in more
than seven days.
(6) Invest in commodities or in commodity contracts, except
that it may enter into futures contracts on financial instruments
and options on such futures contracts subject to regulations of
the Commodity Futures Trading Commission.
-9-
<PAGE>
(7) Purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary for
the clearance of purchases and sales of portfolio securities, but
it may make margin deposits in connection with transactions in
options, futures and options on futures.
(8) Purchase the securities of issuers conducting their
principal business activity in the same industry (other than
securities issued or guaranteed by the United States, its agencies
and instrumentalities) if, immediately after such purchase, the
value of its investments in such industry would comprise 25% or
more of the value of its total assets taken at market value at the
time of each investment.
(9) Purchase securities of any one issuer, if
(a) more than 5% of the Fund's total assets taken at
market value would at the time of purchase be invested in the
securities of such issuer, except that such restriction does
not apply to securities issued or guaranteed by the United
States Government or its agencies or instrumentalities or
corporations sponsored thereby, and except that up to 25% of
the Fund's total assets may be invested without regard to
this limitation; or
(b) such purchase would at the time result in more than
10% of the outstanding voting securities of such issuer being
held by the Fund, except that up to 25% of the Fund's total
assets may be invested without regard to this limitation.
(10) Invest in securities of another registered investment
company, except in connection with a merger, consolidation,
acquisition or reorganization.
(11) Purchase any security, including any repurchase
agreement maturing in more than seven days, which is subject to
legal or contractual delays in or restrictions on resale, or which
is not readily marketable, if more than 10% of the net assets of
the Fund, taken at market value, would be invested in such
securities.
(12) Invest for the purpose of exercising control over or
management of any company.
(13) Issue senior securities except pursuant to Section 18
of the Investment Company Act of 1940, and, except that the Fund
may borrow money subject to investment restriction 1.
If a percentage restriction on investment or utilization of
assets as set forth above is adhered to at the time an investment
-10-
<PAGE>
is made, a later change in percentage resulting from a change in
the market values of the Fund's assets will not be considered a
violation of the restriction.
MANAGEMENT
Directors and Officers
The names and addresses of the directors and officers of the
Fund are set forth below, together with their positions and their
principal occupations during the past five years and, in the case
of the directors, their positions with certain other organizations
and companies.
Name, Age Positions With Principal Occupations
and Address the Fund During Past 5 Years
Michael Bullock* Chairman and Director Director, Chairman and
20 Finsbury Circus Chief Investment Officer,
London, EC2M 1NB Morgan Grenfell
England Investment Services,
Age 44 Ltd.; Managing Director,
Morgan Grenfell Asset
Management Ltd.;
Director, Morgan Grenfell
Capital Management Inc.
Robert E. Kern, Jr.* President and Director Executive Vice President
885 Third Avenue and Director, Morgan
New York, NY 10022 Grenfell Capital
Age 60 Management, Inc.
(September, 1986 to
present)
Robert E. Greeley Director Chairman, Page Mill Asset
Page Mill Asset Management (June 1985 to
Management Present); Manager
433 California Street Corporate Investments,
Suite 900 Hewlett-Packard Company
San Francisco, CA (March, 1979 to June
94104 1991); Director, Pacific
Age 64 Horizon Funds, Time
Horizon Funds
-11-
<PAGE>
Name, Age Positions With Principal Occupations
and Address the Fund During Past 5 Years
Joseph J. Incandela Director Partner/Managing
Thomas H. Lee Company Director, Thomas H. Lee
75 State Street Co.
Boston, MA 02109
Age 49
Richard D. Wood Director Consultant (October, 1994
27 Hidden Valley to present); Chairman and
Monrovia, CA 91016 President, Optical
Age 56 Radiation Corporation
(1969 to October 1994)
Audrey M.T. Jones* Vice President Senior Director, Morgan
885 Third Avenue Grenfell Capital
New York, NY 10022 Management Inc.
Age 49
Gerald S. Frey* Vice President Senior Director, Morgan
885 Third Avenue Grenfell Capital
New York, NY 10022 Management Inc.
Age 50
Mark G. Arthus* Secretary and Director of
885 Third Avenue Treasurer Administration and
New York, NY 10022 Compliance, Morgan
Age 39 Grenfell Capital
Management, Inc. (July
1992 to present); Vice
President, Compliance,
Citibank, N.A. (August
1985 to July 1992)
* Indicates a person who is an "interested person" of the Fund,
as defined in the 1940 Act.
-12-
<PAGE>
As of February 15, 1996, the Directors and officers of the
Fund beneficially owned 51,985 shares (0.80%) of Common Stock of
the Fund.
The following table sets forth the aggregate compensation
paid by the Fund to the Directors for the fiscal year ended
December 31, 1995.
Compensation Table
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits As Annual From Fund
Compensation Part of Fund Benefits Complex Paid
Name and Position From Fund Expenses Retirement to Director*
Michael Bullock $0 $0 $0 $0
Robert E. Kern, Jr. $0 $0 $0 $0
Robert E. Greeley $10,000 $0 $0 $10,000
Joseph J. Incandela $10,000 $0 $0 $10,000
Richard D. Wood $10,000 $0 $0 $10,000
* None of the Directors receives any compensation from any other investment
company managed by or affiliated with the Investment Manager.
Executive Compensation
No current or former employees, officers or directors
received remuneration in excess of $60,000 in the last fiscal year
for service in all their respective capacities.
EXPENSES
The Fund's annual operating expenses are higher than those of
most other investment companies of comparable size because the
management fees and other operating expenses reflect the costs
associated with an investment company investing in small
capitalization companies. For the fiscal years ended December 31,
1995, 1994 and 1993, the Fund's expenses amounted to $1,086,817,
$1,004,524 and $957,761, respectively.
Expenses of the Offer will be charged to capital. The Fund's
annual expense ratio was 1.51%, 1.52% and 1.39% of the Fund's net
assets for the fiscal years ended December 31, 1995, 1994 and
1993, respectively.
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<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision of the Board of Directors,
the Investment Manager makes decisions with respect to and places
orders for all purchases and sales of portfolio securities for the
Fund. In executing portfolio transactions, the Investment Manager
seeks to obtain the best net results for the Fund, taking into
account such factors as price (including the applicable brokerage
commission or dealer spread), size of the order, difficulty of
execution and operational facilities of the firm involved.
Commission rates, being a component of price, are considered
together with such factors. Commissions on transactions on
U.S. securities exchanges are subject to negotiation. Where
transactions are effected in the over-the-counter market or third
market, the Fund deals with the primary market makers unless a
more favorable result is obtainable elsewhere. Fixed income
securities purchased or sold on behalf of the Fund normally will
be traded in the over-the-counter market on a net basis (i.e.
without a commission) through dealers acting for their own account
and not as brokers or otherwise through transactions directly with
the issuer of the instrument. Some fixed income securities are
purchased and sold on an exchange or in over-the-counter
transactions conducted on an agency basis involving a commission.
Pursuant to the Investment Management Agreement, the
Investment Manager agrees to select broker-dealers in accordance
with guidelines established by the Fund's Board of Directors from
time to time and in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended. In assessing the
terms available for any transaction, the Investment Manager shall
consider all factors it deems relevant, including the breadth of
the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer,
and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In addition, the
Investment Management Agreement authorizes the Investment Manager,
subject to the periodic review of the Fund's Board of Directors,
to cause the Fund to pay a broker-dealer which furnishes brokerage
and research services a higher commission than that which might be
charged by another broker-dealer for effecting the same
transaction, provided that the Investment Manager determines in
good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular
transaction or the overall responsibilities of the Investment
Manager to the Fund. Such brokerage and research services may
consist of pricing information, reports and statistics on specific
companies or industries, general summaries of groups of bonds and
their comparative earnings and yields, or broad overviews of the
securities markets and the economy.
-14-
<PAGE>
Supplemental research information utilized by the Investment
Manager is in addition to, and not in lieu of, services required
to be performed by the Investment Manager and does not reduce the
advisory fees payable to the Investment Manager. The Directors
will periodically review the commissions paid by the Fund to
consider whether the commissions paid over representative periods
of time appear to be reasonable in relation to the benefits
inuring to the Fund. It is possible that certain of the
supplemental research or other services received will primarily
benefit one or more other investment companies or other accounts
of the Investment Manager for which investment discretion is
exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio
transactions effected for such other account or investment
company. During the fiscal period ended October 31, 1995, the
Investment Manager did not, pursuant to any agreement or
understanding with a broker or otherwise through an internal
allocation procedure, direct any Fund's brokerage transactions to
a broker because of research services provided by such broker.
Investment decisions for each Fund and for other investment
accounts managed by the Investment Manager are made independently
of each other in the light of differing conditions. However, the
same investment decision may be made for two or more of such
accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and
allocated as to amount in a manner deemed equitable to each such
account. While in some cases this practice could have a
detrimental effect on the price or value of the security as far as
a Fund is concerned, in other cases it is believed to be
beneficial to a Fund. To the extent permitted by law, the
Investment Manager may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for other
investment companies or accounts in executing transactions.
Pursuant to procedures determined by the Directors and
subject to the general policies of the Fund and Section 17(e) of
the 1940 Act, the Investment Manager may place securities
transactions with brokers with whom it is affiliated ("Affiliated
Brokers").
Section 17(e) of the 1940 Act limits to "the usual and
customary broker's commission" the amount which can be paid by the
Fund to an Affiliated Broker acting as broker in connection with
transactions effected on a securities exchange. The Board,
including a majority of the Directors who are not "interested
persons" of the Fund or the Investment Manager, has adopted
procedures designed to comply with the requirements of Section
17(e) of the 1940 Act and Rule 17e-1 promulgated thereunder to
ensure that the broker's commission is "reasonable and fair
-15-
<PAGE>
compared to the commission, fee or other remuneration received by
other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities
exchange during a comparable period of time...."
A transaction would not be placed with an Affiliated Broker
if a Fund would have to pay a commission rate less favorable than
their contemporaneous charges for comparable transactions for
their other most favored, but unaffiliated, customers except for
accounts for which they act as a clearing broker, and any of their
customers determined, by a majority of the Directors who are not
"interested persons" of the Fund or the Investment Manager, not to
be comparable to the Fund. With regard to comparable customers,
in isolated situations, subject to the approval of a majority of
the Directors who are not "interested persons" of the Fund or the
Investment Manager, exceptions may be made. Since the Investment
Manager, as investment adviser to the Fund, has the obligation to
provide management, which includes elements of research and
related skills, such research and related skills will not be used
by them as a basis for negotiating commissions at a rate higher
than that determined in accordance with the above criteria. The
Fund will not engage in principal transactions with Affiliated
Brokers. When appropriate, however, orders for the account of the
Fund placed by Affiliated Brokers are combined with orders of
their respective clients, in order to obtain a more favorable
commission rate. When the same security is purchased for two or
more funds or customers on the same day, each fund or customer
pays the average price and commissions paid are allocated in
direct proportion to the number of shares purchased.
Affiliated Brokers furnish to the Fund at least annually a
statement setting forth the total amount of all compensation
retained by them or any associated person of them in connection
with effecting transactions for the account of the Fund, and the
Board reviews and approves all the Fund's portfolio transactions
on a quarterly basis and the compensation received by Affiliated
Brokers in connection therewith. During the fiscal years ended
December 31, 1993, 1994 and 1995, the Fund paid no brokerage
commissions to Affiliated Brokers.
Affiliated Brokers do not knowingly participate in
commissions paid by the Fund to other brokers or dealers and do
not seek or knowingly receive any reciprocal business as the
result of the payment of such commissions. In the event that an
Affiliated Broker learns at any time that it has knowingly
received reciprocal business, it will so inform the Board.
For the fiscal years ended December 31, 1995, 1994 and 1993,
the Fund paid brokerage commissions in the amount of $739,100,000,
$628,300,000 and $706,900,000, respectively.
-16-
<PAGE>
NET ASSET VALUE
The net asset value of a share of the Fund is determined as
of the close of the last business day of the NYSE in each week by
dividing the value of the Fund's assets (including dividends
accrued but not collected), less its liabilities (including
accrued expenses but excluding capital and surplus), by the number
of shares of the Fund outstanding. The net asset value will be
made available for publication.
Portfolio securities (including options) listed on an
exchange and over-the-counter securities (including options)
quoted on the NASDAQ system are valued on the basis of the last
sale on the date as of which the valuation is made, or, lacking
any sales, at the current bid prices. Over-the-counter securities
not quoted on the NASDAQ system are valued on the basis of the
mean between the current bid and asked prices on that exchange on
which they are traded. Securities for which reliable quotations
are not readily available are valued at fair value, as determined
in good faith and pursuant to procedures established by the
Directors. Short-term investments with remaining maturities of 60
days or less are valued at amortized cost, unless the Board of
Directors determines that this does not represent fair value.
The outstanding shares of Common Stock are, and the Shares
will be, listed on the NYSE. The Fund's Common Stock has traded
primarily at a discount to net asset value since May 1987. Shares
of closed-end investment companies frequently trade at a discount
from net asset value. The officers of the Fund cannot predict
whether the Fund's Common Stock will trade in the future at a
premium or a discount to net asset value, and if so, the level of
such premium or discount.
TAXATION
The following is a summary of the principal U.S. federal
income, and certain state and local, tax considerations regarding
the purchase, ownership and disposition of shares of the Fund.
The summary does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Each prospective
shareholder is urged to consult his own tax adviser with respect
to the specific federal, state, local and foreign tax consequences
of investing in the Fund. The summary is based on the laws in
effect on the date of this SAI, which are subject to change.
-17-
<PAGE>
General
The Fund has elected to be treated, has qualified and intends
to continue to qualify for each taxable year, as a regulated
investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code").
Qualification of the Fund as a regulated investment company
under the Code requires, among other things, that (a) the Fund
derive at least 90% of its annual gross income from dividends,
interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks or securities, or other
income (including but not limited to gains from options or futures
contracts) derived with respect to its business of investing in
such stock or securities (the "90% gross income test"); (b) the
Fund derive less than 30% of its annual gross income from the sale
or other disposition of stock, securities, options or futures
contracts, any of which was held for less than three months (the
"short-short test"); and (c) the Fund diversify its holdings so
that, at the close of each quarter of its taxable year, (i) at
least 50% of the market value of the Fund's total (gross) assets
is comprised of cash, cash items, United States ("U.S.")
Government securities, securities of other regulated investment
companies and other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the value of
the Fund's total (gross) assets and to not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total (gross) assets is invested in
the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies)
or two or more issuers controlled by the Fund and engaged in the
same, similar or related trades or business.
If the Fund complies with such provisions, then in any
taxable year for which the Fund distributes, in accordance with
the Code's timing requirements, at least 90% of its "investment
company taxable income" (which includes, among other things,
dividends, interest, accrued original issue discount and
recognized market discount income, income from securities lending,
and any net short-term capital gain in excess of net long-term
capital loss and is reduced by deductible expenses) and at least
90% of the excess of its gross tax-exempt interest income, if any,
over certain disallowed deductions, the Fund (but not its
shareholders) will be relieved of federal income tax on any income
of the Fund, including long-term capital gains, distributed to
shareholders in accordance with the Code's requirements. However,
if the Fund retains any investment company taxable income or "net
capital gain" (the excess of net long-term capital gain over net
short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained.
-18-
<PAGE>
If the Fund retains any net capital gain, the Fund may
designate the retained amount as undistributed capital gains in a
notice to its shareholders who, if subject to U.S. federal income
tax on long-term capital gains, (i) will be required to include in
income for federal income tax purposes, as long-term capital gain,
their shares of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of the tax paid by
the Fund against their U.S. federal income tax liabilities, if
any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis
of shares owned by a shareholder of the Fund will be increased by
an amount equal under current law to 65% of the amount of
undistributed net capital gain included in the shareholder's gross
income. The Fund intends to distribute at least annually to its
shareholders all or substantially all of its investment company
taxable income and to distribute annually, or retain and designate
as described in this paragraph, its net capital gain. If for any
taxable year the Fund fails to distribute at least 90% of its
investment company taxable income or otherwise does not qualify as
a regulated investment company, it will be taxed on all of its
investment company taxable income and net capital gain at
corporate rates, and its distributions to shareholders will be
taxable as ordinary dividends to the extent of its current and
accumulated earnings and profits.
In order to avoid a 4% federal excise tax, the Fund must
distribute (or be deemed to have distributed) by December 31 of
each calender year at least 98% of its taxable ordinary income for
such year, at least 98% of the excess of its capital gains over
its capital losses (generally computed on the basis of the one-
year period ending on October 31 of such year), and all taxable
ordinary income and the excess of capital gains over capital
losses for the previous year that were not distributed for such
year and on which the Fund did not pay federal income tax. For
federal income tax purposes, dividends declared by the Fund in
October, November or December to shareholders of record on a
specified date in such a month and paid during January of the
following year are treated as if they were paid by the Fund and
received by such shareholders on December 31 of the year declared.
For federal income tax purposes, the Fund is permitted to
carry forward a net capital loss in any year to offset its own net
capital gains, if any, during the eight years following the year
of the loss.
Gains and losses on the sale, lapse, or other termination of
options and futures contracts entered into by the Fund will
generally be treated as capital gain and losses. Certain of the
-19-
<PAGE>
futures contracts and options held by the Fund will be required to
be "marked-to-market" for federal income tax purposes, that is,
treated as having been sold at their fair market value on the last
day of the Fund's taxable year. These provisions may require the
Fund to recognize gains without a concurrent receipt of cash. Any
gain or loss recognized on actual or deemed sales of futures
contracts or options that are subject to the mark to market rules
will be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. As a result of certain hedging
transactions entered into by the Fund, the Fund may be required to
defer the recognition of losses on futures contracts and options
or underlying securities to the extent of any unrecognized gains
on related positions held by the Fund and the characterization of
gains or losses as long-term or short-term may be changed. The
tax provisions described above applicable to options and futures
contracts may affect the amount, timing and character of the
Fund's distributions to shareholders. The short-short test
described above may limit the Fund's ability to use options and
futures transactions. Certain tax elections may be available to
the Fund to mitigate some of the unfavorable consequences
described in this paragraph.
The Fund's investments, if any, in securities bearing
original issue discount or, if the Fund elects to include market
discount in income currently, market discount, will generally
cause it to realize income prior to the receipt of cash payments
with respect to these securities. The mark to market rules
applicable to certain options and futures contracts, as described
above, may also require that net gains be recognized without a
concurrent receipt of cash. In order to obtain cash to distribute
this income or gains, maintain its qualification as a regulated
investment company, and avoid federal income or excise taxes, the
Fund may be required to liquidate portfolio securities that it
might otherwise have continued to hold.
Taxable U.S. Shareholders - Distributions
For U.S. federal income tax purposes, distributions by the
Fund, whether reinvested in additional shares or paid in cash,
generally will be taxable to shareholders who are subject to tax.
Distributions from the Fund's investment company taxable
income will be taxable as ordinary income. Distributions to
corporate shareholders designated as derived from the Fund's
dividend income that would be eligible for the dividends received
deduction if the Fund were not a regulated investment company will
be eligible, subject to certain holding period and debt-financing
restrictions, for the 70% dividends received deduction for
corporations. The entire dividend, including the deducted amount,
-20-
<PAGE>
is considered in determining the excess, if any, of a corporate
shareholder's adjusted current earnings over its alternative
minimum taxable income, which may increase its liability for the
federal alternative minimum tax, and the dividend may, if it is
treated as an "extraordinary dividend" under the Code, reduce such
shareholder's tax basis in its shares of the Fund. Capital gain
dividends (i.e., dividends from net capital gain) if properly
designated as such in a written notice to shareholders mailed not
later than 60 days after the Fund's taxable year closes, will be
taxed to shareholders as long-term capital gain regardless of how
long shares have been held by shareholders, but are not eligible
for the dividends received deduction. Distributions, if any, that
are in excess of the Fund's current and accumulated earnings and
profits, as computed for federal income tax purposes, will first
reduce a shareholder's tax basis in his or her shares and, after
such basis is reduced to zero, will constitute capital gains to a
shareholder who holds his or her shares as capital assets.
All distributions, whether received in shares or in cash, as
well as sales and exchanges of Fund shares, must be reported by
each shareholder who is required to file a U.S. federal income tax
return.
With respect to distributions paid in cash or, for
shareholders participating in the Dividend Reinvestment Plan (the
"Plan"), reinvested in shares purchased in the open market, the
amount of the distribution for tax purposes is the amount of cash
distributed or allocated to the shareholder. In the case of
shares purchased on the open market, a participating shareholder's
tax basis in each share received is its cost. With respect to
distributions issued in shares of the Fund, the amount of the
distribution for tax purposes is the fair market value of the
issued shares on the payment date, and the difference between such
fair market value and the amount of cash the shareholder would
otherwise have received may be treated as a return of capital. In
the case of shares issued by the Fund, the shareholder's tax basis
in each share received is its fair market value on the payment
date, adjusted by any amount treated as a return of capital to the
shareholder.
Distributions by the Fund result in a reduction in the net
asset value of the Fund's shares and may also reduce their market
value. Should a distribution reduce the net asset value or market
value below a shareholder's cost basis, such distribution (to the
extent paid from the Fund's current or accumulated earnings and
profits) would nevertheless be taxable to the shareholder as
ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return
of capital. In particular, investors should be careful to
consider the tax implications of buying shares just prior to a
-21-
<PAGE>
distribution. Since the market price of shares purchased at that
time may include the amount of any forthcoming distribution,
investors purchasing shares just prior to a distribution will in
effect receive a return of a portion of their investment in the
form of a distribution which nevertheless will be taxable to them.
Different tax treatment, including penalties on certain
excess contributions and deferrals, certain pre-retirement and
post-retirement distributions, and certain prohibited transactions
is accorded to accounts maintained as qualified retirement plans.
Shareholders should consult their tax advisers for more
information.
Taxable U.S. Shareholders - Sale of Shares
When a shareholder's shares are sold, exchanged or otherwise
disposed of, the shareholder will generally recognize gain or loss
equal to the difference between the shareholder's adjusted tax
basis in the shares and the cash, or fair market value of any
property, received. Assuming the shareholder holds the shares as
a capital asset at the time of such sale or other disposition,
such gain or loss should be capital in character, and long-term if
the shareholder has a tax holding period for the shares of more
than one year, otherwise (except as described in the next
sentence) short-term. However, any loss realized on the sale,
exchange or other disposition of Fund shares with a tax holding
period of six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividend received
with respect to such shares. Additionally, any loss realized on a
sale or other disposition of shares of the Fund may be disallowed
under "wash sale" rules to the extent the shares disposed of are
replaced with other shares of the Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are
disposed of, such as pursuant to a dividend reinvestment under the
Plan in shares of the Fund. If disallowed, the loss will be
reflected in an adjustment to the basis of the shares acquired.
Backup Withholding
The Fund will be required to report to the Internal Revenue
Service all distributions, as well as gross proceeds from the sale
or exchange of Fund shares with respect to which the Fund is a
payor (such as pursuant to a tender offer), except in the case of
certain exempt recipients, i.e., corporations and certain other
investors distributions to which are exempt from the information
reporting provisions of the Code. Under the backup withholding
provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be
-22-
<PAGE>
subject to backup withholding of federal income tax at the rate of
31% in the case of nonexempt shareholders who fail to furnish the
Fund with their correct taxpayer identification number and with
certain required certifications or if the Internal Revenue Service
or a broker notifies the Fund that the number furnished by the
shareholder is incorrect or that the shareholder is subject to
backup withholding as a result of failure to report interest or
dividend income. The Fund may refuse to accept any subscription
that does not contain any required taxpayer identification number
or certification that the number provided is correct. If the
backup withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in
shares, will be reduced by the amounts required to be withheld.
Any amounts withheld may be credited against a shareholder's U.S.
federal income tax liability. Investors should consult their tax
advisers about the applicability of the backup withholding
provisions.
Non-U.S. Shareholders
The foregoing discussion relates solely to U.S. federal
income tax law as it applies to "U.S. persons" (i.e., U.S.
citizens or residents and U.S. domestic corporations,
partnerships, trust or estates) subject to tax under such law.
Dividends of investment company taxable income distributed by the
Fund to a shareholder who is not a U.S. person will be subject to
U.S. withholding tax at the rate of 30% (or a lower rate provided
by an applicable tax treaty) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in
which case the dividends will be subject to tax on a net income
basis at the graduated rates applicable to U.S. individuals or
domestic corporations. Distributions of net capital gain,
including amounts retained by the Fund which are designated as
undistributed capital gains, to a non-U.S. shareholder will not be
subject to U.S. income or withholding tax unless the distributions
are effectively connected with the shareholder's trade or business
in the U.S. or, in the case of a shareholder who is a nonresident
alien individual, the shareholder is present in the U.S. for 183
days or more during the taxable year and certain other conditions
are met.
Any gain realized by a shareholder who is not a U.S. person
upon a sale or other disposition of shares of the Fund will not be
subject to U.S. federal income or withholding tax unless the gain
is effectively connected with the shareholder's trade or business
in the U.S., or in the case of a shareholder who is a nonresident
alien individual, the shareholder is present in the U.S. for 183
days or more during the taxable year and certain other conditions
are met. Non-U.S. persons who fail to furnish the Fund with an
-23-
<PAGE>
IRS Form W-8 or acceptable substitute may be subject to backup
withholding at the rate of 31% on capital gain dividends and the
proceeds of certain sales of their shares with respect to which
the Fund is a payor (such as pursuant to a tender offer).
Investors who are not U.S. persons should consult their tax
advisers about the U.S. and non-U.S. tax consequences of ownership
of shares of, and receipt of distributions from, the Fund.
State and Local Taxes
The Fund may be subject to state or local taxes in
jurisdictions in which the Fund may be deemed to be doing
business. In addition, in those states or localities which have
income tax laws, the treatment of the Fund and its shareholders
under such laws may differ from their treatment under federal
income tax laws, and investment in the Fund may have tax
consequences for shareholders different from those of a direct
investment in the Fund's portfolio securities. Shareholders
should consult their own tax advisers concerning these matters.
