<PAGE>
on April 20, 1998
Securities Act File No.
Investment Company Act File No. 811-6017
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
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
Amendment No. 9
Exact Name of Registrant as Specified in Charter:
European Warrant Fund, Inc.
Address of Principal Executive Offices
(Number, Street, City, State, Zip Code):
330 Madison Avenue
New York, NY 10017
Registrant's Telephone Number, Including Area Code:
(212) 297-3940
Name and Address (Number, Street, City, State, Zip Code):
Of Agent For Service:
Robert Discolo
President
European Warrant Fund, Inc.
330 Madison Avenue
New York, New York 10017
With Copies to:
Steven R. Howard
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
<PAGE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon a practicable after the
effective date of this Registration Statement.
If any securities being registered in this form will 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/
-------------------------
It is proposed that this filing will become effective when declared effective
pursuant to section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
TITLE OF SECURITIES AMOUNT BEING PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE(1)
UNIT (1) PRICE (1)
<S> <C> <C> <C> <C>
Common Stock, 3,558,589 22.4375 79,845.841 $23,554.52
$.001 par value
</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 on
the basis of market price per share on the New York Stock Exchange on
April 13, 1998.
The Registrant hereby amends this Registration Statement under the
Securities Act of 1933 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 will thereafter becomes
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
3
EUROPEAN WARRANT FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Location in
N-2 Item Number Prospectus (Caption)
--------------- --------------------
<S> <C>
(Between Items of Registration Statement on form N-2 and Parts A and B of
Prospectus*)
Parts A and B
Item 1 Outside Front Cover.............................................. Outside Front Cover Page
Item 2 Inside Front and Outside
Back Cover Page................................................ Outside Front Cover Page
Item 3 Fee Table and Synopsis........................................... Fee Table; Prospectus Summary
Item 4 Financial Highlights............................................. Financial Highlights
Item 5 Plan of Distribution............................................. Outside Front Cover page; Prospectus
Summary; The Offer
Item 6 Selling Shareholders............................................. Not Applicable
Item 7 Use of Proceeds.................................................. Prospectus Summary; Use of Proceeds;
Investment Objective and Policies
Item 8 General Description of the Registrant............................ Outside front cover page; Prospectus
Summary; The Fund; Determination of
Net Assets Value; Investment
Objective and Policies; Risk Factors
and Special Considerations;
Description of Common Stock
Item 9 Management....................................................... Prospectus Summary; Portfolio
Transactions and Brokerage;
Management of the Fund; Investment
Advisory and Other Services;
Custodian; Transfer Agent,
Dividend-Disbursing Agent and
Registrant; Description of Common
Stock
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Item 10 Capital Stock, Long-term Debt, and Other Securities.............. Dividends and Distribution; Dividend
Reinvestment Plan and Cash Purchase
Plan; Taxation; The Offer;
Description of Common Stock
Item 11 Defaults and Arrears on Senior Securities........................ Not Applicable
Item 12 Legal Proceedings................................................ Not Applicable
Item 13 Table of Contents of the Statement of Additional
Information.................................................... Not Applicable
Item 14 Cover Page....................................................... Not Applicable
Item 15 Table of Contents................................................ Not Applicable
Item 16 General Information and History.................................. Not Applicable
Item 17 Investment Objective and Policies................................ Investment Objection and Policies;
Investment Restrictions
Item 18 Management....................................................... Management of the Fund
Item 19 Control Persons and Principal Holders of......................... Management of the Fund; Principal
Securities Stockholders
Item 20 Investment Advisory and Other Services........................... Management of the Fund; Transfer
Agent, Dividend Dispensing Agent and
Registrar; Experts
Item 21 Brokerage Allocation and Other Practices......................... Portfolio Transactions and Brokerage
Item 22 Tax Status....................................................... Taxation
Item 23 Financial Statements............................................. Financial Statements
</TABLE>
PART C
Items 24-33 have been answered in order in Part C
- -------------------
* Pursuant to General Instruction H of form N-2, all information
required to be set forth in Part B: Statement of Additional
Information has been included in Part A: Prospectus.
<PAGE>
5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. 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 ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
PROSPECTUS May __, 1998
The European Warrant Fund, Inc.
_______ SHARES OF COMMON STOCK
ISSUED UPON EXERCISE OF
RIGHTS TO SUBSCRIBE FOR SUCH SHARES
- -------------------------------------------------------------------------------
Common Stock
The European Warrant Fund, Inc. (the "Fund") is issuing to its stockholders
of record ("Record Date Stockholders") as of the close of business on
___________ , 1998 rights ("Rights") entitling the holders thereof to subscribe
for an aggregate of _________ shares (the "Shares") of the Fund's Common Stock
(the "Offer") at the rate of one share of Common Stock for each three Rights
held and entitling such Record Date Stockholders to subscribe, subject to
certain limitations and subject to allotment, for any Shares not acquired by
exercise of primary subscription Rights. The Rights are transferable and have
been admitted for trading on the New York Stock Exchange. See "The Offer." THE
SUBSCRIPTION PRICE PER SHARE (the "Subscription Price") WILL BE $_____.
THE OFFER WILL EXPIRE AT 5:00 PM., NEW YORK TIME, ON ____________, 1998
unless extended as described herein (the "Expiration Date"). Shareholder
inquiries relating to the Offer should be directed to the Information Agent,
D.F. King & Co., Inc., at (800) 848-3402.
The Fund is a closed-end, non-diversified management investment company
that seeks enhanced capital growth by investing primarily in equity warrants of
Western European issuers. It is the policy of the Fund, under normal market
conditions, to invest substantially all of its total assets, but in no event
less than 65% of its total assets, in European warrants. European warrants
differ in a number of significant respects from warrants as understood in the
United States. For a description of European warrants, see "Investment Objective
and Policies." No assurances can be given that the Fund's objective will be
achieved. The address of the Fund is 330 Madison Avenue, New York, New York
10017 and its telephone number is [(212) ________.]
The Fund announced the Offer after the close of trading on the New York
Stock Exchange on April 16, 1998. The net asset value per share of Common Stock
at the close of business on [April __], 1998 and May 28, 1998 was $_.__ and
$__.__, respectively, and the last reported sale price of a share of the Fund's
Common Stock on such Exchange on those dates was $_.__ and $__.___,
respectively. The Fund's Common Stock trades under the symbol "EWF."
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.
- ---------------- --------------------- ------------- -------------------------
Subscription Price Sales Load Proceeds to Fund(1)
- ---------------- --------------------- ------------- -------------------------
Per Share....... $__.__ None $__.__
================ ===================== ============= -------------------------
Total(2)........ $__________ None $__________
================ ===================== ============= -------------------------
(1) Before deduction of expenses incurred by the Fund, estimated at $_______,
including $_______ payable to Julius Baer Asset Management (Zurich,
Switzerland) for marketing and financial advisory services outside the
United States in connection with the Offer.
(2) Assumes all of the Rights are exercised.
--------------------
This Prospectus sets forth concisely certain information about the Fund
that investors should know before investing and it should be read and
retained for future reference.
--------------------
<PAGE>
Because the Subscription Price per share is likely to be less than the net
asset value per share and because the number of shares outstanding after the
Offer is likely to increase in a greater percentage than the increase in the
size of the Fund's assets, the Offer may result in a substantial dilution of
the aggregate net asset value of the shares owned by stockholders who do not
fully exercise their Rights. In addition, as a result of the terms of the
Offer, Record Date Stockholders who do not fully exercise their Rights should
expect that they will, upon the completion of the Offer, own a smaller
proportional interest in the Fund than would otherwise be the case. See "The
Offer--Terms of the Offer."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus. Stockholders should
carefully consider information set forth under the heading "Risk Factors and
Special Consideration."
Terms of the Offer
The European Warrant Fund, Inc. (the "Fund") is issuing to stockholders of
record ("Record Date Stockholders") as of the close of business on _________ _,
1998 (the "Record Date") rights ("Rights") to subscribe for an aggregate of
_________ shares of Common Stock (sometimes referred to herein as the "Shares")
of the Fund (the "Offer"). Each such Record Date Stockholder is being issued one
Right for each full share of Common Stock owned on the Record Date. The Rights
entitle the holder to acquire at the Subscription Price (as hereinafter defined)
one Share for each three Rights held. No rights will be issued for fractional
Shares. Rights may be exercised at any time during the period (the "Subscription
Period"), which commences on the date of this Prospectus and ends at 5:00 p.m.,
New York time, on _________ __, 1998, unless extended by the Fund to a date not
later than _______ _, 1998 (the "Expiration Date"). The right to acquire during
the Subscription Period at the Subscription Price one additional Share for each
three Rights held is hereinafter referred to as the "Primary Subscription."
In addition, any Record Date Stockholder who fully exercises all Rights
initially issued to him (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) is entitled to
subscribe for Shares which were not otherwise subscribed for by others on
Primary Subscription (the "Over-Subscription Privilege"). For purposes of
determining the number of Shares a Record Date Stockholder may acquire pursuant
to the Offer, broker-dealers whose shares are held of record by Cede & Co., Inc.
("Cede"), nominee for The Depository Trust Company, 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. Shares acquired
pursuant to the Over-Subscription Privilege may be subject to allotment, which
is more fully discussed under "The Offer--Over-Subscription Privilege."
The subscription price per share (the "Subscription Price") will be $__.__.
Rights will be evidenced by subscription certificates ("Subscription
Certificates") and may be exercised by completing a Subscription Certificate and
delivering it, together with payment, either by means of a notice of guaranteed
delivery or a check, to Investors Bank & Trust Company (the "Subscription
Agent"). Rights holders will have no right to rescind a purchase after the
Subscription Agent has received payment. See "The Offer--Method of Exercise of
Rights" and "The Offer--Payment for Shares." Shares issued pursuant to an
exercise of Rights will be listed on the New York Stock Exchange, Inc.
(hereinafter referred to as the "New York Stock Exchange" or the "Exchange").
The Rights are transferable until the Expiration Date and have been
admitted for trading on the Exchange. Although no assurance can be given that a
market for the Rights will develop, trading in the Rights on the Exchange may be
conducted until the close of trading on the last Exchange trading day prior to
the Expiration Date. The Fund expects that a market for the Rights will develop
and that the value of the Rights, if any, will be reflected by the market price.
Rights may be sold by individual holders or may be submitted to the Subscription
Agent for sale. Any Rights submitted to the Subscription Agent for sale must be
received by the Subscription Agent at or prior to 5:00 p.m., New York time, on
_________ __, 1998, one Business Day (as defined below) prior to the Expiration
Date, due to normal settlement procedures. Trading of the Rights on the Exchange
will be conducted on a when issued basis until and including the date on which
the Subscription Certificates are mailed to Record Date Stockholders and
thereafter will be conducted on a regular way basis until and including the last
Exchange trading day prior to the Expiration Date. If the Subscription Agent
receives Rights for sale in a timely manner, it will use its best efforts to
sell the Rights on the New York Stock Exchange. The Subscription Agent will also
attempt to sell any Rights a Rights holder is unable to exercise because such
Rights represent the right to subscribe for less than one Share. Any commissions
will be paid by the selling Rights holders. Neither
3
<PAGE>
the Fund nor the Subscription Agent will be responsible if Rights cannot be sold
and neither has guaranteed any minimum sales price for the Rights. For purposes
of this Prospectus, a "Business Day" shall mean any day on which trading is
conducted on the Exchange.
Foreign Restrictions
Subscription Certificates will not be mailed to Record Date Stockholders
whose addresses are outside the United States (for these purposes the United
States includes its territories and possessions and the District of Columbia)
("Foreign Record Date Stockholders"). The Rights to which such Subscription
Certificates relate will be held by the Subscription Agent for such Foreign
Record Date Stockholders' accounts until instructions are received to exercise,
sell or transfer the Rights. If the Subscription Agent has received no
instruction from the Foreign Record Date Stockholder by 12:00 noon, New York
time, two Business Days prior to the Expiration Date, the Subscription Agent
will attempt to sell the Rights on the New York Stock Exchange and remit the
net proceeds, if any, to such stockholders. If the Rights can be sold, sales of
such Rights will be deemed to have been effected at the weighted average price
received by the Subscription Agent on the day such Rights are sold, less any
applicable brokerage commissions, taxes and other expenses.
Stockholders are urged to obtain a recent trading price for the Rights on
the New York Stock Exchange from their broker, bank, financial advisor or the
financial press.
Information Agent
Any questions or requests for assistance should be directed to: D.F. King
& Co., Inc., the Information Agent, 77 Water Street, New York, New York 10005,
(800) 848-3402.
Important Dates to Remember
<TABLE>
<CAPTION>
Event Date
- ----- ------------------------------------------------
<S> <C>
Record Date .................................... May __, 1998
Subscription Period ............................ June through July __, 1998
Expiration of the Offer......................... July __, 1998
(unless extended to a date not later than July __, 1998)
Payment for Guarantees of Delivery Due ......... July __, 1998
Final Payment for Shares........................ July __, 1998
Confirmation to Participants.................... July __, 1998
</TABLE>
Information Regarding the Fund
The Fund has been engaged in business as a closed-end management
investment company since July 17, 1990. The Fund has operated as a
non-diversified Fund since the Fund's shareholders approved the change to a
non-diversified Fund on June 26, 1997. Prior to such change, the Fund operated
as a diversified Fund. The Fund's investment objective is enhanced capital
growth by investing primarily in equity warrants of Western European issuers.
The Fund's policy, under normal market conditions, is to invest substantially
all of its total assets, but in no event less than 65% of its total assets, in
European warrants. No assurance can be given that the Fund's investment
objective will be achieved. See "Investment Objective and Policies." The Fund's
outstanding common stock, par value $.001 per share (the "Common Stock"), is
listed, and traded on the Exchange under the symbol "EWF." The average weekly
trading volume of the Common Stock on the Exchange during the fiscal year ended
March 31, 1998 was _______ shares. As of [May 31, 1998], the net assets of the
Fund were approximately $__ million.
4
<PAGE>
Information Regarding the Investment Adviser and the Administrator
Julius Baer Securities Inc., a U.S. registered investment counseling firm
established in 1962 (the "Investment Adviser") has served as the investment
adviser to the Fund since its inception. The Fund pays the Investment Adviser a
monthly fee at the annual rate of 1.25% of the Fund's average weekly net
assets. Investors Bank & Trust Company has served as the Fund's administrator
(the "Administrator") since January 1, 1995. The Fund pays the Administrator a
monthly fee at the annual rate of 0.12% of the Fund's average weekly net assets
for custody and administration, subject to a minimum annual charge and certain
adjustments. The Fund pay the Administrator $5,000 per month for transfer
agency services. The investment advisory fee is higher than comparable fees
paid by most other investment companies. See "Investment Advisory and Other
Services." Since the Investment Adviser's and the Administrator's fees are
based on the average weekly net assets of the Fund, the Investment Adviser and
the Administrator will benefit from an increase in the Fund's assets resulting
from the Offer. In addition, two directors who are "interested persons" of the
Fund could benefit indirectly from the Offer because of their interests in the
Investment Adviser. See "The Offer--Purpose of the Offer."
The Fund has agreed to pay Julius Baer Asset Management (Zurich,
Switzerland), an affiliate of the Investment Advisor, a fee for marketing and
advisory services outside the United States equal to $________.
Risk Factors and Special Considerations
The following summarizes certain matters that should be considered, among
others, in connection with the Offer.
Dilution................... An immediate dilution of the aggregate net
asset value of the shares owned by stockholders
who do not fully exercise their Rights is likely
to be experienced as a result of the Offer
because the Subscription Price is likely to be
less than the then net asset value per share, and
the number of shares outstanding after the Offer
is likely to increase in greater percentage than
the increase in the size of the Fund's assets. In
addition, as a result of the terms of the Offer,
stockholders who do not fully exercise their
Rights should expect that they will, at the
completion of the Offer, own a smaller
proportional interest in the Fund than would have
been the case had they fully exercised their
rights. Although it is not possible to state
precisely the amount of such a decrease in net
asset value per share, because it is not known at
this time what the net asset value per share will
be at the Expiration Date or the number of Rights
that will be exercised, such dilution could be
substantial. For example, assuming that all
Rights are exercised and that the Subscription
Price of $__.__ is ____% below the Fund's net
asset value per share on May 31, 1998, the Fund's
net asset value per share would be reduced by
approximately $.__ per share
5
<PAGE>
Discount From Net
Asset Value.............. Shares of closed-end investment companies
frequently trade at a discount from net asset
value. This characteristic of shares of a
closed-end fund is a risk separate and distinct
from the risk that the fund's net asset value
will decrease. The risk of purchasing shares of
closed-end funds that might trade at a discount
is more pronounced for investors who wish to sell
their shares in a relatively short period of
time. For those investors, realization of gain or
loss on their investment is likely to be more
dependent upon the existence of a premium or
discount than upon portfolio performance. Since
the commencement of the Fund's operations, the
Fund's shares have generally traded in the market
at a discount to net asset value. If, at any
time, shares of the Fund's Common Stock trade
publicly for a substantial period of time at a
substantial discount from the Fund's then current
net asset value per share, the Board of Directors
of the Fund will consider taking various actions
designed to reduce or eliminate the discount.
There can be no assurance that such actions will
be taken or, if taken, will result in shares of
the Fund trading at a price equal to or closer to
their net asset value. See "Description of Common
Stock."
Charter Provisions......... Certain provisions of the Fund's Articles of
Incorporation may have the effect of inhibiting
the Fund's possible conversion to open-end status
and limiting the ability of other persons to
acquire control of the Fund's Board of Directors.
In certain circumstances, these provisions might
also inhibit the ability of shareholders to sell
their shares at a premium over prevailing market
prices. See "Description of Common Stock.
Investment in
European Warrants........ The Fund's investing in European warrants involves
certain considerations not typically associated
with investing in securities of U.S. companies or
the U.S. Government, including risks relating to
(1) price volatility in and relative illiquidity
of European warrant markets; (2) currency
exchange matters, including fluctuations in the
rate of exchange between the U.S. dollar and the
various European currencies in which the Fund's
portfolio securities are denominated and costs
associated with conversion of investment
principal and income from one currency into
another; (3) restrictions on foreign investment;
(4) the absence of uniform accounting, auditing
and financial reporting standards, practices and
disclosure requirements and less government
supervision and regulation; and (5) certain
economic and political conditions.
6
<PAGE>
Distributions.............. The Fund intends to distribute annually to its
shareholders substantially all of its investment
company taxable income. The Fund will determine
annually whether to distribute any net realized
long-term capital gains in excess of net realized
short-term capital losses; however, it currently
expects to distribute any excess annually to its
shareholders. Under the Fund's Dividend
Reinvestment and Cash Purchase Plan, each
shareholder will be deemed to have elected,
unless contrary instructions are received, to
have all distributions automatically reinvested
in additional shares of the Fund. In addition,
pursuant to the Fund's Dividend Reinvestment
Privilege, shareholders who are unable to
participate in the Dividend Reinvestment Plan
will be given the option each year to receive
cash or additional shares of the Fund if the
Directors declare a dividend payable in either
cash or in additional shares of the Fund. See
"Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan; Dividend
Reinvestment Privilege."
7
<PAGE>
FEE TABLE
The following table sets forth certain fees and expenses of the Fund.
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price) ......................... None
Annual Expenses (as a percentage of net assets net of fee waiver)
Management Fees ........................................................ 1.25%
Other Expenses(1) ...................................................... 0.47%
Total Annual Expenses .................................................. 1.72%
Example 1 3 5 10
Year Years Years Years
------ ------- ------- --------
------------------------------------- --------- ---------- --------- ---------
You would pay the following expenses $17 $54 $93 $263
on a $1,000 investment assuming a
5% annual return (2)
- -----------------
(1) Does not include expenses of the Fund incurred in connection with the
Offer, estimated at $_______.
The purpose of the foregoing table and example is to assist Rights
holders in understanding the various costs and expenses that an investor in the
Fund bears, directly or indirectly, but should not be considered a
representation of past or future expenses or rate of return. The actual
expenses of the Fund may be greater or less than those shown. The figures
provided under "Other Expenses" are based on estimated expenses for the fiscal
year ended March 31, 1998. For more complete descriptions of certain of the
Fund's costs and expenses, see "Investment Advisory and Other Services."
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a share of
Common Stock outstanding throughout each period presented. The information for
the five years ended March 31, 1998 has been audited by KPMG Peat Marwick LLP,
the Fund's independent accountants, as stated in their report which is
incorporated by reference into this Prospectus. The following information
should be read in conjunction with the Financial Statements and Notes thereto,
which are incorporated by reference into this Prospectus. A copy of the Fund's
Annual Report can be obtained by shareholders, without charge, by calling the
Fund at 1-800-EUROWRS or 1-800-387-6977.
8
<PAGE>
Per Share Operating Performance For a Fund Share Outstanding Throughout Each
Year
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, Period Ended
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 March 31, 1991*
---- ---- ---- ---- ---- ---- ---- --------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $18.57 $12.11 $7.53 $13.34 $8.95 $7.57 $9.88 $11.16
------ ------ ----- ------ ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.11) (0.13) (0.08) (0.01) (0.12) (0.02) (0.07) 0.09
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain/(loss)
on investments 12.40 7.35 4.66 (3.90) 5.10 1.56 1.80 (1.37)
------ ------ ----- ------ ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets
resulting from investment operations 12.29 7.22 4.58 (3.91) 4.98 1.54 (1.87) (1.28)
------ ------ ----- ------ ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------------------------
Capital effect of rights offering (.50)
------ ------ ----- ------ ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------------------------
Capital effect of dividend reinvestment (1.06)
------ ------ ----- ------ ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.02)
------ ------ ----- ------ ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions from capital (0.16) (0.42)
------ ------ ----- ------ ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (6.65) (0.76) (1.90) (0.09)
------ ------ ----- ------ ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (6.65) (0.76) (0.16) (0.44)
------ ------ ----- ------ ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year 23.15 18.57 12.11 7.53 13.34 $ 8.95 $ 7.57 $ 9.88
======= ====== ====== ====== ====== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Market value, end of year $22.500 13.500 10.000 6.875 11.875 $ 8.250 $ 6.375 $ 7.625
======= ====== ====== ====== ====== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return 148.77% 43.69% 45.45% (26.37)% 44.89% 32.13% (9.78)% (36.46)%
======= ====== ====== ====== ====== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:**
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000's) $247,170 $151,376 $98,732 $61,430 $107,689 $54,178 $45,741 $59,377
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) (0.49)% (0.89)% (0.86)% (0.11)% (0.93)% (0.21)% (0.79)% 1.35%+
to average net assets
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average 1.72% 1.88% 2.03% 1.74% 1.73% 2.13% 2.44% 2.36%+
net assets***
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 95.30% 191% 148% 104% 150% 164% 100% 248%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid**** $0.00233 N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund commenced operations on July 17, 1990.
** For the following periods, the operating expenses of the fund reflect
a waiver of fees by the Fund's Investment Adviser. Had such action not
been taken the net investment income per share and the operating
expense ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment loss per share - - $(0.09) $(0.04) $(0.14) $(0.03) - -
Ratio of operating expenses to
average net assets - - 2.15% 1.99% 1.90% 2.26% - -
<CAPTION>
*** For the following periods, the ratio of operating expenses to average
net assets includes indirectly paid expenses. Excluding indirect paid
expenses, the expense ratio would have been:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.65% 1.85% 1.94% - - - - -
</TABLE>
**** The average broker commission rate will vary depending on the markets
in which trades are executed.
+ Annualized.
9
<PAGE>
THE OFFER
Terms of the Offer
The Fund is issuing to Record Date Stockholders Rights to subscribe for
the Shares. Each Record Date Stockholder is being issued one transferable Right
for each share of Common Stock owned on the Record Date. The Rights entitle the
holder to acquire at the Subscription Price one Share for each three Rights
held. No Rights will be issued for fractional shares. Rights may be exercised at
any time during the Subscription Period, which commences on the date of this
Prospectus and ends at 5:00 p.m., New York time, on _________ __, 1998, unless
extended by the Fund to a date not later than _______ _, 1998. See "Expiration
of the Offer."
In addition, any Record Date Stockholder who fully exercises all Rights
initially issued to him (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) is entitled to
subscribe for Shares which were not otherwise subscribed for by others on
Primary Subscription. For purposes of determining the maximum number of Shares a
Record Date Stockholder may acquire pursuant to the Offer, broker-dealers whose
shares are held of record by 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. Shares acquired pursuant to the
Over-Subscription Privilege may be subject to allotment, which is more fully
discussed below under "Over-Subscription Privilege."
Rights will be evidenced by Subscription Certificates. The number of
Rights issued to each holder will be stated on the Subscription Certificates
delivered to such holder. The method by which Rights may be exercised and Shares
paid for is set forth below in "Method of Exercise of Rights" and "Payment for
Shares." A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment. See "Payment for Shares" below. Shares
issued pursuant to an exercise of Rights will be listed on the New York Stock
Exchange.
The Rights are transferable until the Expiration Date and have been
admitted for trading on the New York Stock Exchange. Assuming a market exists
for the Rights, the Rights may be purchased and sold through usual brokerage
channels and the Subscription Agent. Although no assurance can be given that a
market for the Rights will develop, trading in the Rights on the Exchange may be
conducted until the close of trading on the last Exchange trading day prior to
the Expiration Date. Trading of the Rights on the Exchange will be conducted on
a when issued basis until and including the date on which the Subscription
Certificates are mailed to Record Date Stockholders and thereafter will be
conducted on a regular way basis until and including the last Exchange trading
day prior to the Expiration Date. The method by which Rights may be transferred
is set forth below in "Method of Transferring Rights." The underlying Shares
will also be admitted for trading on the New York Stock Exchange. Since
fractional Shares will not be issued, Rights holders who receive, or who are
left with, fewer than three Rights will be unable to exercise such Rights and
will not be entitled to receive any cash in such situation. However, the
Subscription Agent will automatically attempt to sell the number of Rights which
a Rights holder is unable to exercise for such reason after return of a
completed and fully exercised Subscription Certificate, and will remit the
proceeds of any such sale, net of commissions, to the Rights holder.
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 stockholders to increase the assets of
the Fund available for investment thereby permitting the Fund to be in a better
position to more fully take advantage of investment opportunities consistent
with the Fund's investment objective. In making this determination, the Board of
Directors of the Fund considered, among other things, the approval by Fund
shareholders at the Annual Meeting of
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Shareholders held on May 28, 1998 of the Offer and of future sales of shares by
the Fund pursuant to rights offerings at prices at or below the then current
net asset value of such shares. In reaching its decision, the Board of
Directors was advised by the Investment Adviser that the raising of new assets
would enable the Fund to take advantage of current opportunities in the
European warrant market. More specifically the Investment Adviser advised the
Board at an April 16, 1998 Special Board Meeting, that the Investment Adviser
believes that the raising of new assets will allow the Fund to better position
itself and take advantage of unique investment opportunities and fundamental
changes arising from the European Monetary Union ("EMU") which commences
January 1, 1999. The EMU is expected to cover a large part of Western Europe,
bounded on its periphery by Finland in the North, Ireland and Portugal in the
West, Italy in the South and Austria in the East. Five percent of the world's
population (290 million people) live in this area which produces no less than
24 percent of total global economic output. With the introduction of the Euro,
the second largest capital market and the second largest equity market (after
the United States) will be created. The Investment Adviser expects the Euro to
revolutionize the whole investment process in European stocks. The Investment
Adviser believes that from a top down investment approach, sector allocation
will be of much greater significance than country selection. The Investment
Adviser expects that the demand for the European corporate sector leaders will
increase. New countries joining the EMU will converge their interest rates to
the Euro interest rate. The former high yielding countries such as Italy,
Spain, Portugal and Ireland have greatly benefited from this convergence and
have significantly outperformed the European equity index over the last 2
years. The Investment Adviser believes that over the next 5 to 10 years
additional countries will join the EMU providing exceptional investment
opportunities for the Fund. The Directors believed that it was in the
Shareholders' best interest to issue new Shares of the Fund to take advantage
of the growing European market.
The Directors also considered that as of the date of the Special Board
Meeting the Fund had significant unrealized capital gains on investments and
that if the Investment Adviser were to have to sell existing investments in
order to take advantage of new opportunities available in the European markets,
the Fund would recognize taxable gains and would be required under the Internal
Revenue Code of 1986, as amended (the "Code") to distribute these gains to
Shareholders. In addition, the Board of Directors took into account the fact
that a well-subscribed rights offering, in increasing the size of the Fund may
reduce the Fund's expense ratio after the expenses associated with the Offer
have been recouped and considered that such a rights offering could result in an
improvement in the liquidity of the trading market for shares of the Fund's
Common Stock, although no assurance can be given that any of these results will
be achieved. In addition, the Offer seeks to reward the long-term stockholder by
giving existing stockholders the right to purchase additional shares at a price
that may be below market and/or net asset value without incurring any commission
charge. The distribution to stockholders of transferable Rights which themselves
may have intrinsic value will also afford nonsubscribing stockholders the
potential of receiving a cash payment upon sale of such Rights, receipt of which
may be viewed as compensation for the possible dilution of their interest in the
Fund.
The Board of Directors also considered alternatives to the Offer,
including an underwritten offering of shares and an offering of non-transferable
rights to purchase shares, as well as the proposed terms of the Offer, the
estimated expenses of the Offer, and its dilutive effect, including its effect
on stockholders of the Fund who do not exercise their Rights. The Board also
considered the possible impact of the Offer on the trading price of the Fund's
shares of Common Stock, and the treatment of foreign shareholders under the
Offer. In its deliberations, the Board recognized that the Investment Adviser
was subject to a conflict of interest in recommending approval of the Offer.
After careful consideration, the Board of Directors unanimously voted to approve
the Offer.
The Investment Adviser's view as to current investment opportunities
available in the European warrant markets is based on prevailing market
conditions. There can be no assurance that these conditions will not materially
change prior to the investment of the proceeds of the offering or thereafter, in
which case the benefits expected to be derived from the offering may not be
realized. Furthermore, the 1940 Act limits the Funds investments in warrants
issued by any one broker-dealer to 5% of the Fund's total assets and prohibits
the Fund's investment in warrants issued by certain affiliates of the Fund,
including affiliates of the investment adviser. It is currently expected that an
affiliate of the investment adviser will merge with an entity from which the
Fund purchases a significant supply of its warrants. After the merger, absent
exemption from the 1940 Act, the Fund will no longer be permitted to purchase
warrants issued by such entity. The merger could impede the Fund's ability to
satisfy its investment objective. The Board of Directors of the Fund may, at any
time
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<PAGE>
prior to the issuance and sale of Shares by the Fund, determine to take
such actions, which may include withdrawal or cancellation of the offering, as
it deems appropriate in light of then prevailing market conditions. See "The
Offer--Terms of the Offer."
The Fund's Investment Adviser and Administrator will benefit from the
Offer because the Investment Adviser's fee and the Administrator's fee are based
on the average weekly net assets of the Fund. See "Investment Advisory and Other
Services." It is not possible to state precisely the amount of additional
compensation the Investment Adviser or the Administrator will receive as a
result of the Offer because the proceeds of the Offer will be invested in
additional portfolio securities which will fluctuate in value. However, assuming
all Rights are exercised and that the Fund receives the maximum proceeds of the
Offer, the annual compensation to be received by the Investment Adviser and the
Administrator would be increased by approximately $875,000 and $84,000,
respectively. Two of the Fund's directors who voted to authorize the Offer are
"interested persons" of the Investment Adviser within the meaning of the
Investment Company Act of 1940, as amended (the "Act"), one of whom could
benefit indirectly from the Offer because of his interest in the Investment
Adviser. The other four directors are not "interested persons" of the Fund. 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
offering will be made in accordance with the Act. Under the laws of Maryland,
the state in which the Fund is incorporated, the Board of Directors is
authorized to approve rights offerings without obtaining shareholder approval.
The staff of the Securities and Exchange Commission (the "Commission") has
interpreted the Act as not requiring shareholder approval of a rights offering
at a price below the then current net asset value so long as certain conditions
are met, including a good faith determination by the Fund's Board of Directors
that such offering would result in a net benefit to existing shareholders. While
the Fund's Board of Directors has made this determination with respect to the
Offer, the Fund's shareholders approved the Offer and any future offerings at
the 1998 Annual Meeting of Shareholders.
Over-Subscription Privilege
If some Record Date Stockholders do not exercise all of the Rights
initially issued to them, any Shares for which subscriptions have not been
received will be offered, by means of the Over-Subscription Privilege, to the
Record Date Stockholders who have exercised all the exercisable Rights initially
issued to them and who wish to acquire more than the number of Shares for which
the Rights issued to them are exercisable. Record Date Stockholders who exercise
all the Rights initially issued to them will have the opportunity to indicate on
the Subscription Certificate how many Shares they are willing to acquire
pursuant to the Over-Subscription Privilege. If sufficient Shares remain after
the Primary Subscriptions have been exercised, all over-subscriptions will be
honored in full. If sufficient Shares are not available to honor all
over-subscriptions, the available Shares will be allocated among those who
over-subscribe based on the number of Rights originally issued to them by the
Fund so that the number of Shares issued to Record Date Shareholders who
subscribe pursuant to the Over-Subscription Privilege will generally be in
proportion to the number of Shares owned by them in the Fund on the Record Date.
The percentage of remaining Shares each over-subscribing Record Date Stockholder
may acquire will be rounded down to result in delivery of whole Shares. The
allocation
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<PAGE>
process may involve a series of allocations in order to assure that the total
number of Shares available for Over-Subscriptions is distributed on a pro rata
basis.
The method by which Shares will be distributed and allocated pursuant
to the Over-Subscription Privilege is as follows: Shares will be available for
purchase pursuant to the Over-subscription Privilege only to the extent that the
maximum number of Shares is not subscribed for through the exercise of the
Primary Subscription by the Expiration Date. If the Shares so available ("Excess
Shares") are not sufficient to satisfy all subscriptions pursuant to the
Over-Subscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional Shares) among those holders of Rights
exercising the Over-Subscription Privilege, in proportion, not to the number of
Shares requested pursuant to the Over-Subscription Privilege, but to the number
of shares held on the Record Date; provided, however, that if such pro rata
allocation results in any holder being allocated a greater number of Excess
Shares than such holder subscribed for pursuant to the exercise of such holder's
Over-Subscription Privilege, then such holder will be allocated only such number
of Excess Shares as such holder subscribed for and the remaining Excess Shares
will be allocated among all other holders exercising Over-Subscription
Privileges. The formula to be used in allocating the Excess Shares is as
follows:
Holder's Record Date Position
-----------------------------
Total Record Date Position of all x Excess Shares Remaining
Over-Subscribers
The Fund will not offer or sell any Shares which are not subscribed for
under the Primary Subscription or the Over-Subscription Privilege.
The Subscription Price
The Subscription Price for the Shares to be issued pursuant to the
Rights will be $__.__.
The Fund announced the Offer after the close of trading on the New York
Stock Exchange on April 16, 1998. The net asset value per share of Common Stock
at the close of business on April __, 1998 and May 28, 1998 was $____ and
$_____, respectively. The last reported sale price of a share of the Fund's
Common Stock on such Exchange on those dates was $____ and $______,
respectively, representing a ____% discount and a ___% premium, respectively, in
relation to the net asset value per share of Common Stock at the close of
business on such dates.
Sales by Subscription Agent
Holders of Rights who do not wish to exercise any or all of their
Rights may instruct the Subscription Agent to sell any unexercised Rights. The
Subscription Certificates representing the Rights to be sold by the
Subscription Agent must be received on or before _________ __, 1998. Upon the
timely receipt of appropriate instructions to sell Rights, the Subscription
Agent will use its best efforts to complete the sale and will remit the
proceeds of sale, net of commissions, to the holders. If the Rights can be
sold, sales of such Rights will be deemed to have been effected at the weighted
average price received by the Subscription Agent on the day such Rights are
sold. The selling Rights holder will pay all brokerage commissions incurred by
the Subscription Agent. In addition, upon return of a completed and fully
exercised Subscription Certificate, the Subscription Agent will automatically
attempt to sell any Rights a Rights holder is unable to exercise because such
Rights will represent the right to subscribe for less than one Share. The
Subscription Agent will also attempt to sell all Rights which remain unclaimed
as a result of Subscription Certificates being returned by the postal
authorities as undeliverable as of the fourth Business Day prior to the
Expiration Date. Such sales will be made
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<PAGE>
net of commissions on behalf of the nonclaiming stockholders. Proceeds from
those sales will be held by Investors Bank & Trust Company in its capacity as
the Fund's transfer agent, for the account of such nonclaiming stockholder
until such proceeds are either claimed or escheat. There can be no assurance
that the Subscription Agent will be able to complete the sale of any such
Rights and neither the Fund nor the Subscription Agent has guaranteed any
minimum sales price for the Rights. All such Rights will be sold at the market
price, if any, on the New York Stock Exchange.
Method of Transferring Rights
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not a part of a single Right) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights holder or, if the Rights holder so
instructs, to an additional transferee.
Holders wishing to transfer all or a portion of their Rights (but not
any part of a single Right) should allow at least three Business Days prior to
the Expiration Date for (i) the transfer instructions to be received and
processed by the Subscription Agent, (ii) a new Subscription Certificate to be
issued and transmitted to the transferee or transferees with respect to
transferred Rights, and to the transferor with respect to retained Rights, if
any, and (iii) the Rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof. Neither the Fund nor the
Subscription Agent shall have any liability to a transferee or transferor of
Rights if Subscription Certificates are not received in time for exercise or
sale prior to the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be
paid by the Fund as described below), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Fund or the Subscription Agent.
The Fund anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Primary Subscription (but not the
Over-Subscription Privilege) may be effected through, the facilities of The
Depository Trust Company ("DTC"; Rights exercised through DTC are referred to as
"DTC Exercised Rights"). The holder of a DTC Exercised Right may exercise the
Over-Subscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent, at or prior to 5:00 p.m.,
New York time, on the Expiration Date, a DTC Participant Over-Subscription Form,
together with payment of the Subscription Price for the number of Shares for
which the Over-Subscription Privilege is to be exercised. Copies of the DTC
Participant Over-Subscription Form may be obtained from the Subscription Agent.
Expiration of the Offer
The Offer will expire at 5:00 p.m., New York time, on _________ __,
1998, unless extended by the Fund to a date not later than _______ _, 1998 (the
"Expiration Date"). Rights will expire on the Expiration Date and thereafter may
not be exercised.
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<PAGE>
Subscription Agent
The Subscription Agent is Investors Bank & Trust Company. The
Subscription Agent will receive from the Fund a fee estimated to be $35,000 and
reimbursement for all out-of-pocket expenses related to the Offer. Inquiries by
all holders of Rights relating to the Subscription Certificates should be
directed to Investors Bank & Trust Company, 200 Clarendon Street, Mail Code
OPS22, Boston, MA 02116, (800) [Phone Number;] holders may also consult their
brokers or nominees.