FINANCIAL STATEMENTS
-24-
<PAGE>
SCHEUDLE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
<TABLE>
<CAPTION>
COMMON STOCKS: 89.3%
----------------------------------
MARKET
TECHNOLOGY: 21.2% BUSINESS FOCUS SHARES VALUE
---------------------------------- ---------------------------- ------- -------------
<S> <C> <C> <C>
* MEMC Electronic Materials Inc. Silicon Wafer Manufacturer 66,600 $ 2,172,825
* Dionex Corp. Analytical Instruments 31,000 1,759,250
Adobe Systems Inc. Applications Software 25,000 1,550,000
* Micrel Inc. Analog Semiconductors 75,000 1,462,500
* Computervision Corp. Computer-Aided Design
Systems 94,700 1,456,013
* Platinum Technology System Software Products 71,600 1,315,650
* Ceridian Corp. Human Resource Services 30,000 1,237,500
Linear Technology Corp. Advanced Linear Circuits 28,000 1,099,000
* Xilinx Inc. Field Programmable Gate
Arrays 35,000 1,067,500
* Synopsys Inc. CAE Software 25,200 957,600
* Progress Software Corp. Database Software 23,000 862,500
* Geoworks System & Application
Software 40,800 775,200
* Mercury Interactive Corp. Computer Software 40,700 742,775
* FTP Software Inc. Internetworking Software 24,000 696,000
* Discreet Logic Inc. Computer Software 25,500 637,500
* Rational Software Corp. Computer Software 21,400 478,825
* Integrated Process Equip. Inc. Semiconductor Equipment 17,000 399,500
-------------
$ 18,670,138
CONSUMER: 15.0%
----------------------------------
* Staples Inc. Office Products
Superstores 55,050 $ 1,341,844
* Department 56 Inc. Specialty Giftware 34,000 1,304,750
* Garden Ridge Corp. Specialty Home Accessories 29,000 1,123,750
* Nine West Group Inc. Women's Footwear Retailer 26,800 1,005,000
* Blyth Industries Inc. Candles and Accessories 30,200 890,900
Family Dollar Stores Discount Stores 63,650 875,187
Lancaster Colony Corp. Consumer Products 19,400 722,650
* Damark International Inc. General Merchandise 91,450 685,875
* Mohawk Industries Inc. Carpet Manufacturer 43,800 684,375
Leggett & Platt Inc. Furniture Components 25,500 618,375
* Stations Casinos Inc. Multi-Jurisdictional
Gaming 40,000 585,000
* Micro Warehouse Inc. Computer Direct Marketer 13,400 579,550
* West Marine Inc. Boating Supplies Retailer 18,500 578,125
* Daka International Inc. Restaurants 19,700 541,750
* Sonic Corp. Drive-In Restaurants 27,000 513,000
* PetsMart Inc. Pet Supplies Superstores 15,650 485,150
* Micros Systems Inc. Electronic Information
Systems 9,300 458,025
* Global Direct Mail Corp. Computer/Office Prod.
Marketer 8,000 220,000
-------------
$ 13,213,306
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MARKET
ENERGY: 11.7% BUSINESS FOCUS SHARES VALUE
---------------------------------- ------------------------------- ------ -----------
<S> <C> <C> <C>
Tidewater Inc. Marine Support Vessels 70,000 $ 2,205,000
Devon Energy Corp. Oil & Gas Producer 58,500 1,491,750
* BJ Services Co. Stimulation & Pumping Services 45,000 1,305,000
* Triton Energy Corp. Oil & Gas Producer 18,000 1,032,750
* United Meridian Corp. Oil & Gas Producer 46,500 807,937
Camco International Inc. Oil Field Services & Equipment 28,500 798,000
Diamond Shamrock Inc. Refiner and Marketer 30,500 789,188
* Benton Oil & Gas Co. Oil & Gas Producer 52,000 780,000
Parker & Parsley Pete Co. Oil & Gas Producer 25,000 550,000
* Coda Energy Inc. Oil & Gas Producer 68,000 505,750
-----------
$10,265,375
CREDIT SENSITIVE: 11.2%
----------------------------------
* Dime Bancorp Inc. New York Savings Bank 138,500 $ 1,610,063
Baybanks Inc. Massachusetts Bank 15,000 1,473,750
* Glendale Fed Bank Fed Svgs California Savings & Loan 59,750 1,045,625
Lennar Corp. Residential & Commer. Builders 40,000 1,005,000
* Credit Acceptance Corp. Auto Financing 48,300 1,002,225
Long Island Bancorp Inc. New York Savings Bank 29,000 764,875
Peoples Heritage Finanacial Group Maine Savings Bank 27,000 614,250
Amresco Inc. Real Estate Financial Services 47,500 605,625
Paine Webber Group Inc. Financial Broker 29,250 585,000
* Triangle Pacific Corp. Flooring & Kitchen Cabinets 31,000 530,875
* First Bell Bancorp Inc. Pennsylvania Savings Bank 30,000 401,250
* HFNC Financial Corp. North Carolina Savings & Loan 14,000 183,750
-----------
$ 9,822,288
HEALTH CARE: 10.7%
---------------------------------
* Phycor Inc. Physician Practice Management Co. 66,675 $ 3,371,255
* Community Health Systems Inc. Hospital Management Company 38,600 1,375,125
* Henry Schein Inc. Healthcare Products Distributor 23,500 693,250
* American Oncology Inc. Physician Practice Management Co. 14,000 680,750
* Gensia Pharmaceuticals Inc. Pharmaceuticals 102,500 538,125
* Perseptive Biosystems Inc. Analytical Instruments 62,500 531,250
* ImmuLogic Pharmaceutical Corp. Pharmaceuticals 25,000 481,250
* Uromed Corp. Urological Devices 35,500 457,063
* Agouron Pharmaceuticals Inc. Pharmaceuticals 13,500 442,125
* Gilead Sciences Inc. Pharmaceuticals 13,500 432,000
* IDX Systems Corp. Health Care Information Systems 10,800 375,300
* Sun Healthcare Group Inc. Health Care Services 2,000 27,000
-----------
$ 9,404,493
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MARKET
SERVICE COMPANIES: 10.6% BUSINESS FOCUS SHARES VALUE
- ------------------------------- ---------------------------- ------ -----------
<S> <C> <C> <C>
Delta & Pine Land Co. Largest Cotton Seed Company 68,133 $ 2,503,887
* Paging Network Inc. Paging Services 96,500 2,352,188
New England Business Service Business Forms 80,100 1,742,175
* Daisytek International Corp. Non-Paper Office Supplies 30,500 937,875
* Vanguard Cellular Systems Cellular Telephone Service 35,800 724,950
* BISYS Group Inc. Information Processing
System 16,000 492,000
National Data Corp. Information Processing
System 12,500 309,375
* Corestaff Inc. Temporary/Contract
Personnel 8,000 292,000
-----------
$ 9,354,450
PROCESS INDUSTRIES: 5.2%
- ------------------------------
Riverwood International Paperboard Packaging
Corp. Systems 50,000 $ 956,250
Rayonier Inc. Forest Products & Specialty
Pulp 27,500 917,812
P.H. Glatfelter Co. Paper Manufacturer 50,000 856,250
Potlatch Corp. Forest Products 19,000 760,000
Bowater Inc. Newsprint and Paper
Producer 20,000 710,000
Rock-Tenn Co. Paperboard Recycling 21,000 341,250
-----------
$ 4,541,562
TRANSPORTATION: 2.1%
- ------------------------------
TNT Freightways Corp. Regional Trucker 53,900 $ 1,084,737
Atlantic Southeast Airlines Air Carrier 19,800 425,700
* American Freightways Corp. Regional Trucker 28,000 290,500
* Western Pacific Airlines
Inc. Airline 3,000 50,250
-----------
$ 1,851,187
CAPITAL GOODS: 1.6%
- ------------------------------
Furon Co. Engineered Components 72,700 $ 1,454,000
-----------
$ 1,454,000
TOTAL COMMON STOCKS (cost $58,904,597) $78,576,799
COMMERCIAL PAPER: 10.7%
- ------------------------------
Associates Corp. 5.754% due
1/2/96 $ 9,366,000
- ------------------------------ -----------
TOTAL: 100% (cost 68,270,597) $87,942,799
===========
</TABLE>
* Non-income producing security.
See accompanying notes to financial statements
9
<PAGE>
- -------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1995
- -------------------------------------------------------------------------------
Assets:
Investments in securities at market value,
cost $68,270,597 (Note 1) $87,942,799
Receivables
Dividends and interest 24,812
-----------
Total assets $87,967,611
Liabilities:
Dividend payable $12,888,514
Payable for investment securities purchased 358,513
Accrued expenses 241,009
Due to custodian 77,881
-----------
Total liabilities $13,565,917
Net assets $74,401,694
===========
Net assets:
Common stock, $0.01 par value; 6,042,435 shares
issued; 150,000,000 shares authorized $ 60,424
Capital in excess of par value 53,503,539
Net unrealized appreciation of investments 19,672,203
Undistributed net capital gains 1,165,528
-----------
Net assets $74,401,694
===========
Net asset value per share as of the close of
business on December 31, 1995 $ 12.31
===========
See accompanying notes to financial statements
10
<PAGE>
- -------------------------------------------------------------------------------
Statement of Operations
For the Year Ended December 31, 1995
- -------------------------------------------------------------------------------
Investment income:
Interest $ 643,504
Cash dividends 407,245
Miscellaneous income 14,736
-----------
$ 1,065,485
Expenses:
Investment advisory fees (Note 2) $ 743,088
Custodian and transfer agent fees 99,956
Professional fees 69,934
Shareholder communications 61,999
Directors' fees 52,002
Insurance 31,912
Registration and listing fees 20,947
Miscellaneous 6,979
-----------
$ 1,086,817
Net investment expense $ (21,332)
Realized and unrealized gain/(loss) on investments:
Proceeds from sales $79,312,314
Less-cost of securities sold 65,323,084
-----------
Net realized gain on investments $13,989,230
Unrealized appreciation:
Beginning of year $ 8,092,049
End of year 19,672,203
-----------
Net increase in unrealized appreciation on
investments $11,580,154
-----------
Net realized and unrealized gain on investments $25,569,384
-----------
Net increase in net assets resulting
from operations $25,548,052
===========
See accompanying notes to financial statements
11
<PAGE>
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Years Ended December 31, 1995 and 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets resulting from
operations:
Net investment expense $ (21,332) $ (389,775)
Net realized gain on investments 13,989,230 7,888,625
Net change in unrealized appreciation 11,580,154 (9,866,262)
------------ ------------
Net increase in net assets resulting from operations $ 25,548,052 $ (2,367,412)
Distributions from net realized gains (12,888,514) (7,096,506)
Share transactions 2,648,895 1,235,783
------------ ------------
Increase/(Decrease) in net assets $ 15,308,433 $ (8,228,135)
Net assets:
Beginning of year 59,093,261 67,321,396
------------ ------------
End of year $ 4,401,694 $ 59,093,261
============ ============
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
1. Significant Accounting Policies
Morgan Grenfell SMALLCap Fund, Inc. (the "Fund") was organized as a
Maryland corporation on January 16, 1987 and is registered under the
Investment Company Act of 1940, as amended, as a closed-end, diversified
management investment company. The Fund commenced operations on May 6, 1987.
The following is a summary of the significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
Portfolio valuation: Securities listed on an exchange and over-the-counter
securities quoted on the NASDAQ system are valued on the basis of the last
sale price on the last business day of the year. Over-the-counter securities
not quoted on the NASDAQ system are valued on the basis of the average bid
and asked prices on that date. Commercial paper is carried at cost, which
approximates market.
Securities transactions and investment income: Securities transactions are
recorded on a trade date basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Realized gains and losses from securities transactions are recorded on the
basis of identified cost.
Federal income taxes: It is the policy of the Fund to qualify as a
regulated investment company by complying with provisions available to
certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of income and securities
profits (after application of net capital loss carryovers) sufficient to
relieve it from all, or substantially all, Federal income taxes.
2. Investment Advisory Fee and Other Transactions with Affiliates
The Fund pays advisory fees for investment and advisory services to Morgan
Grenfell Capital Management Inc. ("MGCM"), a wholly-owned subsidiary of
Morgan Grenfell PLC. Under the terms of the investment advisory agreement,
the management fee is calculated at an annual rate of one percent of the
Fund's average daily net assets.
Certain individuals who are officers or directors, or both, of the Fund
are also officers or directors, or both, of MGCM.
13
<PAGE>
3. Capital Share Transactions
On April 29, 1987, the Fund issued 10,782 shares to MGCM for $100,003.
Subsequent to a public offering, the Fund issued 5,000,000 additional shares
on May 6, 1987 for net proceeds of $46,375,000 after deducting underwriting
discounts of $3,625,000. Arrangements were made to borrow from MGCM an amount
equal to the underwriting discount so that at the conclusion of the offering,
the Fund had available for investment an amount equal to the gross proceeds
of the offering. Initial registration fees amounting to $57,407 were charged
against paid in capital at the time of issuance of these shares.
During 1995, 1994, 1992 and 1990 the Fund issued 256,925, 103,447, 441,639
and 229,642 shares, respectively, under the dividend reinvestment plan.
4. Investment Transactions
The aggregate cost of securities purchased and the aggregate proceeds of
securities sold during the year ended December 31, 1995, excluding short-term
investments, were $69,533,278 and $79,312,314, respectively. At December 31,
1995, the cost of investments for Federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
5. Dividend Reinvestment Plan
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all
dividends from net investment income and/or all capital gain distributions
will be reinvested by The Bank of New York, as agent for shareholders in
administering the Plan (the "Plan Agent"), in additional shares of the Fund.
Registered shareholders are deemed to participate in the Plan unless they
elect to receive all dividends from net investment income and/or all capital
gains distributions in the form of cash. Each registered shareholder at the
time of purchase will receive from the Plan Agent an authorization card to be
signed and returned if the shareholder elects to receive distributions from
net investment income in cash or elects not to receive capital gain
distributions in the form of a stock dividend. Shareholders whose shares are
held in the name of a broker or nominee or shareholders transferring such an
account to a new broker should contact such broker or nominee to elect to
participate in the Plan or to receive their distributions in cash.
Participating shareholders will receive dividends from net investment
income and/or all capital gain distributions in additional shares issued by
the Fund if the shares are trading at a premium; i.e., the net asset value
("NAV") is less than the then-current market price. In such event, the number
of additional shares to be issued by the Fund will be determined by valuing
such shares at the higher of (i) their net asset value or (ii) 95% of the
market price. If shares of the Fund are trading at a discount; i.e., the NAV
exceeds the then-current market price, the Plan Agent will, as agent for the
participants, apply such dividends or distributions to purchase shares in the
open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. In such case, the price of the shares to each
participating shareholder will be the average market price at which such
shares were purchased under the direction of the Plan Agent. There will be no
brokerage charges for shares directly issued by the Fund; however, brokerage
commissions incurred on open market purchases will be borne pro rata by each
participant. There is no direct service charge to participants in the Plan;
the fees of the Plan Agent will be borne by the Fund. However, the Fund
reserves the right to amend the Plan to include such a charge payable by the
participants or for other reasons.
14
<PAGE>
5. Dividend Reinvestment Plan - continued
Participants in the Plan may elect to withdraw from the Plan at any time
upon written notice to the Plan Agent and thereby elect to receive all
distributions from net investment income in cash and/or all capital gain
distributions either in the form of a stock dividend or in cash. The written
notice will not be effective with respect to distributions made within seven
days of its receipt by the Plan Agent. If notice is received after a record
date, a shareholder's request will be completed after the determination of
shares for that dividend has been credited to the shareholder's account.
Dividends and capital gain distributions are taxable whether paid in cash or
reinvested in additional shares, and the reinvestment of dividends and
capital gain distributions will not relieve participants of liability for any
U.S. income tax that may be payable (or required to be withheld) on such
dividends or distributions. Additional information about the Plan is
available by calling the Plan Agent's Shareholder Relations Department at
1-800-432-8224.
15
<PAGE>
SUPPLEMENTARY INFORMATION
Financial Highlights
Contained below is per-share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets, and
other supplemental data for the eight years ended December 31, 1995, and for
the period May 6, 1987 (commencement of operations) through December 31,
1987. This information has been derived from information provided in the
financial statements and market price data for the Fund's shares.
Years Ended December 31
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period $ 10.21 $ 11.85 $ 11.97
Net investment income
(expense) (0.00) (0.07) (0.08)
Net gain/(loss) on securities
(realized and unrealized) 4.23 (0.34) 1.10
----------- ----------- -----------
Total from investment operations $ 4.23 $ (0.41) $ 1.02
Less dividends and distributions:
Tax return
of capital distribution (2.13) (1.23) (1.14)
----------- ----------- -----------
Total dividends and distributions $ (2.13) $ (1.23) $ (1.14)
----------- ----------- -----------
Net asset value, end of year $ 12.31 $ 10.21 $ 11.85
=========== =========== ===========
Market value per share, $ 12.625(1) $ 8.875 $ 10.875
end of year
TOTAL INVESTMENT RETURN:
Based on market value per share +42.3% -7.1% -1.9%
Based on net asset value per
share +41.4% -3.5% +8.5%
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.51% 1.52% 1.39%
Net investment income
(expense) (0.03%) (0.59%) (0.74%)
SUPPLEMENTAL DATA:
Net assets at end of year
(000 omitted) $ 74,402 $ 59,093 $ 67,321
Average net assets during year
(000 omitted) $ 72,202 $ 66,064 $ 69,048
Portfolio turnover 110% 105% 89%
Total debt outstanding at end
of year (000 omitted) -0- -0- -0-
Asset coverage per $1000 of debt
(000 omitted) N/A N/A N/A
*Annualized.
(1) The Fund declared a $2.133 capital gain distribution payable to
shareholders of record on December 29, 1995. The dividend was paid on January
26, 1996 and the Fund's shares traded with the dividend until the ex-dividend
date, January 29, 1996.
16
<PAGE>
Years Ended December 31 May 6, 1987
(commencement of
- --------------------------------------------------------------- operations)
1992 1991 1990 1989 1988 through 12/31/87
- ------- ------- ------- ------- ------- -------
$ 12.30 $ 8.70 $ 10.80 $ 8.87 $ 7.45 $ 9.27
(0.09) (0.10) (0.11) (0.11) (0.11) (0.16)
0.58 4.67 (1.34) 2.29 1.53 (1.66)
- ------- ------- ------- ------- ------- -------
$ 0.49 $ 4.57 $ (1.45) $ 2.18 $ 1.42 $ (1.82)
(0.82) (0.97) (0.65) (0.25) -- --
- ------- ------- ------- ------- ------- -------
$ (0.82) $ (0.97) $ (0.65) $ (0.25) $ 0.00 $ 0.00
- ------- ------- ------- ------- ------- -------
$ 11.97 $ 12.30 $ 8.70 $ 10.80 $ 8.87 $ 7.45
======= ======= ======= ======= ======= =======
$12.250 $12.875 $ 8.750 $ 9.625 $ 7.375 $ 6.000
+1.5% +58.0% -2.2% +34.2% +22.9% -40.0%
+4.0% +52.5% -13.4% +24.6% +19.1% -19.7%
1.44% 1.79% 2.01% 2.13% 2.56% 4.32%*
(0.83%) (0.85%) (1.05%) (1.10%) (1.30%) (1.80%)*
$68,013 $64,461 $45,581 $54,136 $44,462 $37,316
$64,644 $58,900 $51,121 $50,522 $43,422 $44,062
89% 70% 75% 80% 83% 98%*
-0- $ 1,060 $ 1,724 $ 2,324 $ 2,868 $ 3,360
N/A $ 60.8 $ 26.4 $ 23.3 $ 15.5 $ 11.1
17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Morgan Grenfell SMALLCap Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Morgan Grenfell SMALLCap Fund, Inc.
as of December 31, 1995, and 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 ended December 31, 1995, and the financial highlights for
each of the years in the eight-year period ended December 31, 1995 and for
the period May 6, 1987 (commencement of operations) through December 31,
1987. 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 financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures include confirmation of
securities owned as of December 31, 1995, by correspondence with the
custodian and brokers. 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
Morgan Grenfell SMALLCap Fund, Inc., as of December 31, 1995, the result of
its operations for the year then ended, changes in net assets for each of the
years in the two-year period ended December 31, 1995 and the financial
highlights for each of the years in the eight-year period ended December 31,
1995, and for the period May 6, 1987 (commencement of operations) through
December 31, 1987, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
January 31, 1996
18
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements: The following financial statements and schedules
of the Registrant included in the Statement of Additional Information are filed
with and made a part of this Registration Statement: Statement of Assets and
Liabilities, December 31, 1995; Statement of Operations for the fiscal year
ended March 31, 1995; Statement of Changes in Net Investment Assets for the
fiscal years ended December 31, 1995 and 1994; Statement of Portfolio
Investments, December 31, 1995; Notes to Financial Statements at December 31,
1995; Financial Highlights for the eight fiscal years ended December 31, 1995
and for the period May 6, 1987 to December 31, 1987; all other schedules are
omitted because the information is included elsewhere in the Prospectus or SAI
or is not required.
(2) Exhibits
(a) - Amended and Restated Articles of
Incorporation
(b) - Amended and Restated By-Laws
(c) - Not applicable
(d)(1) - Form of Subscription Certificate*
(d)(2) - Form of Notice of Guaranteed Delivery*
(d)(3) - Form of Nominee Holder Over-Subscription
Exercise Form*
(e) - Not applicable
(f) - Not applicable
(g) - Investment Advisory Agreement
(h) - Form of Dealer Manager Agreement*
(i) - Not applicable
(j)(1) - Custodian Agreement
(j)(2) - Fund Accounting Agreement
C-1
<PAGE>
(k) - Registrar and Transfer Agency Agreement
(l) - Opinion and Consent of Counsel*
(m) - Not applicable
(n) - Consent of Independent Auditors
(o) - Not applicable
(p) - Form of Subscription Agreement for Initial
Capital
(q) - Not applicable
(r) - Financial Data Schedule
(s) - Powers of Attorney
+ Filed electronically herewith.
* To be filed by amendment
Item 25. Marketing Arrangements
See Exhibit 2(h) of this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
To be filed by amendment.
Item 27. Persons Controlled by or under Common Control with
Registrant
For a list of persons in a control relationship with the Registrant, see
the current investment adviser registrations on Form ADV for Morgan Grenfell
Capital Management, Inc. (File No. 801-27291) and Morgan Grenfell Investment
Services Limited (File No. 801-12880), which are hereby incorporated by
reference thereto.
Item 28. Number of Holders of Securities
As of March 31, 1996:
Title of Class Number of Record Holders
- -------------- ------------------------
Common Stock, $.01 par value 635
C-2
<PAGE>
Item 29. Indemnification
Article X of Registrant's By-laws state as follows:
SECTION 10.01. Indemnification of Officers and Directors: Subject to and to
the fullest extent permitted by Section 2-418 of the Maryland General
Corporation Law, as from time to time amended (the "Statute"), every person who
is, or has been, a Director or officer of the Corporation shall be indemnified
by the Corporation to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Director or officer and
against amounts paid or incurred by him in settlement thereof.
No such indemnification shall be provided to the Corporation hereunder to a
Director or officer:
(a) against any liability to the Corporation or its Stockholders by reason
of a final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office;
(b) unless he or she
(i) Acted in good faith;
(ii) Reasonably believed;
1. In the case of conduct in his or her official capacity with the
Corporation, that the conduct was in the best interests of the Corporation;
and
2. In all other cases, that the conduct was at least not opposed to
the best interests of the Corporation; and
(iii) In the case of any criminal proceeding, had no reasonable cause
to believe that the conduct was unlawful.
provided, however, that (x) if the proceeding was one by or in the right of
the Corporation, indemnification may be made by the Corporation only
against reasonable expenses and may not be made in respect of any
proceeding in which the Director or officer shall have been adjudged to be
liable to the Corporation and (y) a Director or officer may not be
C-3
<PAGE>
indemnified by the Corporation in respect of any proceeding charging
improper personal benefit to the Director or officer, whether or not
involving action in the Director's or officer's official capacity, in which
the Director or officer was adjudged to be liable on the basis that
personal benefit was improperly received.
(c) in the event of a settlement or other disposition not involving a
final adjudication resulting in a payment by a Director or officer, unless
there has been either a determination that such Director or officer did not
engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office by the court
or other body approving the settlement or other disposition or a reasonable
determination, based on a review of readily available facts (as opposed to
a full trial-type inquiry) that he did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Directors acting
on the matter (provided that a majority of the Disinterested Directors then
in office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Corporation, shall be severable, shall not affect any
other rights to which any Director or officer may nor or hereafter be entitled,
shall continue as to a person who has ceased to be such director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which corporate personnel other than Directors and officers may be entitled by
contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in the last paragraph of this
Article shall be advanced by the Corporation prior to final disposition thereof
upon receipt of (i) an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not entitled to
indemnification under this Article and (ii) a written affirmation by the
recipient of his good faith belief that the standard of conduct necessary for
indemnification by the Corporation as authorized by the statute has been met,
provided that either:
C-4
<PAGE>
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Corporation shall be insured against losses arising out of any
such advances; or
(b) a majority of the Disinterested Directors acting on the matter
(provided that a majority of the Disinterested Directors then in office act on
the matter) or any independent legal counsel in a written opinion shall
determine, based upon a review of the readily available facts (as opposed to a
full trial- type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Article, a "Disinterested Director" is one (i) who is not
any "interested person" of the Corporation (as defined by the Investment Company
Act of 1940) (including anyone who has been exempted from being an "interested
person" by any rule, regulation or order of the Securities and Exchange
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding of the same or similar
grounds is then or has been pending.
As used in this Article, the words "claim", "action", "suit" or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines penalties and other
liabilities.
SECTION 10.02. Indemnification of Employees and Agents: Employees and
agents who are not officers or Directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article X to the extent
permissible under the Maryland General Corporation Law, the Securities Act of
1933, as amended, and the Investment Company Act of 1940 as those statutes are
now or hereafter in force, and to such further extent, consistent with the
foregoing, as may be provided by action of the Board of Directors or by
contract.
SECTION 10.03 Insurance of Officers, Directors, Employees and Agents: The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a Director, officer, employee or agent of the Corporation, or while a
Director, officer, employee or agent of the Corporation is or was serving at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position.
C-5
<PAGE>
Item 30. Business and Other Connections of Investment Adviser
See "Management" in Part A to this Registration Statement on Form N-2.
Information as to the directors and officers of the Investment Manager is
included in its Form ADV filed with the Securities and Exchange Commission (File
No. 801-27291), and is incorporated herein by reference thereto.
Item 31. Location of Accounts and Records
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Name Address
---- -------
Morgan Grenfell Capital
Management, Inc........... 885 Third Avenue
New York, New York 10022
The Bank of New York........ 90 Washington Street
New York, New York 10015
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(a) Registrant undertakes to suspend offering of the shares covered hereby
until it amends its Prospectus contained herein if (1) subsequent to the
effective date of this Registration Statement, its net asset value per share
declines more than ten percent from its net asset value per share as of the
effective date of this Registration Statement, or (2) its net asset value per
share increases to an amount greater than its net proceeds as stated in the
Prospectus contained herein.
(b) Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
form of prospectus filed by the Registrant pursuant to 497(h) under the
Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
C-6
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or in the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this 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 4th day of
April 1996.
MORGAN GRENFELL SMALLCAP FUND, INC.
By: /s/ Robert E. Kern, Jr.
---------------------------------
Robert E. Kern, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
)
)
)
- ----------------------- )
Michael Bullock Chairman and ) April 4, 1996
Director )
(Principal Executive )
Officer) )
)
)
- ----------------------- )
Mark G. Arthus Treasurer ) April 4, 1996
(Principal Financial )
and Accounting Officer) )
)
)
)
/s/ Robert E. Kern, Jr. )
- ----------------------- )
Robert E. Kern, Jr. President and )
Director )
)
)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this 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 4th day of
April 1996.
MORGAN GRENFELL SMALLCAP FUND, INC.
By:
-----------------------------------
Robert E. Kern, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
)
)
/s/ Michael Bullock )
- ----------------------- )
Michael Bullock Chairman and ) April 4, 1996
Director )
(Principal Executive )
Officer) )
)
)
- ----------------------- )
Mark G. Arthus Treasurer ) April 4, 1996
(Principal Financial )
and Accounting Officer) )
)
)
)
- ----------------------- )
Robert E. Kern, Jr. President and )
Director )
)
)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this 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 4th day of
April 1996.
MORGAN GRENFELL SMALLCAP FUND, INC.
By:
-------------------------------------
Robert E. Kern, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
)
)
)
- ----------------------- )
Michael Bullock Chairman and ) April 4, 1996
Director )
(Principal Executive )
Officer) )
)
/s/ Mark G. Arthus )
- ----------------------- )
Mark G. Arthus Treasurer ) April 4, 1996
(Principal Financial )
and Accounting Officer) )
)
)
- ----------------------- )
Robert E. Kern, Jr. President and )
Director )
)
)
<PAGE>
Signature Title Date
--------- ----- ----
)
)
/s/ Robert E. Greeley )
- ----------------------- )
Robert E. Greeley Director )
)
)
)
- ----------------------- )
Joseph J. Icandela Director ) April 4, 1996
)
)
)
- ----------------------- )
Richard D. Wood Director )
<PAGE>
Signature Title Date
--------- ----- ----
)
)
)
- ---------------------- )
Robert E. Greeley Director )
)
)
/s/Joseph J. Icandela )
- ----------------------- )
Joseph J. Icandela Director ) April 4, 1996
)
)
)
- ----------------------- )
Richard D. Wood Director )
<PAGE>
Signature Title Date
--------- ----- ----
)
)
)
- ----------------------- )
Robert E. Greeley Director )
)
)
)
- ----------------------- )
Joseph J. Icandela Director ) April 4, 1996
)
)
/s/ Richard D. Wood )
- ----------------------- )
Richard D. Wood Director )
<PAGE>
EXHIBIT INDEX
(a) - Amended and Restated Articles of Incorporation
(b) - Amended and Restated By-Laws
(g) - Investment Advisory Agreement
(j)(1) - Custodian Agreement
(j)(2) - Fund Accounting Agreement
(k) - Registrar and Transfer Agency Agreement
(n) - Consent of Independent Auditors
(p) - Form of Subscription Agreement for Initial
Capital
(q) - Financial Data Schedule
(r) - Powers of Attorney
EXHIBIT (2)(a)
MORGAN GRENFELL SMALLCAP FUND, INC.
ARTICLES OF INCORPORATION
Amended and Restated March 19, 1987
<PAGE>
MORGAN GRENFELL SMALLCAP FUND, INC.
ARTICLES OF
AMENDMENT AND RESTATEMENT
MORGAN GRENFELL SMALLCAP FUND, INC., a Maryland corporation
having its principal office at c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter referred to as the "Corporation"), hereby certifies
to the State Department of Assessments and Taxation of Maryland
that:
FIRST
The Corporation desires to amend and restate its Charter as
currently in effect as hereinafter provided. The provisions set
forth in these Articles of Amendment and Restatement are all the
provisions of the Charter of the Corporation as currently in
effect.
SECOND
The Charter of the Corporation is hereby amended by striking
out in their entirety Articles FIRST through TENTH, inclusive, and
by substituting in lieu thereof the following:
"FIRST: Name.
The name of the corporation (which is hereinafter referred to
as the "Corporation") is MORGAN GRENFELL SMALLCAP FUND, INC.
SECOND: Corporate Purposes.
The purposes for which the Corporation is formed and the
business or objects to be carried on and promoted by it are as
follows:
(1) To operate as and carry on the business of an
investment company, and to exercise all the powers necessary or
appropriate to the conduct of such operations.
(2) To invest in, hold for investment, or reinvest in,
securities, including common and preferred stocks; warrants;
bonds, debentures, bills, time notes and all other evidences of
indebtedness; negotiable or non-negotiable instruments; government
-2-
<PAGE>
securities, including securities of any state, municipality or
other political subdivision thereof, or any governmental or
quasi-governmental agency or instrumentality; and money market
instruments including bank certificates of deposit, finance paper,
commercial paper, bankers acceptances and all kinds of repurchase
agreements, of any corporation, company, trust, association, firm
or other business organization however established, and of any
country, state, municipality or other political subdivision, or
any governmental or quasi-governmental agency or instrumentality.
(3) To acquire (by purchase, subscription or
otherwise), to hold, to trade in and deal in, to acquire any
rights or options to purchase or sell, to sell or otherwise
dispose of, to lend and to pledge any such securities, and to
enter into repurchase agreements and forward foreign currency
exchange contracts, to purchase and sell futures contracts and
options on futures contracts of all descriptions and to engage in
all types of hedging and risk management transactions.
(4) To exercise all rights, powers and privileges of
ownership or interest in all securities, repurchase agreements and
other types and kinds of other investments held by the
Corporation, including the right to vote thereon and otherwise act
with respect thereto, and to do all acts for the preservation,
protection, improvement and enhancement in value of all such
securities and repurchase agreements.
(5) To acquire (by purchase, lease or otherwise) and to
hold, use, maintain, develop and dispose of (by sale or otherwise)
any property, real or personal, including cash, and any interest
therein.
(6) To borrow money or otherwise obtain credit and in
this connection issue notes or other evidences of indebtedness; to
secure borrowings by mortgaging, pledging or otherwise subjecting
as security the Corporation's property; and to endorse, guarantee,
or undertake the performance of any obligation, contract or
engagement of any other person and to lend the Corporation's
property.
(7) To aid by further investment any corporation,
company, trust, association, partnership, firm or other person,
any obligation of or interest in which is held by the Corporation
or in the affairs of which the Corporation has any direct or
indirect interest; to do all acts and things designed to protect,
preserve, improve or enhance the value of such obligation or
interest; and to guarantee or become surety on any or all of the
contracts, stocks, bonds, notes, debentures and other obligations
of any such corporation, company, trust, association, partnership,
firm or other person.
-3-
<PAGE>
(8) In general, to carry on any other business in
connection with or incidental to any of the foregoing objects and
purposes; to have and exercise all the powers conferred upon
corporations by the laws of the State of Maryland as in force from
time to time; to do everything necessary, suitable or proper for
the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either
alone or in association with others, and to do every other act or
thing incidental or appurtenant to or growing out of or connected
with the aforesaid business or purposes, objects or powers.
The Corporation shall have the power to conduct and carry on
its business, or any part thereof, and to have one or more
offices, and to exercise any or all of its corporate powers and
rights, in the State of Maryland, in any other states,
territories, districts, colonies and dependencies of the United
States, and in any or all foreign countries.
The foregoing clauses shall be construed both as objects and
powers, and the foregoing enumeration of specific powers shall not
be held to limit or restrict in any manner the general powers of
the Corporation.
THIRD: Address and Resident Agent.
The post office address of the principal office of the
Corporation in the State of Maryland is:
c/o The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
The name and post office address of the resident agent of the
Corporation in the State of Maryland is:
The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
Such resident agent is a Maryland corporation.
FOURTH: Capital Stock.
The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is One Hundred
Seventy Million (170,000,000) shares, of which One Hundred Fifty
Million (150,000,000) shares shall be Common Stock with a par
value of one cent ($0.01) per share, all such shares having an
aggregate par value of One Million Seven Hundred Thousand Dollars
($1,700,000.00).
-4-
<PAGE>
The designation and the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the
shares of each class of stock are as follows:
(a) Common Stock.
Subject to all of the rights of the Series Preferred
Stock as expressly provided herein, by law or by the Board of
Directors pursuant to this Article FOURTH, the Common Stock of the
Corporation shall possess all such rights and privileges as are
afforded to capital stock by applicable law in the absence of any
express grant of rights or privileges in the Corporation's
Charter, including, but not limited to, the following rights and
privileges:
(1) Each share of Common Stock shall have one
vote, and, except as otherwise provided in respect of any
class of stock hereafter classified or reclassified, the
exclusive voting power for all purposes shall be vested in
the holders of the Common Stock.
(2) Subject to the provisions of law and any
preferences of any class of stock hereafter classified or
reclassified, dividends may be paid on the Common Stock of
the Corporation at such time and in such amounts as the Board
of Directors may deem advisable.
(3) In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Common Stock shall be
entitled, after payment or provision for payment of the debts
and other liabilities of the Corporation and the amount to
which the holders of any class of stock hereafter classified
or reclassified having a preference on distributions in the
liquidation, dissolution or winding up of the Corporation
shall be entitled, together with the holders of any other
class of stock hereafter classified or reclassified not
having a preference on distributions in the liquidation,
dissolution or winding up of the Corporation, to share
ratably in the remaining net assets of the Corporation.
The Board of Directors may classify or reclassify any
authorized but unissued shares of Common Stock from time to time
by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the Common Stock.
-5-
<PAGE>
(b) Series Preferred Stock.
The Preferred Stock may be issued from time to time by
the Board of Directors as shares of one or more series. The
description of shares of each series of Series Preferred Stock,
including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption shall be as set forth in
resolutions adopted by the Board of Directors and in Articles
Supplementary filed as required by law from time to time prior to
the issuance of any shares of such series.
The Board of Directors is expressly authorized, prior to
issuance, by adopting resolutions providing for the issuance of,
or providing for a change in the number of, shares of any
particular series of Series Preferred Stock and, if and to the
extent from time to time required by law, by filing Articles
Supplementary to set or change the number of shares to be included
in each series of Series Preferred Stock and to set or change in
any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption
relating to the shares of each such series. The authority of the
Board of Directors with respect to the Series Preferred Stock
shall only be limited as required by law.
(c) General.
(1) The Corporation may issue fractional shares. Any
fractional share shall carry proportionately the rights of a
whole share including, without limitation, the right to vote
and the right to receive dividends. A fractional share shall
not, however, have the right to receive a certificate
evidencing it.
(2) All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions
of the Charter and the By-Laws of the Corporation.
(3) No holder of stock of the Corporation by virtue of
being such a holder shall have any right to purchase or
subscribe for any shares of the Corporation's capital stock
or any other security that the Corporation may issue or sell
(whether out of the number of shares authorized by the
Charter or out of any shares of the Corporation's capital
stock that the Corporation may acquire) other than a right
that the Board of Directors in its discretion may determine
to grant.
-6-
<PAGE>
(4) Notwithstanding any provisions of law requiring any
action to be taken or authorized by the affirmative vote of
the holders of a designated proportion of the votes of all
classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or authorized by
the affirmative vote of a majority of the total number of
votes entitled to be cast thereon, except as otherwise
provided in the Charter.
FIFTH: Board of Directors.
(1) The number of directors of the Corporation shall be
five (5), or such other number as may from time to time be fixed
in the manner provided in the By-laws of the Corporation, provided
that the number of directors shall not be less than three (3) nor
more than fifteen (15). Except as provided in the By-Laws, the
election of directors may be conducted in any way approved at the
meeting (whether of stockholders or directors) at which the
election is held, provided that such election shall be by ballot
whenever requested by any person entitled to vote. The names of
the directors, who shall act as such until their successors are
duly elected and qualified are as follows:
ERNEST V. KLEIN
STEPHEN E. CAVAN
MICHAEL J. RICHMAN
(2) In furtherance, and not in limitation, of the
powers conferred by the laws of the State of Maryland, the Board
of Directors is expressly authorized:
(i) To make, alter or repeal the By-Laws of the
Corporation, except where such power is
reserved by the By-Laws to the stockholders,
and except as otherwise required by the
Investment Company Act of 1940.
(ii) From time to time to determine whether and to
what extent and at what times and places and
under what conditions and regulations the
books and accounts of the Corporation, or any
of them other than the stock ledger, shall be
open to the inspection of the stockholders.
No stockholder shall have any right to inspect
any account or book or document of the
Corporation, except as conferred by law or
authorized by resolution of the Board of
Directors or of the stockholders.
-7-
<PAGE>
(iii) Without the assent or vote of the
stockholders, to authorize the issuance from
time to time of shares of the stock of any
class of the Corporation, whether now or
hereafter authorized, and securities
convertible into shares of stock of the
Corporation of any class or classes, whether
now or hereafter authorized, for such
consideration as the Board of Directors may
deem advisable.
(iv) Without the assent or vote of the
stockholders, to authorize and issue
obligations of the Corporation, secured and
unsecured, as the Board of Directors may
determine, and to authorize and cause to be
executed mortgages and liens upon the real or
personal property of the Corporation.
(v) Notwithstanding anything in these Articles of
Incorporation to the contrary, to establish in
its absolute discretion the basis or method
for determining the value of the assets
belonging to any class, the value of the
liabilities belonging to any class and the net
asset value of each share of any class of the
Corporation's stock.
(vi) To determine in accordance with generally
accepted accounting principles and practices
what constitutes net profits, earnings,
surplus or net assets in excess of capital,
and to determine what accounting periods shall
be used by the Corporation for any purpose,
whether annual or any other period; to set
apart out of any funds of the Corporation
reserves for such purposes as it shall
determine and to abolish the same; to declare
and pay any dividends and distributions in
cash, securities or other property from
surplus or any funds legally available
therefor, at such intervals or on such other
periodic basis, as it shall determine; to
declare dividends or distributions by means of
a formula or other method of determination, at
meetings held less frequently than the
frequency of the effectiveness of such
declarations; to establish payment dates for
dividends or any other distributions on any
-8-
<PAGE>
basis, including dates occurring less
frequently than the effectiveness of
declarations thereof.
(vii) In addition to the powers and authorities
granted herein and by statute expressly
conferred upon it, the Board of Directors is
authorized to exercise all powers and do all
acts that may be exercised or done by the
Corporation pursuant to the provisions of the
laws of the State of Maryland, the Charter and
the By-Laws of the Corporation.
SIXTH: Change of Structure.
(1) Notwithstanding any other provision of the Charter,
at any time prior to January 1, 1994, the conversion of the
Corporation from a "closed-end company" to an "open-end company,"
as those terms are defined in Sections 5(a)(2) and 5(a)(1),
respectively, of the Investment Company Act of 1940 as in effect
on December 1, 1986, shall require the affirmative vote or consent
of the holders of seventy-five percent (75%) of the outstanding
shares of each class of stock of the Corporation normally entitled
to vote in elections of directors voting for the purposes of this
Article as separate classes. Such affirmative vote or consent
shall be in addition to the vote or consent of the holders of the
stock of the Corporation otherwise required by law or by the terms
of any class or series of Preferred Stock, whether now or
hereafter authorized, or any agreement between the Corporation and
any national securities exchange.
(2) Notwithstanding any other provision of these
Articles of Incorporation, if the Corporation's status has not
been converted from a "closed-end company" to an "open-end
company," in accordance with subsection (1) of this Article 6, the
Directors shall submit to the holders of the stock of the
Corporation, during the first six months of 1994, at their annual
meeting or at a special meeting in lieu thereof a proposal to
convert the Corporation's status from a "closed-end company" to an
"open-end company," as those terms are defined above. The
adoption of this proposal will require a Majority Stockholder
Vote, as such term is defined in Section 2(a)(42) of the
Investment Company Act of 1940 as in effect on December 1, 1986.
Such affirmative vote or consent shall be in addition to the vote
or consent of the holders of the stock of the Corporation
otherwise required by all or by the terms of any class or series
of preferred stock, whether now or hereafter authorized, or any
agreement between the Corporation and any national securities
exchange.
-9-
<PAGE>
SEVENTH: Certain Transactions.
(1) Notwithstanding any other provision of the Charter,
and subject to the exceptions provided in Paragraph (4) of this
Article, the types of transactions described in Paragraph (3) of
this Article shall require the affirmative vote or consent of the
holders of seventy-five percent (75%) of the outstanding shares of
each class of stock of the Corporation normally entitled to vote
in elections of directors voting for the purposes of this Article
as separate classes, when a Principal Shareholder (as defined in
Paragraph (2) of this Article) is a party to the transaction.
Such affirmative vote or consent shall be in addition to the vote
or consent of the holders of the stock of the Corporation
otherwise required by law or by the terms of any class or series
of preferred stock, whether now or hereafter authorized, or any
agreement between the Corporation and any national securities
exchange.
(2) The term "Principal Shareholder" shall mean any
corporation, person or other entity which is the beneficial owner,
directly or indirectly, of more than five percent (5%) of the
outstanding shares of any class of stock of the Corporation and
shall include any affiliate or associate, as such terms are
defined in clause (ii) below, of a Principal Shareholder. For the
purposes of this Article, in addition to the shares of stock which
a corporation, person or other entity beneficially owns directly,
(a) any corporation, person or other entity shall be deemed to be
the beneficial owner of any shares of stock of the Corporation (i)
which it has the right to acquire pursuant to any agreement or
upon exercise of conversion rights or warrants, or otherwise (but
excluding stock options granted by the Corporation) or (ii) which
are beneficially owned, directly or indirectly (including shares
deemed owned through application of clause (i) above), by any
other corporation, person or entity with which it or its
"affiliate" or "associate" (as defined below) has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of stock of the Corporation, or which
is its "affiliate," or "associate" as those terms are defined in
Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934 as in effect on December 1, 1986,
and (b) the outstanding shares of any class of stock of the
Corporation shall include shares deemed owned through application
of clauses (i) and (ii) above but shall not include any other
shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights or warrants, or otherwise.
-10-
<PAGE>
(3) This Article shall apply to the following
transactions:
(i) The merger or consolidation of the Corporation
or any subsidiary of the Corporation with or
into any Principal Shareholder.
(ii) The issuance of any securities of the
Corporation to any Principal Shareholder for
cash.
(iii) The sale, lease or exchange of all or any
substantial part of the assets of the
Corporation to any Principal Shareholder
(except assets having an aggregate fair market
value of less than $1,000,000, aggregating for
the purpose of such computation all assets
sold, leased or exchanged in any series of
similar transactions within a twelve-month
period).
(iv) The sale, lease or exchange to the Corporation
or any subsidiary thereof, in exchange for
securities of the Corporation, of any assets
of any Principal Shareholder (except assets
having an aggregate fair market value of less
than $1,000,000, aggregating for the purposes
of such computation all assets sold, leased or
exchanged in any series of similar
transactions with a twelve-month period).
(4) The provisions of this Article shall not be
applicable to (i) any of the transactions described in
Paragraph (3) of this Article if the Board of Directors of the
Corporation shall by resolution have approved a memorandum of
understanding with such Principal Shareholder with respect to and
substantially consistent with such transaction, or (ii) any such
transaction with any corporation of which a majority of the
outstanding shares of all classes of stock normally entitled to
vote in elections of directors is owned of record or beneficially
by the Corporation and its subsidiaries.
(5) The Board of Directors shall have the power and
duty to determine for the purposes of this Article on the basis of
information known to the Corporation, whether (i) a corporation,
person or entity beneficially owns more than five percent (5%) of
the outstanding shares of any class of stock of the Corporation,
(ii) a corporation, person or entity is an "affiliate" or
"associate" (as defined above) of another, (iii) the assets being
acquired or leased to or by the Corporation, or any subsidiary
-11-
<PAGE>
thereof, constitute a substantial part of the assets of the
Corporation and have an aggregate fair market value of less than
$1,000,000, and (iv) the memorandum of understanding referred to
the Paragraph (4) hereof is substantially consistent with the
transaction covered thereby. Any such determination shall be
conclusive and binding for all purposes of this Article.
EIGHTH: Amendments.
(1) The Corporation reserves the right from time to
time to make any amendment to its Charter, now or hereafter
authorized by law, including any amendment that alters the
contract rights, as expressly set forth in its Charter, of any
outstanding stock.
(2) Notwithstanding Paragraph (1) of this Article or
any other provision of the Charter, no amendment to the Charter of
the Corporation shall amend, alter, change or repeal any of the
provisions of Articles VII, VIII and IX unless the amendment
effecting such amendment, alteration, change or repeal shall
receive the affirmative vote or consent of seventy-five percent
(75%) of the outstanding shares of each class of stock of the
Corporation normally entitled to vote in elections of directors,
voting for the purposes of this Article as separate classes. Such
affirmative vote or consent shall be in addition to the vote or
consent of the holders of the stock of the Corporation otherwise
required by law or by the terms of any class or series of
preferred stock, whether now or hereafter authorized, or any
agreement between the Corporation and any national securities
exchange.
NINTH: Contracts.
The Corporation may enter into any contract with any
corporation, firm, partnership, trust or association, although one
or more of the Board of Directors or officers of the Corporation
may be an officer, director, partner, trustee, shareholder or
member of, or have an interest in, such other party to the
contract, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any such relationship or
interest, nor shall any person holding such relationship be liable
merely by reason of such relationship or interest for any loss or
expense to the Corporation under or by reason of said contract or
accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was
reasonable and fair to the Corporation."
-12-
<PAGE>
THIRD
(a) Immediately before the amendment and restatement
set forth herein, the Corporation's Charter provided for
authorized capital stock consisting of a total number of One
Hundred Fifty Million (150,000,000) shares with a par value of one
cent ($0.01) per share for an aggregate par value of One Million
Five Hundred Thousand Dollars ($1,500,000.00), all of one class.
(b) As amended, the Corporation's Charter provides for
authorized stock consisting of One Hundred Seventy Million
(170,000,000) shares, of which One Hundred Fifty Million
(150,000,000) shares are Common Stock with a par value of one cent
($0.01) per share, and Twenty Million (20,000,000) shares are
Series Preferred Stock with a par value of one cent ($0.01) per
share, all such shares having an aggregate par value of One
Million Seven Hundred Thousand Dollars ($1,700,000.00). A
description of each class, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption
follows:
(1) Common Stock.
The Common Stock possesses all such rights and
privileges as are afforded to capital stock by applicable law in
the absence of any express grant of rights or privileges in the
Corporation's Charter, including, but not limited to, the
following rights and privileges:
(i) Each share of Common Stock shall have one vote,
and, except as otherwise provided in respect of any class of
stock hereafter classified or reclassified, the exclusive
voting power for all purposes shall be vested in the holders
of the Common Stock.
(ii) Subject to the provisions of law and any
preferences of any class of stock hereafter classified or
reclassified, dividends may be paid on the Common Stock of
the Corporation at such time and in such amounts as the Board
of Directors may deem advisable.
(iii) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, the holders of the Common Stock shall be
entitled, after payment or provision for payment of the debts
and other liabilities of the Corporation and the amount to
which the holders of any class of stock hereafter classified
or reclassified having a preference on distributions in the
liquidation, dissolution or winding up of the Corporation
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<PAGE>
shall be entitled, together with the holders of any other
class of stock hereafter classified or reclassified not
having a preference on distributions in the liquidation,
dissolution or winding up of the Corporation, to share
ratably in the remaining net assets of the Corporation.
The Board of Directors may classify or reclassify any
authorized but unissued shares of Common Stock from time to time
by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the Common Stock.
(2) Series Preferred Stock.
The Preferred Stock may be issued from time to time by
the Board of Directors as shares of one or more series. The
description of shares of each series of Series Preferred Stock,
including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption shall be as set forth in
resolutions adopted by the Board of Directors and in Articles
Supplementary filed as required by law from time to time prior to
the issuance of any shares of such series.
The Board of Directors is expressly authorized, prior to
issuance, by adopting resolutions providing for the issuance of,
or providing for a change in the number of, shares of any
particular series of Series Preferred Stock and, if and to the
extent from time to time required by law, by filing Articles
Supplementary to set or change the number of shares to be included
in each series of Series Preferred Stock and to set or change in
any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption
relating to the shares of each such series. The authority of the
Board of Directors with respect to the Series Preferred Stock
shall only be limited as required by law.
FOURTH
By written consent to action unanimously taken by the Board
of Directors of the Corporation without a formal meeting pursuant
to and in accordance with Section 2-408(c) of the Maryland General
Corporation Law, the Board of Directors of the Corporation duly
advised, approved and adopted the foregoing amendment and
restatement of the Charter of the Corporation, such action being
the only action required under law to approve and adopt the same
in that the Corporation has no stockholders.