Method of Exercise of Rights
Rights may be exercised by filling in and signing the reverse side of
the Subscription Certificate and mailing it in the envelope provided, or
otherwise delivering the completed and signed Subscription Certificate to the
Subscription Agent, together with payment for the Shares as described below
under "Payment for Shares." Rights may also be exercised through a Rights
holder's broker, who may charge such Rights holder a servicing fee in connection
with such exercise. Fractional Shares will not be issued, and Rights holders who
receive, or who are left with, fewer than three Rights will not be able to
exercise such Rights. The Subscription Agent will automatically attempt to sell
the number of Rights which a Rights holder is unable to exercise for this reason
after return of a completed and fully exercised Subscription Certificate and
will remit the proceeds of such sale, net of commissions, to the Rights holder.
Completed Subscription Certificates, together with payment, must be
received by the Subscription Agent prior to 5:00 p.m., New York time, on the
Expiration Date (unless payment is effected by means of a notice of guaranteed
delivery as described below under "Payment for Shares"). The Subscription
Certificate and payment should be delivered to the Subscription Agent at the
following address:
[If By Mail: If By Hand:
The European Warrant Fund, Inc. The European Warrant Fund, Inc.
c/o Investors Bank & Trust Company c/o Registrar & Transfer Company
[Address] 61 Broadway
Suite 1412
New York, New York 10006
If By Facsimile (Telecopy): If By Overnight Courier:
[(617) 573-1149,] with the original The European Warrant Fund, Inc.
Subscription Certificate to be sent by c/o Investors Bank & Trust Company
one of the three methods described [Address]
above. Confirm facsimile by telephone to
[(800) 331-1710.]]
Payment for Shares
Holders of Rights who acquire Shares on Primary Subscription or
pursuant to the Over-Subscription Privilege may choose between the following two
methods of payment:
(1) A subscription will be accepted by the Subscription Agent if, prior
to 5:00 p.m., New York time, on the Expiration Date, the Subscription Agent
has received a notice of guaranteed
15
<PAGE>
delivery by facsimile (telecopy) or otherwise from a bank, a trust company,
or a New York Stock Exchange member, guaranteeing delivery of (i) payment
of the full Subscription Price for the Shares subscribed for on Primary
Subscription and 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 if a properly completed and executed Subscription
Certificate and full payment are not received by the Subscription Agent by
the close of business on the fifth Business Day after the Expiration Date.
The notice of guaranteed delivery may be delivered to the Subscription
Agent in the same manner as Subscription Certificates at the addresses set
forth above, or may be transmitted to the Subscription Agent by facsimile
transmission [(telecopy number (617) 573-1149).]
(2) Alternatively, a holder of Rights can send a properly executed and
completed Subscription Certificate together with payment in the form of a
check or money order for the Shares acquired on Primary Subscription and
additional Shares subscribed for pursuant to the Over-Subscription Privilege
to the Subscription Agent based on the Subscription Price of $_____ per
Share. To be accepted, such payment, together with the properly completed
and executed Subscription Certificate, must be received by the Subscription
Agent prior to 5:00 p.m., New York time, on the Expiration Date. The
Subscription Agent will deposit all stock purchase checks received by it
prior to the Expiration Date into a segregated interest-bearing account
pending proration and distribution of Shares. The Subscription Agent will
not accept cash as a means of payment for 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 THE EUROPEAN WARRANT
FUND, INC., AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED
SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
If the aggregate Subscription Price paid by a Record Date Stockholder is
insufficient to purchase the number of shares of Common Stock that the
holder indicates are being subscribed for, or if a Record Date Stockholder
does not specify the number of shares of Common Stock to be purchased, then
the Record Date Stockholder will be deemed to have exercised first, the
Primary Subscription Rights (if not already fully exercised) and second, the
Over-Subscription Privilege to the full extent of the payment tendered. If
the aggregate Subscription Price paid by a Record Date Stockholder exceeds
the amount necessary to purchase the number of shares of Common Stock for
which the Record Date Stockholder has indicated an intention to subscribe,
then the Record Date Stockholder will be deemed to have exercised first, the
Primary Subscription Rights (if not already fully subscribed) and second,
the Over-Subscription Privilege to the full extent of the excess payment
tendered.
Within ten Business Days following the Expiration Date (the
"Confirmation Date"), a confirmation will be sent by the Subscription Agent to
each holder of Rights (or, if the Fund's shares are held by a depository or
nominee, to 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 for the Shares, (iv) the amount to be paid to such
holder as a result of Rights sold on his behalf by the Subscription Agent and
(v) any excess to be refunded by the Fund to such holder as a result of payment
for Shares pursuant to the Over-Subscription Privilege which the holder is not
acquiring. Any payment required from a holder of Rights exercising Rights
pursuant to a notice of guaranteed delivery must be received by the Subscription
Agent within five Business Days after the Expiration Date. Any excess payment to
be refunded by the Fund to a holder of Rights, or to be paid to a holder of
Rights as a result of sales of Rights on his behalf by the Subscription Agent or
exercises by Record Date Stockholders of their Over-Subscription Privileges, and
all interest accrued on such holder's excess payment through the date on which
full payment is due pursuant to a guaranty of delivery (i.e., five Business Days
after the Expiration Date) will be mailed by the Subscription Agent to him
within fifteen Business Days after the
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<PAGE>
Expiration Date. All payments by a holder of Rights must be in United States
dollars by money order or check drawn on a bank located in the continental
United States of America and payable to The European Warrant Fund, Inc.
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.
A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment, either by means of a notice of
guaranteed delivery or a check.
If a holder of Rights who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
amounts due, the Fund reserves the right to take any or all of the following
actions: (i) find other purchasers for such subscribed for and unpaid for
Shares; (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 or the Over-Subscription Privilege; (iii)
sell all or a portion of the Shares purchased by the holder, in the open market,
and apply the proceeds to the amounts owed; and (iv) exercise any and all other
rights or remedies to which it may be entitled, including, without limitation,
the right to set off against payments actually received by it with respect to
such subscribed Shares and to enforce the relevant guaranty of payment.
Holders who hold shares of Common Stock for the account of others, such
as brokers, trustees or depositaries for securities, should notify the
respective 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 record holder of such
Right should complete Subscription Certificates and submit them to the
Subscription Agent with the proper payment. In addition, beneficial owners of
Common Stock or Rights held through such a holder should contact the holder and
request the holder to effect transactions in accordance with the beneficial
owner's instructions.
The instructions accompanying the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
THE FUND.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS 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 SUBSCRIPTION AGENT 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. Neither the Fund nor the Subscription Agent will be
17
<PAGE>
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.
Delivery of Stock Certificates
Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to subscribers as soon as practicable after the
corresponding Rights have been validly exercised and full payment for such
Shares has been received and cleared. Certificates representing Shares purchased
pursuant to the Over-Subscription Privilege will be delivered to subscribers as
soon as practicable after the Expiration Date and after all allocations have
been effected. Participants in the Fund's Dividend Reinvestment and Cash
Purchase Plan (the "Plan") will be issued Rights for the shares held in their
accounts in the Plan. Participants wishing to exercise such Rights must exercise
such Rights in accordance with the procedures set forth above in "Method of
Exercise of Rights" and "Payment for Shares." Such Rights will not be exercised
automatically by the Plan. Plan participants exercising their Rights will
receive their Primary and Over-Subscription shares via an uncertificated credit
to their existing account. To request a stock certificate, participants in the
Plan should check the appropriate box on the Subscription Certificate. Such
Shares will remain subject to the same investment option as previously selected
by the Plan participant.
Foreign Restrictions
Subscription Certificates will not be mailed to Record Date
Stockholders whose 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 such Subscription Certificates relate will be
held by the Subscription Agent for such Foreign Record Date Stockholders'
accounts until instructions are received to exercise, sell or transfer the
Rights. If the Subscription Agent has received no instruction from the Foreign
Record Date Stockholder by 12:00 noon, New York time, two Business Days prior to
the Expiration Date, the Subscription Agent will attempt to sell all Rights and
remit the net proceeds, if any, to such stockholders. If the Rights can be sold,
sales of such Rights will be deemed to have been effected at the weighted
average price received by the Subscription Agent on the day such Rights are
sold, less any applicable brokerage commissions, taxes and other expenses.
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:
1. The distribution of Rights to Record Date Stockholders will not
result in taxable income to such holders nor will such holders realize
taxable income as a result of the exercise of the Rights.
2. The basis of a Right will be (a) to a holder of Common Stock to whom
it is issued and who exercises or sells the Right (i) if the fair market
value of the Right immediately after issuance is less than 15% of the fair
market value of the Common Stock with regard to which it is issued, zero
(unless the holder elects, by filing a statement with his timely filed
federal income tax return for the year in which the Rights are received, to
allocate the basis of the Common Stock between the Right and the Common
Stock based on their respective fair market values immediately after the
Right is issued), and (ii) if the fair market value of the Right immediately
after issuance is 15% or more of the fair market value of the Common Stock
with regard to which it is issued, a portion of the basis in the Common
Stock based upon their respective fair market values immediately after the
Right is issued; (b) to a holder of Common
18
<PAGE>
Stock to whom it is issued and who allows the Right to expire, zero; and
(c) to anyone who purchases a Right in the market, the purchase price for a
Right.
3. The holding period of a Right received by a Record Date Stockholder
includes the holding period of the Common Stock with regard to which the
Right is issued.
4. Any gain or loss on the sale of a Right will be treated as a capital
gain or loss if the Right is a capital asset in the hands of the seller.
Such a capital gain or loss will be long- or short-term, depending on how
long the Right has been held, in accordance with paragraph 3 above. A Right
issued with regard to Common Stock will be a capital asset in the hands of
the person to whom it is issued if the Common Stock was a capital asset in
the hands of that person. If a Right is allowed to expire, there will be no
loss realized unless the Right had been acquired by purchase, in which case
there will be a loss equal to the basis of the Right.
5. If the Right is exercised by the Record Date Stockholder, the basis
of the Common Stock received will include the basis allocated to the Right
and the amount paid upon exercise of the Right.
6. If the Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.
7. Gain recognized by a foreign stockholder on the sale of a Right will
be taxed in the same manner as gain recognized on sale of Fund Shares. See
"Taxation--United States Federal Income Taxes--Foreign Shareholders."
The Fund is required to withhold and remit to the U.S. Treasury 31% of
reportable payments paid on an account if the holder of the account provides the
Fund with either an incorrect taxpayer identification number or no number at all
or fails to certify that he is not subject to such withholding. The 31%
withholding tax is not an additional tax. Any amount withheld may be credited
against the holder's U.S. federal income tax liability.
The foregoing is only a summary of the applicable federal income tax
laws and does not include any state or local tax consequences of the Offer.
Exercising Rights Holders should consult their own tax advisers concerning the
tax consequences of this transaction. See "Taxation."
Notice of Net Asset Value Decline
The Fund has, as required by the SEC's registration form, undertaken to
suspend the Offer until it amends this Prospectus if, subsequent to 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 Expiration Date would be extended and the Fund would notify Record Date
Shareholders of any such decline and permit Exercising Rights Holders to cancel
their exercise of Rights.
Employee Plan Considerations
Stockholders 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), Keogh Plans of self-employed individuals
and Individual Retirement Accounts (collectively, "Plans") should be aware that
additional contributions of cash in order to exercise Rights would be treated as
Plan contributions and, when taken together with contributions previously made,
may subject a Plan to excise taxes for excess or nondeductible contributions. In
the case of Plans qualified under section
19
<PAGE>
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. Plans contemplating making additional cash contributions
to exercise Rights should consult with their counsel prior to making such
contributions.
Plans and other tax exempt entities, including governmental plans,
should also be aware that if they borrow in order to finance their exercise of
Rights, they may become subject to the tax on unrelated business taxable income
("UBTI") under Section 511 of the Code. If any portion of an Individual
Retirement Account ("IRA") is used as security for a loan, the portion so used
is also treated as distributed to the IRA depositor.
ERISA contains prudence and diversification requirements and ERISA and
the Code contain prohibited transaction rules that may impact the exercise of
Rights. Among the prohibited transaction exemptions issued by the Department of
Labor that may exempt a Plan's exercise of Rights are Prohibited Transaction
Exemption 84-24 (covering purchases of shares in investment companies) and
Prohibited Transaction Exemption 75-1 (covering sales of securities).
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.
THE FUND
The European Warrant Fund, Inc., incorporated in Maryland on May 23,
1990, is a non-diversified, closed-end management investment company registered
under the Act. The Fund's Common Stock is listed on the New York Stock Exchange
under the trading symbol "EWF."
The Fund's investment objective is enhanced capital growth, which the
Fund seeks to achieve by investing primarily in equity warrants of Western
European issuers. It is the policy of the Fund, under normal market conditions,
to invest substantially all of its total assets, but in no event less than 65%
of its total assets, in European warrants. "European warrants" are defined as
equity warrants, index warrants, basket warrants, covered warrants, interest
rate warrants and long-term options of, or relating to, European issuers. For a
description of these instruments, see "Investment Objective and Policies."
The Fund does not concentrate its investments in any particular country
or countries; there are no prescribed limits on geographic asset distribution
within Europe and, from time to time, a significant portion of the Fund's assets
may be invested in issuers based in as few as three European countries. Under
current market conditions, the Fund intends to invest primarily in warrants of
Western European issuers. The Fund may invest up to 10% of its total assets in
Eastern European equity securities or warrants.
The Fund completed an initial public offering of 6,000,000 shares of
its Common Stock in July 1990, raising approximately $72,000,000.
The Fund completed a transferable rights offering in September 1993
which permitted Shareholders to acquire, at a subscription price of $10.75, one
new share for every three rights held as of the record date of such rights
offering. All of the rights issued by the Fund pursuant to the rights offering
completed in September 1993 were exercised. As a result, 2,018,037 new shares of
Common Stock were issued with net proceeds to the Fund of approximately
$21,694,000. All of the net proceeds from the exercise of the rights issued
pursuant to the prior rights offering have been invested in new securities in
accordance with the Fund's investment objective.
20
<PAGE>
In December 1997, the Fund declared a capital gain distribution payable
in cash or in additional Shares of the Fund at the option of the Shareholder.
Approximately 63% of the Fund's Shareholders elected to receive additional
Shares of the Fund. As a result of the Optional distribution, 2,522,055 new
shares of the Fund's Common Stock were issued with net proceeds to the Fund of
approximately $34,048,000.
The Growth and Development of the European Warrant Market
The European warrant market commenced its development in the 1970's,
but the real growth in the market did not begin until the late 1980's. During
the five and one-half year period from January 1988 to June 1993, the
capitalization of the European single equity warrant market more than quadrupled
from $9 billion with 490 issues outstanding to $36 billion with 1,300 issues
outstanding. From June 1993 to March 1998, the capitalization tripled to over
$125 billion with over 3000 issues outstanding. The eye of the total warrant
market is at least two times bigger with the inclusion of index warrants and
basket warrants.
European warrants currently trade on the exchanges and
over-the-counter markets in a number of countries. Germany and Switzerland have
the largest single equity warrant market with total capitalization in excess of
$67 billion and $38 billion, respectively. Other major warrant markets are
Italy, France and the Netherlands with total market capitalization of more than
$17 billion.
European warrants have average maturities of approximately one year,
with some German issues having maturities of as long as 10 years. The same
warrant can be traded simultaneously on different exchanges in different
currencies. Anomalies in pricing between markets and among individual issues in
each market may provide added opportunity for an active fund manager to enhance
the overall return of a European warrant portfolio.
The majority of European warrants are issued by financial institutions
and issued as covered warrants. There are currently over thirty financial
institutions that issue covered European warrants. Some warrants have been
issued by the companies themselves in conjunction with an issue of bonds or
shares, although the warrants tend to trade separately from the bonds or shares
after issue. Over the last several years there has been a significant increase
in the issuance of covered warrants as financial institutions across Europe have
attempted to meet the demand of investors by issuing warrants that are
exercisable into shares of another company or a basket of securities. The
majority of European equity and covered warrants are listed on the principal
European exchanges.
At the time of issue, the cost of a warrant is substantially less than
the cost of the underlying security itself, so that price movements in the
underlying security can be expected to be magnified in the price movements of
the warrant. The Investment Adviser believes that this leveraged effect offers
an attractive way to participate in the European equity markets.
European stock options and futures markets are also experiencing rapid
growth. Options began trading on the principal exchange in the Netherlands in
1978, on France's exchange in 1987. Today, stock options and futures markets are
established in all EC, Scandinavian countries as well as Switzerland and
Austria. Index futures may provide a mechanism to hedge a warrant portfolio, and
this recent growth in the futures market may be expected to enhance the
development of the European warrant markets. Currently, there are functional
options and futures markets in all Western European countries. The Fund sees
rapid growth of the options and futures trading markets in Eastern and Central
Europe (Poland, the Czeck Republic, Hungary and Russia).
21
<PAGE>
USE OF PROCEEDS
The net proceeds of the Offer, assuming all Shares offered hereby are
sold, are estimated to be approximately $__________, after deducting expenses
payable by the Fund estimated at approximately $_______. The Investment Adviser
anticipates that investment of such proceeds, in accordance with the Fund's
investment objective and policies, will take up to six months from their receipt
by the Fund, depending on market conditions and the availability of appropriate
securities. Pending such investment in accordance with the Fund's investment
objective and policies, the proceeds will be held in U.S. Government Securities
(as defined below) and other short-term money market instruments.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Dilution
An immediate dilution of the aggregate net asset value of the shares
owned by Record Date Stockholders is likely to be experienced as a result of the
Offer because the Subscription Price is likely to be less than the then net
asset value per share, and the number of shares outstanding after the Offer is
likely to increase by a greater percentage than the increase in the size of the
Fund's assets. In addition, as a result of the terms of the Offer, Record Date
Stockholders who do not fully exercise their Rights should expect that they
will, at the completion of the Offer, own a smaller proportional interest in the
Fund than would have been the case had they fully exercised their Rights.
Although it is not possible to state precisely the amount of such a decrease in
value, because it is not known at this time what the net asset value per share
will be at the Expiration Date or the number of rights that will be exercised,
such dilution could be substantial. For example, assuming that all Rights are
exercised and that the Subscription Price of $_____ is ____% below the Fund's
net asset value per share on _________, 1998, the Fund's net asset value per
share would be reduced by approximately $.__ per share.
Investing in European warrants involves certain considerations not
typically associated with investing in the securities of U.S. companies or the
U.S. Government, including those discussed below.
Leveraging and Other Warrant Characteristics
At the time of issue, the cost of a warrant is substantially less than
the cost of the underlying securities themselves, and price movements in the
underlying securities are generally magnified in the price movements of the
warrant. This leveraging effect enables an investor to gain exposure to the
underlying shares with a relatively low capital investment. However, it
increases an investor's risk in the event of a decline in the value of the
underlying security and can result in a complete loss of the investment in the
warrant. Accordingly, investing in warrants can provide a greater potential for
profit or loss than an equivalent investment in the underlying security, and,
thus, can be a speculative investment. The value of a warrant may decline
because of a decline in the value of the underlying security, the passage of
time, changes in interest rates or in the dividend or other policies of the
company whose equity underlies the warrant or a change in the perception as to
the future price behavior of the underlying security, or any combination
thereof. Warrants generally pay no dividends and confer no voting or other
rights other than to purchase the underlying security. If the market price of
the underlying security is below the exercise price of the warrant on its
expiration date, the warrant will generally expire without value.
European Warrant Markets
22
<PAGE>
The European warrant markets are still relatively small as compared
with European equity markets, and can at times be illiquid, which may affect the
Fund's ability to acquire or dispose of warrants at a price and time that it
wishes to do so. In addition, as a consequence of the relatively small size of
the European warrant markets, at times of high volatility in the equity markets,
the low levels of liquidity can cause significant price movements in the
warrants, both upward and downward. Thus, the value of the Fund's shares can be
expected to fluctuate more sharply than those of a fund investing primarily in
European equity securities. Similar considerations apply to investments in
European equity markets.
Most of the warrants in which the Fund invests are listed on a European
stock exchange and are regulated by the same authorities that govern equity
securities on European exchanges. Nevertheless, European markets generally are
not as highly regulated and supervised as U.S. securities markets. Consequently,
the prices at which the Fund may acquire investments may be affected by trading
on material non-public information and securities transactions by brokers in
anticipation of transactions by the Fund. Commissions and other transaction
costs on certain European exchanges on which warrants are traded may be higher
than in the United States.
The Fund acquires only covered warrants, index warrants, interest rate
warrants and long-term options issued by entities deemed to be creditworthy by
the Investment Adviser, who will monitor the creditworthiness of such issuers on
an on-going basis. Investment in these instruments involves the risk that the
issuer of the instrument may default on its obligation to deliver the underlying
security or warrants to acquire the underlying security (or cash in lieu
thereof). To reduce this risk, the Fund limits its holdings of covered warrants,
basket warrants, index warrants, interest rate warrants and long-term options to
those issued by entities that either have a class of outstanding debt securities
that is rated investment grade or higher by a recognized rating service or
otherwise are considered by the Investment Adviser to have the capacity to meet
their obligations to the Fund.
Currency Fluctuation
The Fund invests principally in securities denominated in currencies of
European countries. Accordingly, a change in the value of these currencies
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in those currencies. Such changes will
also affect the Fund's income. The Fund could be required to liquidate portfolio
securities to make distributions to shareholders if the foreign currency
available for distribution declines in value relative to the U.S. dollar prior
to the date of the distribution. Liquidating securities to make distributions
could adversely affect the Fund's performance. If the exchange rate with respect
to a currency in which a portfolio security is denominated declines between the
time the Fund incurs expenses in U.S. dollars and the time cash expenses are
paid, the amount of such currency required to be converted into U.S. dollars in
order to pay expenses in U.S. dollars will be greater than the equivalent amount
in such currency of such expenses at the time they are incurred. The Fund may
engage in an active program to hedge against currency fluctuations with respect
to some portion or all of its portfolio holdings.
23
<PAGE>
The following table sets forth historical exchange rates per U.S. dollar
for the European currencies listed:
<TABLE>
<CAPTION>
EXCHANGE RATES PER U.S. DOLLAR(1)
First
Quarter
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------- ------- -------- -------- --------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Austria 12.35 13.22 11.38 11.68 10.99
Schillings
Belgium 36.77 39.36 33.42 34.15 32.15
Francs
Denmark 6.73 7.30 6.19 6.40 6.04
Kroner
Finland 4.18 4.29 3.82 4.04 4.48
Markkaa
France 5.96 6.37 5.45 5.64 5.29
Francs
Germany 1.76 1.88 1.62 1.66 1.56
Deutschemarks
Greece 141.86 162.15 158.51 182.27 190.62
Drachma
Ireland 1.53 1.42 1.66 1.62 1.71
Pounds(3)
Italy Lira 1,301.60 1,370.95 1,198.10 1,240.60 1,232.40
Netherlands 1.98 2.12 1.82 1.87 1.76
Guilders
Norway 6.52 6.90 6.26 6.48 6.21
Kronor
Portugal 143.95 157.20 142.55 144.48 135.00
Escudos
Spain 116.49 118.32 101.93 103.91 102.38
Pesetas
Sweden 6.13 6.44 5.92 6.05 5.82
Kronor
Switzerland 1.46 1.63 1.39 1.43 1.41
Francs
Turkey Lira 1,422.30 2,094.15 2,608.60 4,171.80 6,872.40
United Kingdom
Pounds
Sterling(2) 1.78 1.64 1.79 1.77 1.77
ECU(2)(3) 1.18 1.10 1.27 1.24 1.30
</TABLE>
(1) Exchange rates are averages for the year or period shown.
(2) Data are those for US$ per local currency.
(3) The European Currency Unit ("ECU") is based on a basket of currencies of
the member countries of the EC.
Sources:[IMF, International Financial Statistics, August, 1993, except for the
Second Quarter 1993 for Turkey which is from Reuters noon buying rates.]
Political and Economic Factors
The economies of individual European countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital
24
<PAGE>
reinvestment, resource self-sufficiency and balance of payments position.
Government actions could have a significant effect on economic conditions in a
country, which could affect private sector companies and the Fund, and on
market conditions and prices of securities in the Fund's portfolio.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or diplomatic developments (including war) could adversely
affect the assets of the Fund held in particular European countries. In
addition, foreign investment in the securities markets of certain European
countries is restricted or controlled to varying degrees.
European companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. Consequently, the financial statements of certain
issuers may not reflect their financial position or results of operations as
those amounts would appear had they been prepared in accordance with U.S.
generally accepted accounting principles. In addition, there may be less
publicly available information about such companies compared to reports and
ratings published about U.S. companies. Further, there is generally less
government supervision and regulation of European securities exchanges,
underwriters, brokers, dealers and listed companies than in the United States.
The Fund may invest up to 10% of its assets in Eastern Europe.
Investing in the securities of issuers in these markets involves certain
additional considerations not usually associated with investing in securities of
issuers in more developed capital markets, including the following: (i)
political and economic considerations, such as greater risks of expropriation
and nationalization and less social, political and economic stability; (ii) the
modest size of the markets for such securities, the moderate volume of trading,
the limited liquidity and price volatility; (iii) restrictions on investing in
issuers or industries deemed sensitive to relevant national interests; and (iv)
the absence of developed legal structures governing private and foreign
investments and private property. Applicable accounting and financial reporting
standards in Eastern Europe may be substantially different from U.S. accounting
standards and, in certain Eastern European countries, no reporting standards may
exist. Consequently, substantially less information is available to investors in
Eastern Europe, and the information that is available may not be conceptually
comparable to, or prepared on the same basis as, that available in more
developed capital markets, which may make it difficult to assess the financial
status of particular companies. In addition, the currencies of some Eastern
European countries are not currently freely convertible into other currencies
and are not internationally traded. Upon the accession to power of Communist
regimes approximately 40 years ago, the governments of a number of Eastern
European countries expropriated a large amount of property. The claims of many
property owners against those governments were never finally settled. There can
be no assurance that the Fund's investments in Eastern Europe, if any, would not
also be expropriated, nationalized or otherwise confiscated, in which case the
Fund could lose its entire investment in untry involved. In addition, any change
in the leadership or policies of Eastern European countries may halt the
expansion of or reverse the liberalization of foreign investment policies now
occurring.
Year 2000 and European Monetary Union Risks
Like other investment companies, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers and
counter-parties do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Adviser is taking steps to address the Year 2000 Problem with
respect to the computer systems that it uses and to obtain assurances that
comparable steps are being taken by the Fund's other major service providers. At
this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Fund.
The Fund is also taking steps to ensure that there will be no
accommodations necessary for the Fund to prepare for the upcoming EMU
conversion. The EMU is scheduled to begin on January 1,
25
<PAGE>
1999 and will ultimately result in the replacement of certain European
currencies with the "Euro." At this time, there can be no assurance that these
steps will be sufficient to avoid adverse impact on the Fund.
The Fund's Investments and Operations
Although the Fund invests primarily in listed securities, it may invest
up to 25% of its assets in the aggregate in unlisted warrants and equity
securities and warrants to subscribe for or acquire unlisted securities,
including investments in new and early stage companies, which may involve a high
degree of business and financial risk that can result in substantial losses.
Because of the absence of any trading market for these investments, the Fund may
take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on these sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to publicly traded securities.
The Fund's annual operating expenses are higher than those of many
other investment companies of comparable size, but are believed by the Fund's
management to be appropriate in light of the specialized nature of the Fund and
the efforts and resources that are required in order to pursue the Fund's
investment objective and policies. The Fund's annual expenses are comparable to
those paid by many other closed-end investment companies investing outside the
United States.
Shares of closed-end investment companies frequently trade at a
discount from net asset value. This characteristic of shares of a closed-end
fund is a risk separate and distinct from the risk that the fund's net asset
value will decrease. The Fund cannot predict whether its shares will trade at,
below or above net asset value. The risk of purchasing shares of a closed-end
fund that might trade at a discount is more pronounced for investors who wish to
sell their shares in a relatively short period of time because for those
investors, realization of gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance.
The Fund protects the value of its portfolio holdings against currency
risks by engaging in an active hedging program. The Fund may enter into forward
currency exchange contracts and currency futures contracts and options on such
futures contracts, as well as purchase put or call options on currencies, in
U.S. or foreign markets. In order to hedge against adverse market shifts, the
Fund may purchase put and call options on stocks, write covered call and put
options on stocks and enter into stock index futures contracts and related
options. For a description of such hedging strategies, see "Investment Objective
and Policies--Certain Investment Strategies." There can be no guarantee that
suitable hedging instruments will always be available at the time when the
Investment Adviser wishes to use them. Moreover, investors should be aware that
in some European countries the markets for certain of these hedging instruments
are not highly developed and that in certain European countries no such markets
currently exist.
DESCRIPTION OF COMMON STOCK
The Fund is authorized to issue 100,000,000 shares of common stock, par
value $.001 per share. Each share has equal voting, dividend, distribution and
liquidation rights. The shares outstanding and those Shares offered hereby, when
issued and paid for pursuant to the terms of the Offer, will be fully paid and
non-assessable. Shares of Common Stock are not redeemable and have no
preemptive, conversion or cumulative voting rights.
26
<PAGE>
Set forth below is information with respect to the Common Stock as of
March 31, 1998.
<TABLE>
<CAPTION>
Amount Held by Fund Amount Outstanding Exclusive
for Its Own of Shares Held by Fund for
Amount Authorized Account Its Own Account
- ----------------- -------- ---------------
<S> <C> <C>
100,000,000 shares ..................... 0 shares 0 shares
</TABLE>
The number of shares outstanding as of _________, 1998 adjusted to give
effect to the issuance of all the Shares pursuant to the Offer, would be
_________.
The Fund's shares are listed and traded on the New York Stock Exchange.
The average weekly trading volume of the Common Stock on the New York Stock
Exchange during the fiscal year ended March 31, 1998 was _______ shares. The
following table sets forth for the quarters indicated the high and low closing
prices on the New York Stock Exchange per share of Common Stock and the net
asset value and the premium or discount from net asset value at which the Common
Stock was trading, expressed as a percentage of net asset value, at each of the
high and low closing prices provided.
<TABLE>
<CAPTION>
Quarterly High Price Quarterly Low Price
------------------------------------------ ------------------------------------------
Premium Premium
Net Asset (Discount) Net Asset (Discount)
Value NYSE Price to NAV Value NYSE Price to NAV
---------- ----------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
06/30/95 ................ % %
09/30/95 ................ % %
12/31/95 ................ % %
03/31/96 ................ % %
06/31/96 ................ % %
09/30/96 ................ % %
12/31/96 ................ % %
03/31/97 ................ % %
06/30/97 ................ % %
09/30/97 ................ % %
12/31/97 ................ % %
03/31/98 ................ % %
</TABLE>
Since the commencement of the Fund's operations, the Fund's shares have
generally traded in the market at a discount to net asset value.
27
<PAGE>
For the net asset value per share and the reported sales price of a
share of the Fund's Common Stock on the New York Stock Exchange as of a recent
date, see "The Offer--The Subscription Price."
The Fund has no present intention of offering additional shares of
Common Stock other than pursuant to the Offer, except that additional shares may
be issued under the Plan. See "Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan; and Dividend Reinvestment Privilege." Other
offerings of shares of 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 Act that shares of Common Stock 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 of Common Stock.
Future Actions Relating to a Discount in the Price of the Fund's Shares
The market price of the Fund's shares will be determined by, among
other things, the supply and demand for Fund shares, the Fund's investment
performance and investor perception of the Fund's overall attractiveness as an
investment as compared with alternative investments. The Fund's Bylaws provide
that if, at any time during or after the fifth year following the initial public
offering of shares, shares of the Fund's Common Stock publicly trade for a
substantial period of time at a substantial discount from the Fund's then
current net asset value per share, the Board of Directors of the Fund will
consider, at its next regularly scheduled meeting, taking various actions
designed to eliminate the discount. The actions considered by the Board of
Directors may include periodic repurchases of shares or recommending to
shareholders amendments to the Fund's Articles of Incorporation to convert the
Fund to an open-end investment company. There can be no assurance that the Fund
will convert to an open-end investment company or that share repurchases will be
made or that, if made, they will reduce or eliminate market discount. Although
the Board of Directors has authorized the Investment Adviser to repurchase up to
10% of the Fund's shares when the discount to net asset value is at least 15%,
the Fund has not repurchased any of its shares and does not currently
contemplate doing so. Should any such repurchases be made in the future, it is
expected that they would be made at prices at or below the current net asset
value per share. Any such repurchases would cause the Fund's total assets to
decrease, which may have the effect of increasing the Fund's expense ratio. In
considering whether to recommend to shareholders the conversion of the Fund to
an open-end investment company, the Board would consider a number of factors,
including whether the Fund's ability to operate in accordance with its
investment policies may be impaired as a result. In light of the longstanding
position of the U.S. Securities and Exchange Commission that illiquid securities
may not exceed 15% of the total assets of a registered open-end investment
company, any attempt to convert the Fund to such a company would have to take
into account the percentage of illiquid securities in the Fund's portfolio at
the time, and other factors. The Fund cannot predict whether on this basis it
would be able to effect any such conversion or whether, if relief from the U.S.
Securities and Exchange Commission's position were required, it could be
obtained. In the absence of such relief, the Fund would be required to sell
illiquid investments exceeding permissible levels.
Certain Provisions of the Articles of Incorporation and By-Laws
The Fund presently has provisions in its Articles of Incorporation and
By-Laws which could have the effect (i) of limiting the ability of other
entities or persons to acquire control of the Fund, (ii) to cause it to engage
in certain transactions or (iii) to modify its structure. The Board of Directors
is divided into three classes, each having a term of three years. Each year the
term of one class of directors expires and directors are elected to serve in
that class for a term of three years. This provision could delay for up to two
years the replacement of a majority of the Board of Directors. A director may be
removed from office only by a vote of at least 75% of the shares of the Fund
entitled to be voted on the matter.
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In addition, conversion of the Fund from a closed-end to an open-end
investment company requires the affirmative vote of at least 75% of the
directors and of the holders of 75% of the shares of the Fund unless approved by
at least 75% of the Continuing Directors, as defined below, in which case the
number of shares required to approve such transaction under applicable law shall
be required.
If the Fund were to be converted into an open-end investment company,
it could be restricted in its ability to redeem its shares (otherwise than in
kind) because there can be no assurance that the Fund could realize the then
market value of the portfolio securities the Fund would be required to liquidate
to meet redemption requests.
The affirmative votes of at least 75% of the directors and the holders
of at least 75% of the shares of the Fund are required to authorize any of the
following transactions:
(i) merger, consolidation or share exchange of the Fund with or into
any other person;
(ii) issuance or transfer by the Fund (in one or a series of
transactions in any 12-month period) of any securities of the Fund to any
other person or entity for cash, securities or other property (or
combination thereof) having an aggregate fair market value of $1,000,000 or
more, excluding sales of securities of the Fund in connection with a public
offering, issuances of securities of the Fund pursuant to a dividend
reinvestment plan adopted by the Fund and issuances of securities of the
Fund upon the exercise of any stock subscription rights distributed by the
Fund;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Fund (in one or a series of transactions in any 12-month
period) to or with any person of any assets of the Fund having an aggregate
fair market value of $1,000,000 or more except for portfolio transactions of
the Fund in the ordinary course of its business (transactions within clauses
(i) and (ii) and this clause (iii) each being known individually as a
"Business Combination");
(iv) any proposal as to the voluntary liquidation or dissolution of the
Fund or any amendment to the Fund's Articles of Incorporation to terminate
its existence; and
(v) any shareholder proposal as to specific investment decisions made
or to be made with respect to the Fund's assets.
However, a 75% shareholder vote will not be required with respect to
the transactions described in (i) through (iv) above (A) if they are approved by
a vote of at least 76% of the Continuing Directors (as defined below), in which
case the number of shares required to approve such transaction under applicable
law shall be required or (B) in the case of a Business Combination, if certain
conditions regarding the consideration paid by the person entering into, or
proposing to enter into, a Business Combination with the Fund and various other
requirements are satisfied, in which case the number of shares required to
approve such transaction under applicable law shall be required. The Fund's
By-Laws contain provisions the effect of which is to prevent matters, including
nominations of directors, from being considered at shareholders' meetings where
the Fund has not received sufficient prior notice of the matters.
Reference is made to the Articles of Incorporation and By-Laws of the
Fund on file with the Securities and Exchange Commission for the full text of
these provisions. See "Further Information." 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
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control of the Fund in a tender offer or similar transaction. In the opinion of
the Board of Directors, however, these provisions offer several possible
advantages. They may require persons seeking control of the Fund to negotiate
with its management regarding the price to be paid for the shares required to
obtain such control, they promote continuity and stability and they enhance the
Fund's ability to pursue long-term strategies that are consistent with its
investment objective. The Board of Directors has determined that the foregoing
voting requirements, which are generally greater than the minimum requirements
under Maryland law and the Act, are in the best interests of shareholders
generally.
A "Continuing Director" is any member of the Board of Directors of the
Fund (i) who is not a person or affiliate of a person who enters or proposes to
enter into a Business Combination with the Fund (such person or affiliate, an
"Interested Party") and (ii) who has been a member of the Board of Directors of
the Fund for a period of at least 12 months (or since the commencement of the
Fund's operations, if less than 12 months), or is a successor of a Continuing
Director who is unaffiliated with an Interested Party of the Fund and is
recommended to succeed a Continuing Director by a majority of the Continuing
Directors then on the Board of Directors of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
General
The Fund's investment objective is enhanced capital growth, which the
Fund seeks to achieve by investing primarily in equity warrants of Western
European issuers. The Fund may invest in up to 10% of its total assets in
Eastern European equity securities or warrants. The Fund's investment objective
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities. For purposes of this Prospectus, a
"majority of the Fund's outstanding voting securities" means the lesser of (a)
67% or more of the shares of the Fund's Common Stock present at a meeting of
shareholders, if the holders of 50% of the outstanding shares are present or
represented by proxy at the meeting, or (b) more than 50% of the outstanding
shares. No assurance can be given that the Fund's investment objective will be
achieved. Due to the risks inherent in international investing generally, the
Fund should not be considered as a complete investment program.
The Fund's policy, under normal market conditions, is to invest
substantially all of its total assets, but in no event less than 65% of its
total assets, in European warrants. As noted above, the Fund's holdings of
European warrants consist of equity warrants, index warrants, covered warrants,
interest rate warrants and long-term options of, or relating to, European
issuers. The Fund may invest up to 25% of its assets in interest rate warrants.
o Equity warrants are securities that give the holder the right, but
not the obligation, to subscribe for newly created equity issues
(consisting of common and preferred stock, convertible preferred
stock and warrants that themselves are only convertible into common,
preferred or convertible preferred stock) of the issuing company or a
related company at a fixed price either on a date certain or during a
set period. The equity issue underlying an equity warrant is
outstanding at the time the equity warrant is issued or is issued
together with the warrant. At the time the Fund acquires an equity
warrant convertible into a warrant, the terms and conditions under
which the warrant received upon conversion can be exercised will have
been determined; the warrant received upon conversion will only be
convertible into a common, preferred or convertible preferred stock.
o Index warrants are rights created by an issuer, typically a financial
institution, entitling the holder to purchase, in the case of a call,
or sell, in the case of a put, an equity index at a certain level
over a fixed time period. Index warrant transactions settle in cash.