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<PAGE>
IN WITNESS WHEREOF, MORGAN GRENFELL SMALLCAP FUND, INC. has
caused these presents to be signed in its name and on its behalf
by its President and its corporate seal to be hereunder affixed
and attested to by its Secretary on this 19th day of March, 1987,
and its President acknowledges that these Articles of Amendment
and Restatement are the act and deed of Morgan Grenfell SmallCap
Fund, Inc. and, under penalties of perjury, that the matters and
facts set forth herein with respect to authorization and approval
are true in all material respects and to the best of his
knowledge, information and belief.
ATTEST: MORGAN GRENFELL SMALLCAP FUND,
INC.
/s/Michael J. Richman /s/Ernest V. Klein
_______________________________ By:____________________________
Michael J. Richman, Secretary Ernest V. Klein, President
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EXHIBIT (2)(b)
MORGAN GRENFELL SMALLCAP FUND, INC.
A Maryland Corporation
AMENDED AND RESTATED BY-LAWS
March 19, 1987
<PAGE>
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE I. NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL............................. 1
1.01. Name......................................... 1
1.02. Principal Offices............................ 1
1.03. Seal......................................... 1
ARTICLE II. STOCKHOLDERS................................. 2
2.01. Annual Meetings.............................. 2
2.02. Special Meetings............................. 2
2.03. Notice of Meetings........................... 2
2.04. Voting -- In General......................... 3
2.05. Stockholders Entitled to Vote................ 3
2.06. Voting -- Proxies............................ 3
2.07. Quorum....................................... 4
2.08. Absence of Quorum............................ 4
2.09. Stock Ledger and List of Stockholders........ 4
2.10. Action without Meeting....................... 4
ARTICLE III. BOARD OF DIRECTORS............................ 5
3.01. General Powers............................... 5
3.02. Number, Election, and Term of Directors...... 5
3.03. Resignation.................................. 6
3.04. Removal of Directors......................... 6
3.05. Vacancies.................................... 6
3.06. Annual and Regular Meetings.................. 7
3.07. Special Meetings............................. 7
3.08. Notice....................................... 7
3.09. Waiver of Notice............................. 7
3.10. Quorum and Voting............................ 7
3.11. Compensation................................. 8
3.12. Action Without a Meeting..................... 8
ARTICLE IV. EXECUTIVE COMMITTEE AND OTHER COMMITTEES..... 8
4.01. How Constituted.............................. 8
4.02. Powers of the Executive Committee............ 8
4.03. Other Committees of the Board of Directors... 9
4.04. Proceedings, Quorum and Manner of Acting..... 9
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ARTICLE V. OFFICERS..................................... 9
5.01. General...................................... 9
5.02. Election, Term of Office and Qualifications.. 9
5.03. Resignation.................................. 10
5.04. Removal...................................... 10
5.05. Vacancies and Newly Created Offices.......... 10
5.06. Chairman of the Board........................ 10
5.07. President.................................... 10
5.08. Vice President............................... 11
5.09. Treasurer and Assistant Treasurers........... 11
5.10. Secretary and Assistant Secretaries.......... 11
5.11. Subordinate Officers......................... 12
5.12. Remuneration................................. 12
5.13. Surety Bonds................................. 12
ARTICLE VI. EXECUTION OF INSTRUMENTS, VOTING OF
SECURITIES................................... 12
6.01. General...................................... 12
6.02. Checks, Notes, Drafts, Etc................... 12
6.03. Voting of Securities......................... 13
ARTICLE VII. CAPITAL STOCK................................. 13
7.01. Certificate of Stock......................... 13
7.02. Transfer of Capital Stock.................... 14
7.03. Transfer Agents and Registrars............... 14
7.04. Transfer Regulations......................... 14
7.05. Fixing of Record Date........................ 14
7.06. Lost, Stolen or Destroyed Certificates....... 15
ARTICLE VIII. DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS................. 15
8.01. General...................................... 15
ARTICLE IX. FISCAL YEAR, ACCOUNTANT...................... 16
9.01. Fiscal Year.................................. 16
9.02. Accountant................................... 16
ARTICLE X. INDEMNIFICATION AND INSURANCE................ 16
10.01. Indemnification of Officers and Directors.... 16
10.02. Indemnification of Employees and Agents ..... 19
10.03. Insurance of Officers, Directors
Employees and Agents........................ 19
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<PAGE>
ARTICLE XI. CUSTODY OF SECURITIES........................ 19
11.01. Employment of Custodian...................... 19
11.02. Termination of Custodian Agreement........... 20
ARTICLE XII. MISCELLANEOUS................................ 20
12.01 Powers of the Corporation.................... 20
ARTICLE XIII. AMENDMENTS................................... 21
13.01. General...................................... 21
13.02. By Stockholders Only......................... 21
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<PAGE>
MORGAN GRENFELL SMALLCAP FUND, INC.
(A Maryland Corporation)
AMENDED AND RESTATED BY-LAWS
March 19, 1987
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES
AND SEAL
________________________________________
Section 1.01. Name: The name of the Corporation is MORGAN
GRENFELL SMALLCAP FUND, INC.
Section 1.02. Principal Offices: The principal office of
the Corporation in the State of Maryland shall be located in the
City of Baltimore. The Corporation shall also maintain a
principal office in the City of New York, State of New York. The
Corporation may, in addition, establish and maintain such other
offices and places of business as the Board of Directors may, from
time to time determine. [MGCL, 2-108]((1))
Section 1.03. Seal: The corporate seal of the Corporation
shall be circular in form and shall bear the name of the
Corporation, the year of its incorporation, and the word
"Maryland." The form of the seal shall be subject to alteration
by the Board of Directors and the seal may be used by causing it
or a facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or Director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any
document requiring the same. [MGCL, 1-304]
______________________
((1)) Bracketed citations are to the General Corporation Law of the
State of Maryland ("MGCL") or to the United States Investment
Company Act of 1940, as amended (the "Investment Company Act"), or
to Rules of the United States Securities and Exchange Commission
thereunder ("SEC Rules"), all as they were in effect on January 1,
1987. The citations are inserted for reference only and do not
constitute a part of the By-Laws.)
<PAGE>
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings: The annual meeting of the
Stockholders of the Corporation shall be held on a date fixed from
time to time by the Board of Directors within the thirty-one (31)
day period ending four (4) months after the end of the
Corporation's fiscal year. An annual meeting may be held at any
place in or out of the State of Maryland as may be determined by
the Board of Directors as shall be designated in the notice of the
meeting and at the time specified by the Board of Directors. Any
business of the Corporation may be transacted at an annual meeting
without being specifically designated in the notice unless
otherwise provided by statute, the Corporation's Charter or these
By-Laws.
Section 2.02. Special Meetings: Special meetings of the
Stockholders may be called at any time by the Chairman of the
Board, the President or by any Vice President, or by a majority of
the Board of Directors. Special meetings of the Stockholders
shall be called by the Secretary upon the written request of the
holders of shares entitled to not less than 25 percent of all the
votes entitled to be cast at such meeting, provided that (a) such
request shall state the purpose of such meeting and the matters
proposed to be acted on, and (b) the Stockholders requesting such
meeting shall have paid to the Corporation the reasonably
estimated cost of preparing and mailing the notice thereof, which
the Secretary shall determine and specify to such Stockholders.
No special meeting need be called, upon the request of the holders
of shares entitled to cast less than a majority of all votes
entitled to be cast at such meeting, to consider any matter which
is substantially the same as a matter voted upon at any special
meeting of the Stockholders held during the preceding 12 months.
[MGCL, 2-502]
Section 2.03. Notice of Meetings: The Secretary or an
Assistant Secretary shall cause notice of the place, date and
hour, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, to be mailed, not less
than 10 nor more than 90 days before the date of the meeting, to
each Stockholder entitled to vote at such meeting, at his address
as it appears on the records of the Corporation at the time of
such mailing. Notice of any Stockholders' meeting need not be
given to any Stockholder who shall sign a written waiver of such
notice whether before or after the time of such meeting, which
waiver shall be filed with the record of such meeting, or to any
Stockholder who shall attend such meeting in person or by proxy.
Notice of adjournment of a Stockholders' meeting to another time
(not more than 120 days after the original record date) or place
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need not be given, if such time and place are announced at the
meeting. Irregularities in the notice or in the giving thereof as
well as the accidental omission to give notice of any meeting to,
or the non-receipt of any such notice by, any of the Stockholders
shall not invalidate any action taken by or at any such meeting.
[MGCL, 2-504, 2-511(d)]
Section 2.04. Voting -- In General: At every Stockholders'
meeting each Stockholder shall be entitled to one vote for each
share, and a proportionate vote for each portion of a share, of
stock of the Corporation validly issued and outstanding and held
by such Stockholder, except that no shares held by the Corporation
shall be entitled to a vote. Except as otherwise specifically
provided in the Corporation's Charter or these By-Laws or as
required by provisions of the United States Investment Company Act
of 1940, as amended from time to time, all matters shall be
decided by a vote of the majority of the votes validly cast. The
vote upon any question shall be by ballot whenever requested by
any person entitled to vote, but, unless such a request is made,
voting may be conducted in any way approved by the meeting.
[MGCL, 2-507]
Section 2.05. Stockholders Entitled to Vote: If, pursuant
to Section 7.05 hereof, a record date has been fixed for the
determination of Stockholders entitled to notice of or to vote at
any Stockholders' meeting, each Stockholder of the corporation
shall be entitled to vote, in person or by proxy, each share of
stock standing in his name on the books of the Corporation on such
record date and outstanding at the time of the meeting. If no
record date has been fixed for the determination of Stockholders,
the record date for the determination of Stockholders entitled to
notice of or to vote at a meeting of Stockholders shall be at the
close of business on the day on which notice of the meeting is
mailed or the day 30 days before the meeting, whichever is the
closer date to the meeting, or, if notice is waived by all
Stockholders, at the close of business on the tenth day next
preceding the day on which the meeting is held. [MGCL, 2-511]
Section 2.06. Voting -- Proxies: The right to vote by proxy
shall exist only if the instrument authorizing such proxy to act
shall have been executed in writing by the Stockholder himself or
by his attorney thereunto duly authorized in writing. No proxy
shall be voted on after eleven months from its date unless it
provides for a longer period. Each proxy shall be in writing
subscribed by the Stockholder or his duly authorized attorney and
shall be dated, but need not be sealed, witnessed or acknowledged.
Proxies shall be delivered to the Secretary of the Corporation or
person acting as Secretary of the meeting before being voted. A
proxy with respect to stock held in the name of two or more
persons shall be valid if executed by one of them unless at or
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<PAGE>
prior to exercise of such proxy the Corporation receives a
specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Stockholder
shall be deemed valid unless challenged at or prior to its
exercise. [MGCL, 2-507(b)]
Section 2.07. Quorum: The presence at any Stockholders'
meeting, in person or by proxy, of Stockholders entitled to cast a
majority of the votes thereat shall be necessary and sufficient to
constitute a quorum for the transaction of business. [MGCL,
2-506(a)]
Section 2.08. Absence of Quorum: In the absence of a
quorum, the holders of a majority of shares entitled to vote at
the meeting and present thereat in person or by proxy, or, if no
Stockholder entitled to vote is present thereat in person or by
proxy, any officer present thereat entitled to preside or act as
Secretary of such meeting, may adjourn the meeting sine die or
from time to time. Any business that might have been transacted
at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
Section 2.09. Stock Ledger and List of Stockholders: It
shall be the duty of the Secretary or Assistant Secretary of the
Corporation to cause an original or duplicate stock ledger to be
maintained at the office of the Corporation's transfer agent in
Boston, Massachusetts. Such stock ledger may be in written form
or any other form capable of being converted into written form
within a reasonable time for visual inspection. Any one or more
persons, each of whom has been a Stockholder of record of the
Corporation for more than six months next preceding such request,
owning in the aggregate 5 percent or more of the outstanding stock
of any class of the Corporation, may submit (unless the
Corporation at the time of the request maintains a duplicate stock
ledger at its principal office in Maryland) a written request to
any officer of the Corporation or its resident agent in Maryland
for a list of the Stockholders of the Corporation. Within 20 days
after such a request, there shall be prepared and filed at the
Corporation's principal office in Maryland a list containing the
names and addresses of all Stockholders of the Corporation and the
number of shares of each class held by each Stockholder, certified
as correct under oath by an officer of the Corporation, by its
stock transfer agent, or by its registrar. [MGCL, 2-209, 2-513]
Section 2.10. Action Without Meeting: Any action to be
taken by Stockholders may be taken without a meeting if all
Stockholders entitled to vote on the matter consent to the action
in writing and the written consents are filed with the records of
the meetings of Stockholders. Such consent shall be treated for
all purposes as a vote at a meeting. [MGCL, 2-505]
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. General Powers:
(a) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors, which
may exercise all the powers of the Corporation except those powers
vested solely in the Stockholders of the Corporation by statute,
by the Corporation's Charter, or by these By-Laws. [MGCL, 2-401]
(b) All acts done by any meeting of the Directors or by any
person acting as a Director, so long as his successor shall not
have been duly elected or appointed, shall, notwithstanding that
it be afterwards discovered that there was some defect in the
election of the Directors or of such person acting as aforesaid or
that they or any of them were disqualified, be as valid as if the
Directors or such other person, as the case may be, had been duly
elected and were or was qualified to be Directors or a Director of
the Corporation.
Section 3.02. Number, Election and Term of Directors: The number
of Directors shall be fixed from time to time by resolution of the
Board of Directors adopted by a majority of the Directors then in
office; provided, however, that the number of Directors shall in
no event be fewer than three (3) nor more than fifteen (15),
except that the number of Directors shall initially be one until
the organizational meeting of the Board of Directors. The Board
of Directors shall be divided into three classes. Within the
limits above specified, the number of Directors in each class
shall be determined by resolution of the Board of Directors. The
term of office of all of the Directors shall expire on the date of
the first annual meeting of Stockholders or special meeting in
lieu thereof following the effective date. The term of office of
the first class shall expire on the date of the second annual
meeting of Stockholders or special meeting in lieu thereof. The
term of office of the second class shall expire on the date of the
third annual meeting of Stockholders or special meeting in lieu
thereof. The term of office of the third class shall expire on
the date of the fourth annual meeting of Stockholders or special
meeting in lieu thereof. Upon expiration of the term of office of
each class as set forth above, the number of Directors in such
class, as determined by the Board of Directors, shall be elected
for a term of three years to succeed the Directors whose terms of
office expire. The Directors shall be elected by the Stockholders
owning of record a plurality of the stock voting at an annual
meeting of the Stockholders or special meeting in lieu thereof
called for that purpose, except as provided in Section 3.05 of
this Article, and each Director elected shall hold office until
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<PAGE>
his successor shall have been elected and shall have qualified, or
until his death, or until he shall have resigned or have been
removed as provided in these By-Laws, or as otherwise provided by
statute or the Corporation's Charter. Any vacancy created by an
increase in Directors may be filled in accordance with Section
3.05 of this Article III. No reduction in the number of Directors
shall have the effect of removing any Director from office prior
to the expiration of his term unless the Director is specifically
removed pursuant to Section 3.04 of this Article III at the time
of the decrease. A Director need not be a Stockholder of the
Corporation, a citizen of the United States or a resident of the
State of Maryland.
Section 3.03. Resignation: A Director of the Corporation
may resign at any time by giving written notice of his resignation
to the Board of Directors or the Chairman of the Board or to the
President or the Secretary of the Corporation. Any resignation
shall take effect at the time specified in it or, should the time
when it is to become effective not be specified in it, immediately
upon its receipt. Acceptance of a resignation shall not be
necessary to make it effective unless the resignation states
otherwise.
Section 3.04. Removal of Directors: Any Director of the
Corporation may be removed by the Stockholders with or without
cause by a vote of a majority of the votes entitled to be cast for
the election of Directors.
Section 3.05 Vacancies: Subject to the provisions of the
Investment Company Act of 1940, any vacancies in the Board of
Directors, whether arising from death, resignation, removal or any
other cause except an increase in the number of Directors, shall
be filled by a vote of the majority of the Board of Directors then
in office even though that majority is less than a quorum,
provided that no vacancy or vacancies shall be filled by action of
the remaining Directors if, after the filling of the vacancy or
vacancies, fewer than two-thirds of the Directors then holding
office shall have been elected by the Stockholders of the
Corporation. A majority of the entire Board may fill a vacancy
that results from an increase in the number of Directors. In the
event that at any time a vacancy exists in any office of a
Director that may not be filled by the remaining Directors, a
special meeting of the Stockholders shall be held as promptly as
possible and in any event within sixty (60) days, for the purpose
of filling the vacancy or vacancies. Any Director appointed by
the Board of Directors to fill a vacancy shall hold office only
until the next annual meeting of Stockholders of the Corporation
and until a successor has been elected and qualifies or until his
earlier resignation or removal. Any Director elected by the
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<PAGE>
Stockholders to fill a vacancy shall hold office for the balance
of the term of the Director whose death, resignation or removal
occasioned the vacancy and until a successor has been elected and
qualifies or until his earlier resignation or removal.
Section 3.06. Annual and Regular Meetings: The annual
meeting of the Board of Directors for choosing officers and
transacting other proper business shall be held immediately after
the annual Stockholders' meeting at the place of such meeting.
The Board of Directors from time to time may provide by resolution
for the holding of regular meetings and fix their time and place
(within or outside the State of Maryland). Notice of such annual
and regular meetings need not be given, provided that notice of
any change in the time or place of such meetings shall be sent
promptly to each Director not present at the meeting at which such
change was made in the manner provided for notice of special
meetings. Members of the Board of Directors or any committee
designated thereby may participate in a meeting of such Board or
committee by means of a conference telephone or similar
communications equipment by means which all persons participating
in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at
a meeting, provided that any such meeting is not for the purpose
of voting on an investment advisory agreement. [MGCL, 2-409]
Section 3.07. Special Meetings: Special meetings of the
Board of Directors shall be held whenever called by the Chairman
of the Board, the President (or, in the absence or disability of
the President, by any Vice President), the Treasurer, or two or
more Directors, at the time and place (within or outside the State
of Maryland) specified in the respective notices or waivers of
notice of such meetings.
Section 3.08. Notice: Notice of special meetings, stating
the time and place, shall be mailed to each Director at his
residence or regular place of business at least two days before
the day on which a special meeting is to be held or caused to be
delivered to him personally or to be transmitted to him by
telegraph, cable or wireless at least one day before the meeting.
[MGCL, 2-409]
Section 3.09. Waiver of Notice: No notice of any special
meeting need be given to any Director who attends such meeting in
person or to any Director who waives notice of such meeting in
writing (which waiver shall be filed with the records of such
meeting), whether before or after the time of the meeting. [MGCL,
2-409(c)]
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<PAGE>
Section 3.10. Quorum and Voting: At all meetings of the
Board of Directors the presence of one-third or more of the number
of Directors then in office shall constitute a quorum for the
transaction of business, provided that there shall be present no
less than one-third of the total number of Directors fixed
pursuant to Section 3.02 nor less than two Directors. In the
absence of a quorum, a majority of the Directors present may
adjourn the meeting, from time to time, until a quorum shall be
present. The action of a majority of the Directors present at a
meeting at which a quorum is present shall be the action of the
Board of Directors unless the concurrence of a greater proportion
is required for such action by law, by the Corporation's Charter
or by these By-Laws. Notice of the time and place of any
adjourned meeting shall be given to the Directors who were not
present at the time of the adjournment and, unless the time and
place were announced at the meeting at which the adjournment was
taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted that might
have been transacted at the meeting as originally called. [MGCL,
2-408]
Section 3.11. Compensation: Each Director shall be entitled
to receive compensation, if any, as may from time to time be fixed
by the Board of Directors, including a fee for each meeting of the
Board or any committee thereof, regular or special, he attends.
Directors may also be reimbursed by the Corporation for all
reasonable expenses incurred in traveling to and from the place of
a Board or committee meeting.
Section 3.12. Action Without a Meeting: Any action required
or permitted to be taken at any meeting of the Board of Directors
(except voting on an investment advisory agreement) or of any
committee thereof may be taken without a meeting if written
consents thereto are signed by all members of the Board or such
committee and such written consents are filed with the minutes of
proceedings of the Board or such committee. [MGCL, 2-408(c)]
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. How Constituted: By resolution adopted by the
Board of Directors, the Board may designate one or more committees
including an Executive Committee, each consisting of at least two
Directors. Each member of a committee shall be a Director and
shall hold office during the pleasure of the Board. The Chairman
of the Board, if any, and the President shall be members of the
Executive Committee. [MGCL, 2-411]
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<PAGE>
Section 4.02. Powers of the Executive Committee: Unless
otherwise provided by resolution of the Board of Directors, when
the Board of Directors is not in session the Executive Committee
shall have and may exercise all powers of the Board of Directors
in the management of the business and affairs of the Corporation
that may lawfully be exercised by an Executive Committee, except
the power to declare dividends or distributions on stock, to
authorize the issuance of stock, or to recommend to Stockholders
any matter requiring Stockholders' approval, to amend the By-Laws
or to approve any merger or share exchange which does not require
approval, to amend the By-laws or to approve any merger or share
exchange which does not require Stockholder approval. [MGCL,
2-411]
Section 4.03. Other Committees of the Board of Directors:
To the extent provided by resolution of the Board, other
committees shall have and may exercise any of the powers that may
lawfully be granted to the Executive Committee. [MGCL, 2-411]
Section 4.04. Proceedings, Quorum and Manner of Acting: In
the absence of an appropriate resolution of the Board of
Directors, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that the quorum shall not be
less than two Directors. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or
not they constitute a quorum may appoint a member of the Board of
Directors to act in the place of such absent member. [MGCL,
2-411]
ARTICLE V
OFFICERS
Section 5.01. General: The officers of the Corporation
shall be a President, a Secretary and a Treasurer, and may include
one or more Vice Presidents, Assistant Secretaries or Assistant
Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 5.11 hereof. The Board
of Directors may elect, but shall not be required to elect, a
Chairman of the Board. [MGCL, 2-412]
Section 5.02. Election, Term of Office and Qualifications:
The officers of the Corporation (except those appointed pursuant
to Section 5.11 hereof) shall be chosen by the Board of Directors
at its first meeting or such subsequent meetings as shall be held
prior to its first annual meeting, and thereafter annually at its
annual meeting. If any officers are not chosen at any annual
meeting, such officers may be chosen at any subsequent regular or
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special meeting of the Board. Except as provided in Section 5.03,
5.04 and 5.05 hereof, each officer chosen by the Board of
Directors shall hold office until the next annual meeting of the
Board of Directors and until his successor shall have been elected
and qualified. Any person may hold one or more offices of the
Corporation except the offices of President and Vice President;
provided that a person who holds more than one office in the
Corporation may not act in more than one capacity to execute,
acknowledge or verify an instrument required by law to be
executed, acknowledged or verified by more than one officer. The
Chairman of the Board and the President shall be chosen from among
the Directors of the Corporation and may hold such offices only so
long as they continue to be Directors. No other officer need be a
Director. [MGCL, 2-415]
Section 5.03. Resignation: Any officer may resign his
office at any time by delivering a written resignation to the
Board of Directors, the Chairman of the Board, the President, the
Secretary, or any Assistant Secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 5.04. Removal: Any officer may be removed from
office, whenever in the Board's judgment the best interest of the
Corporation will be served thereby, by the vote of a majority of
the Board of Directors given at any regular meeting or any special
meeting called for such purpose. In addition, any officer or
agent appointed in accordance with the provisions of Section 5.11
hereof may be removed, either with or without cause, by any
officer upon whom such power of removal shall have been conferred
by the Board of Directors. [MGCL, 2.413(c)]
Section 5.05. Vacancies and Newly Created Offices: If any
vacancy shall occur in any office by reason of death, resignation,
removal, disqualification or other cause, or if any new office
shall be created, such vacancies or newly created offices may be
filled by the Board of Directors at any regular or special meeting
or, in the case of any office created pursuant to Section 5.11
hereof, by any officer upon whom such power shall have been
conferred by the Board of Directors. [MGCL, 2-413(d)]
Section 5.06. Chairman of the Board: The Chairman of the
Board, if there be such an officer, shall be the senior officer of
the Corporation, preside at all Stockholders' meetings and at all
meetings of the Board of Directors and shall be ex officio a
member of all committees of the Board of Directors. He shall have
such other powers and perform such other duties as may be assigned
to him from time to time by the Board of Directors. [MGCL, 2-414]
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Section 5.07. President: The President shall be the chief
executive officer of the Corporation and, in the absence of the
Chairman of the Board or if no Chairman of the Board has been
chosen, he shall preside at all Stockholders' meetings and at all
meetings of the Board of Directors and shall in general exercise
the powers and perform the duties of the Chairman of the Board.
Subject to the supervision of the Board of Directors, he shall
have general charge of the business, affairs and property of the
Corporation and general supervision over its officers, employees
and agents. Except as the Board of Directors may otherwise order,
he may sign in the name and on behalf of the Corporation all
deeds, bonds, contracts or agreements. He shall exercise such
other powers and perform such other duties as from time to time
may be assigned to him by the Board of Directors. [MGCL, 2-414]
Section 5.08. Vice President: The Board of Directors may
from time to time designate and elect one or more Vice Presidents
who shall have such powers and perform such duties as from time to
time may be assigned to them by the Board of Directors or the
President. At the request or in the absence or disability of the
President, the Vice President (or, if there are two or more Vice
Presidents, then the senior of the Vice Presidents present and
able to act) may perform all the duties of the President and, when
so acting, shall have all the powers of and be subject to all the
restrictions upon the President. [MGCL, 2-414]
Section 5.09. Treasurer and Assistant Treasurers: The
Treasurer shall be the principal financial and accounting officer
of the Corporation and shall have general charge of the finances
and books of account of the Corporation. Except as otherwise
provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of
the performance by the Custodian of its duties with respect
thereto. He shall render to the Board of Directors, whenever
directed by the Board, an account of the financial condition of
the Corporation and of all his transactions as Treasurer; and as
soon as possible after the close of each financial year he shall
make and submit to the Board of Directors a like report for such
financial year. He shall cause to be prepared annually a full and
correct statement of the affairs of the Corporation, including a
balance sheet and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual
meeting of Stockholders and filed within twenty days thereafter at
the principal office of the Corporation in the State of Maryland.