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o Basket warrants are rights created by an issuer, typically a
financial institution, entitling the holder to purchase in the case
of a call or sell, in the case of a put, a portfolio of typically
three to ten single equities which are either sector or regionally
oriented. Basket warrants transactions settle cash.
o Covered warrants are rights created by an issuer, typically a
financial institution, normally entitling the holder to purchase from
the issuer of the covered warrant outstanding securities of another
company (or in some cases a basket of securities), which issuance may
or may not have been authorized by the issuer or issuers of the
securities underlying the covered warrants. In most cases, the holder
of the covered warrant is entitled on its exercise to delivery of the
underlying security, but in some cases the entitlement of the holder
is to be paid in cash the difference between the value of the
underlying security on the date of exercise and the strike price. The
securities in respect of which covered warrants are issued are
usually common stock, although they may also entitle the holder to
acquire warrants to acquire common stock. Covered warrants may be
fully covered, partially covered or not covered at all. In the case
of a fully covered warrant, the issuer of the warrant will
beneficially own all of the underlying securities or will itself own
warrants (which are typically issued by the issuer of the underlying
securities in a separate transaction) to acquire the securities. The
underlying securities or warrants are, in some cases, held by another
member of the issuer's group or by a custodian or other fiduciary for
the holders of the covered warrants. To the extent that a covered
warrant is not covered, the issuer accepts an obligation to deliver
the underlying security or warrants to acquire the underlying
security (or cash in lieu thereof).
o Interest rate warrants are rights that are created by an issuer,
typically a financial institution, entitling the holder to purchase,
in the case of a call, or sell, in the case of a put, a specific bond
issue or an interest rate index at a certain level over a fixed time
period. Interest rate warrants can typically be exercised in the
underlying instrument or may settle in cash.
o Long-term options operate much like covered warrants. Like covered
warrants, long-term options are call options created by an issuer,
typically a financial institution, entitling the holder to purchase
from the issuer outstanding securities of another issuer. Long-term
options have an initial term of one year or more, but generally have
terms of between three and five years. At present long-term options
are only traded in the Netherlands, where a distinct warrant market
does not currently exist. Unlike U.S. options, long-term European
options do not settle through a clearing corporation that guarantees
the performance of the counterpart. Instead, they are traded on an
exchange and subject to the exchange's trading regulations.
European issuers are defined as (1) issuers whose securities are traded
principally on a stock exchange or over-the-counter market in Europe, (2)
issuers that derive 50% or more of their total revenues from goods produced,
sales made or services performed in Europe, (3) companies organized under the
laws of a European country, the securities of which are publicly traded on
recognized securities exchanges outside Europe, (4) the government of a European
country, its agencies or instrumentalities or its central bank and (5)
investment companies that invest at least 65% of their total assets in European
securities. For purposes of the Fund's policy of investing at least 65% of its
total assets in warrants of European issuers, the "issuer" of a covered warrant
is considered to be the company the outstanding securities of which underlie the
covered warrant and not the entity creating the warrant.
Equity warrants are primarily created by financial institutions and
issued as covered warrants. Some existing equity warrants, however, are issued
in conjunction with an issue of bonds or shares,
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although they may also be issued as part of a rights issue or scrip issue. When
issued with bonds or shares, they usually trade separately from the bonds or
shares after issuance. The Fund will not buy bonds with warrants attached. Most
warrants trade in the same currency as the underlying stock ("domestic
warrants"), but may also be traded in a different currency ("euro-warrants").
Equity warrants are traded on a number of European exchanges, principally in
France, Germany, the Netherlands, Switzerland and the United Kingdom, and in
over-the-counter markets.
The Fund acquires only covered warrants, basket warrants, index
warrants, interest rate warrants and long-term options issued by entities deemed
to be creditworthy by the Investment Adviser, who will monitor the
creditworthiness of such issuers on an on-going basis. Investment in these
instruments involves the risk that the issuer of the instrument may default on
its obligation to deliver the underlying security or warrants to acquire the
underlying security (or cash in lieu thereof). To reduce this risk, the Fund
limits its holdings of covered warrants, basket warrants, index warrants,
interest rate warrants and long-term options to those issued by entities that
either have a class of outstanding debt securities that is rated investment
grade or higher by a recognized rating service or otherwise are considered by
the Investment Adviser to have the capacity to meet their obligations to the
Fund.
The portion of the Fund's assets that is not invested in warrants of
European issuers may be invested in equity or debt securities of European and
non-European corporate or governmental issuers and in short-term instruments as
described below under "Temporary Investments." Equity securities that may be
purchased by the Fund are common and preferred stock and debt securities
convertible into common stock. Debt securities (other than Temporary
Investments) that the Fund may acquire include bonds, notes and debentures of
any maturity that are rated Baa or higher by Moody's Investors Service, Inc.
("Moody's") or BBB or higher by Standard & Poor's Corporation ("S&P") or, if
unrated, are deemed by the Investment Adviser to be of comparable quality.
Securities in the fourth highest grade may have speculative elements.
For purposes of this Prospectus, unless otherwise indicated, Europe
consists of Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland,
Turkey, the United Kingdom and Germany (together, "Western Europe"), plus
Bulgaria, Czech Republic, Slovak Republic, Hungary, Poland, Romania and
independent states which formerly comprised the country known as Yugoslavia and
the newly Independent States of the ex-Soviet Union (together, "Eastern
Europe"). Additional countries on the continent of Europe may be considered part
of the Fund's definition of Europe and appropriate spheres of investment by the
Fund as the securities markets of those countries develop. The Fund may invest
up to 10% of its total assets in Eastern European equity securities or warrants.
The Fund, under normal market conditions, is required to concentrate at
least 25% of its assets in securities issued by banks or bank holding companies.
In Europe, banks are the primary issuers of covered warrants.
The Fund may purchase (a) covered warrants issued by banks or bank
holding companies, (b) such derivative instruments, the underlying economic
exposure of which is dependent upon the banking and bank holding company market,
or (c) other debt and equity securities directly issued by banks and bank
holding companies. As a result, the Fund's investments may be subject to greater
risk and market fluctuation than a fund that invests in securities representing
a broader range of investment alternatives. Furthermore, the Fund's investments
may be largely influenced by the various competitive, regulatory and economic
factors affecting bank holding companies and their subsidiary banks. Fiscal and
monetary policies of governments and general economic and political conditions
can affect the availability and cost of funds to banks, loan demand and asset
quality and thereby impact the earnings and financial condition of banking
institutions. Down-turns in the economy or in the general business cycle or
depressed conditions in an industry, for example, will also adversely affect the
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quality or volume of a bank's loan portfolio, particularly if the portfolio is
concentrated in the affected region or industry. The impact of a deteriorating
economy or industry upon institutions depends, in part, on the size of the
institutions, the extent to which they are involved in the type of lending or
market affected, the duration of the softening in the affected area and the
managerial and capital resources of the institutions.
For temporary defensive purposes, the Investment Adviser may reduce its
exposure to the European warrant markets and increase its holdings of European
equity securities or invest in Temporary Investments (as described below).
To the extent consistent with provisions of the Act and any
administrative exemptions granted by the Commission, the Fund may invest in the
securities of other investment companies. Absent special relief from the
Commission, the Fund may invest up to 10% of its assets in the aggregate in
shares of other investment companies and up to 5% of its assets in any one
investment company, as long as that investment does not represent more than 3%
of the voting stock of the acquired investment company of which such shares are
purchased. As a shareholder in any investment company, the Fund will bear its
ratable share of the company's expenses, and would remain subject to payment of
the Fund's investment advisory and administrative fees with respect to assets so
invested. Certain financial institutions issuing covered warrants and long-term
options may be deemed to be investment companies and the Fund will limit its
investment in securities of such issuers consistent with these limitations.
The Fund may be prohibited under the Act from purchasing the securities
of any company that, in its most recent fiscal year, derived more than 15% of
its gross revenues from securities-related activities. In a number of European
countries, commercial banks act as securities brokers and dealers, investment
advisers and underwriters or otherwise engage in securities-related activities,
which may limit the Fund's ability to hold covered warrants, basket warrants,
index warrants, interest rate warrants, over-the-counter options and other
securities issued by banks.
As a result of legal restrictions or market practices or both, the
Fund, as a U.S. entity, may be precluded from purchasing shares in public
offerings by certain European companies.
The Fund's annual portfolio turnover rate is calculated by dividing the
lesser of sales or purchases of portfolio securities for any given year by the
average monthly value of the Fund's portfolio securities for such year. For
purposes of this calculation, portfolio securities exclude purchase and sales of
debt securities having a maturity at the date of purchase of one year or less.
Portfolio turnover directly affects the amount of transaction costs that will be
borne by the Fund. In addition, the sale of securities held by the Fund for not
more than one year will give rise to shorter capital gain or loss for U.S.
Federal income tax purposes. See "Taxation--United States Federal Income Taxes."
Temporary Investments
The Fund may, for cash management purposes, invest an amount necessary
to meet its operating expenses in certain short-term instruments and may, for
temporary defensive purposes, invest up to 100% of its assets in certain
short-term instruments. The short-term instruments in which the Fund may invest
consist of (a) obligations of the U.S. Government, its agencies or
instrumentalities (including repurchase agreements with respect to these
securities); (b) bank obligations (including certificates of deposit, time
deposits and bankers' acceptances) of U.S. banks and foreign banks denominated
in any currency, including ECUs; (c) floating rate securities and other
instruments denominated in any currency issued by (i) international development
agencies, (ii) governments, their agencies and instrumentalities and their
central banks and (iii) banks and other financial institutions and corporations
located in countries that are members of the Organization for
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Economic Cooperation and Development that are rated no lower than A-2 by S&P or
P-2 by Moody's, or the equivalent from another rating service or, if unrated,
deemed to be of equivalent quality by the Investment Adviser; (d) obligations
of U.S. corporations that are rated no lower than A-2 by S&P or P-2 by Moody's,
or the equivalent from another rating service or, if unrated, deemed to be of
equivalent quality by the Investment Adviser; and (e) shares of money market
funds that are authorized to invest in (a) through (d).
Among the obligations of agencies and instrumentalities of the U.S.
Government in which the Fund may invest are securities that are supported by the
"full faith and credit" of the U.S. Government (such as securities of the
Government National Mortgage Association), by the right of the issuer to borrow
from the U.S. Treasury (such as those of the Export-Import Bank of the United
States), by the discretionary authority of the U.S. Government to purchase the
agency's obligations (such as those of the Federal National Mortgage
Association) or by the credit of the U.S. Government instrumentality itself
(such as those of the Student Loan Marketing Association).
Repurchase agreements are contracts under which the buyer of a security
simultaneously buys and commits to resell the security to the seller at an
agreed upon price and date. The Fund will enter into repurchase agreements on
U.S. Government securities with primary government securities dealers recognized
by the Federal Reserve Bank of New York, member banks of the Federal Reserve
System or its Custodian and on securities issued by the governments of European
countries, their agencies or instrumentalities with creditworthy parties in
accordance with procedures established by the Fund's Board of Directors. The
Fund will only enter into repurchase agreements pursuant to which the seller is
required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. The Investment Adviser will
monitor and mark to market the value of such securities daily to assure that the
value equals or exceeds the repurchase price. The Investment Adviser also
monitors the creditworthiness of parties to repurchase agreements under the
Board of Director's general supervision. Repurchase agreements may involve risks
in the event of default or insolvency of the seller, including possible delays
or restrictions upon the Fund's ability to dispose of the underlying securities.
Certain Investment Strategies
Currency Hedging Transactions. The Investment Adviser may engage in an
active program to fully or partially hedge the Fund's portfolio holdings against
currency risks on an ongoing basis by entering into forward currency exchange
contracts and currency futures contracts and options on such futures contracts,
as well as purchasing put or call options on currencies, in U.S. or foreign
markets. The extent to which the Fund's holdings will be hedged will vary from
time to time depending on the Investment Adviser's assessment of the likelihood
of fluctuations in exchange rates and their potential impact on the value of the
Fund's assets in relation to the cost and liquidity of the hedging instrument.
Forward Currency Contracts. A forward currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks). With respect to the Fund's obligations to
purchase or sell currencies under forward currency contracts, the Fund will set
aside liquid assets with a value at least equal to the value of its obligations
under the contracts.
Currency Futures Contracts and Related Options. A currency futures
contract is a standardized contract for the future delivery of a specified
amount of currency at a future date at a price set at the time of the contract.
The Fund may enter into currency futures contracts traded on commodity
exchanges, including non-U.S. exchanges. On all U.S. exchanges and on many
non-U.S. exchanges, parties to a futures contract must make initial "margin"
deposits to secure performance of
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the contract. There are also requirements to make "variation" margin deposits
from time to time as the value of the futures contract fluctuates. The Fund may
not enter into currency futures contracts or stock index futures contracts or
related options (as described below) if the aggregate amount of initial margin
deposits on all such futures positions and premiums paid for unexpired options
would exceed 5% of the fair market value of the Fund's total assets. With
respect to futures contracts to purchase currency or stock indices (called
"long" positions) and long positions in options on currency or stock index
futures contracts, the Fund will set aside liquid assets at least equal to the
value of the currency or index underlying the futures contracts. With respect
to futures contracts to sell currency or stock indices (called "short"
positions) and short positions in options on currency or stock index futures
contracts, the Fund will create a segregated account like that established for
long positions, will own the instruments or currency underlying the contract or
will hold a call option permitting the Fund to purchase the same contract at a
price no higher than the price at which the short position was established.
An option on a currency futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for the
premium paid, to assume a position in a currency futures contract at a specified
exercise price at any time on or before the expiration date of the option. Upon
exercise of an option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents
that amount by which the market price of the futures contract exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract. The potential loss related to the purchase of an
option on a futures contract is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of the Fund.
Options on Currencies. A put option on a currency gives the purchaser
of the option the right to sell the currency at the exercise price on or before
the expiration of the option. A call option on a currency gives the purchaser of
the option the right to purchase the currency at the exercise price on or before
the expiration of the option.
The Fund may either accept or make delivery of the currency specified
at the maturity of a forward or futures contract or, prior to maturity, enter
into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are effected
with the currency trader who is a party to the original forward contract.
Closing transactions with respect to futures contracts are effected on the
exchange on which the contract was entered into (or a linked exchange). The Fund
generally will not enter into a forward or futures contract with a term greater
than one year. There may be less protection against default on a forward
contract than on a futures contract because a forward contract is a principal
transaction and in many instances, unlike a U.S. futures contract, is not
guaranteed by the clearing house of an exchange.
The Fund may enter into forward currency exchange contracts and
currency futures contracts in several circumstances. For example, when the Fund
enters into a contract for the purchase or sale of a security denominated in a
European currency, or when the Fund anticipates the receipt in a European
currency of dividends or interest payments on such a security that it holds, the
Fund may desire to "lock in" the U.S. dollar price of the security or the U.S.
dollar equivalent of such dividend or interest payment, as the case may be. The
Investment Adviser may choose to lock in the price of securities or dividends or
interest to be received in a currency other than the U.S. dollar when the
Investment Adviser believes that doing so is in the best interest of the Fund.
In addition, when the Investment Adviser believes that the currency of a
particular country (the "hedged currency") may suffer a substantial decline
against the U.S. dollar or against a major European currency, such as the
Deutschemark or the ECU, it may enter into a forward or futures contract to
sell, for a fixed amount
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of U.S. dollars or such European currency, as the case may be, the amount of
that currency approximating the value of some or all of the Fund's portfolio
securities denominated in the hedged currency (called a "short" position). The
Fund may attempt to accomplish objectives similar to those described above with
respect to forward and futures contracts for currency by means of purchasing
put or call options traded on exchanges.
While the Fund may enter into forward, futures and options contracts to
reduce currency exchange rate risks, changes in currency prices may result in a
poorer overall performance for the Fund than if it had not engaged in any such
transactions. Moreover, there may be imperfect correlation between movements in
the Fund's portfolio holdings of securities denominated in a particular currency
and changes in the value of forward, futures or options contracts entered into
by the Fund. Such imperfect correlation may prevent the Fund from achieving the
intended hedge or expose the Fund to risk of exchange loss.
Certain provisions of the Internal Revenue Code of 1986, as amended,
may limit the extent to which the Fund may enter into forward or futures
contracts or engage in options transactions. See "Taxation--United States
Federal Income Taxes--The Fund and Its Investments."
Stock Options. In order to hedge against adverse market shifts, the
Fund may purchase put and call options on stocks. In addition, the Fund may seek
to increase its income or may hedge a portion of its portfolio investments
through writing (i.e., selling) covered call options. Unlike the Fund's holdings
of long-term options, which generally have terms of between three and five
years, stock options generally have maturities of three, six or nine months. A
put option gives the holder the right to sell to the writer of the option an
underlying security at a specified price at any time during or at the end of the
option period. In contrast, a call option gives the purchaser the right to buy
the underlying security covered by the option from the writer of the option at
the stated exercise price. A "covered" call option means that so long as the
Fund is obligated as the writer of the option, it will own (i) the underlying
securities subject to the option or (ii) securities convertible or exchangeable
into the securities subject to the option.
The Fund may write put and call options to generate current income or
as hedges to reduce investment risk. The Fund may write put and call options on
securities and foreign currencies and will realize fees (referred to as
'premiums') for granting the rights evidenced by the options. The Fund may only
write put options on securities and foreign currencies up to 5% of the Fund's
total assets. A put option embodies the right of its purchaser to compel the
writer of the option to purchase from the option holder an underlying security
at a specified price at any time during the option period. In contrast, a call
option embodies the right of its purchaser to compel the writer of the option to
sell to the option holder and underlying security at a specified price at any
time during the option period. Thus, the purchaser of a put option written by a
Fund has the right to compel such Fund to purchase from it the underlying
security at the agreed-upon price for a specified time period, while the
purchaser of a call option written by a Fund has the right to purchase from such
Fund the underlying security owned by the Fund at the agreed-upon price for a
specified time period.
Upon the exercise of a put option written by the Fund, the Fund may
suffer an economic 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.
Upon the exercise of a call option written by a Fund, such Fund may suffer an
economic loss equal to the excess of the security's market value at the time of
the option's exercise over the greater of (i) the Fund's acquisition cost of the
security and (ii) the exercise price, less the premium received for writing the
option.
The Fund will write only covered options. Accordingly, whenever the
Fund writes a call option it will continue to own or have the present right to
acquire the underlying security for as long
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as it remains obligated as the writer of the option. To support its obligation
to purchase the underlying security if a put option is exercised, the Fund will
either (1) deposit with its custodian in a segregated account with liquid
assets having a value at least equal to the exercise price of the underlying
securities or (2) continue to own an equivalent number of puts of the same
"series" (that is, puts on the same underlying security having the same
exercise prices and expiration dates as those written by the Fund), or an
equivalent number of puts of the same "class" (that is, puts on the same
underlying security) with exercise prices greater than those that it has
written (or, if the exercise prices of the puts it hold are less than the
exercise prices of those it has written, it will deposit the difference with
its custodian in a segregated account).
The Fund may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). To effect a closing purchase transaction, the Fund would
purchase, prior to the holder's exercise of an option that the Fund has written,
an option of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. There can be no
assurance that the Fund will be able to effect closing purchase transactions at
a time when it wishes to do so. To facilitate closing purchase transactions,
however, the Fund will write options only if a secondary market for the option
exists on a recognized securities exchange or in the over-the-counter market.
Option writing for the Fund may be limited by position and exercise limits
established by securities exchanges and the National Association of Securities
Dealers, Inc. (the "NASD"). Furthermore, a Fund may, at times, have to limit its
option writing in order to qualify as the regulated investment company under the
Code. The Fund may enter into options transactions as hedges to reduce
investment risk, generally by making an investment expected to move in the
opposite direction of a portfolio position. A hedge is designed to offset a loss
on a portfolio position with a gain on the hedge position. The Fund bears the
risk that the prices of the securities being hedged will not move in the same
amount as the hedge. The Fund will engage in hedging transactions only when
deemed advisable by the Adviser. Successful use by a Fund of options will depend
on its Adviser's ability to correctly predict movements in the direction of the
security or currency underlying the option used as a hedge. Losses incurred in
hedging transactions and the costs of these transactions will affect a Fund's
performance.
The Fund may purchase options on securities that are listed on
securities exchanges or traded over the counter. As the holder of a put option,
the Fund will have the right to sell the securities underlying the option and as
the holder of a call option, the Fund will have the right to purchase the
securities underlying the option, in each case at their exercise price at any
time prior to or on the option's expiration date. The Fund may choose to
exercise the options it holds, permit them to expire or terminate them prior to
their expiration by entering into closing sale transactions. In entering into a
closing sale transaction, the Fund would sell an option of the same series as
the one it has purchased.
In purchasing a put option, the Fund will seek to benefit from a
decline in the market price of the underlying security, while in purchasing a
call option, the Fund will seek to benefit from an increase in the market price
of the underlying security. If an option purchased is not sold or exercised when
it has remaining value, or if the market price of the underlying security
remains equal to or greater than the exercise price, in the case of a put, or
remains equal to or below the exercise price, in the case of a call, during the
life of the option, the Fund will lose its investment in the option. For the
purchase of an option to be profitable, the market price of the underlying
security must decline sufficiently below the exercise price, in the case of a
put, and must increase sufficiently above the exercise price, in the case of a
call, to cover the premium and transaction costs. Because premiums paid by the
Fund on options are small in relation to the market value of the investments
underlying the options, buying options can result in large amounts of leverage.
The leverage offered by trading in options could cause the Fund's net asset
value to be subject to more frequent and wider fluctuation than would be the
case if the Fund did not invest in options.
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<PAGE>
Stock Index Futures Contracts and Related Options. The Fund may, for
bona fide hedging purposes or for other appropriate risk reduction purposes
permitted under regulations promulgated by the U.S. Commodity Futures Trading
Commission, purchase and sell stock index futures contracts and purchase put and
call options and write call options on stock index futures contracts, in each
case that are traded on regulated exchanges, including non-U.S. exchanges to the
extent permitted by the U.S. Commodity Futures Trading Commission. A stock index
futures contract is an agreement to take or make delivery of an amount of cash
equal to a specified multiplier times the difference between the value of the
index at the beginning and at the end of the contract period. There may be an
imperfect correlation between the movement of the Fund's portfolio holdings and
the movement of the stock index futures contracts entered into by the Fund. Such
imperfect correlation may prevent the Fund from achieving the intended hedge or
expose the Fund to risk of loss.
The Fund may purchase put and call options on stock index futures
contracts and may write call options on stock index futures contracts in order
to hedge all or a portion of its investments and may enter into closing purchase
transactions with respect to written options in order to terminate existing
positions. There is no guarantee that such closing transactions can be effected.
An option on a stock index futures contract operates in the same manner as an
option on a currency futures contract (described above), except that it gives
the purchaser the right, in return for the premium paid, to assume a position in
a stock index futures contract instead of a currency futures contract.
Interest Rate Futures Contracts. The Fund may purchase and sell
interest rate futures contracts that are traded on regulated exchanges including
non-U.S. exchanges to the client permitted by the Commodities Futures Trading
Association. Interest rate futures contracts are standardized contracts traded
on commodity exchanges involving an obligation to purchase or sell a
predetermined amount of debt security at a fixed date and price. When deemed
advisable by the Adviser, the Fund may enter into interest rate futures
contracts related options that are traded on U.S. or foreign exchanges. With
respect to each long position in a interest rate futures contract, the
underlying commodity value of such contract always will be covered by cash and
cash equivalents or other liquid obligations set aside plus accrued profits held
at the Fund's custodian or at the commodity dealer, or a corresponding chart
position.
Short Sales Against the Box. The Fund may make short sales of common
stocks in order to increase its income if, at all times when a short position is
open, the Fund owns the stock or owns preferred stocks or warrants convertible
or exchangeable into the shares of common stock sold short. Short sales of this
kind are referred to as short sales "against the box." The broker-dealer that
executes a short sale generally invests the cash proceeds of the sale until they
are paid to the Fund. Arrangements may be made with the broker-dealer to obtain
a portion of the interest earned by the broker on the investment of short sale
proceeds. The Fund will segregate the common stock or convertible or
exchangeable preferred stock or warrants in a special account with its
custodian. Not more than 10% of the Fund's net assets (taken at current value)
may be held as collateral for such sales at any one time.
Reverse Repurchase Agreements. In order to enhance current income, the
Fund may enter into reverse repurchase agreements with respect to U.S.
Government securities. A reverse repurchase agreement would obligate the Fund to
sell a U.S. Government security to a financial institution, such as a bank or
broker-dealer, and to repurchase a similar security at a later date at an
agreed-upon price. During the period between the sale and repurchase, the Fund
will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, particularly repurchase agreements, and the income from these
investments, together with any additional fee income received on the sale, will
generate income for the Fund exceeding the yield on the securities sold. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities, and
are considered to be borrowings by the Fund under the Act. At the time the Fund
enters into a reverse
38
<PAGE>
repurchase agreement, it will place in a segregated custodial account liquid
assets having a value equal to the repurchase price (including accrued
interest) and will subsequently monitor the account to ensure that such
equivalent value is maintained.
Lending Portfolio Securities. The Fund may lend portfolio securities to
recognized U.S. and foreign brokers, dealers and banks. The Fund's loans of
securities will be collateralized by cash, letters of credit or U.S. government
securities. The cash or instruments collateralizing the Fund's loans of
securities will be maintained at all times in a segregated account with the
Fund's custodian, or with a designated sub-custodian, in an amount at least
equal to the current market value of the loaned securities. From time to time,
the Fund may pay a part of the interest earned from the investment of collateral
received for securities loaned to the borrower and/or a third party that is
unaffiliated with the Fund and is acting as a "finder." The Fund will comply
with the following conditions whenever it loans securities: (1) the Fund must
receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) voting rights on the loaned securities may pass to the borrower except that,
if a material event adversely affecting the investment in the loaned securities
occurs, the Board must terminate the loan and regain the right to vote the
securities. In lending securities to U.S. and foreign brokers, dealers and
banks, the Fund will be subject to risks, which, like those associated with
other extensions of credit, include possible loss of rights in the collateral
should the borrower fail financially.
Non-Diversified Status. The classification of the Fund as a
"non-diversified" investment company means that the proportion of the Fund's
assets that may be invested in the securities of a single issuer is not limited
by the 1940 Act. A "diversified" investment company is required by the 1940 Act
generally, with respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer. Since a relatively high
percentage of the Fund's assets may be invested in the securities of a limited
number of issuers, some of which may be within the same industry, the Fund's
portfolio may be more sensitive to changes in the market value of a single
issuer or industry. However, to meet Federal tax requirements, at the close of
each quarter the Fund may not have more than 25% of its total assets invested in
any one issuer and, with respect to 50% of total assets, not more than 5% of its
total assets invested in any one issuer. These limitations do not apply to U.S.
Government securities.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions that
may not be changed without the prior approval of the holders of a majority of
the Fund's outstanding voting securities. For purposes of the restrictions
listed below, all percentage limitations apply immediately after a purchase or
initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations does not require elimination of any security
from the Fund's portfolio. Fund policies that are not fundamental may be
modified by the Board of Directors if, in the reasonable exercise of the Board's
business judgment, modification is determined to be necessary or appropriate to
carry out the Fund's objective. Under its fundamental restrictions, the Fund may
not:
1. Invest 25% or more of the total value of its assets in the
securities of issuers in any single industry except that, under normal market
conditions, the Fund will invest not less than 25% of the total value of its
assets in securities of issuers in the banking industry. This restriction does
not apply to investments in U.S. Government securities.
39
<PAGE>
2. Issue senior securities, borrow or pledge its assets, except that
(a) the Fund may borrow from a lender for temporary or emergency purposes or in
amounts not exceeding 5% (taken at the lower of cost or current value) of its
total assets (not including the amount borrowed) and when such borrowings are
combined with reverse repurchase agreements, in an aggregate amount not
exceeding 33 1/3% of its total assets (not including the amounts borrowed) and
may also pledge its assets to secure such borrowings, and (b) the Fund may enter
into reverse repurchase agreements; provided that the Fund may borrow pursuant
to (a) or (b) an amount not exceeding 33 1/3% of its total assets (not including
the amount borrowed) for the purpose of obtaining amounts necessary to make
distributions for qualification as a regulated investment company or to avoid
imposition of an excise tax under U.S. laws and to pay Fund expenses, and not
for the purpose of leveraging. Additional investments will not be made when
borrowings exceed 5% of the Fund's assets. For the purpose of this investment
restriction, collateral arrangements in connection with options, futures or
forward currency contracts are not deemed to be an issuance of senior
securities, a borrowing or a pledge of assets.
3. Lend money to other persons except through the purchase of debt
obligations, loans of its portfolio securities, loans or participation interests
in loans and the entering into of repurchase agreements or reverse repurchase
agreements consistent with the Fund's investment objective and policies.
4. Make short sales of securities or maintain a short position in any
security; provided that the Fund may make short sales "against the box."
5. Purchase securities on margin, except such short-term credits as may
be necessary or routine for the clearance or settlement of transactions and the
maintenance of margin with respect to forward contracts, futures contracts or
related options or other option transactions.
6. Underwrite securities of other issuers, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended, in
selling portfolio securities.
7. Purchase or sell commodities or real estate, except that the Fund
may invest in securities secured by real estate or interests in real estate or
in securities issued by companies, including real estate investment trusts, that
invest in real estate or interests in real estate, and may purchase and sell
forward and futures contracts and options on futures contracts and may purchase
options on currencies to the extent permitted under applicable law.
8. Make investments for the purpose of exercising control over, or
management of, the issuers of any securities.
For purposes of Investment Restriction No. 1, the issuer of a covered
warrant, an index warrant, interest rate warrants or a long-term option is the
entity creating the warrant and, in the case of a covered warrant or a long-term
option, the company the securities of which underlie the warrant.
MANAGEMENT OF THE FUND
Directors and Officers
The names and addresses of the directors and principal 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. Directors who are
"interested persons" of the Fund, as defined by the Act, are indicated by an
asterisk.
40
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations during
Name and Address Position(s) with Fund Past Five Years
- ---------------- --------------------- ---------------------------------------
<S> <C> <C>
Bernard Spilko* Chairman of the Board Senior Vice President, Bank Julius
330 Madison Avenue Baer & Co., Ltd.; Director and Managing
New York, New York 10017 Director, Julius Baer & Co., Ltd.;
Director, Baer American Banking
Corporation
Martin Vogel* Director Director of the Legal and Tax Department, Julius Baer
Investment Fund Services Ltd (Zurich) (1996-present);
Attorney, Schaufelberger & van Hoboken (1994-1996);
Attorney, Rohner & Parther (1993-1994); Attorney,
Rinderknecht Schaulfelberger Claus & Stadelhofer (prior to
1993) Secretary of the Board of Directors of the
Luxembourg domiciled investment companies and of Julius
Baer Investment Funds, Ltd (1996-present), Trustee of BJB
Investment Funds (1997-present)
Lawrence A. Fox Director Consulting economist
6206 Lakeview Drive
Falls Church, Virginia 22041
Antoine Bernheim Director President, Dome Capital Management
405 Park Avenue Inc.; President, The U.S. Offshore
New York, New York 10174 Funds Directory Inc.
Harvey B. Kaplan Director Controller (Chief Financial Officer),
80 Voice Road Easter Unlimited, Inc. (manufacturer).
Carle Place, New York 11514
Robert Discolo President Vice President, Bank Julius Baer & Co.,
330 Madison Avenue Ltd. and Julius Baer Securities; prior
New York, New York 10017 to July 1991,
Assistant Controller (Partnerships)
Merrill Lynch & Co
Hansruedi Huber Chief Investment Senior Vice President, Julius Baer
36 Bahnhoffstrase Officer and Senior Vice Securities;
8001 Zurich, Switzerland President First Vice President, Bank Julius Baer
& Co., Ltd.
Philipp Burger Vice President and Investment Vice President, Julius Baer Asset
Officer Management;
Vice President, Julius Baer Securities,
Inc.
Michael Quain Treasurer, Chief Financial Vice President of Bank Julius Baer & Co.,
age 40 Officer and Secretary Ltd (New York Branch) and Julius Baer
Securities Inc.
Jack W. Clark Assistant Treasurer Director, Investors Bank & Trust Company.
age ___
Paul J. Jasinski Assistant Treasurer Managing Director, Investors Bank & Trust
age ___ Company.
Susan Mosher Assistant Secretary Director, Investors Bank & Trust Company,
age ___ since 1994; Manager, Business Assurance,
Coopers & Lybrand 1988-1994.
Andrew S. Josef Assistant Secretary Director, Investors Bank & Trust Company.
age ___
</TABLE>
- -------------------
* "Interested person" of the Fund, as defined in the Act.
The Board of Directors of the Fund is divided into three classes, each
class having a term of three years. Each year the term of office of one class
will expire. The term of Mr. Fox expires in 1999; the term of Messrs. Spilko,
Kaplan and Gibbons expires in 2000; the term of Messrs. Bernheim and Vogel
expires in 2001. See "Description of Common Stock--Certain Provisions of the
Articles of Incorporation and By-Laws."
Messrs. Vogel, Huber and Burger are residents of Switzerland and a
substantial portion of each one's assets is located in Switzerland. Messrs.
Huber, Burger and Vogel have authorized the Investment Adviser as their agent
for service of process in the United States. Nevertheless, it may be difficult
for investors to enforce, in United States courts, judgments against them
obtained in such courts predicated on the civil liability provisions of the
United States securities laws. In addition, there
41
<PAGE>
is doubt as to the enforceability in Swiss courts of liabilities predicated
solely upon the United States securities laws, whether or not such liabilities
are based upon judgments of courts in the United States.
Remuneration of Directors and Officers
Each Director who is not a director, officer or employee of the
Investment Adviser or the Administrator or any of their affiliates receives a
fee of $7,500 per annum plus $250 per meeting attended, and reimbursement for
travel and out-of-pocket expenses. The Board of Directors held four meetings
during the fiscal year ended March 31, 1998, and all of the Directors attended
at least 75% of the Board and Committee meetings of which he was a member. The
aggregate remuneration paid to the Directors by the Fund for the fiscal year
ended March 31, 1998, amounted to $36,868 (including reimbursement for travel
and out-of-pocket expenses).
The following table provides estimated fees to be paid to each Director
of the Fund for the fiscal year ended March 31, 1998.
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Estimated Annual Total Compensation From
Name of Compensation Benefits Accrued As Benefits Upon Fund And Fund Complex
Fund From Fund Part of Fund Expenses Retirement Paid To Directors
<S> <C> <C> <C> <C>
Bernheim $8,500 $0 $0 $8,500
Fox 8,500 0 0 8,500
Gibbons 8,500 0 0 8,500
Kaplan 8,750 0 0 8,750
</TABLE>
Limitation of Directors' and Officers' Liability
The Articles of Incorporation and By-Laws of the Fund provide that the
Fund will indemnify directors and officers and may indemnify employees or agents
of the Fund against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the Fund
to the fullest extent permitted by law. In addition, the Fund's Articles of
Incorporation provide that the Fund's directors and officers will not be liable
to shareholders for money damages, except in limited instances. However, nothing
in the Articles of Incorporation or the By-Laws of the Fund protects or
indemnifies a director, officer, employee or agent against any liability to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office. No insurance obtained by the Fund shall protect
or purport to protect officers or directors, the Investment Adviser, the
investment sub-adviser or any principal underwriter of the Fund against any
liability to the Fund or its shareholders to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of their obligations and duties.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
Julius Baer Securities, located at 330 Madison Avenue, New York, New
York 10017, has served as investment adviser to the Fund since the Fund's
commencement of operations on July 17, 1990. The Investment Adviser, which is
registered as an investment adviser under the Investment
42
<PAGE>
Advisers Act of 1940, as amended, was organized in 1962 under the laws of the
State of Delaware. The Investment Adviser is a wholly-owned subsidiary of
Julius Baer Holding Ltd., located in Zurich, Switzerland, and is an affiliate
of Bank Julius Baer & Co., Ltd. ("Bank Julius Baer"). Julius Baer Holding Ltd.
has assets under management in global securities of approximately $59 billion.
The Advisory Agreement
The investment advisory agreement dated July 16, 1990 (the "Advisory
Agreement") between the Fund and the Investment Adviser was most recently
submitted to and approved by the Fund's Board of Directors, including those
Directors who are not "interested persons" of the Fund, the Investment Adviser
or the Administrator ("Non-Interested Directors"), on March 11, 1998. Under the
terms of the Advisory Agreement, the Investment Adviser is required, subject to
the supervision and approval of the Directors of the Fund, to manage the Fund's
portfolio of investments in accordance with the stated investment objective and
policies of the Fund. The Investment Adviser is responsible for making
investment decisions, supplying investment research and portfolio management
services and placing purchase and sale orders for portfolio transactions.
Although the Investment Adviser is fully independent and autonomous in making
investment decisions and in rendering investment advice, it has access to the
extensive research and other resources of Bank Julius Baer and its affiliates.
For its services to the Fund, the Investment Adviser is paid a fee computed
weekly and paid quarterly at an annual rate of 1.25% of the Fund's average
weekly net assets. Pursuant to the Advisory Agreement, the Fund incurred a total
of $2,379,293, $1,467,244 and $980,620 in investment advisory fees, net of
investment advisory fees waived of $0, $0 and $90,940 for the fiscal year ended
March 31, 1998, 1997, and 1996.
The Advisory Agreement provides that the Investment Adviser shall not
be liable for, and shall be indemnified against, any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which the Advisory Agreement relates, except liability resulting from
willful misfeasance, bad faith or gross negligence on the part of the Investment
Adviser in the performance of its duties or from reckless disregard of its
obligations and duties under the Advisory Agreement.
Portfolio Management
Hansruedi Huber, Chief Investment Officer of the Fund, has managed the
Fund's assets since June 24, 1992. Mr. Huber has been employed as a Senior Vice
President with the Investment Adviser and is currently also a Senior Vice
President and member of the management committee with Julius Baer Asset
Management Ltd. Phillip Burger serves as the co-portfolio manager of the Fund.
Mr. Burger has been employed as a Vice President of the Investment Adviser since
January, 1997 and a Vice President of Julius Baer Asset Management since May
1998. For a list of Messrs. Huber's and Burger's other affiliations, see
"Management of the Fund--Directors and Officers."