He shall perform all the acts incidental to the office of
Treasurer, subject to the control of the Board of Directors.
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Any Assistant Treasurer may perform such duties of the
Treasurer as the Treasurer or the Board of Directors may assign,
and, in the absence of the Treasurer, he may perform all the
duties of the Treasurer. [MGCL, 2-414]
Section 5.10. Secretary and Assistant Secretaries: The
Secretary shall attend to the giving and serving of all notices of
the Corporation and shall record all proceedings of the meetings
of the Stockholders and Directors in a book to be kept for that
purpose. He shall keep in safe custody the seal of the
Corporation, and shall have charge of the records of the
Corporation, including the stock books and such other books and
papers as the Board of Directors may direct and such books,
reports, certificates and other documents required by law to be
kept, all of which shall at all reasonable times be open to
inspection by any Director. He shall perform such other duties as
appertain to his office or as may be required by the Board of
Directors.
Any Assistant Secretary may perform such duties of the
Secretary as the Secretary or the Board of Directors may assign,
and, in the absence of the Secretary, he may perform all the
duties of the Secretary. [MGCL, 2-414]
Section 5.11. Subordinate Officers: The Board of Directors
from time to time may appoint such other officers or agents as it
may deem advisable, each of whom shall have such title, hold
office for such period, have such authority and perform such
duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers
or agents the power to appoint any such subordinate officers or
agents and to prescribe their respective rights, terms of office,
authorities and duties. [MGCL, 2-414]
Section 5.12. Remuneration: The salaries or other
compensation of the officers of the Corporation shall be fixed
from time to time by resolution of the Board of Directors, except
that the Board of Directors may by resolution delegate to any
person or group of persons the power to fix the salaries or other
compensation of any subordinate officers or agents appointed in
accordance with the provisions of Section 5.11 hereof.
Section 5.13. Surety Bonds: The Board of Directors may
require any officer or agent of the Corporation to execute a bond
(including, without limitation, any bond required by the United
States Investment Company Act of 1940, as amended, and the rules
and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the
Board of Directors may determine, conditioned upon the faithful
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performance of his duties to the Corporation, including
responsibility for negligence and for the accounting of any of the
Corporation's property, funds or securities that may come into his
hands. [SEC Rule 17g-1]
ARTICLE VI
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 6.01. General: Subject to the provisions of
Sections 5.07 hereof, all deeds, documents, transfers, contracts,
agreements and other instruments requiring execution by the
Corporation shall be signed by the President or a Vice President
and by the Treasurer or Secretary or an Assistant Treasurer or an
Assistant Secretary, or as the Board of Directors may otherwise,
from time to time, authorize. Any such authorization may be
general or confined to specific instances.
Section 6.02. Checks, Notes, Drafts, etc.: So long as the
Corporation shall employ a Custodian to keep custody of the cash
and securities of the Corporation, all checks and drafts for the
payment of money by the Corporation may be signed in the name of
the Corporation by the Custodian. Except as otherwise authorized
by the Board of Directors, all requisitions or orders for the
assignment of securities standing in the name of the Custodian or
its nominee, or for the execution of powers to transfer the same,
shall be signed in the name of the Corporation by the President or
a Vice President and by the Treasurer or an Assistant Treasurer.
Promissory notes, checks or drafts payable to the Corporation may
be endorsed only to the order of the Custodian or its nominee and
only by the Treasurer or President or a Vice President or by such
other person or persons as shall be authorized by the Board of
Directors.
Section 6.03. Voting of Securities: Unless otherwise
ordered by the Board of Directors, the President or any Vice
President shall have full power and authority on behalf of the
Corporation to attend and to act and to vote, or in the name of
the Corporation to execute proxies to vote, at any meeting of
Stockholders of any company in which the Corporation may hold
stock. At any such meeting such officer shall possess and may
exercise (in person or by proxy) any and all rights, powers and
privileges incident to the ownership of such stock. The Board of
Directors may by resolution from time to time confer like powers
upon any other person or persons. [MGCL, 2-509]
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ARTICLE VII
CAPITAL STOCK
Section 7.01. Certificate of Stock:
(a) Certificates of stock of the Corporation shall be in the
form approved by the Board of Directors. Every holder of stock of
the Corporation shall be entitled to have a certificate, signed in
the name of the Corporation by the President or any Vice President
and by the Treasurer or any Assistant Treasurer or the Secretary
or any Assistant Secretary, sealed with the seal of the
Corporation and certifying the number and kind of shares owned by
him in the Corporation; provided, however, that certificates for
fractional shares will not be delivered in any case. Such
signatures and seal may be a facsimile and may be mechanically
reproduced thereon. The certificates containing such facsimiles
shall be valid for all intents and purposes. [MGCL, 2-210, 2-211,
2-212]
(b) In case any officer who shall have signed any such
certificate, or whose facsimile signature has been placed thereon,
shall cease to be such an officer (because of death, resignation
or otherwise) before such certificate is issued, such certificate
may be issued and delivered by the Corporation with the same
effect as if he were such officer at the date of issue. [MGCL,
2-212(c)]
(c) The number of each certificate issued, the name of the
person owning the shares represented thereby, the number of such
shares and the date of issuance shall be entered upon the stock
books of the Corporation at the time of issuance.
(d) Every certificate returned to the Corporation shall be
marked "Cancelled" with the date of cancellation.
Section 7.02. Transfer of Capital Stock:
(a) Transfers of shares of the stock of the Corporation
shall be made on the books of the Corporation by the holder of
record thereof (in person or by his attorney thereunto duly
authorized by a power of attorney duly executed in writing and
filed with the Secretary of the Corporation) (i) if a certificate
or certificates have been issued, upon the surrender of the
certificate or certificates, properly endorsed or accompanied by
proper instruments of transfer, representing such shares, or
(ii) as otherwise prescribed by the Board of Directors.
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(b) The Corporation shall be entitled to treat the holder of
record of any share of stock as the absolute owner thereof for all
purposes, including, without limitation, the rights to receive
dividends or other distributions and to vote as the owner, and the
Corporation shall not be bound to recognize any legal, equitable
or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice
thereof, except as otherwise expressly provided by the statutes of
the State of Maryland.
Section 7.03. Transfer Agents and Registrars: The Board of
Directors may, from time to time, appoint or remove transfer
agents and/or registrars of transfers of shares of stock of the
Corporation, and it may appoint the same person as both transfer
agent and registrar. Upon any such appointment being made all
certificates representing shares of capital stock thereafter
issued shall be countersigned by one of such transfer agents or by
one of such registrars of transfers or by both and shall not be
valid unless so countersigned. If the same person shall be both
transfer agent and registrar, only one countersignature by such
person shall be required.
Section 7.04. Transfer Regulations: The shares of stock of
the Corporation may be freely transferred, and the Board of
Directors may, from time to time, adopt rules and regulations with
reference to the method of transfer of the shares of stock of the
Corporation.
Section 7.05. Fixing of Record Date: The Board of Directors
may fix in advance a date as a record date for the determination
of the Stockholders entitled to notice of or to vote at any
meeting of Stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or to
receive payment of any dividend or other distribution or allotment
of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other
lawful action, provided that such record date shall not be a date
more than 90 nor less than 10 days prior to the date on which the
particular action requiring such determination of Stockholders is
to be taken. In such case only such Stockholders as shall be
Stockholders of record on the record date so fixed shall be
entitled to such notice of, and to vote at, such meeting or
adjournment, or to give such consent, or to receive payment of
such dividend or other distribution, or to receive such allotment
of rights, or to exercise such rights, or to take such other
action, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after any such record date.
[MGCL, 2-511]
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Section 7.06. Lost, Stolen or Destroyed Certificates:
Before issuing a new certificate for stock of the Corporation
alleged to have been lost, stolen or destroyed, the Board of
Directors or any officer authorized by the Board may, in its
discretion, require the owner of the lost, stolen or destroyed
certificate (or his legal representative) to give the Corporation
a bond or other indemnity, in such form and in such amount as the
Board or any such officer may direct and with such surety or
sureties as may be satisfactory to the Board or any such officer,
sufficient to indemnify the Corporation against any claim that may
be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new
certificate. Anything herein to the contrary notwithstanding, the
Board of Directors, in its absolute discretion, may refuse to
issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland. [MGCL,
2-213]
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 8.01. General: The Board of Directors, in their
absolute discretion, may prescribe and shall set forth in a duly
adopted vote of the Board such bases and times for determining the
per share net asset value of the outstanding shares of capital
stock of the Corporation or net income, or the declaration and
payment of dividends and distributions, as they may deem necessary
or desirable.
ARTICLE IX
FISCAL YEAR, ACCOUNTANT
Section 9.01. Fiscal Year: The fiscal year of the
Corporation shall, unless otherwise ordered by the Board of
Directors, be twelve calendar months beginning on the 1st day of
January in each year and ending on the last day of the following
December.
Section 9.02. Accountant:
(a) The Corporation shall employ an independent public
accountant or a firm of independent public accountants as its
Accountant to examine the accounts of the Corporation and to sign
and certify financial statements filed by the Corporation. The
Accountant's certificates and reports shall be addressed both to
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the Board of Directors and to the Stockholders. The employment of
the Accountant shall be conditioned upon the right of the
Corporation to terminate the employment forthwith without any
penalty by vote of a majority of the outstanding voting securities
at any Stockholders' meeting called for that purpose.
(b) A majority of the members of the Board of Directors who
are not interested persons (as such term is defined in the
Investment Company Act of 1940, as amended) of the Corporation
shall select the Accountant at any meeting held within 30 days
before or after the beginning of the fiscal year of the
Corporation or before the annual Stockholders' meeting in that
year. Such selection shall be submitted for ratification or
rejection at the next succeeding annual Stockholders' meeting. If
such meeting shall reject such selection, the Accountant shall be
selected by majority vote of the Corporation's outstanding voting
securities, either at the meeting at which the rejection occurred
or at a subsequent meeting of Stockholders called for the purpose.
[Investment Company Act, 32(a)]
(c) Any vacancy occurring between annual meetings, due to
the death or resignation of the Accountant, may be filled by the
Board of Directors. [Investment Company Act, 32(a)]
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.01. Indemnification of Officers and Directors:
Subject to and to the fullest extent permitted by Section 2-418 of
the Maryland General Corporation Law, as from time to time amended
(the "Statute"), every person who is, or has been, a Director or
officer of the Corporation shall be indemnified by the Corporation
to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virture of his being
or having been a Director or officer and against amounts paid or
incurred by him in settlement thereof.
No such indemnification shall be provided by the Corporation
hereunder to a Director or officer:
(a) against any liability to the Corporation or its
Stockholders by reason of a final adjudication by the court or
other body before which the proceeding was brought that he engaged
in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
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(b) unless he or she:
(i) Acted in good faith;
(ii) Reasonably believed:
1. In the case of conduct in his or her official
capacity with the Corporation, that the
conduct was in the best interests of the
Corporation; and
2. In all other cases, that the conduct was at
least not opposed to the best interests of the
Corporation; and
(iii) In the case of any criminal proceeding had no
reasonable cause to believe that the conduct was
unlawful.
provided however, that (x) if the proceeding was one by or in the
right of the Corporation, indemnification may be made by the
Corporation only against reasonable expenses and may not be made
in respect of any proceeding in which the Director or officer
shall have been adjudged to liable to the Corporation and (y) a
Director or officer may not be indemnified by the Corporation in
respect of any proceeding charging improper personal benefit to
the Director or officer, whether or not involving action in the
Director's or officer's official capacity, in which the Director
or officer was adjudged to be liable on the basis that personal
benefit was improperly received.
(c) in the event of a settlement or other disposition, not
involving a final adjudication resulting in a payment by
a Director or officer, unless there has been either a
determination that such Director or officer did not
engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of his office by the court or other body
approving the settlement or other disposition or a
reasonable determination, based on a review of readily
available facts (as opposed to a full trial-type
inquiry) that he did not engage in such conduct:
(i) by a vote of a majority of the Disinterested
Directors acting on the matter (provided that a
majority of the Disinterested Directors then in
office act on the matter); or
(ii) by written opinion of independent legal counsel.
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The rights of indemnification herein provided may be insured
against by policies maintained by the Corporation, shall be
severable, shall not affect any other rights to which any Director
or officer may now or hereafter be entitled, shall continue as to
a person who has ceased to be such Director or officer and shall
inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights
to indemnification to which corporate personnel other than
Directors and officers may be entitled by contract or otherwise
under law.
Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described in
the last paragraph of this Article shall be advanced by the
Corporation prior to final disposition thereof upon receipt of
(i) an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to
indemnification under this Article and (ii) a written affirmation
by the recipient of his good faith belief that the standard of
conduct necessary for indemnification by the Corporation as
authorized by the statute has been met, provided that either:
(a) such undertaking is secured by a surety bond or some
other appropriate security or the Corporation shall be
insured against losses arising out of any such advances;
or
(b) a majority of the Disinterested Directors acting on the
matter (provided that a majority of the Disinterested
Directors then in office act on the matter) or an
independent legal counsel in a written opinion shall
determine, based upon a review of the readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Article, a "Disinterested Director" is one
(i) who is not an "interested person" of the Corporation (as
defined by the Investment Company Act of 1949) (including anyone
who has been exempted from being an "interested person" by any
rule, regulation or order of the Securities and Exchange
Commission), and (ii) against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or has been pending.
As used in this Article, the words "claim", "action", "suit"
or "proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals), actual
or threatened; and the words "liability" and "expenses" shall
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include without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other
liabilities. [MGCL, 2-418, Investment Company Act, 17(h)].
Section 10.02. Indemnification of Employees and Agents:
Employees and agents who are not officers or Directors of the
Corporation may be indemnified, and reasonable expenses may be
advanced to such employees or agents, in accordance with the
procedures set forth in this Article X to the extent permissible
under the Maryland General Corporation Law, the Securities Act of
1933, as amended, and the Investment Company Act of 1940 as those
statutes are now or hereafter in force, and to such further
extent, consistent with the foregoing, as may be provided by
action of the Board of Directors or by contract.
Section 10.03. Insurance of Officers, Directors, Employees
and Agents: The Corporation may purchase and maintain insurance
on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or while a Director,
officer, employee or agent of the Corporation is or was serving at
the request of the Corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan against any liability
asserted against and incurred by such person in any such capacity
or arising out of such person's position. [MGCL, 2-418(k)].
ARTICLE XI
CUSTODY OF SECURITIES
Section 11.01. Employment of a Custodian: The Corporation
shall place and at all times maintain in the custody of a
Custodian (including any sub-custodian for the Custodian) all
funds, securities and similar investments owned by the
Corporation. The Custodian (and any sub-custodian) shall be an
institution conforming to the requirements of Section 17(f) of the
Investment Company Act of 1940 and the rules of the Securities and
Exchange Commission thereunder. The Custodian shall be appointed
from time to time by the Board of Directors, which shall fix its
renumeration.
Section 11.02. Termination of Custodian Agreement: Upon
termination of the Custodian Agreement or inability of the
Custodian to continue to serve, the Board of Directors shall
promptly appoint a successor Custodian, but in the event that no
successor Custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors
shall call as promptly as possible a special meeting of the
Stockholders to determine whether the Corporation shall function
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without a Custodian or shall be liquidated. If so directed by
vote of the holders of a majority of the outstanding shares of
stock entitled to vote of the Corporation, the Custodian shall
deliver and pay over all property of the Corporation held by it as
specified in such vote.
ARTICLE XII
Miscellaneous
Section 12.01. Powers of the Corporation: All corporate
powers and authority of the Corporation (except as at the time
otherwise provided by statute, by the Corporation's Charter or by
these By-Laws) shall be vested in and exercised by the Board of
Directors. The Corporation may enter into one or more contracts
for exclusive or non-exclusive advisory or management services
with any partnership, corporation, trust, association or other
organization, every such contract to comply with any provisions
governing such a contract contained in the Investment Company Act
of 1940 or any rule or regulation thereunder, or exemptive order
granted thereunder, all as from time to time amended; and any such
contract may contain such other terms as the Stockholders or the
Board of Directors may approve, including the granting of
authority to the adviser or manager to determine which securities
shall be purchased or sold by the Corporation and what portion of
its assets shall be held uninvested, which authority shall include
the power to make changes in the Corporation's investments,
subject always to the Corporation's stated investment objectives,
policies and restrictions as from time to time amended and to the
direction of the Board. The Board of Directors shall have
authority to appoint an underwriter or distributor or distributors
or an agent or agents for the sale of shares of common stock of
the Corporation and to pay such underwriter, distributor or
distributors and agent or agents such compensation as the Board of
Directors shall deem appropriate, and to enter into such contract
or contracts with such underwriter, distributor or distributors
and agent or agents as the Board of Directors may in its
discretion deem reasonable and proper. Any such contract may be
made with the Investment Adviser or any firm or corporation in
which any Director or Directors may be interested.
ARTICLE XIII
AMENDMENTS
Section 13.01. General: Except as provided in Section
13.02 hereof, all By-Laws of the Corporation, whether adopted by
the Board of Directors, or the Stockholders, shall be subject to
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amendment, alteration or repeal, and new By-Laws may be made, by
the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock
of the Corporation entitled to vote, at any annual or special
meeting the notice or waiver of notice of which shall have
specified or summarized the proposed amendment, alteration, repeal
or new By-Law; or
(b) the Directors, at any regular or special meeting the
notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration, repeal or new
By-Law. [MGCL, 2-109(b)]
Section 13.02. By Stockholders Only:
(a) No amendment of any section of these By-Laws shall be
made except by the Stockholders of the Corporation if the By-Laws
provide that such section may not be amended, altered or repealed
except by the Stockholders.
(b) From and after the issue of any shares of the Capital
Stock of the Corporation, no amendment of this Article XIII shall
be made except by the Stockholders of the Corporation.
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EXHIBIT (2)(g)
MORGAN GRENFELL SMALLCAP FUND, INC.
885 Third Avenue
New York, New York 10022
December 9, 1989
Morgan Grenfell Capital Management, Inc.
885 Third Avenue
New York, New York 10022
Investment Advisory Agreement
Dear Sirs:
Morgan Grenfell SmallCap Fund, Inc. (the "Fund") has been
organized under the laws of Maryland to engage in the business of
an investment company. The shares of capital stock of the Fund
("Shares") are of a single class. The Fund has selected you to
act as the sole investment adviser of the Fund and to provide
certain other services, as more fully set forth below, and you are
willing to act as such investment adviser and to perform such
services under the terms and conditions hereinafter set forth.
Accordingly, the Fund agrees with you as follows:
1. Delivery of Fund Documents. The Fund has furnished you
with copies properly certified or authenticated of each of the
following:
(a) Articles of Incorporation of the Fund, dated January 16,
1987, as amended from time to time (the "Articles of
Incorporation").
(b) By-Laws of the Fund, as amended from time to time.
(c) Resolutions of the Directors of the Fund selecting you
as investment adviser and approving the form of this
Agreement.
The Fund will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to
the foregoing, if any.
2. Name of Fund. The Fund may use the name "Morgan
Grenfell SmallCap Fund, Inc." or any name derived from the name
"Morgan Grenfell Capital Management, Inc." only for so long as
<PAGE>
this Agreement or any other Investment Advisory Agreement between
the Adviser and the Fund or any extension, renewal or amendment
hereof remains in effect, including any similar agreement with any
organization which shall have succeeded to your business as
investment adviser. At such time as such an agreement shall no
longer be in effect, the Fund will (to the extent that it lawfully
can) cease to use such a name or any other name indicating that it
is advised by or otherwise connected with you or any organization
which shall have so succeeded to your business. The Fund
acknowledges that the Adviser may grant the non-exclusive right to
use the name "Morgan Grenfell" to any other corporation or entity,
including but not limited to any investment company of which the
Adviser or any subsidiary or affiliate thereof or any successor to
the business thereof shall be an investment adviser.
3. Advisory Services. You will regularly provide the Fund
with investment research, advice and supervision and will furnish
continuously an investment program for the Fund consistent with
the investment objectives and policies of the Fund. You will
determine what securities shall be purchased for the Fund, what
securities shall be held or sold by the Fund, and what portion of
the Fund's assets shall be held uninvested, subject always to the
provisions of the Fund's Articles of Incorporation and By-Laws and
of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as
each of the same shall be from time to time in effect, and
subject, further, to such policies and instructions as the Board
of Directors may from time to time establish. You shall advise
and assist the officers of the Fund in taking such steps as are
necessary or appropriate to carry out the decisions of the Board
of Directors and the appropriate committees of the Board of
Directors regarding the conduct of the business of the Fund.
4. Allocation of Charges and Expenses. You will make
available, without expense to the Fund, the services of such of
your partners and employees as may duly be elected officers or
directors of the Fund, subject to their individual consent to
serve and to any limitations imposed by law. You will pay the
Fund's office rent, provide investment advisory, research and
statistical facilities and all clerical services relating to
research, statistical and investment work, and pay all expenses
incurred in performing your investment advisory duties under this
Agreement. You will not be required to pay any expenses of the
Fund other than those specifically allocated to you in this
paragraph 4. In particular, but without limiting the generality
of the foregoing, the Fund will be required to pay: organization
and offering expenses; clerical salaries; fees and expenses
incurred by the Fund in connection with membership in investment
company organizations; brokers' commissions; payment for portfolio
pricing services to a pricing agent, if any; legal, auditing or
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accounting expenses; taxes or governmental fees; the fees and
expenses of any transfer agent, registrar or dividend disbursing
agent of the Fund; the cost of preparing share certificates or any
other expenses, including clerical expenses of issue, or
repurchase of shares of capital stock ("Shares") of the Fund; the
costs of borrowing money; the expenses of and fees for registering
or qualifying securities for sale and of maintaining the
registration of the Fund; the fees and expenses of Directors of
the Fund who are not affiliated with you; the cost of preparing
and distributing reports and notices to shareholders; the costs
and or fees incident to Director and Shareholder Meetings; the
cost of preparing and mailing proxy materials; the costs and or
fees incident to the listing (and maintenance of such listing) of
the Fund's Shares on stock exchanges; the fees or disbursements of
custodians of the Fund's assets, including expenses incurred in
the performance of any obligations enumerated by the Articles of
Incorporation or By-Laws of the Fund insofar as they govern
agreements with any such custodian; or litigation and
indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business.
5. Compensation of the Adviser. For all services to be
rendered and payments made as provided in paragraphs 3 and 4
hereof, the Fund will pay you on the last day of each month a fee
equal to the sum of 1% per annum of the average daily net assets
as defined below of the Fund. The "average daily net assets" of
the Fund are defined as the average of the values placed on the
net assets as of 4:00 p.m. (New York time), on each day on which
the net asset value of the Fund's portfolio is determined
consistent with the provisions of Rule 22c-1 under the Investment
Company Act of 1940 or, if the Fund lawfully determines the value
of the net assets of its portfolio as of some other time on each
business day, as of such time. The value of net assets of the
Fund shall be determined pursuant to the applicable provisions of
either the Articles of Incorporation or By-laws of the Fund. If,
pursuant to such provisions, the determination of net asset value
is suspended for any particular business day, then for the
purposes of this Paragraph 5, the value of the net assets of the
Fund as last determined shall be deemed to be the value of the net
assets as of the close of the New York Stock Exchange, or as of
such other time as the value of the net assets of the Fund's
portfolio may lawfully be determined, on that day. If the
determination of the net asset value of the Shares of the Fund has
been suspended for a period including part or all of such month,
your compensation payable at the end of such month shall be
computed on the basis of the value of the net assets of the Fund
as last determined (whether during or prior to such month). If
the Fund determines the value of the net assets of its portfolio
more than once on any day, the last such determination thereof on
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<PAGE>
that day shall be deemed to be the sole determination thereof on
that day for the purposes of this paragraph 5.
6. Avoidance of Inconsistent Position. In connection with
purchases or sales of portfolio securities for the account of the
Fund, neither you nor any of your partners, directors, officers or
employees will act as a principal or agent or receive any
commission. You or your agent shall arrange for the placing of
all orders for the purchase and sale of portfolio securities for
the Fund's account with brokers or dealers selected by you. In
the selection of such brokers or dealers and the placing of such
orders, you are directed at all times to seek for the Fund the
most favorable execution and net price available. It is also
understood that it is desirable for the Fund that you have access
to supplemental investment and market research and security and
economic analyses provided by certain brokers who may execute
brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution.
Therefore, you are authorized to place orders for the purchase and
sale of securities for the Fund with such certain brokers, subject
to review by the Fund's Directors from time to time with respect
to the extent and continuation of this practice. It is understood
that the services provided by such brokers may be useful to you in
connection with your services to other clients. If any occasion
should arise in which you give any advice to clients of yours
concerning the Shares of the Fund, you will act solely as
investment counsel for such clients and not in any way on behalf
of the Fund. Your services to the Fund pursuant to this Agreement
are not to be deemed to be exclusive and it is understood that you
may render investment advice, management and other services to
others.
7. Limitation of Liability of Adviser. You shall not be
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person,
even though also employed by you, who may be or become an employee
of and paid by the Fund shall be deemed, when acting within the
scope of his employment by the Fund, to be acting in such
employment solely for the Fund and not as your employee or agent.
8. Duration and Termination of this Agreement. This
Agreement shall remain in force until April 29, 1991 and from
year to year thereafter, but only so long as such continuance is
specifically approved at least annually by the vote of a majority
of the Directors who are not interested persons of you or of the
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<PAGE>
Fund, cast in person at a meeting called for the purpose of voting
on such approval and by a vote of the Board of Directors or of a
majority of the outstanding voting securities of the Fund. The
aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940 and the
rules and regulations thereunder. This Agreement may, on 60 days'
written notice, be terminated at any time without the payment of
any penalty, by the Board of Directors, by vote of a majority of
the outstanding voting securities of the Fund, or by you. This
Agreement shall automatically terminate in the event of its
assignment. In interpreting the provisions of this Agreement, the
definitions contained in Section 2(a) of the Investment Company
Act of 1940 (particularly the definitions of "interested person,"
"assignment" and "majority of the outstanding voting securities"),
as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the Securities and
Exchange Commission by any rule, regulation or order.