The Administrator and Administration Agreement
Investors Bank & Trust Company serves as the Fund's administrator
pursuant to an agreement with the Fund (the "Administration Agreement"). The
Administrator is located at 200 Clarendon Street, Boston, MA 02116. The Fund
will pay the Administrator, for services rendered to the Fund as Administrator,
and as the Fund's custodian, an aggregate monthly fee computed at the annual
rate of 0.12% of the value of the Fund's average weekly net assets, subject to
an annual minimum charge of $240,000, plus certain out-of-pocket expenses and
transaction expenses. Investors Bank & Trust Company is also paid $5,000 per
month for acting as the Fund's Transfer Agent.
43
<PAGE>
Pursuant to the Administration Agreement, subject to the overall
authority of the Fund's Board of Directors in accordance with Maryland law, the
Administrator will generally assist in all aspects of the Fund's administration
and operation. Among other things, the Administrator will provide to the Fund
statistical and research data, clerical help and accounting, data processing,
bookkeeping, internal auditing and certain other services (including calculation
of the net asset value of the Fund's shares) required by the Fund, prepare
reports to shareholders and prepare tax returns and reports to and filings with
the Commission and state Blue Sky authorities. The Administrator does not assist
in nor is it responsible for investment decisions involving assets of the Fund.
As of March 31, 1998, the Administrator provided accounting and/or
administrative services for 54 investment companies (or portfolios) and
investment partnerships, with combined total assets of approximately $155
billion.
For the fiscal years ended March 31, 1998, 1997, and 1996, the Fund
paid the Administrator $404,835, $363,294 and $327,940, respectively, for
administration and custody services. For the fiscal years ended March 31, 1998,
1997, and 1996, the Fund paid Investors Bank & Trust Company $60,000, $60,000
and $96,800, respectively, in transfer agency fees.
Duration and Termination; Non-Exclusive Services
The Advisory Agreement became effective on July 16, 1990, the date the
Fund's registration statement was declared effective by the Commission. The
Advisory Agreement is effective from year to year if approved annually (1) by
the Board of Directors of the Fund or by the holders of a majority of the Fund's
outstanding voting securities and (2) by a majority of the Directors who are not
parties to the Advisory Agreement or the Sub-Advisory Agreement or "interested
persons" (as defined in the Act) of any such party. The Advisory Agreement
terminates on its assignment by any party and may be terminated without penalty
on 60 days' written notice at the option of any party or by vote of the
shareholders of the Fund. The Administration Agreement is terminable upon 60
days' notice by either party.
The services of the Investment Adviser and the Administrator are not
deemed to be exclusive, and nothing in the relevant service agreements will
prevent any of them or their affiliates from providing similar services to other
investment companies and other clients (whether or not their investment
objectives and policies are similar to those of the Fund) or from engaging in
other activities.
Payment of Expenses
For purposes of the calculation of the fees payable to the Investment
Adviser and the Administrator, average weekly net assets are determined at the
end of each month on the basis of the average net assets of the Fund for each
week during the month. The assets for each weekly period are determined by
averaging the net assets at the end of a week with the net assets at the end of
the prior week. Both the fees payable to the Investment Adviser and the fees
payable to the Administrator, aggregating 1.37% of the Fund's average weekly net
assets annually, exceed comparable fees paid by most other investment companies.
The Investment Adviser pays expenses associated with providing the
services contemplated by the agreements to which they are parties, including
compensation of and office space for their respective officers and employees
connected with investment and economic research, trading and investment
management and administration of the Fund, as well as the fees of all directors
of the Fund who are affiliated with those companies or any of their affiliates.
The Fund pays all other expenses incurred in the operation of the Fund
including, among other things, advisory and administration fees,
44
<PAGE>
expenses for legal and independent accountants' services, costs of printing
proxies, stock certificates and shareholder reports, charges of the custodians,
any sub-custodians and transfer and dividend-paying agent, expenses in
connection with the Dividend Reinvestment and Cash Purchase Plan, Commission
fees, fees and expenses of unaffiliated directors, accounting and pricing
costs, membership fees in trade associations, fidelity bond coverage for the
Fund's officers and employees, directors' and officers' liability insurance
coverage, interest, brokerage costs and stock exchange fees, taxes, stock
exchange listing fees and expenses, expenses of qualifying the Fund's shares
for sale in various states and foreign jurisdictions, litigation and other
extraordinary or nonrecurring expenses, and other expenses properly payable by
the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions to buy and sell all securities and other instruments for the
Fund are made by the Investment Adviser subject to the overall review of the
Fund's Board of Directors. Portfolio transactions for the Fund are placed on
behalf of the Fund by persons authorized by the Investment Adviser. The
Investment Adviser and its respective affiliates manage other accounts that
invest in European warrants and equity securities. Although investment decisions
for the Fund are made independently from those of the other accounts managed by
the Investment Adviser and its respective affiliates, investments of the type
the Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by the Investment Adviser are prepared to
invest in, or desire to dispose of, the same security, available investments or
opportunities for each are allocated in a manner believed by the Investment
Adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or disposed of by the Fund. The Fund may utilize Bank Julius Baer and
its affiliates in connection with the purchase or sale of securities in
accordance with rules or exemptive orders adopted by the Commission when the
Investment Adviser believes that the charge for the transaction does not exceed
usual and customary levels. In addition, the Fund may purchase securities for
which Bank Julius Baer or its affiliates have acted as agent to or for issuers
in the placement of the securities, consistent with applicable rules adopted by
the Commission or regulatory authorization, if necessary.
Transactions on U.S. and some foreign stock exchanges involve the
payment of negotiated brokerage commissions, which vary among different brokers.
The cost of securities purchased from underwriters includes an underwriter's
commission or concession, and the prices at which securities are purchased from
and sold to dealers in the over-the-counter markets include an undisclosed
dealer's mark-up or mark-down.
In selecting brokers or dealers to execute portfolio transactions on
behalf of the Fund, the Investment Adviser seeks the best overall terms
available. The Advisory Agreement provides that, in assessing the best overall
terms available for any transaction, the Investment Adviser will consider the
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 or dealer, and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In addition, the Advisory
Agreement authorizes the Investment Adviser, in selecting brokers or dealers to
execute a particular transaction and in evaluating the best overall terms
available, to pay a broker a commission in excess of that which another broker
may have charged for the transaction in recognition of brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934) provided to the Fund and/or other accounts over which the
Investment Adviser or an affiliate exercises investment discretion. Research
services may include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities and the availability of
securities or purchasers or sellers of securities, and furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The fees payable under the
Advisory Agreement are not reduced as a result of the Investment Adviser's
receiving such brokerage and research services.
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The Fund's Board of Directors periodically reviews the commissions paid
by the Fund to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits inuring to the Fund. For the
fiscal years ended March 31, 1998, 1997, and 1996, the aggregate dollar amount
of brokerage commissions paid by the Fund was $137,039, $294,098 and $345,433,
respectively. Over such periods of time, the Fund paid brokerage fees to Bank
Julius Baer New York, Bank Julius Baer Frankfurt and Bank Julius Baer Zurich
(collectively) (affiliates of the Investment Adviser) in the amounts of $20,714,
$52,301 and $106,489, respectively. For the fiscal year ended March 31, 1998,
the Fund paid Bank Julius Baer New York, Bank Julius Baer Frankfurt and Bank
Julius Baer Zurich 15% of all brokerage commissions. For the fiscal year ended
March 31, 1998, the percentage of portfolio transactions on which the Fund paid
a brokerage commission to an affiliate based on the aggregate value of the
portfolio transactions, was 18.6%.
Portfolio Turnover
The Fund's portfolio turnover rates for the fiscal years ended March
31, 1998 and March 31, 1997 were 95% and 191%, respectively. Portfolio turnover
rate is calculated by dividing the lesser of the Fund's annual sales or
purchases of portfolio securities by the monthly average value of securities in
the portfolio during the year, excluding portfolio securities the maturities of
which at the time of acquisition were one year or less. High portfolio turnover
rates will result in greater dealer markups or underwriting commissions as well
as generating additional transaction costs.
DETERMINATION OF NET ASSET VALUE
Net asset value is calculated (a) no less frequently than weekly, (b)
on the last business day of each month and (c) at any other times determined by
the Fund's Board of Directors. Net asset value is calculated by dividing the
value of the Fund's net assets (the value of its assets less its liabilities,
exclusive of capital stock and surplus) by the total number of shares of Common
Stock outstanding. All securities for which market quotations are readily
available are valued at the last sales price prior to the time of determination,
or, if no sales price is available at that time, at the closing price quoted in
the securities (but if bid and asked quotations are available, at the mean
between the last current and asked prices, rather than the quoted closing
price). Forward contracts are valued at the current cost of covering or
offsetting the contracts. Securities that are traded over-the-counter are
valued, if bid and asked quotations are available, at the mean between the
current bid and asked prices. If bid and asked quotations are not available,
then over-the-counter securities are valued as determined in good faith by the
Board of Directors. In making this determination, the Board considers, among
other things, publicly available information regarding the issuer, market
conditions and values ascribed to comparable companies. In instances where the
price determined above is deemed not to represent market value, the price is
determined in such manner as the Board may prescribe. Investments in short-term
debt securities having a maturity of 60 days or less are valued at amortized
cost if their term to maturity from the date of purchase was less than 60 days,
or by amortizing their value on the 61st day prior to maturity if their term to
maturity from the date of purchase when acquired by the Fund was more than 60
days, unless this is determined by the Board of Directors not to represent fair
value. All other securities and assets are taken at fair value as determined in
good faith as prescribed by the Board of Directors. In valuing the Fund's
assets, quotations of foreign securities in a foreign currency are converted to
U.S. dollar equivalents at the then current currency value.
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE;
AND DIVIDEND REINVESTMENT PRIVILEGE
The Fund distributes to shareholders annually substantially all of its
investment company taxable income. Investment company taxable income includes
all of the Fund's taxable income minus
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the excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers),
plus or minus certain other required adjustments. The Fund determines annually
whether to distribute any net realized long-term capital gains in excess of net
realized short-term capital losses (including any capital loss carryovers)
which it intends to do.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), each shareholder is deemed to have elected, unless the Plan Agent is
otherwise instructed by the shareholder in writing, to have all distributions,
net of any applicable U.S. withholding tax, automatically reinvested in
additional shares of the Fund by Investors Bank & Trust Company, the Fund's
transfer agent (the "Transfer Agent"), as the Plan Agent. Shareholders who do
not participate in the Plan will receive all dividends and distributions in
cash, net of any applicable U.S. withholding tax, paid in dollars by check
mailed directly to the shareholder by the Transfer Agent as dividend-paying
agent. Shareholders who do not wish to have dividends and distributions
automatically reinvested must notify the Transfer Agent, as the Plan Agent for
the Fund. Dividends and distributions with respect to shares registered in the
name of a broker-dealer or other nominee (i.e., in "street name") will be
reinvested under the Plan unless the service is not provided by the broker or
nominee or the shareholder elects to receive dividends and distributions in
cash. A shareholder whose shares are held by a broker or nominee that does not
provide a dividend reinvestment program may be required to have his shares
registered in his own name to participate in the Plan. Investors who own shares
of the Fund's Common Stock registered in street name should contact the broker
or nominee for details concerning participation in the Plan.
The Plan Agent serves as agent for the shareholders in administering
the Plan. If the Directors of the Fund declare an income dividend or a capital
gains distribution payable either in the Fund's Common Stock or in cash, as
shareholders may have elected, nonparticipants in the Plan will receive cash and
participants in the Plan will receive Common Stock to be issued by the Fund. If
the market price per share on the valuation date equals or exceeds net asset
value per share on that date, the Fund will issue new shares to participants
valued at net asset value or, if the net asset value is less than 95% of the
market price on the valuation date, then valued at 95% of the market price. If
net asset value per share on the valuation date exceeds the market price per
share on that date, participants in the Plan will receive shares of stock from
the Fund valued at market price. The valuation date is the dividend or
distribution payment date or, if that date is not a New York Stock Exchange
trading day, the next preceding trading day. To the extent the Fund issues
shares of Common Stock to participants in the Plan at a discount to net asset
value, the remaining shareholders' interests in the Fund's net assets will be
diluted proportionately. If the Fund should declare an income dividend or
capital gains distribution payable only in cash, the Plan Agent will, as agent
for the participants, buy Fund shares in the open market, on the New York Stock
Exchange or elsewhere, for participants' accounts on, or shortly after, the
payment date.
Participants in the Plan have the option of making additional cash
payments to the Plan Agent, semi-annually, in any amount from $100 to $3,000,
for investment in the Fund's Common Stock. The Plan Agent will use all funds
received from participants to purchase Fund shares in the open market on or
about February 15 and August 15 of each year. Any voluntary cash payments
received more than 30 days prior to these dates will be returned by the Plan
Agent; interest will not be paid on any uninvested cash payments. To avoid
unnecessary cash accumulations, and also to allow ample time for receipt and
processing by the Plan Agent, it is suggested that participants send in
voluntary cash payments to be received by the Plan Agent approximately 10 days
before February 15 or August 15, as the case may be. A participant may withdraw
a voluntary cash payment by written notice, if the notice is received by the
Plan Agent not less than 48 hours before the payment is to be invested, a
participant's tax basis in his shares acquired through this optional investment
right will equal his cash payments to the Plan, including any cash payments used
to pay brokerage commissions allocable to his acquired shares.
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The Plan Agent maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in the accounts, including
information needed by shareholders for personal and tax records. Shares in the
account of each Plan participant will be held by the Plan Agent in the name of
the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
In the case of a shareholder, such as a bank, broker or nominee, that
holds shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time to
time 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 payable in either stock or cash. The Plan Agent's fees for
the handling of reinvestment of such dividends and capital gains 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 stock or in cash. However, each participant will
be charged by the Plan Agent a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection with
voluntary cash payments made by the participant or the reinvestment of dividends
or capital gains distributions payable only in cash. Brokerage charges for
purchasing small amounts of stock for individual accounts through the Plan are
expected to be less than the usual brokerage charges for such transactions
because the Plan Agent will be purchasing stock for all participants in blocks
and prorating the lower commission thus obtainable. Brokerage commissions will
vary based on, among other things, the broker selected to effect a particular
purchase and the number of participants on whose behalf such purchase is being
made. The Fund cannot predict, therefore, whether the cost to a participant who
makes a voluntary cash payment will be less than if a participant were to make
an open market purchase of the Fund's Common Stock on his own behalf.
The receipt of dividends and distributions in stock under the Plan will
not relieve participants of any income tax or withholding tax that may be
payable on such dividends or distributions.
Experience under the Plan may indicate that changes in the Plan are
desirable. Accordingly, the Fund and the Plan Agent reserve the right to
terminate the Plan as applied to any voluntary cash payments made and any
dividends or distributions paid subsequent to notice of the termination sent to
the members of the Plan at least 30 days before the semi-annual contribution
date, in the case of voluntary cash payments, or the record date for dividends
or distributions. The Plan also may be amended by the Fund or the Plan Agent,
but (except when necessary or appropriate to comply with applicable law, rules
or policies of a regulatory authority) only by at least 30 days' written notice
to members of the Plan. All correspondence concerning the Plan should be
directed to Investors Bank & Trust Company, 200 Clarendon Street, Mailcode OPS
22, Boston, MA 02116.
The Dividend Reinvestment Privilege
Like the Plan, the Dividend Reinvestment Privilege (the "Reinvestment
Privilege") seeks to reward the long-term Shareholders by giving Shareholders
the right to purchase additional shares at a price that may be below net asset
value without incurring any commission charge. The Plan, however, may not always
be a practical way for many Fund Shareholders who desire to reinvest the Fund's
dividends and capital gains distributions to do so, especially Shareholders who
own their Shares through a broker who does not offer a dividend reinvestment
plan. For these Shareholders, the Fund has designed the Dividend Reinvestment
Privilege. Pursuant to the Reinvestment Privilege, if the Directors of the Fund
declare a dividend or capital gains distribution payable either in the Fund's
Common Stock or in cash, Shareholders will be given the option each year to
receive cash or common stock issued by the Fund. The Fund will send Shareholders
a notice indicating a distribution payable in cash or in Common Stock and
Shareholders who desire the distribution in the form of Common
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Stock need do nothing further. Shareholders who desire the distribution in cash
need only notify the Fund in the form specified in the notice. Like the Plan,
the Reinvestment Privilege provides that if the market price per share on the
valuation date equals or exceeds net asset value per share on that date, the
Fund will issue new shares to participants valued at net asset value or, if the
net asset value is less than 95% of the market price on the valuation date,
then valued at 95% of the market price. If net asset value per share on the
valuation date exceeds the market price per share on that date, participants in
the Reinvestment Privilege will receive shares of stock from the Fund valued at
market price. The valuation date is the dividend or distribution payment date
or, if that date is not a New York Stock Exchange trading day, the next
preceding trading day. To the extent the Fund issues shares of Common Stock to
Shareholders at a discount to net asset value, the remaining Shareholders'
interests in the Fund's net assets will be diluted proportionately. If the Fund
should declare a dividend or capital gains distribution payable only in cash,
Shareholders not in the Plan will receive cash and Shareholders in the Plan
will receive distributions as provided for in the Plan.
There will be no charge to Shareholders for reinvesting such dividends
or capital gains distributions payable in either stock or cash. The fees for the
handling of reinvestment of such capital gains 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 capital gains distributions payable either in stock
or in cash. The Shareholders approved the Reinvestment Privilege at the 1998
Annual Meeting.
The receipt of distributions in stock will not relieve Shareholders of
any income tax or withholding tax that may be payable on such distributions.
Experience under the Shareholders' Reinvestment Privilege may indicate
that changes in the plan are desirable. Accordingly, the Fund reserves the right
to terminate the Shareholders' Reinvestment Privilege as applied to any
distributions paid subsequent to notice of the termination sent to Shareholders
at least 30 days before the record date for distributions. The Shareholders'
Reinvestment Privilege also may be amended by the Fund, but (except when
necessary or appropriate to comply with applicable law, rules or policies of a
regulatory authority) only by at least 30 days' written notice to Shareholders.
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable as ordinary income, whether paid in cash or
in shares. Distributions of net long-term capital gains, if any, that the Fund
designates as capital gains dividends are taxable as long-term capital gains,
whether paid in cash or in shares and regardless of how long a Shareholder has
held his Fund shares. Dividends and distributions paid by the Fund will not
qualify for the deduction for dividends received by corporations.
Shareholders receiving dividends or distributions in the form of
additional shares pursuant to the Plan or the Reinvestment Privilege should be
treated for U.S. Federal income tax purposes as receiving a distribution in an
amount equal to the amount of money that the Shareholders receiving cash
dividends or distributions will receive, and should have a cost basis in the
shares received equal to such amount.
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TAXATION
United States Federal Income Taxes
The Fund and Its Investments
The Fund has qualified, and intends to qualify, each year as a
regulated investment company for each taxable year under the Internal Revenue
Code of 1986, as amended, (the "Code"). To so qualify, the Fund must, among
other things: (a) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or other income (including, but not limited to, gains from warrants, options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each quarter of the Fund's taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, securities of other
regulated investment companies, U.S. Government securities and other securities,
with such other securities (including warrants) limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's assets and not greater
than 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities (other than
U.S. Government securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers that the Fund controls
and are determined to be engaged in the same or similar trades or businesses or
related trades or businesses. The Fund expects that all of its foreign currency
gains will be directly related to its principal business of investing in stocks
and securities.