9. Amendment of this Agreement No provisions of this
Agreement may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against
which enforcement of the change, waiver, discharge or termination
is sought, and no amendment of this Agreement shall be effective
until approved by vote of the holders of a majority of the
outstanding voting securities of the Fund and by the Board of
Directors, including a majority of the Directors who are not
interested persons of you or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval.
10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
11. Miscellaneous. It is understood and expressly
stipulated that neither the holders of shares of the Fund nor the
Directors shall be personally liable hereunder. The captions in
this Agreement are included for convenience of reference only and
in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
If you are in agreement with the foregoing, please sign the
form of acceptance on the accompanying counterpart of this letter
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<PAGE>
and return such counterpart to the Fund, whereupon this letter
shall become a binding contract.
Yours very truly,
MORGAN GRENFELL SMALLCAP
FUND, INC.
By: /s/ Robert C. Kern, Jr.
Title: President
The foregoing Agreement is hereby accepted as of the date thereof.
MORGAN GRENFELL CAPITAL
MANAGEMENT, INC.
By: /s/ J. Richard Walton
Title: President
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EXHIBIT (2)(j)(1)
CUSTODY AGREEMENT
Agreement made as of this 14th day of May, 1987, between
MORGAN GRENFELL SMALLCAP FUND, INC., a corporation organized and
existing under the laws of the State of Maryland, having its
principal office and place of business at 885 3rd Avenue, New
York, New York 10022 (hereinafter called the "Fund"), and THE BANK
OF NEW YORK, a New York corporation authorized to do a banking
business, having its principal office and place of business at
48 Wall Street, New York, New York 10015 (hereinafter called the
"Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter
set forth the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1. "Authorized Person" shall be deemed to include any
person, whether or not such person is an Officer or employee of
the Fund, duly authorized by the Board of Directors of the Fund to
give Oral Instructions and Written Instructions on behalf of the
Fund and listed in the Certificate annexed hereto as Appendix A or
such other Certificate as may be received by the Custodian from
time to time.
2. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal
agency securities, its successor or successors and its nominee or
nominees.
3. "Call Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures
Contracts, and Futures Contract Options entitling the holder, upon
timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified
underlying Securities.
<PAGE>
4. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this
Agreement to be given to the Custodian which is actually received
by the Custodian and signed on behalf of the Fund by any two
Officers.
5. "Clearing Member" shall mean a registered broker-dealer
which is a clearing member under the rules of O.C.C. and a member
of a national securities exchange qualified to act as a custodian
for an investment company, or any broker-dealer reasonably
believed by the Custodian to be such a clearing member.
6. "Collateral Account" shall mean a segregated account so
denominated which is specifically allocated to a Series and
pledged to the Custodian as security for, and in consideration of,
the Custodian's issuance of (a) any Put Option guarantee letter or
similar document described in paragraph 8 of Article V herein, or
(b) any receipt described in Article V or VIII herein.
7. "Covered Call Option" shall mean an exchange trade
option entitling the holder, upon timely exercise and payment of
the exercise price, as specified therein, to purchase from the
writer thereof the specified underlying Securities (excluding
Futures Contracts) which are owned by the writer thereof and
subject to appropriate restrictions.
8. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and
Exchange Commission, its successor or successors and its nominee
or nominees. The term "Depository" shall further mean and include
any other person authorized to act as a depository under the
Investment Company Act of 1940, its successor or successors and
its nominee or nominees, specifically identified in a certified
copy of a resolution of the Fund's Board of Directors specifically
approving deposits therein by the Custodian.
9. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including,
without limitation, U.S. Treasury Bills, U.S. Treasury Notes, U.S.
Treasury Bonds, domestic bank certificates of deposit, and
Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
10. "Futures Contract" shall mean a Financial Futures
Contract and/or Stock Index Futures Contracts.
11. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
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<PAGE>
12. "Margin Account" shall mean a segregated account in the
name of a broker, dealer, futures commission merchant, or a
Clearing Member, or in the name of the Fund for the benefit of a
broker, dealer, futures commission merchant, or Clearing Member,
or otherwise, in accordance with an agreement between the Fund,
the Custodian and a broker, dealer, futures commission merchant or
a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities
and/or money of the Fund shall be deposited and withdrawn from
time to time in connection with such transactions as the Fund may
from time to time determine. Securities held in the Book-Entry
System or the Depository shall be deemed to have been deposited
in, or withdrawn from, a Margin Account upon the Custodian's
effecting an appropriate entry in its books and records.
13. "Money Market Security" shall be deemed to include,
without limitation, certain Reverse Repurchase Agreements, debt
obligations issued or guaranteed as to interest and principal by
the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public
authority, commercial paper, certificates of deposit and bankers'
acceptances, repurchase agreements with respect to the same and
bank time deposits, where the purchase and sale of such securities
normally requires settlement in federal funds on the same day as
such purchase or sale.
14. "O.C.C." shall mean the Options Clearing Corporation, a
clearing agency registered under Section 17A of the Securities
Exchange Act of 1934, its successor or successors, and its nominee
or nominees.
15. "Officers" shall be deemed to include the President, any
Vice President, the Secretary, the Treasurer, the Controller, any
Assistant Secretary, any Assistant Treasurer, and any other person
or persons, whether or not any such other person is an officer of
the Fund, duly authorized by the Board of Directors of the Fund to
execute any Certificate, instruction, notice or other instrument
on behalf of the Fund and listed in the Certificate annexed hereto
as Appendix B or such other Certificate as may be received by the
Custodian from time to time.
16. "Option" shall mean a Call Option, Covered Call Option,
Stock Index Option and/or a Put Option.
17. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Authorized Person or
from a person reasonably believed by the Custodian to be an
Authorized Person.
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<PAGE>
18. "Put Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures
Contracts, and Futures Contract Options entitling the holder, upon
timely exercise and tender of the specified underlying Securities,
to sell such Securities to the writer thereof for the exercise
price.
19. "Reverse Repurchase Agreement" shall mean an agreement
pursuant to which the Fund sells Securities and agrees to
repurchase such Securities at a described or specified date and
price.
20. "Security" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Options,
Stock Index Options, Stock Index Futures Contracts, Stock Index
Futures Contract Options, Financial Futures Contracts, Financial
Futures Contract Options, Reverse Repurchase Agreements, common
stocks and other securities having characteristics similar to
common stocks, preferred stocks, debt obligations issued by state
or municipal governments and by public authorities, (including,
without limitation, general obligation bonds, revenue bonds and
industrial bonds and industrial development bonds), bonds,
debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing
rights to receive, purchase, sell or subscribe for the same, or
evidencing or representing any other rights or interest therein,
or any property or assets.
21. "Senior Security Account" shall mean an account
maintained and specifically allocated to a Series under the terms
of this Agreement as a segregated account, by recordation or
otherwise, within the custody account in which certain Securities
and/or other assets of the Fund specifically allocated to such
series shall be deposited and withdrawn from time to time in
accordance with Certificates received by the Custodian in
connection with such transactions as the Fund may from time to
time determine.
22. "Series" shall mean the various portfolios, if any, of
the Fund as described from time to time in the current and
effective prospectus for the Fund.
23. "Shares" shall mean the shares of capital stock of the
Fund, each of which is in the case of a Fund having Series
allocated to a particular Series.
24. "Stock Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount
times the difference between the value of a particular stock index
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<PAGE>
at the close of the last business day of the contract and the
price at which the futures contract is originally struck.
25. "Stock Index Option" shall mean an exchange traded
option entitling the holder, upon timely exercise, to receive an
amount of cash determined by reference to the difference between
the exercise price and the value of the index on the date of
exercise.
26. "Written Instructions" shall mean written communications
actually received by the Custodian from an Authorized Person or
from a person reasonably believed by the Custodian to be an
Authorized Person by telex or any other such system whereby the
receiver of such communications is able to verify by codes or
otherwise with a reasonable degree of certainty the identity of
the sender of such communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian
as custodian of the Securities and monies at any time owned by the
Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter
set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to be
delivered to the Custodian all Securities and all monies owned by
it, at any time during the period of this Agreement, and shall
specify with respect to such Securities and money the Series to
which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and
apart. The Custodian will not be responsible for any Securities
and monies not actually received by it. The Custodian will be
entitled to reverse any credits made on the Fund's behalf where
such credits have been previously made and monies are not finally
collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in
the form of Exhibit A hereto, approving, authorizing and
instructing the Custodian on a continuous and on-going basis to
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<PAGE>
deposit in the Book-Entry System all Securities eligible for
deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the
extent possible in connection with its performance hereunder,
including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Prior to a
deposit of Securities specifically allocated to a Series in the
Depository, the Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in
the form of Exhibit B hereto, approving, authorizing and
instructing the Custodian on a continuous and on-going basis until
instructed to the contrary by a Certificate actually received by
the Custodian to deposit in the Depository all Securities
specifically allocated to such Series eligible for deposit
therein, and to utilize the Depository to the extent possible with
respect to such Securities in connection with its performance
hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of Securities collateral.
Securities and monies deposited in either the Book-Entry System or
the Depository will be represented in accounts which include only
assets held by the Custodian for customers, including, but not
limited to, accounts in which the Custodian acts in a fiduciary or
representative capacity. Prior to the Custodian's accepting,
utilizing and acting with respect to Clearing Member confirmations
for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified
resolution of the Fund's Board of Directors, substantially in the
form of Exhibit C hereto, approving, authorizing and instructing
the Custodian on a continuous and on-going basis, until instructed
to the contrary by a Certificate actually received by the
Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such
Series.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the
separate account for each Series all monies received by it for the
account of the Fund with respect to such Series. Money credited
to a separate account for a Series shall be disbursed by the
Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the
Series account from which payment is to he made, and the purpose
for which payment is to be made; or
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<PAGE>
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such
Series.
3. Promptly after the close of business on each day the
Custodian shall furnish the Fund with confirmations and a summary,
on a per Series basis, of all transfers to or from the account of
the Fund for a Series, either hereunder or with any co-custodian
or sub-custodian appointed in accordance with this Agreement
during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry
or otherwise identify as belonging to such Series a quantity of
Securities in a fungible bulk of Securities registered in the name
of the Custodian (or its nominee) or shown on the Custodian's
account on the books of the Book-Entry System or the Depository.
At least monthly and from time to time, the Custodian shall
furnish the Fund with a detailed statement, on a per Series basis,
of the Securities and monies held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the Custodian
hereunder, which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System, shall
be held by the Custodian in that form; all other Securities held
hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the
Custodian may from time to time determine, or in the name of the
Book-Entry System or the Depository or their successor or
successors, or their nominee or nominees. The Fund agrees to
furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee or in the name of
the Book-Entry System or the Depository any Securities which it
may hold hereunder and which may from time to time be registered
in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held
in the Book-Entry system or in the Depository in a separate
account in the name of such Series physically segregated at all
times from those of any other person or persons.
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate, the
Custodian by itself, or through the use of the Book-Entry System
or the Depository with respect to Securities held hereunder and
therein deposited, shall with respect to all Securities held for
the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income due or payable;
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<PAGE>
(b) Present for payment and collect the amount payable
upon such Securities which are called, but only if either (i) the
Custodian receives a written notice of such call, or (ii) notice
of such call appears in one or more of the publications listed in
Appendix C annexed hereto, which may be amended at any time by the
Custodian without the prior notification or consent of the Fund;
(c) Present for payment and collect the amount payable
upon all Securities which mature;
(d) Surrender Securities in temporary form for
definitive Securities;
(e) Execute, as custodian, any necessary declarations
or certificates of ownership under the Federal Income Tax Laws or
the laws or regulations of any other taxing authority now or
hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or
the Depository with respect to Securities therein deposited, for
the account of a Series, all rights and similar securities issued
with respect to any Securities held by the Custodian for such
Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System or
the Depository, shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authorizations,
and any other instruments whereby the authority of the Fund as
owner of any Securities held by the Custodian hereunder for the
Series specified in such Certificate may be exercised;
(b) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in exchange
for other Securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of any
conversion privilege and receive And hold hereunder specifically
allocated to such Series any cash or other Securities received in
exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any
protective committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically allocated
to such Series such certificates of deposit interim receipts or
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<PAGE>
other instruments or documents as may be issued to it to evidence
such delivery;
(d) Make such transfers or exchanges of the assets of
the Series specified in such Certificate, and take such other
steps as shall be stated in such Certificate to be for the purpose
of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the
Fund; and
(e) Present for payment and collect the amount payable
upon Securities not described in preceding paragraph 5(b) of this
Article which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained
herein, the Custodian shall not be required to obtain possession
of any instrument or certificate representing any Futures
Contract, any Option, or any Futures Contract Option until after
it shall have determined, or shall have received a Certificate
from the Fund stating, that any such instruments or certificates
are available. The Fund shall deliver to the Custodian such a
Certificate no later than the business day preceding the
availability of any such instrument or certificate. Prior to such
availability, the Custodian shall comply with Section 17f of the
Investment Company Act of 1940, as amended, in connection with the
purchase, sale, settlement, closing out or writing of Futures
Contracts, Options, or Futures Contract Options by making payments
or deliveries specified in Certificates received by the Custodian
in connection with any such purchase, sale, writing, settlement or
closing out upon its receipt from a broker, dealer, or futures
commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by
brokers, dealers, or future commission merchants with respect to
such Futures Contracts, Options, or Futures Contract Options, as
the case may be, confirming that such Security is held by such
broker, dealer or futures commission merchant, in book-entry form
or otherwise, in the name of the Custodian (or any nominee of the
Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the
Margin Account, and payments with respect to Securities to which a
Margin Account relates, shall be made in accordance with the terms
and conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall,
notwithstanding any provision in this Agreement to the contrary,
make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are
available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Future Contract,
option or Futures Contract Option for which such instruments or
such certificates are available only against receipt by the
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<PAGE>
Custodian of payment therefor. Any such instrument or certificate
delivered to the Custodian shall be held by the Custodian
hereunder in accordance with, and subject to, the provisions of
this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund,
other than a purchase of an Option, a Futures Contract, or a
Futures Contract Option, the Fund shall deliver to the Custodian
(i) with respect to each purchase of Securities which are not
Money Market Securities, a Certificate, and (ii) with respect to
each purchase of Money Market Securities, a Certificate, Oral
Instructions or Written Instructions, specifying with respect to
each such purchase: (a) the Series to which such Securities are
to be specifically allocated; (b) the name of the issuer and the
title of the Securities; (c) the number of shares or the principal
amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the
total amount payable upon such purchase; (g) the name of the
person from whom or the broker through whom the purchase was made,
and the name of the clearing broker, if any; and (h) the name of
the broker to whom payment is to be made. The Custodian shall,
upon receipt of Securities purchased by or for the Fund, pay to
the broker specified in the Certificate out of the monies held for
the account of such Series the total amount payable upon such
purchase, provided that the same conforms to the total amount
payable as set forth in such Certificate, Oral Instructions or
Written Instructions.
2. Promptly after each sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures
Contract Option, or any Reverse Repurchase Agreement, the Fund
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a
Certificate, Oral Instructions or Written Instructions, specifying
with respect to each such sale: (a) the Series to which such
Securities were specifically allocated; (b) the name of the issuer
and the title of the Security; (c) the number of shares or
principal amount sold, and accrued interest, if any; (d) the date
of sale; (e) the sale price per unit; (f) the total amount payable
to the Fund upon such sale; (g) the name of the broker through
whom or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom
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the Securities are to be delivered. The Custodian shall deliver
the Securities specifically allocated to such Series to the broker
specified in the Certificate upon the total amount payable to the
Fund upon such sale, provided that the same conforms to the total
amount payable as set forth in such Certificate, Oral Instructions
or Written Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund,
the Fund shall deliver to the Custodian a Certificate specifying
with respect to each option purchased: (a) the Series to which
such Option is specifically allocated; (b) the type of Option (put
or call); (c) the name of the issuer and the title and number of
shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the
number of Stock Index Options purchased; (d) the expiration date;
(e) the exercise price; (f) the dates of purchase and settlement;
(g) the total amount payable by the Fund in connection with such
purchase; (h) the name of the Clearing Member through whom such
Option was purchased; and (i) the name of the broker to whom
payment is to be made. The Custodian shall pay, upon receipt of a
Clearing Member's statement confirming the purchase of such Option
held by such Clearing Member for the account of the Custodian (or
any duly appointed and registered nominee of the Custodian) as
Custodian for the Fund, out of monies held for the account of the
Series to which such Option is to be specifically allocated, the
total amount payable upon such purchase to the Clearing Member
through whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such
Certificate.
2. Promptly after the sale of any Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to each such sale:
(a) the Series to which such Option was specifically allocated;
(b) the type of Option (put or call); (c) the name of the issuer
and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such
Option relates and the number of Stock Index Options sold; (d) the
date of sale; (e) the sale price; (f) the date of settlement;
(g) the total amount payable to the Fund upon such sale; and
(h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option
sold by the Clearing Member which previously supplied the
confirmation described in preceding paragraph 1 of this Article
with respect to such Option against payment to the Custodian of
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the total amount payable to the Fund, provided that the same
conforms to the total amount payable as set forth in such
Certificate.
3. Promptly after the exercise by the Fund of any Call
Option purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying with
respect to such Call Option: (a) the Series to which such Call
Option was specifically allocated; (b) the name of the issuer and
the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the
exercise price per share; (f) the total amount to be paid by the
Fund upon such exercise; and (g) the name of the Clearing Member
through whom such Call Option was exercised. The Custodian shall,
upon receipt of the Securities underlying the Call Option which
was exercised, pay out of the monies held for the account of the
Series to which such Call Option was specifically allocated the
total amount payable to the Clearing Member through whom the Call
Option was exercised, provided that the same conforms to the total
amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the fund pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying with
respect to such Put Option; (a) the Series to which such Put
Option was specifically allocated; (b) the name of the issuer and
the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the
exercise price per share; (f) the total amount to be paid to the
Fund upon such exercise; and (g) the name of the Clearing Member
through whom such Put Option was exercised. The Custodian shall,
upon receipt of the amount payable upon the exercise of the Put
Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms
to the amount payable to the Fund as set forth in such
Certificate.
5. Promptly after the exercise by the fund of any Stock
Index Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specifying
with respect to such Stock Index Option; (a) the Series to which
such Stock Index Option was specifically allocated; (b) the type
of Stock Index Option (put or call); (c) the number of Options
being exercised; (d) the stock index to which such Option relates;
(e) the expiration date; (f) the exercise price; (g) the total
amount to be received by the Fund in connection with such
exercise; and (h) the Clearing Member from whom such payment is to
be received.
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6. Whenever the Fund writes a Covered Call Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying
with respect to such Covered Call Option: (a) the Series for which
such Covered Call was written; (b) the name of the issuer and the
title and number of shares for which the Covered Call Option was
written and which underlie the same; (c) the expiration date;
(d) the exercise price; (c) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and
(g) the name of the Clearing Member through whom the premium is to
be received. The Custodian shall deliver to cause to be
delivered, in exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing
among Clearing Members dealing in Covered Call Options and shall
impose, or direct the Depository to impose, upon the underlying
Securities specified in the Certificate specifically allocated to
such Series such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon
prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the
Custodian and not deposited with the Depository underlying a
Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and
described in the preceding paragraph of this Article is exercised,
the Fund shall promptly deliver to the Custodian a Certificate
instructing the Custodian to deliver, or to direct the Depository
to deliver, the Securities subject to such Covered Call Option and
specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of
shares subject to the Covered Call Option; (c) the Clearing Member
to whom the underlying Securities are to be delivered; and (d) the
total amount payable to the fund upon such delivery. Upon the
return and/or cancellation of any receipts delivered pursuant to
paragraph 6 of this Article, the Custodian shall deliver, or
direct the Depository to deliver, the underlying Securities as
specified in the Certificate against payment of the amount to be
received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with
respect to such Put Option: (a) the Series for which such Put
Option was written; (b) the name of the issuer and the title and
number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the fund; (f) the date
such Put Option is written; (g) the name of the Clearing Member
through whom the premium is to be received and to whom a Put
Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any,
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specifically allocated to such Series to be deposited in the
Senior Security Account for such Series; and (i) the amount of
cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral
Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the Certificate,
issue a Put Option guarantee letter substantially in the form
utilized by the Custodian on the date hereof, and deliver the same
to the clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate.
Notwithstanding the foregoing, the Custodian shall be under no
obligation to issue any Put Option guarantee letter or similar
document if it is unable to make any of the representations
contained therein.
9. Whenever a Put Option written by the Fund and described
in the preceding paragraph is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the Series
to which such put Option was written; (b) the name of the issuer
and title and number of shares subject to the Put Option; (c) the
Clearing Member from whom the underlying Securities are to be
received; (d) the total amount payable by the fund upon such
delivery; (e) the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be withdrawn
from the Collateral Account for such Series and (f) the amount of
cash and/or the amount and kind of Securities, specifically
allocated to such Series, if any, to be withdrawn form the Senior
Security Account. Upon the return and/or cancellation of any Put
Option guarantee letter or similar document issued by the
Custodian in connection with such Put Option, the Custodian shall
pay out of the monies held for the account of the Series to which
such Put Option was specifically allocated the total amount
payable to the Clearing Member specified in the Certificate as set
forth in such Certificate against delivery of such Securities, and
shall make the withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying
with respect to such Stock Index Option: (a) the Series for which
such Stock Index Option was written; (b) whether such Stock Index
Option is a put or a call; (c) the number of options written;
(d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member
through whom such Option was written; (h) the premium to be
received by the Fund; (i) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series
to be deposited in the Senior Security Account for such Series;
(j) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in
the Collateral Account for such Series; and (k) the amount of cash
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and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account, and
the name in which such account is to be or has been established.
The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security
Account specified in the Certificate, and either (1) deliver such
receipts, if any, which the Custodian has specifically agreed to
issue, which are in accordance with the customs prevailing among
Clearing Members in Stock Index Options and make the deposits into
the Collateral Account specified in the Certificate, or (2) make
the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and
described in the preceding paragraph of this Article is exercised,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option; (a) the Series
for which such Stock Index Option was written; (b) such
information as may be necessary to identify the Stock Index Option
being exercised; (c) the Clearing Member through whom such Stock
Index Option is being exercised; (d) the total amount payable upon
such exercise, and whether such amount is to be paid by or to the
Fund; (e) the amount of cash and/or amount and kind of Securities,
if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be
withdrawn form the Senior Security Account for such series; and
the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn form the Collateral Account for such Series.
Upon the return and/or cancellation of the receipt, if any,
delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the monies held for the account of the
Series to which such Stock Index Option was specifically allocated
to the Clearing Member specified in the Certificate the total
amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a
previously written Option described in paragraphs 6, 8 or 10 of
this Article in a transaction expressly designated as a "Closing
Purchase Transaction: in order to liquidate its position as a
writer of an Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to the Option
being purchased; (a) that the transaction is a Closing Purchase
Transaction; (b) the Series for which the Option was written;
(c) the name of the issuer and the title and number of shares
subject to the Option, or, in the case of a Stock index Option,
the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid
by the Fund; (f) the expiration date; (g) the type of Option (put
or call); (h) the date of such purchase; (i) the name of the
Clearing Member to whom the premium is to be paid; and (j) the
amount of cash and/or the amount and kind of Securities, if any,
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to be withdrawn from the collateral Account, a specified Margin
Account, or the Senior Security account for such Series. Upon the
Custodian's payment of the premium and the return and/or
cancellation of any receipt issued pursuant to paragraphs 6, 8 or
10 of this Article with respect to the Option being liquidated
through the Closing Purchase Transaction, the Custodian shall
remove, or direct the Depository to remove, the previously imposed
restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise, or consummation of a
Closing Transaction with respect to, any Option purchase or
written by the Fund and described in this Article, the Custodian
shall delete such Option from the statements delivered to the Fund
pursuant to paragraph 3 Article III herein, and upon the return
and/or cancellation of any receipts issued by the Custodian, shall
make such withdrawals from the Collateral Account, and the Margin
Account and/or the Senior Security Account as may be specified in
a Certificate received in connection with such expiration,
exercise or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the fund shall enter into a Futures Contract,
the Fund shall deliver to the Custodian a Certificate specifying
with respect to such Futures Contract, (or with respect to any
number of identical Futures Contract(s)): (a) the Series for
which the Futures Contract is being entered; (b) the category of
Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures
Contracts entered into; (d) the delivery or settlement date of the
Futures Contract(s); (e) the date the Futures Contract(s) was
(were) entered into and the maturity date (f) whether the Fund is
buying (going long) or selling (going short) on such Futures
Contract(s); (g) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account
for such Series; (h) the name of the broker, dealer, or futures
commission merchant through whom the Futures contract was entered
into; and (i) the amount of fee or commission, if any, to be paid
and the name of the broker, dealer, or futures commission merchant
to whom such amount is to be paid. The Custodian shall make the
deposits, if any, to the margin Account in accordance with the
terms and conditions of the Margin Account Agreement. The
Custodian shall make payment out of the monies specifically
allocated to such Series of the fee or commission, if any,
specified in the Certificate and deposit in the Senior Security
Account for such Series the amount of cash and/or the amount and
kind of Securities specified in said Certificate.
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2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or futures
commission merchant with respect to an outstanding Futures
Contract, shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment
from a broker, dealer, or futures commission merchant to the Fund
with respect to an outstanding Futures Contract, shall be received
and dealt with by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
3. Whenever a futures Contract held by the Custodian
hereunder is retained by the fund until delivery or settlement is
made on such Futures Contract, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the Futures Contract and
the Series to which the same relates; (b) with respect to a Stock
Index Futures Contract, the total cash settlement amount to be
paid or received, and with respect to a Financial Futures
Contract, the Securities and/or amount of cash to be delivered or
received; (c) the broker, dealer, or futures commission merchant
to or from whom payment or delivery is to be made or received; and
(d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make
the payment or delivery specified in the Certificate, and delete
such Futures Contract from the Statements delivered to the Fund
pursuant to paragraph 3 of Article III herein.
4. Whenever the fund shall enter into a Futures Contract to
offset a Futures Contract held by the Custodian hereunder, the
Fund shall deliver to the Custodian a Certificate specifying: (a)
the items of information required in a Certificate described in
paragraph 1 of this Article, and (b) the futures Contract being
offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if
any, specified in the Certificate and delete the Futures Contract
being offset from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein, and make such withdrawals from
the Senior Security Account for such Series as may be specified in
such Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract
Option by the fund, the Fund shall promptly deliver to the
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Custodian a Certificate specifying with respect to such Futures
Contract Option: (a) the series to which such Option is
specifically allocated; (b) the type of Futures Contract Option
(put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option purchased; (d) the
expiration date; (e) the exercise price; (f) the dates of purchase
and settlement; (g) the amount of premium to be paid by the Fund
upon such purchase; (h) the name of the broker or futures
commission merchant through whom such option was purchased; and
(i) the name of the broker, or futures commission merchant, to
whom payment is to be made. The Custodian shall pay out of the
monies specifically allocated to such Series, the total amount to
be paid upon such purchase to the broker or futures commissions
merchant through whom the purchase was made, provided that the
same conforms to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund
shall promptly deliver to the Custodian a Certificate specifying
with respect to each such sale: (a) Series to which such Futures
Contract Option was specifically allocated; (b) the type of Future
Contract Option (put or call); (c) the type of Futures Contract
and such other information as may be necessary to identify the
Futures Contract underlying the Futures contract Option; (d) the
date of sale; (e) the sale price; (f) the date of settlement; (g)
the total amount payable to the fund upon such sale; and (h) the
name of the broker of futures commission merchant through whom the
sale was made. The Custodian shall consent to the cancellation of
the Futures Contract Option being closed against payment to the
Custodian of the total amount payable to the Fund, provided the
same conforms to the total amount payable as set forth in such
Certificate.
3. Whenever a Futures Contract Option purchased by the Fund
pursuant to paragraph 1 is exercised by the Fund, the Fund shall
promptly deliver to the Custodian a Certificate specifying: (a)
the Series to which such Futures Contract Option was specifically
allocated; (b) the particular Futures Contract Option (put or
call) being exercised; (c) the type of Futures Contract underlying
the Futures Contract Option; (d) the date of exercise; (e) the
name of the broker or futures commission merchant through whom the
Futures Contract Option is exercised; (f) the net total amount, if
any, payable by the Fund; (g) the amount, if any, to be received
by the Fund; and (h) the amount of cash and/or the amount and kind
of Securities to be deposited in the Senior Security Account for
such Series. The Custodian shall make, out of the monies and
Securities specifically allocated to such Series, the payments, if
any, and the deposits, if any, into the Senior Security Account as
specified in the Certificate. The deposits, if any, to be made to
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the Margin Account shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a) the
Series for which such Futures Contract Option was written; (b) the
type of Futures Contract Option (put or call); (c) the type of
Futures Contract and such other information as may be necessary to
identify the Futures Contract underlying the Futures Contract
Option; (d) the expiration date; (e) the exercise price; (f) the
premium to be received by the Fund; (g) the name of the broker or
futures commission merchant through whom the premium is to be
received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account
for such Series. The Custodian shall, upon receipt of the premium
specified in the Certificate, make out of the monies and
Securities specifically allocated to such Series the deposits into
the Senior Security Account, if any, as specified in the
Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
5. Whenever a Futures contract Option written by the Fund
which is a call is exercised, the Fund shall promptly deliver to
the Custodian a Certificate specifying: (a) the Series to which
such Futures Contract Option was specifically allocated; (b) the
particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom
such Futures Contract Option was exercised; (e) the net total
amount, if any, payable to the Fund upon such exercise; (f) the
net total amount, if any, payable by the Fund upon such exercise;
and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon its receipt of the net total
amount payable to the Fund, if any specified in such Certificate
make the payments, if any, and the deposits, if any, into the
Senior Security Account as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be made
by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by
the Fund and which is a put is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the Series
to which such Option was specifically allocated ; (b) the
particular Futures Contract Option exercised; (c) the type of
futures Contract underlying such Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom
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such Futures Contract Option is exercised; (e) the net total
amount, if any, payable to the Fund upon such exercise; (f) the
net total amount, if any, payable by the Fund upon such exercise;
and (g) the amount and kind of Securities and/or cash to be
withdrawn from or deposited in, the Senior Security Account for
such Series, if any. The Custodian shall, upon its receipt of the
net total amount payable to the Fund, if any specified in the
Certificate, make out of the monies and Securities specifically
allocated to such Series, the payments, if any and the deposits,
if any, into the Senior Security Account as specified in the
Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the custodian in accordance with
the terms and conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option
identical to a previously written Futures Contract Option
described in this Article in order to liquidate its position as a
writer of such Futures Contract Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to
which such Option is specifically allocated; (b) that the
transaction is a closing transaction; (c) the type of Future
Contract and such other information as may be necessary to
identify the Futures Contract underlying the Futures Option
Contract; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the name of the broker or
futures commission merchant to whom the premium is to be paid; and
(h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such
Series. The Custodian shall effect the withdrawals from the
Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall be
made by the Custodian in accordance with the terms and conditions
of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures contract Option
written or purchased by the Fund and described in this Article,
the Custodian shall (a) delete such Futures Contract Option from
the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security
Account as may be specified in a Certificate. The deposits to
and/or withdrawals from the Margin Account, if any, shall be made
by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this Article
shall be subject to Article VI hereof.
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ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the
Fund, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series for which such short sale
was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and
accrued interest or dividends, if any; (d) the dates of the sale
and settlement; (e) the sale price per unit; (f) the total amount
credited to the Fund upon such sale, if any, (g) the amount of
cash and/or the amount and kind of Securities, if any, which are
to be deposited in a Margin Account and the name in which such
Margin Account has been or is to be established; (h) the amount of
cash and/or the amount and kind of Securities, if any, to be
deposited in a Senior Security Account, and (i) the name of the
broker through whom such short sale was made. The Custodian shall
upon its receipt of a statement from such broker confirming such
sale and that the total amount credited to the Fund upon such
sale, if any, as specified in the Certificate is held by such
broker for the account of the Custodian (or any nominee of the
Custodian) as custodian of the Fund, issue a receipt or make the
deposits into the Margin Account and the Senior Security Account
specified in the Certificate.
2. In connection with the closing-out of any short sale,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such closing-out: (a) the Series
for which such transaction is being made; (b) the name of the
issuer and the title of the Security; (c) the number of shares or
the principal amount, and accrued interest or dividends, if any,
required to effect such closing-out to be delivered to the broker;
(d) the dates of closing-out and settlement; (e) the purchase
price per unit; (f) the net total amount payable to the Fund upon
such closing-out; (g) the net total amount payable to the broker
upon such closing-out; (h) the amount of cash and the amount and
kind of Securities to be withdrawn, if any, from the Margin
Account; (i) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Senior Security
Account; and (j) the name of the broker through whom the Fund is
effecting such closing-out. The Custodian shall, upon receipt of
the net total amount payable to the Fund upon such closing-out,
and the return and/or cancellation of the receipts, if any, issued
by the Custodian with respect to the short sale being closed-out,
pay out of the monies held for the account of the Fund to the
broker the net total amount payable to the broker, and make the
withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
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ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the
Custodian hereunder, the Fund shall deliver to the Custodian a
Certificate or in the event such Reverse Repurchase Agreement is a
Money Market Security, a Certificate, Oral Instructions, or
Written Instructions specifying: (a) the Series for which the
Reverse Repurchase Agreement is entered; (b) the total amount
payable to the Fund in connection with such Reverse Repurchase
Agreement and specifically allocated to such Series; (c) the
broker or dealer through or with whom the Reverse Repurchase
Agreement is entered; (d) the amount and kind of Securities to be
delivered by the Fund to such broker or dealer; (e) the date of
such Reverse Repurchase Agreement; and (f) the amount of cash and/
or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount
payable to the Fund specified in the Certificate, Oral
Instructions or Written Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security
Account, specified in such Certificate, Oral Instructions, or
Written Instructions.
2. Upon the termination of a Reverse Repurchase Agreement
described in preceding paragraph 1 of this Article, the Fund shall
promptly deliver a Certificate or, in the event such Reverse
Repurchase Agreement is a Money Market Security, a Certificate,
Oral Instructions, or Written Instructions to the Custodian
specifying: (a) the Reverse Repurchase Agreement being terminated
and the Series for which same was entered; (b) the total amount
payable by the Fund in connection with such termination; (c) the
amount and kind of Securities to be received by the Fund and
specifically allocated to such Series in connection with such
termination; (d) the date of termination; (e) the name of the
broker or dealer with or through whom the Reverse Repurchase
Agreement is to be terminated; and (f) the amount or cash and/or
the amount and kind of Securities to be withdrawn from the Senior
Securities Account for such Series. The Custodian shall, upon
receipt of the amount and kind of Securities to be received by the
Fund specified in the Certificate, Oral Instructions, or Written
Instructions, make the payment to the broker or dealer, and the
withdrawals, if any, from the Senior Security Account, specified
in such Certificate; Oral Instructions, or Written Instructions.
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ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian
hereunder, the Fund shall deliver or cause to be delivered to the
Custodian a Certificate specifying with respect to each such loan:
(a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount
loaned; (d) the date of loan and delivery; (e) the total amount to
be delivered to the Custodian against the loan of the Securities,
including the amount of cash collateral and the premium, if any,
separately identified; and (f) the name of the broker, dealer, or
financial institution to which the loan was made. The Custodian
shall deliver the Securities thus designated to the broker, dealer
or financial institution to which the loan was made upon receipt
of the total amount designated as to be delivered against the loan
of Securities. The Custodian may accept payment in connection
with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check
payable to the order of the Fund or the Custodian drawn on New
York Clearing House funds and may deliver Securities in accordance
with the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of
Securities by the Fund, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with respect
to each such loan termination and return of Securities: (a) the
Series to which the loaned Securities are specifically allocated;
(b) the name of the issuer and the title of the Securities to be
returned; (c) the number of shares or the principal amount to be
returned; (d) the date of termination; (e) the total amount to be
delivered by the Custodian (including the cash collateral for such
Securities minus any offsetting credits as described in said
Certificate), and (f) the name of the broker, dealer, or financial
institution from which the Securities will be returned. The
Custodian shall receive all Securities returned from the broker,
dealer, or financial institution to which such Securities were
loaned and upon receipt thereof shall pay, out of the monies held
for the account of the Fund, the total amount payable upon such
return of Securities as set forth in the Certificate.
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ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such
deposits to, or withdrawals from, a Senior Security Account as
specified in a Certificate received by the Custodian. Such
Certificate shall specify the Series for which such deposit or
withdrawal is to be made, and the amount of cash and/or the amount
and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for
such Series. In the event that the Fund fails to specify in a
Certificate the Series, the name of the issuer, the title and the
number of shares or the principal amount of any particular
Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under no
obligation to make any such deposit or withdrawal and shall so
notify the Fund.
2. The Custodian shall make deliveries or payments from a
Margin Account to the broker, dealer, futures commission merchant
or Clearing Member in whose name, or for whose benefit, the
account was established as specified in the Margin Account
Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Margin
Account shall be dealt with in accordance with the terms and
conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security
interest in and to any property at any time held by the Custodian
in any Collateral Account described herein. In accordance with
applicable law the Custodian may enforce its lien and realize on
any such property whenever the Custodian has made payment or
deliver pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the
event the Custodian should realize on any such property net
proceeds which are less than the Custodian's obligations under any
Put Option guarantee letter or similar document or any receipt,
such deficiency shall be a debt owed the Custodian by the Fund
within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the
Fund with a statement with respect to each Margin Account in which
money or Securities are held specifying as of the close of
business on the previous business day: (a) the name of the Margin
Account; (b) the amount and kind of Securities held therein; and
(c) the amount of money held therein. The Custodian shall make
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available upon request to any broker, dealer, or futures
commission merchant specified in the name of a Margin Account a
copy of the statement furnished the Fund with respect to such
Margin Account.
6. Promptly after the close of business on each business
day in which cash and/or Securities are maintained in a Collateral
Account for any Series, the Custodian shall furnish the Fund with
a Statement with respect to such Collateral Account specifying the
amount of cash and/or the amount and kind of Securities held
therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to
the Custodian a Certificate or Written Instructions specifying the
then market value of the Securities described in such statement.
In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put
Option guarantee letter or similar document, the Fund shall
promptly specify in a Certificate the additional cash and/or
Securities to be deposited in such Collateral Account to eliminate
such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the
resolution of the Board of Directors of the Fund, certified by the
Security or any Assistant Secretary, either (i) setting forth with
respect to the Series specified therein the date of the
declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per Share of such
Series to the shareholders of record as of that date and the total
amount payable to the Dividend Agent and any sub-dividend agent or
co-dividend agent of the Fund on the payment date, or (ii)
authorizing with respect to the Series specified therein the
declaration of dividends and distributions on a daily basis and
authorizing the Custodian to rely on Oral Instructions, Written
Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per Share of such
Series to the shareholders of record as of that date and the total
amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions or Certificate, as the case may
be, the Custodian shall pay out of the monies held for the account
of each Series the total amount payable to the Dividend Agent, and
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any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall
deliver to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date,
and price; and
(b) The amount of money to be received by the Custodian
for the sale of such Shares and specifically allocated to the
separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the
Custodian shall credit such money to the separate account in the
name of the Series for which such money was received.
3. Upon issuance of any Shares of any Series described in
the foregoing provisions of this Article, the Custodian shall pay,
out of the money held for the account of such Series, all original
issue or other taxes required to be paid by the Fund in connection
with such issuance upon the receipt of a Certificate specifying
the amount to be paid.
4. Except as provided hereinafter, whenever the Fund
desires the Custodian to make payment out of the money held by the
Custodian hereunder in connection with a redemption of any Shares,
it shall furnish to the Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice
setting forth the Series and number of Shares received by the
Transfer Agent for redemption and that such Shares are in good
form for redemption, the Custodian shall make payment to the
Transfer Agent out of the monies held in the separate account in
the name of the Series the total amount specified in the
Certificate issued pursuant to the foregoing paragraph 4 of this
Article.
6. Notwithstanding the above provisions regarding the
redemption of any Shares, whenever any Shares are redeemed
pursuant to any check redemption privilege which may from time to
time be offered by the Fund, the Custodian, unless otherwise
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instructed by a Certificate, shall, upon receipt of an advice from
the Fund or its agent setting forth that the redemption is in good
form for redemption in accordance with the check redemption
procedure, honor the check presented as part of such check
redemption privilege out of the monies held in the separate
account of the Series of the Shares being redeemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance
funds on behalf of any Series which results in an overdraft
because the monies held by the Custodian in the separate account
for such Series shall be insufficient to pay the total amount
payable upon a purchase of Securities specifically allocated to
such Series, as set forth in a Certificate, Oral Instructions, or
Written Instructions or which results in an overdraft in the
separate account of such Series for some other reason, or if the
Fund is for any other reason indebted to the Custodian with
respect to a Series (except a borrowing for investment or for
temporary or emergency purposes using Securities as collateral
pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall
be deemed to be a loan made by the Custodian to the Fund for such
Series payable on demand and shall bear interest from the date
incurred at a rate per annum (based on a 360-day year for the
actual number of days involved) equal to 1/2% over Custodian's
prime commercial lending rate in effect from time to time, such
rate to be adjusted on the effective date of any change in such
prime commercial lending rate but in no event to be less than 6%
per annum. In addition, the Fund hereby agrees that the Custodian
shall have a continuing lien and security interest in and to any
property specifically allocated to such Series at any time held by
it for the benefit of such Series or in which the Fund may have an
interest which is then in the Custodian's possession or control of
any third party acting in the Custodian's behalf. The Fund
authorizes the Custodian, in its sole discretion, at any time to
charge any such overdraft or indebtedness together with interest
due thereon against any balance of account standing to such
Series' credit on the Custodian's books.
2. The Fund will cause to be delivered to the Custodian by
any bank (including, if the borrowing is pursuant to a separate
agreement, the Custodian) from which it borrows money for
investment or for temporary or emergency purposes using Securities
held by the Custodian hereunder as collateral for such borrowings,
a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the
Fund against delivery of a stated amount of collateral. The Fund
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shall promptly deliver to the Custodian a Certificate specifying
with respect to each such borrowing: (a) the Series to which such
borrowing relates; (b) the name of the bank, (c) the amount and
terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund,
or other loan agreement, (d) the time and date, if known, on which
the loan is to be entered into, (e) the date on which the loan
becomes due and payable, (f) the total amount payable to the Fund
on the borrowing date, (g) the market value of Securities to be
delivered as collateral for such loan, including the name of the
issuer, the title and the number of shares or the principal amount
of any particular Securities, and (h) a statement specifying
whether such loan is for investment purposes or for temporary or
emergency purposes and that such loan is in conformance with the
Investment Company Act of 1940 and the Fund's prospectus. The
Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory
note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the
total amount payable as set forth in the Certificate. The
Custodian may, at the option of the ending bank, keep such
collateral in its possession, but such collateral shall be subject
to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver
such Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described in
this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and
the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount of
any particular Securities to be delivered as collateral by the
Custodian, the Custodian shall not be under any obligation to
deliver any Securities.
ARTICLE XV
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian
nor its nominee shall be liable for any loss or damage, including
counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agreement,
except for any such loss or damage arising out of its own
negligence or willful misconduct. The Custodian may, with respect
to questions of law arising hereunder or under any Margin Account
Agreement, apply for and obtain the advice and opinion of counsel
to the Fund or of its own counsel, at the expense of the Fund, and
shall be fully protected with respect to anything done or omitted
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by it in good faith in conformity with such advice or opinion.
The Custodian shall be liable to the Fund for any loss or damage
resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence, misfeasance or willful
misconduct on the part of the Custodian or any of its employees or
agents.
2. Without limiting the generality of the foregoing, the
Custodian shall be under no obligation to inquire into, and shall
not be liable for:
(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality of
the purchase, sale or writing thereof, or the propriety of the
amount paid or received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor;
(c) The legality of the declaration or payment of any
dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securities,
nor shall the Custodian be under any duty or obligation to see to
it that any cash collateral delivered to it by a broker, dealer,
or financial institution or held by it at any time as a result of
such loan of portfolio Securities of the Fund is adequate
Collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way
of limitation, shall not be under any duty or obligation
periodically to check or notify the Fund that the amount of such
cash collateral held by it for the Fund is sufficient collateral
for the Fund, but such duty or obligation shall be the sole
responsibility of the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer or
financial institution to which portfolio Securities of the Fund
are lent pursuant to Article XIV of this Agreement makes payment
to it of any dividends or interest which are payable to or for the
account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian
shall promptly notify the Fund in the event that such dividends or
interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of money
and/or Securities held in any Margin Account, Senior Security
account, Exempt Account or Collateral Account in connection with
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transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer,
futures commission merchant or Clearing Member makes payment to
the Fund of any variation margin payment or similar payment which
the Fund may be entitled to receive from such broker, dealer,
futures commission merchant or Clearing Member, to see that any
payment received by the Custodian from any broker, dealer, futures
commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's
receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to
be the Custodian of, any money, whether or not represented by any
check, draft, or other instrument for the payment of money,
received by it on behalf of the Fund until the Custodian actually
receives and collects such money directly or by the final
crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not
be liable for ascertaining or acting upon any calls, conversions,
exchange, offers, tenders, interest rate changes or similar
matters relating to Securities held in the Depositary, unless the
Custodian shall have actually received timely notice from the
Depositary. In no event shall the Custodian have any
responsibility or liability for the failure of the Depositary to
collect, or for the late collection or late crediting by the
Depositary of any amount payable upon Securities deposited in the
Depositary which may mature or be redeemed, retired, called or
otherwise become payable. However, upon receipt of a Certificate
from the Fund of an overdue amount on Securities held in the
Depositary the Custodian shall make a claim against the Depositary
on behalf of the Fund, except that the Custodian shall not be
under any obligation to appear in, prosecute or defend any action
suit or proceeding in respect to any Securities held by the
Depositary which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all expense
and liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation
to take action to effect collection of any amount due to the Fund
from the Transfer Agent of the Fund nor to take any action to
effect payment or distribution by the Transfer Agent of the Fund
of any amount paid by the Custodian to the Transfer Agent of the
Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation
to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if
payment is refused after due demand or presentation, unless and
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until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any
such action.
7. The Custodian may appoint one or more banking
institutions as Depository or Depositories, as Sub-Custodian or
Sub-Custodians, or as Co-Custodian or Co-Custodians including, but
not limited to, banking institutions located in foreign countries,
of Securities and monies at any time owned by the Fund, upon such
terms and conditions as may be approved in a Certificate or
contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation
(a) to ascertain whether any Securities at any time delivered to,
or held by it, for the account of the Fund and specifically
allocated to a Series are such as properly may be held by the Fund
or such Series under the provisions of its then current
prospectus, or (b) to ascertain whether any transactions by the
Fund, whether or not involving the Custodian, are such transaction
as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund
agrees to pay to the Custodian all out-of-pocket expenses and such
compensation as may be agreed upon from time to time between the
Custodian and the Fund. The Custodian may charge such
compensation and any expenses with respect to a series incurred by
the Custodian in the performance of its duties pursuant to such
agreement against any money specifically allocated to such Series.
Unless and until the Fund instructs the Custodian by a Certificate
to apportion any loss, damage, liability or expense among the
Series in a specified manner, the Custodian shall also be entitled
to charge against any money held by it for the account of a Series
such Series' pro rata share (based on such Series net asset value
at the time of the charge to the net asset value of all Series at
that time) of the amount of any loss, damage, liability or
expense, including counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement. The
expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the
expenses of sub-custodians and foreign branches of the Custodian
incurred in settling outside of New York City transactions
involving the purchase and sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by the
Custodian and reasonably believed by the Custodian to be a
Certificate. The Custodian shall be entitled to rely upon any
Oral Instructions and any Written Instructions actually received
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by the Custodian hereinabove provided for. The Fund agrees to
forward to the Custodian a Certificate or facsimile thereof
confirming such Oral Instructions or Written Instructions in such
manner so that such Certificate or facsimile thereof is received
by the Custodian, whether by hand delivery, telecopier or other
similar device, or otherwise, by the close of business of the same
day that such Oral Instructions or Written Instructions are given
to the Custodian. The Fund agrees that the fact that such
confirming instructions are not received by the Custodian shall in
no way affect the validity of the transactions or enforceability
of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in
acting upon Oral Instructions or Written Instructions given to the
Custodian hereunder concerning such transactions provided such
instructions reasonably appear to have been received from an
Authorized Person.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian and
reasonably believed by the Custodian to be given in accordance
with the terms and conditions of any Margin Account Agreement.
Without limiting the generality of the foregoing, the Custodian
shall be under no duty to require into, and shall not be liable
for, the accuracy of any statements or representations contained
in any such instrument or other notice including, without
limitation, any specification of any amount to be paid to a
broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which are
in the possession of the Custodian shall be the property of the
Fund. Such books and records shall be prepared and maintained as
required by the Investment Company Act of 1940, as amended, and
other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representatives, shall have access
to such books and records during the Custodian's normal business
hours. Upon the reasonable request of the Fund, copies of any
such books and records shall be provided by the Custodian to the
Fund or the Fund's authorized representative, and the Fund shall
reimburse the Custodian its expenses of providing such copies.
13. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting
control of the Book-Entry System, the Depository, or O.C.C., and
with such reports on its own systems of internal accounting
control as the Fund may reasonably request from time to time.
14. The Fund agrees to indemnify the Custodian against and
save the Custodian harmless from all liability, claims, losses and
demands whatsoever, including attorney's fees, howsoever arising
or incurred because of or in connection with the Custodian's
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payment or non-payment of checks pursuant to paragraph 6 of
Article XIII as part of any check redemption privilege program of
the Fund, except for any such liability, claim, loss and demand
arising out of the Custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions of this Agreement,
the Custodian may deliver and receive Securities, and receipts
with respect to such Securities, and arrange for payments to be
made and received by the Custodian in accordance with the customs
prevailing from time to time among brokers or dealers in such
Securities.
16. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the
Custodian.
ARTICLE XVI
TERMINATION
1. Either of the parties hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less
than ninety (90) days after the date of giving such notice. In
the event such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Directors of
the Fund, certified by the Secretary or any Assistant Secretary,
electing to terminate this Agreement and designating a successor
custodian or custodians, each of which shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus
and undivided profits. In the event such notice is given by the
Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board of
Directors of the Fund, certified by the Secretary or any Assistant
Secretary, designating a successor custodian or custodians. In
the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus
and undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and the Custodian shall upon
receipt of a notice of acceptance by the successor custodian on
that date deliver directly to the successor custodian all
Securities and monies owned by the Fund and held by it as
Custodian, after deducting all fees, expenses and other amounts
for the payment or reimbursement of which it shall then be
entitled.
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2. If a successor custodian is not designated by the Fund
or the Custodian in accordance with the preceding paragraph, the
Fund shall upon the date specified in the notice of termination of
this Agreement and upon the delivery by the Custodian of all
Securities (other than Securities held in the Book-Entry System
which cannot be delivered to the Fund) and monies then owned by
the Fund be deemed to be its own custodian and the Custodian shall
thereby be relieved of all duties and responsibilities pursuant to
this Agreement, other than the duty with respect to Securities
held in the Book Entry System which cannot be delivered to the
Fund to hold such Securities hereunder in accordance with this
Agreement.