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its net investment income (i.e., income other than its net
realized long- and short-term capital gains) and its net realized long-term and
short-term capital gains, if any, that it distributes to its shareholders,
provided that an amount equal to at least 90% of its investment company taxable
income (i.e., 90% of its taxable income minus the excess, if any, of its net
realized long-term capital gains over its net realized short-term capital losses
(including any capital loss carryovers), plus or minus certain other adjustments
as specified in section 852 of the Code) for the taxable year is distributed,
but will be subject to tax at regular corporate rates on any income or gains
that it does not distribute. Furthermore, the Fund will be subject to a U.S.
corporate income tax with respect to such distributed amounts in any year that
it fails to qualify as a regulated investment company or fails to meet this
distribution requirement. Any dividend declared by the Fund in October, November
or December of any calendar year and payable to shareholders of record on a
specified date in such a month shall be deemed to have been received by each
shareholder on December 31 of such calendar year and to have been paid by the
Fund not later than such December 31 provided that such dividend is actually
paid by the Fund during January of the following calendar year.
The Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income. The Board of
Directors of the Fund will determine annually whether to distribute any such net
realized long-term capital gains in excess of net realized short-term capital
losses (including any capital loss carryovers). The Fund currently expects to
distribute any excess annually to its shareholders. If the Fund retains for
investment an amount equal to its net long-term capital gains in excess of its
net short-term capital losses and capital loss carryovers, it will be subject to
a corporate tax (currently at a rate of [35%)] on the amount retained. In that
event, the Fund expects to designate such retained amounts as undistributed
capital gains in a notice to its shareholders each of whom (a) will be required
to include in income for U.S. Federal income tax purposes, as long-term capital
gains, his proportionate share of the undistributed amount, (b) will be entitled
to credit his proportionate share of the [35%] tax paid by the Fund on the
undistributed amount against his U.S. Federal income tax liabilities, if any,
and to claim refunds to the extent his credits exceed his
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liabilities and (c) will be entitled to increase his tax basis, for U.S.
Federal income tax purposes, in his shares by an amount equal to 65% of the
amount of undistributed capital gains included in his income.
The Code imposes a 4% nondeductible excise tax on the Fund to the
extent the Fund does not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any income
or gain retained by the Fund that is subject to corporate income tax will be
considered to have been distributed by year-end.
Exchange control regulations may restrict repatriations of investment
income and capital or the proceeds of securities sales by foreign investors such
as the Fund and may limit the Fund's ability to make sufficient distributions to
satisfy the 90% and excise tax distribution requirements.
The Fund's transactions in warrants, foreign currencies, forward
contracts, options and futures contracts (including options and futures
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
realized by the Fund (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Fund and defer Fund losses.
These rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the Fund
to mark-to-market certain types of the positions in its portfolio (i.e., treat
them as if they were closed-out), and (b) may cause the Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the 90% and 98% distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions, will make the appropriate tax
elections and will make the appropriate entries in its books and records when it
acquires any warrant, foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
Dividends and Distributions
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable as ordinary income, whether paid in cash or
in shares. Distributions of net long-term capital gains, if any, that the Fund
designates as capital gains dividends are taxable as long-term capital gains,
whether paid in cash or in shares and regardless of how long a shareholder has
held his Fund shares. Dividends and distributions paid by the Fund will not
qualify for the deduction for dividends received by corporations.
Shareholders receiving dividends or distributions in the form of
additional shares pursuant to the Plan should be treated for U.S. Federal income
tax purposes as receiving a distribution in an amount equal to the amount of
money that the shareholders receiving cash dividends or distributions will
receive, and should have a cost basis in the shares received equal to such
amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares purchased
at that time may reflect the amount of the forthcoming distribution, those who
purchase just prior to a distribution will receive a distribution which will
nevertheless be taxable to them.
If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are included in
the Fund's gross income not as of the date received but as of the later of (a)
the date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy
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its income distribution requirements, the Fund may be required to pay dividends
based on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares
Upon the sale or exchange of his shares, a shareholder will realize a
taxable gain or loss depending upon the amount realized and his basis in his
shares. Such gain or loss will be treated as capital gain or loss, if the shares
are capital assets in the shareholder's hands, and will be long-term or
short-term depending upon the shareholder's holding period for the shares. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the Fund under the Plan, within a
period (of 61 days) beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be increased to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of a Fund share held by the shareholder for six months or less will
be treated for U.S. income tax purposes as a long-term capital loss to the
extent of any distributions or deemed distributions of long-term capital gains
received by the shareholder with respect to such share.
Foreign Taxes
Income received by the Fund from sources outside the United States may
be subject to withholding and other taxes imposed by countries other than the
United States. If the Fund qualifies as a regulated investment company, if
certain distribution requirements are satisfied and if more than 50% of the
value of the Fund's assets at the close of any taxable year consists of stocks
or securities of foreign corporations, the Fund may elect, for U.S. Federal
income tax purposes, to treat any foreign income taxes paid by the Fund that can
be treated as income taxes under U.S. income tax principles as paid by its
shareholders. The Fund anticipates that it will be able to make such an election
in some, but not necessarily all, of its taxable years. For any year for which
it makes an election, the amount of foreign income taxes paid by the Fund would
be included in the income of its shareholders and each shareholder would be
entitled to credit his portion of this amount against his U.S. tax liabilities,
if any, or to deduct his portion from his U.S. taxable income, if any. Shortly
after any year for which it makes an election, the Fund will report to its
shareholders, in writing, the amount per share of such foreign income tax that
must be included in each shareholder's gross income and the amount which will be
available for deduction or credit. No deductions for foreign taxes may be
claimed by a noncorporate shareholder who does not itemize deductions. Certain
limitations will be imposed on the extent to which the credit (but not the
deduction) for foreign taxes may be claimed.
Backup Withholding
The Fund may be required to withhold, for U.S. Federal income tax
purposes, 31% of the dividends and distributions payable to shareholders who
fail to provide the Fund with their correct taxpayer identification number or to
make required certifications, or who have been notified by the U.S. Internal
Revenue Service that they are subject to backup withholding. Corporate
shareholders and certain other shareholders are or may be exempt from backup
withholding. Backup withholding is not an additional tax and any amount withheld
may be credited against a shareholder's U.S. Federal income tax liabilities.
Additional tax withholding requirements which apply with respect to foreign
investors are discussed below.
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Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a foreign
investor depends, in part, on whether the shareholder's income from the Fund is
"effectively connected" with a U.S. trade or business carried on by the
shareholder.
If the foreign investor is not a resident alien and the income from the
Fund is not effectively connected with a U.S. trade or business carried on by
the foreign investor, distributions of net investment income and net realized
short-term capital gains will be subject to a 30% (or lower treaty rate) U.S.
withholding tax. Furthermore, foreign investors may be subject to an increased
U.S. tax on their income resulting from the Fund's election (described above) to
pass-through amounts of foreign taxes paid by the Fund, but may not be able to
claim a credit or deduction with respect to the foreign income taxes treated as
having been paid by them. Distributions of net realized long-term capital gains,
amounts retained by the Fund which are designated as undistributed capital
gains, and gains realized upon the sale of shares of the Fund will not be
subject to U.S. tax unless a foreign investor is physically present in the
United States for more than 182 days during the taxable year. However, a
determination by the Fund not to distribute long-term capital gains may reduce a
foreign investor's overall return from an investment in the Fund, since the Fund
will incur a U.S. Federal tax liability with respect to retained long-term
capital gains, thereby reducing the amount of cash held by the Fund that is
available for distribution, and the foreign investor may not be able to claim a
credit or deduction with respect to such taxes.
If a foreign investor is a resident alien or if dividends or
distributions from the Fund are effectively connected with a U.S. trade or
business carried on by the foreign investor, then dividends of net investment
income, distributions of net short-term and long-term capital gains, amounts
retained by the Fund that are designated as undistributed capital gains and any
gains realized upon the sale of shares of the Fund will be subject to U.S.
income tax at the rates applicable to U.S. citizens or domestic corporations.
Furthermore, depending upon a foreign corporation's specific situation, a
receipt of dividends, distributions and deemed distributions from the Fund may
affect the foreign corporation's 30% branch profits tax liability.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
U.S. trade or business carried on by them, (b) whether they may claim the
benefits of an applicable tax treaty and (c) any other tax consequences to them
of an investment in the Fund.
Notices
Shareholders will be notified annually by the Fund as to the U.S.
Federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its shareholders. Furthermore, shareholders
will receive, if appropriate, various written notices after the close of the
Fund's taxable year regarding the U.S. Federal income tax status of certain
dividends, distributions and deemed distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
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THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM
OF AN INVESTMENT IN THE FUND.
PRINCIPAL STOCKHOLDERS
There are no persons known to the Fund to be control persons of the
Fund, as such term is defined in Section 2(a)(9) of the Act. There is no person
known to the Fund to hold beneficially more than 5% of the outstanding shares of
the Fund. The following person is the only person holding of record more than 5%
of the outstanding shares of the Fund as of ____________, 1998:
Amount of Record Percent
Name and Address of Record Owner Ownership of Class
- -------------------------------- ---------------- ----------
[Cede & Co., as nominee for
The Depository Trust Company..... ________ shares ___%
P.O. Box 20
Bowling Green Station
New York, New York 10004]
As of ____________, 1998, the current directors and officers of the
Fund, as a group, beneficially owned less than 1% of the outstanding Shares.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
Investors Bank & Trust Company, located at 200 Clarendon Street,
Boston, Massachusetts 02116, serves as the custodian of the Fund's U.S. and
foreign assets pursuant to a custody agreement. Rules adopted under the 1940 Act
permit the Funds to maintain their securities and cash in the custody of certain
eligible foreign banks and depositories. The Fund's portfolio of non-United
States securities are held by sub-custodians which are approved by the Trustees
or a foreign custody manager appointed by the Trustees in accordance with these
rules. The Board has appointed the Investors Bank & Trust Company as its foreign
custody manager. The determination to place assets with a particular foreign
sub-custodian is made pursuant to these rules which require a consideration of a
number of factors including, but not limited to, the reliability and financial
stability of the sub-custodian; the sub-custodian's practices, procedures, and
internal controls; and the reputation and standing of the sub-custodian in its
national market.
Investors Bank & Trust Company also serves as dividend disbursing
agent, as agent under the Plan and as transfer agent and registrar for shares of
the Fund's Common Stock.
LEGAL OPINIONS
The legality of the Shares offered hereby will be passed on by Paul,
Weiss, Rifkind, Wharton & Garrison, New York, New York, which serves as counsel
to the Fund and the Investment Adviser. Certain matters of Maryland law with
respect to the Shares offered hereby will be passed on by Piper & Marbury, LLP,
Baltimore, Maryland.
54
<PAGE>
REPORTS TO STOCKHOLDERS
The Fund sends unaudited semi-annual and audited annual reports to its
stockholders, including a list of investments held.
EXPERTS
The statement of assets and liabilities of the Fund, including the
portfolio of investments and schedule of forward foreign exchange contracts, as
of March 31, 1998, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the two
year period then ended and the financial highlights for each of the years in the
five year period then ended included in the Annual Report have been audited by
KPMG Peat Marwick LLP, Boston, Massachusetts, independent accountants, as
indicated in their report with respect thereto, and are incorporated by
reference in reliance upon such report and upon the authority of such firm as
experts in accounting and auditing.
FURTHER INFORMATION
Further information concerning these securities and their issuer may be
found in the Registration Statement of which this Prospectus constitutes a part
on file with the Commission.
FINANCIAL STATEMENTS
The Annual Report, dated March 31, 1998, which either accompanies this
Prospectus or has previously been provided to the person to whom this Prospectus
is being sent, is incorporated herein by reference with respect to all
information other than the information set forth in the Letter to Shareholders
included therein. The Fund will furnish, without charge, a copy of the Annual
Report, upon request to the Fund at 330 Madison Avenue, New York, New York
10017, (212) _______.
55
<PAGE>
===============================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection
with the offer contained herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund
or by the Investment Adviser. This Prospectus does not constitute an offer to
sell or solicitation of an offer to buy to anyone in any jurisdiction in which
the person making such 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
Page
Prospectus Summary ..............................3
Fee Table ........................................8
Financial Highlights..............................8
The Offer........................................10
The Fund.........................................20
Use of Proceeds..................................21
Risk Factors and Special Considerations .........21
Description of Common Stock .....................26
Investment Objective and Policies ...............30
Investment Restrictions..........................39
Management of the Fund...........................40
Investment Advisory and Other Services ..........43
Portfolio Transactions and Brokerage............ 45
Determination of Net Asset Value ................46
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase;
and Dividend Reinvestment .....................47
Taxation.........................................50
Principal Stockholders...........................54
Custodian, Transfer Agent, Dividend
Disbursing Agent and Registrar.................54
Legal Opinions ..................................55
Reports to Stockholders..........................55
Experts..........................................55
Further Information .............................55
Financial Statements ............................55
===============================================================================
===============================================================================
_________ Rights
for
__________ Shares
of
Common Stock
The European
Warrant Fund, Inc.
--------------
PROSPECTUS
_______, 1998
--------------
===============================================================================
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
(a) -- Financial Highlights
(b) -- Portfolio of Investments and Schedule of Foreign Exchange Contracts as
of March 31, 1998*
(c) -- Statement of Assets and Liabilities as of March 31, 1998*
(d) -- Statement of Operations for the fiscal year ended March 31, 1998*
(e) -- Statement of Changes in Net Assets for the fiscal years ended March 31,
1998 and 1997*
(f) -- Financial Highlights for the fiscal years ended March 31, 1998, 1997,
1996, 1995, 1994, 1993, 1992 and the period ended March 31, 1991*
(g) -- Notes to Financial Statements*
(h) -- Independent Auditors' Report*
- ------------------------------------------------------------------------
* To be filed by Amendment
2. Exhibits
(a) (1) -- Articles of Incorporation*
(2) -- Articles of Amendment*
(b) (1) -- By-Laws*
(2) -- Amendment to By-Laws*
(c) -- Not applicable
(d) (1) -- Specimen Certificate for Common Stock, par value $.001 per share*
(2) -- Form of Subscription Certificate*
(3) -- Form of Notice of Guaranteed Delivery*
(4) -- DTC Participant Over-Subscription Form*
(5) -- Nominee Holder Over-Subscription Certification*
(e)(1) -- Dividend Reinvestment and Cash Purchase Plan*
(e)(2) -- Dividend Reinvestment Privilege*
(f) -- Not applicable
57
<PAGE>
(g) (1) -- Investment Advisory Agreement *
(h) -- Underwriting Agreement*
(i) -- Not applicable
(j) (1) -- Custodian Agreement*
(k) (1) -- Transfer Agency and Registrar Agreement*
(2) -- Administration Agreement*
(3) -- Subscription Agency Agreement*
(4) -- Financial Advisor Agreement*
(5) -- Agreement with the Information Agent*
(l) (1) -- Opinion and consent of Paul, Weiss, Rifkind, Wharton & Garrison*
(2) -- Opinion and consent of Piper & Marbury LLP*
(m) -- Consent of Messrs. Volger, Huber and Burger*
(n) -- Consent of KPMG Peat Marwick LLP*
(o) -- Not applicable
(p) -- Purchase Agreement*
(q) -- Not applicable
(r) -- Not applicable
(s) -- Power of Attorney
* To be filed by Amendment
Item 25. Marketing Arrangements
Not applicable.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses expected to be
incurred in connection with the Offer:
58
<PAGE>
Registration fees ......................................................... $
New York Stock Exchange listing fee .......................................
Printing (other than stock certificates) ..................................
Fees and expenses of qualification under state securities laws
(excluding fees of counsel) .............................................
Subscription Agent fees and expenses ......................................
Legal fees and expenses ...................................................
Financial Advisor fee .....................................................
Information Agent fee .....................................................
Miscellaneous .............................................................
Total ..................................................................... $
Item 27. Persons Controlled by or Under Common Control With Registrant
None.
Item 28. Number of Holders of Securities
Common Stock, par value $.001 per share: [ ] record holders at
April 30, 1998.
Item 29. Indemnification
Incorporated by reference to Amendment No. 3 to the Registrant's
Registration Statement filed with the Commission on July 16, 1990.
Item 30. Business and Other Connections of Investment Advisers
Registrant is fulfilling the requirement of this Item 30 to provide a
list of the offices and directors of Julius Baer Securities Inc. ("Julius Baer")
together with information as to any other business, professions, vocation or
employment of a substantial nature engaged in by those entities or those of
their respective officers and directors during the past two years, by
incorporating by reference the information contained in the Form ADV of each
investment adviser filed with the Commission pursuant to the Investment Advisers
Act of 1940, as amended, by Julius Baer (SEC File No. 801-13397).
Item 31. Location of Accounts and Records
A. The European Warrant Fund, Inc.
c/o Julius Baer Securities Inc.
330 Madison Avenue
New York, New York 10017
(Registrant's Articles of Incorporation and By-Laws)
B. Julius Baer Securities Inc.
59
<PAGE>
330 Madison Avenue
New York, New York 10017
(with respect to its services as Adviser)
C. Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 021116
(with respect to its services as Administrator; Transfer Agent,
Registrar and Dividend-Paying Agent; Custodian of the Registrant's
U.S. and foreign assets)
Item 32. Management Services
Not applicable.
Item 33. Undertakings
1. Registrant undertakes to suspend offering of the shares covered
hereby until it amends it prospectus contained herein if subsequent to the
effective date of this Registration Statement, its net asset value per share
declines more than 10 percent from its net asset value per share as of the
effective date of this Registration Statement.
2. Not applicable.
3. Not applicable.
4. Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(1) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or 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
(3) 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.
(b) 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 the
initial bona fide offering thereof.
60
<PAGE>
(c) 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.
v. Registrant hereby undertakes that:
(a) 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 a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(b) For purposes 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.
vi. Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant, THE EUROPEAN WARRANT FUND, INC.,
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on the 20th day of April, 1998.
THE EUROPEAN WARRANT FUND, INC.
By:
--------------------------------------
Bernard Spilko
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Bernard Spilko Chairman of the Board April 20, 1998
- --------------------------------
Bernard Spilko
* Director April 20, 1998
- --------------------------------
Martin Vogel
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director April 20, 1998
- --------------------------------
Antoine Bernheim
* Director April 20, 1998
- --------------------------------
Thomas J. Gibbons
* Director April 20, 1998
- --------------------------------
Harvey B. Kaplan
* President April 20, 1998
- --------------------------------
Robert Discolo
</TABLE>
*By: /s/ Bernard Spilko
--------------------------
Bernard Spilko
as attorney-in-fact
62
<PAGE>
INDEX OF EXHIBITS
(s) Power of Attorney
63
<PAGE>
POWER OF ATTORNEY
Know all men by these present that each person whose signature appears
below hereby severally constitutes and appoints Andrew S. Josef, Thomas Majewski
and Michael K. Quain, and each of them singly, his true and lawful
attorneys-in-fact and agents, with full power of substitution, for the
undersigned and in the undersigned's name, place and stead, in any and all
capacities, to sign on behalf of the registrant, and to sign and affix each such
undersigned's name to the registration statement on Form N-2 of The European
Warrant Fund, Inc. (Registration No. 33-66750), and any and all amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing necessary or incidental to the
performance and execution of the powers herein granted, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them or their
substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Antoine Bernheim Director April 16, 1998
- ----------------------
Antoine Bernheim
/s/ Thomas Gibbons Director April 16, 1998
- ----------------------
Thomas Gibbons
/s/ Harvey B. Kaplan Director April 16, 1998
- ----------------------
Harvey B. Kaplan
/s/ Bernard Spilko Director April 16, 1998
- ----------------------
Bernard Spilko
/s/ Martin Vogel Director April 16, 1998
- ----------------------
Martin Vogel
64