ARTICLE XVII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by
two of the present Officers of the Fund under its corporate seal,
setting forth the names and the signatures of the present
Authorized Persons. The Fund agrees to furnish to the Custodian a
new Certificate in similar form in the event that any such present
Authorized Person ceases to be an Authorized Person or in the
event that other or additional Authorized Persons are elected or
appointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provisions
of this Agreement upon Oral Instructions or signatures of the
present Authorized Persons as set forth in the last delivered
Certificate.
2. Annexed hereto as Appendix B is a Certificate signed by
two of the present Officers of the Fund under his corporate seal,
setting forth the names and signatures of the present Officers of
the Fund. The Fund agrees to furnish to the Custodian a new
Certificate in similar form in the event any such present Officer
ceases to be an Officer of the Fund, or in the event that other or
additional officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement upon
the signatures of the Officers as set forth in the last delivered
Certificate.
3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or
delivered to it at its offices at 90 Washington Street, New York,
NY 10015, or at such other place as the Custodian may from time to
time designate in writing.
-34-
<PAGE>
4. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be
sufficiently given if addressed to the Fund and mailed or
delivered to it at its office at the address for the Fund first
above written, or at such other place as the Fund may from time to
time designate in writing.
5. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties with
the same formality as this Agreement and approved by a resolution
of the Board of Directors of the Fund.
6. This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall no be assignable by
the Fund without the written consent of the Custodian, or by the
Custodian without the written consent of the Fund, authorized or
approved by a resolution of the Fund's Board of Directors.
7. This Agreement shall be construed in accordance with the
laws of the State of New York.
8. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but
such counterparts shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective corporate Officers,
thereunto duly authorized and their respective corporate seals to
be hereunto affixed, as of the day and year first above written.
By: /s/ Dominic Rossi
Attest:
/s/ J. Richard Walton
THE BANK OF NEW YORK
By: /s/ Leonard Farello
Vice President
Attest:
/s/ Dolores Sena
Asst. Vice President
-35-
EXHIBIT (2)(j)(2)
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this 14th day of May, 1987 by and
between Morgan Grenfell SMALLCap Fund, Inc., a corporation having
its principal place of business at 885 Third Avenue, New York, New
York 10022 (hereinafter called the "Fund") and The Bank of New
York, a New York corporation authorized to do a banking business,
having its principal place of business at 48 Wall Street, New
York, New York 10015 (hereinafter called the "Bank").
W I T N E S S E T H:
In consideration of the mutual agreements herein contained,
the Fund and the Bank hereby agree as follows:
1. The Fund hereby appoints the Bank its agent to perform
the duties hereinafter set forth.
2. The Bank hereby accepts appointment as such agent and
agrees to perform the duties hereinafter set forth.
3. The Bank shall compute the net asset value per share of
each Series of shares (the "Series") of the Fund at such times and
dates and in the manner specified in the then currently effective
Prospectus of the Fund. Securities of the Fund shall be valued as
<PAGE>
set forth in the then currently effective Prospectus of the Fund
and the Fund shall have sole responsibility for determining the
method of valuation of Fund securities. To the extent valuation
of Fund securities on such basis is at any time inconsistent with
any applicable laws and/or regulations, the Fund shall immediately
so notify the Bank in writing and thereafter shall either furnish
the Bank at all appropriate times with the values of the Fund's
securities or, subject to the prior approval of the Bank, instruct
the Bank in writing to value Fund securities in a manner which the
Fund then represents in writing to be consistent with all
applicable laws and regulations.
4. The Bank shall also compute the net income of each
Series for dividend purposes and the net income per share at such
times and dates and in the manner specified in the then currently
effective Prospectus of the Fund.
5. The Fund may from time to time instruct the Bank in
writing to compute the value of the securities of a Series, a
Series' net asset value per share, the net income of a Series, or
the net income per share of a Series in a manner other than as
specified in paragraphs 3 and 4 of this Agreement; provided,
however, that any such other methods of computation shall not be
inconsistent with any applicable laws and regulations.
-2-
<PAGE>
6. The Fund shall furnish the Bank with any and all
instructions, explanations, information, specifications and
documentation deemed necessary by the Bank in the performance of
its duties hereunder, including, without limitation, the amounts,
and/or written formula for calculating the amounts, and times of
accrual of Fund liabilities and expenses. The Fund shall also
(a) at any time and from time to time furnish the Bank with bid,
offer, and/or market values of Fund securities if the same are not
available to the Bank from a security pricing or similar service
utilized, or subscribed to, by the Bank at the time such
information is required for calculations hereunder, and (b) that
the Bank shall at no time or from time to time be required or
obligated to commence or maintain any utilization of, or
subscriptions to, any securities pricing or similar service. Any
specifications of the assets of the Fund given to the Bank by the
Fund, and any changes in such specifications, including, without
limitation, any additions thereto or deletions therefrom, shall be
signed by two (2) officers of the Fund.
7. The Bank shall advise the Fund, the Fund's custodian and
the Fund's transfer agent of the net asset value per share, the
net income and the net income per share of each Series upon
completion of the computations required to be made by the Bank
pursuant to this Agreement.
-3-
<PAGE>
8. The Bank shall, as agent for the Fund, maintain and keep
current the books, accounts and other documents, if any, listed in
Appendix A hereto and made a part hereof, as such Appendix A may
be amended from time to time, and preserve any such books,
accounts and other documents in accordance with the applicable
provisions of Rule 31a-2 of the General Rules and Regulations
under the Investment Company Act of 1940, as amended (the
"Rules"). Such books, accounts and other documents shall be made
available upon reasonable request for inspection by officers,
employees and auditors of the Fund during the Bank's normal
business hours.
9. All records maintained and preserved by the Bank
pursuant to this Agreement which the Fund is required to maintain
and preserve in accordance with the above-mentioned Rules shall be
and remain the property of the Fund and shall be surrendered to
the Fund promptly upon request in the form in which such records
have been maintained and preserved. Upon reasonable request of
the Fund, the Bank shall provide in hard copy or on microfilm,
whichever the Bank shall elect, any records included in any such
delivery which are maintained by the Bank on a computer disc, or
are similarly maintained, and the Fund shall reimburse the Bank
for its expenses of providing such hard copy or microfilm.
-4-
<PAGE>
10. The Bank, in performing the services required of it
under the terms of this Agreement, shall be entitled to rely fully
on the accuracy and validity of any and all instructions,
explanations, information, specifications and documentation
furnished to it by the Fund and shall have no duty or obligation
to review the accuracy, validity or propriety of such
instructions, explanations, information, specifications or
documentation, including, without limitation, evaluations of
securities held as part of the portfolios of the Series; the
amounts and/or formula for calculating the amounts and times of
accrual of Series' liabilities and expenses; the amounts
receivable and the amounts payable on the sale or purchase of the
portfolio securities of the Fund; and amounts receivable or
amounts payable for the sale or redemption of Fund shares effected
by or on behalf of the Fund. In the event the Bank's computations
hereunder require, in whole or in part, information, including,
without limitation, bid, offer and/or market values of securities
or other assets, or accruals of interest or earnings thereon,
which is not furnished by the Fund because the same is available
to the Bank from a pricing or similar service utilized, or
subscribed to, by the Bank which the Bank in its judgment deems
reliable, the Bank shall not be responsible for, under any duty to
inquire into, nor deemed to make any assurances with respect to,
the accuracy or completeness of such information.
-5-
<PAGE>
11. The Bank shall not be required to inquire into any
valuation of securities or other assets by the Fund or any third
party described in preceding paragraph 10 hereof, even though the
Bank in performing services similar to the services provided
pursuant to this Agreement for others may receive different
valuations of the same or different securities of the same
issuers.
12. The Bank, in performing the services required of it
under the terms of this Agreement, shall not be responsible for
determining whether any interest accruable to the Fund is or will
be actually paid, but will accrue such interest until otherwise
instructed by the Fund.
13. The Bank shall not be responsible for delays or errors
which occur by reason of circumstances beyond its control in the
performance of its duties under this Agreement, including, without
limitation, labor difficulties within and without the Bank,
mechanical breakdowns, flood or catastrophe, acts of God, or
failures of transportation, communication or power supply, or
other similar circumstances. Nor shall the Bank be responsible
for delays or failures to supply the information or services
specified in this Agreement where such delays or failures are
caused by the failure of any person(s) other than the Bank to
supply any instructions, explanations, information, specifications
-6-
<PAGE>
or documentation deemed necessary by the Bank in the performance
of its duties under this Agreement.
14. No provision of this Agreement shall prevent the Bank
from offering services similar or identical to those covered by
this Agreement to any other corporations, associations or entities
of any kind. Any and all operational procedures, techniques and
devices developed by the Bank in connection with the performance
of its duties and obligations under this Agreement, including
those developed in conjunction with the Fund, shall be and remain
the property of the Bank, and the Bank shall be free to employ
such procedures, techniques and devices in connection with the
performance of any other contract with any other person whether or
not such contract is similar or identical to this Agreement.
15. The Bank may, with respect to questions of law, apply to
and obtain the advice and opinion of counsel to the Fund or its
own counsel and shall be entitled to rely on the advice or opinion
of such counsel. The costs of any such advice or opinion shall be
borne by the Fund.
16. The Bank shall not be liable for any loss, damage or
expense, including counsel fees and other costs and expenses of a
defense against any claim or liability, resulting from, arising
out of, or in connection with its performance hereunder, including
-7-
<PAGE>
its actions or omissions, the incompleteness or inaccuracy of any
specifications or other information furnished by the Fund, or for
delays caused by circumstances beyond the Bank's control, unless
such loss, damage or expense arises out of the bad faith,
negligence, or willful misconduct of the Bank.
17. Without limiting the generality of the foregoing,
the Fund shall indemnify the Bank against and save the Bank
harmless from any loss, damage or expense, including counsel fees
and other costs and expenses of a defense against any claim or
liability, arising from the following:
(a) Errors in records or instructions,
explanations, information, specifications or documentation of any
kind, as the case may be, supplied to the Bank by any third party
described in preceding paragraph 10 hereof or by or on behalf of
the Fund;
(b) Action or inaction taken or omitted to be
taken by the Bank without bad faith, negligence or willful
misconduct, or in good faith pursuant to written instructions of
an officer or employee of the Fund; and
-8-
<PAGE>
(c) Any action taken or omitted to be taken by the
Bank in good faith in accordance with the advice or opinion of
counsel for the Fund or its own counsel.
18. In consideration for all of the services to be
performed by the Bank as set forth herein the Bank shall be
entitled to receive reimbursement for all out-of-pocket expenses
and such compensation as may be agreed upon in writing from time
to time between the Bank and the Fund.
19. This Agreement shall not be assignable by the Fund
without the prior written consent of the Bank, or by the Bank
without the prior written consent of the Fund.
20. Either of the parties hereto may terminate this
Agreement by giving the other party a notice in writing specifying
the date of such termination, which shall not be less than ninety
(90) days after the date of giving of such notice. Upon the date
set forth in such notice, the Bank shall deliver to the Fund all
records then the property of the Fund and, upon such delivery, the
Bank shall be relieved of all duties and responsibilities under
this Agreement.
-9-
<PAGE>
21. This Agreement may not be amended or modified in
any manner except by written agreement executed on behalf of both
parties hereto.
22. This Agreement is executed in the State of New York
and all laws or rules of construction of the State of New York
shall govern the rights, duties and obligations of the parties
hereto.
23. The performance and provisions of this Agreement
are intended to benefit only the Bank and the Fund, and no rights
shall be granted to any other person by virtue of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
By: /s/ Dominic Rossi
Attest:
/s/ J. Richard Walton
THE BANK OF NEW YORK
By: /s/ Leonard Farello
Vice President
Attest:
/s/ Dolores Sena
Asst. Vice President
-10-
EXHIBIT (2)(k)
APPOINTMENT OF
THE BANK OF NEW YORK
AS TRANSFER AGENT/REGISTRAR FOR
MORGAN GRENFELL SMALLCAP FUND, INC.
"Resolved, that The Bank of New York, a New York corporation
of 48 Wall Street, New York, N.Y. 10005 is hereby appointed
Transfer Agent/Registrar for all of the shares
of the Common stock
(class of stock)
of the stock
(class of stock)
of the stock
(class of stock)
of the stock
(class of stock)
of this Corporation, to act in accordance with its general
practice and with the regulations set forth in the booklet
submitted to this meeting entitled Regulations of The Bank of New
York for the Transfer and Registration of Stock and Disbursement
of Dividends, which booklet the Secretary is directed to mark for
identification and file with the records of the Corporation."
__________________
Supporting documents to be filed with appointment, see last page.
__________________
THE "BANK" REQUIRES THAT ALL UNREGISTERED STOCK, STOCK
ACQUIRED FOR INVESTMENT, ETC. HAVE STAMPED THEREON A RESTRICTED
LEGEND; OTHERWISE THE "BANK" ASSUMES NO LIABILITY IN THE EVENT
SUCH STOCK BE TRANSFERRED.
<PAGE>
I, the undersigned, Secretary of MORGAN GRENFELL SMALLCAP
FUND, INC. DO HEREBY CERTIFY that the foregoing is a true and
correct copy of a resolution duly adopted by the Board of
Directors of said Corporation at a meeting thereof duly called and
held on April 29, 1987, at which a quorum were present, and that
said resolution has not been in any way rescinded, annulled or
revoked but the same is still in full force and effect.
AND I DO FURTHER CERTIFY to the following facts:
The authorized and outstanding stock of the Corporation
covered by this resolution is as follows: (List shares outstanding
in any old names and their value for exchange. If none so state.)
NUMBER OF SHARES
--------------------------------------------------
AUTHORIZED BY
CERTIFICATE OF AUTHORIZED TOTAL ISSUED
CLASS PAR VALUE INCORPORATION FOR ISSUE TREASURY OUTSTANDING*
- ----- --------- ------------- --------- -------- ------------
COMMON .01 150,000,000 5,760,782 NONE NONE
Series Preferred - to be set forth in resolutions and in
articles supplementary as required by law ----------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
The address of the Corporation to which notices may be sent
is 885 Third Avenue, Suite 1740, New York, NY 10022.
- ----------------------
*Only stock outstanding prior to appointment should be shown,
including Treasury shares. Do not include in this figure stock to
be issued on or after appointment. If new company, the word "none"
should be inserted.
-2-
<PAGE>
The below named persons have been duly elected, have duly
qualified, and this day are, officers of the Corporation, holding
the respective offices below set opposite their names, and the
signatures below set opposite their names are their genuine
signatures.
ROBERT E. KERN, JR. President /s/Robert E. Kern, Jr.
--------------------------------------------
JAMES T. MORTON Vice-President /s/James T. Morton
--------------------------------------------
AUDREY M.T. JONES Vice-President /s/Audrey M.T. Jones
--------------------------------------------
DOMINIC ROSSI Treasurer /s/Dominic Rossi
--------------------------------------------
------- Assistant Treasurer
--------------------------------------------
DOMINIC ROSSI Secretary /s/Dominic Rossi
--------------------------------------------
------- Assistant Secretary
--------------------------------------------
The name and address of legal counsel for the Corporation is
Gaston, Snow, Ely, Bartlett, One Federal Street, Boston, MA 02110.
The names and addresses of all of the Transfer Agents and
Registrars of the stock of the Corporation other than The Bank of
New York are as follows (if none, so state):
CLASS OF STOCK TRANSFER AGENT(S) REGISTRAR(S)
NONE
- ----------------- -------------------- --------------------
- ----------------- -------------------- --------------------
- ----------------- -------------------- --------------------
- ----------------- -------------------- --------------------
-3-
<PAGE>
The consolidated records of all stockholders accounts showing
shares held, and constituting a complete record of all stock
certificates outstanding, is to be maintained by the Transfer
Agent, Bank of New York.
You are required to forward a copy of each day's transfers,
giving complete information of stock certificates cancelled and
stock certificates issued, to each of the following (if none
required, so state):
MORGAN GRENFELL SMALLCAP FUND, INC.
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Termination of a transfer agency is subject to a charge equal
to 10% of the previous year's fees, with a minimum charge of
$500.00 to take care of the work involved and the out-of-pocket
expenses incurred in rerouting certificates sent to us because our
name appears thereon as transfer agent and other administrative
and clerical work.
WITNESS my hand and the seal of the Corporation this 14th day
of May, 1987.
/s/ Dominic Rossi
-----------------------------------
Dominic Rossi, Secretary
(Corporate Seal)
-4-
<PAGE>
CERTIFICATE
I, Dominic Rossi, Secretary of MORGAN GRENFELL SMALLCAP FUND,
INC., a Maryland corporation, do hereby certify that the following
resolutions were duly adopted by unanimous vote at a meeting of
the Board of Directors duly called and held on the 29th day of
April, 1987, at which meeting a quorum was present and acting
throughout;
RESOLVED, that The Bank of New York, Transfer Agent for the
stock of this Company, be and it hereby is authorized and directed
to issue and register respectively from time to time without
further action or approval by or on behalf of this Company, a new
certificate or certificates of stock of this Company to replace a
certificate or certificates reported lost, or stolen or destroyed,
upon receipt by The Bank of New York, of an Affidavit of Loss and
Surety Company Open Penalty Bond of Indemnity, in which this
Company is an Obligee or is included as an Obligee to the same
extent as though its name was set forth in full therein, in form
satisfactory to The Bank of New York in each instance, and
BE IT FURTHER RESOLVED, that the said Bond of Indemnity may
be a blanket bond and said Affidavit of Loss may be an affidavit
relating to the non-receipt by an addressee of a certificate or
certificates for such stock mailed by The Bank of New York.
I hereby further certify that said resolutions have not been
modified or revoked and are still in full force and effect as of
the date hereof.
IN WITNESS WHEREOF, I have signed this Certificate and
affixed the seal of the Corporation this 14th day of May, 1987.
/s/Dominic Rossi
-----------------------------------
-5-
<PAGE>
DOCUMENTS TO BE FILED WITH APPOINTMENT
In connection with the appointment of The Bank of New York
(hereinafter called the "Bank") as Transfer Agent and/or as
Registrar of stock, there shall be filed with the Bank the
following documents:
(a) A certified copy of the articles of incorporation of the
Corporation (or of Letters Patent incorporating the
Corporation) and all amendments thereto.*
(b) A certified copy of the by-laws of the Corporation.*
(c) A certified copy of the order or consent of each
governmental or regulatory authority, required by law
for the issuance of the stock, and an opinion of counsel
that the order or consent of no other governmental or
regulatory authority is required.*
(d) A certified copy of a resolution of the Board of
Directors of the Corporation appointing the Bank
Transfer Agent or Registrar.*
(e) A certificate of the Secretary of the Corporation as to
the authorized and outstanding stock, the address of the
Corporation, the names and specimen signatures of the
officers of the Corporation,
- ----------------------
*The copy of the Articles of Incorporation (or Letters Patent
incorporating the Corporation) of the Corporation and copies of
all amendments thereto shall be certified by the Secretary of
State (or other appropriate official) of the state or Province or
Dominion of incorporation, and if such articles of incorporation
(or Letters Patent incorporating the Corporation) and amendments
are required by law to be filed also with a county or other
officer or official body, a certificate of such filing shall
appear on the certified copy submitted to the Bank. A copy of the
order of consent of each governmental or regulatory authority
required by law for the issuance of the stock shall be certified
by the Secretary or clerk of such governmental or regulatory
authority, under proper seal of such authority. The copy of the
by-laws and copies of all amendments thereto, and copies of
resolutions of the Board of Directors of the Corporation, shall be
certified by the Secretary or an Assistant Secretary of the
Corporation under the corporate seal.
-6-
<PAGE>
the name and address of the legal counsel for the
Corporation and the names and addresses of the Transfer
Agents and Registrars of the stock of the Corporation.
(f) Specimen stock certificates in the form approved by the
Board of Directors of the Corporation, with certificate
of the Secretary of the Corporation as to such approval.
(g) Opinion of counsel with respect to the validity of the
securities and the status of the same under the
Securities Act of 1933, as amended (i.e., if subject to
registration, that they have been registered and that
the registration statement has become effective or, if
exempt, the specific grounds therefor).
-7-
EXHIBIT (2)(n)
The Board of Directors
Morgan Grenfell SMALLCap Fund, Inc.
We consent to the use of our report incorporated herein by reference
and to the references to our firm under the headings Financial Highlights
and Experts in the prospectus.
KPMG Peat Marwick LLP
/s/KPMG Peat Marwick LLP
New York, New York
April 4, 1996
May___, 1987
Morgan Grenfell SmallCap Fund, Inc.
885 Third Avenue
New York, NY 10022
Gentlemen:
Please be advised that the shares of common stock of Morgan
Grenfell SmallCap Fund, Inc., which we have purchased on or before
this date, were purchased for investment purposes with no present
intention of redeeming or reselling them.
Very truly yours,
MORGAN GRENFELL CAPITAL
MANAGEMENT, INC.
-------------------------
President
Exhibit (2)(r)
POWER OF ATTORNEY
We, the undersigned directors of Morgan Grenfell SMALLCap
Fund, Inc., a Maryland corporation, do hereby severally constitute
and appoint Robert E. Kern, Jr., Audrey M. T. Jones and Mark
Arthus and each of them acting singly, to be our true, sufficient
and lawful attorneys, with full power to each of them, and each of
them acting singly, to sign for each of us, in the name of each of
us and in the capacity as director, the Registration Statement on
Form N-2 of Morgan Grenfell SMALLCap Fund, Inc. and any and all
amendments to said Registration Statement to be filed by Morgan
Grenfell SMALLCap Fund, Inc. under the Investment Company Act of
1940, as amended, and under the Securities Act of 1933, as
amended, with respect to the offering of its shares of beneficial
interest, and any and all other documents and papers relating
thereto, and generally to do all such things in the name of each
of us and on behalf of each of us in the capacity as director to
enable Morgan Grenfell SMALLCap Fund, Inc. to comply with the
Investment Company Act of 1940, as amended, and the Securities Act
of 1933, as amended, and all requirements of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming
the signature of each of us as it may be signed by said attorneys
or each of them to any and all amendments to said Registration
Statement.
IN WITNESS WHEREOF, we have hereunto set our hands on this
4th day of April, 1996
/s/ Michael Bullock
------------------------
Michael Bullock
Chairman and Director
/s/ Robert E. Greeley
------------------------
Robert E. Greeley
Director
/s/ Joseph J. Icandela
------------------------
Joseph J. Icandela
Director
/s/ Richard D. Wood
------------------------
Richard D. Wood
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned officer of Morgan Grenfell SMALLCap Fund,
Inc., a Maryland corporation, do hereby constitute and appoint
Robert E. Kern, Jr. and Audrey M. T. Jones and each of them acting
singly, to be my true, sufficient and lawful attorneys, with full
power to each of them, and each of them acting singly, to sign for
me, in my name and in the capacities indicated below, the
Registration Statement on Form N-2 of Morgan Grenfell SMALLCap
Fund, Inc. and any and all amendments to said Registration
Statement to be filed by Morgan Grenfell SMALLCap Fund, Inc. under
the Investment Company Act of 1940, as amended, and under the
Securities Act of 1933, as amended, with respect to the offering
of its shares of beneficial interest, and any and all other
documents and papers relating thereto, and generally to do all
such things in my name and on my behalf in the capacities
indicated to enable Morgan Grenfell SMALLCap Fund, Inc. to comply
with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission thereunder, hereby ratifying
and confirming my signature as it may be signed by said attorneys
or each of them to any and all amendments to said Registration
Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on this
4th day of April, 1996.
/s/ Mark G. Arthus
------------------------
Mark G. Arthus
Treasurer and Secretary
<PAGE>
POWER OF ATTORNEY
I, the undersigned officer and director of Morgan Grenfell
SMALLCap Fund, Inc., a Maryland corporation, do hereby constitute
and appoint Audrey M. T. Jones and Mark G. Arthus and each of them
acting singly, to be my true, sufficient and lawful attorneys,
with full power to each of them, and each of them acting singly,
to sign for me, in my name and in my capacity as officer and
director, the Registration Statement on Form N-2 of Morgan
Grenfell SMALLCap Fund, Inc. and any and all amendments to said
Registration Statement to be filed by Morgan Grenfell SMALLCap
Fund, Inc. under the Investment Company Act of 1940, as amended,
and under the Securities Act of 1933, as amended, with respect to
the offering of its shares of beneficial interest, and any and all
other documents and papers relating thereto, and generally to do
all such things in my name and on my behalf in my capacity as
officer and director to enable Morgan Grenfell SMALLCap Fund, Inc.
to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission thereunder, hereby
ratifying and confirming my signature as it may be signed by said
attorneys or each of them to any and all amendments to said
Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on this
4th day of April, 1996.
/s/ Robert E. Kern, Jr.
------------------------
Robert E. Kern, Jr.
President and Director
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000809584
<NAME> Morgan Grenfell--SmallCap Fund
<MULTIPLIER> 1
<CURRENCY> US-Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 68,270,597
<INVESTMENTS-AT-VALUE> 87,942,799
<RECEIVABLES> 24,812
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87,967,611
<PAYABLE-FOR-SECURITIES> 358,513
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,207,404
<TOTAL-LIABILITIES> 13,565,917
<SENIOR-EQUITY> 60,424
<PAID-IN-CAPITAL-COMMON> 53,503,539
<SHARES-COMMON-STOCK> 6,042,435
<SHARES-COMMON-PRIOR> 5,785,510
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,165,528
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,672,203
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<DIVIDEND-INCOME> 407,245
<INTEREST-INCOME> 643,504
<OTHER-INCOME> 14,736
<EXPENSES-NET> 1,086,817
<NET-INVESTMENT-INCOME> (21,332)
<REALIZED-GAINS-CURRENT> 13,989,230
<APPREC-INCREASE-CURRENT> 11,580,154
<NET-CHANGE-FROM-OPS> 25,548,052
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 12,888,514
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 256,925
<NET-CHANGE-IN-ASSETS> 15,308,433
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 64,812
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 743,088
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,086,817
<AVERAGE-NET-ASSETS> 72,202,000
<PER-SHARE-NAV-BEGIN> 10.21
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 4.23
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.31
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
